For those who are really looking to get ahead,you could invest in RBD for divies and the healthcare sector for real profits LOL
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For those who are really looking to get ahead,you could invest in RBD for divies and the healthcare sector for real profits LOL
You could have added a smilie to your post Skid.
Nevertheless for those who took your post literally, the NZX50 accumulation index has gone from about 2000 to 3500 over the last ten years, a gain of 75%. The RBD price has effectively gone nowhere over that same time period. However 88cps of dividends have been paid over that time. That is a gain of 44%. Put in a time value for money adjustment on all of those dividends and RBD will still have underperformed the index, but I would pick not by much. By the time you pay a 1% managment fee per annum on your index fund I would say there is virtually nothing in it.
So just buying and holding RBD for ten years, at not particularly favourable pricing, wouldn't be too far off buying an index fund.
Contrary to what you might think you can make real money from just buying and holding RBD long term. Of course for those of us with an average share purchase price far below $2, we have done an awful lot better than those index returns.
SNOOPY
I see KFC guilty in Australia salmonella brain damage case.Must admit I have not gone near KFC for 15 years after I was ill with a stomach bug after a KFC meal.Must admit I have not gone near a Gin bottle for over 30 years .That was too much though. !!!!!
Had KFC the other night,first time in about a year,just to remind myself how disgusting it is.
Chicken pieces are way smaller than they used to be.Very quick service though at the drive thru.
Had pizza from pizza hut about 2 weeks ago for the same reasons as the KFC haha,called in and ordered,took forever,who said it's fast food.
For chain takeaways,you can't beat Subway,and for a real treat Burgerfuel,you don't feel like you've been fat raped just afterwords haha.
Kizame - just look at the general population - they dont mind getting fat raped as you put it.
Disc: hold
Offtopic: looking at Burgerfuels website, it looks like they are expanding in NZ again (disc: hold indirectly)
Yes, I noticed their ad on the franchise.co.nz website yesterday - you can set up a Burgerfuel presumably anywhere in the country for $250-$350k. Although I'm not sure if that includes shop outfitting and cost of renting a retail space, legal fees etc. http://www.franchise.co.nz/franchise.../23-burgerfuel
The $350k figure would include everything you pay upfront including, initial franchise fee, fitout and even the initial training I think. The ongoing franchise fees, advertising fees, lease costs, stock, etc are normal monthly expenditure and are expected to be covered by sales (some stores obviously do better than others) so you would need to budget a bit extra for working capital as well.
After taking time to read the FY2012 Annual Report, I think Star man has nailed the most important point.
Pizza Hut has always carried a lot of goodwill in the RBD books. This is a legacy of RBD buying out Eagle Boys all those years ago. Initially the buy out seemed to be working. But once the Dominos machine got going, Pizza Hut was exposed as a second rate Pizza chain that had failed to make the 21st century transition. The only way PH seem to be able to increase sales in NZ is through discounting. And if your current profit margin is zero, that can't be sustainable in the medium term.
I never could figure out why year after year the PH goodwill was valued in RBD accounts using forecast sales and profit margins. Year after year PH failed to achieve their sales targets and profit margins. Yet year after year that goodwill was largely untouched for value in the RBD annual accounts. (I say largely untouched because the more recent sell down of certain Pizza Hut store to private owners has forced RBD to crystallize the latent losses relating to the 'fictional goodwill' on those particular stores).
On p47 of the FY2012 Annual Report my question was finally answered:
"As a result of the review based on key assumptions (sales growth of 2% from 2013 to 2015, margin improvements and terminal growth of 2.5%) the calculation shows the recoverable amount approximates the current carrying amount (2011: headroom of $5.8m)."
This is the first time the word 'headroom' has been used in this context.
What this means is that in previous years RBD have modeled some fictional growth scenario which gives an answer for 'virtual goodwill' above the book figure. For the first time RBD have had to admit the fictional story telling scenarios are over. The stunning consequence is revealed in the small print on page 48. RBD are looking at a potential $8.4m write down if Pizza Hut sales do not recover from current levels! Of course this will be a non cash write down which may ease the pain. Long term shareholders will remember this was cash once though!
I haven't believed this Pizza Hut goodwill could be justified for many years. In my own modeling on the company I have continued to write off this goodwill at the rate that pre IFRS accounting rules demanded, an amount over $2m per year. That means I see Pizza Hut lost $7m in FY2012 (after allocating head office overheads, and net funding interest) whereas for others it 'only' lost $5m. I would argue that taking into account the p48 revelations, my treatment of the results looks more accurate. But neither figure is pretty and despite the sell down, the Pizza Hut divisions decline is accelerating.
Incredibly management don't seem to have a solution apart from sticking their head in the sand and putting their time resources into Carl Jr!
