Driven by the incremental relaxation of COVID-19 restrictions and increasingly buoyant economic activity, franchise food operator Prestige Holdings Ltd (PHL) delivered a strong result for fiscal 2022.
Nine of its 10 largest shareholders kept their ownership intact. The sole exception was the number of shares held by the ESOP, which fell from 1,515,655 to 1,216,595. Today, we will review PHL’s results for the year ended November 2022.
Assets advance
Total assets increased by 11.1 per cent from $747.9 million to $831.3 million.
Property, plant and equipment fell from $275.2 million to $260.4 million. Two parcels of land and a building with a total value of $5.3 million, which were formerly classified as held for sale, were brought back into this group. Even so, annual depreciation of $37 million exceeded additions and other positive changes of $22 million.
Right-of use assets increased from $262 million to $277 million. This reflected net additions as the company resumed the expansion of its various franchises.
Intangible assets declined from $60 million to $58.9 million, which reflected depreciation charges. The value of the franchise agreement for Subway remained at $40.8 million while the goodwill for Weekenders Trinidad (TGIF) was stable at $6.2 million.
Reflecting increased business activity and the need to assure continuous supplies, inventories climbed from $50 million to $84 million. Food supplies and packaging materials jumped from $34 million to $67 million while consumable stores ended at $17 million from $16 million.
Trade and other receivables advanced from $22.3 million to $29.4 million; of the latter, $0.8 million was receivable in foreign currency. Net trade receivables increased from $3.0 million to $3.85 million while prepayments climbed from $6.5 million to $9.3 million and other receivables surged from $12.8 million to $16.3 million.
Sums due from related parties jumped from zero to $10 million. That amount reflects a short-term advance to its parent company, Victor E Mouttet Ltd.
Cash and cash equivalents swelled from $55 million from $95.2 million. The main driver for that improvement was the return to profit and the increase in trade and other payables.
Liabilities increase
Total liabilities advanced by 10.9 per cent from $490.4 million to $543.9 million.
Gross borrowings dropped from $94 million to $55.8 million with the current amount falling from $38.4 million to $21.8 million while the non-current portion settled at $33.9 million from $55.7 million. Debt denominated in US dollars declined from $13 million to $6.4 million.
Lease liabilities grew from $276.4 million to $293.3 million. Here, the current element increased from $29 million to $31.5 million while the long-term portion expanded from $247.4 million to $261.8 million.
Trade and other payables increased from $112.1 million to $183.5 million. The non-current portion, which reflected stock-based compensation, fell from $714,268 to $292,968. Of the current portion, trade payables climbed from $76.6 million to $143.8 million, reflecting both higher trading volumes and difficulties in accessing foreign currency.
Also, payroll related taxes and other benefits rose from $7.7 million to $16.5 million, which mirrored higher employment levels. Conversely, accrued expenses fell from $15.7 million to $12.8 million and current stock-based compensation declined from $11.4 million to $10.2 million.
Sums due to related parties slipped from $6.9 million to $6.4 million. Meanwhile, in line with higher profits, current income tax payable surged from $0.87 million to $4.93 million.
Equity improves
Total shareholders’ equity increased from $257.5 million to $287.4 million.
Retained earnings expanded from $218.7 million to $246.8 million. The current year’s profit of $35.5 million boosted the brought forward balance while dividends of $7.33 million reduced the ending value.
Other reserves benefitted from positive currency translation differences of $41,830 and closed at $26.42 million from $26.37 million.
Treasury shares moved from negative $11.34 million to negative $9.67 million, which reflected the sale of 299,060 shares from the ESOP for $1.67 million.
Share capital was stable at $23.76 million while, excluding treasury shares, the weighted average number of shares outstanding increased from 60,997,347 to 61,296,407. Therefore, the book value per share increased from $4.22 to $4.69.
Revenues and profit
Total revenue grew by 55.2 per cent from $712.1 million to $1.1 billion and reflected a return to more normal operating conditions. However, the cost of sales increased by 54.8 per cent from $481 million to $744.4 million.
Consequently, the gross profit advanced by 56 per cent from $231.2 million to $360.7 million. Those changes reflected a current gross profit margin (GPM) of 32.64 per cent. Referencing pre-pandemic 2019 results, that year’s GPM was 33.65 per cent.
