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Brazil Fast Food Announces First Quarter 2010 Results

2010-05-18

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Brazil Fast Food System-wide sales grew 16.1% in the first quarter to R$ 191.6 million, driven by an increase in owned stores as well as franchised points of sale.

Brazil Fast Food Corp. (OTC Bulletin Board: BOBS.OB) the second largest restaurant chain with 737 points of sale, operating under the Bob’s brand, KFC and Pizza Hut São Paulo as franchisee of Yum! Brands, and Doggis as franchisee of Chilean owner of this brand, all of them in Brazil, today announced financial results for the first quarter ended on March 31, 2010.

“The outlook for our business in 2010 remains positive, and we will continue to make planned investments to grow our brands in the quarters ahead.”

First Quarter 2010 Highlights

System-wide sales totaled R$ 191.6 million, up 16.1% from the first quarter 2009
Revenue totaled R$ 50.1 million, up 13.4% from the first quarter 2009
EBITDA was R$ 4.6 million, up 19.8% from the first quarter 2009
Operating income was R$2.3 million, up 24.8% from the first quarter 2009
Net income was R$1.9 million, or R$0.23 per basic and diluted share

“Our results for the first quarter represent a good start for the year, and put us ahead of schedule to achieve our goal for 2010. In addition to delivering healthy top- and bottom-line growth, we were also pleased with the improvement in the operating margins of our owned stores,” said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food. “The outlook for our business in 2010 remains positive, and we will continue to make planned investments to grow our brands in the quarters ahead.”

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First Quarter 2010 Results

System-wide sales grew 16.1% in the first quarter to R$ 191.6 million, driven by an increase in owned stores as well as franchised points of sale.

Total revenue for the first quarter 2010 increased by 13.4% to R$50.1 million from R$44.2 million in the first quarter 2009. Revenue growth was driven by the continued expansion of the Company’s Bob’s and KFC restaurant network as well as the launch of Doggis in the fourth quarter of 2009. The Company ended the first quarter of 2010 with 735 points of sale, compared to 667 in the comparable period in 2009.

Net revenue for company-owned and operated outlets was up 9.4% to R$38.3 million over the same period in 2009 due to the increase in the number of stores the Company owns and operates to 89, up from 85 in the first quarter of 2009. Same own-store sales, which measure the performance of stores open for more than a year, were up 4.8% year over year for Bob’s, 2.8% for KFC and 14.5% for Pizza Hut.

Net revenue from franchisees increased 8.2% year-over-year to R$6.6 million driven by an increase in number of franchised retail outlets to 647, up from 580 in the same period a year ago. Other revenue and income totaled R$5.2 million.

Operating expenses were up 12.9% to R$47.8 million driven by higher owned-store costs associated with increases in store rent and wages, higher franchisee costs associated with the growth in the number of franchised network stores, higher administrative costs driven by new staff hires, outsourcing services transition costs, legal expenses to adapt franchisee agreements and, in general, structure expenses to keep on preparing the group for the expansion of the stores of the operating brands.

Operating income for the first quarter of 2010 was R$2.3 million, compared to an operating income of R$1.8 million in the first quarter of 2009. Operating margin in the first quarter of 2010 was 4.6% compared to 4.1% in the comparable period of 2009.

EBITDA in the first quarter of 2010 was R$4.0 million, compared to R$3.4 million in the first quarter of 2009. EBITDA margin was 8.1% in the first quarter of 2010, compared to 7.6% in the comparable period of 2009. A table reconciling EBITDA to its nearest GAAP equivalent is provided elsewhere in this press release.

Interest expense was R$340 thousand in the first quarter of 2010, compared to R$808 thousand in the first quarter of 2009. The reduction in interest expense is attributable to lower interest rates as well as a reduction in the Company’s debt.

Net income for the first quarter of 2010 was R$1.9 million or R$0.23 per basic and diluted share, compared to net income and earnings per share of R$1.1 million and R$0.14 in the same period of 2009, respectively.

Financial Condition

As of the balance sheet date on March 31, 2010 the Company had R$13.8 million in cash. Shareholders' equity was R$27.0 million at the end of the first quarter of 2010, compared to R$25.1 million at the end of 2009.

Business Outlook

During the first quarter, the macro-economic environment in Brazil was favorable for retail activities in general, but to a lesser extent for the food segment. Notwithstanding the Company delivered solid results driven by the strength of its industry leading brands. The outlook for the Brazilian economy remains positive, despite recent uncertainty associated with the European debt crisis. As a result the Company maintains its goal to end 2010 with 830 points of sale up from 673 in 2009.

“Our primary goal is to grow our existing brands organically. In addition to growing our own stores network as well as the Bob’s franchise, following the agreements with Yum! Brands and Chilean GED owner of Doggis brand, during 2010 we plan to initiate the development of the KFC and Doggis franchisee network. Nonetheless we will also continue to evaluate the acquisition or development of new brands opportunistically,” said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food. “On the operating front we remain committed to improving our managerial procedures to improve our efficiency and effectiveness with the goal of strengthening our competitive position and expanding our margins,” 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”), also a 60% subsidiary of Brazil Fast Food holding company, BFFC do Brasil Participações Ltda. Recently, the Company entered into an agreement with Grupo de Empresas Doggis S.A (“GED”) 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 GED will control the Bob’s master franchise in Chile.


