Annual Report 2003 A menu that delivers.
A solid year > Financial performance and the year in review. 02
Primed for performance > Chairman’s report, what we can expect from our track record. 04
Consolidating our market leadership > Chief Executive’s report, poised ready to rise to the next level. 06
Operational excellence > New Zealand: KFC, Pizza Hut and Starbucks Coffee Operations. 10
Calculated investment > Australia: Pizza Hut Victoria Operations. 18
Results delivered > Consolidated Statement of Financial Performance. 22
The numbers > Financial Statements and Statutory Disclosures. 23 Restaurant Brands delivered a solid result for the year whilst creating a platform for future growth.
New Zealand operations increased both sales and profit, demonstrating our ability to continue to improve the business, and consolidating the market position of each of the three brands.
Pizza Hut Victoria, Australia is improving, and on target to be contributing to group EBITDA in the 2003/04 year.
This carefully planned acquisition positions Restaurant
Brands well for earnings growth in the future.
1 RESTAURANT BRANDS NEW ZEALAND LIMITED Financial Summary
FOR THE PERIOD ENDED 28 FEBRUARY 2003 2003 2002 2000 1999 1998 1997
IN $NZ MILLIONS 12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS
SALES KFC 175.1 177.1 175.9 171.4 165.8 172.3 Pizza Hut 75.7 69.4 47.8 39.9 40.1 44.5 Starbucks 22.8 17.8 10.4 3.8 0.2 – Pizza Hut Victoria 24.5 – – – – –
Total Store Sales 298.1 264.3 234.1 215.1 206.1 216.8
EBITDA KFC 30.4 36.1 36.3 34.8 29.9 33.1 Pizza Hut 11.2 7.9 4.1 4.6 2.9 4.0 Starbucks 2.6 1.8 0.5 (0.2) – – Pizza Hut Victoria (0.6) – – – – –
Total EBITDA 43.6 45.8 40.9 39.2 32.8 37.1
EBIT 19.6 35.2 19.3 21.9 15.9 21.7
NPAT 11.1 20.7 9.8 13.0 8.1 11.1
Notes: 1. 1997 results are proforma and unaudited as they precede the float of the company in 1997. 2. EBITDA = Store Earnings before Interest, Tax, Amortisation of Intangibles and Depreciation 3. 2002 results are proforma and unaudited. The company changed its balance date in that year. 4. KFC results for 2003 include $4.7 million of additional rental cost following the sale and leaseback of 51 of its stores.
FINANCIAL POSITION Share Capital 25.8 19.9 18.6 18.6 18.6 18.6 Shareholders’ Funds 52.0 40.9 27.9 27.3 22.8 19.8 Total Assets 110.0 99.7 133.4 103.0 104.3 99.7
FOR THE PERIOD ENDED 28 FEBRUARY 2003 2003 2002 2000 1999 1998 1997
12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS
NUMBER OF STORES (YEAR END) KFC 87 87 87 86 84 81 Pizza Hut 89 86 82 43 42 43 Starbucks 35 29 17 10 1 – Pizza Hut Victoria 51 – – – – –
Total Stores 262 202 186 139 127 124
SHARES Shares on Issue 94,815,164 93,086,674 92,104,710 85,002,448 85,000,000 85,000,000
Earnings per Share (full year) 11.8c 22.3c 10.6c 15.3c 9.6c 13.1c (1)
Ordinary dividend per Share 10.0c 10.0c 10.0c 10.0c 6.0c 4.6c (2) No of shareholders 9,776 8,858 8,651 8,231 9,163 8,940
(1) Proforma (2) Part year post float
2 RESTAURANT BRANDS NEW ZEALAND LIMITED Year in review
A solid year.
TOTAL RESTAURANT BRANDS SALES ($m)
216.8 206.1 215.1 234.1 264.3 298.1
97 98 99 00 02* 03
NET PROFIT AFTER TAX ($m) – Adjusted for abnormals
10.9 8.10 12.9 11.8 12.5 11.0
97 98 99 00 02* 03
SHAREHOLDERS’ FUNDS (Year end) ($m)
19.8 22.8 27.3 27.9 40.9 52.0
97 98 99 00 02* 03
EARNINGS (Cents per share)
13.1 9.6 15.3 10.6 22.3 11.8
97 98 99 00 02* 03
DIVIDEND (Cents per share)
4.6 6.0 10.0 10.0 10.0 10.0
97 98 99 00 02* 03
PARTNER TURNOVER (Percentage annualised)
74.5 54.0 73.0 72.0 73.0 72.6
97 98 99 00 02* 03
NUMBER OF EMPLOYEES PAID (Year end)
3,750 3,814 3,999 4,625 5,112 7,327
97 98 99 00 02* 03
* Restated to a 12 month period with change of balance date in 2002 year.
3 RESTAURANT BRANDS NEW ZEALAND LIMITED Fellow Shareholders I am pleased to report a profit after tax for the 12 months > group EBITDA for the year was $43.6 million, up 6.2% on ending 28 February 2003 of $11.1 million. This compared with the prior year, after adjusting for the contribution of the $23.3 million for the prior 15 month period, and $20.7 million KFC sale and leaseback gains; and for the prior 12 months. Both of the prior results were > operating cash flows for the group reached a new high influenced by the one off $10.9 million gain last year largely of $29.1 million, an increase of 33% on the prior year. arising from the sale and leaseback of most of our KFC premises. Analysed separately for our New Zealand and Australian To demonstrate underlying trading performance during the operations, New Zealand did well, with a profit after tax, but year, profit after tax, excluding abnormals was $11.0 million, excluding abnormals of $14.2 million, 13.3% ahead of last year’s compared with $12.5 million for the prior 12 months. $12.5 million. The loss after tax in Australia, again excluding Contributing to the result: abnormals, was $3.2 million, slightly higher than expectation. > group sales reached a record $298.1 million for the year With the continued strength of New Zealand cashflows, – an increase of $33.8 million or 12.8% on the prior year; and in anticipation of continued improvement in the Victorian
4 RESTAURANT BRANDS NEW ZEALAND LIMITED Chairman’s Report
Primed for performance.
operations, your directors declared a fully imputed final dividend target, and there was some sacrifice of margin as we moved to for the year of 5.5 cents a share, which together with the interim recover lost ground. That happens in a highly competitive market. dividend of 4.5 cents, gives a total dividend for the year of 10 cents Moving forward we see some new challenges which are unique a share, thus maintaining the dividend level of the past 4 years. to our sector, and in particular moves to control branded fast food Overall, the results are satisfactory. KFC sales declined by 1.1% advertising on television. Any such action would be blatantly and its EBITDA was off by 3.2%, but this was more than offset by discriminatory, as the majority of fast food is unbranded, and it continued growth in the New Zealand Pizza Hut business which would ignore that obesity has many contributing factors amongst continued to benefit strongly from its expansion into takeaway and which lack of exercise is as significant as dietary imbalance. delivery, and from the acquisition of the Eagle Boys chain in 2000. We know that branded fast food is an infrequent meal for the Pizza Hut’s sales were up by 9% for the year and EBITDA by 43%. vast majority of New Zealanders, and, for our part, we make no Since the acquisition we have more than doubled the apology for developing products which make the occasional New Zealand Pizza Hut business in terms of outlets and sales, takeaway a taste treat. We have taken the view that it is a matter and increased EBITDA by more than 2 ½ times. of individual responsibility to achieve a balanced diet, and a This outcome confirms our confidence in the decision to balanced lifestyle. Nonetheless, we will play our part in supporting acquire the 51 Pizza Hut outlets in Victoria. Many of these were programmes to promote awareness of how these responsibilities run down and trading poorly, and several were close to can be met, and we are developing some new food offerings to receivership. We expected the turn around to take time. I am complement our traditional products. pleased to report that although the start took longer than Although growth rates the New Zealand economy as a whole planned, the business broke even in cash and EBITDA terms by are steadying, and, overall, the retailing environment is uncertain, year end, and that progress is now proceeding to plan. our new financial year has commenced well. We have no During the year Mr Mark McGuiness, a director nominated by significant investments planned for the year ahead, though we AMP resigned, consequent upon AMP reducing its shareholding will likely continue the expansion of the Starbucks network later in in the company. Mr McGuiness was an experienced and energetic the period. Our specific objectives for the year are to complete the participant on the Board and I would like to acknowledge his turnaround in Victoria and the upgrade of our KFC presentation in contribution. This gave us the opportunity to appoint Mr Danny New Zealand, and to concentrate on continuing to deliver quality Diab to fill the vacancy. Mr Diab has a number of investments in service and products so that shareholders can start to see more of Australia, including an extremely successful chain of 12 Pizza Hut the benefits from the investments made in recent years. outlets in New South Wales. He is a significant shareholder in The Board would like to thank Jim Collier, the management Restaurant Brands, and has advised the company from time to team, and the restaurant teams for their continuous commitment, time on its Pizza Hut operations. As a director, he is personally our customers for their continuing enthusiasm, and our involved in monitoring the Victorian turnaround. shareholders for their on-going support. Shareholders are invited to confirm Mr Diab’s appointment at the forthcoming Annual Meeting on 21 May 2003. Our businesses are subject to the same macro influences as retailing generally, and the Board is pleased that sales and margins in New Zealand have held up in what has been a soft W J Falconer retail market. The small decline in KFC sales during the year, Chairman occurred in consequence of two product launches not meeting 28 March 2003
5 RESTAURANT BRANDS NEW ZEALAND LIMITED Overview This year saw Restaurant Brands take the latest step in a sustained initial benefits of our ownership. As forecast, the business has program to deliver higher medium term earnings growth and reached EBITDA and cashflow breakeven at year-end. We expect to diversify away from our reliance on one strong brand. see an increasing contribution of this business to our overall growth This program began back in 1999 with the addition of during the next 2-3 years as the benefits of revitalization are realized. Starbucks Coffee to our portfolio. It continued in 2000 when we The financial results in the 2003 financial year reflect our transformed Pizza Hut via the acquisition and integration of Eagle investment in a solid platform from which to drive earnings growth. Boys Pizza in New Zealand. The success of that acquisition, which is again evident in our results this year, reinforced our decision to Group results acquire Pizza Hut Victoria in April 2002. As expected, start up losses incurred by the acquisition of Pizza At the time, we acknowledged the need to make a significant Hut Victoria resulted in lower earnings this year. Net profit after investment in revitalizing the Victorian business, which had seen tax and excluding abnormals was $11.0 million for the year, declining sales and market share. We are now starting to see the compared with $12.5 million for the prior period. New Zealand
6 RESTAURANT BRANDS NEW ZEALAND LIMITED Chief Executive’s Report
operations improved profit contribution by 13.3% versus the Total store count increased from 202 to 262 during the year. prior year. 51 of those new stores came from the acquisition of Pizza Hut The six-year track record of strong cash generation continued Victoria. Of the 9 new stores opened, six were Starbucks this year with operating cash flows for the full year at $29.1 Coffee and three were Pizza Hut delivery and takeaway (delco) million up 33% on the prior year. outlets in New Zealand. A delco acquired in Victoria was also Total sales for the year were $298.1 million, up 12.8% on the opened. We replaced one KFC store and one Pizza Hut prior year. New Zealand brands increased 3.5% on the prior restaurant in New Zealand and three Pizza Hut stores in period, largely as a result of the continuing success of Pizza Hut Melbourne with new and improved outlets. New Zealand. Group EBITDA for the full year was $43.6 million, up 6.2% KFC on the prior year when adjusted for the lease cost impact of While its contribution to group results is lower than in the past, the KFC sale & leaseback. With this adjustment, group EBITDA KFC remains the largest brand in our portfolio, representing margin for the full year was 14.5%, compared with 15.5% in 59% of sales and 69% of EBITDA. This year there was no prior year. New Zealand operations improved margin to 16.1%, blockbuster promotional product similar to the Ultimate but Pizza Hut Victoria had a (2.5)% margin for the year. We are Quarter Pack in the prior period. This resulted in difficult encouraged that all four business segments improved EBITDA comparisons, with total sales declining 1.1% to $175.1 million, margin in the second half compared with the first half. This is and same store sales declining 1.4%. the result of our continuing efforts to control costs while KFC EBITDA declined from $36.1 million to $30.3 million growing sales. largely due to additional rental costs arising from the sale and General and administrative (overhead) costs increased leaseback of 51 KFC stores with the rest due to higher utilities $3.0 million due in part to the establishment of the infrastructure charges and repairs and maintenance costs arising from the for Pizza Hut Victoria operations. store upgrade programme. The store upgrade programme was Consolidating our market leadership.
