A fall in sales and a rise in costs at Bermuda's Kentucky Fried Chicken has contributed to the company's net income dropping by 18.5 percent to below a quarter of a million dollars last year. Now the fast food business has pledged to increase sales and profits in the coming year.

The company, which has one retail outlet in Hamilton, blamed fewer sales and higher operating costs for pushing the net income for the year ended January 31, 2000 down to $239,132 in the year ended 31 January 2000 compared with $293,605 the year before.

The company's chairman, Donald Lines, said KFC will continue with renovations and hope to increase sales and profits in the coming year. In a year-end statement he said that the lower income had not been offset by a hike in prices and an increase in the cost of staff had contributed to the company's rising costs.

He said: "The reason for the lower income is due to a combination of two factors -- lower sales, despite a modest increase in price to reflect increases in costs, and higher operating costs, including salaries.'' The company said it was taking measures to reduce its costs to improve profit margins.

Mr. Lines said: "We are actively addressing the question of reduced margins by examination of our source of supplies and costs and steps are also being taken to reduce those operating expenses which we can control and also fixed costs where possible.'' In the year-end statement, Mr. Lines added that on January 14, 2000 KFC paid a dividend of $0.10 per share to shareholders of record December 31, 1999 and during the year the company repurchased 30,000 of its own shares, at an average price of $3.89, reducing shares outstanding as at January 31, 2000 to 617,007.

He added: "Shareholders will note that despite the repurchase of shares at a cost of $116,702 we are in a very healthy financial position with cash and deposits of $280,323 compared with $146,550 at the end of last year.'' He said assuming earnings enable the company to do so, they intend buy back stock to reduce the number of shares outstanding, to a more manageable 600,000 shares. Mr. Lines said: "Shareholders who have visited our facilities may have noted that we recently removed the pizza oven from the kitchen and that we have done some other renovations to improve the facilities. You will also note that we have invested $83,740 in the purchase of new cash registers and replaced kitchen equipment which was close to the end of its useful life. This programme of upgrading our facilities will continue during the coming year.'' He said that the some of the upstairs dining area will for office and /or training facilities as well as the refurbishment of offices. Mr. Lines welcomed KFC's new manger Kevin Manuel, who joined the company in mid-November taking over from Graham Redford of Total Office Management who he thanked for his consulting work.

"On behalf of the Board I would like to pay tribute to our staff and management who have contributed to our results for the year and in particular, Graham Redford (our consultant) who has served us well over the past three years, Kevin Manual, Tracy Robinson and Doug Chase, all of whom have worked hard to achieve the results which we report for the year.'' BUSINESS BUC