Brazil Fast Food Announces Fourth Quarter and Fiscal Year 2013 Results
Date : 03/31/2014 @ 4:00PM
Source : Business Wire
Stock : Brazil Fast Food Corp. (PL) (BOBS)
Quote : 18.7 0.3 (1.63%) @ 5:00PM
Brazil Fast Food Announces Fourth Quarter and Fiscal Year 2013 Results
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Brazil Fast Food Corp. (PL) (USOTC:BOBS)
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Brazil Fast Food Corp. (OTC Markets: BOBS) (“Brazil Fast Food”, or “the Company”), the second largest fast-food restaurant chain in Brazil with 1,165 points of sale, operating under (i) the Bob’s brand, (ii) the Yoggi brand, (iii) KFC and Pizza Hut São Paulo as franchisee of Yum! Brands, and (iv) Doggis as master franchisee of Gastronomia & Negocios S.A. (former Grupo de Empresas Doggis S.A.), today announced financial results for the fourth quarter and fiscal year ended December 31, 2013.
Fiscal Year 2013 Highlights
System-wide sales totaled R$ 1,308.3 million, up 18.5% from 2012
Revenue totaled R$ 259.2 million, up 16% from 2012
Points of sale totaled 1,165 at the end of 2013, up from 1,031 at the end of 2012
EBITDA was R$ 39.1 million, up 19% from R$ 32.9 million in 2012
Operating income was R$ 33.3 million, up 15.3% from R $28.9 million in 2012
Net income was R$ 19.9 million, or R$ 2.45 per basic and diluted share
Fourth Quarter 2013 Highlights
System-wide sales totaled R$ 388.8 million, up 18% from the fourth quarter of 2012
Revenue totaled R$ 74.1 million, up 13.6% from the fourth quarter of 2012
EBITDA was R$ 10.7 million compared to R$ 11.6 million in the fourth quarter of 2012
Operating income was R$ 9 million compared to R$ 10.8 million in the fourth quarter of 2012
Net income was R$ 3.6 million, or R$ 0.44 per basic and diluted share
Note that all numbers are in Brazilian currency.
“We are pleased with the continued growth in revenue and EBITDA during 2013, in the face of a challenging economic environment that combines slowdown of both job creation and wage growth with persistent higher levels of inflation and increasing interest rates. In 2013, GDP growth was 2.3% and inflation (Broad National Consumer Price Index) 5.9%, as calculated by the Brazilian Institute of Geography and Statistics (IBGE). In addition, the basic interest rate increased 275 basis points and the value of the Brazilian currency fell by 14.6%, as reported by the Brazilian Central Bank,” said Mr. Ricardo Bomeny, CEO and CFO of Brazil Fast Food.
“Our results benefited from the expansion of Bob’s franchise outlets, the opening of an additional ten Pizza Hut restaurants in Sao Paulo, and two well-attended, one-time events in Rio, the Rock in Rio Festival and the Catholic World Youth Conference, which boosted sales at local outlets. Nevertheless, net income growth was muted due to higher interest expense and a higher tax rate.”
“Our strategy of shifting towards franchised operations for the Bob’s brand continues to pay off, with revenues from franchises increasing by 18.2% and operating income increasing by 15.3% for 2013 over the prior year. We also invested considerable energy during 2013 in refining two of our smaller brand concepts, Yoggi and Doggis, to enhance their appeal to Brazilian consumers and make sure we have the right product and format for this market. While small contributors to our results today, we believe that both have the potential to be significant brands in the future,” continued Mr. Bomeny.
Fourth Quarter 2013 Results
System-wide sales grew 18% in the fourth quarter to R$ 388.8 million, driven by an increase in the number of franchised points of sale.
Total revenue for the fourth quarter of 2013 was R$ 74.1 million, as compared to R$ 65.3 million in the fourth quarter of 2012, due to higher revenues from franchisees and own-operated restaurants.
Net restaurant sales for company-owned restaurants increased 12.2% year-over-year to R$ 57.2 million in the fourth quarter of 2013, driven by higher sales at Bob’s, KFC and Pizza Hut.
Net revenue from franchisees increased 18.3% year-over-year to R$ 17.0 million, driven primarily by an increase in number of franchised retail outlets to 1,080, as compared to 956 a year ago.