OPERATING CASHFLOWS ($m)
18.4 17.7 23.1 21.3 21.8 29.1
97 98 99 00 02* 03
TOTAL NUMBER OF STORES (Year end)
124 127 139 186 202 262
97 98 99 00 02* 03
7 RESTAURANT BRANDS NEW ZEALAND LIMITED completed during the year with a total of $6.0 million invested April 2002 we have improved operating standards and customer in improving more than 50 of the 87 KFC stores in New Zealand. perceptions and made progress on the longer task of store In July 2004 KFC will see the benefits of our new chicken supply revitalisation. The full benefits of this activity are expected to be contract that will see savings of approximately $5.0 million per year. realized over the next 2-3 years. Because prior year comparisons are not available, we have Pizza Hut New Zealand compared first half results to second half. The improvements Pizza Hut New Zealand was again the highlight of our portfolio. made in both increasing sales and reducing EBITDA loss indicate We are encouraged by the continuing out-performance of this the beginnings of a turn around. business – profits have expanded more than two-and-a-half times Same store sales for the second and third quarters were since its transformation in 2000. It now encompasses 89 stores 14% below estimated prior year levels. By the fourth quarter, nationwide. same store sales were 5% below prior year and were flat to prior Full year sales reached a record $75.7 million, an increase of year at the end of the quarter. 9.0% on last year. Same store sales increased 6.1%. As forecast, As forecast, the business was trading at breakeven EBITDA sales growth has come from increasing consumption of home at the end of the financial year. For the full year EBITDA was delivered and takeaway pizza. ($0.6) million, improving from ($0.5) million in the first half to EBITDA was a record at $11.2 million (14.8% of sales), up from ($0.1) million in the second half. $7.9 million or 11.3% of sales in the prior year. Profit improvements resulted from the leverage of fixed costs from rising sales, lower Staff development food ingredient costs and ongoing improvements in efficiency. Restaurant Brands has sustained programmes to attract and retain The Pizza Hut business is strong and growing and is well the best people for its four businesses. The customer-focused prepared to use aggressive strategies to rebuff any new competitor. nature of our industry means that staff development and retention is crucial to ongoing success. Over the last several years, intensive Starbucks Coffee efforts have been under way to improve staffing capabilities by Starbucks Coffee enjoyed another rapid year of expansion, with 35 reducing turnover, improving training levels and morale. stores now operating. Sales increased 28.2% during the year to In 2003, staff turnover reduced significantly to be at long-term $22.8 million. Same store sales declined 8.1% over the year. low levels, despite a tight labour market in the general economy. EBITDA continued to improve, reaching $2.6 million or The reduction was due to improved recruitment, training and 11.6% of sales compared with $1.8 million or 10.4% in the prior retention programs. year. Improved efficiency and the positive impact of a stronger Training for store managers and trainee managers was New Zealand dollar on imported ingredient costs were the major strengthened, assisting in business performance and reducing store contributors to the improved margin. management turnover to record low levels. The rapid expansion programme has resulted in management An employee culture survey is conducted every year to gauge focus on store new openings more than improving operations at organisational health. This year results were the highest ever, existing stores. As a result we will concentrate on improving indicating improved staff morale. operations in existing Starbucks Coffee stores before opening any It is through the continued hard work and commitment of all of additional outlets. We expect the improvements to be completed our employees to ensure every customer experience is better than the in the first half of the current financial year and expect to be last that we can continue to achieve excellence in our businesses. recommencing the new store expansion programme in the second half of the year.
Pizza Hut Victoria Jim Collier We are encouraged by the early achievements made in the turn Chief Executive Officer around of Pizza Hut Victoria. Since we took over the business in 28 March 2003
8 RESTAURANT BRANDS NEW ZEALAND LIMITED Chief Executive’s Report
> PIZZA HUT NEW ZEALAND WAS AGAIN THE HIGHLIGHT OF OUR PORTFOLIO. WE ARE ENCOURAGED BY THE CONTINUING OUT-PERFORMANCE OF THIS BUSINESS AND BELIEVE IT IS STRONG ENOUGH TO WITHSTAND NEW COMPETITIVE THREATS. IT NOW ENCOMPASSES 89 STORES NATIONWIDE.
THE CONTINUED STRENGTH OF THE NEW ZEALAND PIZZA HUT BUSINESS IS REFLECTED IN THE PERFORMANCE
OF ITS BRAND NEW LEVIN DELCO – A TOP PERFORMER IN ONLY ITS SECOND MONTH OF OPERATION.
9 RESTAURANT BRANDS NEW ZEALAND LIMITED SENIOR MANAGEMENT TEAM (FROM LEFT TO RIGHT): NOEL DEMPSEY – CHIEF OPERATING OFFICER, AASHA MURTHY – GENERAL MANAGER STARBUCKS COFFEE, DEAN DIVEHALL – MARKETING
DIRECTOR, ROD DE VRIES – GENERAL MANAGER PIZZA HUT, CHRISTINE PARKER – CHIEF PEOPLE OFFICER, JIM COLLIER – CHIEF EXECUTIVE OFFICER, GRANT ELLIS – CHIEF FINANCIAL OFFICER, RUSSEL CREEDY – COMMERCIAL SERVICES DIRECTOR, CHRIS O’REILLY – GENERAL MANAGER, KFC.
10 RESTAURANT BRANDS NEW ZEALAND LIMITED New Zealand Operations
Operational excellence.
OVERVIEW NEW ZEALAND New Zealand operations continued to deliver a strong result with sales up 3.5% and net earnings (excluding abnormals) increasing 13.3 %. Pizza Hut made a significant contribution with record sales of $75.7 million and earnings of $11.2 million, more than offsetting the slight drop in sales and earnings experienced by KFC. Starbucks Coffee enjoyed sales growth exceeding 28% with a rapid expansion in the number of stores.
11 RESTAURANT BRANDS NEW ZEALAND LIMITED 94.8 95.1 94.0 90.2 > QUALIFICATIONS ON US 86.7 81.0 Deanna began her career with Pizza Hut in 1996 and is now the manager of the very successful delco in Henderson Auckland. In 2001, when Restaurant Brands began offering the qualification of Certificate in Food and Beverage Management, Deanna was one of the
first candidates to PIZZA HUT CUSTOMER SERVICE SCORES (CHAMPS CHECK) graduate and is now studying for her Level 4 qualification. Deanna has also qualified as a registered assessor for the programme and works closely with junior managers in evaluating progress against the qualification standards as set by the New Zealand Qualifications Authority.
Deanna Gree n,,, PizzaPizza HutHut HendersonHenderson DelcoDelco
OUR PEOPLE
Restaurant Brands is one of New Zealand’s largest employers with over 7,300 staff (known as “partners”). 5,900 work in 212 different locations throughout New Zealand from Invercargill to Kaitaia and 1,400 work in its recently acquired 51 stores in Victoria Australia.
12 RESTAURANT BRANDS NEW ZEALAND LIMITED New Zealand Pizza Hut Operation
75.7 69.4
47.8 44.5 40.1 26.3 39.9 25.4
20.5 20.4 19.5 18.5
PIZZA HUT ANNUAL SALES ($m)
14.8
11.4 11.3 PIZZA HUT SALES (% of Total Sales) 11.2 9.0 8.6
7.2 7.9
4.6 4.0 4.1 2.9
PIZZA HUT EBITDA MARGIN (% of Pizza Hut Sales)
PIZZA HUT EBITDA ($m)
In convenience food, customers demand a high standard > staff turnover was held at very low levels for the of service and there is a competitive advantage in developing industry despite a tight labour market in the general trained and committed teams to provide this service. economy Restaurant Brands has developed the capabilities to create this > record numbers of partners were enrolled in formal advantage. training programmes Critical elements of the company’s people capability > the annual employee culture survey on organisational include programs to minimize partner turnover, improving health results in 2002/3 were at a record high. training levels and enhancing staff morale. In 2002/3: (continued over)
13 RESTAURANT BRANDS NEW ZEALAND LIMITED 177.1 175.9 175.1 79.5 80.4 79.7 172.3 171.4 75.1 67.0 58.7 165.8
36.3 20.6 34.8 36.1 20.3 20.4 33.1 19.2 18.0 29.9 30.4 17.4
KFC ANNUAL SALES ($m) KFC SALES (% of Total Sales)
KFC EBITDA ($m) KFC EBITDA MARGIN (% of KFC Sales)
Partner Recruitment and Induction: Proper selection and Partner Training Certification: Restaurant Brands is able to induction processes are a key factor in minimizing partner enhance the skills of its partners through internationally turnover. The company has recruitment tools that guide managers recognized training programmes. These programmes develop through a selection process for potential new partners. All new both personal and professional skills above industry standard. recruits take part in an induction program which helps them find They include such areas as people management, operational their feet in the organisation. execution, business management, customer relations and marketing.
14 RESTAURANT BRANDS NEW ZEALAND LIMITED New Zealand KFC Operation
93.2 93.0 91.1 92.0 89.4 > EQUAL OPPORTUNITIES Shane has been with the team at the Manners Mall 82.0 store for the past three years. He suffers from a mild disability, but despite this has progressed within the store to where he is now a vital member of the team and the “Customer First Expert”. Shane takes great pride in his role in the store in continually improving the customer experience and the company takes pride in Shane’s development and achievements in the face of adversity.
