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Home / Business

The man with fried chicken in his blood

BusinessDesk
22 Jul, 2016 03:48 AM4 mins to read

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Restaurant Brands, the owner of KFC, today reiterated its forecast net profit after tax for the current financial year at $28 to $30 million.

Restaurant Brands, the owner of KFC, today reiterated its forecast net profit after tax for the current financial year at $28 to $30 million.

Australian businessman Stephen Copulos said getting shares in listed Restaurant Brands, in which he is now the second largest shareholder, was a key part of the fast food brands company acquiring his family's KFC franchise in New South Wales.

Restaurant Brands, which operates fast food chains KFC, Pizza Hut, Starbucks and Carls Jr, paid A$82.4 million in April to purchase QSR, the largest KFC franchisee in New South Wales with 42 stores. It is the company's first foray into Australia since its disastrous attempt to expand through Pizza Hut in the state of Victoria which it exited nearly a decade ago.

The acquisition was settled by issuing Copulos's family interests five million shares at market price and the rest in cash, which Restaurant Brands funded through debt. Copulos, who was one of three directors re-elected to the Restaurant Brands board today at the annual meeting in Auckland, has since acquired a further two and half million shares.

Copulos said he had no ambition to further boost his stake at this stage and wouldn't speculate on any ambition to become the largest shareholder in the company.

"I'm very happy with the investment I've made and the position the company is in," he said. "I've been involved with the fried chicken business for a number of years - it's in my blood."

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His family interests have a wide range of business investments from fast food and hospitality to manufacturing, property development and mining spread across a number of countries. This is its first investment in New Zealand.

The Restaurant Brands board today reiterated its forecast net profit after tax for the current financial year at $28 to $30 million. The Australian business was making A$100 million in revenue and A$15 million in profit when acquired, but chief executive Russel Creedy said this current year's results will be impacted by the acquisition although it is already earnings accretive.

KFC is the big money-spinner for the company, accounting for $282.5 million of its total $387.6 million sales in the year ending February 2016 and for $57.2 million of total $67 million earnings before interest, tax, depreciation and amortisation.

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Chairman Ted van Arkel said KFC margins are expected to be maintained this financial year with sales momentum continuing, though it will be a "little more measured".

Creedy said the only way to achieve the target set by the board of $1 billion in turnover within five years was to expand into Australia but he was keen to avoid the mistakes made with the Pizza Hut foray where under-performing stores, including ones in receivership, were bought which they then struggled to turn around. His first job as CEO nine and a half years ago was to exit that investment.

The company is keen on further acquisitions "at the right price" of independent KFC franchises in Australia ranging from the single store to small corporates, he said. Australia has 600 KFC stores, of which 150 are owned by franchisor Yum International and the rest by independent franchisees.

Other options for growth in KFC in Australia was to build more stores, refurbish existing stores, and get more out of the stores it owns, he said. The company has headroom for smaller acquisitions with around $35 million available in existing borrowing facilities, although it couldn't handle another one the size of QSR without seeking more capital from the market or extending its borrowing facilities.

Creedy said new management at Carls Jr, now its third largest brand, had turned around a slump in first quarter sales. Although establishing the brand has taken longer than hoped for, Creedy said they plan to open a further two stores this financial year after already adding two in Christchurch, and has a target of $40,000 in weekly sales by year's end.

Shareholders approved an increase in the pool for directors' fees which will see individual director's pay rise to $65,000 a year from $60,000, while the chair's pay will increase by $25,000 to $125,000.

Creedy was also paid $1 million this year under a long-term incentive plan that saw the bonus paid once the company's share price had been above $4.00 for a two-year period. The share price was under $3 when it was negotiated, he said. There is no replacement long-term incentive plan yet in place though Creedy said he'd be "happy" for the board to consider doing so.

The shares recently traded at $5.41, down 0.7 per cent.

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