BRAZIL FAST FOOD CORP. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands of Brazilian Reais, except per share amounts)

	Three Months Ended March 31,
	2010			2009

REVENUES
Net revenues from own-operated restaurants	R$	38,277		R$	34,974
Net revenues from franchisees		6,594			6,092
Othe revenue		3,413			2,348
Other income		1,806			762
TOTAL REVENUES		50,090			44,176

Store Costs and Expenses		(37,125	)		(34,233	)
Franchise Costs and Expenses		(2,378	)		(1,989	)
Marketing Expenses		(1,100	)		(421	)
Administrative Expenses		(6,156	)		(4,844	)
Other Operating Expenses		(1,017	)		(845	)
Net result of assets sold and impairment of assets		(27	)		(12	)

TOTAL OPERATING COST AND EXPENSES		(47,803	)		(42,344	)


OPERATING INCOME		2,287			1,832

Interest Income (Expense)		(340	)		(808	)


NET INCOME BEFORE INCOME TAX		1,947			1,024

Income taxes		(212	)		(23	)

NET INCOME BEFORE NON-CONTROLLING INTEREST		1,735			1,001

Net loss attributable to non-controlling interest		145			122

NET INCOMEATTRIBUTABLE TO BRAZIL FAST FOOD CORP.	R$	1,880		R$	1,123

NET INCOME PER COMMON SHARE
BASIC AND DILUTED	R$	0.23		R$	0.14


WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING: BASIC AND DILUTED		8,137,762			8,172,166

Note: as of March 31, 2010 the US dollar was quoted at R$ 1.78.

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

RECONCILIATION OF EBITDA TO NET INCOME

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.


	Three Months Ended March 31,
	2010		2009

NET INCOME	R$	1,880	R$	1,123
Interest expenses, Monetary and Foreign exchange loss		340		808
Income taxes		212		23
Depreciation and amortization		1,615		1,423
EBITDA	R$	4,047	R$	3,377


BRAZIL FAST FOOD CORP. AND SUBSIDIARIES Consolidated Balance Sheet (in thousands of Brazilian Reais, except per share amounts)

		March 31,			December 31,
		2010			2009
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		R$	13,803		R$	13,250
Inventories			3,349			3,762
Accounts receivable
Clients			7,896			6,301
Franchisees			3,680			5,255
Allowance for doubtful accounts			(1,214	)		(1,214	)
Prepaid expenses			3,319			3,132
Other current assets			3,590			3,323

	TOTAL CURRENT ASSETS		34,423			33,809

Other receivables and other assets			1,022			802

Judicial Deposits			10,933			10,146

Deferred tax asset, net			13,607			13,597

Goodwill			799			799

Property and equipment, net			35,859			35,003

Deferred charges, net			6,538			6,799

	TOTAL ASSETS	R$	103,181		R$	100,955

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Notes payable		R$	12,283		R$	13,829
Accounts payable and accrued expenses			19,924			16,275
Payroll and related accruals			6,065			4,668
Taxes			2,452			3,643
Current portion of deferred income			2,585			2,837
Current portion of contingencies and reassessed taxes			1,696			1,676
Other current liabilities			287			260

	TOTAL CURRENT LIABILITIES		45,292			43,188

DEFERRED INCOME, less current portion			3,727			4,076

NOTES PAYABLE, less current portion			6,827			8,604

CONTINGENCIES AND REASSESSED TAXES, less
current portion (note 3)			19,303			18,803


	TOTAL LIABILITIES		75,149			74,671

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 and 8,472,927 shares issued;
8,137,762 and 8,137,762 shares outstanding			1			1
Additional paid-in capital			61,148			61,148
Treasury Stock (335,165 and 335,165 shares)			(1,946	)		(1,946	)
Accumulated Deficit			(31,141	)		(33,021	)
Accumulated comprehensive loss			(1,064	)		(1,077	)

TOTAL SHAREHOLDERS’ EQUITY			26,998			25,105
Non-Controlling Interest			1,034			1,179

TOTAL EQUITY			28,032			26,284

	TOTAL LIABILITIES AND EQUITY	R$	103,181		R$	100,955


BRAZIL FAST FOOD CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Audited) (in thousands of Brazilian Reais)

	Three Months Ended March, 31
	2010			2009
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.	R$	1,880		R$	1,123
Adjustments to reconcile net income to cash provided by
(used in) operating activities:

Depreciation and amortization		1,615			1,423
(Gain) Loss on assets sold, net		27			12
Noncontroling interest		(145	)		(122	)

Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		(20	)		1,545
Inventories		413			971
Prepaid expenses and other current assets		(454	)		(265	)
Other assets		(1,017	)		(72	)
(Decrease) increase in:
Accounts payable and accrued expenses		3,649			(475	)
Payroll and related accruals		1,397			519
Taxes other than income taxes		(1,191	)		(121	)
Deferred income		(601	)		93
Contingencies and reassessed taxes		520			98
Other liabilities		27			769

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES		6,100			5,498

CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment		(2,237	)		(2,565	)
Acquisition of Company's own shares		-			(122	)

CASH FLOWS USED IN INVESTING ACTIVITIES		(2,237	)		(2,687	)

CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares of common stock		-			86
Net Borrowings (Repayments) under lines of credit		(3,323	)		(927	)

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		(3,323	)		(841	)

EFFECT OF FOREIGN EXCHANGE RATE		13			(3	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		553			1,967

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		13,250			10,424

CASH AND CASH EQUIVALENTS AT END OF PERIOD	R$	13,803		R$	12,391