Restaurant Brands looks to mainland US for expansion

Restaurant Brands CEO Russel Creedy says the business has changed from NZ-centric to truly international.

Restaurant Brands is eyeing mainland US for its next expansion, after its Hawaiian acquisition proved successful.

Reported net profit after tax in the year to February 26 was up 37% to $35.5 million, while net profit after tax (npat) was up 32% to $40.4m. Both figures were the company’s highest yet.

Total group sales were up 49% to $740.8m, with most of this increase attributable to the Pacific Island Restaurants (PIR) acquisition in Hawaii – encompassing Taco Bell and Pizza Hut outlets in Hawaii and Guam – and the full year impact of the Australian operations, acquired during 2017.

Group earnings before interest, tax, depreciation and amortisation (ebitda) were $121.9m, up 42%, with $24.1m of the increase resulting from the PIR acquisition. The Australian KFC business accounted for a further $7.1m and the New Zealand businesses made up the remaining $4.6m.

New Zealand operations – including Pizza Hut, Starbucks and Carl’s Jr – saw same store sales up 5.4% to $421.4m, while ebit was up 19% on last year to $44.7m.

Performance here is largely driven by KFC, while Pizza Hut saw some margin pressure with increased labour rates and ingredient costs. Pizza Hut stores are being sold to independent franchisees.

Starbucks sales were down slightly, reflecting two stores being cut, while Carl’s Jr made progress – it’s been slow to gain ground since being introduced to the country in 2011 – with ebitda doubling to $2m over the year. Mr Creedy says the brand is “still an ongoing project.”

The group, which dual-listed on the ASX last September, has 61 KFC stores in Australia, with 18 acquired in New South Wales last year for $46.5m. Sales for this business were up 51% to $139.5m, while same store sales increased 5%.

Overseas expansion key to growth
Restaurant Brands realised it would need to expand overseas to achieve growth, as there’s not much room left in New Zealand without introducing major new brands.

The board challenged management a couple of years ago “to break out of this growth we’d been locked into of a couple of percent a year. We had this wild suggestion, ‘why don’t we become a billion-dollar company?’” chief executive Russel Creedy says.

“We’ve changed the company from being a New Zealand-centric business to a truly international business. There’s a lot of growth potential.”

It started by understanding the business model and culture of the brands being operated offshore, such as Taco Bell.

Restaurant Brands’ store numbers now total 314, with 171 in New Zealand, 82 in Hawaii and 61 stores in Australia.

The group is now looking at expanding into mainland US in the next few years, Mr Creedy says.

“It’s big, big territory. There are businesses for sale there, similar to us buying the Hawaiian business… we’re talking a couple of hundred million dollar deals at a time.”

The company is looking to acquire KFC stores in Hawaii and the US. It is also investigating introducing Taco Bell to New Zealand and Australia, something it has talked about for a while.

Mr Creedy is looking ahead to $1.5 billion of sales, which he thinks could happen in the next three to five years, despite not yet reaching the $1b aspirational target.

Bank debt at the end of the year was up to $166.8m, compared to $46.5m at the previous year end, due to acquisitions. As at balance date, the group had bank debt facilities of $253m in place.

Directors expect the company will deliver npat (excluding non-trading items) for the new financial year at least 10% above the most recent results.

A record final dividend of 18c a share was declared, up 33% on the previous year.

Restaurant Brands’ share price has decreased 0.7% today to $7.09, although is up 33% over the past 12 months.

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8 Comments & Questions

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You gotta love that fast food.

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With people not able to afford fruit and vegetables no surprises there then.

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Obesity hits record levels!

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@Susan - enjoyed the interview - A question surrounding his moral status would of been interesting. Here's a guy who is keen to expand a portfolio of businesses that largely contribute to heath related issues. He didn't appear one bit phased by this.

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That's their core business, what do you expect him to do ?

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Very interest, thanks NBR.

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The fast food digs I think are a little unfair. Even healthy people eat fast food sometimes and there are healthy options at these restaurants which will only increase. Are you going to apply the same criticisms to Whittakers, Cadbury, Coco Cola, Cookie Time, fish and chip shops, lolies, the meat industry, the makers of white bread, any processed foods, manufacturers of potato chips, ice cream, desserts in general, the supermarkets and corner stores (including the warehouse, Mitre 10 with their sweets displays by check outs) that sell these things, the list goes on. Personally I don't put them in the same league as the Casino or tobacco businesses because fast food can be part of a normal balanced diet

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Another small NZ deluded thinking can kick out of the park in USA n teach the yanks at their own game

You are not IceBreaker

Sell

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