Spur Corporation’s financial results for the 2018 financial year reflect the most challenging trading environment in recent history. However, the trajectory of the Spur brand, comprising two-thirds of the local business and approximately 60% of the group’s worldwide business, has been positive.

The effect of last year’s social media reaction to the incident at a Spur outlet in Johannesburg, compounded by political instability and economic woes, had a lingering impact on the current financial year. In addition, the South African consumer has seen no respite from economic headwinds. Positive consumer sentiment following the inauguration of President Ramaphosa in February 2018 has been tempered by the realisation that there is no short-term solution to the challenges facing South Africa.

Spur Steak Ranches managed to recover much of the trade lost in the fourth quarter of the 2017 financial year. While revenue generated by the Spur brand is lower because of lower restaurant sales, the impact was exaggerated by the need to support franchisees in the form of temporary franchise fee concessions to trade through the adverse conditions. As at 30 June 2018, seven of these franchise fee concessions remained in place, significantly lower than the 134 that existed at the same time last year.

The shift in promotional strategy to decrease excessive discounting at franchisees’ expense for Spur Steak Ranches in March 2017, and Panarottis during the second half of the 2018 financial year has had the predicted impact of tempering restaurant turnover growth in the short term with a concomitant impact on the group’s revenue growth. However, this strategic shift enhances the sustainability of our franchise model and bodes well for the longer-term financial feasibility of our franchise business.

Operating margins have declined across our mature brands as a result of operational costs, predominantly employment costs, increasing more than revenue. The franchise business is a high-margin business, reliant on key skills. It is necessary to ensure remuneration remains competitive, especially when we require competent people to trade through difficult conditions. This requires above-inflation increases. When combined with lower-than-inflation increases in revenue, the impact on margins is significant.

Internationally, our business in Mauritius grew well and Africa performed in line with our expectations.

The performance of our Australian operations is concerning. The recovery in the Australian economy, which is predominantly resource-based, has taken longer than expected, resulting in pressure on franchise restaurant sales. At the same time, the high cost of labour affects franchisee profitability. This required the group to provide financial assistance to franchisees in the form of loans and temporary franchise fee concessions. We also had to close two restaurants that were no longer viable. The fewer number of restaurants and increased franchise fee concessions compounded the impact on revenue and profitability in the region. Furthermore, we had to recognise impairment losses of R7.2 million in respect of loans granted to franchisees.

During the year, we partnered with local Australian entrepreneurs to establish the RocoMamas brand in Australia. Our Australian partners own 45% of the venture, RocoMamas founder, Brian Altriche, owns 10% and Spur Corporation 45%. The first RocoMamas outlet in Australia was opened in Melbourne in June 2018 and is owned by the venture. In addition to the initial investment of R5.3 million, costs incurred by the group in establishing the venture and supporting opening of the initial outlet amounted to R2.3 million for the year. The group’s share of equity-accounted start-up losses for the venture amounted to R1.8 million.

Following the protracted underperformance of our 30% investment in Braviz, a start-up rib manufacturing factory, we impaired our full investment of R44.2 million in the prior year.

Restaurant turnovers*

   2018 2017      
Brand  R’000 No. of
R’000 No. of
% change in
restaurant turnover
% change in
restaurants turnover
Spur Steak Ranches  4 351 067  290  4 478 004  289  (2.8) (4.9)
Pizza Pasta  792 547  92  760 591  86  4.2  (0.6)
John Dory’s  453 809  49  450 919  48  0.6  (7.3)
The Hussar Grill  184 298  17  148 183  14  24.4  6.6 
RocoMamas  627 951  65  477 619  50  31.5  14.5 
Total South Africa  6 409 672  513  6 315 316  487  1.5  (2.8)
International  711 505  62  716 419  60  (0.7) (6.3)
Total group  7 121 177  575  7 031 735  547  1.3  (3.2)

* Excluding Captain DoRegos (sold with effect from 1 March 2018).

Percentage change in restaurant turnovers by quarter – South Africa* 

Brand  Q1  Q2  Q3  Q4 
Spur Steak Ranches  (14.0) (5.3) (3.2) 14.8 
Pizza Pasta  7.3  6.0  4.4  (1.0)
John Dory’s  1.4  2.1  4.4  (5.7)
The Hussar Grill  20.2  27.4  21.3  28.4 
RocoMamas  44.0  32.5  27.9  23.7 
Total  (6.0) (0.1) 1.4  12.2 

* Excluding Captain DoRegos (sold with effect from 1 March 2018).

During the current year, we negotiated the sale of our investment to the remaining shareholders of the venture for R17.5 million.

We acquired the Captain DoRegos brand in 2012 to make inroads into the quick-service restaurant market and service a customer that the group previously had no exposure to. However, the impact of the sluggish economy on the lower-income market serviced by the brand, as well as the relatively low profit contribution per unit (owing to lower turnover), and fierce competition from independent traders negatively impacted the business. Despite our efforts to make a success of it, we took the decision to dispose of the business. The assets of Captain DoRegos had been fully impaired as at 30 June 2017. We were able to sell the business for R4.8 million with effect from 1 March 2018.

