Restaurant Brands: KFC Sales Figures Explained - Part 2

I am back to explaining the latest quarterly KFC sales regarding Restaurant Brands [RBD.NZ] to shareholders because the company and business media seem to keep ignoring the bogeyman of inflation.

It is something I have mentioned many times before but it must be stressed once again because Restaurant Brands shareholders and prospective investors in the company must be given the full picture when it comes to RBD managements disclosure over their KFC sales.

The "record" $54 million of sales reported in today's result for KFC is only a record in terms of 2010 dollars. KFC are actually serving up less chicken to fewer customers.

Their best listed year was in 1997 where they did $172.3 million in KFC sales. That is because of accumulated inflation at a very conservative 3% annually over the last 13 years amounts to 39%.

Now lets assume conservatively that RBD sell $220 million of KFC for the full year 2010 and compare that figure to the 1997 record year.

39% inflation means in 2010 dollars RBD would have to sell $67.2 million more chicken just to match the record made in 1997.

$220 million is a fair way from the figure they need to make, of $239.5 million, just to match the 1997 record.

I am not an accountant and nor do I think I need to be but if such emphasis of "record sales" is placed on a figure by RBD management to gain market approval that the expenditure of 10s of millions of shareholder funds on KFC refurbishment in order to attain those sales then that figure should be clearly accurate and take inflation into account. That is simply not the case here.

Granted one can do the math oneself to come up with relative figures and compare year by year sales but having said that, to use current sales figures as a tool to push further shareholder expenditure must be justified to the nearest decimal point.

RBD's figures therefore do not pass this test and furthermore for analysts and business reporters to accept this without question is surely remiss to some extent.

Still my record with this company probably goes back longer than many on the RBD board or those professional stock analysts in their professional capacity.

To say KFC are improving sales is true but to say the KFC product is selling in record numbers is highly misleading, to the market and to its shareholders. In order to show a decent "recovery" of the brands sales that justify the hoopla from RBD management and brain dead business writers KFC sales would at have to get nearer to $300 million per annum, than the $220 million it is now achieving.

Once again, I am not an accountant but I would like to see inflation taken into account when businesses do their books, at lease an annotation in the audited reports of what the inflation rate was in the last year so a stockholder or a prospective stockholder can make a fully accurate comparison before they decide to buy, or not as the case may be.

I am a big fan of the KFC product.


Restaurant Brands @ Share Investor

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Pizza Hut sell-off provide opportunities all-round
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2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
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No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum





c Share Investor 2010

Allied Farmers: Prosecutions should be on the cards

I do not understand why the Securities Commission is not pursuing directors of Allied Farmers Ltd [ALF.NZ] for fraudulent behavior over failure to disclose the true value of assets bought off Hanover Finance in its prospectus issued in November 2009 before the restructuring of Allied and the assuming of new shareholders owned money by Hanover into the Allied group.

Assets assumed by Allied from Hanover are now worth 30% of what they were valued at in the November 2009 prospectus and ALF shares are trading below 6c.

Rob Alloway from Allied is now assessing assets on its books acquired from Hanover:

Yesterday Allied Farmers managing director Rob Alloway said it had completed assessment on a further $69.1 million of loans or around 65 per cent of the loans book acquired from Hanover and would be writing them down by $33.6 million. A further $37.5 million in loans had yet to be assessed.

Excuse me for my ignorance but didn't he and his mates do due diligence on Hanover assets before issuing their prospectus or did Rob merely take Mark Hotchin and Eric Watson's word that there was close to half a billion of assets to be realized for new investors in Allied Finance and existing Allied shareholders.

Of course given the smoke and mirrors nature of Hanover's business their loan book was likely to be one filled with inconsistencies, overvaluations, inter-party loans and poor record keeping but it was up to Rob and Allied and their mates to do sufficient homework so as to give Hanover investors an accurate picture of what they could get out of a sale of Hanover assets to Allied and therefore give them a real choice as to whether they should have agreed to the deal or vote to wind up Hanover.

Grant Samuels wrote an "independent" report into the deal late last year and said:

The Allied Farmers proposal is superior to the status quo and a high risk of receivership for Hanover Finance investors, according to Grant Samuel. NZ Herald

Rubbing salt into the wound the Samuel's report indicates:

Samuel said an alternative cash offer for Hanover was a remote possibility, and if it were to eventuate from another party it would be at a substantial discount to the current book value.
NZ Herald

Samuel's report then was clearly wrong on all counts and the money paid to them for the report came from Allied Farmers pockets.

I criticized their report last year but there seems to be few in the mainstream business media willing to lam-bast these bastards - the big boys protecting themselves again?

