BALTIMORE, Jan. 12 /PRNewswire-FirstCall/ --
To Our Shareholders:
Our annual shareholder letter provides a timely opportunity to communicate the ideas and actions that we are pursuing at Papa Bello (Pink Sheets: PAPA) and the logic behind them. I strive to explain, rather than promote, because doing so gives you a framework from which to evaluate your investment and our overall performance. We are creating a great company that can stand the test of both good and bad times.
This past year was a very difficult year for the world economies and for business in the United States, and 2010 needs to be the year of restoring confidence and trust in our financial system. We have witnessed the weeding out process or the cleansing that I believe is necessary from time to time and that inevitably accompanies a difficult economic environment. In recent times, several restaurant and food service companies, many of whom are highly regarded, have seen their plans and expectations thwarted by events ranging from consumer distress and the tightening of credit markets to rating agency concerns, all of which have upset normal expectations about how a restaurant or franchise business should be run.
In the past several years, there has been significant expansion in restaurant concepts and franchising opportunities and significant capital expenditures by our competitors, primarily for opening new stores, but also to refresh and expand their existing store base and infrastructure. At Papa Bello, our investment principle is guided by the belief that capital invested in any area of our business deserves a reasonable return on that investment (ROI). If that return is not forthcoming, then investments in the business can destroy value rather than create value for shareholders. At Papa Bello, we will continue to evaluate opportunities based upon our expectations for a return on investment and continue to explore a variety of options where the returns could justify higher levels of investment.
2009 in Review
During the first eight months of 2009, Papa Bello was being managed by the founder of the company who had great vision but a limited operating staff and limited working capital to properly advertise, market and support the existing stores let alone look to open new stores and opportunities. During that very turbulent economic time, overall performance continued to decline.
In Late August, Aero Financial purchased the controlling interest from the founder and took over operations. In an aggressive, but well thought through and calculated plan, new management has instituted an initiative to acquire multiple food concepts under the Papa Bello Enterprise umbrella and build out a franchise program for each brand.
One of the unfortunate realities of the current environment is that previous management closed a number of our stores during 2009, dropping from a high of 21 locations. They were forced to start closing several non-performing Papa Bello Pizza locations and had begun selling off assets to cover liabilities in the corporation. At the point of acquisition, we immediately started researching the operating history of all existing locations and where economically valuable, began re-opening several stores with new and experienced personnel that have had a history of successful performance.
Since the day of acquisition, we have grown from one corporate and one franchised Papa Bello Pizza location to a total of seven stores in operation and three more under development. With the addition of new qualified personnel, the last quarter of the year has shown the best relative performance, which is gratifying since it is the first quarter under new management and the most important quarter of the year.
Our approach with the remaining closed Papa Bello Pizza locations is to re-open and operate certain stores that have had a past history of profitability. We will operate these locations as corporate stores as we restore them to profitability. Once they become cash flow positive locations, we will seek qualified franchisees to acquire them. The stores that don't fall under that criteria will remain closed and the in place equipment will be used for future locations.
Late in 2009, we set the stage of becoming a diversified food concept company when we announced the acquisition of the Kebab Cafe and Pastores' Italian Deli. Beginning in early 2010, we intend to have these concepts fully developed and ready for national franchising.
The Kebab Cafe is a Mediterranean food concept that is managed by professional restaurateurs Sam and Jag Kambo. The two brothers have been operating fine dining and fast casual restaurants for nearly 20 years. We are currently operating one location in La Jolla, California and are negotiating for multiple locations in southern California.
Pastore's is an Italian Deli concept that has been operating for eleven years in Baltimore, Maryland and is managed by Frank Pastore, a 30-year veteran to the food business. We are currently operating 2 locations and are negotiating for a third location that will become the "Pastore's Italian Bistro" national training and franchise sales center.
Over the past few months, all of our associates have worked hard to build on the attractiveness of our platform while repositioning us to become a diverse food service company in the 21st century. We continue to hone our vision and define what it will take to achieve it. There are a few key points to our overall strategy that we expect all of our personnel to follow.
