Dec 2011 Financial News

Notice to Shareholders of Prestige Holdings Limited

Dec 02, 2011

NOTICE TO SHAREHOLDERS OF PRESTIGE HOLDINGS LIMITED REGARDING THE ACQUISITION OF THE SUBWAY RESTAURANT BUSINESS IN TRINIDAD & TOBAGO AND THE INTENDED EXIT FROM THE DOMINICAN REPUBLIC

Port of Spain, December 1, 2011:

SUBWAY ACQUISITION: Prestige Holdings Limited (PHL) today announced that under an Agreement dated December 1, 2011, it will acquire 100% of the Subway Restaurant business in Trinidad and Tobago and related assets from Main Stream Foods Limited with effect from said date.

Main Stream Foods Limited is a successful private limited liability company, which was established in October 1997, and currently owns and operates forty (40) Subway restaurants throughout Trinidad & Tobago.

This acquisition is estimated to provide an increase in earnings per share on a standalone basis, and improving as PHL implements synergies and takes advantage of the Subway Brand’s continued growth and development in Trinidad & Tobago. For the financial year 2012, it is estimated to add approximately $170 million to our sales, and $12.7 million to net after tax profit, before factoring interest cost on the acquisition financing. These estimates do not include new store growth and synergies from PHL’s existing operations of sixty-five (65) KFC, Pizza Hut and TGI Friday’s restaurants in Trinidad & Tobago.

The purchase consideration of $110 million will be financed by: (i) an unsecured loan of $65 million bearing a fixed interest rate of 7.5% on the principal balance, from Victor E Mouttet Limited, the Parent Company, (of which $5 million will be repayable in each of the succeeding three years), and an interest free vendor’s loan of $45 million repayable eighteen months from close of the transaction. The Parent Company’s loan is convertible to common shares at PHL’s option, through a Right’s Issue of up to $50 million. As soon as it is practicable, PHL will review the Group’s combined capital structure, to determine the optimal debt to equity ratio, and take appropriate action on its capitalization.

This acquisition will compliment PHL’s position as owner and operator of the 65 KFC, Pizza Hut and TFI Friday’s restaurants in Trinidad & Tobago, and is expected to have a positive impact on the Group’s strategic position in the restaurant industry, and its future performance and earnings per share. This represents a significant step forward for the PHL Group and augurs well for our combined future. We would like to take this opportunity to welcome the Subway Management and Staff to the PHL Group. Together we will forge a dynamic future.

KENTUCKY FOODS GROUP LIMITED (KFGL) INVESTMENT: Since PHL invested in the 50/50 KFGL Joint Venture in the Dominican Republic in 2000, the business has experienced volatility in its performance, starting with the economic crisis in the DR in 2002/2003. KFGL currently owns and operates twelve KFC and two TGI Friday’s restaurants. In October 2009 PHL gave up management control to the Joint Venture Board of Directors, and KFGL has since suffered frequent management changes and significant losses, requiring substantial working capital support from the JV partners. The Directors of PHL have, since ceding management control, been considering a possible exit from this market. The carrying value of this investment is $29.5 million, and we expect a significant impairment of our investment; as a result the Board agreed that an appropriate provision will be made in PHL's financial statements for the year ending 30 November 2011. However, the JV partners are in discussion with three possible purchasers of KFGL’s restaurants, and the level of success of these negotiations will determine the amount of such impairment provision.

Our investment in KFGL is a sunk cost, and while the impact on our P&L in 2011 would likely be significant, PHL is in a healthy debt/equity position to adequately accommodate the eventual write off. The impairment of this investment would not have any impact in our cash position, and PHL's directors view the decision to exit this market positively, as the need to support KFGL would cease, thereby having positive effects on management’s focus, and our future cash flows and earnings. We do not expect the impairment provision to affect our dividend policy and payments.

Joseph P. Esau
Chairman


Source:
The Trinidad and Tobago Stock Exchange Limited
Friday December 2, 2011