KFC CUSTOMER SERVICE SCORES (CHAMPS CHECK)
lll ,,, Wellington ,,, KFC Manners Mal Shane Saunders
External Training Certification: During the past 18 months the Equal Opportunity Employer: Restaurant Brands’ workforce company gained external recognition for its internal training reflects the communities in which it operates. The company courses from the New Zealand Qualifications Authority (NZQA). encourages diversity and has programs that encourage respect Through its “Qualifications on Us” programme, Restaurant Brands and teambuilding within its stores. There is a wide spread of partners now have their skills and achievements in the in-house ethnicity and gender with women representing 53% of store training modules endorsed through an external qualification – the managers and 20% of middle and senior management. National Certificate in Hospitality. The certificate is at 3 levels and
there are currently over 1,800 partners enrolled in the programme. (continued over)
15 RESTAURANT BRANDS NEW ZEALAND LIMITED – 91.5 91.1 94.6 90.9 > COMMUNITY INVOLVEMENT
Ngahuru has only been with the company for a little over a year, but is already recognized as a partner with a very strong customer focus and the sort of bubbly personality that enhances the brand experience for customers. She has been closely involved with the “Lend a Hand “ programme in providing help to Women’s Refuges and sees the Youthline support as reflecting the essential values STARBUCKS COFFEE CUSTOMER of the Starbucks SERVICE SCORES (CHAMPS CHECK) Coffee brand. She says: “Helping people is the best thing in life.”
Ngahuru Harawira ,,, StarbucksStarbucks MissionMission BayBay
A number of stores in each brand make roles available to Health and Safety: The company has maintained an disabled partners who often become highly committed and excellent record in partner safety. Rigid adherence to productive members of the team. procedures and disciplines and an effective network of The company also operates a “First Foundations” safety captains under the guidance of a health and safety programme where talented students from less privileged co-coordinator has meant that Restaurant Brands has been backgrounds are provided with financial assistance for their graded at the top level by the Accident Compensation studies and employment opportunities within the company. Corporation for 3 years in a row.
16 RESTAURANT BRANDS NEW ZEALAND LIMITED New Zealand Starbucks Coffee Operation
0.2 3.8 10.4 17.8 22.8 0.2 1.8 4.4 6.7 7.6
– - 0.2 0.5 1.8 2.6 – - 5.6 4.3 10.4 11.4
STARBUCKS COFFEE STARBUCKS COFFEE SALES ANNUAL SALES ($m) (% of Total Sales)
STARBUCKS COFFEE STARBUCKS COFFEE EBITDA MARGIN EBITDA ($m) (% of Starbucks Coffee Sales)
Employee Attitude Surveys: Organisational health is measured Community Involvement: With stores in almost every town, annually through a confidential survey that goes to all full-time Restaurant Brands is very aware of the local communities who partners. This Organizational Effectiveness Survey (OES) asks support them. Restaurant managers are encouraged to partake respondents to rank their views of the company across a in and sponsor local community activities. Starbucks in particular number of criteria, including leadership, organizational values, has developed a strong supportive relationship with two major remuneration, coaching and training and development. charities, Women’s Refuge and Youthline, both of whom have The results are analysed after each survey and action plans benefited from company fund raising activities and time donated developed to address areas of deficiency. by partners.
17 RESTAURANT BRANDS NEW ZEALAND LIMITED Calculated investment.
PIZZA HUT VICTORIA
Australia represents an opportunity for considerable further growth for Restaurant Brands within the company’s core competency of fast food. Whilst growth prospects in New Zealand are by no means at an end, the size of the Australian market means the company can expand by leveraging its expertise and resources from a New Zealand base.
In April 2002 a number of poorly performing Pizza Hut franchises in Victoria, Australia were acquired. The acquisition is a strategic fit: > Restaurant Brands has successfully operated Pizza Hut in New Zealand for some years. > The company has experience in turning around Pizza Hut businesses with the transformation of the Pizza Hut operation in New Zealand via an acquisition in 2000. > The company has seasoned management familiar with both Pizza Hut and the Australian market. CEO Jim Collier is a former Pizza Hut Australia executive and General Manager Kurt Whitlow led the transformation of the Pizza Hut business in New Zealand between 2000 and 2002.
$85.00 AUSTRALIAN PER CAPITA EXPENDITURE ON PIZZA (Dollars per capita per year; local currency; 2001)
$57.68 • (+114%) Australian $49.46 Average $43.85 ...... $42.00 $41.72 ...... $41.50 $37.81 $30.85 • $27.00 $21.85
SOURCE: RB; ABS; HHES; CORIOLIS ANALYSIS. KEY: US = UNITED STATES, VI = VICTORIA, SA = SOUTH AUSTRALIA, TS = TASMANIA, NT = NORTHERN TERRITORY, NS = NEW SOUTH WALES, AC = AUSTRALIAN CAPITAL TERRITORY, WA = WESTERN AUSTRALIA, NZ = NEW ZEALAND, QL = QUEENSLAND.
18 RESTAURANT BRANDS NEW ZEALAND LIMITED Australian Operations
The pizza market in Victoria has solid growth opportunities for Pizza Hut. Annual pizza consumption at A$58 per head is a third higher than the rest of Australia and double New Zealand. Despite this, Pizza Hut market share is less than half that of other Australian states and a quarter of New Zealand.
Fifty-one stores were bought for a total price of A$11.8 million or A$231,000 per store, lower than replacement cost. Fourteen restaurants and 37 delivery/ takeaway (delco) outlets were acquired with the transaction 100% debt funded. Kurt Whitlow, General Manager of Pizza Hut New Zealand was appointed General Manager of the Australian operations and took control of what was a considerably run down business in May 2002 with a brief to turn it around. The turnaround strategy was threefold: > Improve the day-to-day operations to enhance customer service and product quality Ballarat before > Revitalise the stores > Strengthen the marketing of the brand
LEFT: KURT WHITLOW, GENERAL MANAGER AUSTRALIAN OPERATIONS. ABOVE: THE POPULAR DINE IN
RESTAURANT AT BALLARAT IS REBRANDED AND REFURBISHED THROUGHOUT (SEE PAGE 20) TO IMPROVE
THE CUSTOMER EXPERIENCE AND MAXIMISE SALES.
19 RESTAURANT BRANDS NEW ZEALAND LIMITED Keysborough before Ballarat before
ABOVE: THE REFURBISHED DINE IN RESTAURANT AT BALLARAT. RIGHT: THE UNPROFITABLE KEYSBOROUGH DINE IN RESTAURANT IS CLOSED AND A NEW
DELCO OUTLET IS BUILT TO TAKE OVER THE DELIVERY AND TAKEAWAY BUSINESS.
A support office was established in Melbourne with a small team providing support which cannot be effectively run out of New Zealand. This centre and all stores are fully networked to New Zealand to enable prompt reporting of trading data, operation of financial controls and enhanced communications. Operational performance has improved due to staff training, quality improvements and operational control initiatives. New in-store computer systems have been installed and stores connected to a central call centre. All stores received equipment upgrades including hot-hold warmers and heated pizza pouches, enabling the pizza to be delivered piping hot. Unprofitable dine in restaurants have been closed or targeted for closure when new delcos can be built to take over the delivery and takeaway business. Delcos in poor locations have been relocated to areas where they have greater street frontage with improved sales. Stronger marketing programs have improved brand awareness and new promotional and product tactics have been introduced.
THE PIZZA HUT SUPPORT TEAM IN MELBOURNE. Advertising spend has increased significantly and this has been reflected in a turnaround in same store sales growth on prior year of -14% shortly after acquisition in May 2002 to level with prior year by the beginning of 2003. There are strong parallels between the Victorian operations and the Pizza Hut New Zealand business of 2000. Both have required major cultural change within the organisation, and both have seen extensive store rationalization with conversions from dine in to delco stores. Both have required major in-store systems implementation to enable proper controls and both have required extensive retraining and recruitment to build the people strength of the organisation. There is considerable work to be done to continue improvements in sales, store operations and the store network. There are many opportunities to grow by building more stores. With this work under way, Pizza Hut in Victoria is on track for a return to profit in the new financial year.
20 RESTAURANT BRANDS NEW ZEALAND LIMITED Australian Operations
• 95.1 • 90.7
E lthamlthamltham DelcoDelcoDelco
Matthew Cusack, Pizza Hut
PIZZA HUT VICTORIA vs PIZZA HUT NEW ZEALAND CUSTOMER SERVICE SCORES (CHAMPS CHECK)
> MATTHEW CUSACK – PIZZA HUT ELTHAM DELCO
Matthew began his career with Pizza Hut in 1999 as a contract driver at Pizza Hut Eltham. He then progressed through crew to management and has been the Manager of the Eltham Delco since 2000. In 2001 he joined the Champions Club as one of the top 5% of Pizza Hut managers in Australia. Matthew is actively involved in his area, performing the role of Acting Area Manager when needed. He is also Training Champion for his area responsible for assisting other managers with team member training as well as training new managers in his store. In 2002 Matthew assisted with the rollout of the new computer system and connection to the Sydney Call Centre.
21 RESTAURANT BRANDS NEW ZEALAND LIMITED Consolidated Statement of Financial Performance
FOR THE PERIOD ENDED 28 FEBRUARY 2003 12MTHS ENDED vs PRIOR 12MTHS ENDED 15MTHS ENDED
IN $NZ000’S UNLESS STATED 28 FEB 2003 % 28 FEB 2002(1) 28 FEB 2002
AUDITED UNAUDITED AUDITED
SALES KFC 175,139 (1.1) 177,079 217,006 Pizza Hut 75,700 9.0 69,432 84,136 Starbucks Coffee 22,821 28.2 17,798 20,828 Pizza Hut Victoria 24,450 – – –
Total Store Sales 298,110 12.8 264,310 321,970
EBITDA KFC 30,347 (15.9) (2) 36,068 44,696 Pizza Hut 11,211 42.7 7,858 9,332 Starbucks Coffee 2,636 42.8 1,846 2,116 Pizza Hut Victoria (618) (2.5) ––
Total EBITDA 43,576 (4.8) 45,773 56,144
General & Administration (12,361) (31.9) (9,368) (11,529) Depreciation (9,145) 0.6 (9,201) (11,360) Non Trading Items 1,506 376.3 (545) (545)
EBITA excluding Strategic Initiatives 23,576 (11.6) 26,659 32,710
Strategic Initiatives (1,286) 111.8 10,906 10,906
EBITA 22,290 (40.7) 37,565 43,616
Amortisation (2,683) (14.8) (2,337) (2,862)
EBIT 19,607 (44.3) 35,228 40,754
Interest Expense (Net) (2,379) 54.5 (5,230) (6,645) Exchange gain / (loss) (86) – – –
Net Profit Before Tax 17,142 (42.9) 29,998 34,109
Taxation Expense (6,028) 35.3 (9,318) (10,826)
Net Profit After Tax 11,114 (46.3) 20,680 23,283
NPAT excluding Strategic Initiatives 12,023 (1.1) 12,160 14,762
NPAT excluding Strategic Initiatives & Non Trading Items (abnormals) 11,014 (12.1) 12,525 15,127
Notes: 1. The company changed its balance date from 30 November to 28 February in the 2001/2 financial year. Last year’s statutory accounts therefore record the 15 month’s trading for the period ended 28 February 2002 (right hand column). In order to provide a more meaningful comparison with the previous 12 months’ trading, directors have restated the prior year Statement of Financial performance to show the 12 months to 28 February 2002. 2. In February 2002, the company completed the sale and leaseback of 51 of its KFC properties. As a consequence of this, lease costs charged against KFC EBITDA increased by $4.7 million per annum (largely offset by equivalent savings in interest and depreciation charges).
22 RESTAURANT BRANDS NEW ZEALAND LIMITED Financial Statements 2003
The numbers.
