Restaurant Brands Improvement In First Half Profit

Restaurant Brands Delivers Significant Improvement In First Half Profit

Restaurant Brands today announced a substantial improvement in profitability for the first half of 2004, largely resulting from the continuing growth and greater profitability across the Pizza Hut and Starbucks Coffee brands.

Net profit after tax for the first half of the year increased 27.5% to $5.4 million, on slightly higher sales of $167.8 million.

Chief Executive, Vicki Salmon, said the company still had a lot of work ahead as it continues to stabilize and improve sales at its largest concept, KFC.

“Our first half performance reflects many of the initiatives we have put in place over the past year to improve our cost structure, focus on our stores and people and increase sales performance across all four concepts,” she said.

“We have had some successes, most notably the continued growth of Pizza Hut New Zealand, the improvement at Starbucks Coffee, in both sales and profit and in Pizza Hut Victoria, which delivered its first positive EBITDA during the period. Yet there is still significant work ahead as we seek to continue these gains and improve sales at our largest brand, KFC.”

Concept EBITDA for the first half of the year was $23.5m, $1.6m higher than the prior year. Overhead costs were significantly reduced, at $6.7m a $700,000 improvement on the prior year.

Total store numbers have increased from 266 at year end to 269 at balance date. Four new Pizza Hut New Zealand stores opened during the period and one new Starbucks Coffee store. One store closed in each of KFC and Pizza Hut Victoria.

…/2 - 2 - The Board has appointed two new non-executive independent directors, Mr. David Pilkington and Mr. Ted van Arkel. Both have strong backgrounds in retailing and food sector management.

KFC KFC EBITDA was $13.9 million compared with $14 3 million in the same period last year. Total sales for the first half were $92.3 million, a decline of 2.2%. EBITDA as a percentage of sales was consistent with the prior year at 15.1%.

“During the first half, we continued our store by store focus on the KFC business and we have seen incremental improvements in the operational performance of the brand.

“We believe this business has now stabilized and we expect to see consistency in profit margins now that the new chicken contract has taken full effect.”

The company closed one KFC store at lease end, ending the first half with 87 outlets.

Pizza Hut New Zealand Pizza Hut New Zealand continued its strong sales and profit performance from the period. Sales increased 3.2% to $46.4m, and EBITDA increased 14.5% to $7.6m compared with the same period last year. Margins improved to 16.4% from 14.8% as a result of improved sales leverage, purchasing and the effective management of labour costs.

“We are extremely pleased with the continuing performance of the Pizza Hut brand in New Zealand especially given the increased competitive environment. As expected, growth in same store sales has slowed as we continue to expand our store base and come up against substantial comparative sales growth during the prior year,” said Salmon.

During the first half of 2004, Pizza Hut New Zealand opened four new delcos: Melville (Hamilton), Taradale (Napier), Northwood (Christchurch) and Richmond (Nelson), bringing the total number of stores to 95 at the half-year balance date. Since then one new store has opened in Hawera and a further four new stores are due to open before year-end, which will take the total number of stores to 100. …/3 - 3 - Starbucks Coffee Starbucks Coffee served up a significant improvement in sales and profitability during the first half. Total sales grew 5.6% to $12.8m and EBITDA increased 33.4% to $1.8 million. As a percentage of sales, EBITDA increased to 13.9% compared with 11% in the prior year.

“We continue to believe that Starbucks can deliver an even better sales and profit performance as we focus our efforts on improving the performance of all 36 stores.”

One new Starbucks store opened during the period in Colombo Street, Christchurch and a further two stores are due to open before year-end.

Pizza Hut Victoria For the first time, Pizza Hut Victoria delivered a positive EBITDA as a direct result of the intense focus on individual store performance. Total sales increased 3.9% to $16.3m and EBITDA was $0.2 million, compared with a loss of $0.3 million in the prior year period. Margin performance at store level improved to 1.2% from –1.9% in the prior half year.

“While later than originally anticipated, we continue to believe that Pizza Hut Victoria will benefit shareholders in the long term. Our focus on staff training has resulted in a more stable store management team and enhanced levels of service.”

The company closed one store during the period, ending the first half with 51 stores in Victoria.

Dividend A fully imputed interim dividend of 4.5 cents per share, will be paid on 19 November 2004 to all shareholders on the register at 5.00 pm on 5 November 2004. This reflects the Board’s confidence in the strength of the business and underlying cashflows.

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