Kentucky Fried Chicken (Bermuda) Ltd’s half-year sales dropped for the second consecutive year as the company posted an operating loss of $102,475 for the first six months of 2011.The company also revealed that it is still in talks with the Bermuda Industrial Union (BIU) over the renewal of the collective agreement with unionised staff after the fixed term for the last agreement ended in April.The company’s last offer to the BIU was made in early August and it is still awaiting the union’s written response.Writing in a letter to shareholders, KFC (Bermuda) chairman Donald Lines said: “It is our hope that the BIU and its membership will recognise 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 recognise difficulties we all face in this economic environment.”Mr Lines said that KFC had not been immune to a general weakness in discretionary consumer spending as first-half gross sales declined by 3.2 percent or $80,970 on last year.Total payroll costs for the first six months decreased by $34,537 (3.8 percent) due primarily to adjustments in staff scheduling which resulted in an overall reduction in total staff hours and associated wage expenses.Mr Lines said that to date the company had made every effort to maintain stable employment for its team members in a weak economy and had managed to avoid a reduction of operating hours or staff redundancies. However, he added that the board of directors remained 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,” he said.Other operating expenses declined by $33,330 (3.8 percent) in the first six months as management continued efforts to tightly control costs. After two years of focused cost control, he said that the company believed that operating expenses have been reduced or restrained as much as possible and that there was 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,” he said. “The company made essential capital expenditures to replace ageing mechanical components and reassessed the value of other building related capital assets based on their remaining realistic lifespans. 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 Government 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 (minus four cents per share).“Your company has emerged from the first half of fiscal 2011 bruised like its industry peers,” concluded Mr Lines.“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 declared no dividends for the first six months of the year and Mr Lines said that it would reconsider its dividend policy in future as circumstances dictated.