Competitive Strain Inquiry

The decision that the Commerce Commission are currently mulling over, to give the go-ahead for the Warehouse to be sold to either Foodstuffs or Woolworths Australia, is a very clear one.

The competitive advantage that either one of these two companies would have if they were given approval and won a bidding war would allow a larger company to dominate not only the grocery sector but the variety goods sector as well.

The removal of a third and in time, eventually larger competitor in the Warehouse, will remove the ability of the public to have a viable chance for cheaper grocery prices and leave New Zealand with the current duopoly, with high prices and poor service.

To go back to two players in the New Zealand grocery business will be a missed opportunity that will probably never come again for generations and put the sector back where the variety goods sector was before the Warehouse came along 25 years ago.

Will the two players in this drama cite the sort of nonsense that Auckland Airport and Regency Duty trot out when they tell us less competition will mean more choice and cheaper prices for consumers? Well the answer is they already have. Those are two of their arguments for both of them buying the Red Sheds. How dumb does business and the Commerce Commission think the New Zealand consumer is. Clearly terminally so.

For too long New Zealand consumers have come off second best when it comes to the competitive advantage of having manifold players operating in an industry. When we get a chance to have more competition in an area so important and so uncompetitive as the grocery sector is, then we need to grab it with both hands and our watchdogs need to do their jobs and come out on our side for once.

Airlines, retail petrol, communication and a myriad of other industry have been given the once over lightly from the Commerce Commission when it comes to mergers, anti-competitive behaviour and the like.

If Woolworths and Foodstuffs want to expand in this country then they have only got to plunk down the some of billions that they have in revenues and go head to head with the Warehouse in a truly competitive environment and let the best man win. Carnage or not that is true competition.

We have only got to look at Woolworths anti-competitive modus operandi on the North Shore of Auckland where a new Foodstuffs Supermarket has sat empty for 2 years because WW has objected to it opening on the bizarre grounds that it will create too much traffic, strange when a Mitre 10 Mega has opened just around the corner. Do we expect Woolworths to operate fairly if they are allowed to expand by buying the Warehouse?

The alternative to a buy by the aforementioned parties would be for a party with a small presence already doing business here or a completely new player from offshore, thereby making a the purchase a competitive one that keeps three players in the grocery business.

New Zealand is a small market and often, in business sectors of monopolies, duopoly's and the like market dominance is all too frequent. While I'm not against business getting bigger, areas like the grocery sector that are extremely unrepresented by multiple players must be open to such when the opportunity arises. The Commerce Commission must therefore make the decision, and soon, to keep the grocery sector open to real competition.


C Share Investor 2007

Business Mis-Management

The recent and distant past of company management and its track record in New Zealand leave a lot to be desired.

While the calibre of management in selected companies listed on the NZX is clearly very good: Mainfreight Ltd [MFT.NZ], Pumpkin Patch, Michael Hill, Fletcher Building, Rakon among a shortlist, the great bulk of management is littered with far too many candidates for the top prize of mis-manager of the year.

On the negative side the list includes Feltex at the top followed by Restaurant Brands ,with Telecom, The Warehouse(previous Management)Tourism Holdings and Sky City all worth a mention.

The bottom rung seem to share some common traits. Basic bad decision making, at times it is part of the culture- Telecom, in Feltex Carpets case bad decision making was endemic and used to cover up problems, Restaurant Brands suffers from a culture of denial when it comes to decision making-witness the complete ignorance of store level service, Tourism Holdings simply couldn't make a decision as to what their problems were caused by and Sky City Ltd [SKC.NZX] has made a hastie decision to buy a cinema unit that drags down profit and is capital hungry for no return but they refuse to make the decision to let go and cut lose a bad business.

The Warehouse's woes were widely canvassed but they suffered from a man,Tindall, that rushed into a new business with too much confidence, ignoring basic differences in the shopping culture of 2 different countries.

Managers are paid to manage and that means, as much as possible, decisions being made at the right time and in the right direction as consistently as possible. When managers begin to garner a track record of bad decision making, it is time to look at the problem, fix it if possible or move that manager on if an easy fix isn't possible.

Shareholders need to have a means of making their opinions known to those who manage their investment in the company they have bought and apart from the likes of Bruce Sheppard from the Shareholders Association, the rest of us appear to be sheep when it comes to standing up for our vote on the board.

