Description
report on the results for Restaurant Brands for the 2013/14 financial year (FY14); another challenging trading year, through which the company persevered to deliver the second best profit result in its 17 year history.
2014 Annual Report
OUR
APPETITE
FOR GROWTH
CONTINUES
THROUGH
DESIRE, DESIGN
& DRIVE
Restaurant Brands’ capability in
running and supporting franchise
restaurant operations underpins
a multi-faceted structure that
keeps the business constantly
growing and improving.
1
Restaurant Brands New Zealand Limited
is a corporate franchisee that operates
the New Zealand outlets of KFC,
Pizza Hut, Starbucks Coffee and
Carl’s Jr. These brands – four of the
world’s most famous – are distinguished
for their product, look, style and
ambience, service and for the total
experience they deliver to their customers
in New Zealand and around the world.
Contents
02 Financial highlights
03 Year in review
04 Chairman’s & Chief Executive’s report
10 The drive to win comes from within
14 KFC operations
16 Pizza Hut operations
18 Carl’s Jr. operations
20 Starbucks Coffee operations
22 Board of directors
24 Community spirited, sustainably principled
27 Consolidated income statement
28 Non-GAAP financial measures
30 Financial statements
64 Independent auditors’ report
65 Shareholder information
67 Statutory information
70 Statement of corporate governance
74 Corporate directory
75 Financial calendar
22
All ?gures in $NZm unless stated 2009 2010 2011 2012 2013 2014
Financial performance
Sales*
KFC 211.5 223.2 235.8 236.3 237.0 241.5
Pizza Hut 64.6 64.2 59.3 45.5 47.9 48.4
Starbucks Coffee 33.0 30.5 29.3 26.5 25.1 25.0
Carl’s Jr. – – – – 1.9 14.3
Pizza Hut Victoria 0.3 – – – – –
Total 309.4 317.8 324.4 308.2 311.9 329.3
EBITDA before G&A*
KFC 38.0 46.3 52.1 45.6 45.3 44.5
Pizza Hut 2.8 5.4 5.6 2.1 3.8 5.5
Starbucks Coffee 2.9 3.2 4.1 3.7 2.9 3.5
Carl’s Jr. – – – – (0.5) –
Pizza Hut Victoria – – – – – –
Total 43.7 54.9 61.9 51.4 51.5 53.5
EBIT 15.6 29.2 35.0 24.4 22.7 28.2
NPAT (reported) 8.3 19.5 24.3 16.9 16.2 20.0
NPAT (excluding non-trading) 11.7 19.9 25.1 18.4 17.7 18.9
Financial position/cash flow
Share capital 25.6 25.8 26.6 26.6 26.7 26.8
Total equity 37.1 48.7 58.9 59.8 60.3 64.7
Total assets 101.1 103.0 111.4 104.9 111.8 108.3
Operating cash flows 23.3 38.7 40.6 29.8 34.8 32.7
Shares
Shares on issue (year end) 97,128,956 97,280,005 97,762,866 97,809,001 97,850,110 97,871,090
Number of shareholders (year end) 6,095 5,668 5,527 5,675 6,015 6,112
Earnings per share (full year reported) 8.5c 20.1c 24.9c 17.3c 16.5c 20.4c
Ordinary dividend per share 7.0c 12.5c 17.0c 16.0c 16.0c 16.5c
Other
Number of stores (year end)
KFC 84 85 89 88 89 90
Pizza Hut 93 91 82 71 57 51
Starbucks Coffee 42 41 37 35 29 27
Carl’s Jr. – – – – 2 8
Total 219 217 208 194 177 176
Employees (partners) paid (year end) 4,526 4,735 4,374 3,909 3,725 3,691
HISTORICAL SUMMARY
* Sales and store EBITDA for each of the concepts may not aggregate to the total due to rounding.
CARL'S JR. CONTRIBUTING
INCREMENTAL REVENUE OF
$12.4m
FINANCIAL HIGHLIGHTS
3
• Group Net Profit after Tax was $20.0 million
(20.4 cents per share), up 23.5% on prior year.
• Group Net Profit after Tax (excluding non-
trading items) was $18.9 million (19.3 cents
per share), up 6.8% on prior year.
• Total Group Revenue of $330.4 million was
up $17.6 million (+5.6%) with growth from
KFC and the roll out of the Carl’s Jr. brand.
• KFC sales continued to grow to a new high
of $241.5 million despite competitive market
conditions.
• Pizza Hut and Starbucks Coffee continued
to deliver solid same store sales growth,
up 15.3% and 5.7% respectively.
• The roll out of the new Carl’s Jr. brand
commenced in earnest with six new stores
opened over the year, contributing
$12.4 million in incremental revenue and
bringing store numbers to eight.
• Total store EBITDA of $53.5 million was up
$2.0 million (+3.9%) on the prior year with a
continued strong performance by Pizza Hut
and Starbucks Coffee, together with improved
earnings from Carl’s Jr. offsetting slightly
reduced margins in KFC.
• Operating cash flows were $32.7 million,
marginally down on prior year. Investing cash
flows were $9.8 million favourable to the prior
year with the impact of property sale and
leasebacks and continued sell down of
Pizza Hut stores. As a result bank debt fell
to $8.1 million at year end.
• A final fully imputed dividend of 10.0 cents
per share will be paid on 27 June, making a
full year dividend of 16.5 cents (up 3.1% on
the previous year).
09
309.4
10
317.8
11
324.4
12
308.2
13
311.9
329.3
14
TOTAL SALES
($NZ MILLIONS)
09
101.1
10
103.0
11
111.4
12
104.9
13
111.8
14
108.3
TOTAL ASSETS
($NZ MILLIONS)
TOTAL STORE EBITDA
($NZ MILLIONS)
09
43.7
10
54.9
11
61.9
12
51.4
13
51.5
14
53.5
09
8.3
10
19.5
11
24.3
12
16.9
13
16.2
14
20.0
TOTAL NPAT
($NZ MILLIONS)
YEAR IN REVIEW
4
2014
$m
2013
$m
Change
%
Total Group Revenue 330.4 312.8 +5.6
Group Net Profit after Tax 20.0 16.2 +23.5
Dividend (cps) 16.5 16.0 +3.1
We are pleased to report on
the results for Restaurant Brands
for the 2013/14 ?nancial year
(FY14); another challenging trading
year, through which the company
persevered to deliver the second
best pro?t result in its 17 year history.
Over the FY14 year, Restaurant
Brands faced two signi?cant
challenges. The ?rst was preserving
sales growth and margin retention
in a very competitive marketplace
and soft retail environment. The
second was in establishing and
building a new brand.
CHAIRMAN’S
AND CHIEF
EXECUTIVE’S
REPORT TO
SHAREHOLDERS
Ted van Arkel
Chairman
5
Group Operating Results
Restaurant Brands Net Profit after Tax for the 52 weeks
to 24 February 2014 (FY14) was $20.0 million (20.4 cents
per share) up 23.5% on last year's profit of $16.2 million
(16.5 cents per share).
Net Profit after Tax (excluding non-trading items)
was $18.9 million (19.3 cents per share), up 6.8% on
the $17.7 million (18.0 cents per share) result in FY13.
Non-trading items primarily comprised gains on sale and
leaseback of stores and totalled $1.5 million (pre-tax)
compared with non-trading losses of $2.4 million in the
prior year.
Total store sales of $329.3 million were up $17.4 million
(+5.6%) on the previous year’s sales. Same store sales for
the group were up 2.4% (up 1.9% in FY13).
Store EBITDA (before G&A costs) was up by $2.0 million
(+3.9%) to $53.5 million, driven mainly by the continuing
strong turnaround in Pizza Hut’s results. Pizza Hut
continued to be the standout performer for the year
increasing EBITDA by $1.7 million (on top of $1.7 million in
FY13) to $5.5 million. Starbucks Coffee also delivered a
strong improvement in earnings, up 19.4% to $3.5 million
for the year with Carl’s Jr. breaking even (up $0.5 million
on FY13). KFC saw profit slip slightly by $0.7 million to
$44.5 million.
Year end store numbers at 176 were one down on
February 2013 with continuing sales of regional Pizza Hut
stores to independent franchisees, largely offset by new
builds for Carl’s Jr.
We review our individual brand performance below, but
from an overall perspective, given their varying stages of
development, we were pleased with the contribution of
each brand to the performance of the group.
KFC
2014
$m
2013
$m
Change
$m
Change
%
Sales 241.5 237.0 +4.5 +1.9
EBITDA 44.5 45.3 –0.7 –1.6
EBITDA as % of Sales 18.4 19.1 – –
KFC sales continued to climb to yet another high at
$241.5 million, up $4.5 million on the prior year. The soft
retail environment and aggressive competitor activity put
some pressure on sales during the first half, but the brand
finished strongly with +4.1% same store sales growth in
the last quarter and +0.2% for the full year (versus –1.0%
in FY13).
CHAIRMAN’S
AND CHIEF
EXECUTIVE’S
REPORT TO
SHAREHOLDERS
Russel Creedy
Chief Executive Officer
6
The transition of ownership programme continued with
six stores being sold during the year. With six stores
fewer than prior year, Pizza Hut still managed to increase
total sales by $0.5 million (+1.1%) and grew same store
sales by 15.3% (on top of 21.2% growth in the FY13 year).
Continuing improvements in sales volumes and better
operational efficiencies, together with the sale of lower
margin stores meant another excellent improvement in
earnings. EBITDA was up a further $1.7 million (44.8%) on
prior year, which was itself up $1.7 million (80.8%) on the
year before. Resulting EBITDA was $5.5 million or 11.4%
of sales (7.9% in FY13).
The sale of regional and lower volume stores to
independent franchisees proceeded at a slower pace
with only six sold over the year, leaving Restaurant
Brands with a total of 51 stores out of a total of 84 in the
market. Demand for the remaining stores continues to
be strong.
Starbucks Coffee
2014
$m
2013
$m
Change
$m
Change
%
Sales 25.0 25.1 –0.1 –0.3
EBITDA 3.5 2.9 +0.6 +19.4
EBITDA as % of Sales 14.0 11.7 – –
The Starbucks Coffee brand continued to steadily
improve its sales and profit performance with network
rationalisation now largely complete and in-store
efficiencies well established.
Whilst total Starbucks Coffee sales at $25.0 million were
flat to prior year with two less stores, same store sales
grew strongly to +5.7% (–1.7% in FY13).
Sales leverage and continuing operating efficiencies
(with some assistance from a stronger exchange rate)
saw Starbucks Coffee EBITDA increase to $3.5 million,
up 19.4% on the prior year.
There are now 27 Starbucks Coffee stores operating
following the closure of all non-performing stores and the
brand is now well positioned for consolidation and future
steady growth.
Chairman’s and Chief Executive’s report to shareholders (continued)
Meeting competitor discounting activity put some
pressure on margins with KFC producing an EBITDA of
$44.5 million, 1.6% ($0.7 million) down on prior year. As
a % of sales, brand EBITDA declined from 19.1% to 18.4%,
but improved over the year from 17.7% in the first half to
19.3% in the second.
KFC promotional activity focussed on responding to
competitor activity with the launch of the Value Menu.
In addition KFC customers enjoyed the launch of new
burger variants, including the Kentucky, the Mexican and
the Real Kahuna burgers and the new Family Meals menu.
The store transformation programme continued at a
steady pace and will pick up again in the new year as
the brand moves to fully complete the upgrade of its
entire KFC network by FY16. As at balance date KFC
had 71 of its 90 stores new or fully refurbished. Whilst
only two stores (Otahuhu and Upper Hutt) received
major upgrades, a further 21 stores saw minor (five-year)
upgrades. Total store numbers increased to 90 with the
opening of a new store at Auckland airport.
Pizza Hut
2014
$m
2013
$m
Change
$m
Change
%
Sales 48.4 47.9 +0.5 +1.1
EBITDA 5.5 3.8 +1.7 +44.8
EBITDA as % of Sales 11.4 7.9 – –
Pizza Hut had another very strong year, continuing
to deliver both sales and margin growth in a very
competitive pizza market. The brand continues to build
momentum on its underlying premise of selling quality
pizzas at an everyday competitive price and maintaining
high levels of customer service.
7
Carl’s Jr.
2014
$m
2013
$m
Change
$m
Change
%
Sales 14.3 1.9 +12.4 +662.2
EBITDA 0.0 –0.5 +0.5 –
EBITDA as % of Sales 0.0 –26.4 – –
This year saw the continuation of the roll out of the
Carl’s Jr. brand with a further six stores opening to add to
the two opened at the end of the previous financial year.
New store openings produced significant sales surges,
which have now settled back to more stable levels. Total
sales for the year were $14.3 million as Carl’s Jr. begins
to build a presence in the Restaurant Brands’ stable.
Bringing a new brand to market in a competitive
environment has been a challenge in its first full year
of operation. New store openings meant significant set
up costs, particularly in recruiting and staff training.
Moving to local sourcing of raw ingredients is taking
longer than anticipated, but some benefits began to
flow in the second half of the year. As a consequence,
Carl’s Jr. produced an EBITDA loss of $0.2 million in the
first half, but turned this around to an equivalent profit
in the second half, resulting in a breakeven position for
the full year. The brand has also seen improved labour
efficiencies and lower wastage as stores have begun to
establish stable trading patterns.
Carl’s Jr. is seen as a significant driver of potential growth
for Restaurant Brands and it is intended to aggressively
pursue both sales growth and margin improvements,
overlaid with a continuing store roll out programme.
Corporate and Other Costs
G&A (above store overheads) at $13.1 million were well
controlled. They were $0.1 million down on prior year
and on the targeted 4.0% of sales (4.2% in FY13).
Group non-trading gains of $1.5 million arose primarily
from gains on sale following the successful sale and
leaseback of two KFC stores and one Carl’s Jr. store
during the year. This compares with a $2.4 million non-
trading loss in FY13.
Depreciation charges of $14.1 million were up $0.5 million
on the prior year largely as a result of the Carl’s Jr.
new store roll out (an additional $0.8 million). Reduced
depreciation charges in Pizza Hut and Starbucks Coffee
with store disposals and closures were offset by an
incremental $0.4 million in KFC with a new store and
transformation expenditure.
Interest and funding costs at $0.8 million were flat to
prior year with continuing lower debt levels and a benign
interest rate environment. Bank interest rates (inclusive of
margins) for the year averaged 4.9% compared with 5.0%
in FY13.
Cash Flow and Balance Sheet
Operating cash flows at $32.7 million were similar to the
prior year, reflecting higher profitability but without the
same benefit of favourable working capital movements.
Investing cash outflows were $22.5 million, similar to the
prior year’s $24.2 million, reflecting the increased capital
expenditure in KFC and the cost associated with building
an additional six Carl’s Jr. stores. Investing receipts from
the sale and leaseback of three new stores and Pizza Hut
store sales, together with the last of the Christchurch
insurance proceeds contributed positive investing cash
inflows of $12.4 million (up $8.0 million on prior year)
resulting in a net cash outflow of $10.1 million
($19.8 million in FY13).
The resulting free cash flows enabled a net reduction in
borrowings of $6.5 million over the year and dividend
payments of $16.1 million. Bank debt was down to
$8.1 million at year end. Borrowings are expected to
increase over the new year as the KFC transformation
programme and Carl’s Jr. new store build programme
continues.
Our current banking facility with Westpac expires at
the end of October; hence the debt is now classified as
current on our balance sheet. It is our intention to roll
this $35 million facility over for another three years.
WE KEEP MOVING
FORWARD BECAUSE
WE HAVE PROVEN
COMPETENCIES
IN RESTAURANT
OPERATIONS
8
Total assets at year end were $108.3 million, $3.4 million
down on the prior year end. The bulk of the change was
in non-current assets, with three significant properties
on the balance sheet in FY13 sold during the year as
sale and leasebacks.
Total liabilities were down by $7.7 million to $43.7 million
largely as a result of the reduction in borrowings.
Year end shareholders’ funds of $64.7 million were
$4.3 million up on prior year because of increases
in retained earnings.
The balance sheet remains very conservative with
a gearing ratio of 11% (FY13: 19%).
Dividend
Directors have declared a final fully imputed dividend of
10.0 cents per share. The continuing strong cash flows
and low levels of debt mean that dividend levels have
been able to be increased slightly on last year’s with
the resultant full-year dividend of 16.5 cents per share
(16.0 cents in FY13).
The 10.0 cents final dividend will be paid on 27 June 2014
to all shareholders on the register as at 13 June 2014.
A supplementary dividend of 1.7647 cents per share
will also be paid to overseas shareholders on that date.
The dividend re-investment plan remains suspended
for this dividend.
Staff
Restaurant Brands continues to aspire to be an employer
of choice, having competent and well-motivated people
to deliver on our brand promises. We have instituted
continuing improvements in our people hiring, training
and development processes including continuing
enhancements of our centralised recruitment function
and developing an online training capability to deliver
a consistent training experience across and within
our brands.
We acknowledge the staff at all levels of the organisation
for their contribution, commitment and continuing
hard work.
WE KEEP
MOVING
FORWARD
BECAUSE
WE HAVE
EXCELLENT
SYSTEMS AND
SUPPORT
OPERATING CASH FLOWS
$32.7m
Chairman’s and Chief Executive’s report to shareholders (continued)
9
Board
The Restaurant Brands board is small (only four
members) and has been very stable. The board has
worked well together and with management over the
past four years. Directors are however conscious of
the need to refresh board membership and to that
end have undertaken a comprehensive search and
selection process for a new director. As a result they are
recommending to shareholders that Hamish Stevens be
elected to the board at the forthcoming shareholders’
meeting. Hamish’s details are contained in the notice of
meeting. Directors believe that this new appointment
will provide more depth to the board and allow for
subsequent rotation of members.
Our Community
Elsewhere in this report we talk about Restaurant Brands’
sense of corporate social responsibility and values. We
remain committed to doing business on a sustainable
basis and supporting our people and the communities
we serve.
Workplace safety and diversity of our workforce are two
areas of constant focus which, together with our staff
turnover, give us and our shareholders real measures of
inherent staff satisfaction.
Our contributions to the community are also seen as an
important part of our social responsibility outputs and
to that end we are particularly proud of our partnership
with Surf Lifesaving New Zealand. That worthwhile
community cause benefitted from our donations and
fundraising activities by in excess of $160,000 over the
past twelve months with World Hunger relief benefitting
by a further $60,000.
We are also pro-actively seeking to reduce our impact
on the environment with recycling and energy
conservation activities.
Outlook
Directors believe that the $18.9 million NPAT (excluding
non-trading) was a solid result for the company given
the current economic and competitive environment.
The retail sector was not particularly robust in the first
half of the year and competitive activity was aggressive.
The company met the dual challenges of both
maintaining market share and margin in a competitive
environment whilst building a new brand and Restaurant
Brands will be in a strong position to benefit from the
general economic recovery in the coming year.
KFC will see significant capital investment over the
new financial year as the brand focuses on bringing the
remainder of its network up to new store standard. With
some management changes and a renewed focus on
operational performance, the brand is expected to deliver
both sales and margin growth in the FY15 year.
Pizza Hut will continue to maintain its sales and margin
momentum with another year of solid same store
sales and earnings growth anticipated. The ownership
transition process to independent franchisees will
continue, albeit at a slower pace.
Starbucks Coffee, like Pizza Hut, continues to perform
well and is expected to also benefit from the economic
recovery with continued sales growth and (assisted by
sales leverage and a strong exchange rate) higher profit.
The investment in the Carl’s Jr. brand will continue over
the new year with four to five new stores anticipated
over the next 12 months. As with any new brand there
will be challenges in both maintaining sales momentum
following new opening peaks and building margins as
new store set up costs are incurred and the benefits of
localising supply chain and store efficiencies are realised.
With a strong start to the new financial year and
improving economic situation, we are cautiously
optimistic that the company will produce a NPAT
(before non-trading items) in excess of $20 million
for the new year.
Conclusion
This is the first time we have jointly reported to
shareholders on the company’s performance,
demonstrating the closeness with which board and
management work together. We jointly acknowledge
the contribution made by both the board of directors
and the management team to the positive outcome
for the FY14 year and thank them for their continuing
support as we move into a new financial year.
FULL YEAR DIVIDEND
UP 3.1% TO
16.5 CENTS
PER SHARE
10
It’s what you can’t see – the
support structures, the systems
and the behind-the-scenes
capability performed by highly
competent and motivated staf –
that constitutes the engine of our
growing business. Each function in
our operation is interdependent in a
uniquely efective ‘eco-system’ that
is fundamental to our continued
success. Here, we spotlight nine
of those critical functions.
Take Procurement.
A traditional view
might be that this
role is all about
negotiating with suppliers to keep costs down. But that’s
far from the whole story. As Procurement Manager Sean
McRae puts it, “the role is about adding value to the
business and to customers.”
So let’s say Marketing comes up with a great idea for a
new, temporary menu item (called an LTO or limited time
offer). And let’s also say that unknown to Marketing, one
of the ingredients would make the item too
expensive to be competitive. Is that the
end of Marketing’s great idea?
No way! says Sean. “We have lots of ways to bring the
cost down without compromising quality. We might
negotiate specific business deals with certain suppliers,
say. Or we might suggest a variation on the item using a
different ingredient. However we do it, our work allows
our marketers to present attractive, innovative offers to
our customers.”
It also allows the Operations department to keep the
business running. Every day, Restaurant Brands stores
go through thousands of items of ingredients, packaging
and other supplies, many of them perishable. “In this
business, even the best laid plans can go awry, and we
have to be able to respond quickly,” says Sean. “That
means we need to negotiate enough flexibility in our
supplier deals so we can speed up or slow down any
part of the supply chain as needed.”
As you can imagine, keeping food
at its best is critical to Restaurant
Brands’ success. That complex
task falls mainly to our Quality
Assurance team.
"There are many aspects of Quality Assurance,” says
Quality Assurance Manager Zane Marshall. “First, we
have to make sure that the products our suppliers deliver
to us actually meet our specifications. That includes
temperature control and ingredient purity, but also
covers things like the dimensions of buns. Customers
expect a consistent experience every time they order
a product from us.”
Compliance is another big part of the
job. Because some of our ingredients
are imported, Restaurant Brands
must meet stringent import
requirements as well as council
THE DRIVE TO
WIN COMES
FROM WITHIN
Quality Assurance
I have thousands of photos of
products and ingredients on
my smart phone. We’re always
looking for the best possible
product from our suppliers.
Zane Marshall
Quality Assurance Manager
Procurement
Our work allows our marketers
to present attractive, innovative
offers to our customers.
Sean McRae
Procurement Manager
QUALITY
ASSURANCE
PROCUREMENT
11
gradings for each store. Our suppliers, too, must be
regularly audited and, in some cases, be independently
accredited.
Quality Assurance is about both health – making sure
every mouthful of our food is safe to eat – and also
pleasure. “I have thousands of photos of products and
ingredients on my smart phone,” says Zane, “because
we’re always looking for the best possible product from
our suppliers.”
But what about once the product reaches the store?
How it’s subsequently handled and cooked has a massive
impact on its quality by the time it reaches the customer.
Coupled with
Restaurant Brands’
stringent Food Control
Plan, the result is “a
lot of quality control,”
says Heather Carnegie, Health, Safety & Environment
(HS&E) Manager.
“One of our strengths,” says Heather, “is the orientation
and induction programme that every new staff member
completes, covering general safety, hazard management,
injury prevention, team work, customer service and
food safety.”
The HS&E team is also responsible, of course, for
“making sure we send people home in the same condition
that they arrived at work in.” We achieve that by a
combination of team work and training to ensure a
safe work environment.
For example, “when we reviewed the standard
educational videos and brochures that
showed lifting, we concluded the material
was not appropriate for our environment,” says Heather.
“So we worked with experts to design our own material,
and have trained 400 staff in the correct techniques. In
the six months since, not one has suffered a lifting injury.”
At Restaurant Brands we regularly develop our own
bespoke equipment to minimise risk, like the long-
handled lifting tool that allows staff to remove items
from the oven safely.
Thanks to such initiatives, Restaurant Brands has been
steadily reducing ACC claims and severity for the last
ten years, and the current lost time injury rate continues
to fall.
Of course that wouldn’t happen if we didn’t have people
who value safety. Ensuring we choose the right people,
and do so fairly, is the job of the Recruitment Centre team.
“Our business is all about people,” says Recruitment
Centre Manager Kristy Evans. “Profits will come if they’re
taken care of.”
In 2012, recruitment
was centralised after
many years of being
handled separately
by each store. “We want to ensure Restaurant Brands
follows international best practice recruitment and
selection processes and that we attract the best quality
candidates,” says Kristy. “Stores tell us they’re noticing
that they’re getting better people.”
One result is a better customer experience. “We want
to make sure every customer is a returning customer,”
says Kristy. “That means we need the right people
who care about the brand. We want to bring life
and energy to each customer experience.”
Health, Safety & Environment
We recently trained 400 staff in
correct lifting techniques. In the
six months since then, not one of
them has suffered a lifting injury.
Heather Carnegie
HS&E Manager
HEALTH, SAFETY &
ENVIRONMENT
RECRUITMENT
Recruitment
Our business is all about
people. Profits will come
if they’re taken care of.
Kristy Evans
Recruitment Centre Manager
12
The drive to win comes from within (continued)
While customers always notice good service, one aspect
of our business we hope they don’t notice is the systems
that run in the background.
Ensuring they run smoothly and
seamlessly is the Information
Systems Service Delivery team.
“One of our most important
measures is speed of customer
service,” says team leader Dean Boock. “You’d be
surprised at some of the issues that can arise. For
example, if our Internet Service Provider suffers a data
outage, that can interrupt our EFTPOS, even though
our own systems are not directly affected.”
One key to success is constantly updating the software
that runs everything. Another is improved monitoring –
an area Dean’s team has focused on in the last 12 months.
“We used to solve a lot of problems after the fact,” he
says. “Now we anticipate them much more and resolve
them before they occur or, if they happen overnight,
before the stores open.”
Another team member whose job includes anticipating
the unexpected is Project Manager Mark Erceg. Every
time a new Restaurant Brands store goes up, or one is
refurbished, the Project Manager’s signature is all over it.
“This role is all about the design and build of our stores,”
says Mark. “One of the challenges is anticipating changes
that lie years ahead, and that might call for a radically
different store layout.”
For that reason, modern stores are built from materials
that are easily dismantled or reworked. “Not concrete
slabs,” says Mark. “You can’t cut a hole in that!”
The launch of Carl’s Jr. has
kept the Project Management
crew especially busy.
“We had to learn the brand
and its design criteria,” says Mark. “Then we negotiated
with the American franchise owners to put our own
New Zealand ‘tag’ on the design, so the stores would
appeal to the local market.
“Ultimately, our job is to hand over a store on time and on
budget – and one that Operations can successfully run.”
Once a store is opened, we can’t assume people will
automatically flock to it. Marketing plays a critical role
in encouraging hungry people to think of Restaurant
Brands first, and the role of digital marketing, in
particular, is increasing by the day.
“People automatically think Facebook when you say
‘digital marketing’, but it’s much more than that,” says
Digital Marketing Manager Luke Smith. “Website
maintenance, digital advertising, gathering brand and
product insights and tracking industry trends are all key.
Digital is ever changing and demands constant attention
in order to keep your finger on the pulse.
“Marketing has changed
dramatically in the last few
years. Now we can spot
problems and opportunities
quickly – we can launch a new menu item, say, and see
that people want more sauce on it. In terms of online
presence in New Zealand all four of our brands are in
the top 50 by number of fans, with KFC in particular
sitting in third place and we’re committed to using digital
marketing to keep customers returning.”
The final two pieces of the business, Loss Prevention and
Finance, are critical to Restaurant Brands’ profitability.
Doug Rawson, our Loss Prevention Officer, uses an
analogy: “Every time money passes from one hand to
another, it’s like passing sand – some’s going to get lost.
Our job is to minimise that loss.”
Property
Ultimately, our job is to hand over
a store on time and on budget
– and one that Operations can
successfully run.
Mark Erceg
Project Manager
Information Systems
Speed of customer service is critical.
For that reason, we’re anticipating
problems much more than we used to,
and resolving them before they occur.
Dean Boock
Service Delivery Manager
PROPERTY
MARKETING
INFORMATION
SYSTEMS
13
a store, brand and group level,” says Deb, “so that
management has the information they need to make
sound financial decisions.
“How you present that information is important. My main
‘customers’ are the senior leadership team and the store
managers. They count on us to not only provide historical
information and manage financial risk but also highlight
cost saving opportunities so our stores can perform at
their best – it's all about continuous improvement.”
So there you have it. Next time you walk up to the
counter at a KFC, Starbucks Coffee, Carl’s Jr. or Pizza
Hut store and are greeted by one of our efficient, friendly
crew, imagine if you will a long line of support crew
stretched out behind her. Picture each one performing
a specific task, and see those tasks combining in such
a way that they result in her handing you a hot, tasty
beverage, or a delicious meal, as though it’s the simplest
and easiest thing in the world.
That’s the power of teamwork. And it’s what will ensure
the continued growth and success of our company.
WE KEEP
MOVING
FORWARD
BECAUSE OUR
PEOPLE ARE
MOTIVATED
AND CAPABLE
Marketing
People automatically think
Facebook when you say
‘digital marketing’, but it’s
much more than that.
Luke Smith
Digital Marketing Manager
Loss Prevention
Every time money passes from one
hand to another, it’s like passing
sand – some’s going to get lost.
Our job is to minimise that loss.
Doug Rawson
Loss Prevention Officer
Loss Prevention and Finance serve both
the Restaurant Brands’ board and the
stores. “We’re seen as a support role,” says
Doug, “not as the police. We coach our
store partners on how to implement and
operate systems that prevent loss or fraud. A common
comment from store managers after we’ve coached
them is ‘I can now see what’s happening in the store’.”
One of the most useful tools to Loss Prevention is each
store’s Profit & Loss statement. “Whenever there’s a
significant variation in the trading results for any store,
that’s a sign that something’s amiss: it could be the cost
of labour, excess wastage, too many refunds or, in rare
cases, fraud,” says Doug.
To get that information, Loss
Prevention relies on Finance.
Deb Aston, who prepares the
Profit & Loss statements and
Balance Sheets for the stores and company, says the role
reaches further than people might think. “Ultimately, our
job is to help the stores do their job well – deliver great
products and great service.”
That’s a complex task. It includes reviewing contracts,
budgets and internal processes, as well as regularly
reviewing financial data. “We look at those things from
FINANCE
LOSS
PREVENTION
Finance
Ultimately, our job is to help
the stores do their job well –
deliver great products and
great service.
Deb Aston
Assistant Accountant
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14
For KFC the FY14 ?nancial year was
a challenging one. A persistently
soft retail environment and
continued aggressive price driven
competitor activity meant that same
store sales were ?at to negative
for much of the year. Same store
sales by quarter were Q1 –0.9%,
Q2 +0.4%, Q3 –2.7% and it wasn’t
until the fourth quarter that the
brand saw a solid turnaround
with sales up +4.1%. Nonetheless,
KFC ?nished the year with overall
positive same store sales of +0.2%
(FY13 –1.0%) and total sales climbed
to a new high for the brand at
$241.5 million, up 1.9% on prior year.
SALES NEW HIGH
$241.5m
KFC
15
Total sales growth was assisted by the opening of a new
store at Auckland airport bringing total store numbers to
90 for the brand.
Brand EBITDA at $44.5 million was slightly down on prior
year mainly because of the competitive discounting activity
required to meet the market. Earnings improved however, as
the year progressed. EBITDA as a % of sales was 17.7% in the
first half, climbing to 19.3% in the second, to give a total of
18.4% for the full year.
A number of new burger launches assisted in driving
sales with the Kentucky, the Mexican and the Real Kahuna
burgers all seeing strong customer acceptance. Over the
year KFC also launched a new Family Meals menu which
assisted in driving bigger ticket sales.
The pace of store transformation steadied over FY14
with two major transformations being undertaken at the
Otahuhu and Upper Hutt stores. However a total of 21 five
year upgrades were undertaken on existing transformed
stores, topping up the standard of facilities on an ongoing
basis. Store numbers also increased with the opening of a
new store at Auckland airport. Of the brand's 90 stores,
at balance date, 71 were new or fully refurbished.
Despite the tighter trading environment KFC continued to
build on improving customer experience. CHAMPS mystery
shopper programme scores were 90%, similar to the prior
year’s 91%.
Staff turnover continued to steadily improve with the brand
finishing the year at 49%, a solid improvement on last
year’s 57% as the benefits of the new centralised recruiting
function continue to flow through.
The brand saw a higher level of focus on reducing accidents
in stores with total claims down to 147 for the year; however
16 lost time injuries per million hours were much the same as
the prior year’s 15.
As the FY15 year begins, KFC has seen continued sales
momentum, which (as discounting pressures decrease
and the retail environment improves) will continue to
enhance margins, moving the brand closer to its EBITDA
target of 19-20% of sales. KFC will also accelerate its store
transformation programme over the current year, targeting
up to 10 major transformations, with a view to completing
the major transformation programme by the end of the
FY16 year.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
2,249
STORES
90 (+8 INDEPENDENT FRANCHISES)
09 10 11 12 13 14
241.5
09 10 11 12 13 14
44.5
09 10 11 12 13 14
64.0
16
The Pizza Hut brand had another
very good year, delivering continued
strong sales and margin growth in
the very competitive pizza sector.
The formula of providing quality
pizzas at a competitive everyday
price and good levels of customer
service continues to produce
positive results.
SAME STORE SALES
UP 15.3%
PIZZA HUT
17
Despite having store numbers six (10.5%) less than last
year as a result of the sell down programme, Pizza Hut
still managed to increase total sales out of the remaining
stores by $0.5 million (+1.1%) and grew same store sales by a
respectable 15.3% (on top of 21.2% growth in the prior year).
Margin growth followed accordingly with continuing sales
leverage and operational efficiencies, together with the
benefits of selling off some lower margin stores. Brand
EBITDA of $5.5 million was up $1.7 million (44.8%) on prior
year, on top of the $1.7 million increase in FY13. As a % of
sales Pizza Hut EBITDA finished the year at 11.4%, up from
7.9% in the prior year.
Customer service levels as measured by the CHAMPS
mystery shopper scores slipped slightly to 91% (versus 96%
in the prior year and 91% the year before). However the
trend was positive with scores in the latter part of the
year at similar levels to the prior year.
