Brazil Fast Food Announces First Quarter 2011 Results

Thu May 12, 2011 4:30pm EDT

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Brazil Fast Food Announces First Quarter 2011 Results

Brazil Fast Food Corp. (OTC Bulletin Board: BOBS.OB) (“Brazil Fast Food”, or the “the Company”), the second largest fast-food restaurant chain in Brazil with 781 points of sale, operating under (i) the Bob’s brand, (ii) KFC and Pizza Hut São Paulo as franchisee of Yum! Brands, and (iii) Doggis as franchisee of Grupo de Empresas Doggis S.A., today announced financial results for the first quarter ended March 31, 2011.

First Quarter 2011 Highlights

  • System-wide sales totaled R$221, million, up 15.3% from the first quarter 2010
  • Revenue totaled R$54.9 million, up 9.7% from the first quarter 2010
  • Points of sale totaled 781 at March 31, 2011, up from 737 at the end of first quarter 2010
  • EBITDA was R$6.6 million, up 43.4% from the first quarter 2010
  • Operating income was R$4.9 million, up 113.1% from the first quarter 2010
  • Net income was R$4.2 million, or R$0.52 per basic and diluted share, up 125.0% from the first quarter 2010

“We are very pleased to report strong first quarter results, highlighted by meaningful operating margin improvement and robust net income growth. Our solid start in 2011 reflects our strategy to focus on our most profitable company-owned stores while growing our industry leading brands through new franchise relationships in favorable locations throughout Brazil,” said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food. “The outlook for our business for the rest of the year remains positive and we will continue to invest in our brands in the quarters ahead.”

First Quarter 2011 Results

System-wide sales grew 15% in the first quarter to R$221 million, driven by an increase in franchised points of sale as well as higher sales from company-owned stores.

Total revenue for the first quarter 2011 increased by 9.7% to R$54.9 million from R$50.1 million in the first quarter 2010. Revenue growth was driven primarily by the continued expansion of Brazil Fast Food’s franchise network, higher sales from company-owned stores.

The Company ended the first quarter of 2011 with 781 points of sale, compared to 737 in the comparable period in 2010.

Net revenue for company-owned and operated outlets was up 4.9% to R$40.1 million over the same period in 2010, reflecting an increase in net revenues across the Company’s KFC, Pizza Hut and Doggis brands, offset somewhat by a decrease in net revenues for the Company’s Bob’s brand due to a reduction in company-owned Bob’s outlets from 59 as of March 31, 2010, to 40 at the end of first quarter 2011. Same store sales, which measure the performance of stores that have been open for more than one year, increased by 6.6% year over year at company-owned Bob’s outlets and grew by 8.8% year over year at company-owned Pizza Hut locations. Company-owned KFC points of sale registered a 10.9% same store sales increase in the first quarter of 2011.

Net revenue from franchisees increased 15.4% year over year to R$7.6 million, driven primarily by an increase in number of franchised retail outlets to 709, up from 646 in the same period a year ago. Other revenue and income totaled R$7.2 million.

Operating expenses grew 4.7% to R$50.1 million in the first quarter of 2011, primarily due to higher administrative costs to support the growth of the business. As a percentage of revenue, operating costs declined from 95.4% of total revenue in the first quarter of 2010 to 91.1% of total revenue in the first quarter of 2011, mainly attributable to the company’s strategy to limit its direct operations to its most profitable outlets and also due to improved franchise margins.

Operating income for the first quarter of 2011 was R$4.9 million, compared to operating income of R$2.3 million in the first quarter of 2010. Operating margin in the first quarter of 2011 was 8.9% compared to 4.6% in the comparable period of 2010.

EBITDA in the first quarter of 2011 was R$6.6 million, compared to R$4.0 million in the first quarter of 2010. EBITDA margin was 12.1% in the first quarter of 2011, compared to 8.1% in the comparable period of 2010. A table reconciling EBITDA to its nearest GAAP equivalent is provided elsewhere in this press release.

Interest expense was R$44 thousand in the first quarter of 2011, compared to R$340 thousand in the first quarter of 2010. The reduction in interest expense is attributable to lower interest rates as well as a reduction in the Company's debt.

Net income for the first quarter of 2011 was R$4.2 million or R$0.52 per basic and diluted share, compared to net income of R$1.9 million, or R$0.23 per basic and diluted share, in the same period of 2010.

