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Cape Town - Restaurant franchising group Spur Corporation saw earnings tumble in the year to end-June as higher manufacturing costs and efforts to protect franchisees from food inflation gnawed into trading margins.
Earnings dropped 27% to 65c/share or R60m - but Spur could afford to peg its distribution to shareholders at 55c/share, thanks to a comforting net cash position of about R65m. Net cash flow for the period was a sound R31m.
In revenue terms, Spur - which now spans 343 restaurants locally and abroad - looked in fine form, with turnover increasing 37% to R296m after the results from its UK- and Australian-based operations were consolidated.
But Spur's normally fat trading margins were cut to 29% from last year's 41%, which left operating profits down 4.5% at R85.5m.
A tax change relating to offshore operations had a further impact on bottom line.
Spur CEO Pierre van Tonder said margins were mainly influenced by higher input costs in Spur?s sauce-manufacturing operations, which shaved about 8% off bottom line.
Van Tonder said efforts to offer franchisees pricing protection from surging food inflation also meant Spur had to forgo about R3.6m in profits.
He explained it was difficult for franchisees to recover costs via menu pricing.
A divisional breakdown showed Spur's core franchise division delivering the strongest performance, with turnover up 8% to R108m and operating profits up 8.5% to R91.5m.
Turnover from the wholesale and distribution division was up slightly at R81m, but operating profits dipped R4m to R26m.
While consolidated revenue surged to R75m for retail stores, this newly constituted division - which comprises the company-owned stores in the UK and Australia - took the most pain, with a loss of R11m (last year it was R3.3m).
These results were also hit by a R9.2m impairment of assets in an unsuccessful fish and grill pilot outlet in Australia.
Van Tonder said the group continued with measured expansion in the UK and Africa. He said that Spur restaurants were opened in Newry and Belfast (Northern Ireland) and in Kampala (Uganda).
Looking ahead, Van Tonder said slower consumer spending and high food prices would be a challenge.
But a tougher environment will not stall Spur's expansion activities, with Van Tonder reporting that 16 restaurants would be opened in SA in the 2009 financial year.
New opportunities had been identified in Hillbrow, Gugulethu and Atteridgeville.
He said opportunities were also being investigated across Africa,including Ghana, Kenya, Nigeria, Tanzania and Zambia. "We are also looking at further locations in the UK and Ireland."
- Fin24.com