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Brazil Fast Food Announces First Quarter 2012 Results

Brazil Fast Food Corp. (OTC Bulletin Board: BOBS) (“Brazil Fast Food”, or the “the Company”), the second largest fast-food restaurant chain in Brazil with 891 points of sale, operating under (i) the Bob’s brand, (ii) KFC and Pizza Hut São Paulo as franchisee of Yum! Brands, and (iii) Doggis as franchisee of Gastronomía & Negocios S.A. (formerly Grupo de Empresas Doggis S.A. (“GED”)), today announced financial results for the first quarter 2012 ended March 31, 2012.

First Quarter 2012 Highlights

  • System-wide sales totaled R$254.2 million, up 15.0% from the first quarter 2011
  • Revenue totaled R$60.5 million, up 10.2% from the first quarter 2011
  • Points of sale totaled 891 at March 31, 2012, up from 781 at the end of first quarter 2011
  • EBITDA was R$7.1 million, up 7.3% from the first quarter 2011
  • Operating income increased 13.8% year-over-year to R$5.5 million
  • Net income was R$3.4 million, or R$0.42 per basic and diluted share

“We began fiscal 2012 on a positive note as our revenue increased over 10% year-over-year and we continued to expand our market presence to a record 891 points of sale. Additionally, the decline in the number of Bob’s, KFC and Doggis’s point of sales reflects our strategy to limit direct operations to our most profitable outlets and to focus on growing our franchise network,” said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food.

First Quarter 2012 Results

System-wide sales grew 15.0% in the first quarter to R$254.2 million, driven by an increase in the number of franchised points of sale as well as higher sales from company-owned stores.

Total revenue for the first quarter 2012 increased by 10.2% to R$60.5 million compared to R$54.9 million in the first quarter 2011. Revenue growth was primarily driven by the continued expansion of Brazil Fast Food’s franchisee network and higher sales from the Company’s franchisee business.

Net revenue for company-owned and operated outlets was up 8.6% year-over-year to R$43.6 million in the first quarter 2012, reflecting an increase in net revenues across the Company’s Bob’s, KFC and Pizza Hut brands, offset somewhat by a decrease in net revenues for the Company’s Doggis brand. At March 31, 2012, the Company had no own operated Doggis’ stores.

Net revenue from franchisees increased 31.6% year-over-year to R$10.0 million, driven primarily by an increase in number of franchised retail outlets to 826, up from 709 in the same period a year ago. Other revenue and income totaled R$0.3 million in the first quarter 2012.

Operating expenses grew 9.8% to R$55.0 million in the first quarter 2012, primarily due to increase in depreciation of headquarters’ fixed assets, accruals for contingencies and other expenses. As a percentage of revenue, operating costs slightly declined from 91.1% of total revenue in the first quarter of 2011 to 90.8% of total revenue in the first quarter 2012.

Operating income for the first quarter of 2012 was R$5.5 million, compared to R$4.9 million in the first quarter of 2011. Operating margin in the first quarter of 2012 was 9.2% compared to 8.9% in the same period of 2011.

EBITDA in the first quarter of 2012 was R$7.1 million, compared to R$6.6 million in the first quarter of 2011. EBITDA margin was 11.8% compared to 12.1% in the comparable period of 2011. Please refer Table No. 4 in this press release for a reconciliation of EBITDA to its nearest GAAP equivalent.

Net income for the first quarter of 2012 was R$3.4 million or R$0.42 per basic and diluted share, compared to net income of R$4.2 million or R$0.52 per basic and diluted share in the same period of 2011.

Financial Condition

As of March 31, 2012 the Company had R$24.1 million in cash and cash equivalents, up from R$21.4 million as of December 31, 2011. Working capital was R$17.6 million, as compared to R$16.9 million as of the end of 2011. Total shareholders' equity was R$49.3 million at the end of the first quarter of 2012, compared to R$45.5 million at the end of 2011.

Subsequent Events

On May 3, 2012, Brazil Fast Food and Yum! Restaurants International ("YRI") announced the satisfactory completion of the first phase of their efforts to expand the KFC brand in Brazil, pursuant to which the Company was engaged to provide franchise support services to KFC franchisees and to develop the KFC brand, upon its reentry into Brazil. Brazil Fast Food and YRI will remain close partners as the Company will continue to contribute to the development of YRI’s brands as a KFC franchisee focused in Rio de Janeiro and São Paulo and as a Pizza Hut franchisee with operations in the São Paulo metropolitan area.