The measure of internal store operational compliance (CER
score) was 77% for the year (73% in FY13). This measure,
which is significant in determining the operating efficiencies
and food quality in our stores, has seen a consistent
improvement over recent times.
Staff turnover was 55%, slightly up on the prior year’s
54%, but was in part a reflection of the continued store
sell down process.
Pizza Hut saw a decrease in total accident claims as the
brand made a conscious effort to improve staff safety.
However lost time injuries per million hours saw a small
increase from three to five.
Six more stores were sold to independent franchisees over
the year as the brand continued to pursue the strategy of
exiting regional and lower volume stores. Whilst interest
in buying Pizza Hut stores continues to be very high, the
pace of selling has slowed with the improved profitability
of the brand meaning higher prices being sought for stores.
Company owned stores had dropped to 51 by the end of the
year, out of a total of 84 in the market.
Pizza Hut has seen a continuation of the strong sales and
margin performance into the FY15 financial year and is
expected to deliver another solid result (although not at the
incremental levels seen in the past two years). There will be
continued sales of stores to independent franchisees as and
when opportunities present.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
790
STORES
51 (+33 INDEPENDENT FRANCHISES)
09 10 11 12 13 14
48.4
09 10 11 12 13 14
5.5
09 10 11 12 13 14
14.8
OPENED
6 NEW
STORES
18
Following the opening of the
?rst two stores at the end of last
year, the Carl’s Jr. new store roll
out began in earnest in the FY14
year with a total of six new stores
opening over the period, bringing
total store numbers at year end
to eight.
CARL'S JR.
19
The incremental store numbers provided a significant boost
to total sales with Carl’s Jr. generating $14.3 million in total
sales for the year.
New store openings produced significant sales surges,
which have now settled back to more stable levels.
Building profitability in this new business has been a
challenge in its first full year of operation with new store
openings incurring significant set up costs, particularly
in recruiting and training staff. Local sourcing of raw
ingredients such as beef patties took somewhat longer than
anticipated, but some benefits began to flow in the second
half of the year. As a consequence, Carl’s Jr. produced an
EBITDA loss of $0.2 million in the first half, but turned this
around to an equivalent profit in the second half.
Margins have continued to improve further with lower
ingredient costs. The brand has seen improved labour
efficiencies and lower wastage as stores have begun to
establish more stable trading patterns.
With the disruption and initial pressure in establishing a
new brand, staff turnover was slightly higher than desirable
at 60%, but this is expected to settle down as the business
gains more stability.
Again as a function of establishment and staff training and
learning, accident levels were higher than desirable with 11
claims incurred over the year.
The new financial year will see the Carl’s Jr. brand gaining
further momentum with another four to five stores targeted
for opening, bringing total stores operating in New Zealand
to more than 20. This will both provide more critical mass
for wider advertising of the brand, together with increasing
economies of scale from a supply chain and staff training
viewpoint. This together with the progressive move to full
local ingredient sourcing is expected to deliver positive
EBITDA in the FY15 year.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
271
STORES
8 (+7 INDEPENDENT FRANCHISES)
13 14
14.4
13 14
0.0
13 14
14.3
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© 2014 Starbucks Coffee Company. All rights reserved. Printed in New Zealand.
20
SAME STORE SALES
UP 5.7%
STARBUCKS COFFEE
21
09 10 11 12 13 14
25.0
09 10 11 12 13 14
3.5
09 10 11 12 13 14
4.0
The Starbucks Cofee brand had
a strong year, following a year of
consolidation. Same store sales
grew +5.7% (versus –1.7% in FY13)
with total sales largely ?at at
$25.0 million.
The Starbucks Coffee business has now matured and
established itself in a niche position among branded chains
in the New Zealand coffee marketplace. With increasingly
good standards of customer service and a quality coffee
and food offering, Starbucks Coffee proved itself by winning
the prestigious Roy Morgan Customer Satisfaction Award
for the second year in a row. This award which is voted on
by consumers throughout the country ranked Starbucks
as “Coffee Shop” of the year against the full range of other
branded coffee chains.
With the improving same store sales and the completion
of rationalisation, earnings were up $0.6 million or 19.4%
to produce a $3.5 million EBITDA. The profit was further
assisted by continuing operating efficiencies and a stronger
exchange rate.
Store numbers at year end totalled 27, two down on
last year with two closures over the year. The network
rationalisation for the brand is now largely complete
with all stores now contributing positive margins.
Staff (or partner) turnover at 66% was down on last year’s
70% as a result of the benefits of centralised recruitment.
Accident levels improved with a reduction in total claims
from 15 to 9, but lost time claims per million hours were
three versus two in the previous year.
After a period of some uncertainty and rationalisation,
the Starbucks Coffee brand is now in a stable position
for steady growth. It is expected to deliver same store
sales growth over the coming year whilst holding
margin. There will be some capital reinvestment
in store refurbishment and a point of sale
systems upgrade.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
314
STORES
27 (+NIL INDEPENDENT FRANCHISES)
22
Ted van Arkel
FNZIM
Chairman and Independent
Non-Executive Director
Term of Office: Appointed Director
24 September 2004 and appointed
Chairman 21 July 2006, last re-elected
2011 Annual Meeting
Board Committees: Member of
the Audit and Risk Committee and
Appointments and Remuneration
Committee
Mr van Arkel has been a professional
director since retiring from the
position of Managing Director of
Progressive Enterprises Limited
in November 2004. Mr van Arkel
currently serves as Chairman of
Health Benefits Limited and The
Warehouse Group Limited. Other NZX
listed company directorships are AWF
Group Limited and Abano Healthcare
Group Limited. He is also a director
of the Auckland Regional Chamber
of Commerce & Industry Limited.
Mr van Arkel also serves as a director
of a number of private companies
including Philip Yates Securities
Limited, Danske Mobler Limited and
his family-owned companies Lang
Properties Limited and Van Arkel &
Co Limited.
WE KEEP MOVING
FORWARD BECAUSE
WE HAVE STRONG
DIRECTION
BOARD OF DIRECTORS
23
David A Pilkington
BSC, BE(CHEM), DIP DAIRY SCI & TECH
Independent Non-Executive Director
Term of Office: Appointed Director
15 July 2004, last re-elected 2013
Annual Meeting
Board Committees: Chairman
of the Audit and Risk Committee
and Member of Appointments and
Remuneration Committee
The former Managing Director
of New Zealand Milk Limited,
Mr Pilkington is Chairman of
Port of Tauranga Limited,
Rangatira Limited and its subsidiaries
Hellers Limited and Tuatara Brewing
Company Limited. He is also a
director of Ballance Agri-Nutrients
Limited, Zespri Group Limited,
Douglas Pharmaceuticals Limited,
Northport Limited and Primeport
Timaru Limited. Mr Pilkington is also
a shareholder and director of his
own consulting company, Excelsa
Associates Limited and a trustee for
the New Zealand Community Trust.
Sue H Suckling
B.TECH (HONS), M.TECH (HONS), OBE
Independent Non-Executive Director
Term of Office: Appointed Director
9 June 2006, last re-elected 2010
Annual Meeting
Board Committees: Chairman of the
Appointments and Remuneration
Committee and Member of Audit and
Risk Committee
Ms Suckling is a professional director
with over 20 years governance
experience with public and private
companies. She is currently Chairman
of the New Zealand Qualifications
Authority, Barker Fruit Processors
Limited, ECL Group Limited, Jacobsen
Holdings Limited and Callaghan
Innovation Research Limited and
its subsidiaries. She is a director of
Oxford Health Group Limited, Oxford
Clinic Hospital Limited, SKYCITY
Entertainment Group Limited, New
Zealand Health Innovation Hub and
Acemark Holdings Limited. She
also serves as a member of the
Takeovers Panel.
Danny Diab
FAICD, DIP CD, DIP CM, FICM
Non-Executive Director
Term of Office: Appointed Director
17 October 2002, last re-elected 2012
Annual Meeting
Board Committees: Member of
the Audit and Risk Committee and
Appointments and Remuneration
Committee
Mr Diab is based in Australia where
he owns and operates a number of
Pizza Hut restaurants in Sydney in
addition to other business interests.
He has more than 27 years’ experience
in the food industry and is regarded
as one of the leading Pizza Hut
franchisees in Australia. He has
worked as a consultant specialising
in the areas of business improvement
and restructure, mergers and
acquisitions. He is a director of the
Pizza Advertising Co-Operative
Australia and Vice President of
the Australian Pizza Association.
24
Our vision is to be the leading
operator of enduring and innovative
QSR brands in New Zealand. That’s
why we’re committed to doing
business guided by principles of
sustainability. These principles help
form our menus and management
practices; our people and the way
we contribute to the communities
we serve.
Four interdependent elements – People, Food, Planet and
Progress – sustain the health and vitality of our company.
This section of the Annual Report outlines our Corporate
Social Responsibility KPIs for the financial year in relation
to each of these elements.
People
Restaurant Brands depends on the support of Kiwi
consumers and partnerships with employees, suppliers,
franchisees and investors. We employ 3,691 people aged
from 16–70 nationwide and serve over 60,000 customers
every day. We:
• Offer competitive remuneration to attract and retain
skilled employees and maintain our position not to
reintroduce youth rates.
• Invest in our people through training and education
programmes across all our brands and provide a clear
career path for talented employees.
• Are an equal opportunity employer and embrace
the diversity of the communities that we operate in.
• Continue our involvement with charitable and
community organisations and review our efforts on
an ongoing basis to ensure they remain relevant and
valuable to the communities we serve.
COMMUNITY
SPIRITED,
SUSTAINABLY
PRINCIPLED
25
Food
Restaurant Brands serves great tasting, safe food with
seasonally and locally sourced ingredients. We:
• Continue to make improvements to the nutritional
composition of our food with a focus on sodium, sugar
and saturated fat reduction.
• Provide detailed nutritional information about our
products in-store and online to enable our customers
to make informed choices.
• Support our trusted local suppliers as part of our
ethical purchasing and procurement.
Planet
Restaurant Brands is conscious of the impact its
operations has on the environment and we are always
working to minimise waste, maximise energy efficiency
and use resources carefully. We:
• Source all packaging from sustainable timbers
with the majority grown locally.
• Continue with initiatives that see all cardboard
and paper collected for recycling and cooking oil
reprocessed for bio-diesel and soap.
• Actively participate in energy saving initiatives
including monitoring live power usage in our stores
to reduce peak load and encourage employees to
turn off equipment when it’s not in use.
WE KEEP
MOVING
FORWARD
BECAUSE
WE ALWAYS
REMEMBER WE
ARE PART OF
THE COMMUNITY
CUSTOMERS SERVED EVERY DAY
OVER 60,000
26
Community spirited, sustainably principled (continued)
CSR Performance Measures
Category Measure FY2014
Workplace Safety Number of Workplace Lost Time
Incidents in Past 365 days
51
Number of Lost Workdays from Injury
in Past 365 Days
167
Staff Satisfaction Staff Turnover (as a % of Average Total
Staff on a Rolling Annual Basis)
52%
Gender Diversity % of Women Employed at All Levels 52%
Community Total Funds raised for Charitable and
Community Organisations
$240,000
Recycling % of Cardboard and Paper Waste from
Back of House Operations Recycled
100%
% of Oil from Back of House
Operations Recycled
100%
Energy Conservation Kilowatts of energy used in electricity
and gas per $ million of sales (excluding
Restaurant Brands Support Centre)
141,000 KW
More Information
A full copy of our CSR Statement can be found on our website www.restaurantbrands.co.nz
27
$NZ000's 24 February 2014 vs prior % 28 February 2013
Sales
KFC 241,521 1.9 237,032
Pizza Hut 48,393 1.1 47,876
Starbucks Coffee 25,041 (0.3) 25,115
Carl’s Jr. 14,314 662.2 1,878
Total sales 329,269 5.6 311,901
Other revenue 1,130 23.9 912
Total operating revenue 330,399 5.6 312,813
Cost of goods sold (273,493) (6.0) (258,081)
Gross margin 56,906 4.0 54,732
Distribution expenses (2,464) 7.8 (2,672)
Marketing expenses (14,656) (6.9) (13,716)
General and administration expenses (13,088) 0.9 (13,203)
EBIT before non-trading 26,698 6.2 25,141
Non-trading 1,472 161.2 (2,405)
EBIT 28,170 23.9 22,736
Interest income 19 46.2 13
Interest expense (774) 9.0 (851)
Net profit before taxation 27,415 25.2 21,898
Taxation expense (7,462) (30.0) (5,739)
Total profit after taxation (NPAT) 19,953 23.5 16,159
Total NPAT excluding non-trading 18,863 6.8 17,654
% sales % sales
EBITDA before G&A
KFC 44,529 18.4 (1.6) 45,272 19.1
Pizza Hut 5,496 11.4 44.8 3,796 7.9
Starbucks Coffee 3,498 14.0 19.4 2,929 11.7
Carl’s Jr. 4 – n/a (495) (26.4)
Total 53,527 16.3 3.9 51,502 16.5
Ratios
Net tangible assets per security (net tangible
assets divided by number of shares) in cents 47.2c 42.5c
Cost of goods sold are direct costs of operating stores: food, paper, freight, labour and store overheads.
Distribution expenses are costs of distributing product from store.
Marketing expenses are call centre, advertising and local store marketing expenses.
General and administration expenses (G&A) are non-store related overheads.
CONSOLIDATED INCOME STATEMENT
for the 52 week period ended 24 February 2014
28
* Refers to the list of non-GAAP measures as listed above.
** Refer to Note 5 of the financial statements for an analysis of non-trading items.
The Group results are prepared in accordance with New Zealand Generally Accepted Accounting Practice (“GAAP”) and
comply with International Financial Reporting Standards (“IFRS”). These financial statements include non-GAAP financial
measures that are not prepared in accordance with IFRS. The non-GAAP financial measures used in this presentation are
as follows:
1. EBITDA before G&A. The Group calculates Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”)
before G&A (general and administration expenses) by taking net profit before taxation and adding back (or deducting)
net financing expenses, non-trading items, depreciation, amortisation and G&A. The Group also refers to this measure
as Concept EBITDA before G&A.
The term Concept refers to the Group’s four operating segments comprising KFC, Pizza Hut, Starbucks Coffee and
Carl’s Jr. The term G&A represents non-store related overheads.
2. EBIT before non-trading. Earnings before interest and taxation (“EBIT”) before non-trading is calculated by taking net
profit before taxation and adding back (or deducting) net financing expenses and non-trading items.
3. Non-trading items. Non-trading items represent amounts the Group considers unrelated to the day to day operational
performance of the Group. Excluding non-trading items enables the Group to measure underlying trends of the
business and monitor performance.
4. EBIT after non-trading items. The Group calculates EBIT after non-trading items by taking net profit before taxation
and adding back net financing expenses.
5. Total NPAT excluding non-trading. Total Net Profit After Taxation (“NPAT”) excluding non-trading items is calculated
by taking profit after taxation attributable to shareholders and adding back (or deducting) non-trading items whilst
also allowing for any tax impact of those items.
6. Capital expenditure including intangibles. Capital expenditure including intangibles represents additions to property,
plant and equipment and intangible assets.
The Group believes that these non-GAAP measures provide useful information to readers to assist in the understanding
of the financial performance and position of the Group but that they should not be viewed in isolation, nor considered as
a substitute for measures reported in accordance with IFRS. Non-GAAP measures as reported by the Group may not be
comparable to similarly titled amounts reported by other companies.
The following is a reconciliation between these non-GAAP measures and net profit after taxation:
$NZ000’s Note* 24 February 2014 28 February 2013
EBITDA before G&A 1 53,527 51,502
Depreciation (14,114) (13,573)
Loss on sale of property, plant and equipment (included in depreciation) (51) (62)
Amortisation (included in cost of sales) (1,432) (1,068)
General and administration – area managers, general managers and
support centre (11,232) (11,658)
EBIT before non-trading 2 26,698 25,141
Non-trading items** 3 1,472 (2,405)
EBIT after non-trading items 4 28,170 22,736
Net financing costs (755) (838)
Net profit before taxation 27,415 21,898
Income tax expense (7,462) (5,739)
Net profit after taxation 19,953 16,159
(Deduct)/add back non-trading items (1,472) 2,405
Taxation expense/(credit) on non-trading items 382 (910)
Net profit after taxation excluding non-trading items 5 18,863 17,654
NON-GAAP FINANCIAL MEASURES
for the 52 week period ended 24 February 2014
29
For and on behalf of the Board of Directors:
E K van Arkel
Chairman
9 April 2014
THE DIRECTORS ARE
PLEASED TO PRESENT THE
FINANCIAL STATEMENTS
OF RESTAURANT BRANDS
NEW ZEALAND LIMITED
FOR THE 52 WEEK PERIOD
ENDED 24 FEBRUARY 2014
CONTAINED ON PAGES
30 TO 63.
D A Pilkington
Director
9 April 2014
Group Company
$NZ000’s Note 2014 2013 2014 2013
Store sales revenue 3 329,269 311,901 – –
Other revenue 3, 4 1,130 912 16,158 15,652
Total operating revenue 330,399 312,813 16,158 15,652
Cost of goods sold (273,493) (258,081) – –
Gross profit 56,906 54,732 16,158 15,652
Distribution expenses (2,464) (2,672) – –
Marketing expenses (14,656) (13,716) – –
General and administration expenses (13,088) (13,203) – –
EBIT before non-trading 26,698 25,141 16,158 15,652
Non-trading 5 1,472 (2,405) – –
Earnings before interest and taxation (EBIT) 3 28,170 22,736 16,158 15,652
Interest revenue 19 13 – –
Interest expense (774) (851) (733) (818)
Net financing expenses 5 (755) (838) (733) (818)
Profit before taxation 27,415 21,898 15,425 14,834
Taxation (expense)/credit 6 (7,462) (5,739) 205 229
Profit after taxation attributable to shareholders 19,953 16,159 15,630 15,063
Items that may be reclassified subsequently to the statement
of comprehensive income – – – –
Total comprehensive income attributable to shareholders 19,953 16,159 15,630 15,063
Basic earnings per share (cents) 18 20.39 16.52
Diluted earnings per share (cents) 18 20.39 16.51
The accompanying accounting policies and notes form an integral part of the financial statements.
30
Statements of comprehensive income
for the 52 week period ended 24 February 2014
GROUP NET PROFIT AFTER TAX
UP 23.5%
The accompanying accounting policies and notes form an integral part of the financial statements.
Group $NZ000’s Note
Share
capital
Share
option
reserve
Foreign
currency
translation
reserve
Retained
earnings Total
For the 52 week period ended 28 February 2013
Balance at the beginning of the period 17 26,648 28 53 33,024 59,753
Comprehensive income
Total profit after taxation attributable
to shareholders – – – 16,159 16,159
Other comprehensive income – – – – –
Total comprehensive income – – – 16,159 16,159
Transactions with owners
Shares issued on exercise of options 17 75 (2) – – 73
Net dividends distributed 16 – – – (15,653) (15,653)
Total transactions with owners 75 (2) – (15,653) (15,580)
Balance at the end of the period 15, 17 26,723 26 53 33,530 60,332
For the 52 week period ended 24 February 2014
Balance at the beginning of the period 26,723 26 53 33,530 60,332
Comprehensive income
Total profit after taxation attributable
to shareholders – – – 19,953 19,953
Other comprehensive income – – – – –
Total comprehensive income – – – 19,953 19,953
Transactions with owners
Shares issued on exercise of options 17 33 (4) – – 29
Transfer for share options lapsed – (22) – 22 –
Net dividends distributed 16 – – – (15,658) (15,658)
Total transactions with owners 33 (26) – (15,636) (15,629)
Balance at the end of the period 15, 17 26,756 – 53 37,847 64,656
31
Statements of changes in equity
for the 52 week period ended 24 February 2014
The accompanying accounting policies and notes form an integral part of the financial statements.
Company $NZ000’s Note
Share
capital
Share
option
reserve
Retained
de?cit Total
For the 52 week period ended 28 February 2013
Balance at the beginning of the period 17 26,648 28 (24,879) 1,797
Comprehensive income
Profit after taxation attributable to shareholders – – 15,063 15,063
Other comprehensive income – – – –
Total comprehensive income – – 15,063 15,063
Transactions with owners
Shares issued on exercise of options 17 75 (2) – 73
Net dividends distributed 16 – – (15,653) (15,653)
Total transactions with owners 75 (2) (15,653) (15,580)
Balance at the end of the period 15, 17 26,723 26 (25,469) 1,280
For the 52 week period ended 24 February 2014
Balance at the beginning of the period 26,723 26 (25,469) 1,280
Comprehensive income
Profit after taxation attributable to shareholders – – 15,630 15,630
Other comprehensive income – – – –
Total comprehensive income – – 15,630 15,630
Transactions with owners
Shares issued on exercise of options 17 33 (4) – 29
Transfer for share options lapsed – (22) 22 –
Net dividends distributed 16 – – (15,658) (15,658)
Total transactions with owners 33 (26) (15,636) (15,629)
Balance at the end of the period 15, 17 26,756 – (25,475) 1,281
32
Statements of changes in equity (continued)
for the 52 week period ended 24 February 2014
The accompanying accounting policies and notes form an integral part of the financial statements.
Group Company
$NZ000’s Note 2014 2013 2014 2013
Non-current assets
Property, plant and equipment 7 80,231 85,651 – –
Investments in subsidiaries 9 – – 150,396 150,396
Intangible assets 8 18,424 18,785 – –
Deferred tax asset 10 3,223 2,570 – –
Total non-current assets 101,878 107,006 150,396 150,396
Current assets
Inventories 11 1,587 1,776 – –
Other receivables 12 1,750 2,180 – –
Cash and cash equivalents 770 798 – 10
Assets classified as held for sale 13 2,353 – – –
Total current assets 6,460 4,754 – 10
Total assets 108,338 111,760 150,396 150,406
Equity attributable to shareholders
Share capital 17 26,756 26,723 26,756 26,723
Reserves 53 79 – 26
Retained earnings/(deficit) 37,847 33,530 (25,475) (25,469)
Total equity attributable to shareholders 64,656 60,332 1,281 1,280
Non-current liabilities
Provisions and deferred income 21 4,439 5,333 – –
Loans and finance leases 19 131 14,783 – 14,555
Total non-current liabilities 4,570 20,116 – 14,555
Current liabilities
Bank overdraft – – 903 –
Income tax payable 2,726 2,475 – –
Loans and finance leases 19 8,206 116 8,060 –
Creditors and accruals 20 26,595 26,445 116 116
Provisions and deferred income 21 1,579 2,090 – –
Amounts payable to subsidiary companies 27 – – 140,030 134,269
Derivative financial instruments 14 6 186 6 186
Total current liabilities 39,112 31,312 149,115 134,571
Total liabilities 43,682 51,428 149,115 149,126
Total equity and liabilities 108,338 111,760 150,396 150,406
33
Statements of fnancial position
as at 24 February 2014
BANK DEBT DOWN TO
$8.1m
The accompanying accounting policies and notes form an integral part of the financial statements.
Group Company
$NZ000’s Note 2014 2013 2014 2013
Cash flows from operating activities
Cash was provided by/(applied to):
Receipts from customers 330,399 312,813 – –
Payments to suppliers and employees (289,373) (271,923) – –
Dividends received – – 16,158 15,652
Interest received 19 13 – –
Interest paid (955) (899) (913) (868)
(Payment)/receipt of income tax (7,438) (5,239) 631 545
Net cash from operating activities 24 32,652 34,765 15,876 15,329
Cash flows from investing activities
Cash was provided by/(applied to):
Payment for intangibles 8 (1,841) (1,781) – –
Purchase of property, plant and equipment (20,620) (22,406) – –
Proceeds from disposal of property, plant and equipment 12,398 4,355 – –
Advances from/(to) subsidiary company – – 5,761 (276)
Net cash (used in)/from investing activities (10,063) (19,832) 5,761 (276)
Cash flows from financing activities
Cash was provided by/(applied to):
Cash received on the exercise of options 29 73 29 73
(Decrease)/increase in loans 19 (6,495) 975 (6,495) 975
(Decrease)/increase in finance leases 19 (67) 85 – –
Dividends paid to shareholders 16 (15,658) (15,653) (15,658) (15,653)
Supplementary dividends paid (426) (315) (426) (315)
Net cash used in financing activities (22,617) (14,835) (22,550) (14,920)
Net (decrease)/increase in cash and cash equivalents (28) 98 (913) 133
Reconciliation of cash and cash equivalents
Cash and cash equivalents at the beginning of the period: 798 700 10 (123)
Cash and cash equivalents at the end of the period:
Cash on hand 204 249 – –
Cash at bank/(bank overdraft) 566 549 (903) 10
25 770 798 (903) 10
Net (decrease)/increase in cash and cash equivalents (28) 98 (913) 133
34
Statements of cash fows
for the 52 week period ended 24 February 2014
1. General information
Restaurant Brands New Zealand Limited (“Company” or “Parent”) together with its subsidiaries (the “Group”) operate
quick service and takeaway restaurant concepts.
The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered
office is Level 3, Building 7, Central Park, 666 Great South Road, Penrose, Auckland.
The Group and Company financial statements (“financial statements”) were authorised for issue on 9 April 2014 by the
Board of Directors who do not have the power to amend after issue.
2. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice
(“NZ GAAP”). They comply with New Zealand equivalents to International Reporting Standards, NZ IFRIC interpretations,
and other applicable Financial Reporting Standards, as appropriate for profit oriented entities. The financial statements
comply with International Financial Reporting Standards (“IFRS”) as issued by IASB.
The financial statements are presented in New Zealand dollars, rounded where necessary to the nearest thousand dollars.
The Group divides its financial year into 13 four-week periods. The 2014 full year results are for 52 weeks (2013: 52 weeks).
Entities reporting
The financial statements for the Group are the financial statements comprising the economic entity Restaurant Brands
New Zealand Limited and its subsidiaries. The financial statements of the Parent are for the Company as a separate
legal entity.
The Parent and the Group are designated as profit oriented entities for financial reporting purposes.
Statutory base
The Company is listed on the New Zealand Stock Exchange (“NZX”). It is registered under the Companies Act 1993 and
is an issuer in terms of the Financial Reporting Act 1993. The financial statements have been prepared in accordance with
the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.
Historical cost convention
The financial statements have been prepared on the historical cost convention, except for financial derivatives which are
stated at their fair value and are discussed further below.
Critical accounting estimates and judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
The estimates and assumptions that have a significant risk of causing material adjustment to the carrying value of assets
and liabilities within the next financial year are addressed below.
(i) Goodwill impairment
As disclosed in Note 8, the Group undertook impairment testing of its operating divisions. Note 8 sets out the key
assumptions used to determine the recoverable amount along with a sensitivity analysis.
35
Notes to and forming part of the fnancial statements
for the 52 week period ended 24 February 2014
2. Summary of significant accounting policies (continued)
(a) Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed
at the date of exchange. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognised directly in the statements of comprehensive income.
Intra-group balances and profits resulting from intra-group transactions are eliminated in preparing the financial
statements.
(b) Foreign currency translation
Items included in the financial statements are measured using the currency of the primary economic environment in
which the entity operates (“the functional currency”). The financial statements are presented in NZD, which is the Group’s
presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the profit or loss. Amounts qualifying as cash flow hedges and
qualifying net investment hedges are also recognised in the statements of comprehensive income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to New Zealand dollars at exchange rates at the reporting date. The income and expenses of foreign operations
are translated to New Zealand dollars at exchange rates at the dates of the transactions.
Exchange differences arising from the translation of the net investment in foreign operations are recognised in the foreign
currency translation reserve and are released to the statements of comprehensive income upon disposal.
(c) Financial instruments
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised when the Group’s contractual rights to the cash flows from the financial assets expire
or when the Group transfers the financial asset to another party without retaining control or substantially all risks and
rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that
the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised when the Group’s obligations
specified in the contract expire or are discharged or cancelled.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, which are initially recognised at fair value
plus transaction costs and subsequently measured at amortised cost, cash and cash equivalents, loans and borrowings
(initially recognised at fair value plus transaction costs and subsequently measured at amortised cost), and creditors
and accruals which are initially recognised at fair value and subsequently measured at amortised cost.
Derivative financial instruments
The Group has various derivative financial instruments to manage the exposures that arise due to movements in foreign
currency exchange rates and interest rates arising from operational, financing and investment activities. The Group
does not hold derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge
accounting are accounted for at fair value through the profit or loss. Embedded derivatives are separated from the host
contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded
derivative are not closely related. A separate instrument with the same terms as the embedded derivative would meet
the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
36
2. Summary of significant accounting policies (continued)
(c) Financial instruments (continued)
Derivative financial instruments (continued)
Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss when
incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted
for as described below.
The fair value of forward exchange contracts is estimated by discounting the difference between the contractual
forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based
on government bonds). The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for
reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using
market interest rates for a similar instrument at the measurement date.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly
in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are
recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity
remains there until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately transferred to profit or loss. When the hedged item
is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is
recognised. In other cases the amount recognised in equity is transferred to profit or loss in the same period that the
hedged item affects profit or loss.
(d) Revenue recognition
Goods sold and services rendered
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns
and allowances, discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership
have been transferred to the buyer, recovery of the consideration is probable, the associated costs of possible return
of goods can be estimated reliably and there is no continuing management involvement with the goods. Other revenue
represents sales of services and is recognised in the accounting period in which the services are rendered, by reference
to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total
services to be provided.
Dividend income
Dividend income is recognised when the right to receive payment is established.
Interest revenue
Interest revenue is recognised on a time proportion basis using the effective interest method.
Grants
A grant is recognised in the statements of financial position initially as deferred income when there is reasonable
assurance that it will be received and that the Group will comply with the conditions associated with the grant, and
subsequently recognised in the statements of comprehensive income when the requirements under the grant have been
met. Grants that compensate the Group for the cost of an asset are recognised in the statements of comprehensive
income on a systematic basis over the useful life of the asset.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
37
2. Summary of significant accounting policies (continued)
(e) Net financing costs
Net financing costs comprise: interest payable on borrowings calculated using the effective interest rate method; interest
received on funds invested calculated using the effective interest rate method; foreign exchange gains and losses; gains
and losses on certain financial instruments that are recognised in the statements of comprehensive income; unwinding
of the discount on provisions and impairment losses on financial assets.
(f) Lease payments
Finance leases
Minimum lease payments under finance leases are apportioned between the finance charge and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising
the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Operating leases
Payments made under operating leases are recognised in the statements of comprehensive income on a straight line basis
over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense over the
term of the lease.
(g) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statements of
comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition
of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable
profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably
will not reverse in the foreseeable future.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is
recognised to the extent that it is probable that future taxable profits will be available against which temporary difference
can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends
are recognised at the same time as the liability to pay the related dividend is recognised.
Deferred tax assets and liabilities are set off only if there is a legal right of set off and they relate to income taxes levied
by the same taxation authorities.
(h) Advertising and promotion costs
Expenditure on advertising and promotional activities is recognised as an expense when the Group has the right to access
the goods or has received the service.
(i) Royalties paid
Royalties are recognised as an expense as revenue is earned.
(j) Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss or loans and
receivables. The classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in
this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held
for trading unless they are designated as hedges. Assets in this category are classified as current assets.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
38
2. Summary of significant accounting policies (continued)
(j) Financial assets (continued)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet
date. These are classified as non-current assets. The Group’s loans and receivables comprise “other receivables” and
“cash and cash equivalents” in the statements of financial position.
Financial assets that are stated at cost or amortised cost are reviewed individually at balance date to determine whether
there is objective evidence of impairment. If any such evidence exists, the asset’s recoverable amount is calculated using
the present value of future cash flows discounted at the original effective interest rate. An impairment loss is recognised
in the statements of comprehensive income for the difference between the carrying amount and the recoverable amount.
An impairment loss is reversed if the subsequent increase in the recoverable amount can be related objectively to an
event occurring after the impairment was recognised. The impairment loss is reversed only to the extent that the financial
asset’s carrying value does not exceed the carrying value that would have been determined if no impairment loss had
been recognised.
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
(l) Creditors and accruals
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
(m) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised
in the statements of comprehensive income over the period of the borrowings using the effective interest method.
Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries and business combinations. Goodwill is measured at cost less
accumulated impairment losses. Goodwill is allocated to cash generating units and is tested annually for impairment.
Where the Group disposes of an operation within a cash generating unit, the goodwill associated with the operation
disposed of is part of the gain or loss on disposal. Goodwill disposed of in this manner is measured based on the relative
values of the operation disposed of and the portion of the cash generating unit retained.
Franchise costs
Franchise costs are those incurred in obtaining franchise rights or licences to operate quick service and take-away
restaurant concepts. They include for example, the initial fee paid to a system franchisor when a new store is opened.
These are measured at cost less accumulated amortisation and accumulated impairment costs. Amortisation is on a
straight line basis over the life of the applicable franchise or licence agreement.
Concept development costs and fees
Concept development costs and fees include certain costs, other than the direct cost of obtaining the franchise,
associated with the establishment of quick service and takeaway restaurant concepts. These include, for example,
professional fees and consulting costs associated with the establishment of a new brand or business acquisition.
These costs are capitalised where the concept is proven to be commercially feasible and the related future economic
benefits are expected to exceed those costs with reasonable certainty. These are subsequently measured at cost less
accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight line basis over
the period which future economic benefits are reasonably expected to be derived.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
39
2. Summary of significant accounting policies (continued)
Intangible assets (continued)
Acquired software costs
Software costs have a finite useful life. Software costs are capitalised and amortised on a straight line basis over the
estimated economic life of 3–8 years.
(o) Property, plant and equipment
Owned assets
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Where
appropriate, the cost of property, plant and equipment includes site preparation costs, installation costs and the cost
of obtaining resource consents required to bring the asset ready for use. Borrowing costs associated with non-qualified
property, plant and equipment are, as per IAS23R, expensed as incurred.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
(major components) of property, plant and equipment.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured
reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the statements of
comprehensive income as incurred.
Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases. Assets acquired by way of finance leases are stated initially at an amount equal to the lower of its fair value and
present value of the future minimum lease payments. Subsequent to initial recognition the asset is accounted for in
accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised on the Group’s statements of financial position. The Group
also leases certain plant and equipment and land and buildings by way of operating lease. The cost of improvements
to leasehold assets is capitalised as buildings or leasehold improvements and then depreciated as outlined below.
