MARC has reaffirmed the corporate debt rating of KFC Holdings (Malaysia) Berhad’s (KFCH) RM300 million Islamic Notes Issuance Facility (INIF) at A+ID (with developing outlook). The reaffirmation reflects the Group’s strong brand presence in the western Quick Service Restaurant (QSR) industry; strong franchise and market dominance; solid 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 home brand Ayamas. It holds the KFC franchise in Malaysia, Brunei and Singapore. Besides the above, KFCH 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. Post restructuring, KFCH absorbed the Ayamas operations to form an integrated poultry processing and retailing group, while the Pizza Hut chain was disposed off to QSR Brands, its major shareholder. As at end 2004, KFCH is by far the
largest western QSR group with over 36.6% of brand share nationwide. The Group’s extensive network coverage comprises a total of 420 KFC outlets and 89 Ayamas outlets located in 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.

KFCH’s revenue, continued on an upward trend registering growth of 2.2% in FY2004 as compared to the previous year. Total revenue of RM1.41 billion registered during the year was driven by improved sales at KFC’s restaurants and its integrated poultry division, which contributed 70.6% and 20.1% respectively. Debt servicing capacity remains strong with the debt service coverage ratio registering 2.55 times in 2004. KFCH’s debt leverage level also improved from 1.02 times in 2003 to 0.83 times in 2004, and is well below the 2:1 debt to equity cap under the issue structure. KFCH delivered a solid set of results for the first half of FY2005, with revenue registered at RM723.2 million, up by 3.1% and operating profit of RM58.7 million, up by 108.4% as compared to the first half of FY2004.

Despite uncertainties created by the recent board room tussle, day-to-day operations have not been affected. Nevertheless, KFCH’s franchise agreement with Yum!International is still intact, and Yum! International has stated it recognises Group COO, Mr C W Toh in regards to all matters relating to the business and franchise.