Brazil Fast Food Corp. (BOBS: OTC Pink Limited) | Brazil Fast Food Announces Second Quarter 2014 Results

OTC

Brazil Fast Food Announces Second Quarter 2014 Results

Aug 15, 2014

OTC Disclosure News Service

– Brazil Fast Food Announces Second Quarter 2014 Results

RIO DE JANEIRO, BRAZIL–(Marketwired – August 15, 2014) – Brazil Fast Food Corp. (PINKSHEETS: BOBS) (“Brazil Fast Food”, or “the Company”), one of the largest food service groups in Brazil with 1,235 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 second quarter ended June 30, 2014.

Q2 2014 Highlights

  • System-wide sales totaled R$ 338.6 million, up 18.4% from Q2 2013
  • Revenue totaled R$ 71.9 million, up 26% from Q2 2013
  • Points of sale totaled 1,235 at June 30, 2014 (including 523 kiosks and 21 temporary points of sale), up from 1,057 at June 30, 2013
  • EBITDA was R$ 11.5 million, up 49% from R$ 7.7 million in Q2 2013
  • Operating income was R$ 9.5 million, up 51% from R $6.3 million in Q2 2013
  • Net income was R$ 7.0 million, or R$ 0.86 per basic and diluted share

Note that all numbers are in Brazilian currency. (R$2.2156/US$ as of 06/28/2013 and R$2.2025/US$ as of 06/30/2014)

“We are pleased with our performance in the second quarter of 2014, in which we grew revenues by 26% and our operating income by 51% despite what continues to be a challenging economic environment in Brazil. These results reflect the continued expansion of the Bob’s restaurant concept, primarily through franchised operations, which produce excellent profitability. The anticipation of school vacations to June due to the FIFA World Cup, accelerated an increase in sales that would normally occur in July, thus producing a temporary positive effect in our results in Q2 2014.

“Nevertheless, sales at our restaurants were negatively impacted by demonstrations and strikes that affected the transportation system in May and by the World Cup, which reduced traffic in restaurants and increased traffic in bars during the second half of the month of June and in July. The number of transactions in comparable stores in the BFFC system decreased 4.67% in May and 2.05% in June, counterbalanced by sales of higher value added sandwiches,” said Mr. Ricardo Bomeny, CEO of Brazil Fast Food.

“Looking in more detail at our brands, we are delighted with the performance of our franchised stores, where net franchise revenues grew 31.7% in the quarter. The number of franchise outlets grew very rapidly to 1,134, from 982 on June 30, 2013, reflecting the popularity of our products and strong franchisee interest. That said, we are making additional efforts to ensure that the food, service, and ambiance are at a high level of excellence and consistency across the network.

“Our owned-and-operated Bob’s stores grew revenues by 30% over Q2 2013, and a better user experience improved profitability. This reflects an increase in points of sale to 49 at June 30, 2014, from 39 a year prior, and a 5.4% increase in same store sales in the second quarter. We anticipate that over the next two years we will significant increase our capital expenditures, due to the need to make a very sizable investment in our owned-and-operated stores to revamp their image and to convince our franchisees to do the same. Bob’s recently presented its new visual identity, with a different store design and ambiance, communications, equipment and ingredients, to its franchisees at the annual national convention. We believe that these investments in our store network and franchisee incentives are critical to maintain the long term growth and popularity of the Bob’s brand.

“We continued the expansion of our Pizza Hut stores, where net revenues grew by 40% over Q2 2013, with operating income similar to last year. We added 12 new stores, but we have experienced delays with the opening in several high-profile locations and a longer than expected maturation of new stores that negatively impacted results. Our KFC stores continued to struggle in the local market with an 18.6% decline in revenues, as we shifted the menu towards higher priced items, but produced a very small operating profit. We continue in active discussions with Yum! Brands as to how to reverse the continued negative results for these stores, including the possibility to close and/or sell some stores. Our Yoggi’s brand made a small but growing contribution to profitability, with recently opened stores performing well and the potential for future expansion,” Mr. Bomeny said.

Second quarter 2014 Results

System-wide sales grew 18.4% in the second quarter to R$ 338.6 million, driven by an increase in the number of franchised points of sale.

Total revenue for the second quarter of 2014 was R$ 71.9 million, an increase of 26% as compared to R$ 57 million in the second quarter of 2013, due to higher revenues from franchisees and own-operated restaurants.

Net restaurant sales for company-owned restaurants increased 24.8% year-over-year to R$ 57.5 million in the second quarter of 2014, driven by the expansion and higher sales of Bob’s and Pizza Hut.

