CORPORATE

STATEMENT

FELLOW SHAREHOLDERS,

AT THE CORE OF OUR BUSINESS LIES ONE TRUE NOTION – CREATING A GREAT CUSTOMER
EXPERIENCE. ALL OUR UNIFIED EFFORTS, FROM THE PROVISION OF QUALITY PRODUCT OFFERINGS,
RESTAURANT NETWORK EXPANSION, OPERATIONAL PROCESS ENHANCEMENTS RIGHT UP TO COST
EFFECTIVE MEASURES, STRONG GOVERNANCE, AND A ROBUST CORPORATE CULTURE CREATE
BETTER VALUE FOR ALL OUR STAKEHOLDERS. BY UNDERSTANDING THAT THIS ONE NOTION IS
THE KEY, WE GROW IN LEAPS AND BOUNDS IN EVERY WAY. OUR FINANCIAL PERFORMANCE FOR
FINANCIAL YEAR 2008 WAS ASTOUNDING AND CONTINUES TO DO US PROUD.

AT THE SAME TIME AT THE CORPORATE LEVEL WE CONSISTENTLY ENSURE THAT WE DO

NOT LOSE SIGHT OF STRATEGIC POSITIONING FOR OUR LONG TERM BUSINESS INTERESTS.
WE ALSO CONTINUE TO BE MORE SOCIALLY INVOLVED, ESTABLISHING OUR FOOTHOLD AS
A TRULY SUSTAINABLE GROUP THAT CARES AND SHARES.

from left to right:

JAMALUDIN BIN MD ALI
Managing Director
TAN SRI DATO’ MUHAMMAD ALI
BIN HASHIM
Chairman
AHAMAD BIN MOHAMAD
Deputy Chairman