The Directors are pleased to present the Financial Statements 24 Auditors’ Report of Restaurant Brands New Zealand Limited for the year ended 25 Statement of Financial Performance 28 February 2003 contained on pages 25 to 41.
For and on behalf of the Board of Directors: 25 Statement of Movements in Equity
26 Statement of Financial Position
27 Statement of Cash Flows
28 Statement of Significant Accounting W J FALCONER J A COLLIER Policies CHAIRMAN CHIEF EXECUTIVE OFFICER
7 APRIL 2003 7 APRIL 2003 31 Notes to the Financial Statements
42 Shareholder Information
44 Statutory Information
47 Statement of Corporate Governance
48 Directors’ Profiles
Financial Calendar – Inside back cover
Corporate Directory – Inside back cover
23 RESTAURANT BRANDS NEW ZEALAND LIMITED Auditors’ report
To the shareholders of Restaurant Brands New Zealand Limited
We have audited the financial statements on pages 25 to 41. The financial statements provide information about the past financial performance and financial position of the company and group as at 28 February 2003. This information is stated in accordance with the accounting policies set out on pages 28 to 30.
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for the preparation of financial statements which give a true and fair view of the financial position of the company and group as at 28 February 2003 and the results of their operations and cash flows for the year ended on that date.
AUDITORS’ RESPONSIBILITIES
It is our responsibility to express an independent opinion on the financial statements presented by the Directors and report our opinion to you.
BASIS OF OPINION An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:
■ the significant estimates and judgements made by the Directors in the preparation of the financial statements;
■ whether the accounting policies are appropriate to the company’s and group’s circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards issued by the Institute of Chartered Accountants of New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Our firm has also provided other services to the company and certain of its subsidiaries in relation to taxation and financial advisory services. Partners and employees of our firm may also deal with the company and group on normal terms within the ordinary course of trading activities of the business of the company and group. These matters have not impaired our independence as auditors of the company and group. The firm has no other relationship with, or interest in, the company or any of its subsidiaries.
UNQUALIFIED OPINION We have obtained all the information and explanations we have required.
In our opinion:
■ proper accounting records have been kept by the company as far as appears from our examination of those records;
■ the financial statements on pages 25 to 41:
– comply with New Zealand generally accepted accounting practice;
– give a true and fair view of the financial position of the company and group as at 28 February 2003 and the results of their operations and cash flows for the year ended on that date.
Our audit was completed on 7 April 2003 and our unqualified opinion is expressed as at that date.
Auckland
24 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Financial Performance
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
Total operating revenue 1 300,867 324,866 4,256 11,613
Surplus before taxation 1 & 2 17,142 34,109 2,496 5,020
Income tax (expense) / credit 3 (6,028) (10,826) 575 2,176
Surplus after taxation 11,114 23,283 3,071 7,196
Statement of Movements in Equity
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
Surplus after taxation 11,114 23,283 3,071 7,196 Foreign currency translation reserve 6 (1,639) - - -
Total recognised revenues and expenses 9,475 23,283 3,071 7,196
Dividends reinvested 2,375 1,042 2,375 1,042 Share options exercised 20 486 254 486 254 Senior executive share purchase 18 3,135 – 3,135 – Senior executive share purchase expenses 18 (98) – (98) –
Total contributions from shareholders 5,898 1,296 5,898 1,296
Distribution of dividends to shareholders (5,014) (12,207) (5,014) (12,207) Foreign investor tax credit 758 594 758 594
Net distribution of dividends to shareholders 4 (4,256) (11,613) (4,256) (11,613)
Movements in equity for the year 11,117 12,966 4,713 (3,121)
Equity at the beginning of the year 40,896 27,930 6,424 9,545
Equity at the end of the year 52,013 40,896 11,137 6,424
25 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Financial Position
AS AT 28 FEBRUARY 2003 GROUP COMPANY
IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
Total equity 5 52,013 40,896 11,137 6,424
NON-CURRENT ASSETS Senior executive share purchase loan 11(a) 3,135 – – – Fixed assets 7 63,300 50,824 – – Investments in subsidiaries 8 – – 150,396 150,396 Intangible assets 9 34,782 32,731 – –
Total non-current assets 101,217 83,555 150,396 150,396
CURRENT ASSETS Inventories 1,983 2,189 – – Accounts receivable 11(b) 4,075 4,005 – – Cash 2,710 9,963 – 9,220 Dividends receivable from subsidiary company 17 – – – 7,448
Total current assets 8,768 16,157 – 16,668
Total assets 109,985 99,712 150,396 167,064
NON-CURRENT LIABILITIES Creditors and borrowings 12(a) 29,168 30,000 29,168 30,000 Deferred tax liability 10 1,209 1,610 – –
Total non-current liabilities 30,377 31,610 29,168 30,000
CURRENT LIABILITIES Bank overdraft – – 528 430 Creditors and borrowings 12(b) 27,595 27,206 407 8,065 Amounts payable to subsidiary companies 17 – – 109,156 122,145
Total current liabilities 27,595 27,206 110,091 130,640
Total liabilities 57,972 58,816 139,259 160,640
Total net assets 52,013 40,896 11,137 6,424
26 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Cash Flows
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES Cash was provided by (applied to): Receipts from customers 303,545 325,571 – – Payments to suppliers and employees (266,107) (281,461) – – Dividends received – – 11,687 9,231 Interest paid (2,626) (6,268) (1,952) (6,164) Receipt / (payment) of income tax (5,753) (7,848) 1,333 2,770
Net cash from operating activities 22 29,059 29,994 11,068 5,837
CASH FLOWS FROM INVESTING ACTIVITIES Cash was provided by (applied to): Repayment of senior executive share purchase loan – 531 – 531 Senior executive share purchase loan expenses (98) – (98) – Payment of franchise fees (562) (532) – – Payment of concept development costs (528) (14) – – Repayment of deferred settlement loan – (855) – – Acquisition of Pizza Hut Victoria business 9(d) (14,841) – – – Purchase of other fixed assets (14,133) (14,396) – – Net proceeds from disposal of fixed assets 4,282 52,140 – – Advances from subsidiary company – – (9,856) 61,747
Net cash from (used in) investing activities (25,880) 36,874 (9,954) 62,278
CASH FLOWS FROM FINANCING ACTIVITIES Cash was provided by (applied to): Cash received on the exercise of options 20 486 254 486 254 Net repayment of term borrowings 12 (832) (49,182) (832) (49,182) Dividends paid to shareholders of the Company (9,328) (8,189) (9,328) (8,189) Supplementary dividends paid (758) (594) (758) (594)
Net cash from (used in) financing activities (10,432) (57,711) (10,432) (57,711)
Net increase (decrease) in cash held (7,253) 9,157 (9,318) 10,404
RECONCILIATION OF CASH BALANCES
Cash at the beginning of the year: 9,963 806 8,790 (1,614)
Cash at the end of the year: Cash on hand 361 318 – – Cash at bank 2,349 425 (528) (430) Cash on call deposit – 9,220 – 9,220
2,710 9,963 (528) 8,790
Net increase (decrease) in cash held (7,253) 9,157 (9,318) 10,404
27 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Significant Accounting Policies
FOR THE YEAR ENDED 28 FEBRUARY 2003
(A) BASIS OF PREPARATION
Restaurant Brands New Zealand Limited, registered under the Companies Act 1993 is listed on the New Zealand Stock Exchange. The financial statements presented are those for Restaurant Brands New Zealand Limited (the Company) and the Restaurant Brands Group (the Group). The Group consists of the Company and its subsidiaries. The financial statements comply with the Financial Reporting Act 1993 and comprise statements of the following: financial performance, movements in equity, financial position, cash flows, significant accounting policies, as well as the notes to these statements contained on pages 31 to 41 of this Annual Report. The financial statements are prepared on the basis of historical cost. The reporting currency used in the preparation of these financial statements is New Zealand dollars. The accounting policies have been consistently applied by the Company and Group and are consistent with those of the previous year. The financial information presented is for the year ending 28 February 2003. The company changed its balance date during the previous period therefore comparative information is presented for 15 months ending 28 February 2002.
(B) BASIS OF RECOGNISING COMPONENTS OF THE FINANCIAL STATEMENTS
The following general accounting policies are adopted: Assets A transaction results in an asset being recognised in the statement of financial position when it will probably give rise to ongoing benefits for the Company or Group, and those benefits can be measured with reliability. Liabilities A transaction results in a liability being recognised in the statement of financial position when it will probably give rise to the need for the Company or Group to sacrifice assets in the future, and those sacrifices can be measured with reliability. Revenue Revenue is recognised in the statement of financial performance when a transaction gives rise to an increase in the value of the Company’s or Group’s net assets, and that increase can be measured with reliability. Expenses An expense is recognised in the statement of financial performance when a transaction results in a decrease in the value of the Company’s or Group’s net assets, and that decrease can be measured with reliability. Classification of assets and liabilities between current and non-current An amount is classified as current when it is expected to be settled or extinguished within one year of the date of the financial statements. All other amounts are classified as non-current.
(C) BASIS OF PREPARING GROUP FINANCIAL STATEMENTS
The financial statements of subsidiaries are included in the Group financial statements using the purchase method of consolidation. Intra Group balances and profits resulting from intra Group transactions are eliminated on preparing the Group financial statements.
(D) FOREIGN EXCHANGE
Exchange Differences Foreign currency transactions are translated to New Zealand currency at the exchange rate ruling at the dates of the transactions. Monetary assets and liabilities in foreign currencies at balance date not covered by forward exchange contracts are translated at the exchange rates ruling at balance date. Exchange differences arising on the translation of monetary assets and liabilities in foreign currencies are recognised in the statement of financial performance, except as detailed below.
28 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Significant Accounting Policies
FOR THE YEAR ENDED 28 FEBRUARY 2003
(CONTINUED)
Translation of the Financial Statements of Independent Foreign Operations The assets and liabilities of the Group’s overseas operations, being independent foreign operations, are translated at the exchange rates ruling at balance date. The revenues and expenses of these entities are translated at rates approximating the exchange rates ruling at the dates of the transactions. Exchange differences arising on the translation of independent foreign operations are recognised directly in the foreign currency translation reserve.
(E) INTANGIBLE ASSETS
Goodwill Goodwill arises on the acquisition of a Group entity or business and represents the excess of the purchase consideration over the fair value of the identifiable net assets acquired. Goodwill is stated at cost and amortised to the statement of financial performance on a straight-line basis over the period, not exceeding twenty years, during which benefits are expected to be derived. Franchise costs Franchise costs are those incurred in obtaining franchise rights or licences to operate quick service and take-away restaurant concepts. They include, for example, the initial fee paid to a system franchisor when a new store is opened. These are stated at cost and amortised to the statement of financial performance on a straight-line basis over the remaining life of the applicable franchise or licence agreement. Concept development costs and fees Concept development costs and fees include certain costs, other than the direct cost of obtaining the franchise, associated with the establishment of quick service and take-away restaurant concepts. These include, for example, professional fees and consulting costs associated with the establishment of a new brand or business acquisition. These costs are capitalised where the concept is proven to be commercially feasible and the related future economic benefits are expected to exceed those costs with reasonable certainty. These costs are amortised to the statement of financial performance over the period which future economic benefits are reasonably expected to be derived. Further details of the periods of amortisation of goodwill, franchise costs, and concept development costs and fees are provided in note 9 to the financial statements.