Net revenue from franchisees increased 31.7% year-over-year to R$ 14.3 million, driven primarily by an increase in number of franchised retail outlets to 1,134, as compared to 982 a year ago.

Operating expenses increased 23% to R$ 62.3 million in the second quarter of 2014, compared to R$ 50.7 million in the second quarter of 2013. As a percentage of revenue, operating costs were 86.8% of total revenue in the second quarter of 2014 as compared to 89% of total revenue in the second quarter of 2013. 

Operating income for the second quarter of 2014 was R$ 9.5 million, an increase of 51.3% from R$ 6.3 million in the second quarter of 2013. Operating margin in the second quarter of 2014 increased to 13.2%, as compared to 11% in the second quarter of 2013.

EBITDA in the second quarter of 2014 was R$ 11.5 million, up by 49% as compared to R$ 7.7 million in the second quarter of 2013. This growth rate is a result of a favorable comparison between 2013 and 2014, as our 2Q 2013 EBITDA was negatively impacted by certain non-recurring items that took place in the second quarter of 2013. EBITDA margin was 16%, as compared to 13.5% in the second 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$ 0.9 million in the second quarter of 2014, as compared to interest expense of R$ 0.2 million in the second quarter of 2013, reflecting both increased debt obligations for expansion and higher interest rates.

Net income in the second quarter of 2014 was R$ 7.0 million, or R$ 0.86 per basic and diluted share, as compared to R$ 4.4 million, or R$ 0.54 per basic and diluted share in the second quarter of 2013.

Six Months Results

During the first six months of 2014, total revenues grew by 20.1% to R$138.4 million, from R$115.3 million in the prior year period. EBITDA for the first six months was R$20.1, up by 5.6% from EBITDA of R$19.1 million in the first half of 2013. Operating income for the first six months was R$16.1 million, down 2.4% from $16.5 million in the first half of 2013. Net income for the first six months of 2014 was $11.6 million, or $1.42 per share, up from $11.2 million, or $1.37 per share in the first half of 2013.

Financial Condition

As of June 30, 2014 the Company had R$ 50.3 million in cash and equivalents, compared to from R$ 50.1 million as of December 31, 2013. Working capital was R$ 41.6 million at June 30, 2014, compared with R$ 41.9 million as of December 31, 2013. Debt obligations with financial institutions were R$31.6 million as of June 30, 2014, compared with R$23.6 million as of December 31, 2013, which reflected recent investments in opening and remodeling our owned-and-operated stores. Total shareholders’ equity was R$ 95.6 million at June 30, 2014, compared to R$ 85.5 million at December 31, 2013.

Recent Events and Legal Issues

In the first half of 2014, the company’s subsidiary received a notice from the Brazilian tax authorities that it was to be fined an additional R$33 million for the years 2009 to 2011 as a result of tax credits resulting from the 2006 restructuring of Venbo Comercio de Alimentos Ltda (“Venbo.”) The tax authorities assert that the restructuring constituted abusive tax planning, and had in 2013 assessed a fine of R$17 million for the years 2007 and 2008.

The company has filed an administrative appeal against each penalty, which believes will take two to three years to resolve. However, there can be no assurance that the company will prevail and that these tax assessments will not have a material impact on its business. Should the fines be upheld, the company plans to take the matter to court, with possibility of being required to post collateral and bear onerous legal costs.

Business Outlook

In 2014, the company expects to continue to incur in a higher level of capital expenditures due to the ongoing level of investment in facilities, advertising and promotion required in order to support the growth of its brands in Brazil and respond to growing competitive pressures in the marketplace by international competitors.

“Brazil’s economy continues to be sluggish, with inflation running at about 6.5% and GDP now forecast to grow less than 0.5 % in 2014. Brazil economy is in a pre-recessionary stage, with very low growth and high inflation, leading to a continued drive by the central bank to increase interest rates during the second half of the year. This scenario is worsened by what is anticipated to be a tight presidential race in the October general elections. Rising prices above inflation for food, labor, and leases, high turnover and fierce competition will likely continue to pressure our margins, while the company plans to continue to invest in a high level of marketing and remodeling to support the expansion of our brands in a highly competitive fast food market.” Mr. Bomeny said.

“In the near term, we remain very cautious about our outlook and expect significant capital investments. Longer term, we expect that the expansion of our franchised store base will generate strong profitability and operating leverage as additional points of sale come onto the network,” Mr. Bomeny concluded.

