Australian quick service restaurant operator Collins Foods Limited, which operates KFC and Sizzler restaurants, has reported a 37 per cent lift in Earnings Before Interest Tax Depreciation and Amortisation (EBITA) and a 43 per cent lift in Underlying Profit in After Tax for the half financial year ended 12 October 2014.

The Company also announced a pre-tax, non-cash impairment charge of $36.5 million, of which $35.9 million related to the Sizzler Australia business and $0.6 million related to KFC Queensland. Collins Foods reported an increase in revenue of 29.6 per cent to $256.7 million compared to the corresponding period in the 2014 financial year.

Sizzler Australia impairment

Collins Foods said that while the second quarter performance for Sizzler has shown relative improvement in the top line sales trend as a result of the various “Get Refreshed” initiatives implemented to date, overall revenue for the first half of the year for Sizzler Australia was below expectations.

As a consequence, Collins Foods said its Board had revised down the forecast for this business, and this in turn had resulted in a pre-tax non-cash impairment charge of $35.9 million being booked at the half year. Collins Foods said this impairment did not have any impact on the Sizzler Asia business, nor did it impact Collins’ Foods’ funding covenants or payment of dividends.

Notwithstanding the pre-tax non-cash impairment charge, Collins Foods reported that the Sizzler Australia business remained cash flow positive and was expected to generate a positive contribution to the Group at the EBITA level for current financial year.

Sizzler “Get Refreshed” strategy showing “encouraging signs”

Mr Maxwell said the Sizzler business, while “still subdued”, was showing “encouraging signs of recovery”.

“We completed the roll-out of the “Get Refreshed” initiative across the system this month, and have also remodelled the front of the house of three Sizzler restaurants during the first half of 2015 at Cleveland, Caboolture, and very recently Mermaid Beach,” Mr Maxwell said. “While it is still early days, the results thus far are encouraging with evidence of a solid lift in sales at Cleveland and Caboolture,” he said.

The Summer campaign for Sizzler, including a revised menu and new advertising campaign, will run through from December 2014 to February 2015.

“We intend to finalise our strategic review of the business post the completion of the campaign and after determining how the front of house remodels and “Get Refreshed” have performed,” Mr Maxwell said. “An update will be provided to the market on the outcome of the review in the fourth quarter of FY15,” he said.

KFC

Collins Foods reported KFC Queensland saw same store sales increase 3 per cent on the previous year, while KFC Western Australia and Northern Territory had a same store sales increase of 4.3 per cent.

The Company opened three new KFC restaurants, all in Queensland, and remodelled nine KFC restaurants in Queensland and four in Western Australia/Northern Territory.

“We are particularly pleased with the performance of our KFC business in both Queensland and Western Australia/Northern Territory,” said Graham Maxwell, Collins Foods’ Chief Executive Officer. “They have achieved sustained same store sales growth at the same time as continuing to deliver improved margins off the back of a range of labour efficiencies and productivity initiatives introduced last year,” he said.

Mr Maxwell said the first half of the 2015 financial year marked the first full contribution of KFC Western Australia/Northern Territory following the acquisition of Competitive Foods Pty Ltd in the second half of the 2014 financial year. He said that in the first half of the 2015 financial year, the business had generated revenue growth of 3.7 per cent over the prior corresponding period.

“At the same time the business has improved margins by rolling out the same efficiency and productivity initiatives introduced in our Queensland store network,” Mr Maxwell said.

Snag Stand

During the 2014 financial year Collins Foods acquired a 50 per cent equity interest in quick service restaurant Snag Stand. Over the past half year, Collins Foods together with the other equity partners continued to work on “fine-tuning” the concept.

A new Snag Stand at Maroochydore on the Sunshine Coast is currently under construction within the Sunshine Plaza shopping centre. This Snag Stand is scheduled to open mid-December 2014, and will take Snag Stand’s store footprint to six company owned stores, and one franchised store.

Priorities for the remainder of FY15

Mr Maxwell said he was confident that Collins Foods would continue to deliver strong growth in operating earnings (pre-impairments) for the remainder of the 2015 financial year.

“In KFC our focus remains on improving the performance of our Western Australia/Northern Territory restaurant portfolio via the controlled rollout of operational and labour efficiency measures,” Mr Maxwell said. “We will continue to grow our KFC footprint along with the remodelling of selected locations,” he said.

“With regard to Sizzler Australia, as can be seen from the operational results, both the “Get Refreshed” initiative and front of house remodelling are having positive impacts on performance,” Mr Maxwell said. “We need now to see how the brand trades through the summer period to get a better understanding of the sustainability of these initiatives. Sizzler Asia continues to perform well,” he said.

“Both management and the Board are fully committed to finding the best outcome for Sizzler,” Mr Maxwell said.