(F) STRATEGIC DEVELOPMENT COSTS
Expenditure associated with new development and strategic initiatives pending finalisation of a project are expensed as incurred until the project is irrevocably committed to. Charges to strategic development costs are disclosed in note 2 to the financial statements.
(G) FIXED ASSETS
Owned assets Fixed assets are initially stated at cost and depreciated as outlined below. Where appropriate, the cost of fixed assets includes site preparation costs, installation costs and the cost of obtaining resource consents. Leased assets The Group leases certain plant and equipment and land and buildings by way of operating lease. The cost of improvements to such leasehold assets is capitalised as leasehold improvements and then depreciated as outlined below. Capital work in progress All costs relating to an asset are first recorded in work in progress. Once all associated costs for an asset are established with relative certainty, the asset is then transferred from work in progress and capitalised into the fixed assets. Store startup costs Costs incurred in connection with the commissioning of a new store are expensed as incurred with the exception of franchise costs and certain development costs and fees as discussed above. Operating lease costs incurred during the construction or fit-out of a store are capitalised as part of the cost of the store and depreciated over the life of the lease.
29 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Significant Accounting Policies
FOR THE YEAR ENDED 28 FEBRUARY 2003
(CONTINUED)
Depreciation Depreciation is calculated on a straight line basis to allocate the cost of an asset, less any residual value, over its useful life. The estimated useful lives of fixed assets are as follows: Land Indefinite Buildings 20 years Leasehold improvements 5 – 20 years Plant and equipment 3 – 12.5 years Motor vehicles 4 years Furniture and fittings 3 – 10 years Computer equipment 3 – 5 years
(H) INVENTORIES
Inventories are stated at the lower of cost and net realisable value. The estimated costs of marketing, selling and distribution are deducted in calculating net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location.
(I) TAXATION
Tax effect accounting has been applied on a comprehensive basis to all timing differences. Income tax expense is recognised on the surplus before taxation adjusted for permanent differences between taxable and accounting income. The tax effect of all timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, are recognised in the statement of financial position as a future income tax benefit or a provision for deferred tax. The future income tax benefit or provision for deferred tax is stated at the income tax rates prevailing at balance date. Future income tax benefits are not recognised unless realisation of the asset is virtually certain.
(J) DERIVATIVE FINANCIAL INSTRUMENTS
The Group uses financial instruments such as interest rate swaps to reduce its exposure to fluctuations in interest rates. Financial instruments that are designated as hedges of specific items or economic exposures are recognised on the same basis as the underlying hedged items. The net differential paid or received on interest rate swaps is recognised as a component of interest expense over the period of the agreement.
(K) STATEMENT OF CASH FLOWS
The following are definitions of the terms used in the Statement of Cash Flows: a) Cash comprises; cash at bank, cash on hand and overdraft balances. b) Investing activities are those activities relating to the acquisition, holding and disposal of fixed assets and of investments. Investments can include securities not falling within the definition of cash. c) Financing activities are those activities which result in changes in the size and composition of the capital structure of the company. d) Operating activities include all transactions and other events that are not investing or financing activities.
(L) DIVIDENDS
Dividends are recognised in the period that they are authorised and approved.
30 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
1 DETAILED STATEMENT OF FINANCIAL PERFORMANCE
Operating revenue KFC 175,139 217,006 – – Pizza Hut 75,700 84,136 – – Starbucks Coffee 22,821 20,828 – – Pizza Hut Victoria 24,450 – – –
Total store sales revenue 298,110 321,970 – –
Dividends received from subsidiary companies – – 4,256 11,613 Other revenue 2,757 2,896 – –
Total operating revenue 300,867 324,866 4,256 11,613
Concept EBITDA1 KFC 30,347 44,696 – – Pizza Hut 11,211 9,332 – – Starbucks Coffee 2,636 2,116 – – Pizza Hut Victoria (618) – – –
Total concept EBITDA1 43,576 56,144 – –
General & administration (12,361) (11,529) – – Depreciation (9,145) (11,360) – – Other 1,506 (545) 4,256 11,613
EBITA2 before strategic initiatives 23,576 32,710 4,256 11,613 Strategic initiatives 2 (1,286) 10,906 – –
EBITA2 22,290 43,616 4,256 11,613 Amortisation (2,683) (2,862) – –
EBIT3 19,607 40,754 4,256 11,613 Net interest expense (2,379) (6,645) (1,760) (6,593) Net foreign exchange loss (86) – – –
Surplus before taxation 2 17,142 34,109 2,496 5,020
Taxation (expense) / credit 3 (6,028) (10,826) 575 2,176
Surplus after taxation 11,114 23,283 3,071 7,196
1 Earnings Before Interest, Taxation, Depreciation & Amortisation
2 Earnings Before Interest, Taxation & Amortisation
3 Earnings Before Interest & Taxation
31 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
(CONTINUED) IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
2 SURPLUS BEFORE TAXATION
The surplus before taxation includes costs associated with strategic initiatives of $1.3 million (2002: ($10.9) million). In February 2003, the Group entered into sale and lease back agreements for the land and buildings of 6 KFC stores. Net sale proceeds of $4.0 million were received. A one off gain on disposal of $0.7 million has been recognised in the year. The costs incurred relate to the startup and transformation of the Pizza Hut Victoria business. The surplus before taxation, excluding these strategic initiative costs, is $18.4 million (2002: $23.2 million). The surplus before taxation is calculated after charging / (crediting) the following items:
Royalties paid 17,680 19,214 – – Doubtful debts: Increase / (decrease) in provision – 18 – – Auditors’ remuneration: To KPMG for statutory audit services 81 50 – – To KPMG for other assurance services 36 111 – – To KPMG for financial advisory services 52 103 – – To KPMG for taxation services 129 120 – – Operating rental expenses 17,299 11,741 – – Net loss / (profit) on disposal of fixed assets 311 (12,874) – – Donations 30 16 – – Directors’ fees 220 260 – – Interest expense 2,379 6,645 1,760 6,593 Amortisation of goodwill 2,267 2,514 – – Amortisation of other intangible assets 416 348 – – Depreciation on: Buildings 274 2,436 – – Leasehold improvements 2,927 2,124 – – Plant, equipment and fittings 5,702 6,536 – – Motor vehicles 242 264 – –
Strategic initiative costs Net profit on sale of KFC sale & leaseback assets (700) (13,759) – – Pizza Hut Victoria transformation costs* (2002: New Zealand) 1,986 978 – – Strategic development costs – 1,284 – – Licensing establishment costs – 591 – –
1,286 (10,906) – –
* Includes set up costs in Victoria Australia, and store closure and relocation expenses.
32 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
(CONTINUED) IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
3 TAXATION (a) Income tax expense Prima facie income tax expense calculated at 33% on the surplus before taxation 5,657 11,256 823 1,657
Adjusted for the tax effect of: Dividends from subsidiary company – – (1,398) (3,833) Amortisation of intangibles 470 474 – – Prior year adjustments 31 308 – – Non deductible loss / (assessable profit) on disposal of fixed assets 47 (1,214) – – Other (177) 2 – –
Total income tax expense (credit) 6,028 10,826 (575) (2,176)
Total income tax expense (credit) is made up of: Current taxation 6,476 9,253 (575) (2,176) Prior year taxation adjustments 31 308 – – Deferred taxation 10 (479) 1,265 – –
6,028 10,826 (575) (2,176)
The tax expense includes a tax credit for strategic initiatives of $377,000 (2002: $2,385,000 expense). The tax affairs of Restaurant Brands and its trading subsidiaries have been grouped into a single tax group. The balance disclosed in the Company represents Restaurant Brands New Zealand Limited’s impact on the tax group for the year.
(b) Imputation credits Balance at beginning of the year 6,107 2,209 Taxation paid 5,753 7,848 Imputation credits attached to dividends paid (5,051) (3,950) Adjustments in relation to prior year dividend (24) –
Balance at end of year 6,785 6,107
4 DIVIDEND DISTRIBUTIONS
Interim dividend of 4.5 cents per share paid (2002: 4.5 cents per share) 4,256 4,166 4,256 4,166
Final dividend (2002: 8 cents per share) 12(b) – 7,447 – 7,447
4,256 11,613 4,256 11,613
Subsequent to balance date, the directors have declared a 5.5 cents per share final dividend for the year ended 28 February 2003.
33 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP & COMPANY
(CONTINUED) IN $NZ000’S UNLESS STATED NOTE 12MTHS 12MTHS 15MTHS 15MTHS
2003 2003 2002 2002
5 EQUITY The issued capital of the Company is 94,815,164 ordinary shares (2002: 93,086,674) fully paid up and 1,500,000 shares (2002: nil) of senior executive share scheme shares. All shares carry equal rights in respect of voting and the receipt of dividends, and upon winding up rank equally with regard to the Company’s residual assets, except for the shares issued under the senior executive’s share scheme (refer to note 18 for a description of the senior executive share scheme and the shares issued under the scheme).
Ordinary shares (NUMBER) ($’000) (NUMBER) ($’000) Balance at beginning of year 93,086,674 19,925 92,104,710 18,629 Employee Share Growth share options exercised 20 459,780 486 237,477 254 Dividends reinvested 1,268,710 2,375 744,487 1,042
Balance at end of year 94,815,164 22,786 93,086,674 19,925
Senior executive share scheme shares Senior executive share purchase 18 1,500,000 3,037 – –
6 FOREIGN CURRENCY TRANSLATION RESERVE GROUP COMPANY
12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
Balance at beginning of year – – – – Difference arising on translation of independent foreign operations (1,639) – – –
Balance at end of year (1,639) – – –
7 FIXED ASSETS COST ACCUMULATED NET BOOK DEPRECIATION VALUE Group 2003: Leasehold improvements 41,501 (8,389) 33,112 Plant, equipment and fittings 48,151 (24,711) 23,440 Motor vehicles 993 (485) 508 Capital work in progress 6,240 – 6,240
96,885 (33,585) 63,300
Group 2002: Land 1,366 – 1,366 Buildings 7,943 (4,806) 3,137 Leasehold improvements 29,781 (6,493) 23,288 Plant, equipment and fittings 44,407 (23,030) 21,377 Motor vehicles 999 (637) 362 Capital work in progress 1,294 – 1,294
85,790 (34,966) 50,824
The Parent company has no fixed assets (2002: nil).
8 INVESTMENT IN SUBSIDIARIES The subsidiary companies, all of which are wholly owned, have a 28 February balance date, and have been owned except as disclosed, for the full financial year, are as follows: Restaurant operating companies Property holding companies Employee share option plan trust Restaurant Brands Limited Restaurant Brands Properties Limited company Restaurant Brands Australia Pty Limited Non trading subsidiary companies Restaurant Brands Nominees Limited (incorporated on 18 March 2002) Restaurant Brands Pizza Limited Investment holding companies Kentucky Fried Chicken Limited RB Holdings Limited RBP Holdings Limited RBDNZ Holdings Limited RBN Holdings Limited
34 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP
(CONTINUED) IN $NZ000’S NOTE 12MTHS 15MTHS
2003 2002
9 INTANGIBLE ASSETS Goodwill At cost 9(a) 38,466 34,835 Accumulated amortisation (7,031) (4,764)
Book value 31,435 30,071 Franchise costs At cost 9(b) 2,417 1,855 Accumulated amortisation (691) (425)
Book value 1,726 1,430 Concept development costs and fees At cost 9(c) 2,018 1,490 Accumulated amortisation (397) (260)
Book value 1,621 1,230
34,782 32,731
The parent company has no intangible assets (2002: nil).