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”), Internacional Restaurantes do Brasil S.A. (“IRB”), Aerofood Comércio de Alimentos Ltda (“Aerofood”), Bigburger Caxias Lanchonetes Ltda (“Caxias”), WP Comércio de Alimentos Ltda. (“WP”), DC Américas Comércio de Alimentos (“DC AMERICAS”), Olifreitas Comércio de Alimentos Ltda. IRB and Separk 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-

     

 Three Months Ended June 30,
  

 2014

  2013
  
 (unaudited)

  (reclassified)
 REVENUES FROM RESTAURANTS AND FRANCHISEES
   

    

 Net revenues from own-operated restaurants

 R$57.521

  R$46.103

 Net revenues from franchisees

  14.328

   10.879

 TOTAL REVENUES FROM RESTAURANTS AND FRANCHISEES
  71.849

   56.982

  

   

    

 Store Costs and Expenses

  (54.577

)  (44.889

)Franchise Costs and Expenses

  (3.363

)  (3.724

)Administrative Expenses

  (8.643

)  (7.414

)Income from supply agreements

  7.235

   7.103

 Other income

  776

   227

 Other Operating Expenses

  (3.829

)  (1.576

)Net result of assets sold and impairment of assets

  44

   (434

)OPERATING INCOME

  9.492

   6.275

  Interest Expense

  (988

)  (237

)NET INCOME BEFORE INCOME TAX

  8.504

   6.038

  Income taxes

  (2.078

)  (1.683

)NET INCOME BEFORE NON-CONTROLLING INTEREST

  6.426

   4.355

 Net loss attributable to non-controlling interest

  534

   58

 NET INCOMEATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

 R$6.960

  R$4.413

  

   

    

 NET INCOME PER COMMON SHARE

   

    

  BASIC AND DILUTED

 R$0,86

  R$0,54

  

   

    

  

   

    

 WEIGHTED AVERAGE COMMON

   

    

  SHARES OUTSTANDING: BASIC AND DILUTED

  8.120.501

   8.129.437

                                

 Six Months Ended June 30,
  

 2014

  2013
  

 (unaudited)

  (reclassified)
 REVENUES FROM RESTAURANTS AND FRANCHISEES
   

    

 Net revenues from own-operated restaurants

 R$110.202

  R$92.522

 Net revenues from franchisees

  28.191

   22.739

 TOTAL REVENUES FROM RESTAURANTS AND FRANCHISEES
  138.393

   115.261

  

   

    

 Store Costs and Expenses

  (106.981

)  (90.400

)Franchise Costs and Expenses

  (7.114

)  (7.308

)Administrative Expenses

  (16.812

)  (14.966

)Income from supply agreements

  13.003

   13.549

 Other income

  1.359

   374

 Other Operating Expenses

  (5.603

)  (2.588

)Net result of assets sold and impairment of assets

  (126

)  2.596

 OPERATING INCOME

  16.119

   16.518

  Interest Expense

  (2.042

)  (320

)NET INCOME (LOSS) BEFORE INCOME TAX

  14.077

   16.198

  Income taxes

  (3.290

)  (4.769

)NET INCOME BEFORE NON-CONTROLLING INTEREST

  10.787

   11.429

 Net loss attributable to non-controlling interest

  760

   (270

)NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

 R$11.547

  R$11.159

  

   

    

 NET INCOME PER COMMON SHARE

   

    

  BASIC AND DILUTED

 R$1,42

  R$1,37

  

   

    

  

   

    

 WEIGHTED AVERAGE COMMON

   

    

  SHARES OUTSTANDING: BASIC AND DILUTED

  8.123.517

   8.129.437

                                

 June, 30

  December 31,

  

 2014

  2013

  

 (unaudited)

   

 ASSETS

   

    

 CURRENT ASSETS:

   

    

  Cash and cash equivalents

 R$50.302

  R$50.083

  Inventories

  3.407

   3.090

  Accounts receivable

  33.756

   31.760

  Prepaid expenses

  1.709

   747

  Advances to suppliers

  5.074

   2.962

  Bob’s Marketing fund credits

  –

   717

  Other current assets

  5.164

   3.761

   TOTAL CURRENT ASSETS

  99.412

   93.120

   

   

    

 NON-CURRENT ASSETS:

   

    

  

   

    

 Other receivables and other assets

  15.868

   13.118

 Deferred tax asset, net

  10.644

   10.644

 Goodwill

  1.121

   1.121

 Property and equipment, net

  58.848

   47.240

 Intangible assets, net

  13.078

   13.463

   TOTAL NON-CURRENT ASSETS

  99.559

   85.586

  

