Fast food franchise Burger King has started to generate a profit for South African brand owner Grand Parade Investments (GPI), which has published is financial results for the year ended June 2019.
The group reported Burger King’s sales for the year increased by 34.2% from R756.2 million in the prior year to R1.015 billion in the current year, despite the economic downturn, and improved its previous loss of R27.1 million into a profit of R11.7 million for the period.
“The growth in Burger King was driven by higher revenues from new restaurants opened and a significant improvement in same store sales of 10.3%,” GPI said.
“The profitability of the business has been long awaited by the investment community and is a major milestone in the life of the business.”
Grand Parade posted an overall improvement in its business operations for the year, driven by an improvement in the headline earnings contribution of all operational businesses, and the closure of the Dunkin’ Brands businesses which had a major impact in mitigating losses associated with these brands.
The Dunkin’ brands, being Dunkin Donuts and ice cream maker Baskin Robbins, were a net drain on the group’s finances, which resulted in the company opting to liquidate the operations in South Africa, reducing losses by R26.1 million.
The group reported an increase in revenue to R1.4 billion, from R1.1 billion previously.
Headline earnings from continuing operations amounted to R81.5 million for the year, coming to R38 million after accounting for discontinued operations (from the Dunkin brands). This is up from a loss of R48 million in 2018.
Operating profit from continuing operations improved by 104% for the year from a profit of R21.6 million in the previous year to a current year profit of R44.2 million. However, accounting for discontinued operations, the group reported a loss for the period of R36.6 million (2018: loss of R49.9 million).
GPI reported a 180% growth in headline earnings per share, improving from a loss of 11.18 cents in FY 2018 to a profit of 8.91 cents in FY 2019.
No dividends were declared.
Burger King beats the economy
GPI said that economic conditions in South Africa continued to deteriorate over the last financial year. The South African economy contracted by 3.2% in the first quarter of 2019 following a marginal 1.4% increase in the last quarter of 2018.
“These tough macroeconomic conditions affected consumer spending which in turn had devastating effects on the retail and the food and beverage sector in South Africa,” it said.
“Despite these challenging economic conditions GPI has managed to grow its leading foods brand, Burger King, significantly during the period to June 2019.”
The total number of Burger King restaurants at the end of June 2019 was 92, of which 86 are corporate owned.
The net restaurant movement for the year totalled six, which included the opening of 10 new restaurants and the closure of four unprofitable restaurants.
The average monthly restaurant revenues (ARS) increased by 14.3% from R0.911 million last year to R1.042 million this year, largely as a result of positive restaurant comparative sales of 10.32% (2018: 3.45%).
A total of 18.6 million customers were served compared to 15.6 million in the prior year.
Operations were impacted by a host of increases during the year, including 29% increase in beef prices, a 27% increases in sugary carbonated drinks and a 17% increase in the base labour wage rate.
The group also had 0.4% of its gross margin absorbed by the hike in VAT to 15%.
“These increases were somewhat contained through effective negotiation with manufacturers, distributors, landlords and the further unlocking of labour efficiencies,” GPI said.
GPI said that economic conditions in South Africa continue to deteriorate, with global recessionary moves exacerbated by low growth locally, a high unemployment rate and general uncertainty.
To combat this, it said it will restructure its balance sheet by reducing debt, cutting head office costs and pushing forward with its focus on Burger King, which it says now has the scale and profitability to keep driving value for shareholders.