Operating expenses increased 19.7% to R$ 65.1 million in the fourth quarter of 2013 from R$ 54.4 million in the fourth quarter of 2012. As a percentage of revenue, operating costs increased to 87.9% of total revenue in the fourth quarter of 2013 from 83.4% of total revenue in the fourth quarter of 2012.
Operating income for the fourth quarter of 2013 was R$ 9 million, a decrease of 17% from R$ 10.8 million in the fourth quarter of 2012. Operating margin in the fourth quarter of 2013 declined to 12.1%, as compared to 16.6% in the fourth quarter of 2012.
EBITDA in the fourth quarter of 2013 was R$ 10.7 million, down by 8.5% as compared to R$ 11.6 million in the fourth quarter of 2012. EBITDA margin was 14.4%, as compared to 17.8% in the fourth quarter of 2012. Please refer Table No. 4 in this press release for a reconciliation of EBITDA to its nearest GAAP equivalent.
Interest expense was R$ 2.3 million in the fourth quarter of 2013, as compared to interest income of R$ 0.2 million in the fourth quarter of 2012.
Net income in the fourth quarter of 2013 was R$ 3.6 million, or R$ 0.44 per basic and diluted share, as compared to R$ 7.7 million, or R$ 0.95 per basic and diluted share in the fourth quarter of 2012.
Fiscal Year 2013 Results
For the twelve months ended December 31, 2013, total revenue was R$ 259.2 million, up 16% from R$ 223.4 million in 2012.
Same own-store sales, which measure the performance of stores open for more than a year, were up 9.3% for Bob’s, 9.4% for KFC and 5.5% for Pizza Hut for the twelve months ended December 31, 2013, versus comparable periods in 2012, driven by face-lifts at some stores, promotions and marketing campaigns. Our operating income and net income were negatively impacted by the rise in the purchase price of some products due to inflationary pressures and currency devaluation as well as aggressive value campaigns at Pizza Hut and KFC restaurants.
Operating income in 2013 was R$33.3 million, up 15.3% from R$ 28.9 million in 2012. Operating margin was 12.8% for 2013 compared to 12.9% in 2012. EBITDA in 2013 was R$ 39.1 million, up 19% as compared to R$ 32.9 million in 2012.
Net income in 2013 was R$ 19.9 million, as compared to net income of R$ 20.7 million in 2012. Basic and diluted net income per share was R$2.45 in 2013, as compared to basic and diluted net income per share of R$ 2.55 in 2012.
Financial Condition
As of December 31, 2013 the Company had R$ 50.1 million in cash and equivalents, up from R$ 32.1 million as of December 31, 2012. Working capital was R$ 41.9 million at the end of 2013, up from R$ 24.1 million as of December 31, 2012. Debt obligations with financial institutions was R$23.6 million as of December 31, 2013, up from R$20.9 million as of December 31, 2012. Total shareholders' equity was R$ 85.5 million at the end of 2013, compared to R$ 65.6 million at the end of 2012.
Key Events
On November 20, 2013, an investor group, including the majority owners of the company’s common stock, terminated its previously-announced offer to purchase all of the outstanding shares of the Company not owned by the investor group.
In 2006 the Company set up a Brazilian holding company, BFFC do Brasil Comércio e Participações Ltda (“BFFC do Brasil”, formerly 22N Participações Ltda), via the capital contribution of the equity interest the Company held in Venbo Comércio de Alimentos Ltda (“Venbo”).
Through this restructuring, the Company started to consolidate its businesses in Brazil through BFFC do Brasil, resulting in enhanced management decisions, improved efficiency, and easier access to bank loans. All these developments derived from the Company’s multi-brand strategy, which involved the operation in Brazil of international fast-food trademarks such as KFC, Pizza Hut and Doggis, followed by the acquisition of the Yoggi’s brand (local frozen yogurt franchisee).
In addition to the operating benefits, this restructuring generated income tax credits for Venbo for the five years subsequent to 2006.
The Company’s restructuring process and related tax benefits were reported on the Company’s Consolidated Financial Statements as at December 31, 2006 and 2007.
