Priszm Income Fund moves to bulk up in Ontario, import workers in West

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This article was published 09/03/2007 (7105 days ago), so information in it may no longer be current.

TORONTO (CP) – Priszm Income Fund (TSX:QSR.UN) topped half a billion dollars in sales last year at its KFC, Pizza Hut and Taco Bell restaurants but is worried about lean results in Ontario and labour shortages in the West, where it aims to import foreign workers.

Priszm is feasting in Quebec, where same-store sales were up 8.1 per cent for the year and 9.7 per cent in the fourth quarter.

But sales at Ontario outlets open a year or more increased by just 0.1 per cent in 2006, though this improved to 0.9 per cent in the fourth quarter.

Priszm executives said Friday they are working to revive Ontario growth through promotions and new products, and expect sales nationwide to be boosted by the introduction of trans-fat-free canola cooking oil, which began in the fourth quarter.

The new oil reduces some menu items to zero trans fat, and a “preliminary nutritional analysis has also shown that with the new cooking oil, saturated fat levels in all of our products have decreased on average by 40 per cent,” Jeff O’Neill, president and chief operating officer, told a conference call Friday.

“We will be rolling out new menu boards and promotions over the next couple of months updating our nutritional information.”

In Western Canada, where same-store sales were up by 3.9 three per cent for the year, the tight labour market has caused “staffing difficulties” for the entire quick-service-restaurant sector.

“Under a federally sponsored program, we have applied to bring in foreign workers to support Priszm’s operations in both B.C. and Alberta. We’ve hired an immigration specialist to assist us in the application process and hope to resolve this employment issue in the next couple of months.”

Among other problems, the price of corn has been rising, “which of course means that the price of chicken feed continues to go up,” O’Neill noted. “It’s reasonable to expect that our cost of chicken will also increase.”

Nevertheless, he expects to reduce Priszm’s $300-million annual cost base both this year and next, without releasing an expense-trimming target.

National same-store sales growth was 2.7 per cent in 2007.

Atlantic Canada showed 0.7 per cent growth, “reflecting the negative impact of the local economy in several areas,” and a key objective this year is to bulk up in Ontario, where “lumpy” results are expected in the coming quarters.

“Similar to the successful turnaround plan initiated in Quebec in 2005, we are implementing strategic initiatives to address the lagging sales in Ontario,” O’Neill said.

“We are seeing some good traction in the all-important Greater Toronto Area and the northeast, but the sluggish economy in the southeast has partly offset these gains.”

The trust, which earned $15.6 million or 75.5 cents per unit on sales of $503.4 million in 2006, is shedding Canada from its identity, shortening its name to Priszm Income Fund, from Priszm Canadian Income Fund.

With 482 outlets in seven provinces, Priszm aims to expand by more than 50 locations annually over the next five years, and chairman and CEO John Bitove told the call the federal government’s plan to tax income trusts like corporations after 2010 won’t affect its plans.

“As it currently stands, it will not impede our growth and our ability to make acquisitions,” Bitove said, stressing that Prism expects to increase its payouts to investors. “We’re here to build consistent, reliable cash distributions.”

He noted that distributable cash increased 23 per cent last year and Priszm has an 89.7 per cent payout ratio, of which about 59 per cent represents return of capital, “one of the highest tax shields in the income trust sector.”

Priszm units, 40 per cent owned by Bitove, closed up two cents at $11.33 Friday on the TSX.