The buck stops with the person at the top rung of management but a clear stumbling block with our listed and private companies is the bottleneck of middle managers ,who often serve the purpose of mere relay people, of information from productive workers on the shop floor to those executives at the top. We could do with less of these people in our companies, in my humble opinion they can confuse the clear messages that must get through from upper management to shop floor and back in order for a company to function efficiently and competently.

Restaurant Brands suffers from this syndrome in spades. Store workers don't get to communicate clearly as to what is going on at store level directly to upper management, problems are filtered through a multifaceted layer of store, area and regional management before getting operating concerns to the top.

Of course RBD store managers often don't have the motivation to let upper management know if there are problems at store level anyway, lest they be in the gun themselves. This happens to a lesser extent in other New Zealand companies but is still clearly a problem. Telecom suffers badly from the same syndrome.

The solutions to our problems may lay in what Toyota calls the "Toyota Way" that is, where there is a free flow of reciprocal critical information between upper management and productive workers. In essence this means that a shop floor worker has access directly to upper management and vice versa.

Like a pyramid of cheerleaders whispering advice from the bottom of the pile to the top, by the time it gets there the message is often completely different from its original form. Remove the middle of the pyramid and it will collapse but remove middle management from the management pyramid and it will serve to make the company stronger.



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c Share Investor 2007

Restaurant Brands FY 2007 Analysis

A $3.6 M loss and a cut in the dividend of 2.5c No surprises there.

Accentuating the less negative and burying all the really negative stuff: big losses, increased running costs, a $70m increase in borrowing and continued capex on KFC.

The biggest worry that RBD have is with KFC. They are struggling with sales, dollar wise and quantity of chicken product sold while at the same time the "transformation" that management keep talking about is going to cost around 60M, with only 25% of refurbishments done and 15M already spent. The big problem with this is that they seem destined to repeat the same updates to stores in 7 or so years time, as they have done 7 years previously.

The rest of today's announcement is really a case of the same old crap but a different reporting day and isn't worth commenting on save the same old mantra that I keep repeating that it is service and I would have to say now(didn't used to be)food quality at KFC and PH that is hurting RBDs sales and bottom line. That is once again missing from management's spin.

We have also heard today a comment about "...whether we will sell the company..." will be announced to the market in about a week. That position has changed somewhat over the last couple of weeks when management announced "...we are talking to several interested parties..."

Today's language seems a spin spun because any "interested parties" have probably lost interest and the comment looks better for management as it perhaps shows that they had some control over any sale when the facts show that the company just ain't a buy.

Sell on the next profit rise.


Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
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
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum




Amazon

KFC in China: Secret Recipe for Success by Warren Liu Buy new: $14.99 / Used from: $2.43 Usually ships in 24 hours

c Share Investor 2007

Restaurant Brands FY 2007

RESTAURANT BRANDS NEW ZEALAND LIMITED

Directors' Report to Shareholders for the Year ended 28 February 2007

Note: The company adopted International Financial Reporting Standards (IFRS) in the current financial year. All prior year comparisons have been restated under IFRS to enable a clearer comparison.

Key Points

o Total sales for New Zealand operations were $293.6 million, up 1.7% on prior year with same store sales up 0.8%.

o Record sales for KFC at $182.7 million (up 7.1% on a same store basis) and Starbucks Coffee $31.3 million, (up 3.2% same store).

o Group Net Profit after Tax (excluding non trading items) was $6.5 million, down 47% on prior year, mainly due to a disappointing result for Pizza Hut.

o Sale of the Pizza Hut Victoria business has been largely completed with 27 stores sold to independent franchisees or closed as at balance date, five more stores settled subsequent to balance date, and sale and purchase agreements in place for most the remaining 18.

o Non trading charges of $14.4 million largely arising from exit costs and write downs on the Pizza Hut Victoria investment resulted in a reported Group Net Loss after Tax of $3.6 million.

o The KFC brand transformation continued its roll out with significant sales growth in 21 transformed or new stores and further stores planned or under construction for the new fiscal year.

o The KFC master franchise for New Zealand was renewed 9 months early with extra 10+10 year franchises for transformed stores.

o The final fully imputed dividend has been reduced to 3.0 cents per share pending improvements in the company's trading performance and cash flow position.

Group Operating Results

The 2006/7 year has been a difficult one for the company with a strong performance by the KFC business offset by a major deterioration in the trading position for the Pizza Hut businesses in New Zealand and Victoria.