Capital work in progress
All costs relating to an asset are first recorded in capital work in progress. Once all associated costs for an asset are
established with relative certainty, the asset is then transferred from work in progress and capitalised into property,
plant and equipment.
Store start up costs
Costs incurred in connection with assessing the feasibility of new sites are expensed as incurred with the exception
of franchise costs and certain development costs and fees as discussed above.
Depreciation
Land is not depreciated. Depreciation is recognised in the statements of comprehensive income and is calculated on a
straight line basis to allocate the cost of an asset, less any residual value, over its estimated useful life. Leased assets are
depreciated over the shorter of the lease term and their useful lives. The estimated useful lives of fixed assets are as follows:
Leasehold improvements 5–20 years
Plant and equipment 3–12.5 years
Motor vehicles 4 years
Furniture and fittings 3–10 years
Computer equipment 3–5 years
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
(p) Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price less
the estimated costs of marketing, selling and distribution. The cost of inventories is based on the first-in first-out method
and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location.
(q) Dividends
Dividends are accrued in the period in which they are authorised.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
40
2. Summary of significant accounting policies (continued)
(r) Impairment on non-financial assets
The carrying amounts of the Group’s assets except for inventories and deferred tax assets are reviewed at each balance
date to determine whether there is any indication of impairment. If any such indication exists then the asset’s or Cash
Generating Unit’s (CGU’s) recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives
or that are not yet available for use, the recoverable amount is estimated at each reporting date. An impairment loss is
recognised whenever the carrying amount of an asset or CGU exceeds its recoverable amount. A CGU is the smallest
identifiable asset group that generates cash flows that are largely independent from other assets and groups.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. Impairment losses directly
reduce the carrying amount of assets and are recognised in the statements of comprehensive income. Impairment losses
recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units and
then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
Except for impairment losses on goodwill, impairment losses recognised in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill is not reversed.
(s) Share capital
Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction
from equity.
(t) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of
ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive
potential ordinary shares, which comprise share options granted to employees.
(u) Employee benefits
Other long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value.
Share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount
recognised as an expense is adjusted to reflect the actual number of share options that vest. The fair value of the options
granted is measured using an options pricing model, taking into account the terms and conditions upon which the options
were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest
except where forfeiture is only due to share prices not achieving the threshold for vesting.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus if the Group has
a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the
obligation can be estimated reliably.
(v) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker, responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Senior Leadership Team. The Senior Leadership Team reviews the Group’s
internal reporting in order to assess performance and allocate resources.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
41
2. Summary of significant accounting policies (continued)
(w) Goods and services tax
The statement of comprehensive income and statements of cash flows have been prepared exclusive of Goods and
Services Taxation (GST). All items in the statements of financial position are stated net of GST, with the exception of
receivables and payables, which include GST invoiced.
(x) Non-current assets held for sale
Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily
through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for
sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies.
Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount and fair value less
costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement
are recognised in the statements of comprehensive income. Gains are not recognised in excess of any cumulative
impairment loss.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract
are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the
present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with
the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with
that contract.
(z) Non-trading items
The Group seeks to present a measure of comparable underlying performance on a consistent basis. In order to do so,
the Group separately discloses items considered to be unrelated to the day to day operational performance of the Group.
Such items are classified as non-trading items and are separately disclosed in the statements of comprehensive income
and notes to the financial statements.
(aa) New standards and interpretations
New and amended standards adopted by the Group
• External Reporting Board Standard A1 Accounting Standards Framework (For-profit Entities Update) (“XRB A1”)
was adopted by the Group. XRB A1 establishes a for-profit tier structure and outlines which suite of accounting
standards entities in different tiers must follow. For the purposes of complying with NZ GAAP, Restaurant Brands
New Zealand Limited is a listed entity in New Zealand and has therefore reported under Tier 1, preparing NZ IFRS
financial statements.
• NZ IAS 1 Amendments to Presentation of Items of Other Comprehensive Income was adopted by the Group for the first
time. The amendment requires entities to separate items presented in other comprehensive income into two groups,
based on whether they may be re-cycled to profit or loss in the future.
• NZ IFRS 10 Consolidated Financial Statements was adopted by the Group for the first time. The standard builds on
existing principles by identifying the concept of control as the determining factor in whether an entity should be
included within the consolidated financial statements of the parent entity.
• NZ IFRS 12 Disclosures of Interests in Other Entities was adopted by the Group for the first time. The standard sets
out the required disclosures for all forms of interests in other entities.
• NZ IFRS 13 Fair Value Measurement was adopted by the Group for the first time. The standard aims to improve
consistency and reduce complexity by providing a precise definition of fair value and a single source at fair value
measurement and disclosure requirements for use across IFRS’s.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
42
2. Summary of significant accounting policies (continued)
(aa) New standards and interpretations (continued)
Relevant standards, amendments and interpretations to existing standards that are not yet effective and have not
been early adopted by the Group
• NZ IFRS 9 Financial Instruments (effective 1 January 2015) addresses the classification, measurement and derecognition
of financial assets and financial liabilities. NZ IFRS 9 is intended to replace NZ IAS 39. The Group has not yet decided
when to adopt NZ IFRS 9. The standard is not expected to have a material impact on the Group.
There are various other standards, amendments and interpretations which are currently not applicable to the Group.
There are no NZ IFRS, NZ IFRIC interpretations or other applicable IFRS that are effective for the first time for the financial
year beginning on or after 1 March 2013 that would be expected to have a material impact on the financial statements.
(ab) Comparative information
Where necessary, comparative information has been reclassified in order to provide a more appropriate basis
for comparison.
3. Segmental reporting
The Group has four operating segments: KFC, Pizza Hut, Starbucks Coffee and Carl’s Jr. All segments operate quick
service and takeaway restaurant concepts. No operating segments have been aggregated.
The segments were determined primarily because the Group manages each business separately and reports each
business separately to the chief operating decision maker. The reportable segments are each managed separately as they
operate in four distinct markets, sell distinct products, have distinct production processes and have distinct operating and
gross margin characteristics. The Group operates in New Zealand.
All other segments represents general and administration support centre costs (“G&A”). G&A support centre costs are
not an operating segment as the costs incurred are incidental to the Group’s activities.
The Group evaluates performance and allocates resources to its operating segments on the basis of segment assets,
segment revenues, concept earnings before interest and tax and depreciation and amortisation (“concept EBITDA”),
and earnings before interest and tax basis (“concept EBIT”).
The accounting policies of the Group’s segments are the same as those described in the notes to the Group’s financial
statements. Segment assets include items directly attributable to the segment (i.e. property, plant and equipment,
intangible assets and inventories). Unallocated items comprise other receivables, cash and cash equivalents, deferred tax
and derivative financial instruments as they are all managed on a central basis. These are part of the reconciliation to total
assets in the statements of financial position. Segment capital expenditure is the total cost incurred during the period to
acquire property, plant and equipment and intangible assets other than goodwill.
The Group has not disclosed segment liabilities as the chief operating decision maker (the Senior Leadership Team)
evaluates performance and allocates resources purely on the basis of aggregated Group liabilities.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
43
3. Segmental reporting (continued)
KFC Pizza Hut Starbucks Cofee Carl’s Jr. All other segments* Consolidated full year
$NZ000’s 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Store sales revenue 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 – – 329,269 311,901
Other revenue – – – – – – – – 1,130 912 1,130 912
Total operating revenue** 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 1,130 912 330,399 312,813
Concept EBITDA before general and
administration expenses 44,529 45,272 5,496 3,796 3,498 2,929 4 (495) – – 53,527 51,502
Depreciation (10,421) (9,972) (1,484) (1,947) (974) (1,121) (769) (16) (466) (517) (14,114) (13,573)
Gain/(loss) on sale of property, plant and equipment
(included in depreciation) (18) (23) (9) (21) (29) (18) – – 5 – (51) (62)
Amortisation (included in cost of sales) (687) (672) (295) (188) (87) (75) (98) (18) (265) (115) (1,432) (1,068)
G&A – area managers, general managers and
support centre (2,292) (2,501) (839) (1,000) (431) (729) (491) (431) (7,179) (6,997) (11,232) (11,658)
EBIT before non-trading 31,111 32,104 2,869 640 1,977 986 (1,354) (960) (7,905) (7,629) 26,698 25,141
Impairment on property, plant and equipment (91) (129) – (31) – – – – – (79) (91) (239)
Other non-trading 1,518 270 102 (1,891) (197) (188) 269 – (129) (357) 1,563 (2,166)
EBIT after non-trading 32,538 32,245 2,971 (1,282) 1,780 798 (1,085) (960) (8,034) (8,065) 28,170 22,736
EBIT after non-trading 28,170 22,736
Net financing costs (755) (838)
Net profit before taxation 27,415 21,898
Income tax expense (7,462) (5,739)
Net profit after taxation 19,953 16,159
(Deduct)/add back non-trading items (1,472) 2,405
Taxation expense/(credit) on non-trading items 382 (910)
Net profit after taxation excluding non-trading 18,863 17,654
Segment assets 63,968 74,268 14,807 17,209 4,004 4,947 14,421 8,083 2,924 1,705 100,124 106,212
Unallocated assets 8,214 5,548
Total assets 108,338 111,760
Capital expenditure including intangibles 6,967 15,402 476 1,031 412 948 12,176 6,496 2,143 2,158 22,174 26,035
* All other segments are general and administration support centre expenses (G&A).
** All operating revenue is from external customers.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
44
TOTAL STORE EBITDA
UP $2.0m
3. Segmental reporting (continued)
KFC Pizza Hut Starbucks Cofee Carl’s Jr. All other segments* Consolidated full year
$NZ000’s 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Store sales revenue 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 – – 329,269 311,901
Other revenue – – – – – – – – 1,130 912 1,130 912
Total operating revenue** 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 1,130 912 330,399 312,813
Concept EBITDA before general and
administration expenses 44,529 45,272 5,496 3,796 3,498 2,929 4 (495) – – 53,527 51,502
Depreciation (10,421) (9,972) (1,484) (1,947) (974) (1,121) (769) (16) (466) (517) (14,114) (13,573)
Gain/(loss) on sale of property, plant and equipment
(included in depreciation) (18) (23) (9) (21) (29) (18) – – 5 – (51) (62)
Amortisation (included in cost of sales) (687) (672) (295) (188) (87) (75) (98) (18) (265) (115) (1,432) (1,068)
G&A – area managers, general managers and
support centre (2,292) (2,501) (839) (1,000) (431) (729) (491) (431) (7,179) (6,997) (11,232) (11,658)
EBIT before non-trading 31,111 32,104 2,869 640 1,977 986 (1,354) (960) (7,905) (7,629) 26,698 25,141
Impairment on property, plant and equipment (91) (129) – (31) – – – – – (79) (91) (239)
Other non-trading 1,518 270 102 (1,891) (197) (188) 269 – (129) (357) 1,563 (2,166)
EBIT after non-trading 32,538 32,245 2,971 (1,282) 1,780 798 (1,085) (960) (8,034) (8,065) 28,170 22,736
EBIT after non-trading 28,170 22,736
Net financing costs (755) (838)
Net profit before taxation 27,415 21,898
Income tax expense (7,462) (5,739)
Net profit after taxation 19,953 16,159
(Deduct)/add back non-trading items (1,472) 2,405
Taxation expense/(credit) on non-trading items 382 (910)
Net profit after taxation excluding non-trading 18,863 17,654
Segment assets 63,968 74,268 14,807 17,209 4,004 4,947 14,421 8,083 2,924 1,705 100,124 106,212
Unallocated assets 8,214 5,548
Total assets 108,338 111,760
Capital expenditure including intangibles 6,967 15,402 476 1,031 412 948 12,176 6,496 2,143 2,158 22,174 26,035
* All other segments are general and administration support centre expenses (G&A).
** All operating revenue is from external customers.
45
4. Other revenue
Group Company
$NZ000’s 2014 2013 2014 2013
Sales of services 1,130 912 – –
Dividends – – 16,158 15,652
1,130 912 16,158 15,652
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
46
GROUP NET PROFIT AFTER TAX
(EXCLUDING NON-TRADING ITEMS)
UP 6.8%
5. Analysis of expenses
The profit before taxation is calculated after charging/(crediting) the following items:
Group Company
$NZ000’s 2014 2013 2014 2013
Fees paid to auditor
To PwC for audit of annual financial statements 78 69 – –
To PwC for other services
Agreed on procedures in relation to interim financial
statements 19 19 – –
Assurance services* 9 7 – –
Other services** 8 – – –
Total fees paid to auditor 114 95 – –
Government training grants (included in general and
administration expenses) – (160) – –
Amortisation of intangibles (included in cost of sales) 1,432 1,068 – –
Royalties paid 19,416 18,560 – –
Depreciation expense 14,114 13,573 – –
Operating rental expenses 17,646 16,524 – –
Net loss on disposal of property, plant and equipment
(included in depreciation expense) 51 62 – –
Net gain on disposal of property, plant and equipment
(included in non-trading costs) (2,581) (2,656) – –
Donations 74 160 – –
Directors' fees 250 251 – –
Interest expense (net) 909 885 733 818
Interest income – interest rate swap fair value changes (180) (79) – –
Finance lease interest 26 32 – –
* Assurance services comprise audit of Company share registry and
certain compliance certificates for third parties.
** Other services in 2014 comprise executive reward services review and
tax compliance advice.
Non-trading items
Loss on sale of stores
Net sale proceeds (1,057) (2,484) – –
Property, plant and equipment disposed of 385 956 – –
Goodwill disposed of 699 3,192 – –
27 1,664 – –
Gain on sale and leaseback of stores (1,754) – – –
Other store closure costs 325 1,325 – –
Other store closure costs – franchise fees written off 47 144 – –
Other store closure costs – insurance proceeds (31) (1,263) – –
Other store relocation and refurbishment costs 11 296 – –
Other store relocation and refurbishment – insurance proceeds (6) – – –
Impairment on property, plant and equipment (91) 239 – –
Total non-trading items (1,472) 2,405 – –
Group
$NZ000’s 2014 2013
Personnel expenses
Wages and salaries 83,697 78,882
Increase in liability for long service leave 60 29
83,757 78,911
The Parent has no personnel expenses (2013: nil).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
47
6. Income tax expense in the statements of comprehensive income
Reconciliation of effective tax rate
Group Company
$NZ000’s Note 2014 2013 2014 2013
Total profit before income tax for the period 3 27,415 21,898 15,425 14,834
Total income tax (expense)/credit 3 (7,462) (5,739) 205 229
Net profit after income tax 19,953 16,159 15,630 15,063
Income tax using the Company’s domestic
tax rate (28.0%) (7,676) (28.0%) (6,131) (4,319) (4,154)
Non-deductible expenses and
non-assessable income 0.7% 197 1.7% 380 4,524 4,383
Prior period adjustment 0.1% 17 0.1% 12 – –
(27.2%) (7,462) (26.2%) (5,739) 205 229
Income tax (expense)/credit comprises:
Current tax (expense)/credit (8,115) (6,962) 205 229
Deferred tax credit 10 653 1,223 – –
Net tax (expense)/credit (7,462) (5,739) 205 229
Income taxation expense
Income tax (expense)/credit (7,462) (5,739) 205 229
Total income tax (expense)/credit 3 (7,462) (5,739) 205 229
Imputation credits
Group
$NZ000’s 2014 2013
Imputation credits available for subsequent reporting periods 11,828 9,815
The above amounts represent the balance of the imputation account as at the end of the reporting period, adjusted for:
• Imputation credits that will arise from the payment of the amount of the provision for income tax
• Imputation credits that will arise from the payment of dividends recognised as a liability at the reporting date; and
• Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The current income tax for the period was calculated using the rate of 28% (2013: 28%). The deferred tax balances in
these financial statements have been measured using the 28% tax rate (2013: 28%).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
48
7. Property, plant and equipment
Group $NZ000’s Land
Leasehold
improvements
Plant,
equipment
and ?ttings
Motor
vehicles
Leased
plant and
equipment
Capital work
in progress Total
Cost
Balance as at 29 February 2012 1,750 95,596 57,912 1,107 743 2,604 159,712
Additions 3,797 – 743 127 374 18,651 23,692
Transfer from work in progress – 10,040 3,933 – – (13,973) –
Disposals – (5,088) (7,070) (210) (379) – (12,747)
Balance as at 28 February 2013 5,547 100,548 55,518 1,024 738 7,282 170,657
Additions 2,702 – 1,117 145 62 16,307 20,333
Transfer from work in progress – 14,297 5,010 – – (19,307) –
Transfer to assets classified as
held for sale (1,485) (882) – – – – (2,367)
Disposals (5,406) (5,878) (2,635) (234) (7) – (14,160)
Balance as at 24 February 2014 1,358 108,085 59,010 935 793 4,282 174,463
Accumulated depreciation
Balance as at 29 February 2012 – (41,935) (37,590) (806) (645) – (80,976)
Charge – (8,023) (5,258) (212) (80) – (13,573)
Disposals – 3,389 6,380 210 332 – 10,311
Balance as at 28 February 2013 – (46,569) (36,468) (808) (393) – (84,238)
Charge – (8,408) (5,437) (130) (139) – (14,114)
Transfer to assets classified as
held for sale – 14 – – – – 14
Disposals – 2,145 2,259 223 8 – 4,635
Balance as at 24 February 2014 – (52,818) (39,646) (715) (524) – (93,703)
Impairment provision
Balance as at 29 February 2012 – (684) (76) – – – (760)
Charge – (215) (24) – – – (239)
Utilised/disposed – 208 23 – – – 231
Balance as at 28 February 2013 – (691) (77) – – – (768)
Charge – 82 9 – – – 91
Utilised/disposed – 133 15 – – – 148
Balance as at 24 February 2014 – (476) (53) – – – (529)
The impairment charge recognised during the period relates to accelerated depreciation on leasehold improvements
and plant, equipment and fittings on stores expected to be transformed or closed. Impairment charges incurred and
utilised/disposed are recognised in non-trading in the statements of comprehensive income (refer Note 5).
The Parent has no property, plant and equipment (2013: nil).
Carrying amounts
Balance as at 29 February 2012 1,750 52,977 20,246 301 98 2,604 77,976
Balance as at 28 February 2013 5,547 53,288 18,973 216 345 7,282 85,651
Balance as at 24 February 2014 1,358 54,791 19,311 220 269 4,282 80,231
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
49
8. Intangibles
Group $NZ000’s Goodwill
Franchise
fees
Concept
development
costs
Software
costs Total
Cost
Balance as at 29 February 2012 26,290 9,170 1,560 2,505 39,525
Additions 822 991 90 440 2,343
Disposals (13,376) (1,528) – (99) (15,003)
Balance as at 28 February 2013 13,736 8,633 1,650 2,846 26,865
Additions – 317 – 1,524 1,841
Disposals (699) (189) – (33) (921)
Balance as at 24 February 2014 13,037 8,761 1,650 4,337 27,785
Accumulated depreciation
Balance as at 29 February 2012 (4,988) (4,971) (710) (1,976) (12,645)
Charge – (757) (59) (252) (1,068)
Disposals 4,157 1,384 – 92 5,633
Balance as at 28 February 2013 (831) (4,344) (769) (2,136) (8,080)
Charge – (777) (86) (569) (1,432)
Disposals – 142 – 9 151
Balance as at 24 February 2014 (831) (4,979) (855) (2,696) (9,361)
Impairment provision
Balance as at 29 February 2012 (6,027) – – – (6,027)
Reversals arising from disposals 6,027 – – – 6,027
Balance as at 28 February 2013 – – – – –
Balance as at 24 February 2014 – – – – –
Impairment charges and disposals are recognised in non-trading in the statements of comprehensive income (refer Note 5).
Carrying amounts
Balance as at 29 February 2012 15,275 4,199 850 529 20,853
Balance as at 28 February 2013 12,905 4,289 881 710 18,785
Balance as at 24 February 2014 12,206 3,782 795 1,641 18,424
The Parent has no intangible assets (2013: nil).
Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the
lowest level within the Group at which the goodwill is monitored for internal management purposes.
Amortisation
Amortisation charge is recognised in cost of sales in the statements of comprehensive income (refer Note 5).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
50
8. Intangibles (continued)
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Group
$NZ000’s 2014 2013
KFC 2,170 2,170
Pizza Hut 10,036 10,735
12,206 12,905
The recoverable amount of each cash-generating unit was based on its value in use.
KFC
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. Cash
flows were projected based on a three year strategic business plan as approved by the Board of Directors. The cash flows
were based on sales growth of 4.0–6.0% over 2015–2017 (2013: 1.0–3.6% over 2014–2016). Adjustments were made for
margin improvements through reduced operating expenses and also capital expenditure and taxation. A terminal year
was calculated based on the 2017 year and assumes a continuous growth of a minimum of projected inflation estimates
of 2.5% (2013: 2.5%).
Cash flows are also dependent on assumptions on the EBITDA margins projected in the three year strategic business plan
as approved by the Board of Directors. Cash flows were based on EBITDA being maintained at 19.0–19.3% as a proportion
of sales over 2015–2017 (2013: 20% over 2014–2016).
As a result of the review, no impairment of goodwill was necessary (2013: nil).
The discount rate applied to future cash flows is based on an 8.2% weighted average post-tax cost of capital (2013: 8.2%)
applicable to Restaurant Brands.
Pizza Hut
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. Cash
flows were projected based on a three year strategic business plan as approved by the Board of Directors. The cash flows
were based on sales growth of 3.4–5.2% over 2015–2017 (2013: 4.0–6.0% over 2014–2016). Adjustments were made for
margin improvements through reduced operating expenses and also capital expenditure. A terminal year was calculated
based on the 2017 year and assumes a continuous growth of a minimum of projected inflation estimates of 2.5% (2013: 2.5%).
Cash flows are also dependent on assumptions on the EBITDA margins projected in the three year strategic business plan
as approved by the Board of Directors. Cash flows were based on EBITDA being maintained at 11.9–12.7% as a proportion
of sales over 2014–2017 (2013: 8.1–8.6% over 2014–2016).
As a result of the review and based on the key assumptions described above, no impairment of goodwill was necessary
(2013: nil).
The discount rate applied to future cash flows is based on an 8.2% weighted average post-tax cost of capital (2013: 8.2%)
applicable to Restaurant Brands.
The weighted average cost of capital calculation was reviewed in 2012 based on CAPM methodology using current market
inputs. Changes in the market inputs have been considered and are not deemed material enough to change the weighted
average cost of capital calculation.
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are
based on both external sources and internal sources (historical data).
Impact of possible changes in key assumptions
Set out below are reasonably possible changes in key assumptions as applied to goodwill balances for KFC and Pizza Hut.
Key assumptions Variation %
(absolute terms)
Pizza Hut
impairment charge ($m)
KFC
impairment charge ($m)
Terminal year sales growth (2.5) no impairment necessary no impairment necessary
Discount rate 1.0 no impairment necessary no impairment necessary
EBITDA ratio as a % of sales
per annum
(1.0) no impairment necessary no impairment necessary
Sales growth zero growth initial and terminal no impairment necessary no impairment necessary
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
51
9. Investments in subsidiaries
The following subsidiary companies are all wholly owned and incorporated in New Zealand (except as outlined below),
have a 24 February balance date and have been owned for the full financial year:
Restaurant operating companies Investment holding companies
Restaurant Brands Limited RB Holdings Limited
Restaurant Brands Australia Pty Limited RBP Holdings Limited
(incorporated in Victoria, Australia) RBDNZ Holdings Limited
RBN Holdings Limited
Property holding company Non-trading subsidiary company
Restaurant Brands Properties Limited Restaurant Brands Pizza Limited
Employee share option plan trust company
Restaurant Brands Nominees Limited
10. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
Group $NZ000’s 2014 2013 2014 2013 2014 2013
Property, plant and equipment 1,167 515 – – 1,167 515
Inventory 49 17 – – 49 17
Provisions 1,973 2,038 – – 1,973 2,038
Intangibles 36 2 – – 36 2
Other – – (2) (2) (2) (2)
3,225 2,572 (2) (2) 3,223 2,570
At balance date deferred tax assets of $0.3 million and deferred tax liabilities of nil are expected to be settled within
12 months (2013: deferred tax assets of $0.4 million and deferred tax liabilities of nil). The Parent has no deferred tax
assets or liabilities (2013: nil).
Movement in temporary differences during the period:
Group $NZ000’s
Balance
29 February
2012
Recognised in
proft or loss
Balance
28 February
2013
Recognised in
proft or loss
Balance
24 February
2014
Property, plant and equipment 208 307 515 652 1,167
Inventory 7 10 17 32 49
Provisions 1,708 330 2,038 (65) 1,973
Intangibles (574) 576 2 34 36
Other (2) – (2) – (2)
1,347 1,223 2,570 653 3,223
11. Inventories
Group Company
$NZ000’s 2014 2013 2014 2013
Raw materials and consumables 1,587 1,776 – –
All inventories are valued at cost. The cost of inventories is recognised as an expense and included in cost of goods sold
in the statements of comprehensive income.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
52
12. Other receivables
Group Company
$NZ000’s 2014 2013 2014 2013
Prepayments 643 526 – –
Other debtors 1,107 1,654 – –
1,750 2,180 – –
There were no foreign currency debtors included in other debtors (2013: nil).
The Group’s exposure to credit risk is minimal as the Group’s primary source of revenue is from sales made on
a cash basis.
The carrying value of other receivables approximates fair value.
13. Assets held for sale
Sale and leaseback
The directors approved the sale and leaseback of the Carl’s Jr. Hastings property during the period. The assets relating
to the sale have been presented as set out below. The sale is expected to be completed during the next financial year.
Group Company
$NZ000’s 2014 2013 2014 2013
Assets classified as held for sale
Property, plant and equipment 2,353 – – –
In accordance with IFRS 5 the assets held for sale are held at their carrying amount.
14. Derivative financial instruments
Group & Company Group & Company
$NZ000’s
2014
Assets
2014
Liabilities
2013
Assets
2013
Liabilities
Current
Fair value of interest rate swap – 6 – 186
The above table shows the Group’s financial derivative holdings at period end.
The fair value of the interest rate swap falls into level 2 fair value measurement. Refer to Note 2(c) for information on
the measurement of fair values. There were no transfers between fair value measurements during the period (2013: nil).
Fair values at balance date have been assessed using a range of market interest rates between 2.50% to 2.96%
(2013: 2.76% to 2.97%).
15. Capital and reserves
Share option reserve
The share option reserve comprises the net change in options exercised during the period and the cumulative net
change of share based payments incurred. All remaining options lapsed during the period and the balance of the reserve
was transferred to retained earnings.
Foreign currency translation reserve
The foreign currency translation reserve comprises all exchange rate differences arising from translating the financial
statements of the foreign currency operation.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
53
16. Dividend distributions
Group Company
$NZ000’s 2014 2013 2014 2013
Interim dividend of 6.5 cents per share paid (2013: 6.5 cents
per share) 6,359 6,360 6,359 6,360
Final dividend of 9.5 cents per share paid (2013: 9.5 cents
per share) 9,299 9,293 9,299 9,293
15,658 15,653 15,658 15,653
17. Equity
The issued capital of the Company is 97,871,090 (2013: 97,850,110) ordinary fully paid up shares. The par value is nil
(2013: nil). All issued shares carry equal rights in respect of voting and the receipt of dividends, and upon winding up
rank equally with regard to the Company’s residual assets.
Group & Company Group & Company
2014
Number
2014
NZ$000’s
2013
Number
2013
NZ$000’s
Balance at beginning of period 97,850,110 26,723 97,809,001 26,648
Shares issued on exercise of options 20,980 33 41,109 75
Balance at end of period 97,871,090 26,756 97,850,110 26,723
18. Earnings per share
The calculation of basic earnings per share for the 52 week period ended 24 February 2014 was based on the weighted
average number of ordinary shares on issue of 97,858,777 (2013: 97,833,862). The calculation of diluted earnings per share
for the 52 week period ended 24 February 2014 was based on the weighted average number of ordinary shares on issue
adjusted to assume conversion of all dilutive potential ordinary shares, of 97,858,777 (2013: 97,877,795). The difference
between weighted average number of shares used to calculate basic and diluted earnings per share represents share
options outstanding.
Group
$NZ000’s 2014 2013
Basic earnings per share
Profit after taxation attributable to shareholders ($NZ000's) 19,953 16,159
Basic earnings per share (cents) 20.39 16.52
Diluted earnings per share
Profit after taxation attributable to shareholders ($NZ000's) 19,953 16,159
Diluted earnings per share (cents) 20.39 16.51
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
54
19. Loans and finance leases
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings.
All existing bank loans, loans and finance leases are denominated in New Zealand dollars (2013: all denominated in
New Zealand dollars). For more information about the Group’s exposure to interest rate and foreign currency risk
see Note 22.
Group Company
$NZ000’s Note 2014 2013 2014 2013
Non-current liabilities
Finance leases 23d 131 228 – –
Secured bank loans 22c – 14,555 – 14,555
131 14,783 – 14,555
Current liabilities
Finance leases 23d 146 116 – –
Secured bank loans 22c 8,060 – 8,060 –
8,206 116 8,060 –
Secured bank loans expire in October 2014 and the Group expects to renew the facility on similar terms.
In March 2009 the Group entered into an interest rate swap to fix the interest rate on $10.0 million of bank loans for
five years. At balance date the interest rate applicable was 5.05% (2013: 5.05%) inclusive of bank margin. The swap
matured on 10 March 2014.
As security over the loan and bank overdraft, the bank holds a negative pledge deed between Restaurant Brands
New Zealand Limited and all its subsidiary companies. The negative pledge deed includes all obligations and cross
guarantees between the guaranteeing subsidiaries.
The carrying value equates to fair value.
20. Creditors and accruals
Group Company
$NZ000’s 2014 2013 2014 2013
Trade creditors 11,944 12,556 – –
Other creditors and accruals 5,068 5,021 116 116
Employee entitlements 6,382 5,927 – –
Indirect and other taxes 3,201 2,941 – –
26,595 26,445 116 116
Included in trade creditors are foreign currency creditors of $NZ141,000 ($AU52,000, $US69,000), (2013: $NZ84,000
($AU48,000, $US20,000)), which are not hedged.
The carrying value of creditors and accruals approximates fair value.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
55
21. Provisions and deferred income
Group $NZ000’s
Surplus
lease space
Store closure
costs
Employee
entitlements
Deferred
income Total
Opening balance 292 224 556 6,351 7,423
Created during the period 4 16 257 443 720
Used during the period (213) (229) (74) (1,448) (1,964)
Released during the period (27) (11) (123) – (161)
Balance at 24 February 2014 56 – 616 5,346 6,018
2014
Non-current – – 395 4,044 4,439
Current 56 – 221 1,302 1,579
Total 56 – 616 5,346 6,018
The provision for surplus lease space reflects lease commitments that the Group has on properties leased that are surplus
to its current operating requirements. The Group is currently seeking tenants to sub-lease the excess space that it has.
The provision has been used in the period to off-set payments made to lessors.
The provision for store closure costs reflects the estimated costs of make good and disposal of fixed assets for stores
committed for closure.
The provision for employee entitlements is long service leave. The provision is affected by a number of estimates,
including the expected length of service of employees and the timing of benefits being taken. Once an employee attains
the required length of service, the employee has a period of five years in which to take this leave.
Deferred income relates to non-routine revenue from suppliers and landlords and is recognised in the statements
of comprehensive income on a systematic basis over the life of the associated contract.
22. Financial instruments
Exposure to credit, interest rate and foreign currency risks arises in the normal course of the Group’s business. Derivative
financial instruments may be used to hedge exposure to fluctuations in foreign currency exchange rates and interest rates.
(a) Foreign currency risk
The Group is exposed to foreign currency risk on purchases that are denominated in a currency other than the New Zealand
dollar. The currencies giving rise to this risk are primarily US dollars and Australian dollars.
The direct exposure to foreign currency risk is small and is primarily confined to raw material purchases, some items of
capital equipment and some franchise fee payments. Where any one item is significant, the Group will specifically hedge
its exposure.
The Group has an indirect exposure to foreign currency risk on some of its locally sourced ingredients, where those
ingredients in turn have a high imported component. Where this is significant the Group contracts to a known purchase
price with its domestic supplier based on a forward cover position taken by that supplier on its imported components.
The Group has a residual foreign currency risk on its assets and liabilities that are denominated in Australian dollars as
part of its remaining Australian investment.
(b) Interest rate risk
The Group’s main interest rate risk arises from bank loans. The Group analyses its interest rate exposure on a dynamic basis.
Based on a number of scenarios, the Group calculates the impact on profit or loss of a defined interest rate shift. Based on
these scenarios the maximum loss potential is assessed by management as to whether it is within acceptable limits.
Where necessary the Group hedges its exposure to changes in interest rates primarily through the use of interest rate
swaps. There are no minimum prescribed guidelines as to the level of hedging.
Note 2(c) discusses in detail the Group’s accounting treatment for derivative financial instruments.
As discussed in Note 19, the Group has an interest rate swap in place to fix the interest rate on $10.0 million of bank loans
to March 2014 (2013: $10.0 million to March 2014). In 2011 the Group ceased cash flow hedge accounting for the interest
rate swap as the forecasted transaction was no longer expected to occur. The interest rate swap matured on 10 March
2014. The Group will continue to monitor interest rate movements to ensure it maintains an appropriate mix of fixed and
floating rate exposure within the Group’s policy.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
56
22. Financial instruments (continued)
(c) Liquidity risk
In respect of the Group’s cash balances, non-derivative financial liabilities and derivative financial liabilities, the following
table analyses the amounts into relevant maturity groupings based on the remaining period at balance date to the
contractual maturity date, along with their effective interest rates at balance date. The amounts disclosed in the table
are the contractual undiscounted cash flows.
