SOURCE: Brazil Fast Food Corp.

May 14, 2014 10:47 ET

Brazil Fast Food Announces First Quarter 2014 Results

RIO DE JANEIRO, BRAZIL--(Marketwired - May 14, 2014) - Brazil Fast Food Corp. (PINKSHEETS: BOBS) ("Brazil Fast Food", or "the Company"), one of the largest food service groups in Brazil with 1,192 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 first quarter ended March 31, 2014.

Q1 2014 Highlights

  • System-wide sales totaled R$ 349.9 million, up 17.6% from Q1 2013
  • Revenue totaled R$ 66.5 million, up 14.2% from Q1 2013
  • Points of sale totaled 1,192 at March 31, 2014 (505 kiosks and 19 temporary points of sale), up from 1,049 at March 31, 2013
  • EBITDA was R$ 8.7 million, down 23.7% from R$ 11.4 million in Q1 2013
  • Operating income was R$ 6.6 million, down 35.2% from R $10.2 million in Q1 2013
  • Net income was R$ 4.6 million, or R$ 0.56 per basic and diluted share

Note that all numbers are in Brazilian currency.

"We continued to experience a very challenging operating environment in Brazil's fast food industry during the first quarter of 2014, characterized by escalating costs for food and labor, muted growth in incomes and consumer spending. The market environment has also turned increasingly competitive, due to significant branding efforts of one of our established competitors sponsoring the upcoming FIFA World Cup. Renewed efforts of established international brands to increase share in Brazil created fierce competition between incumbents and expanding international brands in fast food. This has required increased investment in branding, facilities and promotions, and made it challenging to pass through these higher costs to our customers. While our revenues continued to expand at over 14%, our profitability dropped significantly as compared to the first quarter of 2013, with operating income down 35,2%," said Mr. Ricardo Bomeny, CEO and CFO of Brazil Fast Food.

"Looking in more detail at our brands, we are very pleased with the performance of our Bob's franchised stores, where net franchise revenues grew 17% and operating income grew by 22.2% to R$ 10.1 million with an operating margin of 73%. The number of franchise outlets grew to 1,093, from 972 on March 31, 2013. Our owned-and-operated Bob's stores grew revenues by 2.8% over Q1 2013, but were barely profitable for the quarter. We have recently made some changes to our management structure and incentives for these stores that we believe will help to restore a reasonable level of profitability.

"We were pleased with the continued expansion of Pizza Hut stores, where we added 12 new stores and net revenues grew by 30.7% over Q1 2013, although contribution to operating income is similar to last year. Our KFC stores continued to struggle in the local market with a slight decline in revenues and a $1.8 million operating loss for the quarter. We are in active discussions with Yum! Brands as to how to better adapt the KFC concept, marketing, and menu offerings to the Brazilian market so as to create a more vibrant future for this brand," Mr. Bomeny said.

First Quarter 2014 Results

System-wide sales grew 17.6% in the first quarter to R$ 349.9 million, driven by an increase in the number of franchised points of sale.

Total revenue for the first quarter of 2014 was R$ 66.5 million, an increase of 14.2% as compared to R$ 58.3 million in the first quarter of 2013, due to higher revenues from franchisees and own-operated restaurants.

Net restaurant sales for company-owned restaurants increased 13.5% year-over-year to R$ 52.7 million in the first quarter of 2014, driven by higher sales at Bob's and Pizza Hut.

Net revenue from franchisees increased 16.9% year-over-year to R$ 13.9 million, driven primarily by an increase in number of franchised retail outlets to 1,093, as compared to 972 a year ago.

Operating expenses increased 24.7% to R$ 59.9 million in the first quarter of 2014 from R$ 48 million in the first quarter of 2013. As a percentage of revenue, operating costs increased to 90% of total revenue in the first quarter of 2014 from 82.4% of total revenue in the first quarter of 2013. 

Operating income for the first quarter of 2014 was R$ 6.6 million, a decrease of 35.2% from R$ 10.2 million in the first quarter of 2013. Operating margin in the first quarter of 2014 declined to 10%, as compared to 17.6% in the first quarter of 2013.

EBITDA in the first quarter of 2014 was R$ 8.7 million, down by 23.7% as compared to R$ 11.4 million in the first quarter of 2013. EBITDA margin was 13%, as compared to 19.5% in the first quarter of 2013. Please refer to Table No. 4 in this press release for a reconciliation of EBITDA to its nearest GAAP equivalent.

Interest expense was R$ 1.1 million in the first quarter of 2014, as compared to interest income of R$ 0.1 million in the first quarter of 2013.

