Restaurant Brands NZ plans to buy Pacific Island Restaurants, the largest fast food operator in Hawaii with 82 Taco Bell and Pizza Hut stores, to diversify its earnings away from New Zealand where it runs the KFC, Pizza Hut, Starbucks Coffee and Carl's Jr food chains.

The Auckland-based company has offered $US105 million for PIR, funded by a $94 million sale of shares to existing holders and $US42 million of debt, it said in a statement. It expects to complete the sale by late December, conditional on approval from Yum! Brands, which is the franchisor for PIR's Taco Bell and Pizza Hut stores and Restaurant Brands' existing KFC and Pizza Hut operations.

Restaurant Brands, New Zealand's largest fast-food operator with 173 stores, is expanding into new markets to drive future earnings growth, opening new burger chain Carl's Jr in New Zealand and expanding into KFC in Australia where it has 42 stores. To improve profitability in its legacy businesses, the company has been refurbishing and adding to its local KFC outlets, exiting low-performing Pizza Hut stores and closing its worst performing Starbucks Coffee outlets.

"A while ago we looked at the growth potential for Restaurant Brands in New Zealand and it was in our view limited to a steady 'business as usual' growth of one or two KFCs per year, maybe one or two Pizza Huts per year, that sort of pace. The ability to grow rapidly with new brands as we have seen with Carl's Jr is a very slow path, and there's not many other brands that we could purchase or would be interested in purchasing to add step change," chief executive Russel Creedy told BusinessDesk.

PIR is the sole Taco Bell and Pizza Hut franchisee in Hawaii, Guam and Saipan, is profitable with a stable management team and provides the opportunity for future investment, Restaurant Brands said.

"The acquisition of PIR provides the next stage to Restaurant Brand's growth platform and aligns with our growth strategy," chief executive Russel Creedy said. "We also see a number of other potential bolt-on opportunities in the market that we may look to pursue over time where they make strategic and financial sense."

The company is offering its shareholders one new share at $4.70 apiece for every 5.15 shares they already own. That's a 12.5 percent discount to $5.37, the dividend-adjusted volume-weighted average price of the shares for the five trading days prior to October 26. The shares are in a trading halt pending the result of an institutional bookbuild. The new shares won't be entitled to a 9.5c first-half dividend announced by the company today.

Restaurant Brands today posted a 0.7 percent gain in first-half profit to $13.5 million for the 28 weeks to September 12. Sales jumped 22 percent to $256.2 million, with the bulk of the increase coming from its acquisition on April 27 of QSR in Australia, the biggest KFC franchisee in NSW, which added $43.6 million of sales.

The company said it completed one transformation of a KFC store in New Zealand over the latest period, bringing to an end its 10-year programme of major KFC transformation, having transformed 87 of the 91 stores in its network.

Meanwhile, its Australian KFC business is performing well against expectations and the company said it has identified the opportunity for further acquisition of KFC stores in the Australian market.

Its Pizza Hut network in New Zealand increased to 90 stores after independent franchisees added a new store. The total number sold to independent franchisees increased to 45 after it sold six more stores, as the company moves over the next two years towards its target holding of about 25 company-owned stores.

Restaurant Brands said it is in talks with Yum! Restaurants International about the establishment of a master franchise arrangement for the New Zealand market, given it is transitioning to owning fewer stores.

Its 20-year Starbucks Coffee franchise expires in 2018 and the company said it's in talks with the franchisor about the future of the brand. It didn't provide further details. The store numbers reduced by one to 25 after closing a Wellington store at the end of its lease.

The company said most of its 20 Carl's Jr stores were contributing satisfactorily, although the future of some under-performing stores is being evaluated. Steady progress is being made toward building sales growth and profitability after the initial setup issues, it said.

Restaurant Brands expects its existing business, combined with two overseas acquisitions, will deliver an annual profit of between $30-32 million, excluding non-trading items. First-half profit excluding non-trading items was $15.9 million.

(BusinessDesk)