$NZ000’s
Efective
interest rate Total
12 months
or less
12 months
or more
Group 2014
Cash 204 204 –
Bank balance 2.00% 566 566 –
Bank loan – principal 4.86% (8,060) (8,060) –
Bank loan – expected interest 5.68% (312) (312) –
Finance leases 8.20% (277) (146) (131)
Finance leases – expected interest 8.20% (23) (17) (6)
Derivative financial instruments – (6) (6) –
Creditors and accruals (excluding indirect and other taxes
and employee benefits) – (17,012) (17,012) –
(24,920) (24,783) (137)
Group 2013
Cash 249 249 –
Bank balance 2.00% 549 549 –
Bank term loan – principal 5.03% (14,555) – (14,555)
Bank term loan – expected interest 4.68% (1,137) (680) (457)
Finance leases 8.20% (344) (116) (228)
Finance leases – expected interest 8.20% (41) (24) (17)
Derivative financial instruments – (186) (186) –
Creditors and accruals (excluding indirect and other taxes
and employee benefits) – (18,210) (18,210) –
(33,675) (18,418) (15,257)
Company 2014
Bank balance 8.45% (903) (903) –
Derivative financial instruments – (6) (6) –
Bank loan – principal 4.86% (8,060) (8,060) –
Bank loan – expected interest 5.68% (312) (312) –
Creditors and accruals – (116) (116) –
Amounts payable to subsidiary companies – (140,030) (140,030) –
(149,427) (149,427) –
Company 2013
Bank balance 2.00% 10 10 –
Derivative financial instruments – (186) (186) –
Bank term loan – principal 5.03% (14,555) – (14,555)
Bank term loan – expected interest 4.68% (1,137) (680) (457)
Creditors and accruals – (116) (116) –
Amounts payable to subsidiary companies – (134,269) (134,269) –
(150,253) (135,241) (15,012)
Prudent liquidity risk management implies the availability of funding through adequate amount of committed credit
facilities. The Group aims to maintain flexibility in funding by keeping committed credit lines available.
The Group has bank funding facilities, excluding overdraft facilities, of $35.0 million (2013: $35.0 million) available at
variable rates. The amount undrawn at balance date was $26.9 million (2013: $20.4 million).
The Group has fixed the interest rate on $10.0 million of bank loans with the balance at a floating interest rate. The bank
loan is structured as a revolving wholesale advance facility with portions of the facility renewing on a regular basis. This
leads to the loans being sensitive to interest rate movement in 12 months or less.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
57
22. Financial instruments (continued)
(d) Credit risk
Credit risk arises from cash deposits with banks and financial institutions and outstanding receivables.
No collateral is required in respect of financial assets. Management has a credit policy in place and the exposure to credit
risk is monitored on an ongoing basis. The nature of the business results in most sales being conducted on a cash basis
that significantly reduces the risk that the Group is exposed to. Reputable financial institutions are used for investing and
cash handling purposes.
There were no financial assets neither past due nor impaired at balance date (2013: nil).
At balance date there were no significant concentrations of credit risk and the maximum exposure to credit risk is
represented by the carrying value of each financial asset in the statements of financial position.
(e) Fair values
The carrying values of bank loans and finance leases are the fair value of these liabilities. A Group set-off arrangement
is in place between certain bank accounts operated by the Group.
Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the
Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates on a
weighted average balance will have an impact on profit.
At 24 February 2014 it is estimated that a general increase of one percentage point in interest rates would decrease
the Group and Parent’s profit before income tax and equity by approximately $0.1 million (2013: $0.1 million). A one
percentage point decrease in interest rates would increase the Group and Parent’s profit before income tax and equity
by approximately $0.1 million (2013: $0.1 million).
A general increase of one percentage point in the value of the New Zealand dollar against other foreign currencies
would have minimal impact on the cost of the Group’s directly imported ingredients denominated in foreign currencies
(Parent: nil).
Capital risk management
The Group’s capital comprises share capital, reserves, retained earnings and debt.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue to operate as a going
concern, to maintain an optimal capital structure commensurate with risk and return and reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt or draw down more debt.
The Group is subject to a number of externally imposed bank covenants as part of the terms of its secured bank
loan facility.
The most significant covenants relating directly to capital management are the ratio of total debt to earnings before
interest, tax and amortisation (EBITA) and restrictions relating to acquiring its own shares.
The specific covenants relating to financial ratios the Group is required to meet are:
• debt coverage ratio (i.e. net borrowings to EBITA), and
• fixed charges coverage ratio (i.e. EBITL to total fixed charges), with EBITL being EBIT before lease costs. Fixed charges
comprise interest and lease costs.
The covenants are monitored and reported to the bank on a six monthly basis. These are reviewed by the Board on
a monthly basis.
There have been no breaches of the covenants during the period (2013: no breaches).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
58
23. Commitments
(a) Capital commitments
The Group has capital commitments which are not provided for in these financial statements, as follows:
Group
$NZ000’s 2014 2013
Store development 4,461 4,724
The Parent has no capital commitments (2013: nil).
(b) Operating lease commitments
Non-cancellable operating lease rentals are payable as follows:
Group
$NZ000’s 2014 2013
Not later than one year 17,373 16,110
Later than one year but not later than two years 16,033 12,217
Later than two years but not later than five years 39,765 29,310
Later than five years 33,709 27,729
106,880 85,366
The parent has no operating lease commitments (2013: nil).
(c) Renewal rights of operating leases
The Group has entered into a number of operating lease agreements for retail premises. The lease periods vary and many
have an option to renew. Lease payments are increased in accordance with the lease agreements to reflect market rentals.
The table below summarises the Group’s lease portfolio.
Right of renewal No right of renewal
$NZ000’s 2014 2013 2014 2013
Number of leases expiring:
Not later than one year 15 31 13 11
Later than one year but not later than two years 15 35 5 8
Later than two years but not later than five years 49 35 14 12
Later than five years 69 53 14 10
(d) Finance lease commitments
The carrying amount of finance leases in relation to computer and related equipment for the Group as at balance date is
$0.3 million (2013: $0.3 million).
The non cancellable finance lease rentals are payable as follows:
Group
$NZ000’s 2014 2013
Minimum lease payments of:
Not later than one year 164 140
Later than one year but not later than two years 129 140
Later than two years but not later than five years 7 105
300 385
Future lease finance charges (23) (41)
Net finance lease liability 277 344
Current 146 116
Non-current 131 228
277 344
The fair value of finance leases equals their carrying amount as the impact of discounting is not significant.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
59
24. Net cash flow from operating activities
The following are definitions of the terms used in the statements of cash flows:
Cash and cash equivalents
Cash and cash equivalents are comprised of cash at bank, cash on hand and overdraft balances.
Investing activities
Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment,
intangibles and investments. Investments can include securities not falling within the definition of cash.
Financing activities
Financing activities are those activities which result in changes in the size and composition of the capital structure of
the Company.
Operating activities
Operating activities include all transactions and other events that are not investing or financing activities.
The following is a reconciliation between the profit after taxation for the period shown in the statements of comprehensive
income and the net cash flow from operating activities.
Group Company
$NZ000’s 2014 2013 2014 2013
Total profit after taxation attributable to shareholders 19,953 16,159 15,630 15,063
(Less)/add items classified as investing/financing activities:
Gain on disposal of property, plant and equipment (2,530) (2,594) – –
(2,530) (2,594) – –
Add/(less) non-cash items:
Depreciation 14,114 13,573 – –
Disposal of goodwill 699 3,192 – –
(Decrease)/increase in provisions (460) 469 – –
Amortisation of intangible assets 1,432 1,068 – –
Write-off of franchise fees 47 144 – –
Impairment on property, plant and equipment (91) 239 – –
Net increase in deferred tax asset (653) (1,223) – –
Change in fair value of derivative financial instruments (180) (79) (180) (79)
14,908 17,383 (180) (79)
Add/(less) movement in working capital:
Decrease in inventories 189 151 – –
(Increase)/decrease in other debtors and prepayments (179) 340 – –
(Decrease)/increase in trade creditors and other payables (366) 1,603 – 30
Increase in income tax payable 251 1,408 – –
Decrease in income tax 426 315 426 315
321 3,817 426 345
Net cash from operating activities 32,652 34,765 15,876 15,329
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
60
25. Financial assets and financial liabilities by category
Group Company
$NZ000’s 2014 2013 2014 2013
Loans and receivables
Other debtors 1,107 1,654 – –
Cash and cash equivalents 770 798 – 10
1,877 2,452 – 10
Derivatives held at fair value through profit or loss
Derivative financial instruments – liabilities 6 186 6 186
6 186 6 186
Financial liabilities at amortised cost
Bank overdraft – – 903 –
Loans and finance leases – non current 131 14,783 – 14,555
Loans and finance leases – current 8,206 116 8,060 –
Creditors and accruals (excluding indirect and other taxes
and employee benefits) 17,012 17,577 116 116
Amounts payable to subsidiary companies – – 140,030 134,269
25,349 32,476 149,109 148,940
26. Contingent liabilities
There are no contingent liabilities that the directors consider will have a significant impact on the financial position of
the Company and Group (2013: nil).
27. Related party disclosures
Parent and ultimate controlling party
The immediate parent and controlling party of the Group is Restaurant Brands New Zealand Limited.
Identity of related parties with whom material transactions have occurred
Note 9 identifies all entities within the Group. All of these entities are related parties of the Company.
In addition, the directors and key management personnel of the Group are also related parties.
(a) Subsidiaries
Material transactions within the Group are loans and advances to and from Group companies and dividend payments.
All inter-company group loans in the Parent are non-interest bearing, repayable on demand and disclosed as a
current liability.
During the period the Parent was advanced $5.8 million by its subsidiary company (2013: $0.3 million repaid to its
subsidiary company). At balance date the amount owed to subsidiary companies was $140.0 million (2013: $134.3 million).
During the period the Parent received $16.2 million in dividends from its subsidiary company (2013: $15.7 million).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
61
27. Related party disclosures (continued)
(b) Other transactions with entities with key management or entities related to them
During the period the Group made the following:
• Stock purchases of $0.3 million (2013: $0.3 million) from Barker Fruit Processors Limited, a company of which Company
director Sue Helen Suckling is chairman. There was nil owing at balance date (2013: nil).
• Stock purchases of $48,000 (2013: $68,000) from Nestle New Zealand Limited, a company of which Company
director Ted van Arkel is a director. There was nil owing at balance date (2013: nil). Ted van Arkel retired as director of
Nestle on 16 February 2014.
• Stock purchases of $2.7 million (2013: $1.1 million) from Hellers Limited, a company of which Company director David
Alan Pilkington is chairman. There was nil owing at balance date (2013: nil).
• The Company made rental payments of $46,000 (2013: $68,000) in respect of the lease of the KFC Silverdale store to
Eldamos Investments Limited, a wholly owned subsidiary of The Warehouse Group Limited, of which Company director
Ted van Arkel is chairman. On 31 May 2013 Eldamos Investments sold the property to an unrelated party.
These transactions were performed on normal commercial terms.
(c) Key management and director compensation
Key management personnel comprises members of the Senior Leadership Team. Key management personnel
compensation comprised short-term benefits for the period of $2.4 million (2013: $2.2 million) and other long-term
benefits of $23,000 (2013: $21,000). Directors’ fees were $0.3 million (2013: $0.3 million).
(d) Share options issued to key management personnel
During the period the remaining 5,755 options issued under the employee share option plan (refer to Note 28) to key
management personnel were exercised (2013: 11,027). The table below summarises the movement in outstanding options
during the period.
Date of issue Exercise price
Outstanding
options at
28 February 2013
Exercised
during period
Outstanding
options at
24 February 2014
23-Sep-03 $1.39 5,755 (5,755) –
Total 5,755 (5,755) –
Refer to Note 19 for details regarding the guarantees between group companies.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
62
28. Employee share growth share option plan
The Company had established an employee share option plan (“the Plan”) for certain employees, under which it issued
options at no cost for shares in the Company to the employees. The holder of an option is entitled to subscribe for one
fully paid share for each option held (adjusted for bonus share issues), at an exercise price that is determined by reference
to the market price at the time of issue of the options.
On the anniversary date of issue in each subsequent year 20% of the options issued become exercisable. Options only
remain exercisable (subject to certain conditions and legislative provisions) whilst holders remain employed by the
Company. The options terminate 10 years from the date they are issued and are equity settled. Principal officers and
employees of the Company that participated in the Plan received an annual issue of options in respect of the number
of shares equal to approximately 10% of their eligible earnings divided by the exercise price per share.
Options issued and outstanding under the Plan:
Date of issue Exercise price Issued
Outstanding
options at
28 February 2013
Exercised
during period
Forfeited
during period
Outstanding
options at
24 February 2014
23-Sep-03 $1.39 1,228,423 44,169 (20,980) (23,189) –
Total 1,228,423 44,169 (20,980) (23,189) –
All options have now expired.
29. Subsequent events
Dividends
The directors have declared a fully imputed final dividend of 10.0 cents per share for the 52 week period ended
24 February 2014 (2013: 9.5 cents).
Acquisitions
On 25 March 2014 the Group purchased the KFC Mount Maunganui property and associated business assets for
$3.8 million.
Inventory ownership
In March 2014 the Group took over ownership of bulk warehouse stock that was previously owned and managed by
an external third party logistics provider. As a consequence inventories and accounts payable balances will increase
but the overall impact on working capital is expected to be minimal.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
63
INDEPENDENT AUDITORS’ REPORT
to the shareholders of Restaurant Brands New Zealand Limited
Report on the Financial Statements
We have audited the financial statements of Restaurant Brands New Zealand Limited (“the Company”) on pages 30 to 63,
which comprise the statements of financial position as at 24 February 2014, the statements of comprehensive income and
statements of changes in equity and statements of cash flows for the period then ended, and the notes to the financial
statements that include a summary of significant accounting policies and other explanatory information for both the
Company and the Group. The Group comprises the Company and the entities it controlled at 24 February 2014 or from
time to time during the financial year.
Directors’ Responsibility for the Financial Statements
The Directors are responsible for the preparation of these financial statements in accordance with generally accepted
accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such
internal controls as the Directors determine are necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These
standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors
consider the internal controls relevant to the Company and the Group’s preparation of financial statements that give
a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
We have no relationship with, or interests in, Restaurant Brands New Zealand Limited or any of its subsidiaries other than
in our capacities as auditors and providers of accounting, taxation and other assurance services. These services have not
impaired our independence as auditors of the Company and the Group.
Opinion
In our opinion, the financial statements on pages 30 to 63:
(i) comply with generally accepted accounting practice in New Zealand;
(ii) comply with International Financial Reporting Standards; and
(iii) give a true and fair view of the financial position of the Company and the Group as at 24 February 2014, and their
financial performance and cash flows for the period then ended.
Report on Other Legal and Regulatory Requirements
We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our
audit of the financial statements for the period ended 24 February 2014:
(i) we have obtained all the information and explanations that we have required; and
(ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination
of those records.
Restriction on Distribution or Use
This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the
Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders
those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.
Chartered Accountants
Auckland, New Zealand, 9 April 2014
64
1. Stock exchange listing
The Company’s ordinary shares are listed on the New Zealand Stock Exchange (NZX).
2. Distribution of security holders and security holdings
Size of holding
Number of
security holders Percentage
Number of
securities Percentage
1 to 999 1, 1 10 18.35% 577,973 0.59%
1,000 to 4,999 3,079 50.90% 6,224,974 6.36%
5,000 to 9,999 874 14.45% 5,708,193 5.83%
10,000 to 49,999 882 14.58% 15,273,230 15.61%
50,000 to 99,999 64 1.06% 4,088,859 4. 1 8%
100,000 to 499,999 34 0.56% 5,834, 1 16 5.96%
500,000+ 6 0. 1 0% 60,163,745 61.47%
6,049 100.00% 97,871,090 100.00%
Geographic distribution
New Zealand 5,848 96.68% 91,841,457 93.84%
Australia 1 14 1.88% 5,343,899 5.46%
Rest of world 87 1.44% 685,734 0.70%
6,049 100.00% 97,871,090 100.00%
3. 20 largest registered holders of quoted equity securities
Number of
ordinary shares
Percentage of
ordinary shares
New Zealand Central Securities Depository Limited 49,544, 187 50.62%
Diab Investments NZ Limited 5,000,000 5. 1 1%
FNZ Custodians Limited 2,509,201 2.56%
Investment Custodial Services Limited (account C) 1,295,328 1.32%
JA Hong Koo & Pyung Keum Koo 91 1,000 0.93%
NZPT Custodians (Grosvenor) Limited 904,029 0.92%
Matthew Charles Goodson & Dianna Dawn Perron & Goodson & Perron Independent
Trustee Limited 496,666 0.51%
New Zealand Depository Nominee Limited (account 1) cash account 446,862 0.46%
Guangqiang Chen 326,375 0.33%
Forsyth Barr Custodians Limited 265,623 0.27%
Russel Ernest George Creedy 252,229 0.26%
Custodial Services Limited (account 3) 222,054 0.23%
David George Harper & Karen Elizabeth Harper 193,248 0.20%
Alan Sedgwick Limmer & Nina Agnes Limmer 193, 143 0.20%
Ja Seo Koo & Young Ran Koo 190,000 0. 1 9%
Investment Custodial Services Limited (account R) 188,362 0. 1 9%
Marcia Lynn Hane & William Lee Hane 187,198 0. 1 9%
FNZ Custodians Limited (DRP NZ account) 183,625 0. 1 9%
ASB Nominees Limited (569086 ML account) 177,969 0. 1 8%
FNZ Custodians Limited (DTA non resident account) 171,569 0. 1 8%
63,658,668 65.04%
65
SHAREHOLDER INFORMATION
as at 14 April 2014
3. 20 largest registered holders of quoted equity securities (continued)
New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of
securities to its members. As at 14 April 2014, the NZCSD holdings in Restaurant Brands were:
Number of
ordinary shares
Percentage of
ordinary shares
Tea Custodians Limited 9,948,724 10.16%
Citibank Nominees (New Zealand) Limited 9,764,299 9.98%
Accident Compensation Corporation 8,846,427 9.04%
Westpac NZ Shares 2002 Wholesale Trust 6,274,906 6.41%
New Zealand Superannuation Fund Nominees Limited 4,393,477 4.49%
BT NZ Unit Trust Nominees Limited 2,349,035 2.40%
BNP Paribas Nominees (NZ) Limited (COGN40) 1,932,652 1.97%
JPMorgan Chase Bank NA 1,860,731 1.90%
HSBC Nominees (New Zealand) Limited A/C State Street 1,270,056 1.30%
BNP Paribas Nominees (NZ) Limited (BPSS40) 1,100,050 1.12%
National Nominees New Zealand Limited 719,602 0.74%
HSBC Nominees (New Zealand) Limited 656,513 0.67%
Mint Nominees Limited 157,964 0.16%
Private Nominees Limited 145,198 0.15%
Public Trust Class 30 Nominees Limited 105,000 0.11%
BNP Paribas Nominees (NZ) Limited (BPSS41) 19,553 0.02%
49,544,187 50.62%
4. Substantial security holders
The following persons have given substantial security holder notices as shown by the register kept by the Company in
accordance with section 35C of the Securities Markets Act 1988 as at 14 April 2014. The numbers of ordinary shares set
out below are taken from the relevant substantial security holder notices.
Number of
ordinary shares
Percentage of
voting securities
Milford Asset Management Limited 12,862,258 13.40%
Westpac Banking Corporation and BT Funds Management (NZ) Limited 8,295,867 8.48%
Accident Compensation Corporation 8,254,140 8.43%
D Diab 5,000,000 5.14%
5. Shares on issue
As at 14 April 2014, the total number of ordinary shares on issue was 97,871,090.
6. Directors’ security holdings
Equity securities held
2014 2013
E K van Arkel 50,000 50,000
D Diab 5,000,000 5,000,000
7. Stock exchange waiver
No waivers were sought or relied on from NZX during the period.
Shareholder information (continued)
as at 14 April 2014
66
1. Directorships
The names of the directors of the Company as at 24 February 2014 are set out in the Corporate Directory on page 74
of this annual report.
The following are directors of all subsidiary companies of the Group:
E K van Arkel and D A Pilkington.
The following are directors of Restaurant Brands Australia Pty Limited:
E K van Arkel, D A Pilkington, D Diab and G R Ellis.
2. Directors and remuneration
The following persons held office as directors during the 52 week period ended 28 February 2014 and received the
following remuneration and other benefits:
Directors’ fees
($NZ)
E K van Arkel 84,995
D Diab 55,000
D A Pilkington 55,000
S H Suckling 55,000
249,995
3. Entries recorded in the interests register
The following entries were recorded in the interests register of the Company and its subsidiaries during the year:
a) Share dealings of Directors
No shares were purchased or sold by directors of the Company during the 52 week period ended 24 February 2014.
b) Loans to Directors
There were no loans to directors during the 52 week period ended 24 February 2014.
67
STATUTORY INFORMATION
for the 52 week period ended 24 February 2014
3. Entries recorded in the interests register (continued)
c) General disclosure of interest
In accordance with Section 140 (2) of the Companies Act 1993, directors of the Company have made general disclosures
of interest in writing to the board of positions held in other named companies or parties as follows:
Name Position Party
E K van Arkel Chairman Health Benefits Limited
Chairman The Warehouse Group Limited
Director and Shareholder Lang Properties Limited
Director and Shareholder Van Arkel & Co Limited
Director AWF Group Limited
Director Danske Mobler Limited
Director Auckland Regional Chamber of Commerce & Industry Limited
Director Abano Healthcare Group Limited
Director Philip Yates Securities Limited (and subsidiaries)
S H Suckling Chairman New Zealand Qualifications Authority
Chairman Barker Fruit Processors Limited (and subsidiaries)
Chairman ECL Group Limited
Chairman Callaghan Innovation Research Limited
Director Acemark Holdings Limited
Director SKYCITY Entertainment Group Limited
Director Oxford Health Group Limited and Oxford Clinic Hospital Limited
Director Jacobsen Holdings Limited
Director New Zealand Health Innovation Hub
Member Takeovers Panel
D A Pilkington Chairman Port of Tauranga Limited
Chairman Rangatira Limited (and subsidiaries)
Chairman Hellers Limited
Director Ballance Agri-Nutrients Limited (and subsidiaries)
Director Zespri Group Limited (and subsidiaries)
Director Douglas Pharmaceuticals Limited
Director Northport Limited
Director Primeport Timaru Limited
Director and Shareholder Excelsa Associates Limited
Trustee New Zealand Community Trust
D Diab Director Diab Investments NZ Limited
Director Diab Pty Limited
Director Diab Investments Pty Limited
Director Mainplay Investments Pty Limited
Director Diab Investments II Pty Limited
Director Mirrapol Holdings Pty Limited
Director Pizza Advertising Co-Operative Australia
President Australian Pizza Association
Statutory information (continued)
for the 52 week period ended 24 February 2014
68
3. Entries recorded in the interests register (continued)
d) Directors’ indemnity and insurance
The Company has insured all its directors and the directors of its subsidiaries against liabilities to other parties (except the
Company or a related party of the Company) that may arise from their position as directors. The insurance does not cover
liabilities arising from criminal actions.
The Company has executed a deed of indemnity indemnifying all directors to the extent permitted by section 162 of the
Companies Act 1993.
4. Employees’ remuneration
During the period the following number of employees or former employees received remuneration of at least $100,000:
Number of employees
2014 2013
$100,000 – $109,999 6 6
$110,000 – $119,999 4 5
$120,000 – $129,999 3 3
$130,000 – $139,999 3 1
$140,000 – $149,999 2 2
$150,000 – $159,999 2 5
$160,000 – $169,999 1 –
$170,000 – $179,999 – 2
$180,000 – $189,999 2 –
$190,000 – $199,999 – 1
$210,000 – $219,999 – 1
$220,000 – $229,999 1 –
$310,000 – $319,999 – 1
$320,000 – $329,999 1 –
$660,000 – $669,999 – 1
$690,000 – $699,999 1 –
26 28
5. Subsidiary company directors
No employee of Restaurant Brands New Zealand Limited appointed as a director of Restaurant Brands New Zealand
Limited or its subsidiaries receives, or retains any remuneration or other benefits, as a director. The remuneration and
other benefits of such employees, received as employees, are included in the relevant bandings for remuneration
disclosed under Note 4 above.
Statutory information (continued)
for the 52 week period ended 24 February 2014
69
Overview
The board of Restaurant Brands New Zealand Limited is committed to the guiding values of the Company: integrity,
respect, continuous improvement and service. Whilst not formally constituted into a code of ethics, it expects that
management and staff ultimately subscribe to these values and use them as a guide to making decisions. These values
are reflected in a series of formal policies covering such matters as:
• Conflicts of interest
• Use of company property
• Use of company information
• Compliance with applicable laws
Responsibility
The board is responsible for the proper direction and control of the Company’s activities and is the ultimate decision-
making body of the Company. Its responsibilities include setting strategic direction, approval of significant expenditures,
policy determination, stewardship of the Company’s assets, identification of significant business risks, legal compliance
and monitoring management performance.
Delegation
The board has delegated responsibility for the day-to-day leadership and management of the Company to the Chief
Executive Officer (CEO) who is required to do so in accordance with board direction. The CEO’s performance is reviewed
each year by the board. The review includes a formal performance appraisal against measured objectives together with
a qualitative review.
The board has approved a schedule of delegated authorities affecting all aspects of the Company’s operation. This is
reviewed from time to time as to appropriateness and levels of delegation.
Composition and focus
As at 24 February 2014, the board comprised four non-executive directors (including the Chairman). In addition to
committee responsibilities (below), individual board members work directly with management in major initiatives such
as acquisitions and asset rationalisations.
Ted van Arkel, David Pilkington and Sue Suckling are considered by the board to be independent under the NZSX Listing
Rules. Danny Diab is considered not to be independent as he represents a significant shareholding. The board does not
have a policy on a minimum number of independent directors.
Committees
From amongst its own members, the board has appointed the following permanent committees:
• Audit and Risk Committee. The members of the Audit and Risk Committee are David Pilkington (chairman),
Ted van Arkel, Sue Suckling and Danny Diab. This committee is constituted to monitor the veracity of the financial data
produced by the Company and ensure controls are in place to minimise the opportunities for fraud or for material error
in the accounts. A majority of the committee’s members must be independent directors.
The Audit Committee meets two to three times a year, with external auditors of the Company and executives
performing internal audit management from within the Company in attendance. The external auditors also meet
with the committee with no Company executive present.
The committee has adopted an audit charter setting out the parameters of its relationship with internal and external
audit functions. The charter which is posted on the Company’s website requires five yearly reviews of the external audit
relationship and audit partner rotation.
• Appointments and Remuneration Committee. The members of the Appointments and Remuneration Committee are
Sue Suckling (chairman), Ted van Arkel, Danny Diab, and David Pilkington. This committee is constituted to approve
appointments and terms of remuneration for senior executives of the Company; principally the CEO and those
reporting directly to the CEO. It also reviews any company-wide incentive and share option schemes as required
and recommends remuneration packages for directors to the shareholders.
The committee has adopted a written charter which is posted on the Company’s website.
The board does not have a formal nominations committee, as all non-executive directors are involved in the appointment
of new directors.
Other sub-committees may be constituted and meet for specific ad hoc purposes as required.
STATEMENT OF
CORPORATE GOVERNANCE
for the 52 week period ended 24 February 2014
70
Board appraisal and training
The board has adopted a performance appraisal programme by which it biennially monitors and assesses individual and
board performance.
The Company does not impose any specific training requirements on its directors. The board believes all directors have
considerable training and expertise. New directors complete an induction programme with company senior management.
Insider trading
All directors and senior management of the Company are familiar with and have formally acknowledged acceptance of
the Company’s “Insider Trading Code” that relates to dealings in securities by directors and employees. A copy of the
code is available on the Company’s website.
Size
The constitution prescribes a minimum of three directors and as at balance date there were four members of the board.
Re-election
Under the terms of the constitution, one third of the directors (currently one) are required to retire from office at the
annual meeting of the Company but may seek re-election at that meeting.
Meetings
The board normally meets ten to twelve times a year and, in addition to reviewing normal operations of the Company,
approves a strategic plan and annual budget each year.
Board meetings are usually scheduled annually in advance, although additional meetings may be called at shorter notice.
Directors receive formal proposals, management reports and accounts in advance of all meetings.
Executives are regularly invited to attend board meetings and participate in board discussion. Directors also meet with
senior executives on items of particular interest.
Board and committee meeting attendance for the 52 week period ended 24 February 2014 was as follows:
Name Board meetings
held
Board meetings
attended
Audit and Risk
Committee
meetings held
Audit and Risk
Committee
meetings
attended
Appointments
and Remuneration
Committee
meetings held
Appointments
and Remuneration
Committee
meetings attended
E K van Arkel 11 10 2 2 1 1
D Diab 11 11 2 2 1 1
D A Pilkington 11 11 2 2 1 1
S H Suckling 11 11 2 2 1 1
Board remuneration
Directors’ fees for the 52 week period ended 24 February 2014 were set at $84,995 per annum for the Chairman and
$55,000 for each non-executive director. Refer to the Statutory Information section of the annual report for more detail.
No directors currently take a portion of their remuneration under a performance-based equity compensation plan,
although a number of directors do hold shares in the Company.
The terms of any directors’ retirement payments are as prescribed in the constitution and require prior approval of
shareholders in general meeting. No retirement payments have been made to any director.
Directors’ indemnity and insurance
The Company has insured all its directors and the directors of its subsidiaries against liabilities to other parties (except the
Company or a related party of the Company) that may arise from their position as directors. The insurance does not cover
liabilities arising from criminal actions.
The Company has executed a Deed of Indemnity, indemnifying all directors to the extent permitted by section 162 of the
Companies Act 1993.
Statement of corporate governance (continued)
for the 52 week period ended 24 February 2014
71
Risk management
In managing the Company’s business risks, the board approves and monitors policy and process in such areas as:
• Internal audit – Regular checks are conducted by operations and financial staff on all aspects of store operations.
• Treasury management – Exposure to interest rate and foreign exchange risks is managed in accordance with the
Company’s treasury policy.
• Financial performance – Full sets of management accounts are presented to the board at every meeting. Performance
is measured against an annual budget with periodic forecast updates.
• Capital expenditure – All capital expenditure is subject to relevant approval levels with significant items approved by
the board. The board also monitors expenditure against approved projects and approves the capital plan.
• Insurance – The Company has insurance policies in place covering most areas of risk to its assets and business. These
include material damage and business interruption cover at all of its sites. Policies are reviewed and renewed annually
with reputable insurers.
External advice
Directors may seek their own independent professional advice to assist with their responsibilities. During the 2014 financial
year no director sought their own independent professional advice, but the board sought advice with respect to market
levels of director remuneration.
Shareholding
There is no prescribed minimum shareholding for directors, although some do hold shares in the Company (refer to the
Statutory Information section of the report for more detail).
Directors may purchase shares upon providing proper notice of their intention to do so and in compliance with the
operation of the Company’s “Insider Trading Code” (see above).
Interests register
The board maintains an interests register. In considering matters affecting the Company, directors are required to disclose
any actual or potential conflicts. Where a conflict or potential conflict has been disclosed, the director takes no further
part in receipt of information or participation in discussions on that matter.
Shareholder communication
The board places importance on effective shareholder communication. Half year and annual reports are published each
year and posted on the Company’s website, together with quarterly sales releases. From time to time the board may
communicate with shareholders outside this regular reporting regime.
Consistent with best practice and a policy of continuous disclosure, external communications that may contain market
sensitive data are released through NZX in the first instance. Further communication is encouraged with press releases
through mainstream media. The board formally reviews its proceedings at the conclusion of each meeting to determine
whether there may be a requirement for a disclosure announcement.
Shareholder attendance at annual meetings is encouraged and the board allows extensive shareholder debate on all
matters affecting the Company.
Statement of corporate governance (continued)
for the 52 week period ended 24 February 2014
72
Auditor independence
The board manages the relationship with its auditors through the Audit and Risk Committee. The Company’s external
auditors are currently permitted to provide non-audit services to the Company with the approval of the Audit and Risk
Committee.
Auditors’ remuneration is disclosed in Note 5 to the financial statements.
Diversity policy
The Company does not have a formal diversity policy. However it recognises the wide-ranging benefits that diversity
brings to an organisation and its workplaces. Restaurant Brands endeavours to ensure diversity at all levels of the
organisation to ensure a balance of skills and perspectives are available in the service of our shareholders and customers.
As at 24 February 2014, the gender balance of the Company’s directors, officers and all employees is as follows:
Directors Officers Employees
2014 2013 2014 2013 2014 2013
Female 1 25% 1 25% 4 40% 4 44% 1,909 52% 1,920 52%
Male 3 75% 3 75% 6 60% 5 56% 1,782 48% 1,805 48%
Total 4 100% 4 100% 10 100% 9 100% 3,691 100% 3,725 100%
NZX corporate governance best practice code
In almost all respects, the Company’s corporate governance practices conform with the NZX Corporate Governance Best
Practice Code (the “Code”). The only areas in which the Company’s practices vary from the Code are: it has not adopted
a formal code of ethics, does not remunerate directors under a performance based equity compensation plan, does not
impose specific training requirements on its directors and does not have a nominations committee.
Statement of corporate governance (continued)
for the 52 week period ended 24 February 2014
73
74
CORPORATE
DIRECTORY
Directors:
E K (Ted) van Arkel (Chairman)
Sue Helen Suckling
Danny Diab
David Alan Pilkington
Registered office:
Level 3
Building 7
Central Park
666 Great South Road
Penrose
Auckland 1061
New Zealand
Share registrar:
Computershare Investor
Services Limited
Level 2
159 Hurstmere Road
Takapuna
Private Bag 92 119
Auckland 1142
New Zealand
Telephone: 64 9 488 8700
Auditors:
PricewaterhouseCoopers
Solicitors:
Bell Gully
Harmos Horton Lusk
Meredith Connell
Bankers:
Westpac Banking Corporation
Contact details:
Postal Address:
PO Box 22 749
Otahuhu
Auckland 1640
New Zealand
Telephone: 64 9 525 8700
Fax: 64 9 525 8711
Email: [email protected]
75
FINANCIAL
CALENDAR
Annual meeting:
26 June 2014
Close of register for final dividend:
13 June 2014
Final dividend paid:
27 June 2014
Interim profit announcement:
October 2014
Interim dividend paid:
November 2014
Financial year end:
2 March 2015
Annual profit announcement:
April 2015
76
NOTES
www.restaurantbrands.co.nz
doc_153803181.pdf
report on the results for Restaurant Brands for the 2013/14 financial year (FY14); another challenging trading year, through which the company persevered to deliver the second best profit result in its 17 year history.