(a) Goodwill Goodwill (at cost) includes: • Pre-acquisition goodwill of $10,005,000 relating to the acquisition, by Restaurant Brands Pizza Limited, in January 1995, of the business of Pizza Restaurants (NZ) Limited. It also includes reacquired franchise rights on a KFC store. The operations of Restaurant Brands Pizza Limited have subsequently been transferred to Restaurant Brands Limited. • Goodwill of $1,644,000 relating to the resolution, in 1999, of an issue over pre-acquisition tax credits with Yum! (formerly known as Tricon). This resulted in an increase in the Company’s investment in Restaurant Brands Limited. • Goodwill of $23,186,000 relating to the acquisition of the business of Eagle Boys in New Zealand in 2000 by Restaurant Brands Limited. • Goodwill of $3,631,000 relating to the acquisition of the business of Pizza Hut Victoria during the current financial year (as set out in (d) below) by Restaurant Brands Australia Pty Limited. • Goodwill is being amortised over the remaining terms of of the Master Franchise Agreements with Yum! The New Zealand agreement has a remaining period of the initial term of four years from balance date, after which the agreement is subject to renewal for a further period of ten years. The Pizza Hut Victoria Agreement includes a remaining initial period of nine years from balance date, after which the agreement is subject to renewal for a further period of ten years. The Directors are of the view that it is reasonably certain that the Master Franchise Agreements will be renewed.
(b) Franchise costs Franchise costs include: • Franchise fees of $791,000 paid to Yum! for new KFC and Pizza Hut stores commissioned. These costs are being amortised over the remaining term of the initial period of the Master Franchise Agreements from the date the store opened. At balance date there is four years of the initial Master Franchise Agreement remaining for New Zealand and nine years for Pizza Hut Victoria. • Franchise fees of $1,626,000 paid to Starbucks Coffee International Inc. for new Starbucks Coffee stores commissioned. These costs are being amortised from the date of the store opening over the remaining term of the Starbucks Coffee Area Development and Operational Agreement. At balance date there is six years of the Agreement remaining.
(c) Concept development costs and fees Concept development costs and fees include: • Development costs and fees for the establishment of the Starbucks Coffee concept in New Zealand of $552,000. These are being amortised over the term of the Starbucks Coffee Area Development and Operational Agreement. • Other development costs of $1,466,000 including costs associated with the acquisition and conversion of Eagle Boys Pizza and Pizza Hut Victoria business. These are being amortised over the term of the Yum! Master Franchise Agreements including the renewal period.
35 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
(CONTINUED) IN $NZ000’S NOTE 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
(d) Pizza Hut Victoria acquisition In April 2002, the group acquired 51 Pizza Hut stores in Victoria, Australia. The acquisition has the following effect on the consolidated financial position:
Property, plant and equipment 11,210 – – – Cash paid (14,841) – – – Goodwill on acquisition 3,631 – – –
10 DEFERRED TAX LIABILITY Balance at the beginning of the year (1,610) 2,039 – – Movement between current and deferred tax (67) (2,384) – – Recognised in the statement of financial performance 3(a) 479 (1,265) – – in the year Foreign exchange translation (11) – – –
Balance at the end of the year (1,209) (1,610) – –
11 ACCOUNTS RECEIVABLE (a) Non-current Senior Executive share purchase loan 18 3,135 – – –
3,135 – – –
(b) Current Prepayments 1,245 1,151 – – Other debtors 388 783 – – Income tax receivable 2,442 2,071 – –
4,075 4,005 – –
12 CREDITORS AND BORROWINGS (a) Non-current Secured bank loans 21 29,168 30,000 29,168 30,000
29,168 30,000 29,168 30,000
Of the bank loans, $10 million (2002: $30 million) is hedged by interest rate swaps, which have effectively fixed the interest rate on the loan. $10 million is fixed at 6.96% (2002: 7.46%) including the fixed margin on the underlying debt. The floating legs of the swap reprice on the same basis as the underlying debt. The unhedged $19,168,000 (2002: nil) is floating at an interest rate of 6.2% at balance date. The loans are structured as a revolving wholesale advance facility with portions of the facility renewing on a regular basis. It is the Company’s intention to roll forward these loans under the terms of the facility and therefore they are classified as term liabilities. As security over the loans and bank overdraft, the banks hold a negative pledge deed between Restaurant Brands New Zealand Limited and all its subsidiary companies. The negative pledge deed includes all obligations and cross guarantees between the guaranteeing subsidiaries.
(b) Current Dividends payable 4 – 7,447 – 7,447 Provision for surplus lease space 13 1,460 1,107 – – Provision for store closure costs 14 960 – – – Trade creditors 10,606 7,204 – – Other creditors and accruals 7,383 3,877 407 618 Employee entitlements 4,799 4,325 – – Indirect and other taxes 2,387 2,137 – – Payments under franchise agreements – 1,109 – –
27,595 27,206 407 8,065
36 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP
(CONTINUED) IN $NZ000’S UNLESS STATED 12MTHS 15MTHS
2003 2002
13 PROVISION FOR SURPLUS LEASE SPACE Balance at beginning of year 1,107 1,602 Additional provision made 676 – Amount Utilised (394) (639) Effect of discounting 71 144
Balance at end of year 1,460 1,107
The provision for surplus lease space reflects lease commitments that the Group has on properties leased that are surplus to its current operating requirements primarily arising from Pizza Hut transformations in 2000 for New Zealand and 2003 for Australia. The Group is currently seeking tenants to sub-lease the excess space that it has. The provision has been used in the period to off-set payments made to lessors.
14 PROVISION FOR STORE CLOSURE COSTS Balance at beginning of year –– Additional provision made 960 –
Balance at end of year 960 –
The provision for store closure costs reflects the net book value at balance date of fixed assets to be disposed of in the upcoming year.
15 EARNINGS PER SHARE Number of ordinary shares on issue 94,815,164 93,086,674 Surplus after taxation for the period (cents per share) 11.82 25.15 Total shares on issue including executive share scheme shares 96,315,164 93,086,674 Surplus after taxation for the period (cents per share) 11.64 25.15
Earnings per share are calculated by dividing the surplus after taxation for the period by the weighted average number of ordinary shares on issue.
16 SEGMENTAL INFORMATION The Company and Group’s activities during the period were the operation of quick service and take-away restaurant concepts in New Zealand and Australia comprising:
GROUP 2003 AUSTRALIA NEW ZEALAND TOTAL
Total operating revenue 24,450 276,417 300,867
EBITDA (618) 44,194 43,576
EBIT before unallocated expenses (2,293) 34,040 31,748 Unallocated Expenses: G&A – – (12,361) Other – – 1,506 20,893 Strategic Initiatives – – (1,286)
EBIT – – 19,607
NPAT (4,498) 15,612 11,114
Total Assets 15,486 94,499 109,985
In the period to February 2002, the group only operated quick service and take-away restaurant concepts in New Zealand.
17 RELATED PARTY DISCLOSURES Identity of related parties with whom material transactions have occurred. Note 8 identifies all entities within the Group. All of these entities are related parties of the Company. During the year Danny Diab (prior to his appointment as director) acted for the company as a consultant in relation to the acquisition of Pizza Hut Victoria. During the year the group purchased fixed assets of $506,092 from Premier Stainless Pty Limited a company with which Danny Diab is a director and shareholder. Material transactions within the Group are loans and advances to and from Group companies and dividend payments.
37 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003
(CONTINUED)
18 SENIOR EXECUTIVE SHARE PURCHASE LOAN SCHEME The senior executive share purchase loan of $3,135,000 (2002: nil) represents the amount due for the purchase of shares in the Company, held in trust as security against loans made to the CEO (Mr Collier) under the senior executive share purchase loan scheme (the Scheme). Under the terms of the scheme, the CEO was issued with 1.5 million shares on 16 May 2002 in the company at an issue price of $2.09 per share. The purchase of the shares was funded through the provision to the CEO of an interest free loan from the Company. This transaction was completed on a non cash basis (refer note 23). A nominee company holds the shares on behalf of the CEO until such time as certain qualification criteria in relation to share price performance are met. Until that time the shares are not entitled to receive dividends, nor do they have voting rights. The qualification criteria are: (a) the Company’s share price over a 30 business day period at anytime during a period of one year from the date three years after the issue of the Share Scheme Shares exceeds $3.02 less the aggregate amount of all dividends in respect of which the Company’s ordinary shares become “ex-entitlement” over the three year period of the Scheme. $3.02 is the subscription price for Share Scheme Shares ($2.09), increased by 13% per year compounded over the period (13% is the Company’s forecast cost of equity); and (b) Mr Collier remains in the Company’s employ during the period. Should the qualification criteria not be met, the shares will be cancelled and redeemed for cash at the subscription price, which will be used to pay off the interest free loan provided by the company.
19 SENIOR EXECUTIVE SHARE OPTION PLAN On completion of the listing of the Company in 1997, senior executives were granted 852,271 non-transferable options to subscribe for shares in the Company. No options have been exercised or have lapsed since granted. No amount was payable on the grant of the options, and the option exercise price of each option was the final price of the initial public offer (220 cents per share) plus 10% (a resulting price of 242 cents per share). Each option provides the executive with the entitlement to subscribe for one share (adjusted for bonus share issues). Subject to insider trading legislation and other applicable laws, the options are exercisable as long as the relevant executive remains an employee of the Company. Although in exceptional circumstances the Board has discretion to allow options to be exercised subject to conditions, if the executive is no longer an employee. If it appears that control of the Company will change, the Board are able to allow options to be exercised, again subject to conditions they may impose. No new options were issued under the Plan during the year. Senior executives exercised no options during the year. The shares issued under this scheme, will rank equally with other shares.
20 EMPLOYEE SHAREGROWTH SHARE OPTION PLAN The Company has established an employee share option plan (‘the Plan’) for certain employees, under which it issues options at no cost for shares in the Company to the employees. The holder of an option is entitled to subscribe for one fully paid share for each option held (adjusted for bonus share issues), at an exercise price that is determined by reference to the market price at the time of issue of the options. On the anniversary date of issue in each subsequent year 20% of the options issued will become exercisable. Options only remain exercisable (subject to certain conditions and legislative provisions) whilst holders remain employed by the company. The options will terminate 10 years from the date they are issued. Principal officers and employees of the Company that participate in the Plan receive an annual issue of options in respect of the number of shares equal to approximately 10% of their eligible earnings divided by the exercise price per share. Options issued under The Plan:
DATE OF ISSUE EXERCISE ISSUED EXERCISED TO EXERCISED IN FORFEITED OUTSTANDING PRICE 28 FEB 2002 YEAR OPTIONS OPTIONS AT BALANCE DATE
5 June 1997 $2.20 546,213 – – (316,733) 229,480 31 August 1998 $0.94 1,318,062 (147,134) (169,160) (620,595) 381,173 15 September 1999 $1.32 1,078,467 (62,099) (103,896) (471,528) 440,944 11 September 2000 $1.05 1,494,368 (51,122) (123,148) (556,508) 763,590 12 September 2001 $1.50 1,010,122 – (40,816) (228,361) 740,945 13 September 2002 $1.85 905,128 – – (127,175) 777,953
Total 6,352,360 (260,355) (437,020) (2,320,900) 3,334,085
In March 2000 there was a 1:12 taxable bonus issue. Therefore options issued prior to and exercised after this date will have a corresponding adjustment to the number of shares issued.