Business Outlook

Brazil Fast Food completed the acquisition of Yoggi, a frozen yogurt brand in Brazil on May 17, 2012, to expand its product portfolio in the food service industry. Yoggi was founded in 2008 and now has a total of 60 points of sale in Brazil operated by franchisees across the country. Brazil Fast Food expects to increase the total number of points of sale to 150 over the next five years.

“With the acquisition of Yoggi, we have now expanded our product offerings and improved our ability to cater to our customers taste and preferences. We are seeing an increasing level of consumer interest in frozen yogurt and expect this trend to continue. In 2012, we are focusing our efforts on enhancing our customer service and increasing guest counts and sales at our KFC stores by promoting KFC’s Buckets at dinner party and weekends. We also plan to enhance our own-operated Pizza Hut stores results, consolidate 'Pizza Hut Express with PHD platform' and expand our Pizza Hut stores. At the end of 2012, we expect Bobs’ brand to reach a total of 1000 points of sale, a 20.5% increase from 2011,” concluded Mr. Bomeny.

About Brazil Fast Food Corp.

Brazil Fast Food Corp. owns and operates, both directly and through franchisees, the second largest fast-food restaurant chain in Brazil. The Bob’s trade name is used by Venbo Comércio de Alimentos Ltda., a subsidiary of Brazil Fast Food holding company, BFFC do Brasil Participações Ltda (formerly 22N Participações Ltda.). The “KFC” trade name is used by CFK Comércio de Alimentos Ltda. (formerly Clematis Indústria e Comércio de alimentos e Participações Ltda.), also a holding company subsidiary. The “Pizza Hut” trade name is used by Internacional Restaurantes do Brasil (“IRB”), a subsidiary of Brazil Fast Food holding company, BFFC do Brasil Participações Ltda, which is a 60% owner of IRB. In 2008, the Company entered into an agreement with GED, now Gastronomía & Negocios S.A. to cross-franchise the Bob’s and Doggis brands in Chile and Brazil, respectively. Brazil Fast Food will control the Doggis’ master franchise in Brazil and Gastronomía & Negocios S.A. will control the Bob’s master franchise in Chile.

Safe Harbor Statement

This press release contains forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known or unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those expressed or implied by such forward looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see the disclosures in the Company's filings with the Securities and Exchange Commission, including the risk factors contained in the Company's most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission.

Table 1

     

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Balance Sheets – Assets (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 
March 31,       December 31,
2012 2011
(unaudited)
 
CURRENT ASSETS:
Cash and cash equivalents R$ 24,129 R$ 21,357
Inventories 3,139 3,985
Accounts receivable
Clients 4,974 5,660
Franchisees 13,341 12,247
Allowance for doubtful accounts (801 ) (801 )
Advances to suppliers 2,023 1,500
Prepaid expenses 3,153 3,478

Receivables from properties sale

2,573 3,523
Other current assets   4,803   4,083
 
 
TOTAL CURRENT ASSETS 57,334 55,032
 

Other receivables and other assets

11,062 10,862
 
Deferred tax asset, net 7,970 8,378
 
Goodwill 799 799
 
Property and equipment, net 34,531 31,342
 
Deferred charges, net   4,787   4,472
 
 
TOTAL ASSETS R$ 116,483 R$ 110,885
 
 
 
CURRENT LIABILITIES:

 

Notes payable R$ 10,726

R$

11,523
Accounts payable and accrued expenses 11,265 11,608
Payroll and related accruals 5,420 5,618
Taxes 3,931 5,020
Deferred income tax 1,241 1,262

Current portion of deferred income

5,228 1,118
Current portion of contingencies and reassessed taxes   1,912   1,940
 
 
TOTAL CURRENT LIABILITIES 39,723 38,089
 

Deferred income, less current portion

3,445 4,057
 
NOTES PAYABLE, less current portion 5,479 5,068
 

CONTINGENCIES AND REASSESSED TAXES, less current portion

  18,555   18,215
 
 
TOTAL LIABILITIES   67,202   65,429
 
 
SHAREHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued
Common stock, $.0001 par value, 12,500,000 shares authorized; 8,472,927 shares issued for both 2012 and 2011; and 8,129,437 shares outstanding for both 2012 and 2011 1 1
Additional paid-in capital 61,148 61,148
Treasury Stock (343,490 and 343,490 shares) (2,060

)

 

