SPUR CORP. LIMITED INTEGRATED REPORT 2014

Strategy, risks and key performance indicators (“KPIs”)

International expansion

The group evaluates growth opportunities continuously in South Africa and internationally. We analyse potential new international opportunities carefully to ensure we have a good understanding of local demographics, spending patterns and market conditions. The UK and Australia have significantly higher labour and occupancy costs than the South African market. The rest of Africa offers exciting opportunities for growth, balanced by challenges in securing suitable sites at a reasonable cost, placing skilled employees and ensuring consistent delivery of quality ingredients.

The retail business in the UK and Australia – where the group directly owns and operates certain restaurants – adds financial risk to our business model and we monitor this aspect of the business particularly closely. The UK and Australia remain self-funding.

The high set-up cost of a full Spur Steak Ranch in the UK is proving to be a significant obstacle to pursuing a franchise business model, which is the group’s ultimate strategy. In response to this, the Spur RBW (Ribs Burgers Wings) high street model is being developed and we anticipate our first pilot store in the 2015 financial year. This model will be a smaller, counter service concept that will offer essentially ribs, burgers and chicken wings. This allows for a lower set-up cost, more manageable occupancy costs and reduces labour. The group will invest in the pilot stores to demonstrate their financial feasibility, but it is anticipated that the model will be an attractive franchising opportunity.

The group is intending to dispose of its interests in the three remaining retail outlets in Australia, which will then operate on a franchise basis, in order to focus resources on expanding the franchise business in that region. Our focus remains on rolling out franchised outlets in Australia, the rest of Africa and Mauritius.

International revenue comprised 34.4% of group revenue for the financial year, marginally exceeding target and benefiting from the depreciation of the rand. Profit before income tax includes impairments and write-offs associated with the Panarottis outlet in Blacktown (Australia) – amounting to R2.5 million – and Mohawk Spur in Wandsworth (UK) – amounting to R3.5 million – as well as one-off costs associated with an international restructure required to ensure the uninterrupted operation of the international franchise business amounting to R1.7 million. This resulted in us missing our target of 3.2% of total profit before income tax being contributed by international operations. We also did not end the year with as many international outlets as we had planned due to delays in the development of locations for planned restaurants.

On a comparable basis, operating profit from the international operations increased by 49.2%.

TARGETS for 2014 Achieved in 2014 TARGETS for 2015
International revenue 34.0% of total group revenue International revenue comprised 34.4% of group revenue International revenue 33.3% of total group revenue
International profits 3.2% of total group profit International profits comprised 0.8% of total group profit International profits 3.4% of total group profit
57 international outlets 52 international outlets 62 international outlets