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Restaurant Brands 2016 profit rises 1%, sees 2017 profit gain of up to 25%

Thursday 14th April 2016

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Restaurant Brands New Zealand's annual profit grew 1 percent in 2016, the slowest pace in three years, as it was hit by higher costs, although the fast-food company said 2017 earnings could rise as much as 25 percent on growth in both KFC and Pizza Hut, and its expansion into New South Wales.

Profit edged up $24.1 million in the 52 weeks ended Feb. 29, from $23.8 million in the prior year, which covered 53 weeks, the Auckland-based company said in a statement. It already reported annual sales on March 10, which rose 7.8 percent to $387.6 million led by KFC, Carl's Jr. and Starbucks, while revenue from Pizza Hut fell.

The company carried out a major expansion in March, making its first foray across the Tasman by buying QSR Pty, the biggest KFC franchisee in NSW, with 42 stores, for A$82.4 million in cash and scrip. Its shares have soared on the prospects of Australian earnings growth from KFC, its most successful New Zealand brand. It announced a 10.5 percent gain in dividend to 21 cents a share and said barring any unexpected hiccoughs, profit in the current year is forecast to be $28 million to $30 million.

"Restaurant Brands continues to enjoy strong cash flows and dividend levels will continue to increase as the company continues to enhance its profit performance," it said. "The new Australian acquisition is expected to contribute to increased profitability from late in the first quarter, but there will be some further one-off transaction costs."

Profit in the latest year was restrained by $900,000 of costs from the company's long-term incentive scheme and costs related to the QSR acquisition of about $1 million. QSR is expected to contribute A$100 million in annual sales and A$15 million in store earnings before interest, tax, depreciation and amortisation.

Group revenue for the year rose 26 percent to $404.1 million, including of sales of ingredients and packaging materials to independent franchisees, Restaurant Brands said.

KFC sales rose 6.6 percent to a record $282.5 million, or an 8.8 percent gain on a same-store basis, while ebitda climbed 13 percent to $57.2 million, also a record, in what the company said was "another year of strong sales and margin growth." Total stores in the year remained at 91 and its store refurbishment programme is winding down as 86 have been completed, it said.

Pizza Hut sales fell 7.2 percent to $44.9 million and ebitda dropped 23 percent to $4.9 million, reflecting the sale of six more stores to independent franchisees and the closure of a Rotorua outlet. Same-store sales rose 2.6 percent. By year-end the company had 39 outlets with another 50 owned by franchisees.

Starbucks Coffee recorded a 2.9 percent increase in sales to $26.8 million and ebitda growth of 3.7 percent to $4.4 million, with total outlets reducing to 25 with the closure of a Wellington outlet. Same-store sales rose 5.1 percent.

Carl's Jr, the company's newest brand, enjoyed the fastest growth, with sales jumping 66 percent to $33.4 million and ebitda up 187 percent to $400,000. Same-store sales slipped 5.1 percent. The company said it had introduced a number of initiatives to improve margins and "a more robust profit result is forecast for FY17". Total outlets were unchanged at 18.

The shares reached a record $5.19 yesterday and closed at $5.10.the stock has gained about 15 percent this year.

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