Net income in the first quarter of 2014 was R$ 4.6 million, or R$ 0.56 per basic and diluted share, as compared to R$ 6.7 million, or R$ 0.83 per basic and diluted share in the first quarter of 2013.

Financial Condition

As of March 31, 2014 the Company had R$ 53.1 million in cash and equivalents, up from R$ 50.1 million as of March 31, 2013. Working capital was R$ 41.6 million at March 31, 2014, compared with R$ 41.9 million as of March 31, 2013. Debt obligations with financial institutions were R$23.5 million as of March 31, 2014, compared with R$23.6 million as of March 31, 2013. Total shareholders' equity was R$ 85.5 million at March 31, 2014, compared to R$ 80.8 million at March 31, 2013.

Recent Events

There were no developments during the first quarter of 2014 regarding the Company's administrative appeal against the penalty charged by the Brazilian Internal Revenue Service related to the its restructuring in 2006.

Business Outlook

In 2014, the company expects to continue a higher level of investment in facilities, advertising and promotion in order to support the growth of its brands in Brazil and respond to international competitors. This will continue to put pressure in profitability and operating results in the near future.

"Despite the near-term challenges due to the macro-economy and escalating competition, we strongly believe that we have the right brand assets and management team in place to drive continued growth. In the first quarter of 2014 we invested $7.8 million in new stores that includes a new multi-brand format combining Bob's, Doggis and Yoggi in one location, a new standalone Yoggi store concept called Yoggi Desigual, and expansion of Pizza Huts in high-traffic locations," Mr. Bomeny said.

"For 2014, to support our expansion and competitive position, we will also be making a significant investment in branding and promotion activities. Bob's recently presented its new visual identity, with a different store design and ambiance, communications, equipment and ingredients, to its franchisees at its National Convention. We will make a significant investment to refresh our owned-and-operated stores and will continuously incentivize our franchisees to do the same. While we expect to see continued margin pressure due to these activities, our goal is to achieve some improvement in our overall profit margins from Q1 2014 levels. Our strong balance sheet provides us with the ability to pursue this expansion strategy without recourse to outside financing.

"Brazil's economy has slowed significantly, with real GDP growth for 2014 expected to be in the range of 2% and inflation north of 6%, primarily due to rising food and labor prices. This will create difficulties across the restaurant industry and create near-term financial headwinds for Brazil Fast Food. But we continue to believe that the opportunity to build a significant player in the fast food industry is compelling and that we are on the right path to build long-term value with our unique business," concluded Mr. Bomeny.

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 previous public disclosures.

-FINANCIAL TABLES FOLLOW-

 
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
 
CONSOLIDATED INCOME STATEMENTS
(in thousands of Brazilian Reais, except share amounts)
 
      Three Months Ended March 31,
   Note  2014  2013
      (unaudited)   
  REVENUES FROM RESTAURANTS AND FRANCHISEES             
Net revenues from own-operated restaurants  13  R$ 52.681  R$ 46.419
Net revenues from franchisees  13    13.863    11.860
  TOTAL REVENUES FROM RESTAURANTS AND FRANCHISEES       66.544    58.279
              
Store Costs and Expenses  13    (52.404)    (45.511)
Franchise Costs and Expenses  13    (3.751)    (3.584)
Administrative Expenses       (8.169)    (7.552)
Income from supply agreements       5.768    6.446
Other income       583    147
Other Operating Expenses       (1.771)    (1.012)
Net result of assets sold and impairment of assets  6    (170)    3.030
OPERATING INCOME       6.630    10.243
  Interest Expense       (1.054)    (83)
NET INCOME BEFORE INCOME TAX       5.576    10.160
  Income taxes       (1.212)    (3.086)
NET INCOME BEFORE NON-CONTROLLING INTEREST       4.364    7.074
Net loss attributable to non-controlling interest       226    (328)
NET INCOMEATTRIBUTABLE TO BRAZIL FAST FOOD CORP.     R$ 4.590  R$ 6.746
              
NET INCOME PER COMMON SHARE             
  BASIC AND DILUTED     R$ 0,56  R$ 0,83
              
              
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)
 
      March, 31  December 31,
   Note  2014  2013
      (unaudited)   
ASSETS           
CURRENT ASSETS:             
  Cash and cash equivalents  4  R$ 53.097  R$ 50.083
  Inventories       2.954    3.090
  Accounts receivable             
   Clients - food sales       10.730    11.051
   Franchisees       19.815    20.872
   Allowance for doubtful accounts       (164)    (163)
  Prepaid expenses       2.036    747
  Advances to suppliers       2.855    2.962
  Bob's Marketing fund credits  5a    -    717
  Other current assets  5b and 6    3.433    3.761
    TOTAL CURRENT ASSETS       94.756    93.120
              