- Creating lasting relationships with customers
- Building our brands
- Reinventing the company continuously through technology and innovation
- Reinforcing "The Papa Bello Way" by living our values every day
We have worked hard over the past few months to implement a new operating structure. As with anything new, there are always growing pains. As a mature company with the mindset of a startup, it is natural to expect change in our employee population, including the senior levels and all the way through the entire organization. Turnover is to be expected and welcomed, as long as it is based on performance and opportunity.
At the time of acquisition by Aero, we took great strides to manage the company's expenses and inventory position more tightly in order to improve our productivity and profitability. The achievements in both these areas have helped position us for the present economic environment. Multiple actions were taken to reduce our cost structure on operating existing and future stores. Since many of these actions were not taken until the last quarter of the year, we will see the bulk of our efforts and additional savings generated throughout 2010. We have a mindset of viewing expenses as investments, and we will continue to be vigilant about the return on all expenditures.
We have implemented business-unit specific competitive benchmarking in our financial and strategic planning for the first time this year. The new organizational structure will allow us to draw each business unit leader's attention to the resources that support his or her business from space and marketing to labor and inventory. We must continue to optimize our resource management on a business unit basis and narrow the gap between our productivity and that of our competitors.
We have welcomed a number of new senior management leaders to the company who take on the challenge of leading their respective business units to higher levels of performance and profitability. To participate in a turnaround of this magnitude requires a level of drive and high energy that is very different than in a company where performance is at or above industry averages. We encourage those who think they are up to the challenge to reach out to us to discuss opportunities at Papa Bello.
With over 20 years of experience in the financial markets, I fully understand the need for transparency in a public company. Since the time of acquisition, we have had a strong focus on getting the past and current accounting procedures up to date, so that we can perform even more efficiently in the future. We have completed the 2006, 2007 and 2008 audited financials and are currently working on 2009. It is my intention to complete the 2009 audit and file the proper documentation to elevate the company's public status from a non-reporting pink sheet company to a fully reporting OTCBB company.
I believe that we are well positioned now at Papa Bello to operate through a difficult economy, and we are preparing to be a leader in the industry especially as the economy stabilizes and turns back up. Our goal remains to create long-term wealth for our shareholders. When you are leading a large organization, you need to lead by example and appreciate that this includes having targets that generate value, not simply targets that can be easily hit. When businesses don't create value over time for their owners, it is very difficult for them to create value for their employees, customers, suppliers, investors and communities as well.
I am proud of our staff and franchisees, over 100 strong. For over four years Papa Bello has served customers through good times and bad, and have continuously adapted to changes in society and the space we so proudly operate in. It hasn't always been easy but our associates have always been up for the challenge. In the future there will be many opportunities for us and we intend to seize them with a bottom line focus on increasing shareholder value.
Cautionary Statement Regarding Forward-Looking Statements: Certain statements contained in this letter contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements include, but are not limited to, statements about our ability to increase earnings, operate through a difficult economy, and increase our relevance to customers, as well as the future impact of our investments in technology. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: our ability to offer merchandise and services that our customers want, including our proprietary brand products; our ability to successfully implement initiatives to improve inventory management and other capabilities; competitive conditions in the retail and related services industries; the impact of seasonal buying patterns, including seasonal fluctuations due to weather conditions, which are difficult to forecast with certainty; general economic conditions and normal business uncertainty, changes in consumer confidence, tastes, preferences and spending, including the impact of fuel costs and spending patterns, the availability and level of consumer debt, and unanticipated increases in our costs; our dependence on sources outside the United States for significant amounts of our merchandise; our extensive reliance on computer systems to process transactions, summarize results and manage our business; our reliance on third parties to provide us with services in connection with the administration of certain aspects of our business; our ability to properly implement and realize the expected benefits from our new organizational structure and operating model; our ability to attract, motivate and retain key executives and other associates; the outcome of pending and/or future legal proceedings, including product liability claims and bankruptcy claims, including proceedings with respect to which the parties have reached a preliminary settlement; and our ability to successfully invest available capital. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available.
About Papa Bello Enterprises
Founded in 2005, Papa Bello Enterprises is a Baltimore, Maryland based corporation that owns, operates, and franchises food service restaurants in the United States and abroad. The company was founded on the principles of providing the consumer with the highest standards of quality, value, and service. For more information on Papa Bello Enterprises or franchise information, please visit www.papabellopizza.com.
SOURCE Papa Bello Enterprises