Home' Trinidad and Tobago Guardian : March 24th 2016 Contents MARCH 24 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
STOCKS | BG17
The January 28 announcement
that Prestige Holding Ltd (PHL)
had secured the franchise for
"Starbucks" coffee triggered
adverse commentary from dif-
ferent sources in all three dailies.
In the context of the current extensive concern
about the shortage of foreign exchange, the
timing of the announcement was probably
Those reactions, even before a Starbucks
store has been established, suggests that fran-
chise will likely become as profitable as those
currently in PHL s stable.
Even so, the heightened interest in that com-
pany s results and growth prospects seemed to
have improved demand for its shares, which
have risen past $11.00.
Perhaps, the recent exit of McDonald s from
West Mall may result in the opening of a Star-
bucks outlet at that location sooner than orig-
Following that introduction, let us now review
PHL s results for the year ended November
Changes in financial position
Lower debt and a higher cash balance featured
prominently in this year s figures. Total assets
rose to $481.7 million from $467.5 million.
The largest improvement was noted under
current assets, which closed at $145.9 million
from $133 million.
Inventories rose by just over one per cent to
$46.5 million from $46 million. Trade and other
receivables fell to $21.3 million from $23.1 million
while current income tax assets were unchanged
at $6.6 million.
The major improvement was with its balances
of cash and equivalents, which climbed to $71.5
million from $57.3 million. Its operating activities
generated $103 million while its investing activ-
ities consumed $45 million and its financing
activities utilised $44 million.
Long-term assets grew modestly to $335.8
million from $334.4 million.
The largest component, property, plant, and
equipment increased to $264.1 million from
$262 million. In contrast, the amortisation
charge on the intangible assets of Weekenders
Limited (TGIF) primarily reduced those assets
to $71.7 million from $72.4 million.
Total liabilities closed at $219.8 million from
The largest decline occurred in the non-cur-
rent portion, which fell to $99.2 million from
$115.3 million. The major reason for this move-
ment was the $14 million reduction in its bor-
rowings balance, which sank to $94.5 million
from $108.5 million.
In addition, PHL wound up its defined benefit
pension plan, which removed $496,000 from
its liabilities. Deferred tax liabilities also fell to
$4.7 million from $6.3 million.
Although current liabilities were little changed
at $120.5 million (2014: $120.9 million), there
were significant movements in three of the four
Trade and other payables declined to $97.5
million from $100.3 million. Here, the largest
movement was noted under the payroll related
taxes and other benefits, which closed at $13.6
million from $17.6 million.
While current borrowings remained flat at
$14 million, sums due to related parties increased
to $2.8 million from $1.6 million. With the
increase in the company s profitability, current
income tax liabilities rose from $4.95 million
to $6.33 million.
Total equity moved from $231.3 million to
Retained earnings advanced to $207.4 million
from $162.5 million. The current year s profit
of $59.5 million and the expiration of share
based payments of $5.5 million enhanced the
brought forward balance, while dividends of
$20.6 million reduced the closing balance.
The repayment of $10 million to its parent
company lowered other equity instruments to
$15 million from $25 million.
With 62,351,388 shares outstanding, each
share had a book value of $4.20 (November
Income and profits
Total revenues advanced by 4.4 per cent to
$962.6 million from $921.8 million in 2014.
However, the cost of sales rose by only 3.8 per
cent, moving from $589.6 million to $611.9
million. The largest cost, inventories, was well
controlled and increased modestly to $390 mil-
lion from $389.5 million.
These changes saw PHL report a gross profit
of $350.7 million versus $332.2 million; this
reflected an improvement of 5.6 per cent.
Other operating expenses rose by 4.8 per
cent to $200.2 million (2014: $191.1 million)
while administrative expenses climbed by 7.33
per cent, moving from $59 million to $63.4
Among the factors influencing these changes
were other expenses ($71.4 million versus $67.1
million), royalties ($64.4 million versus $57.9
million) and insurances ($5.6 million versus
Although the defined benefit pension plan
was terminated, allocations to the defined con-
tribution pension plan increased. The former
is more onerous to the employer while the latter
allows for a more predictable cost. The ultimate
benefit to the employees is a function of many
variables, including interest rates, actuarial
assumptions, skill of the investment managers
and the fees levied on the plan.
