Grand Parade Investments wants to focus on making Burger King franchises profitable in South Africa, as it liquidates Dunkin Donuts and Baskin Robbins, which counted losses over R70 million.
For the six months ended December 2018, the group reported a jump in headline earnings from R13.7 million in the prior period to R16.0 million.
Headline earnings per share climbed to 3.75 cents per share, from 3.20 cents before.
The gains were largely driven by an increase in contributions from the gaming and leisure assets, which amounted to an increase of R9.9 million on prior period – offset by the food sector with a greater loss contribution of R0.4 million and an increase in interest charges compared to the prior period.
Profit from continuing operations was reported at R34.45 million. However, losses from discontinued operations (Dunkin Donuts and Baskin Robbins) drew the total profit for the period down to a loss of R36.38 million.
After impairments of property plant, equipment, intangibles and inventory from discontinued operations, headline earnings amounted to R16.016 million.
Move away from food
GPI, which holds investments in casinos and the food industry, said that it has a broader strategy of returning to being an investment holding company.
This is one of the drivers behind the group’s decision to shut down Dunkin Donuts and Baskin Robbins in the country.
The group said that it tried to find interested parties to buy the brands, but noted that it got no serious offers in the allotted period, leading to the businesses being liquidated.
“Dunkin’ Donuts and Baskin-Robbins continued to experience a challenging six months with the second quarter having the most significant impact on trading. The Group decided to exit
these brands based on the continued poor performance and a sustained period of losses.
“The exit of Dunkin’ Donuts and Baskin-Robbins is the first step of a broader strategy to revert back to an investment holding company,” it said.
The group did not declare an interim dividend.
Despite the move away from restaurants, GPI said it is still committed to the Burger King brand.
Burger King’s net loss for the period widened from R7.89 million in the same period in 2017, to R9.56 million in 2018.
Despite the loss, GPI said that Burger King South Africa managed to generate impressive top-line growth in revenue, despite the tough economic environment, adding four new restaurants, while closing one.
Profitability at the 84 GPI-owned franchises has improved, the group said, with the average revenue per shop increasing to over R1 million for the first time.
It stressed that the brand was still in a growth phase in South Africa, and reiterated that it will slow down expansion to focus on getting the businesses into the black.
Burger King’s total revenue for the year increased by 35% from R365.6 million in the prior period to R494.6 million in the current period driven primarily by new restaurant growth as well as an increase in the Average Revenue per Store (ARS).
The ARS increased by 8.1% from R0.949 million last December to R1.026 million this period, largely as a result of positive restaurant comparative sales of 7.63% (2017: 4.50%).
“The increase in ARS is a positive indicator that restaurants opened in the last 12 months are performing well and a sign that the objective of achieving an ARS of R1.2 million by June 2019 is attainable,” GPI said.
Burger King franchises see an average of 12,250 tickets per month, with the average ticket price climbing from R78 to R84.
“Despite the strong growth in revenue, the effects of higher raw material prices, sugar tax and the increase in VAT continued to erode overall margins which led to a marginal increase in EBITDA for the period of R0.7 million from R20.8 million to R21.5 million.
“The decrease in gross margin percentage was particularly severe during the first half of 2018 where margins decreased from a high of 58% to 52%,” GPI said.