Other operating expenses expanded from $178 million to $278 million while administrative expenses climbed from $67 million to $78.7 million.
Consistent with greater sales, the cost of inventories climbed from $305 million to $495 million while employee costs increased from $135 million to $181 million. Further, royalties jumped from $44 million to $68 million and advertising outlays climbed from $29 million to $44 million, however, rent waiver concessions dropped from $14.2 million to $2.5 million.
Brisker business activity saw security expenses increase from $12 million to $15.3 million. Notably, foreign exchange movements reversed from a loss of $2.95 million to a gain of $0.18 million. Also, the disposal of property, plant and equipment moved from a profit of $0.34 million to loss of $0.43 million.
Other income strengthened from $1.54 million to $2.28 million. Here, lease rental income was unchanged at $0.62 million, however, miscellaneous income climbed from $0.92 million to $1.66 million. These movements saw the operating result improve from a loss of $12.2 million to a profit of $72.5 million.
Finance costs decreased from $19.5 million to $18.8 million. Interest on lease liabilities edged up from $14.56 million to $14.62 million, however, consistent with lower borrowings, interest on bank debt declined from $4.84 million to $4.18 million. Meanwhile, interest on related party advances dropped from $62,671 to zero.
These changes resulted in a pre-tax profit of $53.7 million versus a loss of $31.7 million for 2021.
The standard tax rate remained at 30 per cent while the tax allocation moved from a credit of $3.4 million in 2021 to a charge of $18.2 million. The 2021 credit reflected a deferred tax credit of $7.1 million, which was reduced by a business levy charge of $3.7 million.
Consequently, the net profit attributable to shareholders improved from a loss of $28.3 million to positive $35.5 million. Those results reveal a current diluted EPS of 56.8 cents versus negative 45.44 cents.
Segment contributions
The bulk of PHL’s operations are in Trinidad, which registered revenue growth of 55.3 per cent while the net result swung from a loss of $27.7 million to a profit of $35.2 million.
The overseas operations, which reflects one TGIF outlet in Jamaica, experienced revenue growth of 47 per cent and the net result reversed from a loss of $0.62 million to a profit of $0.26 million.
Notably, the net profit margin of its Trinidad operations was 3.23 per cent while that of its Jamaican outlet was 1.87 per cent.
PHL further classifies its operations as “quick service restaurants (QSR)” and “casual dining.” The first category includes 60 KFC outlets, 12 Starbucks and 41 Subway locations; in total, revenues from those stores increased from $544.5 million to $829.7 million or by 52.5 per cent.
The casual dining segment includes five TFI Fridays and 11 Pizza Huts. This category delivered revenue growth of 64.3 per cent to end at $275.4 million from $167.5 million. Unfortunately, the profit for those categories was not disclosed.
Owing to its appeal to a more upscale clientele, the casual dining segment has the greatest potential for larger contributions to profit. Conversely, the QSR segment is subjected to greater price competition and more frequent menu changes, which could restrict profit growth capability.
Q1 Results
For the three months ended February 2023, PHL’s revenues jumped from a low base in Q1 2022 of $246.4 million to $309.5 million, reflecting top-line growth of 26 per cent.
Meanwhile, net profit to shareholders surged by 98 per cent to reach $7.83 million from $2.0 million. Those results saw diluted EPS swell from 3.2 cents to 12.5 cents.
This quarter’s strong out-turn benefitted from Carnival celebrations being held in the third week of February and the absence of any COVID-19 restrictions. The opening of a Starbucks outlet in Guyana in April, along with contributions from other local openings, should lift the current quarter’s and full year’s results.
Overall, total assets grew to $790.5 million while shareholders’ equity expanded to $295.2 million, consequently, the book value per share improved to $4.82.
Investors’ returns
Over its fiscal year on the TTSE, PHL’s share price decreased by 11.2 per cent from $7.04 to $6.25 as of November 30, 2022. This year, reacting to improved full year and, more recently, Q1 results, the price recovered smartly. It attained a high of $8.50 on April 21, but then closed at $8 last Wednesday.
Consistent with its greater profit, annual dividends grew from six cents to 32 cents.
At the recent price of $8.00, the dividend yield is 4.00 per cent and, based on trailing EPS of $0.66, that price reveals a modest P/E multiple of 12.12. That price also displays a strong premium of $3.18 or 66 per cent greater than its February 2023 book value of $4.82.
