Balance of year will focus on new KFC value strategy and innovative products
TORONTO, April 28 /CNW/ - Priszm Income Fund (TSX: QSR.UN) ("Priszm" or the "Company") today reported its financial results for the first quarter of 2010.
"We are not happy with our recent sales performance; we are working closely with the franchisor, Yum! Canada, to improve performance for the balance of the year," said John Bitove, Executive Chairman of Priszm Income Fund. "While the Company has maintained strong cost controls, the reality is lower sales results in less profit and we will turn this around because KFC is a power brand in Canada."
Restaurant sales from continuing operations of $83.5 million for the first quarter of 2010 were down $7.5 million from 2009 levels. This decrease was a direct result of same store sales declines and operating nine fewer restaurants than at the end of the corresponding period of 2009. The franchisor is in the process of developing a new KFC value strategy and examining opportunities to introduce new innovative menu items that have had success in other international markets.
Same Store Sales Growth ("SSSG")
During the first quarter of 2010, SSSG decreased by 7.1 per cent over the same quarter of 2009. As has historically been the case, SSSG for multi-branded restaurants was better by approximately 110 basis points.
Cost of Restaurant Sales
Cost of restaurant sales in the first quarter of 2010 increased by 40 basis points to 61.8 per cent as a percentage of sales versus 61.4 per cent of sales the prior year. In general, lower average restaurant volumes resulted in an increase in cost of restaurant sales as expressed in percentage terms. Food cost increased 20 basis points as $0.2 million in expense offsets were eliminated by the sale of the Company's salad production facility. Concurrently, the negative impact of commodity price pressures and promotional discounting during this weak economy were substantially offset by an improvement in food cost controls enabled by the use of restaurant management systems and further savings from supply chain initiatives.
Restaurant Operating Expenses
Restaurant operating expenses, which include utilities, maintenance, advertising expense, operating supplies and services and certain other fixed costs, while down $0.5 million due to lower advertising contributions, were up 100 basis points to 19 per cent of sales in 2010 compared to 18 per cent in the same quarter in 2009 due to lower sales volumes.
Amortization for the first quarter of 2010 was consistent with 2009 at $2.6 million. There were only minimal capital additions in the normal course of business.
Income from Restaurant Operations
As a result of the lower sales levels and cost factors discussed above, income from restaurant operations decreased by $2.3 million to a loss of $0.1 million for the quarter, down from income of $2.2 million for the first quarter of 2009.
General and Administrative Expense
General and administrative ("G&A") expense includes salary and benefit costs for management and support staff not directly employed in the Company's restaurants, occupancy costs associated with the restaurant support centres, professional fees (including public company related expenses), computer technology related costs and other administrative expenses and miscellaneous revenue. G&A expense was $4.7 million for the first quarter of 2010, consistent with the corresponding quarter of 2009.
Net interest expense of $2.1 million in the first quarter of 2010 was equal to the same quarter of 2009. As disclosed in the 2009 year end consolidated financial statements the Company made an early principal payment of $4 million on the long-term debt resulting in an additional interest payment which was offset by lower period expense.
EBITDA for the first quarter 2010 was negative $1.8 million compared to $0.6 million in the first quarter of 2009.
At March 21, 2010, the Company had total cash on hand of $12.1 million, a decrease of $13.6 million during the quarter compared to a decrease of $5.8 million in 2009. The net decrease in cash is a result of operating results ($3.8 million), working capital changes ($4.5 million), purchase of assets ($1.3 million) and a repayment ($4 million) on the long-term debt.
The Company's capital investments of $1.3 million during the quarter were predominantly maintenance capital expenditures in the normal course of business. These are representative of historical levels and are funded by cash from operations.
The Company amended its long-term loans effective March 12, 2010. As part of the amendment, the Company agreed to a $10 million repayment of long-term loan principal in three payments over the year. The first payment of $4 million was made during the first quarter. A further $6 million in principal payments are scheduled during the next two quarters of 2010. To provide greater flexibility, management is actively pursuing refinancing options. During the first quarter, the Company engaged an investment bank to lead its refinancing activities. The requirement to make principal repayments in 2010 may cause the Company to redirect capital expenditures in the future.
As at March 21, 2010 the Company is in compliance with the performance covenants of its long-term loan.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
EBITDA is defined by management as earnings before net interest income/expense, income taxes, depreciation and amortization and other items as noted in the table below. EBITDA is not a recognized measure under GAAP in Canada and may not be comparable to similar measures used by other companies. The Company 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 earnings determined in accordance with GAAP or to cash flows from operating, investing and financing activities.
About Priszm Income Fund
Priszm Income Fund (TSX: QSR.UN) holds approximately a 60 per cent interest in Priszm Limited Partnership, which owns and operates more than 400 quick service restaurants in seven provinces across Canada. The KFC, Taco Bell and Pizza Hut restaurants under Priszm serve more than one million customers a week and employ approximately 7,300 people. Approximately 100 locations are multi-branded, combining two or more of the Fund's restaurant concepts.
A staunch supporter of S'Cool Life Fund - a non-profit organization dedicated to providing grants to Canadian non-tuition elementary schools - Priszm Income Fund has raised more than $2 million to help make DREAMS - Drama, Recreation, Extracurricular, Arts, Music and Sports - come true.
To find out more about Priszm Income Fund (TSX: QSR.UN), visit our website at http://www.priszm.com.
Certain information in this document may constitute forward-looking statements within the meaning of securities laws that involve known and unknown risks, uncertainties, future expectations and other factors with respect to industry sector performance, business plans, activities, trends and events anticipated by the Priszm Income Fund (the "Company") and which may cause the Company's future performance and results to be materially different from those implied by the forward-looking information. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology concerning matters that are not historical facts. Forward-looking information is based on certain factors and assumptions regarding, among other things, the number of restaurants, the renewal of the franchise agreements, ability to meet capital expenditure requirements, the industry sector performance, business plans, activities, success of refinancing on commercially viable terms, trends and events anticipated by the Company. Although the Company believes that the assumptions underlying such statements are reasonable, any of the assumptions may prove to be inaccurate and, as a result, the forward-looking information may prove to be incorrect. The forward-looking information, assumptions and statements reflect the views of the Company's management with respect to future events and outcomes as of the date of this document and there should be no expectation that such information will be updated, revised and/or supplemented whether as a result of new information, changing circumstances, future events or other cause. Actual events or outcomes may be materially different and cause the performance of the Company to differ materially from any forward-looking statement.
The following selected financial information, with the exception of EBITDA, Distributable Cash and Distributable Cash Per Unit, has been derived from and should be read in conjunction with the first quarter 2010 unaudited financial statements and the MD&A in the Company's annual report for the year ended December 27, 2009. Additional information can be found at www.sedar.com.
RECONCILIATION OF NET LOSS TO EBITDA
The following table reconciles net loss from the Company's consolidated statement of operations, which includes the results for both continuing and discontinued operations, to EBITDA:
(in thousands of dollars) 2010 2009
Net income for the period (4,780) (2,599)
Income tax (recovery) expense 469 (213)
Interest income (3) (7)
(including accretion and amortization of
deferred financing charges) 2,152 2,092
Non-controlling interest (2,906) (1,906)
Amortization and impairment 3,306 3,118
Unit-based compensation - 151
EBITDA (1,762) 636
SOURCE PRISZM INCOME FUND
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