Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Franchise restaurant turnover grew by 11.5% to ZAR10.6 billion.
- Revenue rose by 14.1% to ZAR3.5 billion, supported by stronger franchise revenue and increased sales from manufacturing and distribution.
- Comparable profit before tax increased by 9.3%, and headline earnings increased by 10.8%.
- The Board approved and declared a final dividend of $1.18 per share, representing a total dividend for fiscal '24 of $2.13.
- Successful launch of the Ops Cadets program, empowering unemployed youth and developing a pipeline of young operation professionals.
Negative Points
- Trading in Africa faced challenges, including political unrest in Kenya and economic struggles in Ghana.
- John Dory's brand showed flat to slightly negative revenue growth, indicating potential issues in performance.
- Increased operational expenses, primarily driven by salary increases and investments in information technology and marketing.
- Volatility in international markets, with specific challenges in Kenya, Ghana, and India affecting growth performance.
- July trading conditions were tough due to fewer school holidays, indicating potential challenges in consumer spending.
Q & A Highlights
Q: Are there any specific categories where the business sees opportunities? Are these organic or inorganic in nature and are they local or international?
A: Yes, there are opportunities identified 18 months ago. The focus has been on pushing categories within our own menus, such as chicken, which now makes up about 30% of all plates served. These opportunities are likely to be local, but we are exploring all locations where we trade. (Val Nichas, CEO)
Q: Are there any brands that are not meeting internally set hurdles and if so, what is the timeline for corrective measures?
A: It varies per brand. For instance, Nikos has shown improvement after a decline, and John Dory's is starting to show future potential despite some impatience from investors. We prioritize trying corrective measures before considering closures, especially given our responsibility to franchisees. (Val Nichas, CEO)
Q: Does the board have a preferred cash balance once the uncertainty of any future possible liabilities have been removed?
A: No specific number has been set by the Board. The focus is on maintaining a dividend flow to shareholders, being mindful of potential outflows related to GPS litigation, and retaining a buffer for uncertain times. (Cristina Teixeira, CFO)
Q: Please elaborate on what the benefits are of the strategic partnerships with Old Mutual, Vodacom, and Capitec.
A: These partnerships allow us to entice consumers to experience the Spur brand. Non-food loyalty programs see the benefit of using Spur vouchers as incentives, which they purchase from us. This benefits everyone involved, including the loyalty clubs, consumers, and our restaurants. (Val Nichas, CEO)
Q: Could you please explain the primary drivers of the operational expense increases in the past year?
A: The primary drivers are salary increases, information technology support, and marketing activities. We also ensure that we pay a living wage, not just the minimum wage, to provide a reasonable lifestyle for our employees. (Cristina Teixeira, CFO; Val Nichas, CEO)
Q: What investments are being made in technology to enhance the customer experience and how will this impact future growth?
A: Investments are being made in tech-enabled restaurant environments for ease of transaction and customer experience. Consumer-facing technology innovations, such as apps and digital booking systems, are also a focus. Additionally, we are upgrading some of our internal systems for better administrative efficiency. (Val Nichas, CEO)
Q: Can you speak through the logic of targeting the night trade in new restaurants instead of trying to expand existing restaurants to capture more of this night trade?
A: We aim to market all day parts for every restaurant we open. However, some locations and brands are more suited to specific day parts. For example, Hussar Grill focuses on lunch and dinner due to profitability concerns. We always try to expand to all day parts as best as we can. (Val Nichas, CEO)
Q: What have the trading conditions been like for the franchise and the retail company-owned stores in the two months post the reporting period?
A: Trading conditions have been tough. July, typically our second biggest trading month, was challenging due to fewer school holidays. August has been slightly better, partly due to the Cape Town taxi strike last year. (Val Nichas, CEO)
Q: How do you maximize return on marketing spend, given the increase from 7.3% of revenue in 2022 to 9.9% in 2024?
A: We have key measures in place to ensure responsible investment of the marketing fund, including media reach, consumer research, and return on investment of social media. The increase in marketing spend is a good sign as it correlates with turnover growth. (Val Nichas, CEO; Cristina Teixeira, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