QSR BRANDS BHD ANNUAL REPORT 2008

014
On behalf of the Board of Directors, it
is our deepest pleasure to present to you
the Corporate Statement of QSR Brands
Bhd (‘QSR’) for the financial year ended
31 December 2008.
2008 ECONOMIC OVERVIEW
The year was a mixture of sorts in terms
of economic growth. Starting the year at
a steady pace, the global crisis that hit the
masses created a more cautionary market
from the third quarter of the year onwards.
2008 began positively, buoyed by domestic
sales prospects and a steady local economy,
in spite of market volatility from the US
subprime mortgage crisis.
In Malaysia, there was a notable
reduction in consumption and business
profits due to the impact of higher food
and oil prices. The country was also faced
with political uncertainties, interest rate
adjustments, exchange rate fluctuations
and surging commodity prices. As a result
of the continued decline in merchandise
exports circa November 2008, the nation
only achieved GDP growth of 4.6%, much
lower than the 6.3% growth recorded
in 2007.
Southside, our normally flourishing
neighbour Singapore, only managed
to register a growth of 1.1% over 2007,
mainly impacted by the negative growth
of 4.2% in the last quarter of 2008 .
The global economy slowdown has
affected Singapore exports, resulting
in poorer sales for many sectors in the
country. Though inflation has eased
somewhat from its alarming peak of 7.5%
registered in the second quarter, there
was still a decline in the retail market as
consumers became more cautious with
their spending. Unemployment rates and
news of job losses in various organisations
continued to trigger fears over job security.
A RESULT DRIVEN 2008
As we mentioned earlier, 2008 was
an astounding year for us. QSR continued
to record amazing profits year in, year
out. The Group recorded a revenue
growth of 14.2% to RM532.8 million
from RM466.4million in 2007. Profit before
tax – including our share of the profits
of our associate company, KFC Holdings
(Malaysia) Bhd (KFCH) – increased
substantially by 21.8% to RM97.7 million
as compared to RM80.2 million in 2007.
As a result of such high performing profits,
QSR’s earnings per share rose from 27.31
sen as at 31 December 2007 to 30.88 sen
as at 31 December 2008.
Revenue from Pizza Hut Malaysia
restaurants accounted for approximately
66.0% of the total revenue (excluding
the contribution from KFCH), Pizza Hut
Singapore (including Multibrands)
contributed 33.1%, whilst KFC Cambodia
made up the balance of 0.9%.
Financial highlights included:
• A 16.8% growth in revenue by
Pizza Hut Malaysia to RM351.7
million from RM301.0 million in 2007
• An increase of 8.5% in Same Store
Sales by Pizza Hut Malaysia
• A revenue growth of 6.5% by
Pizza Hut Singapore to RM176.2
million from RM165.4 million in 2007
• A 22.8% increase in the share
of KFCH Group’s profit after tax to
RM57.1million from RM46.5 million
in 2007
• An impressive increase of 14.8% in
Same Store Sales by KFC Malaysia
STRATEGIC INITIATIVES
Strategic innovation continued to
differentiate our performance from
our industry peers. Our focus on quality
delivery at all times, allowed us to plan
and strategise the best possible solutions
to carry the Group forward.
Our strategic initiatives for the year included:
• The continued expansion of the
Pizza Hut network, with 19 new
outlets being opened in Malaysia
and nine in Singapore
• Reimaging of various Pizza Hut and
KFC stores for better ambience overall
• Pizza Hut Malaysia’s continuation
of the hugely successful Sensasi
Delight combo value meals promotion
and a number of other exciting products
QSR BRANDS BHD ANNUAL REPORT 2008
015
• Introduction of Online Ordering
System to improve the performance
of Pizza Hut delivery business
• Strong expansion of the KFC network,
with 37 new stores in Malaysia,
eight in Singapore and one in Brunei
• Successful product launches
in KFC Malaysia and Brunei that
included our crowd pleaser, Colonel
Chicken Rice, which coincided with
our 35th anniversary celebrations
• The introduction of the KFC
breakfast menu to target the morning
crowds and 24-hour operating hours
extension at 139 KFC restaurant.
• The increase in RasaMas stores
with 15 new openings, bringing the
total to 36 and an addition of five
Kedai Ayamas stores bringing the
total to 27 stores to date
• New Primary Processing Plant
in Bandar Tenggara, Johor, now fully
operational since December 2008
• Strong sales by KFC Marketing
Sdn Bhd of Ayamas further
processed products locally
and in the export market
• The beginning of our foray
into Cambodia, beginning with
the opening of KFC Asia Hotel,
followed by another KFC restaurant
in Phnom Penh
QSR BRANDS BHD ANNUAL REPORT 2008
016
Dividends
Worthwhile returns for the benefit of
our investors remain a mainstay of QSR’s
corporate philosophy. For 2008, the Board
of Directors recommended a total dividend
of 11 sen per share (comprising an interim
dividend of 4 sen and a final dividend
of 7 sen).
The recommended total dividend is
after taking into account the rights issue
(mentioned below) which enlarged QSR’s
share capital by 40,911,847 rights shares,
from 245,471,082 to 286,382,929 shares.
The total dividend for 2007 stood at 9 sen
per share.
STRENGTHENING OUR BUSINESS
Enhancing shareholder value has always
been at the heart of QSR. In that aspect,
our Strategic Plan 2008-2012 laid great
emphasis on what needs to be done
to forge our success story forward.
During the year, QSR continued to
increase its interest in KFCH by acquiring
