Fast-food profit on the menu

Restaurant Brands has announced its first annual profit increase in three years, prompting chief executive Vicki Salmon to say the fast-food company has turned a corner.

The firm reported yesterday that net profit after tax had jumped 33 per cent to $10.7 million in the year to February, as it opened more stores to hit a new high of 278, enjoyed lower costs from suppliers and wrung efficiencies from its operations.

"We are confident we can maintain our sales momentum in the current year," said Salmon. "However, we expect greater pressure on margins as a result of an increase in labour and facility costs.

"Despite these pressures, we expect to produce a slight improvement in our profit in this financial year."

After reporting a $20.7 million profit in 2002, Restaurant Brands has since seen profits slide, dragged down by lower sales and earnings at its largest division, KFC.

Salmon said the biggest contributor to the latest result was a turnaround at KFC, which reported an 8.5 per cent increase in trading profits to $27.8 million on a 1.1 per cent increase in sales.

The transition to a new chicken supply contract with Inghams and renegotiation of supply agreements helped to cut costs, but those benefits were offset by a significant escalation in labour costs as changes in the minimum wage and new laws on holiday pay began to bite.

A focus on improving cleanliness, hospitality and product quality also helped.

The recent discovery of a cockroach in a burger from a KFC store in New Lynn was at odds with that progress, but Salmon said the company had resolved the issue to the satisfaction of the local council, which had previously given the restaurant its lowest possible rating - an E-grade.

"They have said to us that if they came in today we'd be graded A," said Salmon, although the store will not go through the grading process for another two weeks.

Pizza Hut increased trading profits 10.8 per cent to $13.6 million and had the best sales growth of 7.7 per cent, driven by new store openings.

The smaller Starbucks Coffee chain increased trading profits by nearly 22 per cent to $3.7 million and Restaurant Brands' Australian arm produced its first profit of $40,000 for the year.

Looking ahead, Salmon said the focus this year would be on updating the design of KFC stores to a new look now on trial, with hopes to upgrade at least four to six stores during the year. If the trial was successful, the company hoped to refurbish all of its 87 KFC stores within five years.

New stores for most of the company's brands - five or six for Pizza Hut, four or five new Starbucks and possibly one or two new KFCs - would also drive growth, she said, along with new products such as the planned national introduction of a line of gourmet pizzas.

The latest result was in line with market expectations for a profit of $10.4 million, but drove Restaurant Brand shares up 5c to close at $1.30 a share.