2014 Annual Report
OUR
APPETITE
FOR GROWTH
CONTINUES
THROUGH
DESIRE, DESIGN
& DRIVE
Restaurant Brands’ capability in
running and supporting franchise
restaurant operations underpins
a multi-faceted structure that
keeps the business constantly
growing and improving.
1
Restaurant Brands New Zealand Limited
is a corporate franchisee that operates
the New Zealand outlets of KFC,
Pizza Hut, Starbucks Coffee and
Carl’s Jr. These brands – four of the
world’s most famous – are distinguished
for their product, look, style and
ambience, service and for the total
experience they deliver to their customers
in New Zealand and around the world.
Contents
02 Financial highlights
03 Year in review
04 Chairman’s & Chief Executive’s report
10 The drive to win comes from within
14 KFC operations
16 Pizza Hut operations
18 Carl’s Jr. operations
20 Starbucks Coffee operations
22 Board of directors
24 Community spirited, sustainably principled
27 Consolidated income statement
28 Non-GAAP financial measures
30 Financial statements
64 Independent auditors’ report
65 Shareholder information
67 Statutory information
70 Statement of corporate governance
74 Corporate directory
75 Financial calendar
22
All ?gures in $NZm unless stated 2009 2010 2011 2012 2013 2014
Financial performance
Sales*
KFC 211.5 223.2 235.8 236.3 237.0 241.5
Pizza Hut 64.6 64.2 59.3 45.5 47.9 48.4
Starbucks Coffee 33.0 30.5 29.3 26.5 25.1 25.0
Carl’s Jr. – – – – 1.9 14.3
Pizza Hut Victoria 0.3 – – – – –
Total 309.4 317.8 324.4 308.2 311.9 329.3
EBITDA before G&A*
KFC 38.0 46.3 52.1 45.6 45.3 44.5
Pizza Hut 2.8 5.4 5.6 2.1 3.8 5.5
Starbucks Coffee 2.9 3.2 4.1 3.7 2.9 3.5
Carl’s Jr. – – – – (0.5) –
Pizza Hut Victoria – – – – – –
Total 43.7 54.9 61.9 51.4 51.5 53.5
EBIT 15.6 29.2 35.0 24.4 22.7 28.2
NPAT (reported) 8.3 19.5 24.3 16.9 16.2 20.0
NPAT (excluding non-trading) 11.7 19.9 25.1 18.4 17.7 18.9
Financial position/cash flow
Share capital 25.6 25.8 26.6 26.6 26.7 26.8
Total equity 37.1 48.7 58.9 59.8 60.3 64.7
Total assets 101.1 103.0 111.4 104.9 111.8 108.3
Operating cash flows 23.3 38.7 40.6 29.8 34.8 32.7
Shares
Shares on issue (year end) 97,128,956 97,280,005 97,762,866 97,809,001 97,850,110 97,871,090
Number of shareholders (year end) 6,095 5,668 5,527 5,675 6,015 6,112
Earnings per share (full year reported) 8.5c 20.1c 24.9c 17.3c 16.5c 20.4c
Ordinary dividend per share 7.0c 12.5c 17.0c 16.0c 16.0c 16.5c
Other
Number of stores (year end)
KFC 84 85 89 88 89 90
Pizza Hut 93 91 82 71 57 51
Starbucks Coffee 42 41 37 35 29 27
Carl’s Jr. – – – – 2 8
Total 219 217 208 194 177 176
Employees (partners) paid (year end) 4,526 4,735 4,374 3,909 3,725 3,691
HISTORICAL SUMMARY
* Sales and store EBITDA for each of the concepts may not aggregate to the total due to rounding.
CARL'S JR. CONTRIBUTING
INCREMENTAL REVENUE OF
$12.4m
FINANCIAL HIGHLIGHTS
3
• Group Net Profit after Tax was $20.0 million
(20.4 cents per share), up 23.5% on prior year.
• Group Net Profit after Tax (excluding non-
trading items) was $18.9 million (19.3 cents
per share), up 6.8% on prior year.
• Total Group Revenue of $330.4 million was
up $17.6 million (+5.6%) with growth from
KFC and the roll out of the Carl’s Jr. brand.
• KFC sales continued to grow to a new high
of $241.5 million despite competitive market
conditions.
• Pizza Hut and Starbucks Coffee continued
to deliver solid same store sales growth,
up 15.3% and 5.7% respectively.
• The roll out of the new Carl’s Jr. brand
commenced in earnest with six new stores
opened over the year, contributing
$12.4 million in incremental revenue and
bringing store numbers to eight.
• Total store EBITDA of $53.5 million was up
$2.0 million (+3.9%) on the prior year with a
continued strong performance by Pizza Hut
and Starbucks Coffee, together with improved
earnings from Carl’s Jr. offsetting slightly
reduced margins in KFC.
• Operating cash flows were $32.7 million,
marginally down on prior year. Investing cash
flows were $9.8 million favourable to the prior
year with the impact of property sale and
leasebacks and continued sell down of
Pizza Hut stores. As a result bank debt fell
to $8.1 million at year end.
• A final fully imputed dividend of 10.0 cents
per share will be paid on 27 June, making a
full year dividend of 16.5 cents (up 3.1% on
the previous year).
09
309.4
10
317.8
11
324.4
12
308.2
13
311.9
329.3
14
TOTAL SALES
($NZ MILLIONS)
09
101.1
10
103.0
11
111.4
12
104.9
13
111.8
14
108.3
TOTAL ASSETS
($NZ MILLIONS)
TOTAL STORE EBITDA
($NZ MILLIONS)
09
43.7
10
54.9
11
61.9
12
51.4
13
51.5
14
53.5
09
8.3
10
19.5
11
24.3
12
16.9
13
16.2
14
20.0
TOTAL NPAT
($NZ MILLIONS)
YEAR IN REVIEW
4
2014
$m
2013
$m
Change
%
Total Group Revenue 330.4 312.8 +5.6
Group Net Profit after Tax 20.0 16.2 +23.5
Dividend (cps) 16.5 16.0 +3.1
We are pleased to report on
the results for Restaurant Brands
for the 2013/14 ?nancial year
(FY14); another challenging trading
year, through which the company
persevered to deliver the second
best pro?t result in its 17 year history.
Over the FY14 year, Restaurant
Brands faced two signi?cant
challenges. The ?rst was preserving
sales growth and margin retention
in a very competitive marketplace
and soft retail environment. The
second was in establishing and
building a new brand.
CHAIRMAN’S
AND CHIEF
EXECUTIVE’S
REPORT TO
SHAREHOLDERS
Ted van Arkel
Chairman
5
Group Operating Results
Restaurant Brands Net Profit after Tax for the 52 weeks
to 24 February 2014 (FY14) was $20.0 million (20.4 cents
per share) up 23.5% on last year's profit of $16.2 million
(16.5 cents per share).
Net Profit after Tax (excluding non-trading items)
was $18.9 million (19.3 cents per share), up 6.8% on
the $17.7 million (18.0 cents per share) result in FY13.
Non-trading items primarily comprised gains on sale and
leaseback of stores and totalled $1.5 million (pre-tax)
compared with non-trading losses of $2.4 million in the
prior year.
Total store sales of $329.3 million were up $17.4 million
(+5.6%) on the previous year’s sales. Same store sales for
the group were up 2.4% (up 1.9% in FY13).
Store EBITDA (before G&A costs) was up by $2.0 million
(+3.9%) to $53.5 million, driven mainly by the continuing
strong turnaround in Pizza Hut’s results. Pizza Hut
continued to be the standout performer for the year
increasing EBITDA by $1.7 million (on top of $1.7 million in
FY13) to $5.5 million. Starbucks Coffee also delivered a
strong improvement in earnings, up 19.4% to $3.5 million
for the year with Carl’s Jr. breaking even (up $0.5 million
on FY13). KFC saw profit slip slightly by $0.7 million to
$44.5 million.
Year end store numbers at 176 were one down on
February 2013 with continuing sales of regional Pizza Hut
stores to independent franchisees, largely offset by new
builds for Carl’s Jr.
We review our individual brand performance below, but
from an overall perspective, given their varying stages of
development, we were pleased with the contribution of
each brand to the performance of the group.
KFC
2014
$m
2013
$m
Change
$m
Change
%
Sales 241.5 237.0 +4.5 +1.9
EBITDA 44.5 45.3 –0.7 –1.6
EBITDA as % of Sales 18.4 19.1 – –
KFC sales continued to climb to yet another high at
$241.5 million, up $4.5 million on the prior year. The soft
retail environment and aggressive competitor activity put
some pressure on sales during the first half, but the brand
finished strongly with +4.1% same store sales growth in
the last quarter and +0.2% for the full year (versus –1.0%
in FY13).
CHAIRMAN’S
AND CHIEF
EXECUTIVE’S
REPORT TO
SHAREHOLDERS
Russel Creedy
Chief Executive Officer
6
The transition of ownership programme continued with
six stores being sold during the year. With six stores
fewer than prior year, Pizza Hut still managed to increase
total sales by $0.5 million (+1.1%) and grew same store
sales by 15.3% (on top of 21.2% growth in the FY13 year).
Continuing improvements in sales volumes and better
operational efficiencies, together with the sale of lower
margin stores meant another excellent improvement in
earnings. EBITDA was up a further $1.7 million (44.8%) on
prior year, which was itself up $1.7 million (80.8%) on the
year before. Resulting EBITDA was $5.5 million or 11.4%
of sales (7.9% in FY13).
The sale of regional and lower volume stores to
independent franchisees proceeded at a slower pace
with only six sold over the year, leaving Restaurant
Brands with a total of 51 stores out of a total of 84 in the
market. Demand for the remaining stores continues to
be strong.
Starbucks Coffee
2014
$m
2013
$m
Change
$m
Change
%
Sales 25.0 25.1 –0.1 –0.3
EBITDA 3.5 2.9 +0.6 +19.4
EBITDA as % of Sales 14.0 11.7 – –
The Starbucks Coffee brand continued to steadily
improve its sales and profit performance with network
rationalisation now largely complete and in-store
efficiencies well established.
Whilst total Starbucks Coffee sales at $25.0 million were
flat to prior year with two less stores, same store sales
grew strongly to +5.7% (–1.7% in FY13).
Sales leverage and continuing operating efficiencies
(with some assistance from a stronger exchange rate)
saw Starbucks Coffee EBITDA increase to $3.5 million,
up 19.4% on the prior year.
There are now 27 Starbucks Coffee stores operating
following the closure of all non-performing stores and the
brand is now well positioned for consolidation and future
steady growth.
Chairman’s and Chief Executive’s report to shareholders (continued)
Meeting competitor discounting activity put some
pressure on margins with KFC producing an EBITDA of
$44.5 million, 1.6% ($0.7 million) down on prior year. As
a % of sales, brand EBITDA declined from 19.1% to 18.4%,
but improved over the year from 17.7% in the first half to
19.3% in the second.
KFC promotional activity focussed on responding to
competitor activity with the launch of the Value Menu.
In addition KFC customers enjoyed the launch of new
burger variants, including the Kentucky, the Mexican and
the Real Kahuna burgers and the new Family Meals menu.
The store transformation programme continued at a
steady pace and will pick up again in the new year as
the brand moves to fully complete the upgrade of its
entire KFC network by FY16. As at balance date KFC
had 71 of its 90 stores new or fully refurbished. Whilst
only two stores (Otahuhu and Upper Hutt) received
major upgrades, a further 21 stores saw minor (five-year)
upgrades. Total store numbers increased to 90 with the
opening of a new store at Auckland airport.
Pizza Hut
2014
$m
2013
$m
Change
$m
Change
%
Sales 48.4 47.9 +0.5 +1.1
EBITDA 5.5 3.8 +1.7 +44.8
EBITDA as % of Sales 11.4 7.9 – –
Pizza Hut had another very strong year, continuing
to deliver both sales and margin growth in a very
competitive pizza market. The brand continues to build
momentum on its underlying premise of selling quality
pizzas at an everyday competitive price and maintaining
high levels of customer service.
7
Carl’s Jr.
2014
$m
2013
$m
Change
$m
Change
%
Sales 14.3 1.9 +12.4 +662.2
EBITDA 0.0 –0.5 +0.5 –
EBITDA as % of Sales 0.0 –26.4 – –
This year saw the continuation of the roll out of the
Carl’s Jr. brand with a further six stores opening to add to
the two opened at the end of the previous financial year.
New store openings produced significant sales surges,
which have now settled back to more stable levels. Total
sales for the year were $14.3 million as Carl’s Jr. begins
to build a presence in the Restaurant Brands’ stable.
Bringing a new brand to market in a competitive
environment has been a challenge in its first full year
of operation. New store openings meant significant set
up costs, particularly in recruiting and staff training.
Moving to local sourcing of raw ingredients is taking
longer than anticipated, but some benefits began to
flow in the second half of the year. As a consequence,
Carl’s Jr. produced an EBITDA loss of $0.2 million in the
first half, but turned this around to an equivalent profit
in the second half, resulting in a breakeven position for
the full year. The brand has also seen improved labour
efficiencies and lower wastage as stores have begun to
establish stable trading patterns.
Carl’s Jr. is seen as a significant driver of potential growth
for Restaurant Brands and it is intended to aggressively
pursue both sales growth and margin improvements,
overlaid with a continuing store roll out programme.
Corporate and Other Costs
G&A (above store overheads) at $13.1 million were well
controlled. They were $0.1 million down on prior year
and on the targeted 4.0% of sales (4.2% in FY13).
Group non-trading gains of $1.5 million arose primarily
from gains on sale following the successful sale and
leaseback of two KFC stores and one Carl’s Jr. store
during the year. This compares with a $2.4 million non-
trading loss in FY13.
Depreciation charges of $14.1 million were up $0.5 million
on the prior year largely as a result of the Carl’s Jr.
new store roll out (an additional $0.8 million). Reduced
depreciation charges in Pizza Hut and Starbucks Coffee
with store disposals and closures were offset by an
incremental $0.4 million in KFC with a new store and
transformation expenditure.
Interest and funding costs at $0.8 million were flat to
prior year with continuing lower debt levels and a benign
interest rate environment. Bank interest rates (inclusive of
margins) for the year averaged 4.9% compared with 5.0%
in FY13.
Cash Flow and Balance Sheet
Operating cash flows at $32.7 million were similar to the
prior year, reflecting higher profitability but without the
same benefit of favourable working capital movements.
Investing cash outflows were $22.5 million, similar to the
prior year’s $24.2 million, reflecting the increased capital
expenditure in KFC and the cost associated with building
an additional six Carl’s Jr. stores. Investing receipts from
the sale and leaseback of three new stores and Pizza Hut
store sales, together with the last of the Christchurch
insurance proceeds contributed positive investing cash
inflows of $12.4 million (up $8.0 million on prior year)
resulting in a net cash outflow of $10.1 million
($19.8 million in FY13).
The resulting free cash flows enabled a net reduction in
borrowings of $6.5 million over the year and dividend
payments of $16.1 million. Bank debt was down to
$8.1 million at year end. Borrowings are expected to
increase over the new year as the KFC transformation
programme and Carl’s Jr. new store build programme
continues.
Our current banking facility with Westpac expires at
the end of October; hence the debt is now classified as
current on our balance sheet. It is our intention to roll
this $35 million facility over for another three years.
WE KEEP MOVING
FORWARD BECAUSE
WE HAVE PROVEN
COMPETENCIES
IN RESTAURANT
OPERATIONS
8
Total assets at year end were $108.3 million, $3.4 million
down on the prior year end. The bulk of the change was
in non-current assets, with three significant properties
on the balance sheet in FY13 sold during the year as
sale and leasebacks.
Total liabilities were down by $7.7 million to $43.7 million
largely as a result of the reduction in borrowings.
Year end shareholders’ funds of $64.7 million were
$4.3 million up on prior year because of increases
in retained earnings.
The balance sheet remains very conservative with
a gearing ratio of 11% (FY13: 19%).
Dividend
Directors have declared a final fully imputed dividend of
10.0 cents per share. The continuing strong cash flows
and low levels of debt mean that dividend levels have
been able to be increased slightly on last year’s with
the resultant full-year dividend of 16.5 cents per share
(16.0 cents in FY13).
The 10.0 cents final dividend will be paid on 27 June 2014
to all shareholders on the register as at 13 June 2014.
A supplementary dividend of 1.7647 cents per share
will also be paid to overseas shareholders on that date.
The dividend re-investment plan remains suspended
for this dividend.
Staff
Restaurant Brands continues to aspire to be an employer
of choice, having competent and well-motivated people
to deliver on our brand promises. We have instituted
continuing improvements in our people hiring, training
and development processes including continuing
enhancements of our centralised recruitment function
and developing an online training capability to deliver
a consistent training experience across and within
our brands.
We acknowledge the staff at all levels of the organisation
for their contribution, commitment and continuing
hard work.
WE KEEP
MOVING
FORWARD
BECAUSE
WE HAVE
EXCELLENT
SYSTEMS AND
SUPPORT
OPERATING CASH FLOWS
$32.7m
Chairman’s and Chief Executive’s report to shareholders (continued)
9
Board
The Restaurant Brands board is small (only four
members) and has been very stable. The board has
worked well together and with management over the
past four years. Directors are however conscious of
the need to refresh board membership and to that
end have undertaken a comprehensive search and
selection process for a new director. As a result they are
recommending to shareholders that Hamish Stevens be
elected to the board at the forthcoming shareholders’
meeting. Hamish’s details are contained in the notice of
meeting. Directors believe that this new appointment
will provide more depth to the board and allow for
subsequent rotation of members.
Our Community
Elsewhere in this report we talk about Restaurant Brands’
sense of corporate social responsibility and values. We
remain committed to doing business on a sustainable
basis and supporting our people and the communities
we serve.
Workplace safety and diversity of our workforce are two
areas of constant focus which, together with our staff
turnover, give us and our shareholders real measures of
inherent staff satisfaction.
Our contributions to the community are also seen as an
important part of our social responsibility outputs and
to that end we are particularly proud of our partnership
with Surf Lifesaving New Zealand. That worthwhile
community cause benefitted from our donations and
fundraising activities by in excess of $160,000 over the
past twelve months with World Hunger relief benefitting
by a further $60,000.
We are also pro-actively seeking to reduce our impact
on the environment with recycling and energy
conservation activities.
Outlook
Directors believe that the $18.9 million NPAT (excluding
non-trading) was a solid result for the company given
the current economic and competitive environment.
The retail sector was not particularly robust in the first
half of the year and competitive activity was aggressive.
The company met the dual challenges of both
maintaining market share and margin in a competitive
environment whilst building a new brand and Restaurant
Brands will be in a strong position to benefit from the
general economic recovery in the coming year.
KFC will see significant capital investment over the
new financial year as the brand focuses on bringing the
remainder of its network up to new store standard. With
some management changes and a renewed focus on
operational performance, the brand is expected to deliver
both sales and margin growth in the FY15 year.
Pizza Hut will continue to maintain its sales and margin
momentum with another year of solid same store
sales and earnings growth anticipated. The ownership
transition process to independent franchisees will
continue, albeit at a slower pace.
Starbucks Coffee, like Pizza Hut, continues to perform
well and is expected to also benefit from the economic
recovery with continued sales growth and (assisted by
sales leverage and a strong exchange rate) higher profit.
The investment in the Carl’s Jr. brand will continue over
the new year with four to five new stores anticipated
over the next 12 months. As with any new brand there
will be challenges in both maintaining sales momentum
following new opening peaks and building margins as
new store set up costs are incurred and the benefits of
localising supply chain and store efficiencies are realised.
With a strong start to the new financial year and
improving economic situation, we are cautiously
optimistic that the company will produce a NPAT
(before non-trading items) in excess of $20 million
for the new year.
Conclusion
This is the first time we have jointly reported to
shareholders on the company’s performance,
demonstrating the closeness with which board and
management work together. We jointly acknowledge
the contribution made by both the board of directors
and the management team to the positive outcome
for the FY14 year and thank them for their continuing
support as we move into a new financial year.
FULL YEAR DIVIDEND
UP 3.1% TO
16.5 CENTS
PER SHARE
10
It’s what you can’t see – the
support structures, the systems
and the behind-the-scenes
capability performed by highly
competent and motivated staf –
that constitutes the engine of our
growing business. Each function in
our operation is interdependent in a
uniquely efective ‘eco-system’ that
is fundamental to our continued
success. Here, we spotlight nine
of those critical functions.
Take Procurement.
A traditional view
might be that this
role is all about
negotiating with suppliers to keep costs down. But that’s
far from the whole story. As Procurement Manager Sean
McRae puts it, “the role is about adding value to the
business and to customers.”
So let’s say Marketing comes up with a great idea for a
new, temporary menu item (called an LTO or limited time
offer). And let’s also say that unknown to Marketing, one
of the ingredients would make the item too
expensive to be competitive. Is that the
end of Marketing’s great idea?
No way! says Sean. “We have lots of ways to bring the
cost down without compromising quality. We might
negotiate specific business deals with certain suppliers,
say. Or we might suggest a variation on the item using a
different ingredient. However we do it, our work allows
our marketers to present attractive, innovative offers to
our customers.”
It also allows the Operations department to keep the
business running. Every day, Restaurant Brands stores
go through thousands of items of ingredients, packaging
and other supplies, many of them perishable. “In this
business, even the best laid plans can go awry, and we
have to be able to respond quickly,” says Sean. “That
means we need to negotiate enough flexibility in our
supplier deals so we can speed up or slow down any
part of the supply chain as needed.”
As you can imagine, keeping food
at its best is critical to Restaurant
Brands’ success. That complex
task falls mainly to our Quality
Assurance team.
"There are many aspects of Quality Assurance,” says
Quality Assurance Manager Zane Marshall. “First, we
have to make sure that the products our suppliers deliver
to us actually meet our specifications. That includes
temperature control and ingredient purity, but also
covers things like the dimensions of buns. Customers
expect a consistent experience every time they order
a product from us.”
Compliance is another big part of the
job. Because some of our ingredients
are imported, Restaurant Brands
must meet stringent import
requirements as well as council
THE DRIVE TO
WIN COMES
FROM WITHIN
Quality Assurance
I have thousands of photos of
products and ingredients on
my smart phone. We’re always
looking for the best possible
product from our suppliers.
Zane Marshall
Quality Assurance Manager
Procurement
Our work allows our marketers
to present attractive, innovative
offers to our customers.
Sean McRae
Procurement Manager
QUALITY
ASSURANCE
PROCUREMENT
11
gradings for each store. Our suppliers, too, must be
regularly audited and, in some cases, be independently
accredited.
Quality Assurance is about both health – making sure
every mouthful of our food is safe to eat – and also
pleasure. “I have thousands of photos of products and
ingredients on my smart phone,” says Zane, “because
we’re always looking for the best possible product from
our suppliers.”
But what about once the product reaches the store?
How it’s subsequently handled and cooked has a massive
impact on its quality by the time it reaches the customer.
Coupled with
Restaurant Brands’
stringent Food Control
Plan, the result is “a
lot of quality control,”
says Heather Carnegie, Health, Safety & Environment
(HS&E) Manager.
“One of our strengths,” says Heather, “is the orientation
and induction programme that every new staff member
completes, covering general safety, hazard management,
injury prevention, team work, customer service and
food safety.”
The HS&E team is also responsible, of course, for
“making sure we send people home in the same condition
that they arrived at work in.” We achieve that by a
combination of team work and training to ensure a
safe work environment.
For example, “when we reviewed the standard
educational videos and brochures that
showed lifting, we concluded the material
was not appropriate for our environment,” says Heather.
“So we worked with experts to design our own material,
and have trained 400 staff in the correct techniques. In
the six months since, not one has suffered a lifting injury.”
At Restaurant Brands we regularly develop our own
bespoke equipment to minimise risk, like the long-
handled lifting tool that allows staff to remove items
from the oven safely.
Thanks to such initiatives, Restaurant Brands has been
steadily reducing ACC claims and severity for the last
ten years, and the current lost time injury rate continues
to fall.
Of course that wouldn’t happen if we didn’t have people
who value safety. Ensuring we choose the right people,
and do so fairly, is the job of the Recruitment Centre team.
“Our business is all about people,” says Recruitment
Centre Manager Kristy Evans. “Profits will come if they’re
taken care of.”
In 2012, recruitment
was centralised after
many years of being
handled separately
by each store. “We want to ensure Restaurant Brands
follows international best practice recruitment and
selection processes and that we attract the best quality
candidates,” says Kristy. “Stores tell us they’re noticing
that they’re getting better people.”
One result is a better customer experience. “We want
to make sure every customer is a returning customer,”
says Kristy. “That means we need the right people
who care about the brand. We want to bring life
and energy to each customer experience.”
Health, Safety & Environment
We recently trained 400 staff in
correct lifting techniques. In the
six months since then, not one of
them has suffered a lifting injury.
Heather Carnegie
HS&E Manager
HEALTH, SAFETY &
ENVIRONMENT
RECRUITMENT
Recruitment
Our business is all about
people. Profits will come
if they’re taken care of.
Kristy Evans
Recruitment Centre Manager
12
The drive to win comes from within (continued)
While customers always notice good service, one aspect
of our business we hope they don’t notice is the systems
that run in the background.
Ensuring they run smoothly and
seamlessly is the Information
Systems Service Delivery team.
“One of our most important
measures is speed of customer
service,” says team leader Dean Boock. “You’d be
surprised at some of the issues that can arise. For
example, if our Internet Service Provider suffers a data
outage, that can interrupt our EFTPOS, even though
our own systems are not directly affected.”
One key to success is constantly updating the software
that runs everything. Another is improved monitoring –
an area Dean’s team has focused on in the last 12 months.
“We used to solve a lot of problems after the fact,” he
says. “Now we anticipate them much more and resolve
them before they occur or, if they happen overnight,
before the stores open.”
Another team member whose job includes anticipating
the unexpected is Project Manager Mark Erceg. Every
time a new Restaurant Brands store goes up, or one is
refurbished, the Project Manager’s signature is all over it.
“This role is all about the design and build of our stores,”
says Mark. “One of the challenges is anticipating changes
that lie years ahead, and that might call for a radically
different store layout.”
For that reason, modern stores are built from materials
that are easily dismantled or reworked. “Not concrete
slabs,” says Mark. “You can’t cut a hole in that!”
The launch of Carl’s Jr. has
kept the Project Management
crew especially busy.
“We had to learn the brand
and its design criteria,” says Mark. “Then we negotiated
with the American franchise owners to put our own
New Zealand ‘tag’ on the design, so the stores would
appeal to the local market.
“Ultimately, our job is to hand over a store on time and on
budget – and one that Operations can successfully run.”
Once a store is opened, we can’t assume people will
automatically flock to it. Marketing plays a critical role
in encouraging hungry people to think of Restaurant
Brands first, and the role of digital marketing, in
particular, is increasing by the day.
“People automatically think Facebook when you say
‘digital marketing’, but it’s much more than that,” says
Digital Marketing Manager Luke Smith. “Website
maintenance, digital advertising, gathering brand and
product insights and tracking industry trends are all key.
Digital is ever changing and demands constant attention
in order to keep your finger on the pulse.
“Marketing has changed
dramatically in the last few
years. Now we can spot
problems and opportunities
quickly – we can launch a new menu item, say, and see
that people want more sauce on it. In terms of online
presence in New Zealand all four of our brands are in
the top 50 by number of fans, with KFC in particular
sitting in third place and we’re committed to using digital
marketing to keep customers returning.”
The final two pieces of the business, Loss Prevention and
Finance, are critical to Restaurant Brands’ profitability.
Doug Rawson, our Loss Prevention Officer, uses an
analogy: “Every time money passes from one hand to
another, it’s like passing sand – some’s going to get lost.
Our job is to minimise that loss.”
Property
Ultimately, our job is to hand over
a store on time and on budget
– and one that Operations can
successfully run.
Mark Erceg
Project Manager
Information Systems
Speed of customer service is critical.
For that reason, we’re anticipating
problems much more than we used to,
and resolving them before they occur.
Dean Boock
Service Delivery Manager
PROPERTY
MARKETING
INFORMATION
SYSTEMS
13
a store, brand and group level,” says Deb, “so that
management has the information they need to make
sound financial decisions.
“How you present that information is important. My main
‘customers’ are the senior leadership team and the store
managers. They count on us to not only provide historical
information and manage financial risk but also highlight
cost saving opportunities so our stores can perform at
their best – it's all about continuous improvement.”
So there you have it. Next time you walk up to the
counter at a KFC, Starbucks Coffee, Carl’s Jr. or Pizza
Hut store and are greeted by one of our efficient, friendly
crew, imagine if you will a long line of support crew
stretched out behind her. Picture each one performing
a specific task, and see those tasks combining in such
a way that they result in her handing you a hot, tasty
beverage, or a delicious meal, as though it’s the simplest
and easiest thing in the world.
That’s the power of teamwork. And it’s what will ensure
the continued growth and success of our company.
WE KEEP
MOVING
FORWARD
BECAUSE OUR
PEOPLE ARE
MOTIVATED
AND CAPABLE
Marketing
People automatically think
Facebook when you say
‘digital marketing’, but it’s
much more than that.
Luke Smith
Digital Marketing Manager
Loss Prevention
Every time money passes from one
hand to another, it’s like passing
sand – some’s going to get lost.
Our job is to minimise that loss.
Doug Rawson
Loss Prevention Officer
Loss Prevention and Finance serve both
the Restaurant Brands’ board and the
stores. “We’re seen as a support role,” says
Doug, “not as the police. We coach our
store partners on how to implement and
operate systems that prevent loss or fraud. A common
comment from store managers after we’ve coached
them is ‘I can now see what’s happening in the store’.”
One of the most useful tools to Loss Prevention is each
store’s Profit & Loss statement. “Whenever there’s a
significant variation in the trading results for any store,
that’s a sign that something’s amiss: it could be the cost
of labour, excess wastage, too many refunds or, in rare
cases, fraud,” says Doug.
To get that information, Loss
Prevention relies on Finance.
Deb Aston, who prepares the
Profit & Loss statements and
Balance Sheets for the stores and company, says the role
reaches further than people might think. “Ultimately, our
job is to help the stores do their job well – deliver great
products and great service.”
That’s a complex task. It includes reviewing contracts,
budgets and internal processes, as well as regularly
reviewing financial data. “We look at those things from
FINANCE
LOSS
PREVENTION
Finance
Ultimately, our job is to help
the stores do their job well –
deliver great products and
great service.
Deb Aston
Assistant Accountant
KFC IS7 8DT1/6DT1 KFC248
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RB0625 Picnic Variety Bucket Menu Panel 400x650mm_V5.indd 1
10/12/13 3:29 PM
14
For KFC the FY14 ?nancial year was
a challenging one. A persistently
soft retail environment and
continued aggressive price driven
competitor activity meant that same
store sales were ?at to negative
for much of the year. Same store
sales by quarter were Q1 –0.9%,
Q2 +0.4%, Q3 –2.7% and it wasn’t
until the fourth quarter that the
brand saw a solid turnaround
with sales up +4.1%. Nonetheless,
KFC ?nished the year with overall
positive same store sales of +0.2%
(FY13 –1.0%) and total sales climbed
to a new high for the brand at
$241.5 million, up 1.9% on prior year.
SALES NEW HIGH
$241.5m
KFC
15
Total sales growth was assisted by the opening of a new
store at Auckland airport bringing total store numbers to
90 for the brand.
Brand EBITDA at $44.5 million was slightly down on prior
year mainly because of the competitive discounting activity
required to meet the market. Earnings improved however, as
the year progressed. EBITDA as a % of sales was 17.7% in the
first half, climbing to 19.3% in the second, to give a total of
18.4% for the full year.
A number of new burger launches assisted in driving
sales with the Kentucky, the Mexican and the Real Kahuna
burgers all seeing strong customer acceptance. Over the
year KFC also launched a new Family Meals menu which
assisted in driving bigger ticket sales.
The pace of store transformation steadied over FY14
with two major transformations being undertaken at the
Otahuhu and Upper Hutt stores. However a total of 21 five
year upgrades were undertaken on existing transformed
stores, topping up the standard of facilities on an ongoing
basis. Store numbers also increased with the opening of a
new store at Auckland airport. Of the brand's 90 stores,
at balance date, 71 were new or fully refurbished.
Despite the tighter trading environment KFC continued to
build on improving customer experience. CHAMPS mystery
shopper programme scores were 90%, similar to the prior
year’s 91%.
Staff turnover continued to steadily improve with the brand
finishing the year at 49%, a solid improvement on last
year’s 57% as the benefits of the new centralised recruiting
function continue to flow through.
The brand saw a higher level of focus on reducing accidents
in stores with total claims down to 147 for the year; however
16 lost time injuries per million hours were much the same as
the prior year’s 15.
As the FY15 year begins, KFC has seen continued sales
momentum, which (as discounting pressures decrease
and the retail environment improves) will continue to
enhance margins, moving the brand closer to its EBITDA
target of 19-20% of sales. KFC will also accelerate its store
transformation programme over the current year, targeting
up to 10 major transformations, with a view to completing
the major transformation programme by the end of the
FY16 year.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
2,249
STORES
90 (+8 INDEPENDENT FRANCHISES)
09 10 11 12 13 14
241.5
09 10 11 12 13 14
44.5
09 10 11 12 13 14
64.0
16
The Pizza Hut brand had another
very good year, delivering continued
strong sales and margin growth in
the very competitive pizza sector.
The formula of providing quality
pizzas at a competitive everyday
price and good levels of customer
service continues to produce
positive results.
SAME STORE SALES
UP 15.3%
PIZZA HUT
17
Despite having store numbers six (10.5%) less than last
year as a result of the sell down programme, Pizza Hut
still managed to increase total sales out of the remaining
stores by $0.5 million (+1.1%) and grew same store sales by a
respectable 15.3% (on top of 21.2% growth in the prior year).
Margin growth followed accordingly with continuing sales
leverage and operational efficiencies, together with the
benefits of selling off some lower margin stores. Brand
EBITDA of $5.5 million was up $1.7 million (44.8%) on prior
year, on top of the $1.7 million increase in FY13. As a % of
sales Pizza Hut EBITDA finished the year at 11.4%, up from
7.9% in the prior year.
Customer service levels as measured by the CHAMPS
mystery shopper scores slipped slightly to 91% (versus 96%
in the prior year and 91% the year before). However the
trend was positive with scores in the latter part of the
year at similar levels to the prior year.
The measure of internal store operational compliance (CER
score) was 77% for the year (73% in FY13). This measure,
which is significant in determining the operating efficiencies
and food quality in our stores, has seen a consistent
improvement over recent times.
