Priszm Income Fund reports third quarter 2007 financial results
Refocuses business on high volume, high profit restaurants, new product
activity to stimulate sales growth, supply chain savings and operational
efficiencies
Restructures restaurant network for savings of $4 million in 2008 and net
proceeds of $20 to $30 million over the next two years
TORONTO, Oct. 18 /CNW/ - Priszm Income Fund (TSX: QSR.UN) ("Priszm")
today announced financial results for the third quarter ended September 9,
2007. The Company operates on a 13-period accounting basis, with the first
three quarters consisting of 12 weeks and the fourth quarter consisting of
approximately 16 weeks.
Highlights
- Sales $122.4 million
- EBITDA(*) $12.1 million
- Distributable cash(*) $11.1 million
- Company implements interim changes to distribution policy
- 100% of distributions declared in 2007 deemed to be non-taxable
- Completed three multi-brand conversions for a total of 99 multi-
branded locations
- Completed offering of $30 million convertible unsecured debentures
(*)See section entitled Non-GAAP measures.
"While our distributable cash for the third quarter was down only
slightly from last year, the results were not strong enough to meet
expectations and make up for the first half of the year," said John Bitove,
Chairman and Chief Executive Officer of Priszm. "As a result, we are taking
immediate steps to refocus and to restructure the business for the future and
to ensure a consistent and reliable cash flow for our unitholders for years to
come. Priszm is a highly profitable company with great assets and I am
confident our management team can and will achieve these objectives."
Financial Performance
Sales for the third quarter were $122.4 million, a decrease of
$5.1 million or 4 per cent as compared with the same period in 2006. Same
store sales growth for the quarter was down by 4.7 per cent. The national KFC
promotions in the quarter did not drive anticipated incremental sales.
However, same store sales growth in Manitoba increased 7.4 per cent during the
quarter due to a highly successful KFC test campaign of the new Chicken Bowls.
This product has also been very successful in the United States and will be
launched across Canada in the fourth quarter.
During the third quarter the Company multi-branded three restaurants.
Sales from the multi-branded KFC/Taco Bell locations continued to outperform
our stand-alone KFC locations with same store sales remaining neutral in these
units during the third quarter. Sales growth in this segment is also impacted
by the number of multi-brand conversion projects that are under one year
within the portfolio at any point in time. In the third quarter of 2007, there
were eight conversion projects open less than one year as compared to 21 in
the third quarter of 2006.
Income from restaurant operations declined in the third quarter of 2007
to $13.4 million from $14.9 million in 2006. As a percentage of sales, income
from restaurant operations decreased to 11.0 per cent from 11.7 per cent in
the same quarter a year ago. The sales decline in combination with increased
costs resulted in reduced profitability relative to the prior year.
Cost of restaurant sales, as a percentage of sales, for the third quarter
of 2007 was 59.9 per cent, which was up from 58.7 per cent in the third
quarter of 2006. Food costs and labour expenses both increased during the
quarter. Food cost increases were driven mainly by an 8.1 per cent increase in
raw chicken prices versus the same quarter a year ago. A cost efficiency
program at restaurant level helped to mitigate a portion of the higher input
cost in the quarter.
In the third quarter, EBITDA amounted to $12.1 million compared to
$13.7 million in the third quarter of last year. Distributable cash was
$11.1 million in the third quarter of 2007 compared to $11.5 million in the
comparable quarter of 2006.
Business Refocus and Restructuring
Priszm today announced plans to refocus on high volume and high profit
restaurants. It plans to sell up to 120 locations and close approximately 25
unprofitable restaurants over the next twenty-four months. Priszm expects it
will receive $20 to $30 million in proceeds from the sale of these restaurants
over the next two years and generate savings of approximately $4 million in
2008.
The company also announced that it will concentrate on the introduction
of exciting new menu items and offset rising food costs through a supply chain
cost reduction strategy.
"We are taking aggressive action to refocus the business and improve our
performance," said Jeff O'Neill, President and Chief Operating Officer of
Priszm. "The time has come to consolidate our restaurant network so we can
focus more on high volume, highly profitable restaurants, particularly our
KFC/Taco Bell multi-brands.
"As well, new product activity and innovation will be a key focus for
Priszm in 2008," continued O'Neill. "Our plan is to develop new products
in-house and also look at adopting products that Yum has had success with in
other countries. Test markets have demonstrated to us that new products drive
top line and same store sales growth. Our new product initiative will launch
in a couple of weeks with the national rollout of our new Chicken Bowls, a
product which has done well both in our test markets and in the U.S."
