McDonald's NZ full-year profit rises 19% as new stores, promotions drive sales, costs fall

Tuesday 7th June 2016

McDonald's Restaurants (New Zealand) posted a 19 percent gain in 2015 profit as the local unit of the world's biggest fast-food chain opened more outlets and lured consumers with custom burgers and drive-through coffee, while benefitting from lower raw material costs.

Profit rose to $36.7 million in calendar 2015, from $30.8 million a year earlier, according to the Auckland-based company's annual report. Sales rose 10 percent to $244 million.

Under chief executive Steve Easterbrook, who took over at McDonald's in March last year, the fast-food chain has been attempting to reinvigorate itself worldwide including the roll-out of all-day breakfast, which reached all New Zealand stores at the start of May this year. The New York-listed stock, which plateaued in early 2012, surged to a record US$131.62 last month and has gained 28 percent in the past 12 months, outpacing a 1.5 percent gain in the Standard & Poor's 500 Index.

In New Zealand, McDonald's sales growth is outpacing that of unprofitable rival Burger King, while Restaurant Brands' Carl's Jr is still too small to be a serious challenger. The listed Burger Fuel Worldwide claims its market size is forcing larger rivals to take notice although its operating expenses outstripped sales in the first half, resulting in a small loss.

"New offerings like McCafe coffee at Drive-Thru and the roll out of 'Create Your Taste' gave customers new reasons to visit McDonald’s," said Simon Kenny, head of communications at McDonald's NZ. "Momentum has continued from 2015 into 2016, with a strong first and second quarter."

McDonald's has 166 restaurants, of which about 80 percent are owned and operated by franchisees, and its sales are made up of company-owned restaurants and fees paid by franchisees. The company opened or relocated six new restaurants around New Zealand last year, while two food-court outlets closed and its store in Silverstream burned down. A year ago it had 164 outlets.

The company paid dividends of $30 million, or $1.09 a share to its parent in 2015, little changed from $30.5 million, or $1.11 a share in 2014. The parent company typically gives a recommendation on the level of dividend payment, which is then ratified by the local board, McDonald's has said previously.

It also paid $21.4 million in service fees to its "ultimate chief entity", up from $18.6 million a year earlier.

Under related party transactions, the company paid $20 million in trademark fees to McDonald's Asia Pacific, up from $18.6 million in 2014, and fees for services such as accounting to McDonald's Australia of $4.4 million, up from $2.5 million. Trade payables to its ultimate parent were $2.3 million, up from $2.1 million in 2014 and it also paid "location fees" to McDonald's Asia Pacific. It paid tax of $16.8 million, down from $17.4 million a year earlier.

McDonald's today celebrated 40 years in the New Zealand market, offering Big Macs for 75 cents for four hours at its Queen Street store.

High global prices for beef weighed on 2014 earnings but those pressure abated last year, Kenny said. "We saw some supply chain relief, with commodity prices for core ingredients like New Zealand beef reducing as global prices dropped."

BusinessDesk.co.nz

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