Kentucky Fried Chicken (Bermuda) Ltd’s (KFC) profits dropped 28 percent during the fiscal year 2011 as the economic downturn continued to take its toll on business.In his letter to shareholders, chairman Donald Lines said that sales also fell to their lowest level for three year declining by almost five percent year-over-year to $5 million in fiscal 2011.But he added that expenses had been reduced by more than two percent notwithstanding a generally inflationary operating cost environment, however it was not enough to halt declining sales as operating income slumped by 44 percent from 2010 to its lowest level in many years.“Fiscal 2011 was a challenging year for Kentucky Fried Chicken (Bermuda) Limited as the company was not immune to the difficult economic conditions which impacted Bermuda in 2010 and look to worsen in 2011,” he wrote.“In light of the uncertain economic and investment climate and challenges KFC has faced in the past year, together with additional challenges anticipated in the next year, the board felt it appropriate to communicate preliminary year-end results to our shareholders together with our general outlook for the next year.”He continued: “While careful treasury management has allowed KFC to improve investment returns despite historically low interest rates, improved investment income was insufficient to overcome weak operating results.“Consequently, full year net income is down by approximately 28 percent year-over-year, representing a less than six percent return on shareholders’ equity. This translates to anticipated per share income in the range of $0.27-$0.30 for the past year.“While we are pleased that KFC has emerged from a difficult fiscal 2011 with some net profit and that we have avoided any forced staff reductions for our loyal team; clearly a trend of declining sales and profitability is neither sustainable nor provides an acceptable return to our shareholders.”Mr Lines said that KFC would face the challenge of fundamentally restructuring its expense base to better fit new economic realities and stop the decline of operating profits in fiscal 2012.He said that KFC’s senior managers had taken a pay cut in line with the fortunes of the company’s shareholders during these tough economic times, however total payroll related costs (inclusive of wages, taxes, and benefits) increased for the fifth consecutive year to $1.8 million and represented 50 percent of KFC’s total operating expense, with combined wage and payroll tax expenses rising by approximately $48,000 during the year.