38 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP COMPANY
(CONTINUED) IN $NZ000’S 12MTHS 15MTHS 12MTHS 15MTHS
2003 2002 2003 2002
21 FINANCIAL INSTRUMENTS Exposure to currency, interest rate and credit risk arises during the normal course of the Group’s business. Derivative financial instruments are used as a means of reducing exposure to fluctuations in interest rates. These financial instruments are subject to the risk of market rates changing subsequent to acquisition. The principal or contract amounts of derivative financial instruments outstanding at balance date were:
Interest rate swaps 10,000 30,000 10,000 30,000
(a) Foreign currency risk The Group has exposure to foreign exchange risk as a result of transactions in foreign currencies that arise from normal trading activities. These transactions include importing certain equipment and food ingredients from Australia and the United States and the normal trading of Pizza Hut Victoria. All transactions are translated at spot rates or denominated in New Zealand dollars.
(b) Interest rate risk The bank overdraft and secured bank loans are sensitive to changes in interest rates. Further details regarding these borrowings are contained in note 12. The Group uses interest rate swaps to convert the interest on some term borrowings to a fixed rate. The effective interest rate over the year on borrowings that are interest rate sensitive is 6.71% (2002: 7.46%).
(c) Repricing analysis EFFECTIVE TOTAL 6 MTHS The following table identifies the period until financial INTEREST OR LESS instruments that are interest rate sensitive reprice. RATE
Group 2003: Bank term loans 6.71% 29,168 29,168 Interest rate swaps – (10,000) (10,000)
Repricing gap 19,168 19,168
Group 2002: Bank term loans 7.46% 30,000 30,000 Interest rate swaps – (30,000) (30,000)
Repricing gap ––
(d) Credit facilities The Group has bank funding facilities, excluding overdraft facilities, of $45 million (2002: $79 million) available at variable rates. The amount undrawn at balance date was $15.8 million (2002: $49 million).
(e) Credit risk No collateral is required in respect of financial assets. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The nature of the business results in most sales being conducted on a cash basis that significantly reduces the risk that the Group is exposed to. Reputable financial institutions are used for investing and cash handling purposes. At balance date there were no significant concentrations of credit risk and the maximum exposure to credit risk is represented by the carrying value of each financial asset in the statement of financial position. There is no exposure to credit risk arising from derivative financial instruments as the net differential paid or received on interest rate swaps is recognised as a component of interest expense over the period of the agreement.
39 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003
(CONTINUED) IN $NZ000’S
(f) Fair values The carrying values of bank overdrafts are the fair value of these liabilities. A Group set-off arrangement is in place between certain bank accounts operated by the Group. The carrying amount of the term borrowings is considered the fair value of these liabilities. The carrying amount of advances to employee share purchase schemes is based on Directors valuation at balance date. Derivative financial instruments are valued by reference to the indicative market value loss on the contracts at balance date. FAIR VALUE CARRYING VALUE
2003 2002 2003 2002
Group and Company Interest rate swaps (loss)/ gain (41) 323 – –
22 NET CASH FLOW FROM OPERATING ACTIVITIES GROUP COMPANY The following is a reconciliation between the surplus after 12MTHS 15MTHS 12MTHS 15MTHS taxation for the year shown in the statement of financial performance and the net cash flow from operating activities. 2003 2002 2003 2002
Surplus after taxation 11,114 23,283 3,071 7,196
Add / (less) items classified as investing / financing activities: (Profit) / loss on disposal of fixed assets 311 (12,874) – – Other non-operating receipts (290) (336) – –
21 (13,210) – – Add / (less) non-cash items: Depreciation 9,145 11,360 – – Increase / (decrease) in provisions 1,313 (300) – – Amortisation of intangible assets 2,683 2,862 – – Decrease / (increase) in deferred tax liability (401) 3,649 – –
12,740 17,571 – – Add / (less) movement in working capital: Decrease / (increase) in inventories 206 161 – – Decrease / (increase) in trade debtors and other receivables 301 676 – – (Decrease) / increase in trade creditors and other payables 4,290 2,237 (211) 429 (Decrease) / increase in income tax receivable 387 (724) 761 594 Decrease in dividends receivable from subsidiary company – – 7,447 (2,382)
5,184 2,350 7,997 (1,359)
Net cash from operating activities 29,059 29,994 11,068 5,837
40 RESTAURANT BRANDS NEW ZEALAND LIMITED Notes to the Financial Statements
FOR THE YEAR ENDED 28 FEBRUARY 2003 GROUP
(CONTINUED) IN $NZ000’S 12MTHS 15MTHS
2003 2002
23 SIGNIFICANT NON CASH TRANSACTIONS The transaction generating the Senior Executive share purchase loan of $3,135,000, refer note 18, involved no cash movement. The transaction, after deducting associated expenses, resulted in an increase in equity of $3,037,000.
24 CONTINGENT LIABILITIES There are no contingent liabilities that the directors consider will have a significant impact on the financial position of the Company and Group.
25 COMMITMENTS (a) Capital commitments The Group has capital commitments which are not provided for in these financial statements, as follows: Store Development 969 2,884
(b) Operating lease commitments Non cancellable operating lease rentals are payable as follows: Not later than one year 16,413 13,318 Later than one year but not later than two years 15,456 12,734 Later than two years but not later than five years 39,583 34,018 Later than five years 43,879 49,726
115,331 109,796
(c) Renewal rights of operating leases The Group have entered into a number of operating lease NUMBER OF LEASES WITH: agreements. The table below summarises the Group’s RIGHTS OF RENEWAL NO RIGHT OF RENEWAL
lease portfolio. 2003 2002 2003 2002
Leases expiring in: Not later than one year 20 23 13 4 Later than one year but not later than two years 24 15 12 7 Later than two years but not later than five years 55 44 24 11 Later than five years 117 102 10 11
26 POST BALANCE DATE EVENTS Subsequent to balance date, the directors have declared a 5.5 cents per share final dividend for the year ended 28 February 2003.
41 RESTAURANT BRANDS NEW ZEALAND LIMITED Shareholder Information
AS AT 28 FEBRUARY 2003
TWENTY LARGEST SHAREHOLDERS NUMBER OF PERCENTAGE ORDINARY OF ORDINARY Registered shareholder SHARES SHARES
1 NZCSD Limited 33,245,999 35.06 2 AMP Custodial Investments No 1 Limited 9,296,896 9.80 3 Diab Investment NZ Limited 3,311,583 3.49 4 Leveraged Equities Custodians Limited 813,416 0.86 5 Forbar Custodians Limited 564,325 0.60 6 Custodial Services Limited 518,078 0.55 7 Forbar Custodians Limited – Account 2605 424,640 0.45 8 ABN Amro Craigs Limited 423,109 0.45 9 Peter Hanbury Masfen & Joanna Alison Masfen 421,974 0.45 10 Custodial Services Limited 357,086 0.38 11 Ja Hong Koo 343,500 0.36 12 Yeong Hoe Koo & Yong Ran Koo 342,500 0.36 13 Michael Walter Daniel & Elizabeth Beatty Benjamin & Michael Murray Benjamin 250,000 0.26 14 George Philip Lambert 210,000 0.22 15 Sterling Nominees Limited – No 2 Account 198,969 0.21 16 Marcia Lynn Hane & William Lee Hane 179,198 0.19 17 Alan John Green 170,000 0.18 18 Edward Burns 150,000 0.16 19 Salim Wakim 147,582 0.16 20 Regent Holdings Limited 137,000 0.14
Total 51,505,855 54.33
NZCSD (New Zealand Central Securities Depository Limited) is a depository system which allows electronic trading of securities to its members. As at 28 February 2003, the ten largest holdings in NZCSD in Restaurant Brands were:
ANZ Nominees Limited 19,146,126 20.19 Citibank Nominees (New Zealand) Limited 5,558,241 5.86 National Nominees New Zealand Limited 3,201,928 3.38 Westpac Banking Corporation – Client Assets No 2 963,902 1.02 Westpac Nominees (NZ) Limited 813,284 0.86 The Trustees Executors and Agency Company of New Zealand 690,000 0.72 Custody and Investment Nominees Limited 578,300 0.61 AMP Superannuation Tracker Fund 544,900 0.57 Public Nominees Limited – BNZ Wholesale Active NZ Equity Trust 449,184 0.47 Guardian Trust Investment Nominees (RWT) Limited 334,336 0.35
Total NZCSD – Top 10 32,280,201 34.03
42 RESTAURANT BRANDS NEW ZEALAND LIMITED Shareholder Information
AS AT 28 FEBRUARY 2003
(CONTINUED)
Distribution of ordinary shares and registered NUMBER OF PERCENTAGE SHARES PERCENTAGE shareholdings as at 28 February 2003. SHAREHOLDERS HELD
Size of shareholding 1 to 999 1,623 16.60 888,846 0.94 1,000 to 4,999 5,649 57.78 10,801,170 11.39 5,000 to 9,999 1,329 13.59 8,449,116 8.91 10,000 to 49,999 1,079 11.04 18,108,489 19.10 50,000 to 999,999 93 0.96 10,713,065 11.30 Over 1 million 3 0.03 45,854,478 48.36
Total 9,776 100.00 94,815,164 100.00
The following information is provided in compliance with Section 26 of the Securities Markets Act 1988.
As at 28 February 2003, the following were substantial NUMBER OF PERCENTAGE security holders in the company. SHARES HOLDING
AMP Henderson Global Investors (New Zealand) Ltd 9,296,896 9.80
Stock Exchange listing The ordinary shares of the company are listed on the New Zealand Stock Exchange.
Shares on issue As at 28 February 2003, the total number of ordinary shares on issue was 94,815,164.
43 RESTAURANT BRANDS NEW ZEALAND LIMITED Statutory Information
FOR THE YEAR ENDED 28 FEBRUARY 2003
1. Directorships There were changes in directorships during the year. M D McGuinness retired as a director on 17 October 2002 and D Diab was appointed as director on that same day.
The following are directors of all subsidiary companies of the group (except Restaurant Brands Australia Pty Ltd): J A Collier, V J Salmon, W J Falconer.
The following are directors of Restaurant Brands Australia Pty Ltd: J A Collier, K S Whitlow, D Diab, G R Ellis.
2. Directors’ Remuneration The following persons held office as directors during the 12 months to 28 February 2003 and received the following remuneration and other benefits: DIRECTORS OTHER OTHER FEES FEES REMUNERATION
W J Falconer 60,000 – – J A Collier – – 443,773 R G Bettle 40,000 – – V J Salmon 40,000 – – S R Beck 40,000 – – M D McGuinness 26,667 – – D Diab 13,333 – 65,287
No subsidiary company director received in their capacity as such, any directors’ fees or other benefits from the subsidiaries.
