Kentucky Fried Chicken (Bermuda) Limited Releases Interim 2011 Results and Letter to Shareholders

Hamilton, Bermuda – 26 August, 2011 – Kentucky Fried Chicken (Bermuda) Limited (the “Company”; KFCB.BH) today released the Company’s unaudited interim financial results to 31 July, 2001, and the Chairman’s letter to shareholders. The letter reads:

“The first six months of the year have been difficult for Bermuda’s retail and hospitality industries and Kentucky Fried Chicken (Bermuda) Limited (the “Company”) has certainly not been immune to a general weakness in discretionary consumer spending with half year sales declining for a second consecutive year. First half gross sales declined by $80,970 (-3.2%) compared to the prior year. 

Total payroll costs for the first six months decreased by $34,537 (-3.8%) due primarily to adjustments in staff scheduling which resulted in an overall reduction in total staff  hours and associated wage expense.  To date, the Company has made every effort to maintain stable employment for our team members throughout a weak economy and has avoided reduction of operating hours or staff redundancies.  However, the Board of Directors remains conscious of the need to keep expenses in line with business activity.  Given the two year trend of weakening sales, the Company will need to consider future operational changes which adjust the scale of our business to meet the changing demand of our customers.

Other operating expenses declined by $33,330 (-3.8%) in the first six months as management continued efforts to tightly control costs.  After two years of focused cost control, we believe that operating expenses have been cut or restrained as much as possible and that there is little if any room for significant further operating expense reductions during the balance of the year based on current operations.  While payroll and operating expenses did show some declines in the first half, these cost reductions were, however, more than offset by higher depreciation costs related to the Company’s premises.   The Company made essential capital expenditures to replace ageing mechanical components and re-assessed the value of other building related capital assets based on their remaining realistic life spans.  Consequently, the Company posted an operating loss of $102,475 for the first half (a decrease in six month operating profit of $135,720 compared to the prior year).

Due largely to a one-time gain of $60,934 related to payroll tax relief granted by the Government of Bermuda for the 2010 calendar year, together with investment income on surplus capital, the Company’s first half operating loss was reduced to a net loss of $20,933 for the first half of fiscal 2012 (-$0.04 per share).  The Company continues to abide by the terms of the Memorandum of Understanding (“MOU”) between the Government of Bermuda and qualifying Bermuda restaurants which may enable it to receive additional payroll tax relief in 2011.  One of the conditions of the MOU is that the Company may not withhold payroll tax from employees at a rate greater than 4.75% of taxable income (compared to a maximum withholding of 5.25% under legislation).  This condition benefits our staff members in the form of higher take-home pay than they might otherwise receive.  However, there is no certainty as to if or when the Government of Bermuda may grant the Company additional tax relief in the form of a write-off of employer payroll taxes for 2011.

The Company has been engaged in discussions with the Bermuda Industrial Union (“BIU”) for several months regarding terms for renewal of the collective agreement with unionized staff.  The fixed term of the last collective agreement ended in April of this year.  The Company’s last offer to the BIU was made early in August and the Company awaits the BIU’s written response.  It is our hope that the BIU and its membership will recognize the weakness of market conditions and the urgency of the Company’s need to reach a realistic agreement with its staff that protects the interests of all stakeholders including employees, investors, and customers.  While the Company has successfully protected its workers’ employment during the past two years of economic weakness, our ability to continue to protect employment going forward will be largely dependent on our employees’ willingness to recognize difficulties we all face in this economic environment.

Your Company has emerged from the first half of fiscal 2011 bruised like its industry peers.  However, with the strengths of an experienced staff team, strong brand, loyal customers, strong capital base and patient investors, we are optimistic that the Company can adapt to changing and difficult market conditions to continue to serve Bermuda well into the future as a profitable enterprise.

The Board of Directors declared no dividends for the first half of the year.  The Board will reconsider dividend policy in future as circumstances warrant.”

Donald P. Lines, OBE, FCA, JP

Chairman

For queries please contact:    Jason Benevides

                                                Waterstreet Corporate Services

                                                jcb@wcs.bm  or   (441)295-4754