Focusing on upcoming rollout of summer initiatives including KFC Ribs,
bucket promotion and summer picnic pack
TORONTO, April 30 /CNW/ - Priszm Income Fund (TSX: QSR.UN) ("Priszm" or
the "Company") today reported its financial results for the first quarter of
First Quarter 2009 Highlights
Quarter ended March 22, 2009 versus quarter ended March 23, 2008
- Sales flat at $89 million compared to last year
- Cost of restaurant sales flat at 61.3 per cent in spite of continued
food inflation costs
- Generated EBITDA(*) of $0.6 million
- Strong cash position with $5.6 million in cash and cash equivalents
- Sold five restaurants from discontinued operations
- Opened one new KFC restaurant
- Launched the first wave of KFC brand equity advertising to promote
the freshness of our chicken
- Added Hot 'n Spicy flavour to KFC's chicken line-up in Ontario and
(*)See section entitled Non-GAAP measures.
"We continue to concentrate on top-line and margin growth through strong
promotional marketing, in-restaurant merchandising and our new product
strategy," said John Bitove, Executive Chairman of Priszm Income Fund. "The
quality menu items and meal options being introduced at our restaurants
emphasize value and affordability and underpin our commitment to providing
fresh, delicious and affordable food for Canadians and their families."
The Company is introducing both new menu items and value-added
promotional offers to drive restaurant sales this summer. Based on positive
customer feedback, Hot 'n Spicy Chicken is now being served at restaurants
throughout Ontario and B.C. The KFC Ribs promotion is returning in May and
will be available across the national network of restaurants for a limited
time. Both will be offered on their own, or in combination with other menu
items in individual meals, family meals and buckets.
"In addition to expanding our Hot 'n Spicy Chicken and bringing back KFC
Ribs for part of the summer, we will be rolling out several popular
promotional offers over the next quarter that have previously generated solid
top-line results," said Bitove. "Mother's Day has traditionally been one of
our busiest days of the year and our current Mom's Night Off promotion has
previously proven to be highly successful. In addition, our new Wrapstar
sandwich will help to drive traffic into our restaurants."
Results from Continuing Operations
Restaurant sales for the first quarter, during a period of intense
competition and promotional activity, were $89.5 million, a decrease of $0.4
million, or 0.4 per cent, from the same quarter in 2008. During February, the
Company invested in a brand equity media campaign emphasizing the freshness of
KFC chicken and launched a new Hot 'n Spicy flavour option to its chicken line
up in Ontario and B.C.
Same Store Sales Growth ("SSSG")
During the first quarter of 2009, SSSG decreased by 1.7 per cent over the
same quarter of 2008, although there was a marked improvement over the prior
year result of negative 4.6 per cent. SSSG for multi-branded restaurants was
down, particularly at Taco Bell.
Cost of Restaurant Sales
Even with continued food inflation the cost of restaurant sales declined
to $54.9 million from $55.0 million due to prudent cost management. As a
percentage of sales, cost of sales were flat at 61.3 per cent compared to the
Restaurant Operating Expenses
Restaurant operating expenses, which include utilities, maintenance,
advertising expense, operating supplies and services and certain other fixed
costs, increased 6.8 per cent to $15.9 million in Q1 2009 from $14.9 million
in Q1 2008. The increase was due primarily to an increase of $0.2 million for
utilities and $0.5 million for maintenance repair expenditures partly
attributable to the severely cold winter temperatures experienced in some
regions. The Company continues to closely manage both maintenance repairs and
utility costs, including the use of forward purchase, own-use contracts.
Income from Restaurant Operations
Income from restaurant operations slipped to $2.3 million in the first
quarter of 2009, from $3.9 million in the previous year. As a percentage of
restaurant sales, income from restaurant operations declined to 2.6 per cent
in Q1 2009 from 4.3 per cent in Q1 2008.
General and Administrative Expense
General and administrative expense of $4.7 million improved modestly by
$0.1 million compared to $4.8 million in the first quarter of 2008.
Net Interest Expense
Net interest expense of $2.1 million in the first quarter of 2009 rose
marginally by $0.1 million compared to the first quarter of 2008. Interest
revenue declined by less than $0.1 million due to reduced investment income on
lower surplus cash balances while interest expense rose due to higher interest
rates being charged on the Company's operating facility.
EBITDA and Distributable Cash
EBITDA for the first quarter 2009 was $0.6 million compared to $2.2
million in the first quarter of 2008. Distributable cash was ($1.2 million)
compared to $65 thousand in the first quarter of 2008.
Five of the remaining 18 restaurants held for sale at the end of 2008
were sold during the first quarter of 2009 for proceeds of $0.4 million. The
remaining 13 stores to be sold are currently in varying stages of the sale
process, and are expected to bring in proceeds of more than $1 million.
