Spur reconfigures for deliveries – after the lockdown wiped out virtually all material income in April

The Spur Corporation has published a trading update detailing how the coronavirus lockdown is impacting its business operations.

The group said that restaurant sales slowed dramatically in March 2020 and declined by 46.7% over the corresponding period in 2019.

Sales for the period 16 to 31 March 2020, following the declaration of the state of disaster in the country, were 75.7% lower than the prior period, with trading ceasing on 26 March 2020.

It added that it earned no material income between 27 March – 1 May as all restaurants in South Africa were closed from the start of the national lockdown.

The group said that the required Department of Health and National Institute for Communicable Diseases protocols are being implemented across the group, with all restaurants being deep cleaned before trading commences and staff being provided with the necessary personal protective equipment.

“Restaurants are also being reconfigured to allow access to third-party delivery drivers and to comply with social distancing requirements,” it said.

“The number of staff working in restaurants has also been limited.”

Deliveries

The country’s move to level 4 lockdown status with effect from 1 May 2020 has permitted restaurants to provide delivery-only food to customers.

The Spur Corporation said that by 10 May, 155 of the 559 restaurants across the group in South Africa (27%) had reopened to offer these delivery-only services.

The breakdown of these restaurants is as follows:

In this environment, management’s primary operational focus is on online ordering and enabling multi-option delivery partners, the Spur said.

“Deliveries are mainly being undertaken by third-party providers Mr D and UberEats, with certain franchisees using small local delivery services or managing their own deliveries.”

The group said that additional restaurants are expected to reopen as trading restrictions are relaxed to allow for takeaway services and sit-down eating subject to social distancing protocols.

The reopening of further restaurants is also dependent on franchisee rental negotiations with landlords, it said.

“While the initial response from customers to the delivery food offering from the beginning of May 2020 has been favourable, it is too early to determine whether the current momentum will be sustained. Competition is also expected to intensify as more national food chains reopen for delivery services.”

The group said that its management has granted franchisees a 40% discount in franchise fees for May.

Marketing fees have also been discounted by 75% for the Spur, Panarottis and John Dory’s brands, and 50% for the remaining brands, it said.

“Factors influencing the level of discount are the low revenue expectations for the month, commissions payable to third-party delivery partners, the costs incurred by franchisees related to reopening restaurants and the need for franchisees to pay suppliers to secure future supply.

“Franchise and marketing fees will be reviewed monthly. Franchisee rental negotiations with landlords are ongoing, with most franchisees not having paid rent for April.”

Financing 

The group said that its financial priorities are ‘cash preservation’ and ‘tight cost management’.

“Based on the group’s cash resources the directors do not anticipate needing to access external funding for at least the next six months.

“The group’s balance sheet is ungeared and there is capacity to introduce formalised borrowings.

“As a precautionary measure management is engaging with financial institutions to secure credit facilities should the lockdown extend beyond the current year or should the economic impact of Covid-19 be more severe than currently expected.”

As previously advised to shareholders, the payment of the interim dividend for the period to 31 December 2019 has been deferred for six months until 5 October 2020, subject to compliance with the South African Companies Act and JSE Listings Requirements at that time, to provide the group with greater balance sheet flexibility during this period of uncertainty.

“While all staff have received full salaries for April and May, the group will be implementing a reduced work week and commensurate 20% salary reduction for all employees from 1 June in order to preserve cash.

“Fees for non-executive directors have also been reduced by 20% from 1 June.”

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