Finger lickin' good: Record sales for KFC

Restaurant Brands NZ lifted annual profit 7.8 per cent on record sales from KFC.

Restaurant Brands New Zealand, the fast food operator, lifted annual profit 7.8 per cent as its local KFC business generated record sales, bolstered by the recently acquired Australian KFC business, allowing directors to increase dividends to shareholders.

Net profit rose to $26 million, in the 52 weeks ended February 27 from $24m a year earlier, the Auckland-based company said in a statement. Underlying earnings rose 26 per cent to $30.6m, within the company's guidance of between $30m and $32m, and Restaurant Brands anticipates that will rise to around $40m from its recent acquisitions.

Because the company issued shares to acquire the Australian business, earnings per share fell from 24.59 cents to 24.08 cents in the year under review.

Restaurant Brands bought 42 KFC stores in Australia last year, making it the biggest KFC franchisee in New South Wales, and in March was granted approval to acquire the only franchisee for 82 Taco Bell and Pizza Hut stores in Hawaii.

New Zealand operations delivered their "best ever overall sales and profit performance, strong trading from the KFC Australian business under its new Restaurant Brands' ownership and the successful completion of the acquisition of the Taco Bell and Pizza Hut franchisee in Hawaii," chief executive Russell Creedy and chief financial officer Grant Ellis said in their report. "The new financial year has seen a continuation of the strong trading performance across all four New Zealand brands seen over the FY17 year and both new acquisitions in Australia and Hawaii are currently delivering results in line with their business case projections."

The board declared a final dividend of 13.5 cents per share, paid on June 23 to shareholders on the register on June 9, taking the annual return to 23 cents, up 9.5 per cent from a year earlier. The directors will decide whether to reintroduce a dividend reinvestment plan before announcing an interim dividend for the current financial year.

The shares last traded at $5.35, having gained 5.3 per cent so far this year.

The company's New Zealand KFC division increased earnings before interest, tax, depreciation and amortisation by 7.5 per cent to $61.4m on a 4.9 per cent increase in sales to $296.5m. Ebitda margins widened 0.5 of a percentage point to 20.7 per cent due to cheaper ingredients and store efficiencies, which the company said offset rising labour costs.

The Pizza Hut New Zealand unit posted a 17 per cent decline in earnings to $4.1m on a 9.8 per cent fall in sales to $40.5m as Restaurant Brands sold stores to independent franchisees, while the Starbucks Coffee division increased ebitda 8 per cent to $4.8m on a 0.4 per cent decline in sales to $26.7m.

Carl's Jr sales rose 9 per cent to $36.3m and ebitda more than doubled to $1m, with the company saying it "continued to make steady progress towards building critical mass and long term financial viability" for the brand.

Auditor PwC took a closer look at the $1.5m value attached to Carl's Jr's goodwill due to "the continued profitability challenges faced by the Carl's Jr segment and because of the sensitivity to judgements about the future performance of the business" but was satisfied with management's impairment testing.

Restaurant Brands' KFC Australia division continued $97.2m of sales and $15m of ebitda to the group and has bought five more stores since the February 27 balance date.

The company took on debt to fund the Australian KFC division last year, with bank loans totalling $46.5m as at February 27, up from $12.7m a year earlier. That's set to increase with its US$105m acquisition of the Hawaiian business, of which US$42m will be debt funded. Finance costs rose to $2.3m from $991,000 in 2016.

Restaurant Brands' operating cash flow rose 8.1 per cent to $47.9m in the year, and after investing and financing activities, the company had $70.1m in cash as at February 27.