Distributions
Priszm announced today that as part of its plan to refocus and
restructure the business, the Trustees have approved three interim changes to
the distribution policy.
Commencing in January 2008, the annual distribution will be adjusted to
$1.20 per unit, which is equivalent to $0.10 per unit on a monthly basis. In
the fourth quarter of 2007, Priszm will take an estimated one-time
restructuring charge of $5 million. As a result, distributions to unitholders
will be temporarily adjusted to $0.03 per unit for each of the remaining three
months of 2007.
The Trustees also agreed to a recommendation from the Subordinated
Unitholder to withhold distributions on the Subordinated Limited Partnership
Units until the end of the third quarter of 2008. At that time, the Trustees
will assess the Company's progress on refocusing the business and review the
distribution policy going forward with respect to both the Ordinary and
Exchangeable Units and the Subordinated Limited Partnership Units.
"While we recognize the importance of regular distributions to our
unitholders, adjusting the level of distributions while we refocus the
business is a prudent decision," said John Bitove, Chairman and Chief
Executive Officer of Priszm. "I am confident that, with the restructuring plan
we have in place, management will build a more robust business for the future,
which will enhance unitholder value over the long term.
"With respect to the distributions paid in 2007, our unitholders will
receive a total of $1.05 in distributions this year, representing a yield of
17.3 per cent based on yesterday's closing price of our units," said Bitove.
"In addition, I am pleased to announce that 100 per cent of distributions
declared in 2007 will not be taxable to unitholders."
The company also announced its cash distribution for the month of October
2007 of $0.03 per unit payable on November 15, 2007 to Ordinary and
Exchangeable Unitholders of record on October 31, 2007.
Non-GAAP Measures
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization and other items. EBITDA is not a recognized
measure under Canadian generally accepted accounting principles ("GAAP") and
may not be comparable to similar measures used by other companies. Priszm
believes that EBITDA is a useful supplementary measure of operating
performance as it provides investors with an indication of cash available for
distribution prior to debt service and capital expenditures. Investors should
be cautioned, however, that EBITDA should not be construed as an alternative
to net income determined in accordance with GAAP or to cash flows from
operating, investing and financing activities.
Distributable Cash
Distributable cash and maintenance capital expenditures are not measures
recognized by GAAP, do not have standardized meanings prescribed by GAAP, and
therefore, may not be comparable to similar measures presented by other
issuers. Priszm believes that distributable cash is a useful supplemental
measure of performance as it provides investors with an indication of the
amount of cash available for distribution to unitholders. However, readers are
advised that distributable cash is not meant to be an alternative to using net
earnings as a measure of profitability or the statement of cash flows.
Quarterly Analyst Conference Call/Audio Webcast
Priszm will hold an analyst call at 10 a.m. ET on Thursday October 18,
2007 to discuss its results for the third quarter of 2007. The call may be
accessed by dialing 416-644-3414 within the Toronto area, or 1-800-733-7560
(toll-free) outside of Toronto. The call will be simultaneously audio webcast
at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1893760.
The conference call webcast and a presentation to investors and analysts
will be archived on Priszm's website at www.priszm.com. A playback of the call
can also be accessed until Saturday November 17, 2007 by dialing 416-640-1917
from within the Toronto area or 1-877-289-8525 (toll-free) outside of Toronto.
The passcode for the replay is 21234657 followed by the number sign.
About Priszm Income Fund
Priszm Income Fund (TSX: QSR.UN) has a 60.2 per cent interest in Priszm
LP and its general partner, Priszm Inc., which owns and operates 484 quick
service restaurants in seven provinces across Canada. The KFC, Taco Bell,
Pizza Hut and Long John Silver's restaurants under Priszm, which generated
annual revenues in excess of $500 million in 2006, serve 1.5 million customers
a week and employ more than 9,000 people. Currently, 99 locations are
multi-branded, combining two or more of the Fund's restaurant brands. To find
out more about Priszm Income Fund (TSX: QSR.UN), visit our website at
http://www.priszm.com.
Forward-Looking Statements
Any forward-looking statements in this document are based on current
expectations that are subject to significant risks and uncertainties that are
difficult to predict. Actual results might differ materially from projections
suggested in any forward-looking statements due to factors such as the
competitive nature of the quick service restaurant industry, the ability of
Priszm and Priszm LP to execute a growth and development strategy, the
reliance of Priszm and Priszm LP on key personnel, the terms and conditions of
Priszm LP's franchise arrangements, and risk associated with the structure of
income trusts. Priszm and Priszm LP assume no obligation to update the
forward-looking statements, or to update the reasons why actual results could
differ from those reflected in the forward-looking statements. Additional
information identifying risks and uncertainties is contained in Priszm's
filings with the Canadian securities regulators, available at www.sedar.com.
