Brazil Fast Food Announces Third Quarter 2011 Results

Brazil Fast Food Corp. (OTC Bulletin Board: BOBS), the second largest fast-food restaurant chain in Brazil with 846 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 Grupo de Empresas Doggis S.A., today announced financial results for the third quarter ended September 30, 2011.

“We see a continuation of the current favorable business environment in 2011 and expect to benefit from, among other factors, increased spending associated with the build-out to support the World Cup and Olympics to be hosted in 2014 and 2016, respectively”

Third Quarter 2011 Highlights

• System-wide sales totaled R$236.8 million, up 20.6% from the third quarter 2010
• Revenue totaled R$60.4 million, up 14.9% from the third quarter 2010
• Points of sale totaled 846 at September 30, 2011, up from 742 at the end of third quarter 2010
• EBITDA was R$7.0million, down 36.9% from the third quarter 2010
• Operating income was R$5.5 million, down 41.8% from the third quarter 2010
• Net income was a loss of R$-0.54 million, or R$-0.07 per basic and diluted share, as compared to net income of R$5.3 million, R$0.65 in the third quarter 2010

“We are pleased to report a quarter of double-digit top-line growth driven by the expansion of our Bob’s branded franchise base and solid same-store sales performance and operating efficiencies at our company-owned stores. Year-over-year operating income comparisons reflect the non-recurring gain of R$6 million in Q3 2010 due to the disposition of certain properties and fixed assets. The net loss in the third quarter of 2011 is primarily due to a R$5.6 million non-cash charge resulting from a balance sheet adjustment to our provision for tax loss carry-forwards. We are pleased with the progress of our discussions with the tax authorities and are optimistic we will be able to favorably resolve the R$6.7 in contingent tax liabilities once the facts are carefully reviewed,” said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food.

“We believe that the very positive trends in revenues and operating income for the first nine months of 2011 confirm that our business is healthy and on track. We are also pleased to note that our strong operating cash flow enabled us to continue to pay down our debt and strengthen our financial position.”

Third Quarter 2011 Results

System-wide sales grew 20.6% in the third quarter to R$236.8 million, driven by an increase in franchised points of sale, which grew by 17.8% to 781 stores in the third quarter of 2011, as well as higher sales from company-owned stores.

Total revenue for the third quarter 2011 increased by 14.9% to R$60.4 million from R$52.6 million in the third quarter 2010. Revenue growth was driven primarily by the continued expansion of Brazil Fast Food’s franchise network and higher sales from company-owned stores.

The Company ended the third quarter of 2011 with 846 points of sale, compared to 742 in the comparable period in 2010.

Net revenue for company-owned and operated outlets was up 18.2% year over year to R$46.0 million in the third quarter of 2011, reflecting an increase in net revenues across the Company’s Bob’s, KFC and Pizza Hut brands, offset somewhat by a decrease in Doggis net revenues.

Net revenue from franchisees increased 24.2% year-over-year to R$8.8 million, driven primarily by an increase in number of franchised retail outlets to 781, up from 663 in the same period a year ago. Revenues from trade partners and other income totaled R$5.6 million in the third quarter of 2011, as compared to R$6.5 million in the third quarter of 2010.

Operating expenses grew 27.4% to R$54.9 million in the third quarter of 2011, primarily due to higher store costs and expenses and the significant decline in the net result of assets sold and impaired, which was a gain of R$0.4 million in the third quarter of 2011, as compared to a net gain of R$6.0 million in the prior year period. As a percentage of revenue, operating costs increased from 82.0% of total revenue in the third quarter of 2010 to 90.9% of total revenue in the third quarter of 2011, mainly attributable to variance in asset sales. Adjusting for this non-recurring item, operating costs continued to decline as a percentage of revenue due to the company’s strategy to limit its direct operations to its most profitable outlets and also due to improved franchise margins.

Operating income for the third quarter of 2011 was R$5.5 million, compared to operating income of R$9.5 million in the third quarter of 2010, primarily due to the non-recurring items noted above. Operating margin in the third quarter of 2011 was 9.1% compared to 18.0% in the same period of 2010.

EBITDA in the third quarter of 2011 was R$7.0 million, compared to R$11.1 million in the third quarter of 2010. EBITDA margin was 11.6% in the third quarter of 2011, compared to 21.1% in the same period of 2010. A table reconciling EBITDA to its nearest GAAP equivalent is provided elsewhere in this press release.

Interest income was R$0.5 million in the third quarter of 2011, compared to interest expense of R$0.3 million in the third quarter of 2010. The higher interest income is attributable to lower debt and higher cash balances during the period.

The Company accrued R$6.1 million in income taxes, on pre-tax income of R$6.0 million in the third quarter of 2011, as compared to R$3.7 million in taxes on R$9.1 million of pre-tax income in the prior year period. As mentioned above, during the third quarter of 2011 the Company recorded a R$5.6 million non-cash deferred income tax expense related to the adjustment in its tax loss carryforward.

Net income for the third quarter of 2011 was a loss of R$-0.54 million, or R$-0.07 per basic and diluted share, compared to net income of R$5.3 million, or R$0.65 per basic and diluted share, in the same period of 2010.

Nine Months 2011 Results

For the nine months ended in September 30, 2011, total net revenue was R$166.3 million, up 10.9% from R$150.0 million in the comparable period of 2010. Operating income was R$14.4 million, up 9.8% from R$13.1 million in the comparable period in 2010. Operating margin was 8.7% for the nine months ended September 30, 2011 compared to 8.8% in the comparable period in 2010. Net income for the nine months ended September 30, 2011 was R$7.0 million, down 5.8% from R$7.4 million in the comparable period in 2010. Basic and diluted earnings per share were R$0.86 for the nine months ended September 30, 2011 compared to R$0.91 for the nine months ended September 30, 2010.

Financial Condition

As of September 30, 2011 the Company had R$23.6 million in cash, up from R$16.7 million as of December 31, 2010. Working capital was R$12.5 million, as compared to a negative R$6.4 million as of the end of 2010. Total shareholders' equity was R$40.0 million at the end of the third quarter of 2011, compared to R$33.2 million at the end of 2010.

Business Outlook

“During the first nine months of 2011, we made solid progress in expanding our higher margin franchise operations, while focusing our company-owned stores on the most profitable outlets and improving the efficiency of operations. Same store sales at our owned restaurants improved by 8.7% for Bob’s, 3.7% for KFC, and 7.8% for Pizza Hut during the nine-month period. Net franchise revenues grew by 22.8% during this period, with franchise operating margins improving to 64.9%, as compared to 57.6% in the first nine months of 2010," said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food. "We see a continuation of the current favorable business environment in 2011 and expect to benefit from, among other factors, increased spending associated with the build-out to support the World Cup and Olympics to be hosted in 2014 and 2016, respectively," 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, 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.

Note: as of September 30, 2011 the US dollar was quoted at R$1.85

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.

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