Brazil Fast Food Announces Third Quarter 2011 Results

Tue Nov 22, 2011 9:28am EST

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Brazil Fast Food Announces Third Quarter 2011 Results

Brazil Fast Food Corp. (OTC Bulletin Board: BOBS) (“Brazil Fast Food”, or the “the Company”), the second largest fast-food restaurant chain in Brazil with 846 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 third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

  • System-wide sales totaled R$236.8 million, up 20.6% from the third quarter 2010
  • Revenue totaled R$60.4 million, up 14.9% from the third quarter 2010
  • Points of sale totaled 846 at September 30, 2011, up from 742 at the end of third quarter 2010
  • EBITDA was R$7.0million, down 36.9% from the third quarter 2010
  • Operating income was R$5.5 million, down 41.8% from the third quarter 2010
  • Net income was a loss of R$-0.54 million, or R$-0.07 per basic and diluted share, as compared to net income of R$5.3 million, R$0.65 in the third quarter 2010

“We are pleased to report a quarter of double-digit top-line growth driven by the expansion of our Bob’s branded franchise base and solid same-store sales performance and operating efficiencies at our company-owned stores. Year-over-year operating income comparisons reflect the non-recurring gain of R$6 million in Q3 2010 due to the disposition of certain properties and fixed assets. The net loss in the third quarter of 2011 is primarily due to a R$5.6 million non-cash charge resulting from a balance sheet adjustment to our provision for tax loss carry-forwards. We are pleased with the progress of our discussions with the tax authorities and are optimistic we will be able to favorably resolve the R$6.7 in contingent tax liabilities once the facts are carefully reviewed,” said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food.

“We believe that the very positive trends in revenues and operating income for the first nine months of 2011 confirm that our business is healthy and on track. We are also pleased to note that our strong operating cash flow enabled us to continue to pay down our debt and strengthen our financial position.”

Third Quarter 2011 Results

System-wide sales grew 20.6% in the third quarter to R$236.8 million, driven by an increase in franchised points of sale, which grew by 17.8% to 781 stores in the third quarter of 2011, as well as higher sales from company-owned stores.

Total revenue for the third quarter 2011 increased by 14.9% to R$60.4 million from R$52.6 million in the third quarter 2010. Revenue growth was driven primarily by the continued expansion of Brazil Fast Food’s franchise network and higher sales from company-owned stores.

The Company ended the third quarter of 2011 with 846 points of sale, compared to 742 in the comparable period in 2010.

Net revenue for company-owned and operated outlets was up 18.2% year over year to R$46.0 million in the third quarter of 2011, reflecting an increase in net revenues across the Company’s Bob’s, KFC and Pizza Hut brands, offset somewhat by a decrease in Doggis net revenues.

Net revenue from franchisees increased 24.2% year-over-year to R$8.8 million, driven primarily by an increase in number of franchised retail outlets to 781, up from 663 in the same period a year ago. Revenues from trade partners and other income totaled R$5.6 million in the third quarter of 2011, as compared to R$6.5 million in the third quarter of 2010.

Operating expenses grew 27.4% to R$54.9 million in the third quarter of 2011, primarily due to higher store costs and expenses and the significant decline in the net result of assets sold and impaired, which was a gain of R$0.4 million in the third quarter of 2011, as compared to a net gain of R$6.0 million in the prior year period. As a percentage of revenue, operating costs increased from 82.0% of total revenue in the third quarter of 2010 to 90.9% of total revenue in the third quarter of 2011, mainly attributable to variance in asset sales. Adjusting for this non-recurring item, operating costs continued to decline as a percentage of revenue due 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 third quarter of 2011 was R$5.5 million, compared to operating income of R$9.5 million in the third quarter of 2010, primarily due to the non-recurring items noted above. Operating margin in the third quarter of 2011 was 9.1% compared to 18.0% in the same period of 2010.

EBITDA in the third quarter of 2011 was R$7.0 million, compared to R$11.1 million in the third quarter of 2010. EBITDA margin was 11.6% in the third quarter of 2011, compared to 21.1% in the same period of 2010. A table reconciling EBITDA to its nearest GAAP equivalent is provided elsewhere in this press release.

Interest income was R$0.5 million in the third quarter of 2011, compared to interest expense of R$0.3 million in the third quarter of 2010. The higher interest income is attributable to lower debt and higher cash balances during the period.

The Company accrued R$6.1 million in income taxes, on pre-tax income of R$6.0 million in the third quarter of 2011, as compared to R$3.7 million in taxes on R$9.1 million of pre-tax income in the prior year period. As mentioned above, during the third quarter of 2011 the Company recorded a R$5.6 million non-cash deferred income tax expense related to the adjustment in its tax loss carryforward.

