Is Prestige pushing the right buttons?

Prestige Holdings Limited owns and operates a total of 69 Quick Serve Restaurants (QSR) most of which are in the Trinidad and Tobago market — 49 KFC, 2 TGI Fridays, 3 Pizza Huts — the rest are in the Dominican Republic and Puerto Rico. The KFC brand is the flagship product line and the most recognisable and profitable product, which generates the most profits. Prestige is on an expansion drive, the QSR domestic market is saturated with several existing competitors with several more lined up to do business.  The company’s management is rightly looking for both new brands and markets to sustain growth on a prolonged basis. 

In 2004, the company plans to penetrate the Jamaican market with the TGI Fridays brand in the downtown Kingston area, where it will compete with Jamaican’s Jam Rock Cafe.   The company paid an undisclosed sum for 75% shareholding in TCBY ice-cream and Yogurt business with “brand development rights for the rest of the Caribbean.” This must have been a sweet deal for the former owners of TCBY, as the Chairman declined to state the purchase price.  Price aside, this fits into Prestige’s strategy to expand the brands served at the QSRs. 

In Puerto Rico, the company also plans to push the success of its joint venture with a local partner and open another branch of the TGI Fridays chain of restaurants. Prestige has reevaluated and substantially reduced operations in the Dominican Republic in response to the high inflation rates and a rapidly declining dollar value in that market.  The company, however, believes that it can survive this market and boasts that the banks, franchisor and other business partners in “sharing the burden brought about by the current unfavourable macro economic conditions”. 

The expansion process is necessary for the company, as after tax profits as at November 2003 have stagnated at 4% of sales -—same as 2002 —  and earnings per share for the company increased slightly to TT$0.277 cents in 2003 from TT$0.261 in 2002. The nature of the business suggests that receivables are low, therefore, inventory must comprise a substantial portion of the current assets. Significant amounts of cash were used in 2003 for investing and debt repayments (TT$20.3M and TT$13.6M respectively), resulting in a year-end cash balance of TT$0.5M, -— far behind the 2002 cash position of TT$6.5M. Suffice to say that the company is a lot less liquid than it was in 2002, when the asset: liability ratio stood at 1:1.92 and the company may need to find cash for working capital to support its activities and loan repayments during 2004.

The company has not identified debt levels in its non-current liabilities and current liabilities.  Consequently, the debt to equity ratio cannot be computed and no statement made on the  company’s ability to raise more debt to make up for its shortfall in working capital. Rate of investments of 8% suggests that the company may have to relook its strategies to return more value to its shareholders. Despite the figures presented Prestige’s shareholders continue to gain market value on their investment.  While after tax profits remained at the same levels as 2003 the share price has increased by 40% from the December 2003 market price of TT$4.4 to close at TT$6.21 as at February 2004.