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BUSINESS GUARDIAN guardian.co.tt JUNE 15 • 2017
PHL adds a new franchise to its stable
The addition of seven new
restaurants helped Prestige
Holdings Ltd (PHL) grow its
top line while one- off expens-
es and rising costs restrained
its bottom line performance.
Today, we will review PHL's results to No-
vember 30, 2016.
Changes in financial position
Total assets expanded from $481.7 million
to $521.6 million or by 8.3 per cent.
Property, plant and equipment rose to $274.9
million from $264.1 million. Additions of $53.6
million exceeded depreciation, disposals and
exchange movements, which totalled $42.8
The major additions were under buildings
and improvements ($26.1 million) and plant
and machinery ($17.7 million). Part of these
additions reflected the start-up of the Star-
Intangible assets increased from $71.7 mil-
lion to $74.6 million. Additions, all of which
shown were under deferred costs, were $4.97
million while amortisation charges totalled
Inventories climbed to $60 million from
$46.5 million. Food supplies and packaging
materials advanced to $47.8 million from $36.4
million while consumable stores closed at $12.3
million from $10.1 million. Although sales rose,
the need to hold larger inventories was also
probably influenced by the variability in the
company's access to foreign exchange.
Trade and other receivables were little
changed, moving from $21.3 million down to
$21.2 million. Net trade receivables rose to $3.0
million from $2.4 million. In contrast, both
prepayments and other receivables declined;
the former fell to $7.4 million from $7.5 million
while the latter dropped to $10.8 million from
Cash and cash equivalents improved to $84.2
million from $71.5 million. This improvement
was concentrated under net cash generated
from operating activities, which rose to $117.2
million from $102.9 million. Investing activ-
ities consumed $57.7 million while financing
activities reduced this inflow by $46.8 million.
Total liabilities increased to $247.8 million
from $219.8 million, reflecting a change of 12.7
Total debt dropped to $94.5 million from
$108.5 million. The current portion was un-
changed at $14 million while the long-term
element fell to $80.5 million from $94.5 million.
The original debt was a $140 million bond
issued in September 2013 at 6.25 per cent with
the principal being repayable in quarterly in-
stalments of $3.5 million.
Trade and other payables climbed to $146.5
million from $97.5 million. The trade paya-
bles component swelled to $102.3 million from
$65.4 million; this increase could be attributed
to the sporadic availability of foreign exchange
to settle overseas suppliers. Accrued expenses
rose to $26.2 million from $18.5 million while
payroll related taxes and other benefits grew
to $17.9 million from $13.6 million.
Sums due to related parties fell to $2.0 mil-
lion from $2.8 million.
Both current and deferred income tax liabil-
ities declined; the former fell to $1.38 million
from $6.33 million while the latter closed at
$3.38 million from $4.73 million. In the latter's
case, the reduction reflected accelerated tax
depreciation of $0.69 million and tax losses
of $0.65 million.
Total equity improved to $273.9 million from
Retained earnings advanced to $230.8 million
from $207.4 million. The opening balance was
boosted by the current period's profit of $47.2
million while dividends to shareholders of $23.8
million lowered the closing figure.
Other reserves fell to $17.9 million from $18.1
million; this decline reflected the currency
translation differences of almost $0.2 million.
The other equity instrument declined to $5
million from $15 million This reduction reflect-
ed the redemption of $10 million to its parent
company, Victor E Mouttet Ltd (VEML).
Stated capital rose from $22.8 million to
$23.8 million. During the year, an additional
161,614 shares were issued to employees un-
der the company's long-term incentive plan
at an average price of $5.75, which equated to
The unallocated shares held by ESOP in-
creased to $3.58 million from $1.35 million.
The weighted average number of shares out-
standing, exclusive of ESOP shares, declined
to 61,964,685 from 61,994,048; therefore, the
book value of each share improved to $4.42
from November 2015's $4.23.
Income and profit
Total revenue increased by 2.4 per cent to
$985.5 million from $962.6 million. Driving
this increase was the opening of seven out-
lets; of these new locations, three represented
the new premium brand Starbucks, which is a
purveyor of coffee, derivative beverages and
The cost of sales rose by 3.8 per cent to $635.3
million from $611.9 million. Higher commodity
prices, currency depreciation and increased
labour costs were the main variables that con-
tributed to this rise.
These changes saw gross profit slip to $350.2
million from $350.7 million.
Other operating expenses rose to $203.5
million from $200.2 million In addition, ad-
ministrative expenses climbed to $77.4 million
from $63.4 million.
The major expense items were cost of in-
ventories and employee benefit expense; the
former rose to $406.3 million from $390 mil-
lion while the latter advanced to $159.2 million
from $151.9 million.