   

    

   TOTAL ASSETS

 R$198.971

  R$178.706

  

   

    

  

   

    

  

 June, 30

  December 31,

  

 2014

  2013

  

 (unaudited)

   

 LIABILITIES AND SHAREHOLDERS’ EQUITY

   

    

  

   

    

 CURRENT LIABILITIES:

   

    

  Loans and financing

 R$16.241

  R$12.816

  Accounts payable and accrued expenses

  13.563

   13.941

  Payroll and related accruals

  9.389

   6.501

  Taxes

  7.170

   7.884

  Current portion of deferred income

  8.265

   7.537

  Current portion of litigations and reassessed taxes

  2.321

   2.381

  Other current liabilities

  856

   144

   TOTAL CURRENT LIABILITIES

  57.805

   51.204

  

   

    

  

   

    

  Deferred income, less current portion

  7.716

   8.877

  Loans and financing, less current portion

  15.396

   10.744

  Litigations and reassessed taxes, less

   

    

  current portion

  20.157

   20.190

  Other liabilities

  2.292

   2.170

   TOTAL NON-CURRENT LIABILITIES

  45.561

   41.981

  

   

    

  

   

    

   TOTAL LIABILITIES

  103.366

   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 8,120,137 and 8,129,437 shares outstanding for 2014 and 2013  1

   1

  Additional paid-in capital

  61.148

   61.148

  Treasury Stock (352,790 and 343,490)

  (2.430

)  (2.060

) Retained Earnings

  34.997

   23.450

  Accumulated comprehensive loss

  (2.102

)  (1.769

)TOTAL SHAREHOLDERS’ EQUITY

  91.614

   80.770

  Non-Controlling Interest

  3.991

   4.751

 TOTAL EQUITY

  95.605

   85.521

  

   

    

   TOTAL LIABILITIES AND EQUITY

 R$198.971

  R$178.706

  

   

    

                    

 Six Months Ended June, 30
  

 2014

  2013
 CASH FLOW FROM OPERATING ACTIVITIES:

 (unaudited)

   
 NET INCOME BEFORE NON-CONTROLLING INTEREST

 R$10.787

  R$11.429

 Adjustments to reconcile net income to cash provided by (used in) operating activities:

   

    

  

   

    

  Depreciation and amortization

  2.629

   3.835

  (Gain) Loss on assets sold, net

  170

   (2.596

) Deferred income tax

  –

   104

  

   

    

 Changes in assets and liabilities:

   

    

  (Increase) decrease in:

   

    

   Accounts receivable

  (1.996

)  (1.545

)  Inventories

  (317

)  251

   Prepaid expenses, advances to suppliers and other current assets
  (3.760

)  221

   Other assets

  (2.750

)  635

  (Decrease) increase in:

   

    

   Accounts payable and accrued expenses

  (378

)  (1.345

)  Payroll and related accruals

  2.888

   2.619

   Taxes

  (714

)  (3.609

)  Deferred income

  (433

)  (540

)  Litigations and reassessed taxes

  (93

)  (1.194

)  Other liabilities

  834

   (439

)  

   

    

    CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
  6.867

   7.826

  

   

    

 CASH FLOW FROM INVESTING ACTIVITIES:

   

    

 Purchase of Company’s share

  (370

)  (6.174

)Additions to property and equipment, net of proceed of sales
  (13.567

)  –

  

   

    

  

   

    

    CASH FLOWS USED IN INVESTING ACTIVITIES

  (13.937

)  (6.174

   

    

 CASH FLOW FROM FINANCING ACTIVITIES:

   

    

 Net Borrowings (Repayments) under lines of credit

  8.077

   3.271

  

   

    

    CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
  8.077

   3.271

  

   

    

 EFFECT OF FOREIGN EXCHANGE RATE

  (788

)  80

  

   

    

 NET INCREASE IN CASH AND CASH EQUIVALENTS

  219

   5.003

  

   

    

 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  50.083

   32.062

  

   

    

 CASH AND CASH EQUIVALENTS AT END OF PERIOD

 R$50.302

  R$37.065

  

   

    

           

 Three Months Ended June 30,

  

 2014

  2013

  

   

    

 NET INCOME

 R$6.960

  R$4.413

  Interest expenses, Monetary and Foreign exchange loss
  443

   79

  Income taxes

  2.078

   1.683

  Depreciation and amortization

  1.983

   1.520

 EBITDA

 R$11.464

  R$7.694

  

   

    

                   

* 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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