Net income for the third quarter of 2011 was a loss of R$-0.54 million, or R$-0.07 per basic and diluted share, compared to net income of R$5.3 million, or R$0.65 per basic and diluted share, in the same period of 2010.

Nine Months 2011 Results

For the nine months ended in September 30, 2011, total net revenue was R$166.3 million, up 10.9% from R$150.0 million in the comparable period of 2010. Operating income was R$14.4 million, up 9.8% from R$13.1 million in the comparable period in 2010. Operating margin was 8.7% for the nine months ended September 30, 2011 compared to 8.8% in the comparable period in 2010. Net income for the nine months ended September 30, 2011 was R$7.0 million, down 5.8% from R$7.4 million in the comparable period in 2010. Basic and diluted earnings per share were R$0.86 for the nine months ended September 30, 2011 compared to R$0.91 for the nine months ended September 30, 2010.

Financial Condition

As of September 30, 2011 the Company had R$23.6 million in cash, up from R$16.7 million as of December 31, 2010. Working capital was R$12.5 million, as compared to a negative R$6.4 million as of the end of 2010. Total shareholders' equity was R$40.0 million at the end of the third quarter of 2011, compared to R$33.2 million at the end of 2010.

Business Outlook

“During the first nine months of 2011, we made solid progress in expanding our higher margin franchise operations, while focusing our company-owned stores on the most profitable outlets and improving the efficiency of operations. Same store sales at our owned restaurants improved by 8.7% for Bob’s, 3.7% for KFC, and 7.8% for Pizza Hut during the nine-month period. Net franchise revenues grew by 22.8% during this period, with franchise operating margins improving to 64.9%, as compared to 57.6% in the first nine months of 2010," 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 (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 
Three Months Ended September 30,
2011   2010
 
REVENUES
Net Revenues from Own-operated Restaurants R$ 46,020 R$ 38,938
Net Revenues from Franchisees 8,816 7,100
Net Revenues from Trade Partners 4,177 5,943
Other Income   1,380   573
TOTAL REVENUES   60,393   52,554
 
OPERATING COST AND EXPENSES
Store Costs and Expenses (40,405) (35,514)
Franchise Costs and Expenses (3,032) (2,721)
Marketing Expenses (1,200) (1,195)
Administrative Expenses (8,939) (8,447)
Other Operating Expenses (1,670) (1,190)
Net result of assets sold and impairment of assets 363 5,973
       
TOTAL OPERATING COST AND EXPENSES   (54,883)   (43,094)
 
       
OPERATING INCOME   5,510   9,460
 
Interest Expenses, net 468 (316)
       
 
NET INCOME BEFORE INCOME TAX   5,978   9,144
 
Income taxes   (6,137)   (3,732)
 
 
NET INCOME BEFORE NON-CONTROLLING INTEREST   (159)   5,412
 
Net income attributable to non-controlling interest (382) (130)
       
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ (541) R$ 5,282
 
NET INCOME PER COMMON SHARE
BASIC AND DILUTED R$ (0.07) R$ 0.65
 
 
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING: BASIC AND DILUTED 8,129,437 8,137,762

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 
Nine Months Ended September 30,
2011   2010
 
REVENUES
Net Revenues from Own-operated Restaurants R$ 124,488 R$ 112,388
Net Revenues from Franchisees 24,250 19,748
Net Revenues from Trade Partners 14,744 14,535
Other Income   2,842     3,379  
TOTAL REVENUES   166,324     150,050  
 
OPERATING COST AND EXPENSES
Store Costs and Expenses (113,776 ) (106,649 )
Franchise Costs and Expenses (8,510 ) (8,371 )
Marketing Expenses (2,591 ) (3,364 )
Administrative Expenses (22,753 ) (20,394 )
Other Operating Expenses (4,606 ) (4,097 )
Net result of assets sold and impairment of assets 335 5,955
       
TOTAL OPERATING COST AND EXPENSES (151,901 ) (136,920 )
       
OPERATING INCOME   14,423     13,130  
 
Interest Expense, net 610 (1,316 )
       
NET INCOME BEFORE INCOME TAX   15,033     11,814  
 
Income taxes   (7,329 )   (4,395 )
 
NET INCOME BEFORE NON-CONTROLLING INTEREST   7,704     7,419  
 
Net income attributable to non-controlling interest (719 ) (3 )
       
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ 6,985   R$ 7,416  
 
NET INCOME PER COMMON SHARE
BASIC AND DILUTED R$ 0.86   R$ 0.91  
 
 
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING: BASIC AND DILUTED 8,131,147 8,137,762

Note: as of September 30, 2011 the US dollar was quoted at R$1.85

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.