Other expenses advanced from $71.4 mil-
lion to $77.6 million; it was probably here that
the $3.5 million start-up costs for Starbucks
was lodged. Royalties increased marginally to
$61.6 million from $60.4 million while foreign
exchange losses climbed to $2.9 million from
On the positive side, PHL recorded a profit
of $0.46 million on the disposal of property,
plant and equipment; in 2015, it recorded a
loss of $0.37 million for similar transactions.
Other income expanded to $2.4 million from
$1.4 million. This mainly relates to reimburse-
ments from franchisors for services rendered.
The launch of Starbucks was probably the main
contributor to this increase.
These changes saw operating profit register
at $71.7 million versus 2015's $88.5 million.
Consistent with lower debt, finance costs
fell to $7 million from $8.4 million.
Consequently, pre-tax profit come in at
$64.7 million compared with $80.2 million
for the previous year.
Higher expenses not deductible for tax
purposes contributed to the effective tax rate
increasing to 27.1 per cent from 25.8 per cent.
However, consistent with its lower profit, the
tax amount declined to $17.5 million from $20.7
These changes produced an after-tax result
of $47.2 million; this was $12.3 million or 20.7
per cent lower than the $59.5 million earned
That result translated to basic and diluted
EPS of $0.76 versus $0.96 for 2015.
The profit improvement in Jamaica was driv-
en by lower food and operating costs along with
higher revenue. Tax adjustments also helped.
With only one TGI FridaysTM outlet in that
market, the administrative costs of operating
a single outlet are disproportionately high. In
the not too distant future, PHL will need to
decide if to expand its operations in that market
or sell that subsidiary.
With 57 outlets, the KFC brand is the largest
component of the group and could be con-
sidered its flagship brand. Helped by menu
enhancements and regular promotions, this
franchise delivered higher revenues and im-
The second largest segment is Subway with
47 outlets. Despite continuous promotions and
menu enhancements, both revenue and profit
were lower than the previous year. Improve-
ments on both counts were evident in the later
part of the fiscal period.
This franchise advertises its fare as being
healthy for consumers. With an increasingly
knowledgeable and discerning public, it is in-
cumbent on the retail food industry in general
to provide objective information to consumers
about any possible long-term side effects from
the chemicals (eg hormones) used at various
stages of the food production process. Such
an initiative would build credibility and win
The smaller but premium brands include
Pizza Hut, TGI FridaysTM and Starbucks. With
the exception of TGI FridaysTM Trinidad's
four outlets, these brands delivered revenue
growth and made positive contributions to
the bottom line.
TGIF's weaker profitability was attributed to
lower revenue and higher depreciation charg-
es. The planned expansion of the Starbucks
franchise should help the current and future
Under PHL's business model, access to for-
eign exchange is a critical variable. A sister
company, Agostini's Ltd (also majority owned
by VEML) has a joint venture with Barba-
dos-based Goddard Enterprises Ltd, which
has contributed to an enhanced access to for-
eign exchange for AGL; it is not unreasonable
that its association with AGL/GEL could help
PHL to secure improved access to this scarce
Q1 2017 results
For the first quarter ended February 28, 2017,
PHL recorded a six per cent improvement in
revenues to $252.7 million from $238.5 million.
However, the depreciation of the exchange
rate pushed food and commodity costs high-
er, which restrained gross profit growth to a
modest one per cent.
Both administrative and other operating ex-
penses experienced increases, while the higher
tax rate limited profit delivery.
For this period, EPS declined to $0.15 from
$0.20. When its half-year's results are released
in early July, we should get a better feel for the
current year's outlook.
During the first quarter, PHL completely set-
tled the $5 million balance under other equity
description. This action helped pull down its
cash balance to $65.5 million from the year-
end position of $84.2 million.
Share price and dividends
PHL's share price closed at $10.09 on No-
vember 30, 2015. During 2016, the share traded
as low as $10.10 on January 10 and as high as
$11.40 on May 10 (probably anticipating posi-
tive results from its acquisition of the Starbucks
brand), before closing at $11.00 on November
30. That improvement represented a one year
appreciation of 9 per cent. In 2017, it was re-
cently closed at $10.81.
Total dividends were stable at $0.38 for both
2015 and 2016. The final dividend of $0.22 was
paid on May 18, 2017. Relating the total 2016
dividend of $0.38 to the recent price of $10.81,
the yield is a respectable 3.52 per cent. That
price also reflects a P/E multiple of 14.22 and
price to book value of 2.45.
In next week's article, we will review Angostura
Holdings Ltd's 2016 results.
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