PFCB: REAL TIME NOTES

PFCB notes on Mr. Vivian’s ad lib presentation:

Pei Wei is what people are looking at most closely

  • 12-18 months ago it was suggested that PFCB abandon the concept
  • Mistakes corrected
  • Last 6 quarters have shown improvement in operations
  • Comfortable putting capital down to work
  • 3-4 new Pei Wei units this year, 10-15 in 2011, and a number larger than that in 2012 (maybe 20-25)
  • More next year (existing markets except Chicago)

Pei Wei had positive traffic last year

  • The expectation is that comps will be positive this year
  • Pei Wei unit potential is around 500 units

Currently all units are company-owned.  The company is not against using partners to grow this concept but management wanted to first make certain that they could make money with Pei Wei.  PFCB would be more open now to having those conversations (not currently having any conversations with potential partners for Pei Wei).

Bistro

  • Very good concept
  • Struggling over the last couple of years to grow traffic but that is beginning to change
  • Looks like we’re going to be moving into positive territory as we move out of this year
  • If we’re negative this year, negative first half, positive second half
  • Business is slowly improving, when you dial out weather

190 Bistros, PFCB thinks 250 is the right number

  • First priority with cash is to build restaurants
  • Likely they will build ten or so too many and then have to find the right number

Bistro universe is shrinking so opportunities are less apparent

How do you evaluate returns at the unit level, when does it not make sense?

  • ROIC
  • pfcb.com investor relations page has a return on invested capital section with the returns of each year (‘07, ‘08 and ‘09)
  • Capitalizing lease, 30% return is PFCB’s aim
  • Last year, Bistro was 36% and Pei Wei was 28%

Q: Ever considered international expansion?

A: Yes. Three agreements outside of USA – Mexico, Middle East, and The Philippines.  Partners will likely open other international locations also.  PFCB is not committing any capital to international expansion.

Actually get a call a week from Asia for to expand there…

Q: Dividend…

A: Progressive dividend…rather than initiate a fixed dividend, we thought it made more sense to fix payout ratio and let dividend float. Better results will aid shareholders.  Ratio fixed @ 45% of Net Income.  Investor responses to the dividend announcement: He has been told that PFCB is the #2 in restaurant group in terms of payout

He has also heard that people are saying that the initiation of the dividend signals that PFCB’s growth is coming to an end. Bert’s response to that comment is that PFCB is producing a lot of cash…bistro is self sufficient. Pei Wei is nearing self sufficiency. Both concepts will soon be able to fund their own growth. Both international growth and the frozen food venture are not requiring any capital.

The right amount of cash on the balance sheet is $40/50mm so anything above that we are going to figure out how to best return it to shareholders.

Q: Unit economics of Pei Wei?

A: Cost $750k – 800k cash (recently took $50K out of the cost). Including lease obligations, it is about $1.4M-$1.5m, all in. Excluding a small group of under achieving units, Pei Wei generates about $37K-$38K per wk in sales

Q: Maturity curve?

A: Bistro reaches maturity in about 18-24 months.  Pei Wei hits the curve quicker. It is an easier model from an operational standpoint so maturity should be approximately 12-18 months.

PFCB extended a $10m line of credit to Sam Fox for True Foods Kitchen restaurants to build 3-5 restaurants. The agreement includes some provisions to allow PFCB to convert its loan to equity, but that decision is still a couple years away.

Howard Penney

Managing Director