I would be loathed to say that the Allied deal done last year was a purposeful conspiracy to get Watson and Hotchin off the hook, but it has (so far?), and those involved in helping; Allied, Samuels, Hanover investors and Allied Farmers shareholders, et al should all feel some shame.

Where the hell are the real independent appraisers willing to call a spade a spade instead of fraudulent reports agreeing with the participants in the deal. Who the hell is protecting the investor, besides their own savvy and financial education?

I just wonder where The Securities Commission and the NZX are on the blatant failure to disclose the true value of Hanover assets in the November 2009 prospectus.

It is their duty to at least make a public statement but what SEC really need to do is break down the door of the Allied Farmers head office, grab the books and do a forensic accounting analysis on the Hanover/Allied deal.

Perhaps then we will find out where the bodies lie.




Allied @ Share Investor

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c Share Investor 2010

Ecoya 2010 Full Year Profit: More of the same to come?

Ecoya Ltd [ECO.NZ] had its IPO listing on May 3 2010 and its 2010 full year profit snuck out to the market late last Friday isn't going to blow out all the candles on your celebratory cake.

For starters the loss indicated by management in its prospectus, at $2.35 million, is almost $100,000.00 more than forecast on revenue of $3.9 million.

The loss is around 250% more than the previous year.

These forecasts were stated in the Ecoya Prospectus just 2 months ago.

The differences in forecasts and actual results were explained variously as unexpected stocktaking and variances in customer receipts.

There is also some more expense for shareholders down the line with up to $675,000 to be lent to "employees" (see directors) to buy ECO shares. This sum is 6.5% of the $10.1 million raised.

To be fair the company is in its listed infancy but it has been operated by the current management for a number of years as a private business so they should have an accurate handle of the way the business operates by now and quite clearly they don't.

I would rather have seen the company under promise and therefore over deliver but the current result would put a sout taste in the mouth of shareholders, especially considering ECO shares are down more than 10% thus far.

Having been a negative bugger, their first profit report as a listed company shouldn't rule out any sort of recovery in company fortunes sometime in the future but to kick off business in this manner isn't a good look.




Ecoya main shares are trading at 89c on extremely low volumes, its low for the year.


Ecoya Ltd @ Share Investor

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c Share Investor 2010

Patience Will Pay off

I am getting a wee bit excited again because of the global market turmoil and downwards stockmarket prices - it is dull and dangerous when share prices rocket beyond their real intrinsic value - because good stocks are starting to look attractive again.

I started buying stocks in the Share Investor Portfolio again when they approached my ball park for buying back in April 2009 and didn't stop until shelling out $35,000.00 for Mainfreight Ltd [MFT.NZ] and The Warehouse Group Ltd [WHS.NZ] in July of that year. I got what I thought were comparative bargains and was happy with my purchase then and still am now.

The thing is, and this was inevitable given the fragile nature of the worlds economy, markets have stepped back into the fear cycle due to the bleak outlook and have started moving in a southwards trajectory.

Bad if you bought at the peak of the buying frenzy over the last year but good if you are the patient little tortoise just peeking out from under your shell again.

It is clear to me though that this is just the beginning of a market slide and better opportunities await for those will to marketwatch and twiddle their thumbs for a while.

Over the last year or so we have seen markets like the DOW recover from their lows to be up by more than 60% at its peak earlier this year, a rise bigger than the one after the great Wall Street crash of 1929. We have to expect, given that, that our markets are going to correct themselves from these peaks and find a level more suited to the uncertainty and bleak outlook for the global economy and as markets always overreact to bad and good news we will probably see some relative bargains to be had.

The DOW trading at levels close to its pre Sept 2008 slide high, is not an index that mirrors what is happening now, let alone what could happen in the future with all this State debt sloshing around.

The New Zealand Stockmarket has lost around 10% off its mid April 2010 peak to finish at 3047 on the Top 50 Gross Index last Friday and as night follows day it always follows the fortunes and misfortunes of its much bigger brother across the Pacific and then a few thousand miles more.

Be ready then to buy as the market falls. Buy good quality and the best buys are often stocks you are already holding in your portfolio that have perhaps dropped below your initial buy price. Hell you bought at that price, if they are on sale and the long term company prospects are good why not stock up?

The key is patience though. I think markets are going to fall a significant way from current levels and some stocks are going to come off worse than the average. It is very hard to pick market lows (I would say impossible) so buy at levels you are comfortable with but don't buy yet - unless you know something I don't.

A slow race to the finish line will make you a winner.


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c Share Investor 2010