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Originally posted by Snoopy
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quote:Originally posted by winner69
SNOOPY - there has to be something fundamentally wrong with the RBD business model
Cumulative cash flows since 2000 pretty sad story
Operating cash flow (money from day to day operations) have been $167M
Spent $141M on franchise fees, capital assets and acquisitions (I have excluded the sale of buildings as this was really a financing issue)
So over 7 financial years they have only generated $26M of free cash..... pathetic
Again I am not sure where you are quoting your figures from Winner, but let's assume you are correct. I don't agree that you can disregard the sale of properties which brought some $54m onto the RBD company balance sheet. It was that capital injection that shored up the balance sheet to enable the expansion into Australia to proceed.
To disregard it is akin to saying:
"That joker across the street couldn't have afforded his new beach house if he hadn't won Lotto."
You can draw up all sorts of arguments saying that interest rate rises since purchase would have put him into a negatively geared situation, his wife and family would have left him cracking under the financial and social pressure of never seeing hubby at home as he worked three jobs to clear his debts....blah.. blah..blah.
The whole argument is bunkum because the guy did win Lotto. And if he hadn't won Lotto then he wouldn't have bought the house in the first place!
The above situation is exactly analagous with RBD and their Australian business purchase. The fact that RBD lost millions in Australia and the fact that our Lotto winner over the road had his beach house wiped out by a tsunami have nothing to do with the affordability, in cashflow terms, of the original purchase.
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With future capex at pretty high levels hard to see this sort of performance changing much over the next few years
High capital requirements with low margins not a good mix
I agree that if management makes another blunder, like the Australian expansion, things will not look good for RBD. But what you are assuming here is that management have learned nothing from their failed Ozzie experience and they will to continue to expand recklessly even though they no longer have the house to mortgage.
This time the expansion (KFC transformation) capex is producing the increased sales expecte. That was never the case in the PH Australia expansion.
Also the margins for KFC are not that low in retail terms, better than the Warehouse Red Sheds in fact.
SNOOPY