Staff turnover was 55%, slightly up on the prior year’s
54%, but was in part a reflection of the continued store
sell down process.
Pizza Hut saw a decrease in total accident claims as the
brand made a conscious effort to improve staff safety.
However lost time injuries per million hours saw a small
increase from three to five.
Six more stores were sold to independent franchisees over
the year as the brand continued to pursue the strategy of
exiting regional and lower volume stores. Whilst interest
in buying Pizza Hut stores continues to be very high, the
pace of selling has slowed with the improved profitability
of the brand meaning higher prices being sought for stores.
Company owned stores had dropped to 51 by the end of the
year, out of a total of 84 in the market.
Pizza Hut has seen a continuation of the strong sales and
margin performance into the FY15 financial year and is
expected to deliver another solid result (although not at the
incremental levels seen in the past two years). There will be
continued sales of stores to independent franchisees as and
when opportunities present.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
790
STORES
51 (+33 INDEPENDENT FRANCHISES)
09 10 11 12 13 14
48.4
09 10 11 12 13 14
5.5
09 10 11 12 13 14
14.8
OPENED
6 NEW
STORES
18
Following the opening of the
?rst two stores at the end of last
year, the Carl’s Jr. new store roll
out began in earnest in the FY14
year with a total of six new stores
opening over the period, bringing
total store numbers at year end
to eight.
CARL'S JR.
19
The incremental store numbers provided a significant boost
to total sales with Carl’s Jr. generating $14.3 million in total
sales for the year.
New store openings produced significant sales surges,
which have now settled back to more stable levels.
Building profitability in this new business has been a
challenge in its first full year of operation with new store
openings incurring significant set up costs, particularly
in recruiting and training staff. Local sourcing of raw
ingredients such as beef patties took somewhat longer than
anticipated, but some benefits began to flow in the second
half of the year. As a consequence, Carl’s Jr. produced an
EBITDA loss of $0.2 million in the first half, but turned this
around to an equivalent profit in the second half.
Margins have continued to improve further with lower
ingredient costs. The brand has seen improved labour
efficiencies and lower wastage as stores have begun to
establish more stable trading patterns.
With the disruption and initial pressure in establishing a
new brand, staff turnover was slightly higher than desirable
at 60%, but this is expected to settle down as the business
gains more stability.
Again as a function of establishment and staff training and
learning, accident levels were higher than desirable with 11
claims incurred over the year.
The new financial year will see the Carl’s Jr. brand gaining
further momentum with another four to five stores targeted
for opening, bringing total stores operating in New Zealand
to more than 20. This will both provide more critical mass
for wider advertising of the brand, together with increasing
economies of scale from a supply chain and staff training
viewpoint. This together with the progressive move to full
local ingredient sourcing is expected to deliver positive
EBITDA in the FY15 year.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
271
STORES
8 (+7 INDEPENDENT FRANCHISES)
13 14
14.4
13 14
0.0
13 14
14.3
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© 2014 Starbucks Coffee Company. All rights reserved. Printed in New Zealand.
20
SAME STORE SALES
UP 5.7%
STARBUCKS COFFEE
21
09 10 11 12 13 14
25.0
09 10 11 12 13 14
3.5
09 10 11 12 13 14
4.0
The Starbucks Cofee brand had
a strong year, following a year of
consolidation. Same store sales
grew +5.7% (versus –1.7% in FY13)
with total sales largely ?at at
$25.0 million.
The Starbucks Coffee business has now matured and
established itself in a niche position among branded chains
in the New Zealand coffee marketplace. With increasingly
good standards of customer service and a quality coffee
and food offering, Starbucks Coffee proved itself by winning
the prestigious Roy Morgan Customer Satisfaction Award
for the second year in a row. This award which is voted on
by consumers throughout the country ranked Starbucks
as “Coffee Shop” of the year against the full range of other
branded coffee chains.
With the improving same store sales and the completion
of rationalisation, earnings were up $0.6 million or 19.4%
to produce a $3.5 million EBITDA. The profit was further
assisted by continuing operating efficiencies and a stronger
exchange rate.
Store numbers at year end totalled 27, two down on
last year with two closures over the year. The network
rationalisation for the brand is now largely complete
with all stores now contributing positive margins.
Staff (or partner) turnover at 66% was down on last year’s
70% as a result of the benefits of centralised recruitment.
Accident levels improved with a reduction in total claims
from 15 to 9, but lost time claims per million hours were
three versus two in the previous year.
After a period of some uncertainty and rationalisation,
the Starbucks Coffee brand is now in a stable position
for steady growth. It is expected to deliver same store
sales growth over the coming year whilst holding
margin. There will be some capital reinvestment
in store refurbishment and a point of sale
systems upgrade.
TOTAL SALES
($NZ MILLIONS)
TOTAL ASSETS
($NZ MILLIONS)
TOTAL EBITDA
($NZ MILLIONS)
STAFF
314
STORES
27 (+NIL INDEPENDENT FRANCHISES)
22
Ted van Arkel
FNZIM
Chairman and Independent
Non-Executive Director
Term of Office: Appointed Director
24 September 2004 and appointed
Chairman 21 July 2006, last re-elected
2011 Annual Meeting
Board Committees: Member of
the Audit and Risk Committee and
Appointments and Remuneration
Committee
Mr van Arkel has been a professional
director since retiring from the
position of Managing Director of
Progressive Enterprises Limited
in November 2004. Mr van Arkel
currently serves as Chairman of
Health Benefits Limited and The
Warehouse Group Limited. Other NZX
listed company directorships are AWF
Group Limited and Abano Healthcare
Group Limited. He is also a director
of the Auckland Regional Chamber
of Commerce & Industry Limited.
Mr van Arkel also serves as a director
of a number of private companies
including Philip Yates Securities
Limited, Danske Mobler Limited and
his family-owned companies Lang
Properties Limited and Van Arkel &
Co Limited.
WE KEEP MOVING
FORWARD BECAUSE
WE HAVE STRONG
DIRECTION
BOARD OF DIRECTORS
23
David A Pilkington
BSC, BE(CHEM), DIP DAIRY SCI & TECH
Independent Non-Executive Director
Term of Office: Appointed Director
15 July 2004, last re-elected 2013
Annual Meeting
Board Committees: Chairman
of the Audit and Risk Committee
and Member of Appointments and
Remuneration Committee
The former Managing Director
of New Zealand Milk Limited,
Mr Pilkington is Chairman of
Port of Tauranga Limited,
Rangatira Limited and its subsidiaries
Hellers Limited and Tuatara Brewing
Company Limited. He is also a
director of Ballance Agri-Nutrients
Limited, Zespri Group Limited,
Douglas Pharmaceuticals Limited,
Northport Limited and Primeport
Timaru Limited. Mr Pilkington is also
a shareholder and director of his
own consulting company, Excelsa
Associates Limited and a trustee for
the New Zealand Community Trust.
Sue H Suckling
B.TECH (HONS), M.TECH (HONS), OBE
Independent Non-Executive Director
Term of Office: Appointed Director
9 June 2006, last re-elected 2010
Annual Meeting
Board Committees: Chairman of the
Appointments and Remuneration
Committee and Member of Audit and
Risk Committee
Ms Suckling is a professional director
with over 20 years governance
experience with public and private
companies. She is currently Chairman
of the New Zealand Qualifications
Authority, Barker Fruit Processors
Limited, ECL Group Limited, Jacobsen
Holdings Limited and Callaghan
Innovation Research Limited and
its subsidiaries. She is a director of
Oxford Health Group Limited, Oxford
Clinic Hospital Limited, SKYCITY
Entertainment Group Limited, New
Zealand Health Innovation Hub and
Acemark Holdings Limited. She
also serves as a member of the
Takeovers Panel.
Danny Diab
FAICD, DIP CD, DIP CM, FICM
Non-Executive Director
Term of Office: Appointed Director
17 October 2002, last re-elected 2012
Annual Meeting
Board Committees: Member of
the Audit and Risk Committee and
Appointments and Remuneration
Committee
Mr Diab is based in Australia where
he owns and operates a number of
Pizza Hut restaurants in Sydney in
addition to other business interests.
He has more than 27 years’ experience
in the food industry and is regarded
as one of the leading Pizza Hut
franchisees in Australia. He has
worked as a consultant specialising
in the areas of business improvement
and restructure, mergers and
acquisitions. He is a director of the
Pizza Advertising Co-Operative
Australia and Vice President of
the Australian Pizza Association.
24
Our vision is to be the leading
operator of enduring and innovative
QSR brands in New Zealand. That’s
why we’re committed to doing
business guided by principles of
sustainability. These principles help
form our menus and management
practices; our people and the way
we contribute to the communities
we serve.
Four interdependent elements – People, Food, Planet and
Progress – sustain the health and vitality of our company.
This section of the Annual Report outlines our Corporate
Social Responsibility KPIs for the financial year in relation
to each of these elements.
People
Restaurant Brands depends on the support of Kiwi
consumers and partnerships with employees, suppliers,
franchisees and investors. We employ 3,691 people aged
from 16–70 nationwide and serve over 60,000 customers
every day. We:
• Offer competitive remuneration to attract and retain
skilled employees and maintain our position not to
reintroduce youth rates.
• Invest in our people through training and education
programmes across all our brands and provide a clear
career path for talented employees.
• Are an equal opportunity employer and embrace
the diversity of the communities that we operate in.
• Continue our involvement with charitable and
community organisations and review our efforts on
an ongoing basis to ensure they remain relevant and
valuable to the communities we serve.
COMMUNITY
SPIRITED,
SUSTAINABLY
PRINCIPLED
25
Food
Restaurant Brands serves great tasting, safe food with
seasonally and locally sourced ingredients. We:
• Continue to make improvements to the nutritional
composition of our food with a focus on sodium, sugar
and saturated fat reduction.
• Provide detailed nutritional information about our
products in-store and online to enable our customers
to make informed choices.
• Support our trusted local suppliers as part of our
ethical purchasing and procurement.
Planet
Restaurant Brands is conscious of the impact its
operations has on the environment and we are always
working to minimise waste, maximise energy efficiency
and use resources carefully. We:
• Source all packaging from sustainable timbers
with the majority grown locally.
• Continue with initiatives that see all cardboard
and paper collected for recycling and cooking oil
reprocessed for bio-diesel and soap.
• Actively participate in energy saving initiatives
including monitoring live power usage in our stores
to reduce peak load and encourage employees to
turn off equipment when it’s not in use.
WE KEEP
MOVING
FORWARD
BECAUSE
WE ALWAYS
REMEMBER WE
ARE PART OF
THE COMMUNITY
CUSTOMERS SERVED EVERY DAY
OVER 60,000
26
Community spirited, sustainably principled (continued)
CSR Performance Measures
Category Measure FY2014
Workplace Safety Number of Workplace Lost Time
Incidents in Past 365 days
51
Number of Lost Workdays from Injury
in Past 365 Days
167
Staff Satisfaction Staff Turnover (as a % of Average Total
Staff on a Rolling Annual Basis)
52%
Gender Diversity % of Women Employed at All Levels 52%
Community Total Funds raised for Charitable and
Community Organisations
$240,000
Recycling % of Cardboard and Paper Waste from
Back of House Operations Recycled
100%
% of Oil from Back of House
Operations Recycled
100%
Energy Conservation Kilowatts of energy used in electricity
and gas per $ million of sales (excluding
Restaurant Brands Support Centre)
141,000 KW
More Information
A full copy of our CSR Statement can be found on our website www.restaurantbrands.co.nz
27
$NZ000's 24 February 2014 vs prior % 28 February 2013
Sales
KFC 241,521 1.9 237,032
Pizza Hut 48,393 1.1 47,876
Starbucks Coffee 25,041 (0.3) 25,115
Carl’s Jr. 14,314 662.2 1,878
Total sales 329,269 5.6 311,901
Other revenue 1,130 23.9 912
Total operating revenue 330,399 5.6 312,813
Cost of goods sold (273,493) (6.0) (258,081)
Gross margin 56,906 4.0 54,732
Distribution expenses (2,464) 7.8 (2,672)
Marketing expenses (14,656) (6.9) (13,716)
General and administration expenses (13,088) 0.9 (13,203)
EBIT before non-trading 26,698 6.2 25,141
Non-trading 1,472 161.2 (2,405)
EBIT 28,170 23.9 22,736
Interest income 19 46.2 13
Interest expense (774) 9.0 (851)
Net profit before taxation 27,415 25.2 21,898
Taxation expense (7,462) (30.0) (5,739)
Total profit after taxation (NPAT) 19,953 23.5 16,159
Total NPAT excluding non-trading 18,863 6.8 17,654
% sales % sales
EBITDA before G&A
KFC 44,529 18.4 (1.6) 45,272 19.1
Pizza Hut 5,496 11.4 44.8 3,796 7.9
Starbucks Coffee 3,498 14.0 19.4 2,929 11.7
Carl’s Jr. 4 – n/a (495) (26.4)
Total 53,527 16.3 3.9 51,502 16.5
Ratios
Net tangible assets per security (net tangible
assets divided by number of shares) in cents 47.2c 42.5c
Cost of goods sold are direct costs of operating stores: food, paper, freight, labour and store overheads.
Distribution expenses are costs of distributing product from store.
Marketing expenses are call centre, advertising and local store marketing expenses.
General and administration expenses (G&A) are non-store related overheads.
CONSOLIDATED INCOME STATEMENT
for the 52 week period ended 24 February 2014
28
* Refers to the list of non-GAAP measures as listed above.
** Refer to Note 5 of the financial statements for an analysis of non-trading items.
The Group results are prepared in accordance with New Zealand Generally Accepted Accounting Practice (“GAAP”) and
comply with International Financial Reporting Standards (“IFRS”). These financial statements include non-GAAP financial
measures that are not prepared in accordance with IFRS. The non-GAAP financial measures used in this presentation are
as follows:
1. EBITDA before G&A. The Group calculates Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”)
before G&A (general and administration expenses) by taking net profit before taxation and adding back (or deducting)
net financing expenses, non-trading items, depreciation, amortisation and G&A. The Group also refers to this measure
as Concept EBITDA before G&A.
The term Concept refers to the Group’s four operating segments comprising KFC, Pizza Hut, Starbucks Coffee and
Carl’s Jr. The term G&A represents non-store related overheads.
2. EBIT before non-trading. Earnings before interest and taxation (“EBIT”) before non-trading is calculated by taking net
profit before taxation and adding back (or deducting) net financing expenses and non-trading items.
3. Non-trading items. Non-trading items represent amounts the Group considers unrelated to the day to day operational
performance of the Group. Excluding non-trading items enables the Group to measure underlying trends of the
business and monitor performance.
4. EBIT after non-trading items. The Group calculates EBIT after non-trading items by taking net profit before taxation
and adding back net financing expenses.
5. Total NPAT excluding non-trading. Total Net Profit After Taxation (“NPAT”) excluding non-trading items is calculated
by taking profit after taxation attributable to shareholders and adding back (or deducting) non-trading items whilst
also allowing for any tax impact of those items.
6. Capital expenditure including intangibles. Capital expenditure including intangibles represents additions to property,
plant and equipment and intangible assets.
The Group believes that these non-GAAP measures provide useful information to readers to assist in the understanding
of the financial performance and position of the Group but that they should not be viewed in isolation, nor considered as
a substitute for measures reported in accordance with IFRS. Non-GAAP measures as reported by the Group may not be
comparable to similarly titled amounts reported by other companies.
The following is a reconciliation between these non-GAAP measures and net profit after taxation:
$NZ000’s Note* 24 February 2014 28 February 2013
EBITDA before G&A 1 53,527 51,502
Depreciation (14,114) (13,573)
Loss on sale of property, plant and equipment (included in depreciation) (51) (62)
Amortisation (included in cost of sales) (1,432) (1,068)
General and administration – area managers, general managers and
support centre (11,232) (11,658)
EBIT before non-trading 2 26,698 25,141
Non-trading items** 3 1,472 (2,405)
EBIT after non-trading items 4 28,170 22,736
Net financing costs (755) (838)
Net profit before taxation 27,415 21,898
Income tax expense (7,462) (5,739)
Net profit after taxation 19,953 16,159
(Deduct)/add back non-trading items (1,472) 2,405
Taxation expense/(credit) on non-trading items 382 (910)
Net profit after taxation excluding non-trading items 5 18,863 17,654
NON-GAAP FINANCIAL MEASURES
for the 52 week period ended 24 February 2014
29
For and on behalf of the Board of Directors:
E K van Arkel
Chairman
9 April 2014
THE DIRECTORS ARE
PLEASED TO PRESENT THE
FINANCIAL STATEMENTS
OF RESTAURANT BRANDS
NEW ZEALAND LIMITED
FOR THE 52 WEEK PERIOD
ENDED 24 FEBRUARY 2014
CONTAINED ON PAGES
30 TO 63.
D A Pilkington
Director
9 April 2014
Group Company
$NZ000’s Note 2014 2013 2014 2013
Store sales revenue 3 329,269 311,901 – –
Other revenue 3, 4 1,130 912 16,158 15,652
Total operating revenue 330,399 312,813 16,158 15,652
Cost of goods sold (273,493) (258,081) – –
Gross profit 56,906 54,732 16,158 15,652
Distribution expenses (2,464) (2,672) – –
Marketing expenses (14,656) (13,716) – –
General and administration expenses (13,088) (13,203) – –
EBIT before non-trading 26,698 25,141 16,158 15,652
Non-trading 5 1,472 (2,405) – –
Earnings before interest and taxation (EBIT) 3 28,170 22,736 16,158 15,652
Interest revenue 19 13 – –
Interest expense (774) (851) (733) (818)
Net financing expenses 5 (755) (838) (733) (818)
Profit before taxation 27,415 21,898 15,425 14,834
Taxation (expense)/credit 6 (7,462) (5,739) 205 229
Profit after taxation attributable to shareholders 19,953 16,159 15,630 15,063
Items that may be reclassified subsequently to the statement
of comprehensive income – – – –
Total comprehensive income attributable to shareholders 19,953 16,159 15,630 15,063
Basic earnings per share (cents) 18 20.39 16.52
Diluted earnings per share (cents) 18 20.39 16.51
The accompanying accounting policies and notes form an integral part of the financial statements.
30
Statements of comprehensive income
for the 52 week period ended 24 February 2014
GROUP NET PROFIT AFTER TAX
UP 23.5%
The accompanying accounting policies and notes form an integral part of the financial statements.
Group $NZ000’s Note
Share
capital
Share
option
reserve
Foreign
currency
translation
reserve
Retained
earnings Total
For the 52 week period ended 28 February 2013
Balance at the beginning of the period 17 26,648 28 53 33,024 59,753
Comprehensive income
Total profit after taxation attributable
to shareholders – – – 16,159 16,159
Other comprehensive income – – – – –
Total comprehensive income – – – 16,159 16,159
Transactions with owners
Shares issued on exercise of options 17 75 (2) – – 73
Net dividends distributed 16 – – – (15,653) (15,653)
Total transactions with owners 75 (2) – (15,653) (15,580)
Balance at the end of the period 15, 17 26,723 26 53 33,530 60,332
For the 52 week period ended 24 February 2014
Balance at the beginning of the period 26,723 26 53 33,530 60,332
Comprehensive income
Total profit after taxation attributable
to shareholders – – – 19,953 19,953
Other comprehensive income – – – – –
Total comprehensive income – – – 19,953 19,953
Transactions with owners
Shares issued on exercise of options 17 33 (4) – – 29
Transfer for share options lapsed – (22) – 22 –
Net dividends distributed 16 – – – (15,658) (15,658)
Total transactions with owners 33 (26) – (15,636) (15,629)
Balance at the end of the period 15, 17 26,756 – 53 37,847 64,656
31
Statements of changes in equity
for the 52 week period ended 24 February 2014
The accompanying accounting policies and notes form an integral part of the financial statements.
Company $NZ000’s Note
Share
capital
Share
option
reserve
Retained
de?cit Total
For the 52 week period ended 28 February 2013
Balance at the beginning of the period 17 26,648 28 (24,879) 1,797
Comprehensive income
Profit after taxation attributable to shareholders – – 15,063 15,063
Other comprehensive income – – – –
Total comprehensive income – – 15,063 15,063
Transactions with owners
Shares issued on exercise of options 17 75 (2) – 73
Net dividends distributed 16 – – (15,653) (15,653)
Total transactions with owners 75 (2) (15,653) (15,580)
Balance at the end of the period 15, 17 26,723 26 (25,469) 1,280
For the 52 week period ended 24 February 2014
Balance at the beginning of the period 26,723 26 (25,469) 1,280
Comprehensive income
Profit after taxation attributable to shareholders – – 15,630 15,630
Other comprehensive income – – – –
Total comprehensive income – – 15,630 15,630
Transactions with owners
Shares issued on exercise of options 17 33 (4) – 29
Transfer for share options lapsed – (22) 22 –
Net dividends distributed 16 – – (15,658) (15,658)
Total transactions with owners 33 (26) (15,636) (15,629)
Balance at the end of the period 15, 17 26,756 – (25,475) 1,281
32
Statements of changes in equity (continued)
for the 52 week period ended 24 February 2014
The accompanying accounting policies and notes form an integral part of the financial statements.
Group Company
$NZ000’s Note 2014 2013 2014 2013
Non-current assets
Property, plant and equipment 7 80,231 85,651 – –
Investments in subsidiaries 9 – – 150,396 150,396
Intangible assets 8 18,424 18,785 – –
Deferred tax asset 10 3,223 2,570 – –
Total non-current assets 101,878 107,006 150,396 150,396
Current assets
Inventories 11 1,587 1,776 – –
Other receivables 12 1,750 2,180 – –
Cash and cash equivalents 770 798 – 10
Assets classified as held for sale 13 2,353 – – –
Total current assets 6,460 4,754 – 10
Total assets 108,338 111,760 150,396 150,406
Equity attributable to shareholders
Share capital 17 26,756 26,723 26,756 26,723
Reserves 53 79 – 26
Retained earnings/(deficit) 37,847 33,530 (25,475) (25,469)
Total equity attributable to shareholders 64,656 60,332 1,281 1,280
Non-current liabilities
Provisions and deferred income 21 4,439 5,333 – –
Loans and finance leases 19 131 14,783 – 14,555
Total non-current liabilities 4,570 20,116 – 14,555
Current liabilities
Bank overdraft – – 903 –
Income tax payable 2,726 2,475 – –
Loans and finance leases 19 8,206 116 8,060 –
Creditors and accruals 20 26,595 26,445 116 116
Provisions and deferred income 21 1,579 2,090 – –
Amounts payable to subsidiary companies 27 – – 140,030 134,269
Derivative financial instruments 14 6 186 6 186
Total current liabilities 39,112 31,312 149,115 134,571
Total liabilities 43,682 51,428 149,115 149,126
Total equity and liabilities 108,338 111,760 150,396 150,406
33
Statements of fnancial position
as at 24 February 2014
BANK DEBT DOWN TO
$8.1m
The accompanying accounting policies and notes form an integral part of the financial statements.
Group Company
$NZ000’s Note 2014 2013 2014 2013
Cash flows from operating activities
Cash was provided by/(applied to):
Receipts from customers 330,399 312,813 – –
Payments to suppliers and employees (289,373) (271,923) – –
Dividends received – – 16,158 15,652
Interest received 19 13 – –
Interest paid (955) (899) (913) (868)
(Payment)/receipt of income tax (7,438) (5,239) 631 545
Net cash from operating activities 24 32,652 34,765 15,876 15,329
Cash flows from investing activities
Cash was provided by/(applied to):
Payment for intangibles 8 (1,841) (1,781) – –
Purchase of property, plant and equipment (20,620) (22,406) – –
Proceeds from disposal of property, plant and equipment 12,398 4,355 – –
Advances from/(to) subsidiary company – – 5,761 (276)
Net cash (used in)/from investing activities (10,063) (19,832) 5,761 (276)
Cash flows from financing activities
Cash was provided by/(applied to):
Cash received on the exercise of options 29 73 29 73
(Decrease)/increase in loans 19 (6,495) 975 (6,495) 975
(Decrease)/increase in finance leases 19 (67) 85 – –
Dividends paid to shareholders 16 (15,658) (15,653) (15,658) (15,653)
Supplementary dividends paid (426) (315) (426) (315)
Net cash used in financing activities (22,617) (14,835) (22,550) (14,920)
Net (decrease)/increase in cash and cash equivalents (28) 98 (913) 133
Reconciliation of cash and cash equivalents
Cash and cash equivalents at the beginning of the period: 798 700 10 (123)
Cash and cash equivalents at the end of the period:
Cash on hand 204 249 – –
Cash at bank/(bank overdraft) 566 549 (903) 10
25 770 798 (903) 10
Net (decrease)/increase in cash and cash equivalents (28) 98 (913) 133
34
Statements of cash fows
for the 52 week period ended 24 February 2014
1. General information
Restaurant Brands New Zealand Limited (“Company” or “Parent”) together with its subsidiaries (the “Group”) operate
quick service and takeaway restaurant concepts.
The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered
office is Level 3, Building 7, Central Park, 666 Great South Road, Penrose, Auckland.
The Group and Company financial statements (“financial statements”) were authorised for issue on 9 April 2014 by the
Board of Directors who do not have the power to amend after issue.
2. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice
(“NZ GAAP”). They comply with New Zealand equivalents to International Reporting Standards, NZ IFRIC interpretations,
and other applicable Financial Reporting Standards, as appropriate for profit oriented entities. The financial statements
comply with International Financial Reporting Standards (“IFRS”) as issued by IASB.
The financial statements are presented in New Zealand dollars, rounded where necessary to the nearest thousand dollars.
The Group divides its financial year into 13 four-week periods. The 2014 full year results are for 52 weeks (2013: 52 weeks).
Entities reporting
The financial statements for the Group are the financial statements comprising the economic entity Restaurant Brands
New Zealand Limited and its subsidiaries. The financial statements of the Parent are for the Company as a separate
legal entity.
The Parent and the Group are designated as profit oriented entities for financial reporting purposes.
Statutory base
The Company is listed on the New Zealand Stock Exchange (“NZX”). It is registered under the Companies Act 1993 and
is an issuer in terms of the Financial Reporting Act 1993. The financial statements have been prepared in accordance with
the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.
Historical cost convention
The financial statements have been prepared on the historical cost convention, except for financial derivatives which are
stated at their fair value and are discussed further below.
Critical accounting estimates and judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
The estimates and assumptions that have a significant risk of causing material adjustment to the carrying value of assets
and liabilities within the next financial year are addressed below.
(i) Goodwill impairment
As disclosed in Note 8, the Group undertook impairment testing of its operating divisions. Note 8 sets out the key
assumptions used to determine the recoverable amount along with a sensitivity analysis.
35
Notes to and forming part of the fnancial statements
for the 52 week period ended 24 February 2014
2. Summary of significant accounting policies (continued)
(a) Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed
at the date of exchange. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognised directly in the statements of comprehensive income.
Intra-group balances and profits resulting from intra-group transactions are eliminated in preparing the financial
statements.
(b) Foreign currency translation
Items included in the financial statements are measured using the currency of the primary economic environment in
which the entity operates (“the functional currency”). The financial statements are presented in NZD, which is the Group’s
presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the profit or loss. Amounts qualifying as cash flow hedges and
qualifying net investment hedges are also recognised in the statements of comprehensive income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to New Zealand dollars at exchange rates at the reporting date. The income and expenses of foreign operations
are translated to New Zealand dollars at exchange rates at the dates of the transactions.
Exchange differences arising from the translation of the net investment in foreign operations are recognised in the foreign
currency translation reserve and are released to the statements of comprehensive income upon disposal.
(c) Financial instruments
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised when the Group’s contractual rights to the cash flows from the financial assets expire
or when the Group transfers the financial asset to another party without retaining control or substantially all risks and
rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that
the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised when the Group’s obligations
specified in the contract expire or are discharged or cancelled.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, which are initially recognised at fair value
plus transaction costs and subsequently measured at amortised cost, cash and cash equivalents, loans and borrowings
(initially recognised at fair value plus transaction costs and subsequently measured at amortised cost), and creditors
and accruals which are initially recognised at fair value and subsequently measured at amortised cost.
Derivative financial instruments
The Group has various derivative financial instruments to manage the exposures that arise due to movements in foreign
currency exchange rates and interest rates arising from operational, financing and investment activities. The Group
does not hold derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge
accounting are accounted for at fair value through the profit or loss. Embedded derivatives are separated from the host
contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded
derivative are not closely related. A separate instrument with the same terms as the embedded derivative would meet
the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
36
2. Summary of significant accounting policies (continued)
(c) Financial instruments (continued)
Derivative financial instruments (continued)
Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss when
incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted
for as described below.
The fair value of forward exchange contracts is estimated by discounting the difference between the contractual
forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based
on government bonds). The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for
reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using
market interest rates for a similar instrument at the measurement date.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly
in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are
recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity
remains there until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately transferred to profit or loss. When the hedged item
is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is
recognised. In other cases the amount recognised in equity is transferred to profit or loss in the same period that the
hedged item affects profit or loss.
(d) Revenue recognition
Goods sold and services rendered
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns
and allowances, discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership
have been transferred to the buyer, recovery of the consideration is probable, the associated costs of possible return
of goods can be estimated reliably and there is no continuing management involvement with the goods. Other revenue
represents sales of services and is recognised in the accounting period in which the services are rendered, by reference
to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total
services to be provided.
Dividend income
Dividend income is recognised when the right to receive payment is established.
Interest revenue
Interest revenue is recognised on a time proportion basis using the effective interest method.
Grants
A grant is recognised in the statements of financial position initially as deferred income when there is reasonable
assurance that it will be received and that the Group will comply with the conditions associated with the grant, and
subsequently recognised in the statements of comprehensive income when the requirements under the grant have been
met. Grants that compensate the Group for the cost of an asset are recognised in the statements of comprehensive
income on a systematic basis over the useful life of the asset.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
37
2. Summary of significant accounting policies (continued)
(e) Net financing costs
Net financing costs comprise: interest payable on borrowings calculated using the effective interest rate method; interest
received on funds invested calculated using the effective interest rate method; foreign exchange gains and losses; gains
and losses on certain financial instruments that are recognised in the statements of comprehensive income; unwinding
of the discount on provisions and impairment losses on financial assets.
(f) Lease payments
Finance leases
Minimum lease payments under finance leases are apportioned between the finance charge and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising
the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Operating leases
Payments made under operating leases are recognised in the statements of comprehensive income on a straight line basis
over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense over the
term of the lease.
(g) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statements of
comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition
of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable
profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably
will not reverse in the foreseeable future.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is
recognised to the extent that it is probable that future taxable profits will be available against which temporary difference
can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends
are recognised at the same time as the liability to pay the related dividend is recognised.
Deferred tax assets and liabilities are set off only if there is a legal right of set off and they relate to income taxes levied
by the same taxation authorities.
(h) Advertising and promotion costs
Expenditure on advertising and promotional activities is recognised as an expense when the Group has the right to access
the goods or has received the service.
(i) Royalties paid
Royalties are recognised as an expense as revenue is earned.
(j) Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss or loans and
receivables. The classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in
this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held
for trading unless they are designated as hedges. Assets in this category are classified as current assets.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
38
2. Summary of significant accounting policies (continued)
(j) Financial assets (continued)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet
date. These are classified as non-current assets. The Group’s loans and receivables comprise “other receivables” and
“cash and cash equivalents” in the statements of financial position.
Financial assets that are stated at cost or amortised cost are reviewed individually at balance date to determine whether
there is objective evidence of impairment. If any such evidence exists, the asset’s recoverable amount is calculated using
the present value of future cash flows discounted at the original effective interest rate. An impairment loss is recognised
in the statements of comprehensive income for the difference between the carrying amount and the recoverable amount.
An impairment loss is reversed if the subsequent increase in the recoverable amount can be related objectively to an
event occurring after the impairment was recognised. The impairment loss is reversed only to the extent that the financial
asset’s carrying value does not exceed the carrying value that would have been determined if no impairment loss had
been recognised.
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
(l) Creditors and accruals
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
(m) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised
in the statements of comprehensive income over the period of the borrowings using the effective interest method.
Intangible assetsGoodwill
Goodwill arises on the acquisition of subsidiaries and business combinations. Goodwill is measured at cost less
accumulated impairment losses. Goodwill is allocated to cash generating units and is tested annually for impairment.
Where the Group disposes of an operation within a cash generating unit, the goodwill associated with the operation
disposed of is part of the gain or loss on disposal. Goodwill disposed of in this manner is measured based on the relative
values of the operation disposed of and the portion of the cash generating unit retained.
Franchise costs
Franchise costs are those incurred in obtaining franchise rights or licences to operate quick service and take-away
restaurant concepts. They include for example, the initial fee paid to a system franchisor when a new store is opened.
These are measured at cost less accumulated amortisation and accumulated impairment costs. Amortisation is on a
straight line basis over the life of the applicable franchise or licence agreement.
Concept development costs and fees
Concept development costs and fees include certain costs, other than the direct cost of obtaining the franchise,
associated with the establishment of quick service and takeaway restaurant concepts. These include, for example,
professional fees and consulting costs associated with the establishment of a new brand or business acquisition.
These costs are capitalised where the concept is proven to be commercially feasible and the related future economic
benefits are expected to exceed those costs with reasonable certainty. These are subsequently measured at cost less
accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight line basis over
the period which future economic benefits are reasonably expected to be derived.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
39
2. Summary of significant accounting policies (continued)
Intangible assets (continued)Acquired software costs
Software costs have a finite useful life. Software costs are capitalised and amortised on a straight line basis over the
estimated economic life of 3–8 years.
(o) Property, plant and equipment
Owned assets
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Where
appropriate, the cost of property, plant and equipment includes site preparation costs, installation costs and the cost
of obtaining resource consents required to bring the asset ready for use. Borrowing costs associated with non-qualified
property, plant and equipment are, as per IAS23R, expensed as incurred.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
(major components) of property, plant and equipment.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured
reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the statements of
comprehensive income as incurred.
Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases. Assets acquired by way of finance leases are stated initially at an amount equal to the lower of its fair value and
present value of the future minimum lease payments. Subsequent to initial recognition the asset is accounted for in
accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised on the Group’s statements of financial position. The Group
also leases certain plant and equipment and land and buildings by way of operating lease. The cost of improvements
to leasehold assets is capitalised as buildings or leasehold improvements and then depreciated as outlined below.