Net Profit after Tax excluding non trading items was $6.5 million for the year compared to $12.3 million for the prior year. A $1.6 million improvement in KFC EBITDA was not sufficient to counteract a $6.8 million decline in Pizza Hut earnings in New Zealand.

Non-trading charges of $14.4 million mainly comprised $9.9 million in write offs and exit costs from the Pizza Hut Victoria investment, together with fixed asset write offs under the KFC transformation programme, Pizza Hut New Zealand impairment charges and costs arising from recent takeover activity.

Total sales were $318.7 million up 0.7% on prior while New Zealand operations sales were $293.6 million up 1.7%. Both KFC and Starbucks Coffee demonstrated solid sales growth, up 7.1% and 3.2% respectively on a same store basis, but Pizza Hut New Zealand sales dropped $9.4 million to $79.7 million for the year.

Store EBITDA for the year was down $8.1 million to $37.0 million largely on the back of the reduced Pizza Hut earnings.

Above store overheads (G&A costs) were reduced by 7.8% on prior year with some cost reductions in New Zealand and a downsizing of the Australian operations.

Depreciation charges were flat to prior year with increases from KFC transformation capex offset by cessation of a depreciation charge in Pizza Hut Victoria with the reclassification of the Australian business as held for sale.

Year end store numbers at 237 in New Zealand were two down on February 2006 following some Pizza Hut store closures. Twenty three stores are left in Australia at balance date, with 5 settling shortly after.

KFC

KFC operations continued to build strong sales and improving margins as the impact of the store transformation programme gathered momentum. Total sales of $182.7 million set a new record for the brand up 6.3% (7.1% same store) on the prior year. This was especially pleasing given the number of stores closed for transformation work and the removal of the delivery business from the last six stores.

Earnings were also up strongly, with EBITDA improving by $1.6 million (5.4%) to $31.2 million (17.1% of sales).

A further 11 stores were transformed over the year bringing total transformed store numbers to 21, nearly a quarter of the total network. Eight are scheduled for completion in the new fiscal year.

At 87, store numbers were down one on the prior year with two stores closing at lease end and one new store opening in Rototuna near Hamilton.

Pizza Hut New Zealand

A particularly difficult year for the Pizza Hut New Zealand business saw some significant reductions in sales volumes with consequent flow on effects to profitability. The impact of major competitor growth and aggressive pricing activity saw sales drop 10.5% to $79.7 million for the year (down 11.8% same store).

The impact of the drop in sales, together with cost increases, particularly in labour, saw margins suffer accordingly, with the brand producing an EBITDA result of $5.1 million for the year, $6.8 million down on prior year.

A number of new operational and marketing initiatives are underway to address the shortfall which will arrest this decline in the new financial year.

One store opened in the period, being Hobson Street in Auckland. A number of stores were relocated and delco stores built to replace red roof restaurants. As part of the announced strategy of progressively closing red roofs, four of these restaurants were closed over the year, bringing store numbers to 103.

Starbucks Coffee

With continued sales growth of 12.2% the Starbucks Coffee business produced total sales of $31.3 million for the year. Sales grew 3.2% on a same store basis.

The combined impact of higher labour costs and lower exchange rate last year meant that the brand was under some margin pressure. Starbucks EBITDA was $3.6 million, $0.3 million behind prior year. Some price increases and a weaker US dollar will assist in addressing this in the new year.

Three new stores were opened at Symonds Street and Sylvia Park in Auckland and Chartwell in Hamilton. This brought store numbers to 47 by year end.

Pizza Hut Victoria, Australia

Following the company's announcement in April 2006 of its intention to exit this business, there has been an active campaign to sell stores off to independent franchisees. This has proved to be a difficult and drawn out process in dealing with landlords, potential new franchisees and Yum! as franchisor.

Twenty-seven stores were sold or closed over the year with another five settling immediately after year end. The company has agreements for sale on twelve out of the remaining eighteen with full exit expected by the end of the calendar year.

As the sale process has proceeded, the business has incurred further losses, finishing the year with an EBITDA loss at $2.9 million. No further losses are anticipated to be incurred for this business in the new financial year.

Cash Flow and Balance Sheet

The deterioration of the Pizza Hut trading position in both Australia and New Zealand has flowed through to a reduction in operating cash flows to $20.8 million from $28.2 million in the prior year.

The Company made net investments totaling $29.7 million in new stores, store upgrades and information technology over the year. Expenditure on KFC stores comprised more than half of the total invested, with franchise fees (mainly KFC franchise renewals) comprising another $2.9 million.

