Collins Foods Ltd (ASX: CKF) is currently into the business of operating food service retail stores across Australia, Europe and Asia.
Appointment of Director: The company, on 14th June 2019, made an announcement to the exchange about the change in the role of Newman Manion as an Executive Director. He is entitled to a fixed remuneration of $105,000 per annum and a variable remuneration of $4,200 per day for his services. Prior to this, he served on various roles, including General Manager of KFC New Zealand, Development Director of PepsiCo restaurants, including KFC, Board Member of KFC Japan and General Manager of KFC in Australia and New Zealand. He is a seasoned player with vast experience in the (QSR) Quick Service Restaurant Industry, particularly KFC.
Another release to the exchange covered an announcement by S&P Dow Jones Indices for the quarterly rebalance of the S&P/ASX Indices for June 2019. The rebalance involved a review of S&P/ASX 200 Index hierarchy and the S&P/ASX All Australian Indices. As a part of the announcement, Collins Foods’ name was included in the S&P/ASX All Australian 200 Index. The reported changes will be effective at the opening of trading on 24th June 2019.
Performance during the first half of FY19:
During 1H FY19 ended 31st October 2018, the company reported a robust growth across key financial metrics. Total revenue for the period increased by 27.6% to $411 million. Underlying EBITDA during the period was recorded at $53.7 million, up 31.7% on the prior corresponding period. Underlying NPAT amounted to $21.9 million, depicting an increase of 25.9%. Net operating cash flow during the period increased 31.6% to $35.8 million. Underlying EPS stood at 18.8 cps, up by 3.4 cps. A fully franked interim dividend of 9 cents per ordinary share was declared as compared to 8 cps in HY18.
Key Financial Metrics for 1HFY19 (Source: Company Presentation)
Segment Performance Insights During 1H FY19
KFC Australia: The company currently has around 44 restaurants operating in the segment with sales performance over and above expectations. The incremental sales during the period was a result of an improvement in the speed of service. Guest satisfaction also improved by over 10% as compared to prior year and complaints reduced by over 20%.
KFC Australia reported strong growth across all key financial metrics. Revenue for the segment grew at a rate of 21.9% and EBITDA margin was reported at 17%. EBITDA for the period amounted to $56.1 million, up 23.5% on the prior corresponding period. 3.1% growth in same store sales was also reported.
The period also saw completion of three KFC restaurants acquired from Yum! Furthermore, two new restaurants were built and opened in the segment. CapEx for KFC Australia network development during HY19 was approximately $10.3 million and HY19 maintenance amounted approximately to $1.7 million.
KFC Europe: Under this segment, the same store sales saw a downfall of 2.5%. The period saw two new restaurants being built and opened in Germany. Revenue for the segment was reported at $56.9 million, which was fully attributed to restaurants in the Netherlands. An EBITDA of $4.1 million was reported along with EBITDA margin of 7.3%. The sales in Germany and the Netherlands were affected by hot summer during June to August, significantly reducing the customer traffic.
The company is optimising its development strategy for the segment by focusing on drive-throughs. For the development of two new restaurants in Germany opened in April 2018 and May 2018 and two major remodels in the Netherlands, CapEx of approximately $2.2 million was allocated.
Taco Bell Australia: This segment has been progressing well for accelerated development in 2019 and beyond. The second Taco Bell restaurant was opened in Robina, Queensland on 03rd November 2018, which traded beyond the expectations during the first three weeks. The company targets to open two more new restaurants located in Queensland at North Lakes and Cleveland before the end of the calendar year. Taco Bell has boosted its chances of development through new exciting products supported by good customer experiences. It is engaged in customer involvement through initiatives like International Taco Day to build its brand in the market. Introduction of new and innovative products also helped in the development of the business.
A development agreement with Taco Bell, a subsidiary of Yum! Brands Inc., has also been signed to establish 50 restaurants in the category over the next three calendar years. The restaurants will be funded through internally generated cash flow and will cover three states, namely Queensland, Victoria and Western Australia. By the end of the calendar year 2019, the company intends to open 10 Taco Bell restaurants.
Sizzler Australia and Asia: The overall revenue in this segment went down to $22.2 million, reporting a decrease of 7.6% as compared to the prior corresponding period, owing to a reduction in the number of restaurants by two. Same store sales for Sizzler Australia recorded a growth of 4.6%. EBITDA for the period amounted to $2.1 million, down 7.8% on the prior corresponding period.
Although the number of restaurants in Sizzler Australia has declined, it contributed positively to the earnings during the period. Performance of Sizzler Asia was characterised by an increase in sales of existing restaurants and new builds. Overall, the earnings in Sizzler Asia had an offsetting impact on the declining sales in Sizzler Australia. The Royalty Revenue from Sizzler Asia went up by 19% as compared to the prior period.
1H FY19 was also characterised by strong operating cash flow growth, enabling a fully franked dividend of 9.0 cps. Net operating cash flow for the period amounted to $35.8 million, up $8.6 million on the prior half year. CapEx cash spend amounted to $16.3 million, $14 million of which was for the new store and remodels and $2.3 million for maintenance and other capital expenditures. Payments during the period were majorly for KFC restaurants acquired in Australia and the Netherlands. Net debt for the period amounted to $226.2 million and net leverage ratio was 2.08. Collins Foods’ cash balance during the period was recorded at $62.7 million, depicting an increase of $2.2 million.
Cash Flow position (Source: Company Presentation)
Stock performance: The stock of the company reported positive returns of 28.64% and 25.04% over a period of three months and six months, respectively. The YTD return of the stock stands at 41.26%. The stock was trading at a price of $8.350, down 1.649% at market close on 14th June 2019, trading close to its 52-week high of $8.600. The daily traded volume stands at 225,692. The market capitalisation of the company is $989.18 million. It has a Price to Earnings ratio of 23.950x, higher when compared to the average peer (ARB, BBN, RDH, WAT) P/E ratio of 23.335x.
To provide an overall picture of the company’s performance, we can say that it has been continuously working towards expanding its business in all the geographies. Looking at the performance of all the segments, it can be inferred that Collins Foods has aligned its efforts perfectly to benefit all its business in the best possible manner. On the financial front, during the first half of the financial year 2019, the company depicted robust growth in revenues and EBITDA accompanied with a remarkable balance sheet and cash flow position. Furthermore, it has performed well from the stock performance perspective by generating positive returns.
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