Kentucky Fried Chicken (Bermuda) Limited - Report to Shareholders

Hamilton, Bermuda – 09 July, 2010 - Kentucky Fried Chicken (Bermuda) Limited (KFCB.BH) today released the Chairman’s Letter to Shareholders.

“Fiscal 2010 was a challenging year for your company.  Net income for the year ended 31^st January 2010 was $234,656 – a decrease of $145,179 (-38%) – compared with $379,835 in the prior year.

As a result of diligent efforts by our management team in working to control input costs, gross margin of 74.78% in the 2010 fiscal year was essentially flat against 74.74% in 2009, though still below our five year average gross margin of 75.45%.

Menu pricing was last increased in mid fiscal 2009.  The small increase in sales of 1.18% year-over-year can be attributed to higher menu prices in the first half of fiscal 2010 compared to the first half of fiscal 2009.  While continual analysis of pricing levels are conducted by the company to ensure our pricing correctly reflects the cost of product and operations as well as anticipated profit for our shareholders, the current dismal economic climate in Bermuda makes it improbable that any upward adjustment in menu pricing can be implemented in fiscal 2011.  Therefore, our management staff will again be given the unenviable challenge of continuing to control input costs tightly to protect gross margin without sacrificing product quality.

2010 operating expenses increased 5.15% year-over-year, outpacing revenue growth and detrimentally impacting the company’s bottom line.  The greatest driver of increased operating expenses during the year was payroll costs which grew by 5.7%.  Previously negotiated wage and benefit increases for unionized staff were the primary contributor to increased payroll costs.  With the notable exception of electricity costs (which declined somewhat due to lower fuel adjustment levies), most operating expense categories showed increases in 2010.

While your management team has been challenged with continuing to contain operating costs in 2011 and eliminating non-essential expenses wherever possible, inflationary increases in certain expenditures will be unavoidable and will continue to pressure net income for fiscal 2011.

Notwithstanding declining profits, as a consequence of prudent past stewardship, the company remains strongly capitalized and well positioned to survive these stormy economic times.  Cash and marketable investments totaled $2,456,183 at end of fiscal 2010 versus $2,306,170 at year-end 2009.  This healthy cash position and liquidity should provide your company with the necessary resources to continue to meet its obligations to its staff, customers, and shareholders during a difficult operating environment.  We will strive to maintain the financial flexibility to make prudent investments in the future of the business and take advantage of attractive business opportunities that may arise.

At 31^st January 2010 the company’s liabilities totalled $334,467 compared to $394,760 at 31^st January 2009.  Shareholders’ equity at 31st January 2010 was $2,885,318 ($4.95 per outstanding common share) compared with shareholders’ equity of $2,825,490 ($4.86 per share) at 31^st January 2009.

During fiscal 2010 the Board returned surplus capital to shareholders in the form of dividends.  Dividend payments were as follows:

Payment date             Shareholders of record date   Amount

1^st June 2009  15^th May 2009 $0.10 per share

1^st September 2009    17^th August 2009         $0.10 per share

1^st  December 2009    16^th November 2009   $0.10 per share

No shares were repurchased and cancelled during the year.

The Board would like to thank our loyal staff members for their hard work in challenging times.  I would particularly like to thank the senior management team of Frank Seuss, Tracy Robinson, Jerome Talbot and Basil Outerbridge for their dedication to effective operations of your company.  Years ago, a component of senior management’s total compensation was tied to the operating results of the company.  As such, the interests of the management team are very much aligned with the interests of shareholders and they share very much in the pain of reduced profitability with the company’s investors.

I would also like to express our appreciation to our consultants Graham Redford, (marketing consultant), and Jason Benevides, who fills the role of financial controller, for their input, help and advice.

We look forward to the balance of the 2011 fiscal year with hope that improved economic prosperity will return to Bermuda sooner rather than later.  We take comfort in the knowledge that your company is on solid financial ground and has in place an experienced and competent leadership team to guide the company through the difficult operating environment we are now experiencing.

My personal thanks go to my fellow Executive Directors, Crayton Greene, Susan Wilson, Bill Thomson and Kevin Gunther for their contribution and assistance during the past year.”

Donald P. Lines, OBE, FCA, JP

Chairman

July 2, 2010