Mar 2008 Financial News

PHL Releases Year End Results

Mar 05, 2008

Results for the Year Ended November 30, 2007

Earnings Per Share
For the Year Ended November 30, 2007, Prestige Holdings Limited (PHL) reported Earnings Per Share of 24.4 cents, up a minimal 2.1 per cent or 0.5 cents on the comparable EPS of 23.9 cents in FY06. According to the Chairman, the Group’s disappointing results were impacted by severe labour shortages and cost inflation in the Trinidad and Tobago businesses. Also, in Puerto Rico the TGI Friday’s restaurants suffered increased losses resulting from the deepening recession in that economy.

Additionally, pre-opening expenses of $2.3 million were incurred during the year as well as significant carrying costs for the high number of restaurants in Trinidad and the Dominican Republic that were closed for renovation.

Financials:
• Sales up 12.8 per cent from $583.2 million to $657.7 million
• Gross Profit up 12.7 per cent to $211.0 million
• Operating Restaurants Profit down 2.7 per cent to $33.5 million
• Net Finance Costs up 18.7 per cent to $12.6 million
• Profit After Taxation down 16.0 per cent from $12.3 million to $10.3 million

Dividends
The Board recommends a final dividend of 8 cents per share. If approved, this will bring the total dividend paid for FY07 to 15 cents (2006: 15 cents). The proposed final dividend will be paid on May 14, 2008 to shareholders on record on April 30, 2008.

The Chairman gave the following synopsis of the Company’s Brands:

KFC Operations
In FY07, two new restaurants were opened in Trinidad & Tobago. While sales have improved the Company continues to be challenged by rising food costs and labour shortages. In the Dominican Republic two restaurants were also opened during the fiscal year and while the business is performing well, the operations were also impacted by food cost inflation.

T.G.I. Fridays
Two of the three restaurants in Trinidad were closed for major re-imaging and the lost sales and carrying costs impacted on the Company’s profitability. The restaurant in Santo Domingo, Dominican Republic continues to perform well and a second restaurant is scheduled to open in Santiago next month. The restaurants in Puerto Rico suffered significant loss from the economic recession which started in 2006. At the end of the year, the agreement with the Company’s local partner was terminated and their financial obligations settled. The Company has entered into a joint venture agreement with a new local partner and it expects that this relationship would be beneficial to the Group. After two years of losses, the Jamaican restaurant is now operating profitably. While sales have exceeded expectations in the Barbados restaurant, the Company also experienced higher than expected costs.

Other Brands (Pizza Hut, Long John Silver’s and TCBY)
In November 2007, the Company launched the “Entertainment Centre” comprising the KFC, Pizza Hut, Long John Silver’s and TCBY Treats brands at the former Windsor cinema property in Arima. This concept has been well received by customers. The Pizza Hut restaurants performed well and there are plans to expand the brand’s market presence. A third Long John’s Silver restaurant was opened in Arima at the end of the year. While TCBY’s performance is still unsatisfactory, the company is expanding the use of its products in the KFC, TGI Friday’s and Pizza Hut restaurants with positive effect.

Additionally, the Chairman has stated that the Company expects first quarter results to be less than the previous year due primarily to the losses in Puerto Rico but expects improvement as the year progresses.

Outlook and Recommendation
Given the challenges faced by PHL we are forecasting an EPS of $0.24 for FY08. At the forecasted EPS and a current price of $4.40 this share is trading at a price to earnings multiple of 18.3 times. At this time, we recommend a SELL on this share.


Nancy Chen
WISE Equity Research Team