MARC has reaffirmed the corporate debt rating of KFC Holdings (Malaysia) Berhad’s (KFCH) RM300 million Islamic Notes Issuance Facility (INIF) at A+ID and at the same time, has placed the rating on positive outlook, in anticipation of an additional RM90 million cash proceeds from the proposed sale and lease back of Wisma KFC.

The rating reaffirmation reflects the Group’s strong brand presence in the western Quick Service Restaurant (QSR) industry, strong business and operation fundamentals, steady financial performance recorded over the years, and strong cash generation ability derived mainly from the nature of its cash business. The rating, however, is moderated by the risk profile of the food-related industry characterized by strong competition and vulnerability to economic factors.

The KFCH Group is primarily engaged in the fast food industry under the international trademark of KFC and Pizza Hut. It holds the KFC franchise Malaysia, Brunei and Singapore, and the Pizza Hut franchise for Malaysia and Singapore. Besides the above, the Group is also a fully integrated food operator, managing its own feedmills, breeder farms, hatchery, contract broiler farms, poultry processing plants, sauce manufacturing plant and retail chains.

In April 2004, KFCH completed its restructuring exercise which resulted in the segregation of the management and operations of KFC and Pizza Hut brands. With the restructuring, the Pizza Hut brand will be managed under QSR Brands Bhd. The restructuring also entails the Ayamas operations being absorbed into KFCH’s operations to form a fully integrated poultry retailing and processing group, thus, enabling the Group to provide dedicated focus for the respective brands.

As at end 2003, KFCH is by far the largest western QSR conglomerate with over 50% of brand share nationwide. The Group’s extensive network coverage comprises a total of 405 KFC outlets and 144 Pizza Hut outlets located over parts of Malaysia, Brunei and Singapore. Aggressive marketing strategy coupled with continuous new product launches and promotions, have enable the Group to generate the critical mass in customer traffic needed to ensure that it stays ahead of its competitors.

Despite the effects of SARS and the Iraq war during FY2003, KFCH’s revenue, continued on an upward trend registering growth of 10.6% as compared to the previous year. Total revenue of RM1.38 billion registered during the year was driven by improved sales at KFC and Pizza Hut restaurants which contributed 67% and 22% respectively. Debt servicing capacity remains strong with the debt service coverage ratio registering 3.61 times in 2003. KFCH’s debt leverage level also improved from 1.13 times in 2002 to 1.02 times in 2003, and is well below the 2:1 debt to equity cap under the issue structure. KFCH’s debt leverage level is expected to gradually pare down following the progressive reduction of the debt over the tenure of the facility.