SNOOPY
Good post snoopy.
i wonder if we will see a similar scenario play out with the book value of metlifecare's retirement villages portfolio.
regards
sauce
One thing regarding General and Administrative expenses did confuse me. On p26 G&A Expenses were $11.333m. Yet if you turn to the segmental reporting on p41 the consolidated G&A expenses are listed at $10.002m.
I solved this discrepancy as follows (all figures taken from p41):
$11.333m ( G&A expenses in Statement of Comprehensive Income)
less $0.522m ('All Other' segment depreciation)
less $0.013m (loss on sale of 'All Other' PP&E)
less $0.082m (amortization all other segments)
less $0.714m (independent franchisee income, as described in Note 6)
=$10,002m
I took particular notice of this, because I think it hints at a possible growing future income stream for RBD. As all those PH stores are sold off, RBD should expect a contribution from the new owners towards a national advertising budget for Pizza Hut. $714,000 doesn't sound that significant but as those PH stores are sold it should grow. But something is wrong.
That $714,000 seems to be increasing G&A expenses. That means RBD are paying those new franchisees money not receiving it! Can this be correct? If not can someone please point out my blue!
SNOOPY
Classic, little did I know it was already the case
"Separate to the Vision and PSL deal, Metlifecare told investors that a preliminary valuation of its properties by CBRE showed that its net asset value was likely to fall by as much as 20 per cent from $578m as of December 31 to $462.4m."
I think this kind of fair value accounting has little going for it and can cause a lot of misconception and possibly worse
Regards
sauce
Hi Snoopy
Good post. Also you reminded me to check to see if they had fixed the error. Nope, the CEO statement states:
"Group non-trading charges of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.5 million), Pizza Hut and Starbucks Coffee store closure costs (mainly fixed asset write offs) of $0.6 million and KFC transformation write offs of $0.2 million."
Based on RBD's account it should have read:
"Group non-trading charges from continuing operations of $2.3 million ($2.0 million in 2011) included a pro-rata write off of goodwill following Pizza Hut store disposals ($1.3 million), Pizza Hut and Starbucks Coffee store closure costs (mainly fixed asset write offs) of $0.6 million and other non-trading charges of $0.4 million."
The KFC transformation write-off is unlikely to be $0.2 million... total KFC non-trading items were $0.1 million. Yes the differences are small, but it's the CEO statement, it should be correct.
As for your reconciliation between G&A in the accounts and G&A in the notes. The fact you're able to reconcile those two figures using the values you used is likely a coincidence. The reason: you can't perform the same reconciliation for FY11.
The actual reason for the variance between the two G&A figures is likely items such as depreciation. Some depreciation will be included in the accounts G&A, while it is shown separately in the notes.
DISC: STILL HOLD
Star Man, I do not want to suggest that there is anything incorrect in what you have written. But I am of the opinion that some of this 'operational data' resides in grey area of interpretation, where more than one perspective of the figures could be valid.
'Other non trading expenses' to me conjures up visions of a financial laundry bucket. The analogy here is that if your clothes get a little messy then stick them in the bottom of the bucket. It isn't transparent so hopefully no one will notice!
I have inquired with RBD management about these non trading items previously , and here is the explanation that was given to me.
There is sometimes a mismatch between the timing of property lease agreements and business concept lease agreements. If for example the landlord wishes to demolish your Starbucks coffee store, and you find a new location for that store just down the road, then you will need to terminate your old agreement with Starbucks (with whatever penalty charges that entails) and enter into a new agreement with your coffee concept masters. The new store may be a different shape and size and will obviously need to be redecorated to reflect its new status as a Starbucks store. Some of the furniture from the old store may be reused, but some may have to be written off even though it is not 'worn out'. Most Starbucks stores would probably be freshened up at least every ten years even if they were not moved. But relocation and refurbishment of a store definitely requires some capital fit out expenditure above the norm.
While this 'moving expenditure' has been incurred in the normal course of business, it is not representative in terms of looking at the amount of coffee sold. This is why management see this expenditure as 'non-trading' even though another perhaps equally valid view is that these are normal costs of doing business.
From the point of view of an investor in RBD, I have come down on the the side of 'our Russel' and I think of such expenditure as a one off. If I included such expenses as 'continuing operationsal expenses' that might cloud any ongoing the ongoing performance review of the business. YMMV.
SNOOPY
I have a massive problem with how RBD management presents the RBD accounts. They present "Concept EBITDA" as if it's EBITDA. It completely excludes more than $10 million of G&A costs. When RBD refers to EBITDA it should refer to EBITDA after G&A. They even bring G&A costs below the EBITDA line for items which relate specifically to individual brands (e.g. area managers are not included in EBITDA). It's farcical, and does not help current or potential investors to make informed decisions.