Capital work in progress
All costs relating to an asset are first recorded in capital work in progress. Once all associated costs for an asset are
established with relative certainty, the asset is then transferred from work in progress and capitalised into property,
plant and equipment.
Store start up costs
Costs incurred in connection with assessing the feasibility of new sites are expensed as incurred with the exception
of franchise costs and certain development costs and fees as discussed above.
Depreciation
Land is not depreciated. Depreciation is recognised in the statements of comprehensive income and is calculated on a
straight line basis to allocate the cost of an asset, less any residual value, over its estimated useful life. Leased assets are
depreciated over the shorter of the lease term and their useful lives. The estimated useful lives of fixed assets are as follows:
Leasehold improvements 5–20 years
Plant and equipment 3–12.5 years
Motor vehicles 4 years
Furniture and fittings 3–10 years
Computer equipment 3–5 years
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
(p) Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price less
the estimated costs of marketing, selling and distribution. The cost of inventories is based on the first-in first-out method
and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location.
(q) Dividends
Dividends are accrued in the period in which they are authorised.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
40
2. Summary of significant accounting policies (continued)
(r) Impairment on non-financial assets
The carrying amounts of the Group’s assets except for inventories and deferred tax assets are reviewed at each balance
date to determine whether there is any indication of impairment. If any such indication exists then the asset’s or Cash
Generating Unit’s (CGU’s) recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives
or that are not yet available for use, the recoverable amount is estimated at each reporting date. An impairment loss is
recognised whenever the carrying amount of an asset or CGU exceeds its recoverable amount. A CGU is the smallest
identifiable asset group that generates cash flows that are largely independent from other assets and groups.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. Impairment losses directly
reduce the carrying amount of assets and are recognised in the statements of comprehensive income. Impairment losses
recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units and
then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
Except for impairment losses on goodwill, impairment losses recognised in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill is not reversed.
(s) Share capital
Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction
from equity.
(t) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of
ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive
potential ordinary shares, which comprise share options granted to employees.
(u) Employee benefits
Other long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value.
Share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount
recognised as an expense is adjusted to reflect the actual number of share options that vest. The fair value of the options
granted is measured using an options pricing model, taking into account the terms and conditions upon which the options
were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest
except where forfeiture is only due to share prices not achieving the threshold for vesting.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus if the Group has
a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the
obligation can be estimated reliably.
(v) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker, responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Senior Leadership Team. The Senior Leadership Team reviews the Group’s
internal reporting in order to assess performance and allocate resources.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
41
2. Summary of significant accounting policies (continued)
(w) Goods and services tax
The statement of comprehensive income and statements of cash flows have been prepared exclusive of Goods and
Services Taxation (GST). All items in the statements of financial position are stated net of GST, with the exception of
receivables and payables, which include GST invoiced.
(x) Non-current assets held for sale
Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily
through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for
sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies.
Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount and fair value less
costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement
are recognised in the statements of comprehensive income. Gains are not recognised in excess of any cumulative
impairment loss.
ProvisionsA provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract
are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the
present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with
the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with
that contract.
(z) Non-trading items
The Group seeks to present a measure of comparable underlying performance on a consistent basis. In order to do so,
the Group separately discloses items considered to be unrelated to the day to day operational performance of the Group.
Such items are classified as non-trading items and are separately disclosed in the statements of comprehensive income
and notes to the financial statements.
(aa) New standards and interpretations
New and amended standards adopted by the Group
• External Reporting Board Standard A1 Accounting Standards Framework (For-profit Entities Update) (“XRB A1”)
was adopted by the Group. XRB A1 establishes a for-profit tier structure and outlines which suite of accounting
standards entities in different tiers must follow. For the purposes of complying with NZ GAAP, Restaurant Brands
New Zealand Limited is a listed entity in New Zealand and has therefore reported under Tier 1, preparing NZ IFRS
financial statements.
• NZ IAS 1 Amendments to Presentation of Items of Other Comprehensive Income was adopted by the Group for the first
time. The amendment requires entities to separate items presented in other comprehensive income into two groups,
based on whether they may be re-cycled to profit or loss in the future.
• NZ IFRS 10 Consolidated Financial Statements was adopted by the Group for the first time. The standard builds on
existing principles by identifying the concept of control as the determining factor in whether an entity should be
included within the consolidated financial statements of the parent entity.
• NZ IFRS 12 Disclosures of Interests in Other Entities was adopted by the Group for the first time. The standard sets
out the required disclosures for all forms of interests in other entities.
• NZ IFRS 13 Fair Value Measurement was adopted by the Group for the first time. The standard aims to improve
consistency and reduce complexity by providing a precise definition of fair value and a single source at fair value
measurement and disclosure requirements for use across IFRS’s.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
42
2. Summary of significant accounting policies (continued)
(aa) New standards and interpretations (continued)
Relevant standards, amendments and interpretations to existing standards that are not yet effective and have not
been early adopted by the Group
• NZ IFRS 9 Financial Instruments (effective 1 January 2015) addresses the classification, measurement and derecognition
of financial assets and financial liabilities. NZ IFRS 9 is intended to replace NZ IAS 39. The Group has not yet decided
when to adopt NZ IFRS 9. The standard is not expected to have a material impact on the Group.
There are various other standards, amendments and interpretations which are currently not applicable to the Group.
There are no NZ IFRS, NZ IFRIC interpretations or other applicable IFRS that are effective for the first time for the financial
year beginning on or after 1 March 2013 that would be expected to have a material impact on the financial statements.
(ab) Comparative information
Where necessary, comparative information has been reclassified in order to provide a more appropriate basis
for comparison.
3. Segmental reporting
The Group has four operating segments: KFC, Pizza Hut, Starbucks Coffee and Carl’s Jr. All segments operate quick
service and takeaway restaurant concepts. No operating segments have been aggregated.
The segments were determined primarily because the Group manages each business separately and reports each
business separately to the chief operating decision maker. The reportable segments are each managed separately as they
operate in four distinct markets, sell distinct products, have distinct production processes and have distinct operating and
gross margin characteristics. The Group operates in New Zealand.
All other segments represents general and administration support centre costs (“G&A”). G&A support centre costs are
not an operating segment as the costs incurred are incidental to the Group’s activities.
The Group evaluates performance and allocates resources to its operating segments on the basis of segment assets,
segment revenues, concept earnings before interest and tax and depreciation and amortisation (“concept EBITDA”),
and earnings before interest and tax basis (“concept EBIT”).
The accounting policies of the Group’s segments are the same as those described in the notes to the Group’s financial
statements. Segment assets include items directly attributable to the segment (i.e. property, plant and equipment,
intangible assets and inventories). Unallocated items comprise other receivables, cash and cash equivalents, deferred tax
and derivative financial instruments as they are all managed on a central basis. These are part of the reconciliation to total
assets in the statements of financial position. Segment capital expenditure is the total cost incurred during the period to
acquire property, plant and equipment and intangible assets other than goodwill.
The Group has not disclosed segment liabilities as the chief operating decision maker (the Senior Leadership Team)
evaluates performance and allocates resources purely on the basis of aggregated Group liabilities.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
43
3. Segmental reporting (continued)
KFC Pizza Hut Starbucks Cofee Carl’s Jr. All other segments* Consolidated full year
$NZ000’s 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Store sales revenue 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 – – 329,269 311,901
Other revenue – – – – – – – – 1,130 912 1,130 912
Total operating revenue** 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 1,130 912 330,399 312,813
Concept EBITDA before general and
administration expenses 44,529 45,272 5,496 3,796 3,498 2,929 4 (495) – – 53,527 51,502
Depreciation (10,421) (9,972) (1,484) (1,947) (974) (1,121) (769) (16) (466) (517) (14,114) (13,573)
Gain/(loss) on sale of property, plant and equipment
(included in depreciation) (18) (23) (9) (21) (29) (18) – – 5 – (51) (62)
Amortisation (included in cost of sales) (687) (672) (295) (188) (87) (75) (98) (18) (265) (115) (1,432) (1,068)
G&A – area managers, general managers and
support centre (2,292) (2,501) (839) (1,000) (431) (729) (491) (431) (7,179) (6,997) (11,232) (11,658)
EBIT before non-trading 31,111 32,104 2,869 640 1,977 986 (1,354) (960) (7,905) (7,629) 26,698 25,141
Impairment on property, plant and equipment (91) (129) – (31) – – – – – (79) (91) (239)
Other non-trading 1,518 270 102 (1,891) (197) (188) 269 – (129) (357) 1,563 (2,166)
EBIT after non-trading 32,538 32,245 2,971 (1,282) 1,780 798 (1,085) (960) (8,034) (8,065) 28,170 22,736
EBIT after non-trading 28,170 22,736
Net financing costs (755) (838)
Net profit before taxation 27,415 21,898
Income tax expense (7,462) (5,739)
Net profit after taxation 19,953 16,159
(Deduct)/add back non-trading items (1,472) 2,405
Taxation expense/(credit) on non-trading items 382 (910)
Net profit after taxation excluding non-trading 18,863 17,654
Segment assets 63,968 74,268 14,807 17,209 4,004 4,947 14,421 8,083 2,924 1,705 100,124 106,212
Unallocated assets 8,214 5,548
Total assets 108,338 111,760
Capital expenditure including intangibles 6,967 15,402 476 1,031 412 948 12,176 6,496 2,143 2,158 22,174 26,035
* All other segments are general and administration support centre expenses (G&A).
** All operating revenue is from external customers.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
44
TOTAL STORE EBITDA
UP $2.0m
3. Segmental reporting (continued)
KFC Pizza Hut Starbucks Cofee Carl’s Jr. All other segments* Consolidated full year
$NZ000’s 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Store sales revenue 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 – – 329,269 311,901
Other revenue – – – – – – – – 1,130 912 1,130 912
Total operating revenue** 241,521 237,032 48,393 47,876 25,041 25,115 14,314 1,878 1,130 912 330,399 312,813
Concept EBITDA before general and
administration expenses 44,529 45,272 5,496 3,796 3,498 2,929 4 (495) – – 53,527 51,502
Depreciation (10,421) (9,972) (1,484) (1,947) (974) (1,121) (769) (16) (466) (517) (14,114) (13,573)
Gain/(loss) on sale of property, plant and equipment
(included in depreciation) (18) (23) (9) (21) (29) (18) – – 5 – (51) (62)
Amortisation (included in cost of sales) (687) (672) (295) (188) (87) (75) (98) (18) (265) (115) (1,432) (1,068)
G&A – area managers, general managers and
support centre (2,292) (2,501) (839) (1,000) (431) (729) (491) (431) (7,179) (6,997) (11,232) (11,658)
EBIT before non-trading 31,111 32,104 2,869 640 1,977 986 (1,354) (960) (7,905) (7,629) 26,698 25,141
Impairment on property, plant and equipment (91) (129) – (31) – – – – – (79) (91) (239)
Other non-trading 1,518 270 102 (1,891) (197) (188) 269 – (129) (357) 1,563 (2,166)
EBIT after non-trading 32,538 32,245 2,971 (1,282) 1,780 798 (1,085) (960) (8,034) (8,065) 28,170 22,736
EBIT after non-trading 28,170 22,736
Net financing costs (755) (838)
Net profit before taxation 27,415 21,898
Income tax expense (7,462) (5,739)
Net profit after taxation 19,953 16,159
(Deduct)/add back non-trading items (1,472) 2,405
Taxation expense/(credit) on non-trading items 382 (910)
Net profit after taxation excluding non-trading 18,863 17,654
Segment assets 63,968 74,268 14,807 17,209 4,004 4,947 14,421 8,083 2,924 1,705 100,124 106,212
Unallocated assets 8,214 5,548
Total assets 108,338 111,760
Capital expenditure including intangibles 6,967 15,402 476 1,031 412 948 12,176 6,496 2,143 2,158 22,174 26,035
* All other segments are general and administration support centre expenses (G&A).
** All operating revenue is from external customers.
45
4. Other revenue
Group Company
$NZ000’s 2014 2013 2014 2013
Sales of services 1,130 912 – –
Dividends – – 16,158 15,652
1,130 912 16,158 15,652
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
46
GROUP NET PROFIT AFTER TAX
(EXCLUDING NON-TRADING ITEMS)
UP 6.8%
5. Analysis of expenses
The profit before taxation is calculated after charging/(crediting) the following items:
Group Company
$NZ000’s 2014 2013 2014 2013
Fees paid to auditor
To PwC for audit of annual financial statements 78 69 – –
To PwC for other services
Agreed on procedures in relation to interim financial
statements 19 19 – –
Assurance services* 9 7 – –
Other services** 8 – – –
Total fees paid to auditor 114 95 – –
Government training grants (included in general and
administration expenses) – (160) – –
Amortisation of intangibles (included in cost of sales) 1,432 1,068 – –
Royalties paid 19,416 18,560 – –
Depreciation expense 14,114 13,573 – –
Operating rental expenses 17,646 16,524 – –
Net loss on disposal of property, plant and equipment
(included in depreciation expense) 51 62 – –
Net gain on disposal of property, plant and equipment
(included in non-trading costs) (2,581) (2,656) – –
Donations 74 160 – –
Directors' fees 250 251 – –
Interest expense (net) 909 885 733 818
Interest income – interest rate swap fair value changes (180) (79) – –
Finance lease interest 26 32 – –
* Assurance services comprise audit of Company share registry and
certain compliance certificates for third parties.
** Other services in 2014 comprise executive reward services review and
tax compliance advice.
Non-trading items
Loss on sale of stores
Net sale proceeds (1,057) (2,484) – –
Property, plant and equipment disposed of 385 956 – –
Goodwill disposed of 699 3,192 – –
27 1,664 – –
Gain on sale and leaseback of stores (1,754) – – –
Other store closure costs 325 1,325 – –
Other store closure costs – franchise fees written off 47 144 – –
Other store closure costs – insurance proceeds (31) (1,263) – –
Other store relocation and refurbishment costs 11 296 – –
Other store relocation and refurbishment – insurance proceeds (6) – – –
Impairment on property, plant and equipment (91) 239 – –
Total non-trading items (1,472) 2,405 – –
Group
$NZ000’s 2014 2013
Personnel expenses
Wages and salaries 83,697 78,882
Increase in liability for long service leave 60 29
83,757 78,911
The Parent has no personnel expenses (2013: nil).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
47
6. Income tax expense in the statements of comprehensive income
Reconciliation of effective tax rate
Group Company
$NZ000’s Note 2014 2013 2014 2013
Total profit before income tax for the period 3 27,415 21,898 15,425 14,834
Total income tax (expense)/credit 3 (7,462) (5,739) 205 229
Net profit after income tax 19,953 16,159 15,630 15,063
Income tax using the Company’s domestic
tax rate (28.0%) (7,676) (28.0%) (6,131) (4,319) (4,154)
Non-deductible expenses and
non-assessable income 0.7% 197 1.7% 380 4,524 4,383
Prior period adjustment 0.1% 17 0.1% 12 – –
(27.2%) (7,462) (26.2%) (5,739) 205 229
Income tax (expense)/credit comprises:
Current tax (expense)/credit (8,115) (6,962) 205 229
Deferred tax credit 10 653 1,223 – –
Net tax (expense)/credit (7,462) (5,739) 205 229
Income taxation expense
Income tax (expense)/credit (7,462) (5,739) 205 229
Total income tax (expense)/credit 3 (7,462) (5,739) 205 229
Imputation credits
Group
$NZ000’s 2014 2013
Imputation credits available for subsequent reporting periods 11,828 9,815
The above amounts represent the balance of the imputation account as at the end of the reporting period, adjusted for:
• Imputation credits that will arise from the payment of the amount of the provision for income tax
• Imputation credits that will arise from the payment of dividends recognised as a liability at the reporting date; and
• Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The current income tax for the period was calculated using the rate of 28% (2013: 28%). The deferred tax balances in
these financial statements have been measured using the 28% tax rate (2013: 28%).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
48
7. Property, plant and equipment
Group $NZ000’s Land
Leasehold
improvements
Plant,
equipment
and ?ttings
Motor
vehicles
Leased
plant and
equipment
Capital work
in progress Total
Cost
Balance as at 29 February 2012 1,750 95,596 57,912 1,107 743 2,604 159,712
Additions 3,797 – 743 127 374 18,651 23,692
Transfer from work in progress – 10,040 3,933 – – (13,973) –
Disposals – (5,088) (7,070) (210) (379) – (12,747)
Balance as at 28 February 2013 5,547 100,548 55,518 1,024 738 7,282 170,657
Additions 2,702 – 1,117 145 62 16,307 20,333
Transfer from work in progress – 14,297 5,010 – – (19,307) –
Transfer to assets classified as
held for sale (1,485) (882) – – – – (2,367)
Disposals (5,406) (5,878) (2,635) (234) (7) – (14,160)
Balance as at 24 February 2014 1,358 108,085 59,010 935 793 4,282 174,463
Accumulated depreciation
Balance as at 29 February 2012 – (41,935) (37,590) (806) (645) – (80,976)
Charge – (8,023) (5,258) (212) (80) – (13,573)
Disposals – 3,389 6,380 210 332 – 10,311
Balance as at 28 February 2013 – (46,569) (36,468) (808) (393) – (84,238)
Charge – (8,408) (5,437) (130) (139) – (14,114)
Transfer to assets classified as
held for sale – 14 – – – – 14
Disposals – 2,145 2,259 223 8 – 4,635
Balance as at 24 February 2014 – (52,818) (39,646) (715) (524) – (93,703)
Impairment provision
Balance as at 29 February 2012 – (684) (76) – – – (760)
Charge – (215) (24) – – – (239)
Utilised/disposed – 208 23 – – – 231
Balance as at 28 February 2013 – (691) (77) – – – (768)
Charge – 82 9 – – – 91
Utilised/disposed – 133 15 – – – 148
Balance as at 24 February 2014 – (476) (53) – – – (529)
The impairment charge recognised during the period relates to accelerated depreciation on leasehold improvements
and plant, equipment and fittings on stores expected to be transformed or closed. Impairment charges incurred and
utilised/disposed are recognised in non-trading in the statements of comprehensive income (refer Note 5).
The Parent has no property, plant and equipment (2013: nil).
Carrying amounts
Balance as at 29 February 2012 1,750 52,977 20,246 301 98 2,604 77,976
Balance as at 28 February 2013 5,547 53,288 18,973 216 345 7,282 85,651
Balance as at 24 February 2014 1,358 54,791 19,311 220 269 4,282 80,231
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
49
8. Intangibles
Group $NZ000’s Goodwill
Franchise
fees
Concept
development
costs
Software
costs Total
Cost
Balance as at 29 February 2012 26,290 9,170 1,560 2,505 39,525
Additions 822 991 90 440 2,343
Disposals (13,376) (1,528) – (99) (15,003)
Balance as at 28 February 2013 13,736 8,633 1,650 2,846 26,865
Additions – 317 – 1,524 1,841
Disposals (699) (189) – (33) (921)
Balance as at 24 February 2014 13,037 8,761 1,650 4,337 27,785
Accumulated depreciation
Balance as at 29 February 2012 (4,988) (4,971) (710) (1,976) (12,645)
Charge – (757) (59) (252) (1,068)
Disposals 4,157 1,384 – 92 5,633
Balance as at 28 February 2013 (831) (4,344) (769) (2,136) (8,080)
Charge – (777) (86) (569) (1,432)
Disposals – 142 – 9 151
Balance as at 24 February 2014 (831) (4,979) (855) (2,696) (9,361)
Impairment provision
Balance as at 29 February 2012 (6,027) – – – (6,027)
Reversals arising from disposals 6,027 – – – 6,027
Balance as at 28 February 2013 – – – – –
Balance as at 24 February 2014 – – – – –
Impairment charges and disposals are recognised in non-trading in the statements of comprehensive income (refer Note 5).
Carrying amounts
Balance as at 29 February 2012 15,275 4,199 850 529 20,853
Balance as at 28 February 2013 12,905 4,289 881 710 18,785
Balance as at 24 February 2014 12,206 3,782 795 1,641 18,424
The Parent has no intangible assets (2013: nil).
Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the
lowest level within the Group at which the goodwill is monitored for internal management purposes.
Amortisation
Amortisation charge is recognised in cost of sales in the statements of comprehensive income (refer Note 5).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
50
8. Intangibles (continued)
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Group
$NZ000’s 2014 2013
KFC 2,170 2,170
Pizza Hut 10,036 10,735
12,206 12,905
The recoverable amount of each cash-generating unit was based on its value in use.
KFC
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. Cash
flows were projected based on a three year strategic business plan as approved by the Board of Directors. The cash flows
were based on sales growth of 4.0–6.0% over 2015–2017 (2013: 1.0–3.6% over 2014–2016). Adjustments were made for
margin improvements through reduced operating expenses and also capital expenditure and taxation. A terminal year
was calculated based on the 2017 year and assumes a continuous growth of a minimum of projected inflation estimates
of 2.5% (2013: 2.5%).
Cash flows are also dependent on assumptions on the EBITDA margins projected in the three year strategic business plan
as approved by the Board of Directors. Cash flows were based on EBITDA being maintained at 19.0–19.3% as a proportion
of sales over 2015–2017 (2013: 20% over 2014–2016).
As a result of the review, no impairment of goodwill was necessary (2013: nil).
The discount rate applied to future cash flows is based on an 8.2% weighted average post-tax cost of capital (2013: 8.2%)
applicable to Restaurant Brands.
Pizza Hut
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. Cash
flows were projected based on a three year strategic business plan as approved by the Board of Directors. The cash flows
were based on sales growth of 3.4–5.2% over 2015–2017 (2013: 4.0–6.0% over 2014–2016). Adjustments were made for
margin improvements through reduced operating expenses and also capital expenditure. A terminal year was calculated
based on the 2017 year and assumes a continuous growth of a minimum of projected inflation estimates of 2.5% (2013: 2.5%).
Cash flows are also dependent on assumptions on the EBITDA margins projected in the three year strategic business plan
as approved by the Board of Directors. Cash flows were based on EBITDA being maintained at 11.9–12.7% as a proportion
of sales over 2014–2017 (2013: 8.1–8.6% over 2014–2016).
As a result of the review and based on the key assumptions described above, no impairment of goodwill was necessary
(2013: nil).
The discount rate applied to future cash flows is based on an 8.2% weighted average post-tax cost of capital (2013: 8.2%)
applicable to Restaurant Brands.
The weighted average cost of capital calculation was reviewed in 2012 based on CAPM methodology using current market
inputs. Changes in the market inputs have been considered and are not deemed material enough to change the weighted
average cost of capital calculation.
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are
based on both external sources and internal sources (historical data).
Impact of possible changes in key assumptions
Set out below are reasonably possible changes in key assumptions as applied to goodwill balances for KFC and Pizza Hut.
Key assumptions Variation %
(absolute terms)
Pizza Hut
impairment charge ($m)
KFC
impairment charge ($m)
Terminal year sales growth (2.5) no impairment necessary no impairment necessary
Discount rate 1.0 no impairment necessary no impairment necessary
EBITDA ratio as a % of sales
per annum
(1.0) no impairment necessary no impairment necessary
Sales growth zero growth initial and terminal no impairment necessary no impairment necessary
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
51
9. Investments in subsidiaries
The following subsidiary companies are all wholly owned and incorporated in New Zealand (except as outlined below),
have a 24 February balance date and have been owned for the full financial year:
Restaurant operating companies Investment holding companies
Restaurant Brands Limited RB Holdings Limited
Restaurant Brands Australia Pty Limited RBP Holdings Limited
(incorporated in Victoria, Australia) RBDNZ Holdings Limited
RBN Holdings Limited
Property holding company Non-trading subsidiary company
Restaurant Brands Properties Limited Restaurant Brands Pizza Limited
Employee share option plan trust company
Restaurant Brands Nominees Limited
10. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
Group $NZ000’s 2014 2013 2014 2013 2014 2013
Property, plant and equipment 1,167 515 – – 1,167 515
Inventory 49 17 – – 49 17
Provisions 1,973 2,038 – – 1,973 2,038
Intangibles 36 2 – – 36 2
Other – – (2) (2) (2) (2)
3,225 2,572 (2) (2) 3,223 2,570
At balance date deferred tax assets of $0.3 million and deferred tax liabilities of nil are expected to be settled within
12 months (2013: deferred tax assets of $0.4 million and deferred tax liabilities of nil). The Parent has no deferred tax
assets or liabilities (2013: nil).
Movement in temporary differences during the period:
Group $NZ000’s
Balance
29 February
2012
Recognised in
proft or loss
Balance
28 February
2013
Recognised in
proft or loss
Balance
24 February
2014
Property, plant and equipment 208 307 515 652 1,167
Inventory 7 10 17 32 49
Provisions 1,708 330 2,038 (65) 1,973
Intangibles (574) 576 2 34 36
Other (2) – (2) – (2)
1,347 1,223 2,570 653 3,223
11. Inventories
Group Company
$NZ000’s 2014 2013 2014 2013
Raw materials and consumables 1,587 1,776 – –
All inventories are valued at cost. The cost of inventories is recognised as an expense and included in cost of goods sold
in the statements of comprehensive income.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
52
12. Other receivables
Group Company
$NZ000’s 2014 2013 2014 2013
Prepayments 643 526 – –
Other debtors 1,107 1,654 – –
1,750 2,180 – –
There were no foreign currency debtors included in other debtors (2013: nil).
The Group’s exposure to credit risk is minimal as the Group’s primary source of revenue is from sales made on
a cash basis.
The carrying value of other receivables approximates fair value.
13. Assets held for sale
Sale and leaseback
The directors approved the sale and leaseback of the Carl’s Jr. Hastings property during the period. The assets relating
to the sale have been presented as set out below. The sale is expected to be completed during the next financial year.
Group Company
$NZ000’s 2014 2013 2014 2013
Assets classified as held for sale
Property, plant and equipment 2,353 – – –
In accordance with IFRS 5 the assets held for sale are held at their carrying amount.
14. Derivative financial instruments
Group & Company Group & Company
$NZ000’s
2014
Assets
2014
Liabilities
2013
Assets
2013
Liabilities
Current
Fair value of interest rate swap – 6 – 186
The above table shows the Group’s financial derivative holdings at period end.
The fair value of the interest rate swap falls into level 2 fair value measurement. Refer to Note 2(c) for information on
the measurement of fair values. There were no transfers between fair value measurements during the period (2013: nil).
Fair values at balance date have been assessed using a range of market interest rates between 2.50% to 2.96%
(2013: 2.76% to 2.97%).
15. Capital and reserves
Share option reserve
The share option reserve comprises the net change in options exercised during the period and the cumulative net
change of share based payments incurred. All remaining options lapsed during the period and the balance of the reserve
was transferred to retained earnings.
Foreign currency translation reserve
The foreign currency translation reserve comprises all exchange rate differences arising from translating the financial
statements of the foreign currency operation.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
53
16. Dividend distributions
Group Company
$NZ000’s 2014 2013 2014 2013
Interim dividend of 6.5 cents per share paid (2013: 6.5 cents
per share) 6,359 6,360 6,359 6,360
Final dividend of 9.5 cents per share paid (2013: 9.5 cents
per share) 9,299 9,293 9,299 9,293
15,658 15,653 15,658 15,653
17. Equity
The issued capital of the Company is 97,871,090 (2013: 97,850,110) ordinary fully paid up shares. The par value is nil
(2013: nil). All issued shares carry equal rights in respect of voting and the receipt of dividends, and upon winding up
rank equally with regard to the Company’s residual assets.
Group & Company Group & Company
2014
Number
2014
NZ$000’s
2013
Number
2013
NZ$000’s
Balance at beginning of period 97,850,110 26,723 97,809,001 26,648
Shares issued on exercise of options 20,980 33 41,109 75
Balance at end of period 97,871,090 26,756 97,850,110 26,723
18. Earnings per share
The calculation of basic earnings per share for the 52 week period ended 24 February 2014 was based on the weighted
average number of ordinary shares on issue of 97,858,777 (2013: 97,833,862). The calculation of diluted earnings per share
for the 52 week period ended 24 February 2014 was based on the weighted average number of ordinary shares on issue
adjusted to assume conversion of all dilutive potential ordinary shares, of 97,858,777 (2013: 97,877,795). The difference
between weighted average number of shares used to calculate basic and diluted earnings per share represents share
options outstanding.
Group
$NZ000’s 2014 2013
Basic earnings per share
Profit after taxation attributable to shareholders ($NZ000's) 19,953 16,159
Basic earnings per share (cents) 20.39 16.52
Diluted earnings per share
Profit after taxation attributable to shareholders ($NZ000's) 19,953 16,159
Diluted earnings per share (cents) 20.39 16.51
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
54
19. Loans and finance leases
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings.
All existing bank loans, loans and finance leases are denominated in New Zealand dollars (2013: all denominated in
New Zealand dollars). For more information about the Group’s exposure to interest rate and foreign currency risk
see Note 22.
Group Company
$NZ000’s Note 2014 2013 2014 2013
Non-current liabilities
Finance leases 23d 131 228 – –
Secured bank loans 22c – 14,555 – 14,555
131 14,783 – 14,555
Current liabilities
Finance leases 23d 146 116 – –
Secured bank loans 22c 8,060 – 8,060 –
8,206 116 8,060 –
Secured bank loans expire in October 2014 and the Group expects to renew the facility on similar terms.
In March 2009 the Group entered into an interest rate swap to fix the interest rate on $10.0 million of bank loans for
five years. At balance date the interest rate applicable was 5.05% (2013: 5.05%) inclusive of bank margin. The swap
matured on 10 March 2014.
As security over the loan and bank overdraft, the bank holds a negative pledge deed between Restaurant Brands
New Zealand Limited and all its subsidiary companies. The negative pledge deed includes all obligations and cross
guarantees between the guaranteeing subsidiaries.
The carrying value equates to fair value.
20. Creditors and accruals
Group Company
$NZ000’s 2014 2013 2014 2013
Trade creditors 11,944 12,556 – –
Other creditors and accruals 5,068 5,021 116 116
Employee entitlements 6,382 5,927 – –
Indirect and other taxes 3,201 2,941 – –
26,595 26,445 116 116
Included in trade creditors are foreign currency creditors of $NZ141,000 ($AU52,000, $US69,000), (2013: $NZ84,000
($AU48,000, $US20,000)), which are not hedged.
The carrying value of creditors and accruals approximates fair value.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
55
21. Provisions and deferred income
Group $NZ000’s
Surplus
lease space
Store closure
costs
Employee
entitlements
Deferred
income Total
Opening balance 292 224 556 6,351 7,423
Created during the period 4 16 257 443 720
Used during the period (213) (229) (74) (1,448) (1,964)
Released during the period (27) (11) (123) – (161)
Balance at 24 February 2014 56 – 616 5,346 6,018
2014
Non-current – – 395 4,044 4,439
Current 56 – 221 1,302 1,579
Total 56 – 616 5,346 6,018
The provision for surplus lease space reflects lease commitments that the Group has on properties leased that are surplus
to its current operating requirements. The Group is currently seeking tenants to sub-lease the excess space that it has.
The provision has been used in the period to off-set payments made to lessors.
The provision for store closure costs reflects the estimated costs of make good and disposal of fixed assets for stores
committed for closure.
The provision for employee entitlements is long service leave. The provision is affected by a number of estimates,
including the expected length of service of employees and the timing of benefits being taken. Once an employee attains
the required length of service, the employee has a period of five years in which to take this leave.
Deferred income relates to non-routine revenue from suppliers and landlords and is recognised in the statements
of comprehensive income on a systematic basis over the life of the associated contract.
22. Financial instruments
Exposure to credit, interest rate and foreign currency risks arises in the normal course of the Group’s business. Derivative
financial instruments may be used to hedge exposure to fluctuations in foreign currency exchange rates and interest rates.
(a) Foreign currency risk
The Group is exposed to foreign currency risk on purchases that are denominated in a currency other than the New Zealand
dollar. The currencies giving rise to this risk are primarily US dollars and Australian dollars.
The direct exposure to foreign currency risk is small and is primarily confined to raw material purchases, some items of
capital equipment and some franchise fee payments. Where any one item is significant, the Group will specifically hedge
its exposure.
The Group has an indirect exposure to foreign currency risk on some of its locally sourced ingredients, where those
ingredients in turn have a high imported component. Where this is significant the Group contracts to a known purchase
price with its domestic supplier based on a forward cover position taken by that supplier on its imported components.
The Group has a residual foreign currency risk on its assets and liabilities that are denominated in Australian dollars as
part of its remaining Australian investment.
(b) Interest rate risk
The Group’s main interest rate risk arises from bank loans. The Group analyses its interest rate exposure on a dynamic basis.
Based on a number of scenarios, the Group calculates the impact on profit or loss of a defined interest rate shift. Based on
these scenarios the maximum loss potential is assessed by management as to whether it is within acceptable limits.
Where necessary the Group hedges its exposure to changes in interest rates primarily through the use of interest rate
swaps. There are no minimum prescribed guidelines as to the level of hedging.
Note 2(c) discusses in detail the Group’s accounting treatment for derivative financial instruments.
As discussed in Note 19, the Group has an interest rate swap in place to fix the interest rate on $10.0 million of bank loans
to March 2014 (2013: $10.0 million to March 2014). In 2011 the Group ceased cash flow hedge accounting for the interest
rate swap as the forecasted transaction was no longer expected to occur. The interest rate swap matured on 10 March
2014. The Group will continue to monitor interest rate movements to ensure it maintains an appropriate mix of fixed and
floating rate exposure within the Group’s policy.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
56
22. Financial instruments (continued)
(c) Liquidity risk
In respect of the Group’s cash balances, non-derivative financial liabilities and derivative financial liabilities, the following
table analyses the amounts into relevant maturity groupings based on the remaining period at balance date to the
contractual maturity date, along with their effective interest rates at balance date. The amounts disclosed in the table
are the contractual undiscounted cash flows.