Financial Condition

As of the balance sheet date on March 31, 2011 the Company had R$21.9 million in cash. Total shareholders' equity was R$36.2 million at the end of the first quarter of 2011, compared to R$33.2 million at the end of 2010.

Business Outlook

“Our primary goal in 2011 is to profitably grow and strategically position our leading brands in Brazil, while continuing to improve the efficiency and effectiveness of our existing operations. We also will continue to evaluate the acquisition or development of new brands opportunistically," said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food. "We see a continuation of the current favorable business environment in 2011 and expect to benefit from, among other factors, increased spending associated with the build-out to support the World Cup and Olympics to be hosted in 2014 and 2016, respectively," concluded Mr. Bomeny.

About Brazil Fast Food Corp.

Brazil Fast Food Corp. owns and operates, both directly and through franchisees, the second largest fast-food restaurant chain in Brazil. The Bob’s trade name is used by Venbo Comércio de Alimentos Ltda., a subsidiary of Brazil Fast Food holding company, BFFC do Brasil Participações Ltda (formerly 22N Participações Ltda.). The “KFC” trade name is used by CFK Comércio de Alimentos Ltda. (formerly Clematis Indústria e Comércio de alimentos e Participações Ltda.), also a holding company subsidiary. The “Pizza Hut” trade name is used by Internacional Restaurantes do Brasil (“IRB”), also a 60% subsidiary of Brazil Fast Food holding company, BFFC do Brasil Participações Ltda. Recently, Company entered into an agreement with Grupo de Empresas Doggis S.A (“GED”) to cross-franchise the Bob’s and Doggis brands in Chile and Brazil, respectively. Brazil Fast Food will control the Doggis master franchise in Brazil and GED will control the Bob’s master franchise in Chile.

Safe Harbor Statement

This press release contains forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known or unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those expressed or implied by such forward looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see the disclosures in the Company's filings with the Securities and Exchange Commission, including the risk factors contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on February 16, 2011.

 
 

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Operations (Audited)

(in thousands of Brazilian Reais, except per share amounts)

         
Three Months Ended March 31,
2011       2010
 
REVENUES
Net revenues from own-operated restaurants R$ 40,146 R$ 38,277
Net revenues from franchisees 7,610 6,594
Revenues from supply agreements 6,792 3,413
Other income   397     1,806  
TOTAL REVENUES   54,945     50,090  
 
Store Costs and Expenses (38,010 ) (37,125 )
Franchise Costs and Expenses (2,568 ) (2,378 )
Marketing Expenses (1,015 ) (1,100 )
Administrative Expenses (6,904 ) (6,156 )
Other Operating Expenses (1,573 ) (1,017 )
Net result of assets sold and impairment of assets (2 ) (27 )
       
TOTAL OPERATING COST AND EXPENSES   (50,072 )   (47,803 )
 
       
OPERATING INCOME   4,873     2,287  
 
Interest Income (Expense) (44 ) (340 )
       
 
NET INCOME BEFORE INCOME TAX   4,829     1,947  
 
Income taxes   (592 )   (212 )
 
NET INCOME BEFORE NON-CONTROLLING INTEREST   4,237     1,735  
 
Net loss attributable to non-controlling interest (7 ) 145
       

NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

R$ 4,230   R$ 1,880  
 
NET INCOME PER COMMON SHARE
BASIC AND DILUTED R$ 0.52   R$ 0.23  
 
 
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING: BASIC AND DILUTED 8,134,586 8,137,762
 

Note: as of March 31, 2011 the US dollar was quoted at R$1.63.

 
 

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

RECONCILIATION OF EBITDA TO NET INCOME

 
EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Our management believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in evaluating companies in our industry. In addition, our management believes that EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. As a result, our management uses EBITDA as a measure to evaluate the performance of our business. However, EBITDA is not a recognized measurement under generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income from operations and net income, each as determined in accordance with GAAP. Not all companies use identical calculations, and our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as a tax and debt service payments.
 