shares in the open market. As of 2 January
2009, QSR acquired an additional 865,300
ordinary KFCH shares, increasing its total
holding in KFCH to 50.25%. Subsequently,
KFCH became a subsidiary of QSR.
This important milestone is crucial towards
streamlining of business activities and
most important towards long term
management stability and ensuring a
steady income contribution to QSR.
Our foray into Cambodia has been a
gradual rise upwards. On 29 February
2008, the venture was formalised by the
signing of the Joint Venture Agreement
with two partners: Royal Group of
Companies Ltd and Rightlink Corporation
Limited Hong Kong, with QSR having a
55% stake in the joint venture company.
The first KFC outlet in Cambodia opened
on 2 March 2008 and has been well
received by Cambodian customers.
Upon obtaining approval to operate KFC
restaurants in Cambodia from Yum! during
the third quarter of last year, we started
our upward spiral and to date we have
four KFC restaurants in Cambodia – three
in Phnom Penh and one in Siem Reap.
Due to our commitment to building
the KFC brand in Cambodia, Yum! Brands
Inc (Yum!) has given us the approval to
also operate Pizza Hut restaurants in the
country. The first Pizza Hut restaurant
there is expected to be completed in
mid 2009.
In addition, we have completed our
capital restructuring through the carrying
out of the renounceable rights issuance
exercise. The renounceable rights issues
undertaken were of 40,911,847 new
ordinary shares of RM1 each with free
detachable warrants on the basis of one
Rights Share and one Warrant for every
six existing ordinary shares.
With over 200 Pizza Hut restaurants
in Malaysia and Singapore, Pizza Hut
is the most popular pizzeria on either
side of the Causeway!
KFC, with over 500 restaurants
in Malaysia, Singapore, Brunei and
Cambodia, is the region’s #1 Western
quick service restaurant chain.
QSR’s paid-up share capital as at
end of last year has increased from
RM245,471,082 to RM286,382,929
following the issuance of 40,911,847 new
ordinary shares at RM1.00 each coupled
with 40,911,847 new free detachable
warrants. This was on the basis of one
rights share together with one free
warrant for every six existing ordinary
shares of RM1.00 each held.
The number of warrants outstanding as
at 31 December 2008 was 40,911,847.
The warrants, which will expire on 5
March 2013 provide an incentive to the
shareholders to subscribe to the Rights
Shares and allow them to benefit from the
future growth of the Group. At the same
time it will also raise further proceeds
for QSR when they are exercised.
The rights issue which was approved by
the Securities Commission, Bank Negara
Malaysia, Bursa Malaysia Securities
Berhad and the QSR shareholders,
was completed on 10 March 2008.
ENERGISING PERFORMANCE
QSR’s work culture is one that is
fervently driven by performance.
Our Key Performance Indicators
(KPIs) support our performance culture.
The KPIs are used to measure corporate
achievement and also form the basis
for rewarding and promoting our
valued people.
Pedoman is one of our most powerful
cultural bonding and performance building
tools. It is conducted annually throughout
the Johor Corporation Group of Companies,
including QSR and our holding company
Kulim Malaysia Berhad. For the year 2008,
the theme “Business Jihad” was adopted
for the QSR Pedoman. The term Jihad,
a sustainable strive for higher success,
comes in various forms, be it spiritual,
social, political and economic. Jihad in
Business advocates the enriching of all
members of the QSR community, and
through QSR outreach, the enriching of
the public at large, through QSR’s ethical
business practises and consistently
delivering value.
Pedoman’s “Business Jihad” fundamentals
encourage an ethics-based business
module that is both market and business
driven. It also states that, in its pursuit
for profits, business must also contribute
positive outcomes to society, nature and
all creation. At the minimum it must not
bring harm and diminish value to society,
nature and creation.
As we move forward as one of the
fastest growing corporations in Malaysia,
Pedoman will help us overcome various
future challenges that might arise from
the size of the business, its ever growing
complexity, as well as the effects of
external shifts and changes.
Pedoman’s open and informal concept
which encourages mutual trust, faith
and confidence, will enable the Group
to progress forward while maintaining
our dynamic focus as a reputable,
sustainable Group.
During the year, QSR and KFCH
simultaneously hosted a Group-wide Hari
Mekar. We are delighted to announce that
QSR has garnered the Overall Champion’s
Trophy for two years running. With the
theme “Pursuit of Excellence in Quality”,
Hari Mekar, an annual quality event
organised by Johor Corporation, is a
quality movement that allows participants
to showcase their innovative ideas on
ways to increase sales, reduce costs,
enhance profitability, improve efficiency
and move creativity. Through the setup
of a quality focus in the Group, several
teams have been formed to propel this
quality movement, including suggestion
scheme teams, innovative and creative
circle teams and cross functional teams.
Hari Mekar encourages staff to put their
thinking caps on and come up with ideas
that can take the Group to a higher level.
IMPROVING GOVERNANCE
Realising the importance of strong
governance, QSR adheres to the
fundamental principles of disclosure and
transparency as a means to help realise
long term shareholder value. Taking into