The following selected financial information, with the exception of
Distributable Cash and Distributable Cash Per Unit, has been derived from and
should be read in conjunction with the third quarter 2007 unaudited financial
statements and Management's Discussion and Analysis for the year ended
December 31, 2006. Additional information can be found in Priszm's filings at
www.sedar.com.
RECONCILIATION OF DISTRIBUTABLE CASH
(in thousands of dollars except per Unit amounts)
Third Quarter Year to date
For the quarter ended Sept 9, Sept 4, Sept 9, Sept 4,
2007 2006 2007 2006
--------------------------------------------
Cash provided by/(used in)
operating activities $ 14,102 $ 11,330 $ 5,155 $ 30,621
Net change in non-cash
working capital(1) (2,194) 1,288 14,736 (2,738)
Maintenance capital
expenditures(2) (824) (1,110) (2,619) (2,622)
--------------------------------------------
Distributable cash 11,084 11,508 17,272 25,261
--------------------------------------------
Distributions made during
the period(3) 8,265 8,133 22,040 21,689
Distributable cash per Unit 0.429 0.445 0.669 0.978
Distributions per Unit(3) 0.320 0.315 0.854 0.840
Payout ratio 75% 71% 128% 86%
--------------------------------------------
--------------------------------------------
Notes:
(1) Priszm does not need to finance its working capital as it operates in
an environment where cash sales precede the payment of restaurant
food, supplies and labour. While fluctuations will occur within
quarters, on a full year basis these changes should not impact
Priszm's ability to make Unit distributions.
(2) Maintenance capital expenditures refer to capital expenditures that
are necessary to sustain current revenue levels. Priszm believes that
funding for maintenance capital expenditures must come out of
operating cash flow. Development capital expenditures are not
recorded as a reduction from distributable cash since these
expenditures are expected to generate increases in future
distributable cash and distributions.
(3) Distributions per Unit for the year to date third quarter include all
declared distributions for the period January 1 to September 9, 2007
and January 1 to September 4, 2006 and distributions on the
Subordinated Units for the months of July and August that had not yet
been declared at the end of each quarter but that were subsequently
declared and paid after the quarter end.
INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)
(in thousands of dollars)
September 9, December 31,
2007 2006
---------------------------
ASSETS
Current assets
Cash $ 29,202 $ 29,206
Trade and other accounts receivable 2,379 2,327
Inventories 4,615 5,021
Prepaid expenses 3,703 1,044
Other assets 242 241
---------------------------
40,141 37,839
Property and equipment 87,712 88,031
Deferred financing charge - 1,357
Future income taxes 1,024 -
Franchise rights 52,199 54,560
Goodwill 159,227 159,227
---------------------------
340,303 341,014
---------------------------
---------------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 43,969 56,338
Distributions payable to Unitholders 2,479 5,397
---------------------------
46,448 61,735
Long-term debt 74,647 75,633
Convertible debentures 27,875 -
Future income taxes 5,724 -
Deferred contract amounts 5,661 5,072
---------------------------
160,355 142,440
---------------------------
Non-controlling interest 73,699 81,089
---------------------------
UNITHOLDERS' EQUITY
Capital contributions 142,290 142,290
Contributed surplus 142 99
Convertible debentures 747 -
Deficit (36,930) (24,904)
Accumulated other comprehensive income - -
---------------------------
106,249 117,485
---------------------------
340,303 341,014
---------------------------
---------------------------
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT (UNAUDITED)
(in thousands of dollars, except per unit amounts)
Period Period Period Period
from from from from
June 18, June 13, January 1, January 1,
2007 to 2006 to 2007 to 2006 to
Sept 9, Sept 4, Sept 9, Sept 4,
2007 2006 2007 2006
-----------------------------------------------
Restaurant sales $ 122,371 $ 127,424 $ 336,482 $ 346,981
-----------------------------------------------
Restaurant cost and
expenses
Cost of restaurant sales 73,327 74,768 203,370 203,919
Restaurant operating
expenses 16,598 18,708 50,569 52,371
Rent 8,528 8,334 25,774 24,968
Franchise royalty expense 7,351 7,648 20,205 20,828
Depreciation and
amortization 3,154 3,028 9,212 9,018
-----------------------------------------------
108,958 112,486 309,130 311,104
-----------------------------------------------
Income from restaurant
operations 13,413 14,938 27,352 35,877
General and administrative
expenses, including
amortization of $953
(January 1, 2007 to
September 9, 2007 -
