RBD - Restaurant Brands

[Snoopy]

Does RBD not manage these units under one company/structure?

Yes

How do you attribute items below EBITDA to business units?

I use the information under note 3 in the accounts 'Segmental Reporting'. That gives you the segment results (concept EBIT). I then turn to the statement of comprehensive income (page 26 AR2011). That gives me:

1/ The General and Administration Expenses (the head office costs not included in each 'concept' EBIT) -and-
2/ The Net Financing Expenses.

I apportion those costs across the three divisions in proportion to divisional revenue. That I think is reasonable for the Net Finance Expenses. However I tweak my formula a bit for General and Administration because I think that KFC and PH probably are taking a bit more office time per dollar generated than Starbucks. In fact my apportionment of General and Admin Expenses is based on the number of outlets. At this point I have divisional earnings before tax.

I then take off tax at a rate of 30% for each business unit as though they were a separate company (if the business unit make a loss they pay no income tax) and I have an after tax result for all three arms of the business.

SNOOPY

[winner69]

Interesting they did a presentation in New York

[Snoopy]

Interesting they did a presentation in New York

Those of us with long memories will remember the Douglas's from the USA who at one stage owned 5% of the company. Perhaps RBD management want them back on the share register?

There was certainly some interesting information, not released to the market before, that came out of the presentation.

Assets: KFC $NZ72m, Pizza Hut $NZ27m, Starbucks $NZ7m

Market potential for KFC now seen as 140 stores (!). Existing store transformation rate planned to be 5-8 per year. Brand new sites 1-2 per year. Looking to sell smaller stores to independent franchisees. Looking at going into shopping malls. (only example I know of is the Riccarton Mall in Christchurch, are there others?)

9.9 sales of Double Down 'burger' for every 100 people in NZ achieved within two weeks of the product going on sale. Compares well with 3.2 sales for every 100 people when the same product was rolled out in the USA in a five week promotion.

PH NZ target structure: 40 RBD owned, 45 operated by Independent Franchisors
Current Structure: 82 RBD owned, 5 Independent Franchisors
Plans for PH facilities upgrades and some centralized ingredients processing

Starbucks: Planning 3-4 store upgrades per year ($50k-$150k each). Planning to build 2-3 new stores per year whiel closing poorly performing stores at lease end.

SNOOPY

[darksentinel]

http://www.stuff.co.nz/business/indu...e-for-Auckland

I think quite a few people have been anticipating something along these lines.

Personally, I really like Mexican food, but from all accounts Taco Bell isn't very good.

[Snoopy]

The chairman's and CEO's addresses are on the net for all to read. So this is a report on the vibe I got from attending the meeting, rather than a lot of new facts.

I feel things are moving a lot faster with Taco Bell than the printed speeches would let you know. A fourth restaurant arm has been on the horizon for years and Taco Bell was always been a possible option. But it was somewhat of a shock to learn that Chairman Ted van Arkel and CEO Russel Creedy had been over to the USA and Canada checking and costing out Taco Bell businesses on the ground, even though no ultimate decision on adopting the concept in NZ has been made. And it was even more of a shock to hear Ted van Arkel on National radio this morning saying he would like to have an evaluation Taco Bell site up and running in Auckland by the end of the year.

At the end of the official speeches, there were three ‘mailed in’ questions answered by Chairman Ted. The first related to the performance (or is that non-performance) of Pizza Hut. A shareholder asked: How did the recent performance of PH compared to Dominos in the NZ market over the same period? Chairman Ted said that results for Dominos were not publicly disclosed to a level that would allow direct comparison with PH. I am sure that is true. Nevertheless I think something useful from those DMP results posted in Australia could be estimated.

The second question related to KFC in Australia and whether RBD would be interested in going back to Oz, but this time with their most successful brand. Chairman Ted said that while their most recent foray into Australia with PH in Victoria was not successful, they do recognize that KFC is a different deal. There are no firm plans but ‘never say never’.

The third question related to Yum’s Chinese Market brand, ‘East Dawning’, created because Chinese people have a liking for Chinese food (!). Could that have a future in NZ? Chairman Ted said that management had examined a Chinese food concept, more along the lines of Dumplings. However the conclusion was that the economics of this kind of business are more suited to the lower overheads of Mom and Pop owners. And just because a concept works in China does not mean that it will translate well to New Zealand. I interpreted that as a ‘no’.

During Oral question time, an initially skeptical David Pilkington reported going for breakfast at KFC in the U.K. Despite his skepticism, he reported a good experience with a special egg rich ‘breakfast menu’. So the KFC breakfast idea will get a trial in New Zealand. If nothing else that will settle once and for all the “Which came first, the chicken or the egg” question.

From CEO Creedy we learned the head of Starbucks has gone. There was an impression of urgency given about bringing back a greater presence for Starbucks in Christchurch, following the loss of three stores cordoned within the central city earthquake ‘red zone’. At the time I had visions of a hastily erected tent in the middle of Hagley Park filled with green aproned staff and no customers. Thinking later, I believe the push to re-expand is more based on a need to build the economy of scale with suppliers that allows an acceptable cost structure. At the moment there would be several Mom and Pop owned cafes that would be doing a bigger trade than Starbucks remaining Riccarton Mall outlet (which nevertheless to me seems busier than it has ever been).