$NZ000’s
Efective
interest rate Total
12 months
or less
12 months
or more
Group 2014
Cash 204 204 –
Bank balance 2.00% 566 566 –
Bank loan – principal 4.86% (8,060) (8,060) –
Bank loan – expected interest 5.68% (312) (312) –
Finance leases 8.20% (277) (146) (131)
Finance leases – expected interest 8.20% (23) (17) (6)
Derivative financial instruments – (6) (6) –
Creditors and accruals (excluding indirect and other taxes
and employee benefits) – (17,012) (17,012) –
(24,920) (24,783) (137)
Group 2013
Cash 249 249 –
Bank balance 2.00% 549 549 –
Bank term loan – principal 5.03% (14,555) – (14,555)
Bank term loan – expected interest 4.68% (1,137) (680) (457)
Finance leases 8.20% (344) (116) (228)
Finance leases – expected interest 8.20% (41) (24) (17)
Derivative financial instruments – (186) (186) –
Creditors and accruals (excluding indirect and other taxes
and employee benefits) – (18,210) (18,210) –
(33,675) (18,418) (15,257)
Company 2014
Bank balance 8.45% (903) (903) –
Derivative financial instruments – (6) (6) –
Bank loan – principal 4.86% (8,060) (8,060) –
Bank loan – expected interest 5.68% (312) (312) –
Creditors and accruals – (116) (116) –
Amounts payable to subsidiary companies – (140,030) (140,030) –
(149,427) (149,427) –
Company 2013
Bank balance 2.00% 10 10 –
Derivative financial instruments – (186) (186) –
Bank term loan – principal 5.03% (14,555) – (14,555)
Bank term loan – expected interest 4.68% (1,137) (680) (457)
Creditors and accruals – (116) (116) –
Amounts payable to subsidiary companies – (134,269) (134,269) –
(150,253) (135,241) (15,012)
Prudent liquidity risk management implies the availability of funding through adequate amount of committed credit
facilities. The Group aims to maintain flexibility in funding by keeping committed credit lines available.
The Group has bank funding facilities, excluding overdraft facilities, of $35.0 million (2013: $35.0 million) available at
variable rates. The amount undrawn at balance date was $26.9 million (2013: $20.4 million).
The Group has fixed the interest rate on $10.0 million of bank loans with the balance at a floating interest rate. The bank
loan is structured as a revolving wholesale advance facility with portions of the facility renewing on a regular basis. This
leads to the loans being sensitive to interest rate movement in 12 months or less.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
57
22. Financial instruments (continued)
(d) Credit risk
Credit risk arises from cash deposits with banks and financial institutions and outstanding receivables.
No collateral is required in respect of financial assets. Management has a credit policy in place and the exposure to credit
risk is monitored on an ongoing basis. The nature of the business results in most sales being conducted on a cash basis
that significantly reduces the risk that the Group is exposed to. Reputable financial institutions are used for investing and
cash handling purposes.
There were no financial assets neither past due nor impaired at balance date (2013: nil).
At balance date there were no significant concentrations of credit risk and the maximum exposure to credit risk is
represented by the carrying value of each financial asset in the statements of financial position.
(e) Fair values
The carrying values of bank loans and finance leases are the fair value of these liabilities. A Group set-off arrangement
is in place between certain bank accounts operated by the Group.
Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the
Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates on a
weighted average balance will have an impact on profit.
At 24 February 2014 it is estimated that a general increase of one percentage point in interest rates would decrease
the Group and Parent’s profit before income tax and equity by approximately $0.1 million (2013: $0.1 million). A one
percentage point decrease in interest rates would increase the Group and Parent’s profit before income tax and equity
by approximately $0.1 million (2013: $0.1 million).
A general increase of one percentage point in the value of the New Zealand dollar against other foreign currencies
would have minimal impact on the cost of the Group’s directly imported ingredients denominated in foreign currencies
(Parent: nil).
Capital risk management
The Group’s capital comprises share capital, reserves, retained earnings and debt.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue to operate as a going
concern, to maintain an optimal capital structure commensurate with risk and return and reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt or draw down more debt.
The Group is subject to a number of externally imposed bank covenants as part of the terms of its secured bank
loan facility.
The most significant covenants relating directly to capital management are the ratio of total debt to earnings before
interest, tax and amortisation (EBITA) and restrictions relating to acquiring its own shares.
The specific covenants relating to financial ratios the Group is required to meet are:
• debt coverage ratio (i.e. net borrowings to EBITA), and
• fixed charges coverage ratio (i.e. EBITL to total fixed charges), with EBITL being EBIT before lease costs. Fixed charges
comprise interest and lease costs.
The covenants are monitored and reported to the bank on a six monthly basis. These are reviewed by the Board on
a monthly basis.
There have been no breaches of the covenants during the period (2013: no breaches).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
58
23. Commitments
(a) Capital commitments
The Group has capital commitments which are not provided for in these financial statements, as follows:
Group
$NZ000’s 2014 2013
Store development 4,461 4,724
The Parent has no capital commitments (2013: nil).
(b) Operating lease commitments
Non-cancellable operating lease rentals are payable as follows:
Group
$NZ000’s 2014 2013
Not later than one year 17,373 16,110
Later than one year but not later than two years 16,033 12,217
Later than two years but not later than five years 39,765 29,310
Later than five years 33,709 27,729
106,880 85,366
The parent has no operating lease commitments (2013: nil).
(c) Renewal rights of operating leases
The Group has entered into a number of operating lease agreements for retail premises. The lease periods vary and many
have an option to renew. Lease payments are increased in accordance with the lease agreements to reflect market rentals.
The table below summarises the Group’s lease portfolio.
Right of renewal No right of renewal
$NZ000’s 2014 2013 2014 2013
Number of leases expiring:
Not later than one year 15 31 13 11
Later than one year but not later than two years 15 35 5 8
Later than two years but not later than five years 49 35 14 12
Later than five years 69 53 14 10
(d) Finance lease commitments
The carrying amount of finance leases in relation to computer and related equipment for the Group as at balance date is
$0.3 million (2013: $0.3 million).
The non cancellable finance lease rentals are payable as follows:
Group
$NZ000’s 2014 2013
Minimum lease payments of:
Not later than one year 164 140
Later than one year but not later than two years 129 140
Later than two years but not later than five years 7 105
300 385
Future lease finance charges (23) (41)
Net finance lease liability 277 344
Current 146 116
Non-current 131 228
277 344
The fair value of finance leases equals their carrying amount as the impact of discounting is not significant.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
59
24. Net cash flow from operating activities
The following are definitions of the terms used in the statements of cash flows:
Cash and cash equivalents
Cash and cash equivalents are comprised of cash at bank, cash on hand and overdraft balances.
Investing activities
Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment,
intangibles and investments. Investments can include securities not falling within the definition of cash.
Financing activities
Financing activities are those activities which result in changes in the size and composition of the capital structure of
the Company.
Operating activities
Operating activities include all transactions and other events that are not investing or financing activities.
The following is a reconciliation between the profit after taxation for the period shown in the statements of comprehensive
income and the net cash flow from operating activities.
Group Company
$NZ000’s 2014 2013 2014 2013
Total profit after taxation attributable to shareholders 19,953 16,159 15,630 15,063
(Less)/add items classified as investing/financing activities:
Gain on disposal of property, plant and equipment (2,530) (2,594) – –
(2,530) (2,594) – –
Add/(less) non-cash items:
Depreciation 14,114 13,573 – –
Disposal of goodwill 699 3,192 – –
(Decrease)/increase in provisions (460) 469 – –
Amortisation of intangible assets 1,432 1,068 – –
Write-off of franchise fees 47 144 – –
Impairment on property, plant and equipment (91) 239 – –
Net increase in deferred tax asset (653) (1,223) – –
Change in fair value of derivative financial instruments (180) (79) (180) (79)
14,908 17,383 (180) (79)
Add/(less) movement in working capital:
Decrease in inventories 189 151 – –
(Increase)/decrease in other debtors and prepayments (179) 340 – –
(Decrease)/increase in trade creditors and other payables (366) 1,603 – 30
Increase in income tax payable 251 1,408 – –
Decrease in income tax 426 315 426 315
321 3,817 426 345
Net cash from operating activities 32,652 34,765 15,876 15,329
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
60
25. Financial assets and financial liabilities by category
Group Company
$NZ000’s 2014 2013 2014 2013
Loans and receivables
Other debtors 1,107 1,654 – –
Cash and cash equivalents 770 798 – 10
1,877 2,452 – 10
Derivatives held at fair value through profit or loss
Derivative financial instruments – liabilities 6 186 6 186
6 186 6 186
Financial liabilities at amortised cost
Bank overdraft – – 903 –
Loans and finance leases – non current 131 14,783 – 14,555
Loans and finance leases – current 8,206 116 8,060 –
Creditors and accruals (excluding indirect and other taxes
and employee benefits) 17,012 17,577 116 116
Amounts payable to subsidiary companies – – 140,030 134,269
25,349 32,476 149,109 148,940
26. Contingent liabilities
There are no contingent liabilities that the directors consider will have a significant impact on the financial position of
the Company and Group (2013: nil).
27. Related party disclosures
Parent and ultimate controlling party
The immediate parent and controlling party of the Group is Restaurant Brands New Zealand Limited.
Identity of related parties with whom material transactions have occurred
Note 9 identifies all entities within the Group. All of these entities are related parties of the Company.
In addition, the directors and key management personnel of the Group are also related parties.
(a) Subsidiaries
Material transactions within the Group are loans and advances to and from Group companies and dividend payments.
All inter-company group loans in the Parent are non-interest bearing, repayable on demand and disclosed as a
current liability.
During the period the Parent was advanced $5.8 million by its subsidiary company (2013: $0.3 million repaid to its
subsidiary company). At balance date the amount owed to subsidiary companies was $140.0 million (2013: $134.3 million).
During the period the Parent received $16.2 million in dividends from its subsidiary company (2013: $15.7 million).
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
61
27. Related party disclosures (continued)
(b) Other transactions with entities with key management or entities related to them
During the period the Group made the following:
• Stock purchases of $0.3 million (2013: $0.3 million) from Barker Fruit Processors Limited, a company of which Company
director Sue Helen Suckling is chairman. There was nil owing at balance date (2013: nil).
• Stock purchases of $48,000 (2013: $68,000) from Nestle New Zealand Limited, a company of which Company
director Ted van Arkel is a director. There was nil owing at balance date (2013: nil). Ted van Arkel retired as director of
Nestle on 16 February 2014.
• Stock purchases of $2.7 million (2013: $1.1 million) from Hellers Limited, a company of which Company director David
Alan Pilkington is chairman. There was nil owing at balance date (2013: nil).
• The Company made rental payments of $46,000 (2013: $68,000) in respect of the lease of the KFC Silverdale store to
Eldamos Investments Limited, a wholly owned subsidiary of The Warehouse Group Limited, of which Company director
Ted van Arkel is chairman. On 31 May 2013 Eldamos Investments sold the property to an unrelated party.
These transactions were performed on normal commercial terms.
(c) Key management and director compensation
Key management personnel comprises members of the Senior Leadership Team. Key management personnel
compensation comprised short-term benefits for the period of $2.4 million (2013: $2.2 million) and other long-term
benefits of $23,000 (2013: $21,000). Directors’ fees were $0.3 million (2013: $0.3 million).
(d) Share options issued to key management personnel
During the period the remaining 5,755 options issued under the employee share option plan (refer to Note 28) to key
management personnel were exercised (2013: 11,027). The table below summarises the movement in outstanding options
during the period.
Date of issue Exercise price
Outstanding
options at
28 February 2013
Exercised
during period
Outstanding
options at
24 February 2014
23-Sep-03 $1.39 5,755 (5,755) –
Total 5,755 (5,755) –
Refer to Note 19 for details regarding the guarantees between group companies.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
62
28. Employee share growth share option plan
The Company had established an employee share option plan (“the Plan”) for certain employees, under which it issued
options at no cost for shares in the Company to the employees. The holder of an option is entitled to subscribe for one
fully paid share for each option held (adjusted for bonus share issues), at an exercise price that is determined by reference
to the market price at the time of issue of the options.
On the anniversary date of issue in each subsequent year 20% of the options issued become exercisable. Options only
remain exercisable (subject to certain conditions and legislative provisions) whilst holders remain employed by the
Company. The options terminate 10 years from the date they are issued and are equity settled. Principal officers and
employees of the Company that participated in the Plan received an annual issue of options in respect of the number
of shares equal to approximately 10% of their eligible earnings divided by the exercise price per share.
Options issued and outstanding under the Plan:
Date of issue Exercise price Issued
Outstanding
options at
28 February 2013
Exercised
during period
Forfeited
during period
Outstanding
options at
24 February 2014
23-Sep-03 $1.39 1,228,423 44,169 (20,980) (23,189) –
Total 1,228,423 44,169 (20,980) (23,189) –
All options have now expired.
29. Subsequent events
Dividends
The directors have declared a fully imputed final dividend of 10.0 cents per share for the 52 week period ended
24 February 2014 (2013: 9.5 cents).
Acquisitions
On 25 March 2014 the Group purchased the KFC Mount Maunganui property and associated business assets for
$3.8 million.
Inventory ownership
In March 2014 the Group took over ownership of bulk warehouse stock that was previously owned and managed by
an external third party logistics provider. As a consequence inventories and accounts payable balances will increase
but the overall impact on working capital is expected to be minimal.
Notes to and forming part of the fnancial statements (continued)
for the 52 week period ended 24 February 2014
63
INDEPENDENT AUDITORS’ REPORT
to the shareholders of Restaurant Brands New Zealand Limited
Report on the Financial Statements
We have audited the financial statements of Restaurant Brands New Zealand Limited (“the Company”) on pages 30 to 63,
which comprise the statements of financial position as at 24 February 2014, the statements of comprehensive income and
statements of changes in equity and statements of cash flows for the period then ended, and the notes to the financial
statements that include a summary of significant accounting policies and other explanatory information for both the
Company and the Group. The Group comprises the Company and the entities it controlled at 24 February 2014 or from
time to time during the financial year.
Directors’ Responsibility for the Financial Statements
The Directors are responsible for the preparation of these financial statements in accordance with generally accepted
accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such
internal controls as the Directors determine are necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These
standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors
consider the internal controls relevant to the Company and the Group’s preparation of financial statements that give
a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
We have no relationship with, or interests in, Restaurant Brands New Zealand Limited or any of its subsidiaries other than
in our capacities as auditors and providers of accounting, taxation and other assurance services. These services have not
impaired our independence as auditors of the Company and the Group.
Opinion
In our opinion, the financial statements on pages 30 to 63:
(i) comply with generally accepted accounting practice in New Zealand;
(ii) comply with International Financial Reporting Standards; and
(iii) give a true and fair view of the financial position of the Company and the Group as at 24 February 2014, and their
financial performance and cash flows for the period then ended.
Report on Other Legal and Regulatory Requirements
We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our
audit of the financial statements for the period ended 24 February 2014:
(i) we have obtained all the information and explanations that we have required; and
(ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination
of those records.
Restriction on Distribution or Use
This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the
Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders
those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.
Chartered Accountants
Auckland, New Zealand, 9 April 2014
64
1. Stock exchange listing
The Company’s ordinary shares are listed on the New Zealand Stock Exchange (NZX).
2. Distribution of security holders and security holdings
Size of holding
Number of
security holders Percentage
Number of
securities Percentage
1 to 999 1, 1 10 18.35% 577,973 0.59%
1,000 to 4,999 3,079 50.90% 6,224,974 6.36%
5,000 to 9,999 874 14.45% 5,708,193 5.83%
10,000 to 49,999 882 14.58% 15,273,230 15.61%
50,000 to 99,999 64 1.06% 4,088,859 4. 1 8%
100,000 to 499,999 34 0.56% 5,834, 1 16 5.96%
500,000+ 6 0. 1 0% 60,163,745 61.47%
6,049 100.00% 97,871,090 100.00%
Geographic distribution
New Zealand 5,848 96.68% 91,841,457 93.84%
Australia 1 14 1.88% 5,343,899 5.46%
Rest of world 87 1.44% 685,734 0.70%
6,049 100.00% 97,871,090 100.00%
3. 20 largest registered holders of quoted equity securities
Number of
ordinary shares
Percentage of
ordinary shares
New Zealand Central Securities Depository Limited 49,544, 187 50.62%
Diab Investments NZ Limited 5,000,000 5. 1 1%
FNZ Custodians Limited 2,509,201 2.56%
Investment Custodial Services Limited (account C) 1,295,328 1.32%
JA Hong Koo & Pyung Keum Koo 91 1,000 0.93%
NZPT Custodians (Grosvenor) Limited 904,029 0.92%
Matthew Charles Goodson & Dianna Dawn Perron & Goodson & Perron Independent
Trustee Limited 496,666 0.51%
New Zealand Depository Nominee Limited (account 1) cash account 446,862 0.46%
Guangqiang Chen 326,375 0.33%
Forsyth Barr Custodians Limited 265,623 0.27%
Russel Ernest George Creedy 252,229 0.26%
Custodial Services Limited (account 3) 222,054 0.23%
David George Harper & Karen Elizabeth Harper 193,248 0.20%
Alan Sedgwick Limmer & Nina Agnes Limmer 193, 143 0.20%
Ja Seo Koo & Young Ran Koo 190,000 0. 1 9%
Investment Custodial Services Limited (account R) 188,362 0. 1 9%
Marcia Lynn Hane & William Lee Hane 187,198 0. 1 9%
FNZ Custodians Limited (DRP NZ account) 183,625 0. 1 9%
ASB Nominees Limited (569086 ML account) 177,969 0. 1 8%
FNZ Custodians Limited (DTA non resident account) 171,569 0. 1 8%
63,658,668 65.04%
65
SHAREHOLDER INFORMATION
as at 14 April 2014
3. 20 largest registered holders of quoted equity securities (continued)
New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of
securities to its members. As at 14 April 2014, the NZCSD holdings in Restaurant Brands were:
Number of
ordinary shares
Percentage of
ordinary shares
Tea Custodians Limited 9,948,724 10.16%
Citibank Nominees (New Zealand) Limited 9,764,299 9.98%
Accident Compensation Corporation 8,846,427 9.04%
Westpac NZ Shares 2002 Wholesale Trust 6,274,906 6.41%
New Zealand Superannuation Fund Nominees Limited 4,393,477 4.49%
BT NZ Unit Trust Nominees Limited 2,349,035 2.40%
BNP Paribas Nominees (NZ) Limited (COGN40) 1,932,652 1.97%
JPMorgan Chase Bank NA 1,860,731 1.90%
HSBC Nominees (New Zealand) Limited A/C State Street 1,270,056 1.30%
BNP Paribas Nominees (NZ) Limited (BPSS40) 1,100,050 1.12%
National Nominees New Zealand Limited 719,602 0.74%
HSBC Nominees (New Zealand) Limited 656,513 0.67%
Mint Nominees Limited 157,964 0.16%
Private Nominees Limited 145,198 0.15%
Public Trust Class 30 Nominees Limited 105,000 0.11%
BNP Paribas Nominees (NZ) Limited (BPSS41) 19,553 0.02%
49,544,187 50.62%
4. Substantial security holders
The following persons have given substantial security holder notices as shown by the register kept by the Company in
accordance with section 35C of the Securities Markets Act 1988 as at 14 April 2014. The numbers of ordinary shares set
out below are taken from the relevant substantial security holder notices.
Number of
ordinary shares
Percentage of
voting securities
Milford Asset Management Limited 12,862,258 13.40%
Westpac Banking Corporation and BT Funds Management (NZ) Limited 8,295,867 8.48%
Accident Compensation Corporation 8,254,140 8.43%
D Diab 5,000,000 5.14%
5. Shares on issue
As at 14 April 2014, the total number of ordinary shares on issue was 97,871,090.
6. Directors’ security holdings
Equity securities held
2014 2013
E K van Arkel 50,000 50,000
D Diab 5,000,000 5,000,000
7. Stock exchange waiver
No waivers were sought or relied on from NZX during the period.
Shareholder information (continued)
as at 14 April 2014
66
1. Directorships
The names of the directors of the Company as at 24 February 2014 are set out in the Corporate Directory on page 74
of this annual report.
The following are directors of all subsidiary companies of the Group:
E K van Arkel and D A Pilkington.
The following are directors of Restaurant Brands Australia Pty Limited:
E K van Arkel, D A Pilkington, D Diab and G R Ellis.
2. Directors and remuneration
The following persons held office as directors during the 52 week period ended 28 February 2014 and received the
following remuneration and other benefits:
Directors’ fees
($NZ)
E K van Arkel 84,995
D Diab 55,000
D A Pilkington 55,000
S H Suckling 55,000
249,995
3. Entries recorded in the interests register
The following entries were recorded in the interests register of the Company and its subsidiaries during the year:
a) Share dealings of Directors
No shares were purchased or sold by directors of the Company during the 52 week period ended 24 February 2014.
b) Loans to Directors
There were no loans to directors during the 52 week period ended 24 February 2014.
67
STATUTORY INFORMATION
for the 52 week period ended 24 February 2014
3. Entries recorded in the interests register (continued)
c) General disclosure of interest
In accordance with Section 140 (2) of the Companies Act 1993, directors of the Company have made general disclosures
of interest in writing to the board of positions held in other named companies or parties as follows:
Name Position Party
E K van Arkel Chairman Health Benefits Limited
Chairman The Warehouse Group Limited
Director and Shareholder Lang Properties Limited
Director and Shareholder Van Arkel & Co Limited
Director AWF Group Limited
Director Danske Mobler Limited
Director Auckland Regional Chamber of Commerce & Industry Limited
Director Abano Healthcare Group Limited
Director Philip Yates Securities Limited (and subsidiaries)
S H Suckling Chairman New Zealand Qualifications Authority
Chairman Barker Fruit Processors Limited (and subsidiaries)
Chairman ECL Group Limited
Chairman Callaghan Innovation Research Limited
Director Acemark Holdings Limited
Director SKYCITY Entertainment Group Limited
Director Oxford Health Group Limited and Oxford Clinic Hospital Limited
Director Jacobsen Holdings Limited
Director New Zealand Health Innovation Hub
Member Takeovers Panel
D A Pilkington Chairman Port of Tauranga Limited
Chairman Rangatira Limited (and subsidiaries)
Chairman Hellers Limited
Director Ballance Agri-Nutrients Limited (and subsidiaries)
Director Zespri Group Limited (and subsidiaries)
Director Douglas Pharmaceuticals Limited
Director Northport Limited
Director Primeport Timaru Limited
Director and Shareholder Excelsa Associates Limited
Trustee New Zealand Community Trust
D Diab Director Diab Investments NZ Limited
Director Diab Pty Limited
Director Diab Investments Pty Limited
Director Mainplay Investments Pty Limited
Director Diab Investments II Pty Limited
Director Mirrapol Holdings Pty Limited
Director Pizza Advertising Co-Operative Australia
President Australian Pizza Association
Statutory information (continued)
for the 52 week period ended 24 February 2014
68
3. Entries recorded in the interests register (continued)
d) Directors’ indemnity and insurance
The Company has insured all its directors and the directors of its subsidiaries against liabilities to other parties (except the
Company or a related party of the Company) that may arise from their position as directors. The insurance does not cover
liabilities arising from criminal actions.
The Company has executed a deed of indemnity indemnifying all directors to the extent permitted by section 162 of the
Companies Act 1993.
4. Employees’ remuneration
During the period the following number of employees or former employees received remuneration of at least $100,000:
Number of employees
2014 2013
$100,000 – $109,999 6 6
$110,000 – $119,999 4 5
$120,000 – $129,999 3 3
$130,000 – $139,999 3 1
$140,000 – $149,999 2 2
$150,000 – $159,999 2 5
$160,000 – $169,999 1 –
$170,000 – $179,999 – 2
$180,000 – $189,999 2 –
$190,000 – $199,999 – 1
$210,000 – $219,999 – 1
$220,000 – $229,999 1 –
$310,000 – $319,999 – 1
$320,000 – $329,999 1 –
$660,000 – $669,999 – 1
$690,000 – $699,999 1 –
26 28
5. Subsidiary company directors
No employee of Restaurant Brands New Zealand Limited appointed as a director of Restaurant Brands New Zealand
Limited or its subsidiaries receives, or retains any remuneration or other benefits, as a director. The remuneration and
other benefits of such employees, received as employees, are included in the relevant bandings for remuneration
disclosed under Note 4 above.
Statutory information (continued)
for the 52 week period ended 24 February 2014
69
Overview
The board of Restaurant Brands New Zealand Limited is committed to the guiding values of the Company: integrity,
respect, continuous improvement and service. Whilst not formally constituted into a code of ethics, it expects that
management and staff ultimately subscribe to these values and use them as a guide to making decisions. These values
are reflected in a series of formal policies covering such matters as:
• Conflicts of interest
• Use of company property
• Use of company information
• Compliance with applicable laws
Responsibility
The board is responsible for the proper direction and control of the Company’s activities and is the ultimate decision-
making body of the Company. Its responsibilities include setting strategic direction, approval of significant expenditures,
policy determination, stewardship of the Company’s assets, identification of significant business risks, legal compliance
and monitoring management performance.
Delegation
The board has delegated responsibility for the day-to-day leadership and management of the Company to the Chief
Executive Officer (CEO) who is required to do so in accordance with board direction. The CEO’s performance is reviewed
each year by the board. The review includes a formal performance appraisal against measured objectives together with
a qualitative review.
The board has approved a schedule of delegated authorities affecting all aspects of the Company’s operation. This is
reviewed from time to time as to appropriateness and levels of delegation.
Composition and focus
As at 24 February 2014, the board comprised four non-executive directors (including the Chairman). In addition to
committee responsibilities (below), individual board members work directly with management in major initiatives such
as acquisitions and asset rationalisations.
Ted van Arkel, David Pilkington and Sue Suckling are considered by the board to be independent under the NZSX Listing
Rules. Danny Diab is considered not to be independent as he represents a significant shareholding. The board does not
have a policy on a minimum number of independent directors.
Committees
From amongst its own members, the board has appointed the following permanent committees:
• Audit and Risk Committee. The members of the Audit and Risk Committee are David Pilkington (chairman),
Ted van Arkel, Sue Suckling and Danny Diab. This committee is constituted to monitor the veracity of the financial data
produced by the Company and ensure controls are in place to minimise the opportunities for fraud or for material error
in the accounts. A majority of the committee’s members must be independent directors.
The Audit Committee meets two to three times a year, with external auditors of the Company and executives
performing internal audit management from within the Company in attendance. The external auditors also meet
with the committee with no Company executive present.
The committee has adopted an audit charter setting out the parameters of its relationship with internal and external
audit functions. The charter which is posted on the Company’s website requires five yearly reviews of the external audit
relationship and audit partner rotation.
• Appointments and Remuneration Committee. The members of the Appointments and Remuneration Committee are
Sue Suckling (chairman), Ted van Arkel, Danny Diab, and David Pilkington. This committee is constituted to approve
appointments and terms of remuneration for senior executives of the Company; principally the CEO and those
reporting directly to the CEO. It also reviews any company-wide incentive and share option schemes as required
and recommends remuneration packages for directors to the shareholders.
The committee has adopted a written charter which is posted on the Company’s website.
The board does not have a formal nominations committee, as all non-executive directors are involved in the appointment
of new directors.
Other sub-committees may be constituted and meet for specific ad hoc purposes as required.
STATEMENT OF
CORPORATE GOVERNANCE
for the 52 week period ended 24 February 2014
70
Board appraisal and training
The board has adopted a performance appraisal programme by which it biennially monitors and assesses individual and
board performance.
The Company does not impose any specific training requirements on its directors. The board believes all directors have
considerable training and expertise. New directors complete an induction programme with company senior management.
Insider trading
All directors and senior management of the Company are familiar with and have formally acknowledged acceptance of
the Company’s “Insider Trading Code” that relates to dealings in securities by directors and employees. A copy of the
code is available on the Company’s website.
Size
The constitution prescribes a minimum of three directors and as at balance date there were four members of the board.
Re-election
Under the terms of the constitution, one third of the directors (currently one) are required to retire from office at the
annual meeting of the Company but may seek re-election at that meeting.
Meetings
The board normally meets ten to twelve times a year and, in addition to reviewing normal operations of the Company,
approves a strategic plan and annual budget each year.
Board meetings are usually scheduled annually in advance, although additional meetings may be called at shorter notice.
Directors receive formal proposals, management reports and accounts in advance of all meetings.
Executives are regularly invited to attend board meetings and participate in board discussion. Directors also meet with
senior executives on items of particular interest.
Board and committee meeting attendance for the 52 week period ended 24 February 2014 was as follows:
Name Board meetings
held
Board meetings
attended
Audit and Risk
Committee
meetings held
Audit and Risk
Committee
meetings
attended
Appointments
and Remuneration
Committee
meetings held
Appointments
and Remuneration
Committee
meetings attended
E K van Arkel 11 10 2 2 1 1
D Diab 11 11 2 2 1 1
D A Pilkington 11 11 2 2 1 1
S H Suckling 11 11 2 2 1 1
Board remuneration
Directors’ fees for the 52 week period ended 24 February 2014 were set at $84,995 per annum for the Chairman and
$55,000 for each non-executive director. Refer to the Statutory Information section of the annual report for more detail.
No directors currently take a portion of their remuneration under a performance-based equity compensation plan,
although a number of directors do hold shares in the Company.
The terms of any directors’ retirement payments are as prescribed in the constitution and require prior approval of
shareholders in general meeting. No retirement payments have been made to any director.
Directors’ indemnity and insurance
The Company has insured all its directors and the directors of its subsidiaries against liabilities to other parties (except the
Company or a related party of the Company) that may arise from their position as directors. The insurance does not cover
liabilities arising from criminal actions.
The Company has executed a Deed of Indemnity, indemnifying all directors to the extent permitted by section 162 of the
Companies Act 1993.
Statement of corporate governance (continued)
for the 52 week period ended 24 February 2014
71
Risk management
In managing the Company’s business risks, the board approves and monitors policy and process in such areas as:
• Internal audit – Regular checks are conducted by operations and financial staff on all aspects of store operations.
• Treasury management – Exposure to interest rate and foreign exchange risks is managed in accordance with the
Company’s treasury policy.
• Financial performance – Full sets of management accounts are presented to the board at every meeting. Performance
is measured against an annual budget with periodic forecast updates.
• Capital expenditure – All capital expenditure is subject to relevant approval levels with significant items approved by
the board. The board also monitors expenditure against approved projects and approves the capital plan.
• Insurance – The Company has insurance policies in place covering most areas of risk to its assets and business. These
include material damage and business interruption cover at all of its sites. Policies are reviewed and renewed annually
with reputable insurers.
External advice
Directors may seek their own independent professional advice to assist with their responsibilities. During the 2014 financial
year no director sought their own independent professional advice, but the board sought advice with respect to market
levels of director remuneration.
Shareholding
There is no prescribed minimum shareholding for directors, although some do hold shares in the Company (refer to the
Statutory Information section of the report for more detail).
Directors may purchase shares upon providing proper notice of their intention to do so and in compliance with the
operation of the Company’s “Insider Trading Code” (see above).
Interests register
The board maintains an interests register. In considering matters affecting the Company, directors are required to disclose
any actual or potential conflicts. Where a conflict or potential conflict has been disclosed, the director takes no further
part in receipt of information or participation in discussions on that matter.
Shareholder communication
The board places importance on effective shareholder communication. Half year and annual reports are published each
year and posted on the Company’s website, together with quarterly sales releases. From time to time the board may
communicate with shareholders outside this regular reporting regime.
Consistent with best practice and a policy of continuous disclosure, external communications that may contain market
sensitive data are released through NZX in the first instance. Further communication is encouraged with press releases
through mainstream media. The board formally reviews its proceedings at the conclusion of each meeting to determine
whether there may be a requirement for a disclosure announcement.
Shareholder attendance at annual meetings is encouraged and the board allows extensive shareholder debate on all
matters affecting the Company.
Statement of corporate governance (continued)
for the 52 week period ended 24 February 2014
72
Auditor independence
The board manages the relationship with its auditors through the Audit and Risk Committee. The Company’s external
auditors are currently permitted to provide non-audit services to the Company with the approval of the Audit and Risk
Committee.
Auditors’ remuneration is disclosed in Note 5 to the financial statements.
Diversity policy
The Company does not have a formal diversity policy. However it recognises the wide-ranging benefits that diversity
brings to an organisation and its workplaces. Restaurant Brands endeavours to ensure diversity at all levels of the
organisation to ensure a balance of skills and perspectives are available in the service of our shareholders and customers.
As at 24 February 2014, the gender balance of the Company’s directors, officers and all employees is as follows:
Directors Officers Employees
2014 2013 2014 2013 2014 2013
Female 1 25% 1 25% 4 40% 4 44% 1,909 52% 1,920 52%
Male 3 75% 3 75% 6 60% 5 56% 1,782 48% 1,805 48%
Total 4 100% 4 100% 10 100% 9 100% 3,691 100% 3,725 100%
NZX corporate governance best practice code
In almost all respects, the Company’s corporate governance practices conform with the NZX Corporate Governance Best
Practice Code (the “Code”). The only areas in which the Company’s practices vary from the Code are: it has not adopted
a formal code of ethics, does not remunerate directors under a performance based equity compensation plan, does not
impose specific training requirements on its directors and does not have a nominations committee.
Statement of corporate governance (continued)
for the 52 week period ended 24 February 2014
73
74
CORPORATE
DIRECTORY
Directors:
E K (Ted) van Arkel (Chairman)
Sue Helen Suckling
Danny Diab
David Alan Pilkington
Registered office:
Level 3
Building 7
Central Park
666 Great South Road
Penrose
Auckland 1061
New Zealand
Share registrar:
Computershare Investor
Services Limited
Level 2
159 Hurstmere Road
Takapuna
Private Bag 92 119
Auckland 1142
New Zealand
Telephone: 64 9 488 8700
Auditors:
PricewaterhouseCoopers
Solicitors:
Bell Gully
Harmos Horton Lusk
Meredith Connell
Bankers:
Westpac Banking Corporation
Contact details:
Postal Address:
PO Box 22 749
Otahuhu
Auckland 1640
New Zealand
Telephone: 64 9 525 8700
Fax: 64 9 525 8711
Email: [email protected]
75
FINANCIAL
CALENDAR
Annual meeting:
26 June 2014
Close of register for final dividend:
13 June 2014
Final dividend paid:
27 June 2014
Interim profit announcement:
October 2014
Interim dividend paid:
November 2014
Financial year end:
2 March 2015
Annual profit announcement:
April 2015
76
NOTES
www.restaurantbrands.co.nz
doc_153803181.pdf