account the interests of our many
QSR BRANDS BHD ANNUAL REPORT 2008
019
stakeholders, we try our utmost best
to be transparent in all our corporate
activities. Furthermore, for better
governance control, we ensure that all
staff, from the top management right
down to our service and front line,
adopt the highest ethical standards
and practise a strong sense of due
diligence, responsibility and absolute
integrity in all their business dealings.
BEING A RELIABLE, SUSTAINABLE
CORPORATE CITIZEN
QSR is highly committed in giving back
to the communities in which we serve and
operate. On a day-to-day basis, we work
together with all our stakeholders – our
people, suppliers, governmental and NGO
bodies, right up to our shareholders – to
help create a more sustainable approach
in how we operate our business. When
we act in a sustainable manner – from
how we govern our business and enhance
our people skills right up to how we help
communities in need, we express our
respect for all of those around us. It is
about doing good and acting in an
honest, reliable manner.
Halal compliance, a vital part of our
business, is duly recognised as our core
Corporate Social Responsibility. Other
than embedding halal practices into our
processes, the company sponsors the
World Halal Forum and the Malaysia
QSR BRANDS BHD ANNUAL REPORT 2008
020
International Halal Showcase, both
of which involve the promotion of our
many products.
The Group also participated at the
annual Halal Food Standards Realisation
(HAFSTAR) MS 1500:2004. The halal
market is not just for the Muslim community.
The concept of halal which puts great
emphasis on cleanliness, hygiene and
a healthy lifestyle has also captured the
interest of non-Muslims globally. Having
identified halal as one of QSR’s critical
success factors, we have put in place an
elaborate and professional halal Audit
infrastructure, the first of its kind in
Malaysia’s foods industry.
We also believe in the all encompassing
power of knowledge. As one of the
building blocks of the country, we heeded
the Government’s call to increase English
proficiency in local schools. Pizza Hut
sponsors The Star Newspaper-in-Education
(NIE), a programme that is supported by
the Ministry of Education, and helps students
grasp the internationally used language
of the masses. In 2008, close to 94,000
students from 362 schools throughout the
country participated in the programme.
Also well known as a health conscious
Group, QSR continues to promote a
healthy, active lifestyle especially in the
sponsorship programmes related to local
sports activities. We are proud to
associate ourselves with some of the
leading sporting personalities in the
country, including Datuk Nicole David,
through our support of squash in Malaysia.
We sponsor a state-of-the-art glass squash
court used by the Malaysian Squash
Association in some of the leading
tournaments in the country, including
the Malaysian CIMB Open 2008.
In addition, our subsidiary QSR, supports
the Johor FC football team. The Group
also sponsors the Malaysian Yachting
Association and futsal activities, with the
aim of encouraging young Malaysians to
pursue sports not only as a hobby, but
also as a means to garner international
recognition for oneself and country. Indeed
some of the sailors trained under the
Association have made us and Malaysia
proud in some of the leading Yachting
competitions in Malaysia as well as
internationally.
Another cause close to our hearts is
entrepreneur development. A collaborative
effort with Johor Corporation’s, the
entrepreneurial development programmes
–Tunas Bistari, Didik Bistari and Siswa
Bistari, help develop entrepreneurial skills
among young, talented Malaysians so that
they are both market as well as global
ready individuals.
A new name and a new logo, but the
same commitment to quality, service
and great taste. RasaMas currently
operates 36 restaurants in Malaysia.
Fast, convenient, and gaining an
ever wide following, Ayamas currently
operates 27 stores selling freezer to
fryer and shelf chicken products,
roasters and snacks.
Under our Intrapreneurship Development
programme, Johor Corporation has
initiated Catur Bistari – a Malaysian
business board game which cultivates
entrepreneurial skills amongst the younger
generation. Developed by Bistari Young
Intraprenuers, a subsidiary of Johor
Corporation, the investment game is
currently sold at KFC outlets nationwide.
As part of our CSR effort, KFC also
organises and sponsors Catur Bistari
competitions yearly to encourage
entrepreneurship developmental skills
amongst Malaysians. This is part of our
CSR marketplace initiative, aimed at making
a success of Malaysia’s developmental
program in the next lap in the country’s
economic growth. This next lap has
obviously to be more business-driven
than before, thus relying extensively
on the role to be played by the country’s
entrepreneurs, and QSR has positioned
itself to play a strong supportive role.
In addition, we continue to extend
our hands and hearts to the less
fortunate. QSR and KFCH continued
the sponsorship of three episodes per
year of Tijarah Ramadhan – a television
programme that helps many poverty
stricken families in Malaysia.
We also actively participated in the Yum!
Brands Annual World Hunger Relief
Campaign. The campaign, the world’s
largest volunteer movement and private
sector effort to combat hunger, aims
to help stop world hunger through
volunteerism and increased donations
to benefit the United Nations World Food
Programme (WFP) and other hunger relief
