Restaurant Brands New Zealand Ltd is the parent company to four fast-food retail chains – Pizza Hut, Starbucks, KFC and the recently launched Carl’s Jr. The company lists as ‘RBD’ on the New Zealand Stock Exchange under the NZX code. The company established in 1997 and as at February 2014 operates 176 stores, around 3,700 staff and over 60,000 daily customers (Restaurant Brands New Zealand Ltd, n.d.). The growing popularity of fast-food in New Zealand coupled with the company’s high sales records has resulted in it being a strong contender in today’s competitive market. RBD operates in the ‘Services’ sector and ‘Restaurants’ industry (Yahoo! Business and Finance, n.d.).
Financial data sources:
The data is mainly obtained from the company’s last five-year annual reports, Yahoo!Finance and another valuable source – Reuters.
About the analysis:
This cohesive analysis is to understand and interpret RBD’s capital structuring decisions and try to establish a relationship with the capital structure theories. The relevant criteria for analyzing RBD’s capital structure are the debt and equity level of the company over the last 5-year period. The starting point of the analysis would be comparing the debt and equity levels of the company over the last five years. The debt considered in this study is the interest-bearing debt, with market value assumed at the balance sheet date. The market value of equity is computed using the amount of outstanding shares and the share price also on the balance sheet date. The beta for the company as at 01/11/2014 is 0.92 and is assumed to be the same for all five years (Reuters, n.d.). The market risk premium is considered as 6% for all years, as is the average for New Zealand (Fernandez, Aguirreamalloa, & Corres, 2011). The risk-free rate is considered as 4.64% as the average of highest and lowest interest rates of Government bonds for the last five years (Interest.co.nz, n.d.). Company’s Financial Facts
The important events prior to and during this five-year span for the company were the KFC store transformations, close down of a few stores and the most recent launch of Carl’s Jr. These would be the main drivers for the capital structuring decisions taken by RBD. The debt for RBD concentrates mostly on bank loans and finance leases, and the company has not issued any bonds. The approved limit of the loan given by Westpac has been $35 million for all years except 2009-2010 where it was $45 million (Restaurant Brands New Zealand Ltd, 2010-2014). The following graphical representation depicts the debt market value for the company over the last five-year period. Figure-1
It is evident from the graph that RBD has not utilized the approved and available loan amount. Furthermore, RBD issued new shares every year. RBD issued the lowest number of shares in 2013-2014 of 20,980 (0.02%) with the raised capital of $57,695 and the highest number being 482,861 (0.50%) raising capital of $936,750 in 2010-2011 (see Appendix A).
RBD holds a small debt-equity ratio that is mostly a downward trend. The ratio decreased from 0.14 in 2009-2010 to 0.03 in 2013-2014. The WACC remains somewhat on a constant level between 9.63%-10.06% for the five-year period (see Appendix B). Interpretations of RBD’s Capital Structure Decisions:
The primary sources of funding for RBD’s investments have been bank borrowings and issued equity. After operating for a long time in the industry with just three fast-food chains, RBD decided to launch a new burger chain which required raising funds. The first restaurant opened in the late 2011 (Carls Jr, n.d.), which could have resulted in significant capital changes in the preceding year. As seen in the debt-value graph above, there is an increase in the level of interest bearing debt issued in 2010-2011 (of about $2...
References: Berk, J., & DeMarzo, P. (2014). Corporate Finance (3rd ed.). Edinburgh Gate, Harlow, England: Pearson Education.
Carls Jr. (n.d.). About us. Retrieved 07/11/2014, from http://www.carlsjr.co.nz/about-us/
Fernandez, P., Aguirreamalloa, J., & Corres, L. (2011). Market Risk Premium used in 56 countries in 2011: A survey with 6,014 answers (No. WP-920). Working Paper. IESE Business School, University of Navarra. Retrieved from http://www.iese.edu/research/pdfs/DI-0920-E.pdf
Interest.co.nz. (n.d.). NZ Government bond rates. Retrieved 05/11/2014, from http://www.interest.co.nz/charts/interest-rates/government-bond-rates
Lee, C. (n.d.). Firms ' Capital Structure Decisions and Product Market Competition: A Theoretical Approach. (10716).
Restaurant Brands New Zealand Ltd. (2010-2014). 2010-2014 Annual Reports.
Restaurant Brands New Zealand Ltd. (2014). 2014 Annual report.
Restaurant Brands New Zealand Ltd. (n.d.). About Restaurant Brands. Retrieved 30/10/2014, from http://www.restaurantbrands.co.nz/about-us/
Reuters. (n.d.). RBD.NZ Overview. Retrieved 05/11/2014, from http://www.reuters.com/finance/stocks/overview?symbol=RBD.NZ
Yahoo! Business and Finance. (n.d.). Retrieved 11/04/2014, from http://nz.finance.yahoo.com/q?s=RBD.NZ
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