Kentucky Fried Chicken (Bermuda) Ltd.'s profits dropped by more than 50 percent during the six months ended July 31, 2010 as the fast food company felt the economic pinch.

In a letter from chairman Donald Lines to shareholders released yesterday, the company reported a 57.49 percent fall in net income to $66,474 or 11 cents per share from adjusted net income of $156,387 in the six months ended July 31, 2009.

Sales for the first half of fiscal 2011 were $130,193 (4.89 percent) lower than the prior year and, correspondingly, gross profit decreased by $100,261 (4.99 percent) over the same period in fiscal 2010 despite management's efforts to tightly control costs of goods.

"As anticipated when we last reported to shareholders, fiscal 2011 is proving to be a difficult operating environment for your company and the effects of that challenging environment are having a dramatic negative impact on the company's earnings," wrote Mr Lines.

"We believe that both economic hardships faced by the local population as well as minimal cruise ship dockings in Hamilton have contributed to declining sales. Despite difficult times, the company will continue to innovate and introduce new offerings (such as Krushems, launched in August 2010) to encourage repeat customers and entice new customers."

Non-staff expenses decreased by $19,797 (1.98 percent) from the same period in the previous year while staff-related expenditures increased by $33,093 (3.74 percent) over the prior year as factors such as increased payroll taxes negatively impacted the company's operating costs. But on the flipside, KFC has continued to offer stable employment to its staff in the face of declining sales and profitability.

"A stable, flexible and reliable work force is essential to the company's ability to efficiently serve customers in good times as well as bad," wrote Mr Lines.

The company remains highly liquid with $2.25 million in cash and equivalents on hand at July 31, 2010 - a seven percent increase over the prior year. Total shareholder's equity stood at $2,951,572 at the close of the first half ($5.07 per share).

No dividends were paid in the first half of the year, however, the board decided to pay from retained earnings two dividend payments of 10 cents per share on each of September 1, 2010 and December 1, 2010 to shareholders of record at August 17, 2010 and November 17, 2010 respectively.