Correspondence

 

 

30 June 2009

 

Bruce Sheppard

Chairman

New Zealand Shareholders Association Inc.

c/- PO Box 6310

Auckland City

 

 

 

Dear Bruce

 

Thank you for your letter of 4 June on the matter of banking covenants.

 

We appreciate the NZSA’s continued focus on highlighting issues of interest to investors and the general public with respect to company reporting.

 

Firstly, without commenting on the relevance to Restaurant Brands of the “key ratios”, as you term them in your letter, we can confirm that they are dimensionally correct from your interpretation of our published accounts.

 

We note your recognition of recent progress in reducing our bank debt – a key objective for this company over the past couple of years. You may be assured that we are working very hard on addressing the earnings shortfall in our Pizza Hut business, both tactically and strategically.

 

Turning to your query on bank covenants, we advise that we have a considerable number of covenants contained within our facility arrangements requiring us to do everything from ensuring we comply with all relevant laws through to maintaining relevant insurances and meeting any obligations required under our franchise agreements. Most of these are fairly standard in banking documentation and making a full disclosure of all of them is, in our view, unnecessary.

 

The specific covenants relating to financial ratios we are required to meet are:

 

1.         Debt Coverage Ratio (i.e. Net Borrowings : EBITA); and

2.         Fixed Charges Coverage Ratio (i.e. EBITL : Total Fixed Charges), with EBITL being EBIT before lease costs and Fixed Charges comprising interest and lease costs.

 

The specific detail of the covenants is commercially sensitive information that remains confidential between the company and its bank. We can advise, however, that (as you may have expected from your analysis) the company remains comfortably within these required ratios and was so at balance date.

 

We note your point on taking further write downs on the carrying value of the Pizza Hut business. Taking such impairments has not and will not impact on out financial covenants.

 

Restaurant Brands is in the fortunate position of being a strong cash generating business and, even when reporting lower profits, still manages to deliver consistent operating cash flows. The company has a good relationship with its bankers, a demonstrated capability of reducing debt over fairly short time frames and, under its current facilities, remains well within its required financial covenants.

 

We trust this response (together with your own analysis) is sufficient to settle any queries you may have had about Restaurant Brands’ banking arrangements.

 

Yours sincerely,

 

 

 

 

Chairman