Spur: Food costs stabilise

Cape Town - Restaurant franchisor Spur Corporation managed to push up interim earnings, which grew by 12% to 4 425c/share amid signs that food cost pressure - which squeezed the group's trading margin in the last financial year - had eased.

On Thursday, Spur - now serving an operational base of 350 outlets - reported a 17% hike in turnover to R169m. Operating profits came in 10% higher at R55m, which showed that it had recovered some of its trading margin from the financial year to end-June 2008.

Spur's trading margin for the interim period was 32.5%, a marked improvement on the 28% seen at the end of the last financial year.

Spur's margins were squeezed in the 2008 financial year after the group protected its franchise base by not passing on increased food costs to individual store-owners.

It seems that last year's decision to sacrifice margins to maintain a happy franchise base has paid off.

Spur MD Pierre van Tonder told Fin24.com that food costs had largely stabilised, which had allowed Spur to restore some of their trading margin in the interim period.

Aside from the traditional franchise fees, Spur makes a chunk of its profits from supplying sauces and other foodstuffs to franchised outlets.

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Van Tonder said Spur's value-for-money offering and the affordability of its brands had proved popular with consumers in the tougher economic climate.

He said the Spur Steak Ranches brand again grew market share and lifted revenue by 11%.

Revenue in Panarottis Pizza Pasta was steady, while the recently-acquired John Dory's Fish & Grill grew revenue by 25%.

Internationally, said Van Tonder, franchise revenue was up 10%, while company-owned restaurants increased turnover by 33%. In total Spur holds 35 international restaurants.

Spur also continued to generate strong cash flow, with operational cash flow coming in at R64.5m (equating to 65c/share). Net cash on hand stood at R72m at the end of December 2008.

Spur's strong cash position saw the declaration of a R26.4 million (or 27c/share) interim distribution.

Spur intends increasing its footprint here and abroad. Van Tonder says the second half should see seven new restaurants opened in SA and new international outlets in Derby (in the UK) as well as Lusaka and Nairobi.

Spur, which has been very cautious in its offshore expansion, was also evaluating other opportunities in Africa, the UK and Ireland.

- Fin24.com