agencies. In 2008, KFC and Pizza Hut
Malaysia’s Hunger Relief Period 2008
campaign raised RM1million for charity.
Our Projek Penyayang founded in 1996,
is our avenue to feed and reach orphaned
and underprivileged children. Organised
every quarter, to date around 150 charitable
homes and institutions throughout the
country continue to receive finger lickin’
good KFC meals.
AWARDS AND ACCOLADES
Our commitment to quality has not gone
unnoticed. Throughout the year, QSR has
been recognised and awarded for amongst
others, product excellence, marketing
excellence and brand promise delivery.
Pizza Hut’s commitment to winning
over Malaysian consumers, won the
Brand Laureate Award 2008-2009
excellence in Product Branding as
well as the Gold Trusted Brand for the
Reader’s Digest Trusted Brand poll,
considered the region’s leading, objective
barometer of brand performance.
In addition, for our continuous dedication
and hard work, Pizza Hut Malaysia became
the proud recipient of two Yum! awards
- the Best Home Service award and the
White Plate Award. The Best Home Service
Award was given for the outstanding
achievement in building Pizza Hut as a
strong brand and sales in Home Service.
Another feather in our cap is Pizza Hut’s
Bronze Award win at the 1st Malaysia
Effie Awards 2008 for the effectiveness
of the Sensasi Delight Campaign. The
Effie Awards programme is presented
annually in the United States by the New
York American Marketing Association in
recognition of the year’s most effective
marketing communications campaigns.
It is acknowledged as the most
recognised award by companies in
the communications industry.
KFCH, our subsidiary, received the
Gold Trusted Brand award in the Reader’s
Digest Trusted Brand poll. It was also
awarded the Brand Laureate Award 2008
-2009 for Brand Excellence in Product
Branding under the Fast Foods Chicken
Category, while Ayamas received the
Brand Laureate Award 2008-2009 for
Excellence in Product Branding under
the Chicken Based Products category.
QSR BRANDS BHD ANNUAL REPORT 2008
023
OUTLOOK FOR THE YEAR AHEAD
The deepening of the global financial
crisis has become a main source of worry
on the international business front. The
initial International Monetary Fund (IMF)
projection of a world economic growth
of 2.2% in 2009 was recently revised to
only 0.5%. Developed economies such
as the USA, United Kingdom and Japan
are now experiencing recession.
The global slowdown is expected to
change the landscape of numerous
industries all over the world. As a result
of the pressures created by the current
economic landscape, Malaysia’s GDP
growth is expected to be in the range
of –1% to 1% for 2009 from 3.5%
announced in November 2008.
Nonetheless, we are confident that
the business will continue to expand
exponentially, boosted by the newly
introduced RM60 billion stimulus package
by the government, on top of the previous
RM7 billion stimulus package, which is
expected to invigorate the Malaysian
economy and consumer sentiments.
The weakening commodity prices will
also work in our favour and will improve
margins and help sustain the Group’s
performance in 2009.
QSR BRANDS BHD ANNUAL REPORT 2008
024
BUILDING THE FUTURE
Despite the uncertainties of the global
business landscape, QSR believes
that 2009 will still be a year of buoyant
performance for the Group. We aim to
boost revenue and profitability by increasing
the number of outlets, enhancing customer
experience, developing new and improved
products, expanding business activities,
developing better cost efficiencies
throughout the Group and improving
productivity at all of our restaurants
and manufacturing facilities. Restaurant
development plans are on a continuum
and 18 Pizza Hut restaurants and 30 KFC
outlets are expected to be introduced
by the end of 2009.
Our restaurant chains continue to
face growing competition from food
courts, other fast food operators as well
as hawker stalls. The increasing number
of food courts at newly opened malls
currently tempts consumers with the
promise of variety and convenience at
an affordable price.
In view of this, Pizza Hut and KFC are
taking up the challenge by bringing in
local taste products such as the 35th
Anniversary Chicken Rice to pique the
taste buds of the local customers. As
a competitive measure against our fast
food operating peers, our restaurants
have developed value for money meals,
such as Pizza Hut’s Sensasi Delight,
Variety Box and KFC’s Jom Jimat
product variants.
In addition, Pizza Hut Malaysia’s tie up
with Telekom Malaysia Bhd for TMNet
Hotspot’s wireless broadband access
and KFC Malaysia’s offering of free
internet access from 2.00 p.m. to 6.00 p.m.
on weekdays continue to signify our
commitment to provide convenience to
our customers. As at 31 December 2008,
158 Pizza Hut restaurants and 412 KFC
restaurants in Malaysia were offering
WiFi service.
Following our inroads into Cambodia
via the KFC brand, we now expect to
focus our resources into the opening
of more restaurants, primarily in the big
cities like Phnom Penh, Siam Reap and
Sihanoukville. Ten new restaurants are
expected to be opened by end of 2009.
In order to build a stronger market
presence, Kedai Ayamas will be
introducing additional products under
the LIFE brand, while other products,
including side orders, ice cream, bakery
and seafood based items, would also
be added in the future.
RasaMas, on the other hand, has
gone through a recent rebranding
exercise, which is expected to
gradually put the restaurant chain
on a return to profitability roadmap.