The impact of the social media incident in the fourth quarter of the prior year on Spur brand restaurant turnover exaggerated the improvement reported in the fourth quarter of the current year. Locally, the decline in existing restaurant sales was driven largely by the Spur brand for the reasons articulated above, the implementation of the change in discounting strategy in the Panarottis brand in the second half of the financial year, and the temporary closure of certain key John Dory’s restaurants due to development activity in the malls where they trade.

International restaurant sales increased by 2.7% on a constant exchange rate basis and declined by 0.7% in rand terms, largely driven by the Australasia region.

Group revenue from continuing operations increased by 3.0% to R667.2 million (2017: R648.0 million) and group profit before income tax from continuing operations increased by 9.8% to R231.4 million (2017: R210.7 million).

Group operating profit before finance income (including share of profit/loss of equity-accounted investee (net of income tax)) of R200.1 million exceeded the 2018 target of R186.1 million. This was primarily due to profits recognised on the sale of Braviz (R17.5 million) and Captain DoRegos (R4.8 million) that significantly distort the performance of the group.

There are a number of one-off and exceptional items that affect the comparability of group profit before income tax and headline earnings per share. These are reconciled in the tables here and here of this report. Adjusting for these distortions, comparable profit before income tax declined by 8.0%, comparable profit before finance income declined by 8.8% and comparable headline earnings per share declined by 9.5%. The target of 6.8% growth in comparable profit before finance income was not achieved because of the losses incurred in Australia and lower than anticipated profits in South Africa. While operating margin and return on equity both increased, these are distorted as a result of the aforementioned one-off and exceptional items.


Financial performance

The table below reconciles profit before income tax to comparable profit before finance income, with an explanation for these adjustments detailed below. The table shows key items included in the calculation of profit and is not intended to indicate sustainable or maintainable profit.

% change
Profit before income tax  231 368  214 775  7.7 
Exclude profit from discontinued operations (UK) –  (4 084)   
Profit before income tax – continuing operations  231 368  210 691  9.8 
Australia loan impairments and write-offs  7 230  –    
Braviz  (17 500) 44 192    
Braviz (interest) –  (4 284)   
Captain DoRegos  (4 750) 7 764    
Foreign exchange loss  401  799    
RocoMamas Australia  4 066  –    
RocoMamas contingent consideration  12 745  777    
Share appreciation rights cost (net of related hedge) 2 283  1 996    
Share appreciation rights cost (actual net cost amortised on straight-line basis) (1 258) (4 313)   
Share incentive scheme (new equity-settled forfeitable share plan and share appreciation rights schemes) 1 919  985    
Spur Foundation  907  1 206    
Tax litigation costs  1 692  200    
Comparable profit before income tax  239 103  260 013  (8.0)
Net finance income (excluding impact of Braviz) (31 289) (32 238)   
Comparable profit before finance income   207 814  227 775  (8.8)

Item 2018 2017
Australia loan impairments and
Comprises R6.753 million impairment loss on loans granted to two Panarottis franchise outlets in Australia and R0.477 million relating to other write-offs in Australia.  
Braviz Profit on disposal of Braviz shareholder funding on 6 November 2017 as detailed in note 10.1 of the consolidated financial statements.

Impairment of the Braviz shareholder funding in full as detailed in note 15.1 of the consolidated financial statements.
Braviz (interest) As the Braviz shareholder funding had been fully impaired at 30 June 2017, no interest was recognised in profit for the 2018 financial year. Interest earned on Braviz shareholder funding.
Captain DoRegos Profit on disposal of Captain DoRegos with effect from 1 March 2018 as detailed in note 14.1 of the consolidated financial statements. R6.778 million related to the impairment of the Captain DoRegos trademark and related intellectual property intangible assets as detailed in note 14.1 of the consolidated financial statements. R0.986 million related to a loan to the Captain DoRegos marketing fund which was forgiven during the year.

Foreign exchange Realised and unrealised exchange differences related predominantly to the group’s international operations.
RocoMamas contingent consideration The purchase consideration for the acquisition of RocoMamas was determined as five times RocoMamas’ profit before income tax in the third year following the date of acquisition. IFRS required a liability to be recognised at fair value for this contingent consideration. Any change in the fair value was recognised in profit. Refer to note 26 of the consolidated financial statements.

Share appreciation rights cost (net of related hedge) (long-term share-linked employee retention scheme) Comprises a cash-settled share-based payment credit of R0.885 million (2017: R3.795 million), net of a loss on the related hedging instrument of R3.168 million (2017: R5.791 million) – see notes 27 and 28 of the consolidated financial statements.