For the first quarter ended March 22, 2009, cash used in operating
activities was $4.1 million compared to $12.2 million for the previous year's
first quarter. As a result, Priszm ended its first quarter with $5.6 million
of cash on hand, inclusive of $2.7 million drawn on the operating facility,
which is sufficient to support seasonal cash demands.
The Company's objective is to increase its cash position and strengthen
its balance sheet prior to the renewal of its long-term debt in 2011. Going
forward, given its growing cash balance, the Company will have less of a need
for its operating facility. Accordingly, as part of its ongoing cost
management initiative, and to reduce the costs of maintaining the facility,
this operating line of credit, which had a capacity of $10 million, was
reduced to $5 million on March 26, 2009.
Subsequent to the end of the first quarter of 2009, the Company amended
its $5 million operating facility to include drawing limits determined by a
borrowing base and to eliminate the previous restriction of drawing only to
the amount of cash-on-hand. The interest rate remains unchanged. The operating
facility will mature on December 31, 2009 unless renewed.
While management believes that its cash position will increase throughout
2009 based on projected cash from operations, the Company may need to adjust
its distribution policy or capital spent in the near future in order to meet
its liquidity objectives.
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.
Distributable cash is a non-GAAP measure that generally refers to the net
cash generated by the businesses or assets of the income trust that, at its
discretion, is available for distribution to the Unitholders. The Company
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 to using the Statement of Cash Flows to measure
the Company's operating cash flows.
The Company defines distributable cash as cash provided by operating
activities, per the Company's Consolidated Statement of Cash Flows, excluding
net change in non-cash working capital and reduced for maintenance capital
expenditures that are required to maintain productive capacity. The cash that
is available for distribution per Unit will vary with the operating
performance of the Company's business or assets, its capital requirements,
debt obligations and the number of Units outstanding. Readers are cautioned
that distributable cash and maintenance capital expenditures do not have
standardized meanings prescribed by GAAP, and therefore, may not be comparable
to similar measures presented by other issuers.
About Priszm Income Fund
Priszm Income Fund (TSX: QSR.UN) holds approximately a 60 per cent
interest in Priszm LP, 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 1.5 million customers a week and employ
approximately 7,400 people. Currently, more than 100 locations are
multi-branded, combining two or more of the Company'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 agreement, the industry sector performance, business plans,
activities, 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 2009 unaudited
financial statements and the MD&A in the Company's annual report for the year
ended December 28, 2008. Additional information can be found at www.sedar.com.
RECONCILIATION OF CASH USED IN OPERATING ACTIVITIES TO DISTRIBUTABLE CASH
The following table reconciles cash used in operating activities to
distributable cash per the Statement of Cash Flows, which includes the results
of both continuing and discontinued operations:
(in thousands except per Unit amounts) 2009 2008
Cash used in operating activities ($4,053) ($12,249)
Net change in non-cash working capital(1) 3,359 12,752
Maintenance capital expenditures(2) (467) (438)
Distributable cash ($1,161) $65
Distributions declared during the period(3) 3,426 6,974
Distributable cash per Unit (0.046) (0.003)
Distributions per Fund and Exchangeable Unit(3) 0.150 0.300
Distributions per Subordinated Unit 0 0
Distributions per Unit - diluted 0.135 0.270
Payout ratio (fully diluted) including one-time
restructuring charges NM(*) NM(*)
Payout ratio (fully diluted) before one-time
restructuring charges NM(*) NM(*)
(*) not meaningful
(1) The Company 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 quarterly fluctuations
will occur, on a full year basis these changes will not impact the
Company's ability to make Unit distributions and therefore the
Company adds back the net change in non-cash working capital to
reconcile to distributable cash. As the remaining 13 restaurants in
discontinued operations are sold, the Company will have a decrease to
its cash position as it no longer has the benefit of being able to
convert inventory to cash from sales before trade payables are due
for those sold stores.
(2) Maintenance capital expenditures are defined by management as capital
expenditures that are necessary to sustain current production
capacity. The Company 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. Maintenance
capital expenditures and development 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.
(3) Distributions per Unit include all declared distributions for the
first quarter December 29, 2008 to March 22, 2009 and December 31,
2007 to March 23, 2008.
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) 2009 2008
Net loss for the period (2,599) (1,817)
Income tax (recovery) expense (213) 15
Interest income (7) (87)
Interest expense before accretion and
amortization of deferred financing charges 1,863 1,823
Non-controlling interest (1,906) (1,191)
Amortization 3,118 3,148
Interest accretion 228 219
Unit-based compensation 151 202
Long-term incentive plan accrual - (92)
Loss on disposal of property and equipment - 19
Gain on sale of restaurants (33) -
EBITDA $602 $2,239
For further information:
For further information: Investors: Trish Moran, (416) 739-2906,
firstname.lastname@example.org; Media: Wilcox Group, (416) 203-6666,