Rosinter Announced Its Financial Results for 1H and 3Q Trading Update
OREANDA-NEWS On 20 October OJSC Rosinter Restaurants Holding (Rosinter), the leading chain of casual dining restaurants in Russia and the CIS (RTS, MICEX ticker: ROST), announced its unaudited interim financial results, prepared in accordance with IFRS for the six-month period ended June 30, 2008, and its 3Q 2008 trading update.
The Unaudited Interim Condensed Financial Statements for the six-month period ended June 30, 2008 are available for download at our web page www.rosinter.com.
Business update for the first nine months of 2008
Strong development with the support of our hub city structure
• Our casual dining network had grown to 296 restaurants serving 32 cities in 9 countries as of September 30, 2008, up from 232 restaurants serving 25 cities in 8 countries at the end of 2007.
• The 64 net openings in our casual dining business (including 17 franchised restaurants) represent a 128.6% growth when compared with the 28 openings (including 10 franchises) in the same period of 2007.
• Our strong pipeline of secured sites makes us confident of maintaining our guidance of 90 net openings in our casual dining business in 2008.
• In addition, our Costa Coffee joint venture had already opened a total of eight outlets (six in Moscow and two at St. Petersburg’s Pulkovo airport) as of September 30, 2008.
• With the support of our Hub City structure, our franchise network has expanded beyond Moscow and Saint Petersburg into the Russian regions, extending the reach of our brands to Nizhnyi Novgorod, Ufa, and Ulyanovsk.
• Our strong franchise team is serving our current franchisees and addressing potential franchisees’ increasing demand for our brands, especially IL Patio and Planet Sushi.
• We have made substantial progress in consolidating our Hub City organizations, which will monitor and support our fast-growing operation and development, franchises included, in our continuously expanding geography.
The creation of Hub City structure has in 2008 generated incremental set-up SG&A expenses that will be compensated for in 2009 and years to come by increased revenues from our regional development, including our newly opened 2008 outlets, and will allow us to optimize our support services structure and expenses.
• In 2008, average start-up expenses per site increased in comparison to 2007, due to two factors. The first was substantially lower access in 2008 to free or reduced rent regimes for restaurants under construction.
This was a consequence of higher competition for sites, especially in the regions, a situation that is expected to ease in the near future. The second was related to delays in opening at shopping-center locations and delays in obtaining the required electricity and/or permits for operating in some locations.
STRONG REVENUE GROWTH
• Preliminary consolidated total revenue (unaudited) for the first nine months of 2008 was USD 254.7 mln, representing a y-o-y growth of 35.0%.
• We saw SSSG (L-f-L) of 26.3% and 17.0% in USD and local currencies, respectively (including 6% traffic growth) in first nine months of 2008, compared with SSSG of 12.4% and 6.4% in USD and local currencies respectively (including 1.8% traffic growth) in the same period of 2007.
• We purchased Pulkovo Airport F&B facilities, operated previously under a management contract, a strategic move into the concession business that was in line with our strategy to increase our presence in transportation centers.
• We purchased our partners’ stakes in Samara and Omsk, leaving us with only three minority regional partners.
1H 2008 FINANCIAL HIGHLIGHTS:
• Consolidated total revenue for the first six months of 2008 of USD 164.9 mln, representing 36.3% growth compared to USD 121.0 mln in 1H 2007.
• Gross profit of USD 61.7 mln with a gross margin of 37.4% compared to 38.7% in 1H 2007, due mainly to an increase in labor costs at the restaurant level.
• Development related expenses of USD 9.3 mln in 1H 2008 (equivalent to 5.5% of revenue), compared to USD 1.3 mln in 1H 2007 (equivalent to 1.1% of revenue), due to the growth of our corporate development pipeline and the setup expenses of our Hub City structure.
• Profit from operating activities of USD 6.7 mln with a margin from operating activities of 4.1% compared with 9.4% in 1H 2007.
• Adjusted EBITDA (unaudited) of USD 15.5 mln with an adjusted EBITDA margin of 9.4%, compared with 15.3% in 1H 2007.
• Net profit of USD 1.3 mln with a net profit margin of 0.8%, compared with 3.3% in 1H 2007.
As described above in our Business Update, the reduction in our profit margins from operating activities, adjusted EBITDA, and net profit are due mainly to higher start-up expenses for new restaurants (because of both the extended pipeline and higher average start-up expenses) and to incremental SG&A expenses related to the development of the Hub Cities structure.
Rostislav Ordovsky-Tanaevsky Blanco, Chairman of the Board commented: “In these increasingly changing times, we are quite confident in our future. At this stage, the same stores are trading at very healthy rates and we would expect a limited effect from the current situation in our casual dining business, given the limited exposure of the average citizen to the financial markets and individual loans in Russia. Nevertheless, we have already put some plans in place to address potential material changes in the behavior of our guests.
This year, we opted to pass on various medium sized M&A transactions as we considered the market to be overheated. We concentrated instead on building our service support structure outside of Moscow, as well as our pipeline of new locations. Recently, we have seen signs that point towards an easing of the high real estate costs both in Moscow and in Regions which will bring us and our franchisees new opportunities to continue developing in our quite underserved restaurant segment.”
Ms. Lori Daytner, CEO commented: “In 2008, we stepped up the pace of our development and are now confident of delivering an impressive 38.8% y-o-y growth in our casual dining business by year’s end, with 90 new unit additions that include 27 new franchise units. Although this development temporarily reduced our margins for 1H 2008, and is expected to have a similar effect on our full 2008 results, it makes us and our team feel we are able to achieve sustainable, fast, multi-market growth, and it highlights clear areas for fine-tuning our development processes and optimizing the impact of our fast growth in our top and bottom lines.”
Mr. Alexander Roslavtsev, CFO commented:
“Our current focus is to manage very prudently our cash flow, to pace very carefully our current projects in development, to reduce our short-term debt exposure, and to take advantage of sizeable growth opportunities that might show up in our sector.”