Healthy Dividend Helps Investors Maintain Appetite For Collins Foods

By Glenn Dyer | More Articles by Glenn Dyer

Collins Food shares jumped more 13% at one stage yesterday despite a COVID-19 driven fall in earnings for the year to May 3.

The shares ended at $9.43, up 12.7% thanks to a decision by the company to maintain its final dividend after a 20% drop full-year profit to $31 million.

Collins will pay an unchanged final dividend of 10.5 cents a share, taking the total for the 2019-20 year to 20 cents a share fully franked. That’s up 2.5% from 2018-19 thanks to a higher interim.

The company blamed the fall in revenue and earnings on the impact of COVID-19 on its European sales of KFC and in Australasia.

Revenue rose 8.9% to $981.7 million for the 53 weeks to May 3 as the company’s KFC Australia segment reported overall same-store sales growth of 3.5%.

The second half-year same-store sales growth at KFC Australia was 2.3%, despite the impact of COVID-19 here in the last three months of the financial year.

Also helping was new KFC and Taco Bell store openings (9 KFC restaurants in Australia and 4 in Europe and 8 new Taco Bells). This offset a 5.8% same-store sales fall in its KFC Europe business.

Collins said that before the pandemic, same-store sales had been up 5.6% in Germany but down 3.6% in the Netherlands.

Collins Foods said earnings before interest, tax, depreciation, and amortisation (EBITDA) post-AASB16 (accounting tor leases) was 56.6% at $175.6 million. But on an underlying basis, EBITDA rose 6.3% higher to $120.6 million.

Collins incoming CEO Drew O’Malley was pleased with the company’s performance. Especially given how it is operating in “an unprecedented business and consumer landscape.”

He added: “KFC Australia has once again shown that it is a safe and trusted brand that customers can rely on during uncertain times, allowing the business to quickly recover same-store sales growth and continue its expansion into digital and delivery channels.”

“In Europe, sales were more severely impacted by COVID-19 restrictions, but we continue to experience a steady recovery. Taco Bell sales are also recovering close to pre COVID-19 levels, and home delivery in that brand has been launched ahead of schedule in 11 of the 12 restaurants,” he added.

Looking to 202-21 Mr. O’Malley was cautiously optimistic but provided no earnings guidance and a mixed update on sales in the early weeks of the new year:

“Whilst COVID-19 restrictions have eased in Australia and Europe, we remain alert to the possibility of a second wave and are operationally prepared to deal with the consequences should that occur. We continue to stay focused on the health and safety of our employees and customers above all, though are confident we can also maintain strong unit economics in a broad range of contingencies.”

The company said its cash balance at May 3 jumped $36.5 million to $116.3 million.

The company has plans to continue growing its network in FY 2021. It is targeting 9 – 12 new restaurant builds in Australia and 3 – 4 new openings in Europe.

It also aims to open 4 – 6 new Taco Bell restaurants. These could be the first of many new restaurants to come, with management commenting that it is “confident that Taco Bell will be another growth engine for Collins Foods in the years to come.”

But the company is rethinking its European plans: As a result of COVID-19, Collins Foods is re-evaluating the pace of new builds across Germany and the Netherlands and is likely to delay some openings as challenging conditions persist,” the company said yesterday.

No other guidance was provided for the current financial year.

Collins said that same-store sales in KFC Australia were up 11.6%, but were down 13.4% in KFC Europe in the first seven weeks of 20-21.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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