- GROUP OVERVIEW
STRATEGY & RISKS
Strategy, risks and key performance indicators
Strategy, risks and key performance indicators
- FINANCIAL STATEMENTS
Group operating profit before finance income (but including share of profit/loss of equity-accounted investees) of R194.6 million (2013 restated: R190.6 million) fell short of our target of R205.3 million. Operating profit includes a number of one-off items that are reconciled in the pages that follow to support a fuller understanding of contributors to overall profit. Excluding the impact of these items, comparable operating profit before finance income increased by 9.5% and comparable profit before income tax increased by 9.9%. The difference between these two measures relates to the interest forgone on cash invested in The Hussar Grill and Braviz Fine Foods.
While we had targeted a growth in adjusted operating profit of 15.0%, adjusted operating profit declined by 2.3% for the year. This figure adjusts operating profit for items of headline earnings and foreign exchange gains and losses. Operating profit margin of 26.6% similarly fell short of the 29.6% target as did return on equity at 26.4% (compared to the target of 27.0%).
The main reasons for the shortfall in profitability against target include:
The addition of the three company-owned retail outlets in The Hussar Grill has resulted in a marginal decline in the group’s operating profit margin. Retail operations operate at lower margins than the franchise businesses.
The fundamentals of the group’s core activities, comprising the franchise operations of its flagship brands, remain strong. The local franchise business showed healthy growth in a competitive market feeling the impact of constrained economic growth.
Comparable profit is reconciled in the table below. Please note that this reconciliation does not aim to show sustainable or maintainable profit, but is presented to provide users of this report with an understanding of key items included in profit.
|Profit before income tax||201 871||196 539||2.7%|
|Australian entity windup costs||–||1 052|
|Captain DoRegos distribution centre closure costs||1 326||–|
|Foreign exchange (gain)loss||(2 616)||6 510|
|Impairment and associated losses||5 974||2 188|
|International restructure and tax query costs||2 169||567|
|Legal costs – John Dory’s||–||1 424|
|Rent review – Cheyenne Spur in 02 Arena in London, England||–||603|
|Panarottis Tuggerah – profit on disposal||(2 154)||–|
|Share appreciation rights (net of related hedge)||10 195||(10 711)|
|The Hussar Grill acquisition costs||1 620||–|
|Comparable profit before income tax||218 263||198 596||9.9%|
|Net finance income||(7 251)||(5 909)|
|Comparable profit before finance income||211 012||192 687||9.5%|
|*||Restated due to the adoption of IFRS10. Refer note 47.3 on this report for details of change in accounting policy.|
A description of the above exceptional and one-off items that distort profit growth calculations are listed in the table below.
The exceptional and one-off items that distort profit growth calculations are listed in the table below.
|Australian entity wind-up costs||Rnil.||R1.052 million in winding up certain Australian equity-accounted associates which ceased trading in previous years.|
|Captain DoRegos distribution centre closure costs||R1.326 million, which includes retrenchment costs of R0.238 million, the loss on asset sales of R0.329 million, the increased cost of working (arising on the sale of assets while still operating) of R0.759 million.||Rnil.|
|Foreign exchange movements||A net gain of R2.616 million, which includes a loss of R0.770 million in realised and unrealised exchange differences and a gain of R3.386 million relating to translation differences of foreign operations (initially taken directly to equity) recycled to profit as the related foreign operations were deregistered or abandoned during the year.||A loss of R6.510 million, which includes a loss of R5.668 million in realised and unrealised exchange differences and a loss of R0.842 million relating to translation differences of foreign operations (initially taken directly to equity) recycled to profit as the related foreign operations were deregistered during the year.|
|Impairment and associated losses||R2.496 million relates to the impairment of property, plant and equipment of the Panarottis in Blacktown (Australia). R1.866 million relates to the impairment of the franchise rights intangible asset and R1.612 million relates to the accelerated amortisation of leasing rights relating to the Mohawk Spur in Wandsworth (UK).||R2.188 million relating to the impairment of property, plant and equipment of the Panarottis in Tuggerah (Australia).|
|International restructure and tax query costs||Professional services costs of R2.169 million associated with defending assessments issued by SARS in respect of the group’s controlled foreign companies and the implementation of a restructure to facilitate the uninterrupted operation of the group’s international franchise division as detailed in note 46.1 and 36.1, respectively, of the annual financial statements.||Professional services costs of R0.567 million associated with defending assessments issued by SARS in respect of the group’s controlled foreign companies as detailed in note 46.1 on the annual financial statements.|
|Legal costs – John Dory’s||Rnil.||Professional services costs of R1.424 million in respect of the John Dory’s Franchise (Pty) Ltd shareholder dispute and related Financial Services Board investigation, which was resolved during the prior year.|
|Rent review (UK)||Rnil.||The lease in respect of Cheyenne Spur in the 02 Arena in London (UK) is a 25-year lease that is subject to five-year rent reviews. Rental costs are adjusted every five years to market-related amounts. The rent review was only finalised during the prior year but back-dated to January 2012. The prior year thus included an amount of R0.603 million that related to earlier years.|
|Profit on disposal of Panarottis Tuggerah||The group realised a profit of R2.154 million on the sale of its 80% interest in the Panarottis in Tuggerah (Australia) to the former operating partner of the outlet – see note 35.1 on the annual financial statements.||Rnil.|
|Share-based payments charge in respect of the group’s cash-settled, long-term share-linked retention scheme||R28.117 million – see note 23 on the annual financial statements.||R23.645 million – see note 23 on the annual financial statements.|
|Fair value gain on the hedge derivative financial instrument on the retention scheme||R17.922 million – see note 17 on the annual financial statements.||R34.357 million – see note 17 on the annual financial statements.|
|Spur Foundation||Loss of R0.122 million. While the Spur Foundation is required to be consolidated in terms of IFRS, the full profit/loss is attributable to non-controlling interest.||Loss of R0.216 million. While the Spur Foundation is required to be consolidated in terms of IFRS, the full profit/loss is attributable to non-controlling interest.|
|The Hussar Grill acquisition costs||Legal, due diligence and consulting costs of R1.620 million were incurred in the acquisition of The Hussar Grill franchise and retail outlets during the year. These costs are required to be expensed in accordance with IFRS.||Rnil.|
|Trade fair costs||Rnil.||R0.640 million to attend the US National Restaurants’ Association convention in Chicago, USA.|