 
                      Three Months Ended March 31,
2011     2010
NET INCOME (LOSS)

  R$

4,230

  R$

1,880

Interest expenses, Monetary and Foreign exchange loss 44 340
Income taxes 592 212
Depreciation and amortization - Stores 1,625 1,466
Depreciation - Headquarters   154     149  
EBITDA

  R$

6,645

 

  R$

4,047

 
 
 

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Balance Sheet (Audited)

(in thousands of Brazilian Reais, except share amounts)

                 

   March 31,   

December 31,
2011 2010
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents R$ 21,939 R$ 16,742
Inventories 3,325 3,454
Accounts receivable
Clients 7,883 8,285
Franchisees 7,856 9,483
Allowance for doubtful accounts (1,514 ) (1,838 )
Prepaid expenses 3,919 3,776
Receivables from properties sale (notes 3 and 4) 3,633 3,633
Other current assets   4,210     4,249  
 
TOTAL CURRENT ASSETS 51,251 47,784
 
Other receivables and other assets (note 3) 15,828 16,258
 
Deferred tax asset, net 11,983 11,992
 
Goodwill 799 799
 
Property and equipment, net 29,627 29,862
 
Deferred charges, net 5,686 5,866
       
TOTAL ASSETS R$ 115,174   R$ 112,561  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
CURRENT LIABILITIES:
Notes payable R$ 8,977 R$ 12,972
Accounts payable and accrued expenses 23,081 25,848
Payroll and related accruals 7,178 6,571
Taxes 3,835 4,936
Current portion of deferred income tax 1,205 1,190
Current portion of deferred income (note 6) 4,555 993
Current portion of contingencies and reassessed taxes 1,470 1,580
Other current liabilities   80     79  
 

TOTAL CURRENT LIABILITIES

50,381 54,169
 
Deferred income, less current portion (note 6) 4,424 2,702
 
Deferred income tax 960 1,262
 
NOTES PAYABLE, less current portion 1,056 1,107
 

CONTINGENCIES AND REASSESSED TAXES, less current portion (note 3)

19,326 19,251
       
 
TOTAL LIABILITIES   76,147     78,491  
 
SHAREHOLDERS’ EQUITY:

Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued

- -
Common stock, $.0001 par value, 12,500,000 shares authorized;
8,472,927 and 8,472,927 shares issued;
8,129,437 and 8,137,762 shares outstanding 1 1
Additional paid-in capital 61,148 61,148
Treasury Stock (343,490 and 335,165 shares) (2,065 ) (1,946 )
Accumulated Deficit (20,716 ) (24,946 )
Accumulated comprehensive loss   (1,123 )   (1,091 )
 
TOTAL SHAREHOLDERS’ EQUITY   37,245     33,166  
Non-Controlling Interest   1,782     904  
 
TOTAL EQUITY   39,027     34,070  
       
TOTAL LIABILITIES AND EQUITY R$ 115,174   R$ 112,561  
 
 

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Audited)

(in thousands of Brazilian Reais)

         
Three Months Ended March, 31
2011       2010
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ 4,230 R$ 1,880
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
 
Depreciation and amortization 1,779 1,615
(Gain) Loss on assets sold, net 2 27
Deferred income tax (287 )

Noncontrolling interest

(878 ) (145 )
 
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,705 (20 )
Inventories 129 413
Prepaid expenses and other current assets (104 ) (454 )
Other assets 439 (1,017 )
(Decrease) increase in:
Accounts payable and accrued expenses (2,767 ) 3,649
Payroll and related accruals 607 1,397
Taxes other than income taxes (1,101 ) (1,191 )
Deferred income 5,284 (601 )
Contingencies and reassessed taxes (35 ) 520
Other liabilities   1     27  
 
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES   9,004     6,100  
 
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,162 ) (2,237 )
Proceeds from sale of property, equipment and deferred charges 1,433 -
Acquisition of Company's own shares   -     -  
 
CASH FLOWS PROVIDED (USED IN) INVESTING ACTIVITIES   271     (2,237 )
 
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares of common stock - -
Net Borrowings (Repayments) under lines of credit   (4,046 )   (3,323 )
 
CASH FLOWS USED IN FINANCING ACTIVITIES   (4,046 )   (3,323 )
 
EFFECT OF FOREIGN EXCHANGE RATE   (32 )   13  
 
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,197 553
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   16,742     13,250  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD R$ 21,939   R$ 13,803  

Brazil Fast Food Corp.
Ricardo Figueiredo Bomeny, CEO, +1-55-21-2536-7501 (Brazil)
ir@bffc.com.br
www.bffc.com.br
or
CCG Investor Relations Inc.
Kalle Ahl, CFA, +1-646-833-3417 (New York)
kalle.ahl@ccgir.com
www.ccgir.com