Pizza takes big bite from profit

By IRENE CHAPPLE

Fast-food franchise operator Restaurant Brands yesterday displayed wounds from its foray into Australia, declaring a full-year profit of $11 million.

The company's purchase of underperforming Pizza Hut in Victoria produced a $3.2 million after-tax loss, dragging down the New Zealand after-tax profit of $14.2 million.

The total was just over half the $20.6 million profit of the previous 12 months, although that was buoyed by a sale and leaseback deal with KFC stores.

Chief executive Jim Collier said the more comparable figure was last year's net profit, excluding abnormals, of $12.5 million. The abnormals included a non-cash write-down of $1.3 million to cater for the expected closure of unprofitable stores.

The sharemarket was comfortable with the announcement.

The profit had been predicted by analysts and the share price crawled slowly up from its opening $1.36 to settle on $1.40 by close of trading.

Restaurant Brands has the local franchises for KFC, Pizza Hut and Starbucks.

Collier said he expected Pizza Hut Victoria to become profitable on an earnings before interest, tax, depreciation and amortisation (ebitda) level only over the next year.

Since the company bought the operation, for A$11.8 million, in March last year, it has produced a negative operating revenue of $100,000, compared with NZ operating revenue of $29 million.

Collier said the company would be replacing at least a third of its 51 Australian stores and revamping them into non-restaurant takeaway sites known as delcos.

Collier, an Australian and former Pizza Hutt Australia executive, said the company was confident the strategy would work in the new market.

"It is working in New Zealand very well, and it has worked in most of Australia. Victoria is behind most of Australia - this is a very well trodden path."

Collier said there was potential to delve further into Australia, but the company would need to succeed in Victoria first.

Pizza Hut New Zealand, which represents 25 per cent of total company sales, was the "highlight of the second half", with sales for the period of $34.5 million, an increase of 6.1 per cent over the same period a year ago.

With three new delcos - in Whangaparaoa, Dunedin and Levin - the company now runs 89 franchises.

Collier said it was well placed to fight the entry of Domino's Pizza, from Queensland, into New Zealand.

In February, Domino's said it would open up to eight stores in Auckland, Wellington and Christchurch between July and October.

"We will compete aggressively," said Collier. "We are well prepared. We have very good competitive intelligence."

Margins for the other three operating businesses improved for the final six months when compared with the previous six months.

KFC's clout in the company is diminishing. Its sales are now 59 per cent of total sales, compared to 67 per cent a year ago.

Collier said the brand was stable, but expectations of growth were modest.

KFC's menu would be expanded over the next year with some "lighter and healthier products," said Collier.

A KFC chicken salad, being tested in the Waikato, would be introduced nationwide within the next few months.

Starbucks, which expanded dramatically after its introduction to New Zealand in 1998, has slowed its growth.

Sales were up to $22.8 million, but same-store sales were down 8.1 per cent for the year.