Starbucks NZ may be rudderless, but even the new man heading Pizza Hut New Zealand, Arif Khan has only been on the job for three weeks. He has Pizza Hut corporate experience in the Middle East and Morocco. I had a brief chat with him after the meeting and he came across as an energetic type who is eager to make a difference. Let’s hope Creedy can make use of him, even as he slashes the PH role in half by offloading up to half of the PH store network to private buyers over the next few years.

‘After meeting nibbles’ consisted of hunks of regular KFC, and Pizza Mia slices, served in the Peppers Restaurant at the Clearwater Resort. The food-serving partners were well trained, but I thought he food quality only adequate. Although could that be because never has such low brow food been served in such a high-class establishment?

SNOOPY

[Blendy]

hahaha, i was wondering what sort of food would be served - thanks for the lovely commentary!

Very interesting to hear your comments from the meeting - sounds like there are some focused plans for the nearish future.

[winner69]

Quote Snoopy: The second question related to KFC in Australia and whether RBD would be interested in going back to Oz, but this time with their most successful brand. Chairman Ted said that while their most recent foray into Australia with PH in Victoria was not successful, they do recognize that KFC is a different deal. There are no firm plans but ‘never say never’.

Was this raised cause KFC in OZ is on the block it seems

http://www.smh.com.au/business/kfc-s...624-1gj79.html

[Anna Naum]

From todays SMH

Institutions may find Collins Foods offer appetising
Edited by Sarah Thompson and Khia Mercer
Institutional shareholders are taking a peek at the recipe behind Collins Foods Group, owner of about 120
KFC Queensland outlets and 25 Sizzler restaurants nationwide.
We’re not talking about Colonel Sanders’ 11 secret herbs and spices. Investors have been sifting through the
pre-marketing research for the mooted $400 million float since last week and feedback has been fairly
encouraging.
Collins Foods is pitched as a stable business, offering big upside from capital expenditure.
It’s generating fiscal 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) of $56 million
and has been growing in a steady, if unspectacular, fashion for the past three years. But it’s expected to post
$59 million of EBITDA in 2012 as the company works through a major renovation and refurbishment of the
KFC and Sizzler outlets.
New franchise agreements require a large number of stores to be brought up to minimum Yum! Brands
(KFC’s global owner) standards.
As a result, the raising will be two-fold with the first part firmly ear-marked for capital expenditure.
Deutsche Bank analysts reckon New Zealand-listed Restaurant Brands, a franchisee of 89 KFC stores, is the
ideal refurbishment case study. It began its KFC refurbishment program in 2005 and has so far revamped 49
outlets.
On Deutsche’s research numbers, the average refurb done by Collins of a KFC has cost around $900,000
and earned a nearly 25 per cent return on the money spent, whereas at Sizzler, that’s been closer to 18 per
cent.
The broker’s estimated enterprise valuation range for Collins Foods is between $395 million and $430 million,
based on 2011 pro-forma net debt of $100 million.
Deutsche Bank and fellow joint lead manager UBS expect the listing to take place in August. PEP and other
private equity owners are selling all of their stake (around 50 per cent), whereas long-serving chief executive
Kevin Perkins, is keeping the majority of his.
One fund manager thought the IPO would price at about the 9.5 to 10 times price-earnings mark.

[Snoopy]

Collins Foods is pitched as a stable business, offering big upside from capital expenditure.
It’s generating fiscal 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) of $56 million
and has been growing in a steady, if unspectacular, fashion for the past three years. But it’s expected to post
$59 million of EBITDA in 2012 as the company works through a major renovation and refurbishment of the
KFC and Sizzler outlets. New franchise agreements require a large number of stores to be brought up to minimum Yum! Brands
(KFC’s global owner) standards.

On the assumption it always pays to check out the alternatives, I have cast my eye over the Collins Food Group (ticker CKF) prospectus. CKF is 'mainly' a KFC in Queensland play. The Sizzlers fried food and salad bar sit down restaurants (also mainly Queensland based) make up the balance.

I haven't applied for any shares in this float. That's mainly because on income sustainability metrics (dividend yield, growth prospects and forecast debt position) based on the indicative float price, it is inferior to RBD. I also remember the troubled time the original RBD shareholders had for the first two years after listing. And the risk of buying off a private equity player, possibly dressing up mutton for sale as lamb!

In this situation I always ask the question, why are those private equity players selling out? Reading between the lines, it looks like the sale is being driven by master franchise holder for KFC, YUM. CKF Sales growth has stalled, debt is high and private equity cannot generate the cash to step up the restaurant refurbishment program that YUM wants. Given this background, I believe this is a business worthy of serious investor consideration. However, buy in price will be critical, especially given the uncertainty of the business implementation plan.

I am watching, but am in no hurry to sell any RBD shares to free up the cash to invest.

SNOOPY

[percy]

[QUOTE=Snoopy;353142]. And the risk of buying off a private equity player, possibly dressing up mutton for sale as lamb!

Surely you mean dressing up fowl as chicken. lol.