quote:Originally posted by Halebop


71.7m debt / 8.5m NPAT would take maybe 7 years to repay assuming no dividend was paid. It doesn't get repaid at all at current dividend levels.
Yes that is right. The debt doesn't need to be repaid as long as RBD can afford the interest bill. Of course I would hope that at some time in the next ten years RBD will hit a 'sweet spot' and be able to repay some debt. That way, they will be able to afford the next round of franchise fees in 2017.

But even then, there are other ways of raising cash. They could sell off Starbucks, for example, back to the US parent. I think Starbucks acquired their franchised Australian operations in such a deal.

quote:
Debt repayment needs to be calculated from available cashflows, or as "long term" holders discover, a nasty outcome can be in the offing. Because the franchise arrangement needs to be refinanced in pertpertuity (or you can't assess the income as perpetual) the future cost of refinancing them needs to be factored. This means lower dividends or yet higher debt levels.
You are right Halebop. See my solutions above.

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Comparing the 8.5 years figure with utility companies is a strange mechanism. Utilities negotiate multi decade supply and offtake agreements on multi hundred million dollar projects with finite capacity - the debt is supportable because everything is defined. RBD operate in the restaurant and take out segment of FMCG. They operate hand to mouth from week to week. A high debt level is not supportable.
KFC have been operating hand to mouth (good double entendre metaphor there) for around 50 years. They have a 'brand'. Granted it isn't a brand for everyone, but it is one of the world's most recognised. The KFC business model is durable and it works. KFC is also in a market area -food- which is essential to life. IMO KFC/PH has many aspects in common with the more traditional utility. And they certainly can support a high level of debt. You should have seen the leverage in YUM brands when it was floated off from Pepsi!

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Strange that now you call their forecast debt high and about a year ago I said debt levels were too high, they had no flexability and you poo-poo'd the concept...
Quite so.

A lot of water flows under the bridge between FY2006 and FY2010 Halebop.

SNOOPY