NON-CURRENT ASSETS:             
              
Other receivables and other assets  5a and 6    14.086    13.118
Deferred tax asset, net       10.644    10.644
Goodwill  3,3    1.121    1.121
Property and equipment, net  7    49.222    47.240
Intangible assets, net  8    13.486    13.463
    TOTAL NON-CURRENT ASSETS       88.559    85.586
              
    TOTAL ASSETS     R$ 183.315  R$ 178.706
              
 
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
 
BALANCE SHEETS - LIABILITIES AND EQUITY
(in thousands of Brazilian Reais, except share amounts)
 
      March, 31  December 31,
   Note  2014  2013
      (unaudited)   
LIABILITIES AND SHAREHOLDERS' EQUITY          
              
CURRENT LIABILITIES:             
  Loans and financing  11  R$ 13.050  R$ 12.816
  Accounts payable and accrued expenses       14.338    13.941
  Payroll and related accruals       7.262    6.501
  Taxes       4.772    7.884
  Current portion of deferred income  10    11.056    7.537
  Current portion of litigations and reassessed taxes  9    2.381    2.381
  Other current liabilities       294    144
   TOTAL CURRENT LIABILITIES       53.153    51.204
              
              
  Deferred income, less current portion  10    7.546    8.877
  Loans and financing, less current portion  11    10.418    10.744
  Litigations and reassessed taxes, less             
  current portion  9    19.983    20.190
  Other liabilities  12    2.173    2.170
   TOTAL NON-CURRENT LIABILITIES       40.120    41.981
              
              
   TOTAL LIABILITIES       93.273    93.185
              
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 shares issued for both 2014 and 2013; and 8,121,937 and 8,129,437 shares outstanding for both 2014 and 2013    1    1
  Additional paid-in capital       61.148    61.148
  Treasury Stock (350,990 and 343,490)  14    (2.358)    (2.060)
  Retained Earnings       28.040    23.450
  Accumulated comprehensive loss       (1.314)    (1.769)
  TOTAL SHAREHOLDERS' EQUITY       85.517    80.770
  Non-Controlling Interest       4.525    4.751
  TOTAL EQUITY       90.042    85.521
              
   TOTAL LIABILITIES AND EQUITY     R$ 183.315  R$ 178.706
                 
 
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Brazilian Reais)
 
   Three Months Ended March, 31
   2014  2013
CASH FLOW FROM OPERATING ACTIVITIES:  (unaudited)   
NET INCOME BEFORE NON-CONTROLLING INTEREST  R$ 4.364  R$ 7.074
Adjustments to reconcile net income to cash provided by (used in) operating activities:          
           
  Depreciation and amortization    2.629    2.076
  (Gain) Loss on assets sold, net    170    (3.030)
  Deferred income tax    -    104
           
Changes in assets and liabilities:          
  (Increase) decrease in:          
  Accounts receivable    1.379    (785)
  Inventories    136    (284)
  Prepaid expenses, advances to suppliers and other current assets    (137)    573
  Other assets    (968)    359
  (Decrease) increase in:          
  Accounts payable and accrued expenses    397    3.961
  Payroll and related accruals    761    1.223
  Taxes    (3.112)    (1.483)
  Deferred income    2.188    1.825
  Litigations and reassessed taxes    (207)    (818)
  Other liabilities    153    (697)
           
   CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES    7.753    10.098
           
CASH FLOW FROM INVESTING ACTIVITIES:          
Puechase of Company's share    (298)    -
Additions to property and equipment, net of proceed of sales    (4.724)    1.039
           
           
   CASH FLOWS USED IN INVESTING ACTIVITIES    (5.022)    1.039
           
CASH FLOW FROM FINANCING ACTIVITIES:          
Net Borrowings (Repayments) under lines of credit    (92)    (4.604)
           
   CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES    (92)    (4.604)
           
EFFECT OF FOREIGN EXCHANGE RATE    375    19
           
NET INCREASE IN CASH AND CASH EQUIVALENTS    3.014    6.552
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD    50.083    32.062
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD  R$ 53.097  R$ 38.614
           
 
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
 
RECONCILIATION OF EBITDA TO NET INCOME
 
   Three Months Ended March 31,
   2014  2013
           
NET INCOME  R$ 4.590  R$ 6.746
  Interest expenses, Monetary and Foreign exchange loss    760    (21)
  Income taxes    1.212    2.950
  Depreciation and amortization    2.128    1.719
EBITDA  R$ 8.689  R$ 11.393
           

* The Company Management reviewed the computation of previously disclosure of 2013 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.

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