In the second semester of 2013, Venbo Comércio de Alimentos Ltda (“Venbo”), an indirect subsidiary of the Company, received notice from the Brazilian tax authorities requiring an inspection of its tax records. The tax inspectors found that the restructuring carried out in 2006, which was related to a consolidation of the Company’s businesses in Brazil and which generated income tax credits for Venbo, constituted abusive tax planning. As a consequence, Venbo was fined R$17 million. The Company filed an administrative appeal against the penalty charged by the Brazilian Internal Revenue Service (“RFB”).
The Company estimates that the RFB’s decision on whether it will uphold its decision will take two or three years at the administrative level. Should it uphold the tax assessment, the Company will take the matter to court, where it and its legal advisors expect to obtain a positive outcome. Based on these estimates the Company did not accrue any liability related to this issue in its Consolidated Financial Statements as at December 31, 2013. There can be no assurance that this tax assessment will not have a material impact on the business.
Business Outlook
In 2014, the company expects to continue a higher level of investment in advertising and promotion in order to support the growth of its brands in Brazil and respond to international competitors.
“As we have discussed in the past, the fast food industry in Brazil is becoming increasingly more competitive as large, international players invest in expansion. These players are attracted by the growth potential and relatively low penetration rates of the Brazilian quick service restaurant market,” Mr. Bomeny said. “We believe that our proven local retail brands and management expertise provide Brazil Fast Foods with certain tangible advantages. However, in the near term these conditions may lead to higher investment needs, increased spending on marketing and promotions, and margin pressures in a very price sensitive consumer sector.
“Besides, early school holidays due to the Football World Cup that will take place in Brazil might affect sales during June and July 2014. Normally school holidays have a positive effect on our business, but this time it will be combined with breaks for employees and the closure of cinemas, theatres, and shopping centers due to the games of the Football World Cup.
“Moreover, in June 2013, Brazil experienced countrywide civil unrest and protests against corruption, poor public services, and widespread disappointment in the economy and political leaders. In October 2014, Brazil will face presidential elections, as well as elections for senators, federal deputies and governors, with voters seemingly wanting sweeping policy changes. Although the impact of millions of people in the streets and online has been visible on both the economy and the popularity of Brazil’s politicians, the elections outcome is still unpredictable,” Bomeny concluded.
Because the operations of the Company and its subsidiaries are located entirely outside the United States, the Company is considering a future corporate restructuring. This restructuring would eliminate the Company, which is a corporation organized under the laws of the State of Delaware, from the current corporate structure so that all shareholders of the Company would become shareholders of BFFC do Brasil, which is a corporation organized under the laws of Brazil. This restructuring is intended to reconcile the currency, legal and tax jurisdictions of the Company and its subsidiaries with their operations and activities and permit BFFC do Brasil to more efficiently incur debt to finance the operations of the business. The Company expects to consider implementing the restructuring as soon as practicable.
About Brazil Fast Food Corp.
Brazil Fast Food Corp., through its holding company in Brazil, BFFC do Brasil Participações Ltda. (“BFFC do Brasil”, formerly 22N Participações Ltda.), and its subsidiaries, manage one of the largest food service groups in Brazil and franchise units in Angola and Chile. Our subsidiaries are Venbo Comércio de Alimentos Ltda. (“Venbo”), LM Comércio de Alimentos Ltda. (“LM”), PCN Comércio de Alimentos Ltda. (“PCN”), CFK Comércio de Alimentos Ltda. (“CFK”, former Clematis Indústria e Comércio de Alimentos e Participações Ltda.), CFK São Paulo Comércio de Alimentos Ltda. (“CFK SP”), MPSC Comércio de Alimentos Ltda. (“MPSC”),DGS Comércio de Alimentos Ltda. (“DGS”), CLFL Comércio de Alimentos Ltda. (“CLFL”), Little Boss Comércio de Alimentos Ltda. (“Little Boss”), Separk Comércio de Alimentos Ltda. (“Separk”), Schott Comércio de Alimentos Ltda. (“Schott”), FCK Franquias e Participações Ltda. (“FCK”, former Suprilog Logística Ltda.), Yoggi do Brasil Ltda. (“Yoggi”), and Internacional Restaurantes do Brasil S.A. (“IRB”). IRB has 40% of its capital held by individuals, including the CEO of IRB.
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 on the Company’s website and in the Company's filings with the Securities and Exchange Commission, including the risk factors contained in the Company's most recent annual report on Form 10-K and quarterly report Form 10-Q filed with the Securities and Exchange Commission.
