If you go to the intangible asset page in the annual report (AR2013 p47), management outline conditions that allow the goodwill in the books to be retained at today's values. These assumptions include predicted future cashflows and EBITDA margins.
In the annual report 2012, RBD were looking for a 2% sales growth per annum over 2013-2015
Actual sales for PH FY2012 were $45.477m, and actual sales FY2013 were $47.876m which represents a sales growth of 5.3% (very good).
EBITDA margin was forecast to be 7.0-10.0%.
Actual EBITDA margin for FY2013 was:
$3.296m / $47.876m = 6.9% (Not so good)
Clearly sales were above expectations and margins a touch lower. I guess that is why there was no general write off of goodwill for FY2013 required, at least in management's eyes.
Looking forward however is where things get interesting. PH Cashflows are forecast to rise another 4-6% per year on top of the turnaround year we have just had. And EBITDA margins are forecast to increase to 8.1-8.6% as a proportion of sales.
Now I would be the first to congratulate Pizza Hut on their turnaround performance over FY2013. But to mirror that 5% sales performance again over the next two years, while this time increasing margins from 6.9% to 8% plus is I think a stretch target. This provides more evidence to me that the Pizza Hut goodwill on the RBD books is still overvalued.
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