Other income, which was not clarified,
declined to $1.4 million from $1.9 million.
After allowing for these changes, operating
profit came in at $88.5 million compared with
$83.9 million, reflecting a 5.5 per cent improve-
Net finance costs fell to $8.37 million from
$12.05 million. Both bank and other interest
declined in line with its lower debt and higher
levels of cash balances.
The effective tax rate declined to 25.8 per
cent from 30 per cent. In 2014, the reversal of
a previously recognised deferred tax asset on
losses distorted that year s calculation.
These changes allowed PHL to report an
after-tax profit of $59.5 million; this reflects
an improvement of 18.4 per cent over the $50.3
million earned for 2014.
These results translated into 2015 diluted EPS
of $0.96 compared with $0.81 for 2014.
The improvement in fortunes at its Jamaican
operations saw a positive swing of $1.6 million
as the 2014 loss of $1.49 million moved to a
2015 profit of $118,000. This change reflects
the return to profit of TGI Friday s in that mar-
ket.Even though one new Subway outlet was
opened, the re-imaging of six restaurants during
the year, including 3 TGI Friday s, restrained
the growth in sales locally.
The KFC and Pizza Hut brands were the star
performers for 2015. On the other hand, growth
and profitability at its Subway outlets posed
some challenges. As a result of the re-imaging
exercise, the TGI Friday s brand experienced
lower sales; even so, the brand continued to be
The key variables in the restaurant business
are people interactions, menu offerings and
environment. To a considerable degree, the last
two can be "engineered". However, the first is
heavily dependent on human variables, such
as, attitudes, willingness to be trained (and
embrace same), mood consistency or profes-
To the extent that we have not yet developed
a national culture of service, staff turnover will
always be a key cost variable and consume
most of management s time.
Dividends and share price
The total dividend for fiscal 2015 was $0.38;
this is an improvement of almost 19 per cent
over the $0.32 paid for 2014.
At the end of December 2014, PHL s share
price closed at $9.56. On March 19, 2015 the
share price closed at $10.00. But, by June 1,
2015, it was again below the $10.00 price. Even-
tually, it ended 2015 at $10.10.
The release of its strong 2015 results, com-
bined with the announcement that it had
acquired the Starbucks franchise, ignited
renewed interest in this stock. On January 28,
2016, 147,379 shares traded at $10.19. From
that point, the price rose steadily, breaking the
$11.00 mark on February 29, 2016, and then
closed at $11.21 last Friday.
At that price, the current dividend of $0.38
gives investors a yield of 3.39 per cent.
Mass appeal brands, such as KFC and Subway,
tend to concentrate on high volume and often
compete on price. As a premium brand, the
Starbuck franchise focusses on a different cus-
tomer base than does, for example, the local-
ly-based Rituals coffee. Given these differences,
it is likely that Starbucks margins would be
higher than, say KFC, although its sales may
not be as robust.
In the March 1, 2016 edition of Fortune mag-
azine, Starbucks was ranked first in social
responsibility, second, after Apple, for the quality
of its management and second, after Walt Dis-
ney, for its use of corporate assets. Its ranking
for long-term investment value came in at
number three, after Nike and Walt Disney.
Overall, in the food services segment, Star-
bucks retained the top spot for being the world s
most admired company, ahead of McDonald s
and Yum (KFC).
No doubt, its niche local presence can help
lift the quality of the local business environ-
As PHL continues to grow, there will be
opportunities for it to develop or acquire a suit-
able local franchise. (Is Linda s Bakery one of
the possible candidates?) Given its institutional
knowledge, acquired from its long association
with successful international brands, that expert-
ise could eventually help it to generate useful
amounts of much-needed foreign exchange.
The imminent release of its Q1 results would
be the first opportunity for investors to gauge
how the current economic slowdown is affecting
its operations, even as the country continues
to adjust to lower levels of both absolute and
How will the share price react to the pub-
lication of those results?
Finally, I extend condolences to the family
of Victor E Mouttet, who died last week.
Next week's article will focus on: The
Annual Report---burden or opportunity?
PHL records a solid 2015 profit
...then secures the Starbucks franchise
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