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands of Brazilian Reais, except share amounts)
Quarter ended December 31,
2013 2012
REVENUES FROM RESTAURANTS AND FRANCHISEES
Net Revenues from Own-operated Restaurants (note 23) R$ 57.170 R$ 50.940
Net Revenues from Franchisees (note 23) 16.954 14.335
TOTAL REVENUES FROM RESTAURANTS AND FRANCHISEES 74.124 65.275
OPERATING COST AND EXPENSES
Store Costs and Expenses (note 23) (53.822 ) (44.560 )
Franchise Costs and Expenses (note 23) (2.871 ) (5.183 )
Administrative Expenses (note 17) (10.467 ) (9.319 )
Income from Trade Partners 7.293 6.210
Other Income 671 367
Other Operating Expenses (note 18) (6.609 ) (1.667 )
Impairment of assets (note 21) - -
Net result of assets sold 670 (281 )
TOTAL OPERATING COST AND EXPENSES (65.135 ) (54.433 )
OPERATING INCOME 8.989 10.842
Interest Expense, net (note 19) (2.341 ) 199
NET INCOME BEFORE INCOME TAX 6.648 11.041
Income taxes - deferred (note 11) 2.083 1.089
Income taxes - current (note 11) (4.959 ) (3.947 )
NET INCOME BEFORE NON-CONTROLLING INTEREST 3.772 8.183
Net (income) loss attributable to non-controlling interest (200 ) (446 )
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ 3.572 R$ 7.737
NET INCOME LOSS PER COMMON SHARE
BASIC AND DILUTED R$ 0,44 R$ 0,95
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC AND DILUTED 8.129.437 8.129.437
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands of Brazilian Reais, except share amounts)
Year ended December 31,
2013 2012
REVENUES FROM RESTAURANTS AND FRANCHISEES
Net Revenues from Own-operated Restaurants (note 23) R$ 206.688 R$ 178.107
Net Revenues from Franchisees (note 23) 52.552 45.315
TOTAL REVENUES FROM RESTAURANTS AND FRANCHISEES 259.240 223.422
OPERATING COST AND EXPENSES
Store Costs and Expenses (note 23) (196.311 ) (163.724 )
Franchise Costs and Expenses (note 23) (14.656 ) (15.650 )
Administrative Expenses (note 17) (34.120 ) (33.636 )
Income from Trade Partners 26.773 22.184
Other Income 1.283 2.289
Other Operating Expenses (note 18) (11.789 ) (5.584 )
Impairment of assets (note 21) - -
Net result of assets sold 2.878 (411 )
TOTAL OPERATING COST AND EXPENSES (225.942 ) (194.532 )
OPERATING INCOME 33.298 28.890
Interest Expense, net (note 19) (2.431 ) (467 )
NET INCOME BEFORE INCOME TAX 30.867 28.423
Income taxes - deferred (note 11) 2.343 1.089
Income taxes - current (note 11) (12.666 ) (7.552 )
NET INCOME BEFORE NON-CONTROLLING INTEREST 20.544 21.960
Net (income) loss attributable to non-controlling interest (621 ) (1.252 )
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ 19.923 R$ 20.708
NET INCOME LOSS PER COMMON SHARE
BASIC AND DILUTED R$ 2,45 R$ 2,55
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC AND DILUTED 8.129.437 8.129.437
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
BALANCE SHEETS - ASSETS
(in thousands of Brazilian Reais, except share amounts)
December 31,
2013 2012
CURRENT ASSETS:
Cash and cash equivalents R$ 50.083 R$ 32.062
Inventories 3.090 3.228
Accounts receivable 31.760 25.754
Prepaid expenses 747 892
Advances to suppliers 2.962 2.092
Bob's Marketing fund credits 717 -
Other current assets 3.761 6.601
TOTAL CURRENT ASSETS
93.120 70.629
NON-CURRENT ASSETS:
Property and equipment, net 47.240 39.414
Intangible assets, net 13.463 8.280
Deferred tax asset 10.644 8.565
Goodwill 1.121 1.121
Other receivables and other assets 13.118 13.667
TOTAL NON-CURRENT ASSETS
85.586 71.047
TOTAL ASSETS
R$ 178.706 R$ 141.676
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
BALANCE SHEETS - LIABILITIES AND EQUITY
(in thousands of Brazilian Reais, except share amounts)
December 31,
2013 2012
CURRENT LIABILITIES:
Loans and financing R$ 12.816 R$ 14.523