(in thousands of Brazilian Reais)     Three Months Ended September 30,
2011     2010
 
NET INCOME R$ (541 ) R$ 5,282
Interest expenses, Monetary and Foreign exchange loss (468 ) 316
Income taxes 6,137 3,732
Depreciation and amortization   1,884     1,776
EBITDA R$ 7,012   R$ 11,106
 
EBITDA 7,012 11,106
 

EBITDA per share

0.86 1.36
(in thousands of Brazilian Reais)     Nine Months Ended September 30,
2011     2010
 
NET INCOME R$ 6,985 R$ 7,416
Interest expenses, Monetary and Foreign exchange loss (610 ) 1,316
Income taxes 7,329 4,395
Depreciation and amortization   5,329     4,860
EBITDA R$ 19,033   R$ 17,987
 
EBITDA 19,033 17,987
 

EBITDA per share

2.34 2.21

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Balance Sheet

(in thousands of Brazilian Reais, except share amounts)

 

 

September, 30 December 31,
2011 2010
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (note 3) R$ 23,621 R$ 16,742
Inventories 3,988 3,454
Accounts receivable
Clients 8,523 8,285
Franchisees 9,489 9,483
Allowance for doubtful accounts (801) (1,838)
Prepaid expenses 2,603 1,350
Advances to suppliers 3,607 2,426
Receivables from properties sale (notes 4 and 5) 3,633 3,633
Other current assets   4,181   4,249
 
TOTAL CURRENT ASSETS 58,844 47,784
 
Other receivables and other assets (note 4) 14,175 16,258
 
 
Deferred tax asset, net 6,056 11,992
 
Goodwill 799 799
 
Property and equipment, net 29,209 29,862
 
Deferred charges, net 5,389 5,866
       
TOTAL ASSETS R$ 114,472 R$ 112,561
 
 
September, 30 December 31,
2011 2010
(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
CURRENT LIABILITIES:
Notes payable R$ 8,863 R$ 12,972
Accounts payable and accrued expenses 20,396 25,848
Payroll and related accruals 8,497 6,571
Taxes 4,251 4,936
Current portion of deferred income tax 806 1,190
Current portion of deferred income (note 8) 1,556 993
Current portion of contingencies and reassessed taxes 1,940 1,580
Other current liabilities   74   79
 
TOTAL CURRENT LIABILITIES 46,383 54,169
 
Deferred income, less current portion (note 8) 4,782 2,702
 
Deferred income tax 764 1,262
 
Notes payable, less current portion 840 1,107
 
Contingencies and reassessed taxes, less
current portion (note 7) 19,180 19,251
       
 
TOTAL LIABILITIES   71,949   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) (2,060) (1,946)
Accumulated Deficit (17,961) (24,946)
Accumulated comprehensive loss   (1,099)   (1,091)
 
TOTAL SHAREHOLDERS’ EQUITY   40,029   33,166
Non-Controlling Interest   2,494   904
 
TOTAL EQUITY   42,523   34,070
       
TOTAL LIABILITIES AND EQUITY R$ 114,472 R$ 112,561

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(in thousands of Brazilian Reais)

 
Nine Months Ended September, 30
2011   2010
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME BEFORE NON-CONTROLLING INTEREST R$ 7,704 R$ 7,419
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
 
Depreciation and amortization 5,329 4,860
(Gain) Loss on assets sold, net (335) (5,955)
Deferred income tax 5,054 2,341
 
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,281) (3,338)
Inventories (534) 1,039
Prepaid expenses and other current assets (2,366) (2,743)
Other assets (1,337) (1,055)
(Decrease) increase in:
Accounts payable and accrued expenses (5,452) 5,311
Payroll and related accruals 1,926 4,499
Taxes other than income taxes (685) 1,579
Deferred income 2,643 (1,714)
Contingencies and reassessed taxes 289 1,305
Other liabilities   (5)   (184)
 
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES   10,950   13,364
 
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment (4,239) (4,697)

Proceeds from property sale

3,795 1,080
Acquisition of Company's own shares   (114)   -
 
CASH FLOWS USED IN INVESTING ACTIVITIES   (558)   (3,617)
 
CASH FLOW FROM FINANCING ACTIVITIES:

Non-controlling paid in capital

871 109
Paid Dividend - (3,574)
Net Borrowings (Repayments) under lines of credit   (4,376)   (4,459)
 
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES   (3,505)   (7,924)
 
EFFECT OF FOREIGN EXCHANGE RATE   (8)   (15)
 
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,879 1,808
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   16,742   13,250
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD R$ 23,621 R$ 15,058

Brazil Fast Food Corp.
Ricardo Figueiredo Bomeny, +1-55-21-2536-7501 (Brazil)
CEO
Email: ir@bffc.com.br
URL: www.bffc.com.br
or
CCG Investor Relations Inc.
Crocker Coulson, 646-213-1915 (New York)
President
Email: crocker.coulson@ccgir.com
URL: www.ccgir.com

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