As for your comment that 'Other non trading expenses' conjures up visions of a financial laundry bucket. I don't disagree. In fact I wholeheartedly agree. RBD puts costs in non-trading which don't properly belong in non-trading. However, the point I was trying to make was that I don't think you'll be able to reconcile between G&A in the accounts and G&A in the notes. There are valid reasons for the variance exists, which means it's difficult to spot if there are also dodgy reasons for the variance.
Snoppy - the $714,000 'income'. Just a thought - perhaps it's not included in the $11.333m G&A expenses in Statement of Comprehensive Income (which would make sense), but it is in the $10.002m consolidated G&A expenses, as this figure is a bucket holding all sorts of rubbish, including income, not just expenses.
I well remember during the salmonella era (when previous CEO Vicki salmon was at the helm) a very bullish press release detailing a significantly improved "Concept EBITDA" profit. The union seized on the bullishness and suggested it was an opportunity to boost front line workers wages. It was only then than Salmon sheepishly admitted that once G&A head office costs were added in that with the exception of KFC all the other units were actually loss making!
SNOOPY
This brings to mind an old story a teacher told me in my school days, which goes like this:
----
I was riding along the footpath on my motorcycle when a policeman stopped me.
He said "You can't do that!"
Whereupon I looked him straight in the eyes and said
"Don't be such a pessimist, I've just done it!"
---------
Now I am well aware that people have the ability to see patterns where there are none. But in this case the number bridge:
$11.333m ( G&A expenses in Statement of Comprehensive Income)
less $0.522m ('All Other' segment depreciation)
less $0.013m (loss on sale of 'All Other' PP&E)
less $0.082m (amortization all other segments)
less $0.714m (independent franchisee income, as described in Note 6)
=$10,002m ( consolidated G&A expenses in Segmental Reporting)
does balance. And if I do the same exercise for the previous year and the year before that it balances as well. I am prepared to accept that one set of numbers might balance by chance. But after doing the same exercise twice more with everything bridging as expected, I am forced to conclude that I have actually done what I set out to achieve!
SNOOPY
Kiwi, here is my best attempt to word out an explanation so far.
$11.333m is the G&A expenses in Statement of Comprehensive Income.
It makes sense to separate out the General and Administrative Support centre depreciation ($0.522m) and amortization ($0.082m) and loss on sale of Property Plant and Equipment ($0.013m) because these expenses are not related to three restaurant group concepts in any direct way.
$11.333m= $0.522m + $0.082m + $0.013m + ? => ?= $10.716m
However by focusing on the income from KFC/PH/SB only, that means I am ignoring the extra income that only head office sees. This being the $0.714m which is income from non RBD KFC and PH outlets, largely a contribution towards national advertising. Mathematically a decrease in recognized income is the same as an increase in recognized costs. So if we add the head office income on as an extra cost opposing the PH/KFC/SB income this will give an accurate indication of the profitability of the KFC/PH/SB concepts.
Sounds plausible and it makes the numbers add up. But I am not sure my explanation is satisfactory!
SNOOPY
If I look on page 47 of the annual report we can calculate the pro-rata write off of goodwill as follows:
$15.445m-$13.927m= $1.498m (agrees with CEO statement)
But total Pizza Hut non trading costs are $1.903m (p40)
That implies the mainly fixed asset write offs at PH are $1.903m-$1.498m= $0.405m
Other non trading losses for Starbucks, which hasn't had any goodwill written off, are listed as $0.251m (p40)
So 'Pizza Hut and Starbucks Coffee store closure costs' (mainly fixed asset write offs) can be estimated as:
$0.405m+ $0.251m= $0.656m (agrees with CEO statement)
Page 40 lists other non trading losses at KFC to be $0.097m. It is impossible for any subset of expenses to be greater than this. In this instance Starman's criticism of the CEO statement looks justified.Quote:
The KFC transformation write-off is unlikely to be $0.2 million... total KFC non-trading items were $0.1 million. Yes the differences are small, but it's the CEO statement, it should be correct.
SNOOPY
Forecasts are the only way to do this. As the value in use calculation/DCF needs to consider all future (forecasted) cash flows from this asset and determine whether the value of these exceed its current carrying value (or carrying value of the cash generating unit).
The auditors will review the assumptions of the forecast when they do the annual test for impairment. However as any who has touched a DCF would know, it isn't hard to validate a piece of rubbish using those calculations. Especially when the underlying discount rate is built on some subjective measures (Risk Beta, Market risk premium etc etc). Auditors knowledge of the business is always too weak to challenge these assumptions, hence goodwill/assets stay overvalued for far longer than they should. (Big reason behind the spark of collapses in USA in the GFC around debt measurement).
I haven't read to much about it, but the talk around changing the accounting for leases will impact your RBD types bigtime. I'm assuming the bulk of RBD's leases are operating/on the P&L. If you move these onto the balance sheet these companies are turned upside down. Expect companies with iffy goodwill to hold back write offs until big changes like this, so they can sneak them through in the wash of much larger changes.