Accounts payable and accrued expenses 13.941 13.834
Payroll and related accruals 6.501 4.782
Taxes 7.884 7.848
Current portion of deferred income 7.537 3.398
Current portion of litigations and reassessed taxes 2.381 2.090
Other current liabilities 144 -
TOTAL CURRENT LIABILITIES
51.204 46.475
Deferred income, less current portion 8.877 1.608
Loans and financing, less current portion 10.744 6.397
Litigations and reassessed taxes, less current portion
20.190 18.472
Other liabilities 2.170 3.093
TOTAL NON-CURRENT LIABILITIES
41.981 29.570
TOTAL LIABILITIES
93.185 76.045
EQUITY
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued
- -
Common stock, $.0001 par value, 12,500,000 shares authorized;
8,472,927 shares issued for both years 2013 and 2012; 8,129,437
shares outstanding for both years 2013 and 2012 1 1
Additional paid-in capital 61.148 61.148
Treasury Stock (343,490 shares) (2.060 ) (2.060 )
Retained earnings 23.450 3.527
Accumulated comprehensive loss (1.769 ) (1.115 )
TOTAL EQUITY 80.770 61.501
Non-Controlling Interest 4.751 4.130
TOTAL EQUITY 85.521 65.631
TOTAL LIABILITIES AND EQUITY
R$ 178.706 R$ 141.676
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Brazilian Reais)
Year Ended December 31,
2013 2012
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ 19.923 R$ 20.708
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 8.816 7.452
(Gain) Loss on assets sold and impairment of assets (2.878 ) 411
Deferred income tax asset (2.079 ) (187 )
Deferred income tax liability - (1.262 )
Non-controlling interest 621 1.252
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (6.006 ) (8.648 )
Inventories 138 757
Prepaid expenses and other current assets 2.115 (524 )
Other assets 549 (2.805 )
(Decrease) increase in:
Accounts payable and accrued expenses 107 2.226
Payroll and related accruals 1.719 (836 )
Taxes 36 2.828
Other liabilities 939 3.500
Deferred income 11.408 (169 )
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 35.408 24.703
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment (24.241 ) (17.974 )
Yoggi acquisition (note 3.2.3)
- (2.000 )
Exchange of shares (notes 3.2.2) (1.089 ) (1.089 )
Proceeds from sale of property, equipment and deferred charges 5.957 3.523
CASH FLOWS USED IN INVESTING ACTIVITIES (19.373 ) (17.540 )
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) under lines of credit 2.640 4.329
Acquisition of Company's own shares - -
Non-controlling paid in capital
- -
Non-controlling dividend paid by IRB
- (800 )
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 2.640 3.529
EFFECT OF FOREIGN EXCHANGE RATE (654 ) 13
NET INCREASE IN CASH AND CASH EQUIVALENTS 18.021 10.705
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 32.062 21.357
CASH AND CASH EQUIVALENTS AT END OF YEAR R$ 50.083 R$ 32.062
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
RECONCILIATION OF EBITDA TO NET INCOME
Quarter ended December 31, Year ended December 31,
2013 2012* 2013 2012*
NET INCOME (LOSS) R$ 3.572 R$ 7.737 R$ 19.923 R$ 20.708
Interest expenses, Monetary and Foreign exchange loss 2.104 (298) 1.815 11
Income taxes 2.744 2.568 10.004 5.894
Depreciation and amortization - Stores 1.924 1.290 5.788 4.817
Depreciation - Headquarters 304 345 1.614 1.476
EBITDA R$ 10.648 R$ 11.642 R$ 39.144 R$ 32.906
* The Company Management reviewed the computation of previously disclosure of 2012 EBITDA in order to include the effect of non-controlling interest.
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.
Brazil Fast Food Corp.
Ricardo Figueiredo Bomeny, CEO
+1-55-21-2536-7501 (Brazil)
ir@bffc.com.br
www.bffc.com.br
or
Crocker Coulson
+1-323-270-8886
crocker.coulson@gmail.com
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