Kfc Independence SquareChristian Mouttet.

Fried chicken and coffee have proven to be winning products for Prestige Holdings even as the company’s finances take a significant hit in 2020.

If there was any doubt that there had been an economic fallout during the COVID-19 pandemic, the news that Prestige Holdings Ltd suffered an $18 million dollar loss in 2020 would be evidence to persuade the sceptical.

The owner of several popular fast-food chains Kentucky Fried Chicken, Pizza Hut and Subway as well as local operators of Starbucks and TGI Fridays recorded an overall loss of $17,748,682, just one year after it recorded a profit of $35.3 million.

However the group’s chairman expressed optimism while reviewing 2020.

In the chairman’s report for 2020, Christian Mouttet acknowledged that the pandemic “caused significant disruptions to the economic activities in T&T and the effects of this were particularly acute in the restaurant industry.”

Mouttet in particular noted the impact of “measures taken by the Government to slow the spread of the virus, while prudent and necessary, resulted in our restaurants being completely closed for 34 days, followed by restrictions being placed on in-house dining activities and operating hours, both of which have continued into 2021.”

The chairman’s report revealed that in 2020, the company’s group revenue decreased by 19 per cent to $897 million from $1.11 billion which resulted in a loss before tax of $15.7 million.

In addition to slow down caused by the pandemic, the group also incurred a one-off impairment of goodwill charge of $18.6 million and an accounting adjustment for IFRS 16 of $8.5 million, both of which did not affect the company’s finances in the previous year.

The chairman’s report stated that profit before tax before both of these non-cash adjustments would have been $11.4 million compared to $54 million in 2019, a commendable performance given the severe disruption to our operations caused by the COVID-19 pandemic.

The impairment of goodwill charge, Mouttet explained, “is in relation to the $18.6 million of goodwill carried on our balance sheet for the acquisition of the Subway brand.”

Prestige purchased Subway for $110 million in December 2011.

“While this brand is expected to remain a positive net contributor to our group, given the prevailing headwinds caused by the COVID-19 pandemic and as a result, the potential changes to the restaurant industry, it was deemed prudent and necessary to take this impairment charge at this time,” Mouttet explained further.

Had these additional costs not been incurred, Prestige would have made a profit of $11.4 million. However this still represents a decrease from previous years as the company recorded profits of $35.5 million in 2019 and $26.4 million in 2018.

Mouttet said despite the setbacks Prestige’s brands, in particular Starbucks and KFC, were very productive in 2020.

“To varying degrees, all of our brands were negatively impacted in sales and profitability due to the disruption to their operations caused by the COVID-19 pandemic. While this is to be expected given the complete closure of our restaurants for 34 days, closure of dining for two prolonged periods, and the on-going restrictions on dining and operating hours, it is worthy to note that at the restaurant level, all brands remained profitable and generated positive cash on operations,” said Mouttet in his report, noting that customers adapted quickly to the curbside and delivery services offered.

“Our KFC and Starbucks brands proved the most resilient, with customers adapting more quickly to the convenience of our delivery, curb-side and drive-thru channels. During the year, KFC added the convenience of online ordering and launched the KFC mobile app, both of which have been well received by customers,” Mouttet said.

“Starbucks was our best performing brand in 2020, with all channels exceeding prior year with the exception of dine-in. We expect this brand to continue to trend positively and plan to open four new Starbucks restaurants in 2021,” he said.

“Pizza Hut was more heavily impacted due to restrictions in the dine-in channel, which accounts for a significant percentage of our sales. We did however see a meaningful increase in delivery and take-out orders in this brand, Mouttet added, “Our Subway restaurants were also significantly impacted due to customers more slowly converting to the delivery channel and without the drive-thru option at our locations.”

However TGI Fridays, who had recorded a significant improvement in sales in 2019, suffered greatly due to the restrictions to in house dining and the sale of alcohol at restaurants.

“As was to be expected, the COVID-19 restrictions had the most significant impact on our TGI Fridays restaurants, where in-restaurant dining and bar sales account for the majority of our business. Current restrictions prohibit the sale of alcohol in our bars, limit in-restaurant dining and have reduced operating hours, all of which have weighed heavily on our sales. We have however made considerable progress in developing our delivery and curb-side channels and expect these to remain valuable contributors when conditions normalise,” said Mouttet.

“He added that the introduction of delivery service for Subway and Starbucks as well as the expansion of their delivery capability as well as online services for these brands aided the company greatly,” said Mouttet.

“To assist in the expansion of our delivery and curb-side efforts, online ordering was introduced across all brands and at KFC, a mobile app was added for additional customer convenience. Greater emphasis is now being placed on these digital transformation initiatives and this is expected to be a major driver in our business in the years to come,” Mouttet said.

Mouttet said the group still planned to construct a new operations and distribution centre in Aranguez which is set to begin this month.

Despite the overall positive outlook in the chairman’s report, the company is aware that the pandemic’s still looms large.

“While we remain confident and positive about our business in the medium to long term, it would be difficult at this time to provide any accurate forecast for the 2021 financial year,” said PHL’s chief executive officer Simon Hardy in a emailed response to the Business Guardian.

“We do expect conditions to remain challenging for our business and industry in 2021 as much of the risks associated with COVID-19 still exists, many restrictions remain in place and much is still unknown with regard to the timing and availability of vaccines,” he said.

The Forex situation also served as a challenge for the company.

“Like the rest of the business community we face a continual struggle to source the requisite amount of forex to be able to make payment to our key suppliers. We are working on projects to reduce our need for forex wherever it is practical to do so. A key example would be that we are seeking local suppliers for some items we currently import,” he said.

However he explained that even that process of switching from imported to local produce had its hurdles.

“It is not as simple as just making the switch as we need to get approvals from our international franchisors. A key concern of which is food safety. We are working with select local suppliers to achieve this,” said Hardy.