3. Entries Recorded in the Interests Register The following entries were recorded in the interests register of the Company and its subsidiaries during the year: a) Directors’ interests in transactions The directors had no interest in transactions during the 12 months to 28 February 2003. b) Share dealings of Directors No notices were received from directors in relation to share dealings over the year. c) General Disclosure of Interest In accordance with Section 140 (2) of the Companies Act 1993, directors of the Company have made general disclosures of interest in writing to the board of positions held in other named companies or parties as follows:
NAME POSITION PARTY
W J Falconer Chairman Hellaby Holdings Limited Chairman Westgate Transport Limited Chairman The Meat Industry Association Chairman Kiwi Fruit International Chairman Oyster Bay Marlborough Vineyards Limited Chairman Market Surveillance Panel, New Zealand Stock Exchange Director Evergreen Forests Limited Director Westfield Management Ltd
44 RESTAURANT BRANDS NEW ZEALAND LIMITED Statutory Information
FOR THE YEAR ENDED 28 FEBRUARY 2003
(CONTINUED)
NAME POSITION PARTY
R G Bettle Chairman N.Z. TAB Chairman N.Z. Racing Industry Board Director Southport Limited Director Allied Farmers Limited Director National Gas Corporation Director Synergy International Director Owens Group Limited V J Salmon Director Auckland District Health Board Director Salmon & Partners Limited S R Beck Director Pencarrow Private Equity Limited* Chairman Wellington Drive Technologies Director Eastern Equities Corporation D Diab Director Diab Pty Ltd Director Diab Developments Pty Ltd Director Diab Investments Pty Ltd Director Diab Investments NZ Ltd Director Premier Stainless Steel Pty Ltd Director Pizza Hut Adco Pty Ltd * Pencarrow has a contractual relationship with AMP Custodial Nominees Ltd, a substantial security holder in Restaurant Brands NZ Ltd. d) Directors’ indemnity and insurance The Company has insured all its Directors and the Directors of its subsidiaries against liabilities to other parties (except the Company or a related party of the Company) that may arise from their position as Directors. The insurance does not cover liabilities arising from criminal actions. The Company has executed a Deed of Indemnity, Indemnifying all directors to the extent permitted by Section 162 of the Companies Act 1993.
4. Directors’ Security Holdings as at 28 February 2003 EQUITY SECURITIES HELD BENEFICIAL INTEREST
2003 2002 2003 2002
J A Collier 69,166 69,166 – – W J Falconer 58,391 58,391 – – V J Salmon 12,399 11,606 – – R G Bettle 5,000 5,000 – – S R Beck –––– D Diab 3,311,583 – – –
Mr Collier has 1,500,000 Share Scheme Shares on issue at a issue price of $2.09. He also has 340,909 options on issue at a nil issue price. (The options are exercisable until 1 July 2007 converting to 369,318 shares at an exercise price of $2.42 per share.) Further details are contained in Notes 18 and 19 of the financial statements.
45 RESTAURANT BRANDS NEW ZEALAND LIMITED Statutory Information
FOR THE YEAR ENDED 28 FEBRUARY 2003
(CONTINUED)
5. Employee Remuneration During the 12 months ended 28 February 2003, the following number of employees or former employees of the Company and its subsidiaries, not being Directors, received remuneration and other benefits valued at or exceeding $100,000 per annum.
NO. OF EMPLOYEES OR FORMER EMPLOYEES 2003 2002
Salary Range $100,000 - $110,000 1 5 $110,000 - $120,000 2 4 $120,000 - $130,000 - 1 $130,000 - $140,000 - 1 $140,000 - $150,000 1 3 $150,000 - $160,000 2 1 $170,000 - $180,000 1 2 $180,000 - $190,000 2 1 $200,000 - $210,000 1 1 $220,000 - $230,000 1 - $240,000 – $250,000 1 - $260,000 - $270,000 1 - $300,000 - $310,000 - 1 $370,000 - $380,000 1 -
W J Falconer J A Collier Chairman Chief Executive officer 28 February 2003 28 February 2003
46 RESTAURANT BRANDS NEW ZEALAND LIMITED Statement of Corporate Governance
FOR THE YEAR ENDED 28 FEBRUARY 2003
OVERVIEW remuneration for senior executives of the company; The board of Restaurant Brands New Zealand Limited is principally the CEO and those reporting directly to him. committed to the guiding values of the company: integrity, It also reviews any company-wide incentive and share respect, continuous improvement and service. It expects that option schemes as required. This committee comprises all management and staff ultimately subscribe to these values non-executive directors of the company. and use them as a guide to making decisions. The board does not have a formal nominations committee as all non-executive directors are involved in the RESPONSIBILITY appointment of new directors. The board is responsible for the proper direction and control Other ad-hoc sub-committees may meet for specific of the company’s activities, including setting strategic direction, approval of significant expenditures, policy purposes. determination, stewardship of the company’s assets, BOARD APPRAISAL identification of significant business risks, legal compliance The board has adopted a performance appraisal programme and monitoring management performance. by which it annually monitors and assesses its performance.
DELEGATION The board has delegated responsibility for the day-to-day INSIDER TRADING leadership and management of the company to the chief All directors and senior management of the company are executive officer (CEO) who is required to do so in familiar with and have formally acknowledged acceptance of accordance with board direction. The CEO remains as the an “Insider Trading Code” that controls any dealings in only executive officer on the board of the company, and his securities by directors and employees. The provisions of the performance is formally reviewed each year by the board. code are substantially in accordance with the ‘Insiders Trading (Approved Procedure for Company Officers) Notice’ COMPOSITION AND FOCUS issued under the Securities Amendment Act, 1988. The board currently comprises five non-executive directors
(including the Chairman) and one executive director (CEO). SIZE In addition to Committee responsibilities (below) individual The constitution prescribes a minimum of three directors, board members work directly with management in major but there are currently six members of the board. initiatives such as acquisitions and asset rationalisations.
RE-ELECTION COMMITTEES Under the terms of the constitution, one third of the non- From amongst its own members, the board has appointed the executive directors (two) are required to retire from office at following permanent committees: the annual meeting of the company but may seek re-election > The audit committee. The audit committee comprises all at that meeting. non-executive directors and is constituted to monitor the
veracity of the financial data produced by the company and MEETINGS ensure controls are in place to minimise the opportunities The board normally meets eight to ten times a year and, for fraud or material error in the accounts. in addition to reviewing normal operations of the company, The audit committee meets at least three times a year, with approves a strategic plan and annual budget each year. external auditors of the company and executives performing
internal audit management from within the company. SHAREHOLDING The committee has adopted an audit charter setting out the There is no prescribed minimum shareholding for directors parameters of its relationship with internal and external although some do hold shares in the company. audit functions. The charter requires 5 yearly reviews of the external audit relationship and audit partner rotation. INTERESTS REGISTER > Appointments and remuneration committee. The board maintains an interests register; in considering The appointments and remunerations committee is matters affecting the company, directors are required to constituted to approve appointments and terms of disclose any actual or potential conflicts.
47 RESTAURANT BRANDS NEW ZEALAND LIMITED Directors’ Profiles
CHAIRMAN – William Falconer CHIEF EXECUTIVE OFFICER – DIRECTOR – Victoria Salmon Mr Falconer is a lawyer and James Collier Ms Salmon is a Director and a professional director. He currently The Chief Executive Officer, James Collier, business consultant of Salmon and serves as Chairman of the Meat has been CEO since 1997 and has 14 years Partners Limited and a Director on Industry Association, Hellaby experience in the restaurant business. the Auckland District Health Board. Holdings Limited, Westgate Transport Prior to his appointment as CEO, Mr Collier She was previously Chief Executive Limited, Kiwi Fruit International served with PepsiCo Restaurants of the Ellerslie Flower Show and Limited, Oyster Bay Marlborough International as Director of Operations for Group Rentals New Zealand Limited. Vineyards Limited and the New KFC in Australia and New Zealand. He had Prior to that she was with Ernst Zealand Stock Exchange Market management responsibility for over 300 and Young. A qualified accountant, Surveillance Panel. He is also a restaurants. Prior to this, Mr Collier served Ms Salmon chairs the audit Director of Evergreen Forests Limited as the General Manager for PepsiCo committee of the board. and Westfield Management Limited. New Zealand operations. Mr Collier has also held a number of marketing and operations positions within PepsiCo and before that was with S.C. Johnson and Nestlé in Australia.
DIRECTOR – Rick Bettle DIRECTOR – Shawn Beck DIRECTOR – Danny Diab Mr Bettle is a professional director. Mr Beck is a founding director of Mr Diab is based in Australia and owns A former chief executive of a major Pencarrow Private Equity Limited. and operates a number of Pizza Hut New Zealand meat company, he Pencarrow is a private investment restaurants in Sydney. He has had currently serves as Chairman of the management firm specialising in more than 15 years’ experience in the New Zealand TAB and the NZ Racing management buy-outs and cornerstone industry and is regarded as one of the Industry Board and has recently been stakes in listed companies. He is leading Pizza Hut franchisees in appointed as Vice President of the NZ currently Chairman of Wellington Drive Australia. He also has a number of Institute of Directors. He is also a Technologies and a Director of Eastern other business interests, including Director of Natural Gas Corporation, Equities Corporation. Mr Beck has stainless steel manufacturing. Mr Diab Southport Limited, Allied Farmers taken a particular interest in new has a special interest in the company’s Limited, Synergy International and initiatives involving the KFC business. investment in Pizza Hut Victoria and Owens Group Limited. He chairs the has taken an active role in assisting board remuneration committee. management in the business.
48 RESTAURANT BRANDS NEW ZEALAND LIMITED Financial Calendar Corporate Directory
ANNUAL MEETING DIRECTORS:
21 May 2003 William John Falconer (Chairman) LLB
James Alexander Collier (CEO) Mktg Cert CLOSE OF REGISTER FOR FINAL DIVIDEND Victoria Jane Salmon BBS (Hons), CA, AFNZIM 23 May 2003 Richard Gilbert Bettle Dip. Bus, Admin, MBA
FINAL DIVIDEND PAID Shawn Richard Beck BA, MBA
4 June 2003 Danny Diab FAICD, Dip CD, Dip CM, FICM, FCIS
INTERIM PROFIT ANNOUNCEMENT REGISTERED OFFICE: October 2003 60 Hugo Johnston Drive, Penrose
INTERIM REPORT PUBLISHED Auckland, New Zealand
November 2003 SHARE REGISTRAR:
INTERIM DIVIDEND PAYMENT Computershare Investor Services Limited
December 2003 AUDITORS:
FINANCIAL YEAR END KPMG
28 February 2004 SOLICITORS:
ANNUAL PROFIT ANNOUNCEMENT Bell Gully
April 2004 BANKERS: Westpac Banking Corporation The National Bank of New Zealand Limited
CONTACT DETAILS: P O Box 22-749, Otahuhu, Auckland, New Zealand. Telephone: (09) 525-8700 Fax: (09) 525-8711 E-mail: [email protected] Website: www.restaurantbrands.co.nz DESIGNED AND PRODUCED BY VELOCITY LIMITED VELOCITY DESIGNED AND PRODUCED BY www.restaurantbrands.co.nz