As a result, borrowing levels have increased over prior year with bank debt up to $48.6 million. New banking facilities of $70 million were put in place at year end to meet future requirements.

Accounting Policies

This is the Company's first annual report to shareholders to be completed under the International Financial Reporting Standard (IFRS). Full details of material changes to accounting policies will be in the annual report and are published on the Company's website, www.restaurantbrands.co.nz.

Under the new accounting standards, the company no longer amortises goodwill. It has however reviewed the carrying value of goodwill for its Pizza Hut New Zealand investment on the basis of future estimated cash flows from the business and taken up an impairment of $1.1 million on the carrying value of its investment. The company has also recognized in the current year an estimated value for any future losses on the remaining stores in its Australian investment.

Franchise Renewals

The company renewed the KFC franchise for most of its stores in August 2006, nine months ahead of schedule. As part of these negotiations it secured an option to take a further 20 year franchise on its KFC transformed stores. A further number of Pizza Hut franchises become eligible for renewal in May 2007.

Board and Management

During the year, Mr Bill Falconer resigned as a director. The board records its thanks to Mr Falconer who had been chairman since the company was floated in 1997. Mr Ted van Arkel assumed the role of chairman in July 2006.

Sue Suckling was appointed to fill a casual vacancy in June 2006.

Vicki Salmon resigned as director and chief executive in March 2007. She too had been a director of the company from the beginning and the board also recognizes her contribution.


Dividend

Given the reduction in earnings in the past year and the associated adverse impact on cash flow, together with the significant capital commitments in the KFC transformation project and franchise renewal payments, the board has elected to reduce the final dividend to 3.0 cents per share. This brings the total dividend for the year to 5.5 cents.

The dividend will be paid on 29 June 2007 as fully imputed to all shareholders on the register as at 5pm, 15 June 2007. A supplementary dividend of 0.52941 cents per share will also be paid to overseas shareholders on that date.

The dividend reinvestment plan will remain suspended for this dividend.

Outlook

KFC is expected to continue to generate sales and margin growth at levels consistent with the current year. The company will continue to invest significant levels of capital in order to complete its store transformation programme.

Directors expect the Pizza Hut New Zealand business to see a recovery in both sales and margin, but this will take some time as new operational and marketing initiatives take effect. The progressive closure of a number of red roof stores will assist margins.

Starbucks Coffee will see continued sales growth and a margin improvement on prior year.

While the 2006/7 year was particularly difficult, the directors fully expect that the large number of changes being made to the Pizza Hut New Zealand business, coupled with the final exit from Victoria and the continuing positive momentum in KFC, will deliver a significant improvement in operational performance in 2007/8.


For more information contact:

Restaurant Brands New Zealand Limited
Ted van Arkel, Chairman or Grant Ellis, Company Secretary

Phone: (09) 525 8722


RESULTS FOR ANNOUNCEMENT TO THE MARKET
APPENDIX I (Rule 10.4)
PRELIMINARY FULL YEAR REPORT ANNOUNCEMENT
Restaurant Brands New Zealand Limited
(Name of Listing Issuer)
For Full Year Ended 28 February 2007
(referred to in this report as the "current full year")

Preliminary Full year report on consolidated results (including the results for the previous corresponding full year) in accordance with Listing Rule 10.4.2.

This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on audited financial statements. If the report is based on audited financial statements, any qualification made by the auditor is to be attached.

The Listed Issuer has a formally constituted Audit Committee of the Board of Directors.

Reporting Period 12 months to 28 February 2007
Previous Reporting Period 12 months to 28 February 2006

Amount (000s) Percentage change
Revenue from ordinary activities NZ$294,061 1.7%
Profit (loss) from ordinary activities after tax attributable to security holder. NZ$6,307 (55.2)%
Net profit (loss) attributable to security holders. NZ$(3,554) (168.4)%

Interim/Final Dividend Amount per security Imputed amount per security
NZ 3.0 cents NZ 1.477611 cents

Record Date 15 June 2007
Dividend Payment Date 29 June 2007

Comments The Company's Australian investment has been classified as a discontinued operation and a net deficit of NZ$9.861 million for this business recorded in the current financial year. The result from ordinary activities represents New Zealand operations only.


Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
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
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum


Amazon

KFC in China: Secret Recipe for Success by Warren Liu Buy new: $14.99 / Used from: $2.43 Usually ships in 24 hours

c Share Investor 2007