$2,864) 4,970 5,297 15,976 17,010
-----------------------------------------------
Income before the
undernoted 8,443 9,641 11,376 18,867
Interest income 194 107 259 277
Interest expense (1,949) (1,205) (4,862) (3,930)
-----------------------------------------------
Income before income
taxes and non-controlling
interest 6,688 8,543 6,773 15,214
Income taxes (recovery) (1,000) - 4,700 -
-----------------------------------------------
Income before non-
controlling interest 7,688 8,543 2,073 15,214
Non-controlling interest (3,058) (3,398) (825) (6,051)
-----------------------------------------------
Net income for the period 4,630 5,145 1,248 9,163
Deficit - Beginning of
the period (36,582) (20,216) (24,904) (16,069)
Distributions (4,978) (4,899) (13,274) (13,064)
-----------------------------------------------
Deficit - End of
the period (36,930) (19,970) (36,930) (19,970)
-----------------------------------------------
-----------------------------------------------
Basic earnings per Unit 0.297 0.331 0.080 0.589
-----------------------------------------------
-----------------------------------------------
Diluted earnings per Unit 0.281 0.331 0.080 0.589
-----------------------------------------------
-----------------------------------------------
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands of dollars)
Period Period Period Period
from from from from
June 18, June 13, January 1, January 1,
2007 to 2006 to 2007 to 2006 to
Sept 9, Sept 4, Sept 9, Sept 4,
2007 2006 2007 2006
-----------------------------------------------
Net income for the period $ 4,630 $ 5,145 $ 1,248 $ 9,163
-----------------------------------------------
-----------------------------------------------
Other comprehensive income - - - -
-----------------------------------------------
-----------------------------------------------
Comprehensive income 4,630 5,145 1,248 9,163
-----------------------------------------------
-----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands of dollars)
Period Period Period Period
from from from from
June 18, June 13, January 1, January 1,
2007 to 2006 to 2007 to 2006 to
Sept 9, Sept 4, Sept 9, Sept 4,
2007 2006 2007 2006
-----------------------------------------------
Cash provided by (used in)
Operating activities
Net income for the period $ 4,630 $ 5,145 $ 1,248 $ 9,163
Add: Non-cash items
Future income taxes (1,000) - 4,700 -
Non-controlling interest 3,058 3,398 825 6,051
Amortization of property
and equipment 3,075 2,853 9,020 8,586
Amortization of
franchise rights 872 866 2,617 2,586
Amortization of deferred
financing fees 132 51 369 152
Interest accretion 155 - 260 -
Amortization of deferred
contract amounts 8 256 143 752
(Gain) loss on disposal
of property and equipment (1) 35 106 158
Unit-based compensation 14 14 43 42
Write-off of deferred
financing fees related
to long-term debt - - - 393
Long-term incentive
plan accrual (270) - (675) -
-----------------------------------------------
Cash provided by
operations 10,673 12,618 18,656 27,883
Net change in non-cash
working capital 2,194 (1,288) (14,736) 2,738
Supply contract prepayment 1,235 - 1,235 -
-----------------------------------------------
Cash provided by
operating activities 14,102 11,330 5,155 30,621
-----------------------------------------------
Investing activities
Acquisition of restaurants
- net of required
restaurant cash - - - (3,573)
Purchase of property
and equipment (2,698) (2,234) (8,865) (9,654)
Purchase of franchise
rights (22) (79) (256) (259)
Net proceeds on disposal
of property and equipment 10 3 58 26
-----------------------------------------------
Cash used in investing
activities (2,710) (2,310) (9,063) (13,460)
-----------------------------------------------
Financing activities
Deferred financing charges (1,689) (2) (1,689) (960)
Repayment of long-term debt - - - (60,000)
Repayment of revolving
facility (7,300) - - -
Proceeds of new
long-term debt - - - 73,596
Proceeds of convertible
debentures 30,000 - 30,000 -
Distributions to
Unitholders (5,786) (8,133) (24,407) (22,230)
-----------------------------------------------
Cash provided by (used in)
financing activities 15,225 (8,135) 3,904 (9,594)
-----------------------------------------------
Change in cash during
the period 26,617 885 (4) 7,567
Cash - Beginning of
the period 2,585 20,700 29,206 14,018
-----------------------------------------------
Cash - End of the period 29,202 21,585 29,202 21,585
-----------------------------------------------
-----------------------------------------------
%SEDAR: 00019884E
For further information: Investors: Trish Moran, (416) 739-2906,
trish.moran@priszm.com; Media: Wilcox Group, (416) 203-6666,
priszm@wilcoxgroup.com
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