Mar 2007 Financial News

Prestige Holdings Limited Releases Year End Results

Mar 01, 2007

Results for the Year Ended November 30, 2006

In what was described as the most challenging year for the Company since its Initial Public Offering (IPO), Prestige Holdings Limited (PHL) reported Earnings Per Share (EPS) of 23.9 cents for the year ended November 30, 2006. This was 45.49 per cent less than the previous year’s EPS of 46.4 cents. The Chairman attributed the lackluster results to two main reasons:

1. The media scare at the beginning of its financial year which originated from the Aspergillosis virus. This resulted in a significant fall in its flagship’s (KFC) sales and profits
2. Severe labour shortages and cost inflation as a result of the rapid growth in the Trinidad & Tobago economy.

The fourth quarter was in fact the worst performing quarter reporting a loss of approximately 2.52 cents to the EPS. This quarter included exceptional charges of $3 million due to marketing and advertising activities that were targeted at KFC sales recovery efforts. This resulted in a loss of approximately 5 cents per share.

The Company’s Sales increased 6.35 per cent to $583.225 million while its Cost of Sales rose 7.12 per cent to $396.101 million. This resulted in a 4.75 per cent increase in Gross Profit. A notable rise in Operating Restaurants Expenses of 18.32 per cent to $152.645 million resulted in a 30.52 per cent drop in Operating Restaurants Profit to $34.479 million. These results were generated from an average of 76 operating restaurants compared to 74 restaurants in 2005. The Group ended the year with 79 restaurants in operation. Net Finance Costs rose 19.36 per cent to $10.606 million.

Profit Before Taxation from Operating Restaurants declined 41.40 per cent to $23.873 million while Pre-Opening Expenses rose 74.84 per cent to $2.397 million. The combination of small growth and large expenditure resulted in a 45.45 per cent drop in Profit Before Tax to $21.476 million. The Effective Tax Rate rose considerably from 26.08 per cent in 2005 to 42.92 per cent in 2006. Ultimately, Profit After Tax fell 57.88 per cent to $12.258 million.

In 2006, two new KFC restaurants were built bringing the total to 50 units in the Trinidad & Tobago market. The Chairman has stated that current sales from this brand have been restored to normal levels and are improving. Additionally, measures have also been put in place to deal with the severe labour shortages and judicious price adjustments have been implemented to counter food input increases, all with very positive results. In the Dominican Republic, the economy continues to be stable and the KFC brand is performing well. PHL recently opened its eleventh KFC restaurant in this market and is looking towards further growth.

The TGI Fridays’ operations in Trinidad, Santo Domingo (Dominican Republic) continued to produce outstanding results. A second restaurant is expected to be opened in the city of Santiago, Dominican Republic in 2007.

Its restaurant in Kingston Jamaica, has seen improved sales and PHL expects this unit to be profitable in 2007 after two years of heavy losses. A third restaurant in San Juan, Puerto Rico was opened in September 2006 and the Company has stated that it has now established a base for profitability and growth in this market. The recent government fiscal crisis adversely affected the restaurant industry and building of its planned fourth unit in 2007 is subject to market recovery. Its first restaurant in Bridgetown, Barbados has finally commenced construction after long delays in obtaining the required building approvals.

Its Pizza Hut business suffered similar labour shortages and cost inflation challenges as with KFC and profitability fell short of plan. The Company is however experiencing a turnaround to acceptable performance levels in the current year to date.

The Long John Silver’s brand has received good market acceptance and PHL expects profitable growth in this business unit. The performance of TCBY Treats was below expectation but it expects with increased penetration of the grocery segment these results would be improved.

The Chairman has stated its KFC business which is the major source of its developmental capital has substantially recovered from the challenges of 2006 and expects its other business units to deliver better results in 2007.

Given the challenges faced by the Company we are forecasting Earnings Per Share of 35 cents for the year ended November 30, 2007. At this forecast and the current price of $6.50, PHL is trading at a price/earnings ratio of 18.57 times. This ratio is considered high for this Company and as such we recommend a SELL.

The Board has recommended a final dividend of 8 cents per common share which would bring the total dividends payable for the financial year 2006 to 15 cents compared to 21 cents in 2005. Once approved, the final dividend will be paid on May 11, 2007.

Sreshtha Tewari
WISE Research Team