(2,060 )
Accumulated Deficit (12,692

)

 

(16,092 )
Accumulated comprehensive loss   (1,111

)

 

(1,128 )
 
 
TOTAL SHAREHOLDERS’ EQUITY   45,286   41,869
 
Non-Controlling Interest   3,995   3,587
 
 
TOTAL EQUITY   49,281   45,456
 
 
TOTAL LIABILITIES AND EQUITY R$ 116,483

R$

110,885
 

Table 2

       

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 
Three Months Ended March 31,
2012         2011
 
REVENUES
Net revenues from own-operated restaurants R$ 43,617 R$ 40,146
Net revenues from franchisees 10,011 7,610
Revenues from supply agreements 6,591 6,792
Other income   320   397
 
TOTAL REVENUES   60,539   54,945
 
 
Store Costs and Expenses (40,520 ) (37,090 )
Franchise Costs and Expenses (3,079 ) (2,568 )
Marketing Expenses (1,351 ) (1,015 )
Administrative Expenses (8,602 ) (7,768 )
Other Operating Expenses (1,398 ) (1,629 )
Net result of assets sold and impairment of assets   (44 )   (2 )
 
TOTAL OPERATING COST AND EXPENSES   (54,994 )   (50,072 )
 
 
OPERATING INCOME   5,545   4,873
 
 
Interest Income (Expense)   (139 )   (44 )
 
 
NET INCOME BEFORE INCOME TAX   5,406   4,829
 
Income taxes   (1,824 )   (592 )
 
NET INCOME BEFORE NON-CONTROLLING INTEREST   3,582   4,237
 
 
Net loss attributable to non-controlling interest   (182 )   (7 )
 
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP. R$ 3,400 R$ 4,230
 
 
NET INCOME PER COMMON SHARE
BASIC AND DILUTED R$ 0.42 R$ 0.52
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC AND DILUTED 8,129,437 8,134,586
 
 
 
 
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

R$

3,400

R$

4,230
Other comprehensive income (loss):
Foreign currency translation adjustment   17   (32 )
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

R$

3,417

R$

4,198
 

Table 3

 

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(in thousands of Brazilian Reais)

 
      Three Months Ended March, 31
2012       2011
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST R$ 3,582 R$ 4,237
Adjustments to reconcile net income to cash provided by (used in) operating activities:
 
Depreciation and amortization 1,768 1,779
(Gain) Loss on assets sold, net 44 2
Deferred income tax 387 (278 )
 
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (408 ) 1,705
Inventories 846 129
Prepaid expenses and other current assets (198 ) (104 )
Other assets (920 ) (710 )
(Decrease) increase in:
Accounts payable and accrued expenses (343 ) (2,767 )
Payroll and related accruals (198 ) 607
Taxes other than income taxes (1,089 ) (1,101 )
Deferred income 3,498 5,284
Contingencies and reassessed taxes 312 (35 )
Other liabilities     1
 
 
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES   7,281   8,749
 
 
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,343 ) (1,397 )
Proceeds from sale of property, equipment and deferred charges   977   1,164
 
 
CASH FLOWS USED IN INVESTING ACTIVITIES   (4,366 )   (233 )
 
 
CASH FLOW FROM FINANCING ACTIVITIES:
Acquisition of Company’s own shares (119 )
Non-Controlling Paid in Capital 226 878
Net Borrowings (Repayments) under lines of credit   (386 )   (4,046 )
 
 
CASH FLOWS USED IN FINANCING ACTIVITIES   (160 )   (3,287 )
 
 
EFFECT OF FOREIGN EXCHANGE RATE   17   (32 )
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,772 5,197
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   21,357   16,742
 
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD R$ 24,129 R$ 21,939
 

Table 4

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

RECONCILIATION OF EBITDA TO NET INCOME

 
     

For the three months ended

March 31,

 

   

2012

   

2011

NET INCOME

   

3,400

   

4,230

Interest expenses, Monetary and Foreign exchange loss

   

139

   

44

Income taxes

   

1,824

   

592

Depreciation and amortization

   

1,768

   

1,779

EBITDA

   

7,131

   

6,645

       

EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Our management believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in evaluating companies in our industry. In addition, our management believes that EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. As a result, our management uses EBITDA as a measure to evaluate the performance of our business. However, EBITDA is not a recognized measurement under generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income from operations and net income, each as determined in accordance with GAAP. Not all companies use identical calculations, and our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as a tax and debt service payments.

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