Share appreciation rights cost (actual net cost amortised on straight-line basis) The vagaries of the IFRS treatment of the cash-settled share appreciation rights and related hedging instruments created significant volatility in earnings. The purpose of the hedge was to fix the cost of the scheme at the commencement of each tranche of rights, on the assumption that the vesting date share price would exceed the original grant date share price. The economic cost to Spur Corporation of the transaction, had it been amortised on a straight-line basis over the vesting period of each tranche, amounts to R1.258 million (2017: R4.313 million).
Share incentive scheme (new equity-settled forfeitable share plan and share appreciation rights schemes) The equity-settled share-based payment expense relates to the forfeitable share plan and share appreciation schemes implemented in April 2016. Refer to note 21.4 of the consolidated financial statements.

Spur Foundation While The Spur Foundation is required to be consolidated in terms of IFRS, the full profit/loss is attributable to non-controlling interests. As The Spur Foundation is a non-profit entity, any previous years’ profits will be used to fund expenditure in future years. The losses for the current and previous financial years relate to the disbursement of funds received, and previously recognised as income, in an earlier year.
Tax litigation costs As detailed in note 44.1 of the consolidated financial statements, a wholly-owned subsidiary has appealed additional assessments issued by SARS for the 2005 to 2012 years of assessment related to a disallowance of a deduction claimed in respect of the group’s 2004 share incentive scheme. The matter was heard by the Income Tax Court in February 2018. While the Court ruled in favour of the subsidiary, SARS has appealed the judgement.

The effective tax rate from continuing operations decreased to 29.5% (2017: 36.4%). The prior year was inflated mainly due to the impairments related to Captain DoRegos and Braviz which were not deductible. The current year includes profits on disposal of Captain DoRegos and Braviz assets which are not taxable.

The effective tax rate is greater than the corporate tax rate of 28% due to:

  • Australian loan impairments which are not tax deductible;
  • the RocoMamas contingent consideration fair value adjustment which is not tax deductible;
  • listings and trademark-related costs that are not deductible;
  • costs related to the establishment of the RocoMamas venture and first RocoMamas retail outlet in Australia that are not deductible; and
  • local and foreign withholding taxes that are not recoverable.
Comparable headline earnings reconciliation   2018
% change
Headline earnings – as reported  153 656  133 863  14.8 
Exclude headline earnings from discontinued operations (UK) –  1 218    
Headline earnings from continuing operations  153 656  135 081  13.8 
Australia loan impairments and write-offs  7 230  –    
Braviz  (20 757) 44 192    
Braviz (interest) –  (3 084)   
Captain DoRegos  –  986    
Foreign exchange loss  401  776    
RocoMamas Australia  3 873  –    
RocoMamas contingent consideration  12 745  777    
Share appreciation rights cost (net of related hedge) 1 644  1 437    
Share appreciation rights cost (actual net of cost amortised on straight-line basis) (906) (3 105)   
Share incentive scheme (new equity-settled forfeitable share plan and share appreciation rights schemes) 1 463  665    
Tax litigation costs  1 218  144    
Comparable headline earnings  160 567  177 869  (9.7)
Weighted average number of ordinary shares (‘000) 95 580  95 828  (0.3)
Comparable headline earnings per share (cents) 167.99  185.61  (9.5)

Earnings per share from continuing operations increased by 22.3% to 165.8 cents (2017: 135.6 cents) and headline earnings per share from continuing operations increased by 14.0% to 160.8 cents (2017: 141.0 cents). These increases are distorted by the items impacting comparable profit in the tables above.

Comparable headline earnings per share decreased by 9.5%. The dividend per share declined by 6.8% to 123 cents (2017: 132 cents). The group’s dividend policy remains unchanged at a payout of 80% of headline earnings adjusted for exceptional and one-off items. It is our intention to maintain this policy.

   Revenue  Profit before income tax+  Operating margin 
Segmental performance  2018
Manufacturing and distribution  186 224  181 834  2.4   61 050  66 243  (7.8) 32.8  36.4  (3.6)
Spur  211 018  217 918  (3.2) 176 481  188 047  (6.2) 83.6  86.3  (2.7)
Pizza and Pasta  36 388  35 471  2.6  22 189  22 967  (3.4) 61.0  64.7  (3.8)
John Dory’s  20 096  19 699  2.0  9 491  9 715  (2.3) 47.2  49.3  (2.1)
Captain DoRegos*  1 924  2 812  (31.6) 4 002  (8 040) 149.8  208.0  (285.9) 493.9 
The Hussar Grill  6 324  4 733  33.6  4 871  4 092  19.0  77.0  86.5  (9.5)
RocoMamas  32 817  23 809  37.8  22 988  16 457  39.7  70.0  69.1  0.9 
Retail  69 534  63 569  9.4  6 785  4 633  46.4  9.8  7.3  2.5 
Other segments  67 852  62 851  8.0  (4 953) (3 188) (55.4)         
Unallocated  2 552  3 269  (21.9) (65 352) (93 794) 30.3          
Total South Africa  634 729  615 965  3.0  237 552  207 132  14.7  37.4  33.6  3.8 
UK (discontinued) –  –     –  4 084             
Australasia  6 547  9 870  (33.7) (10 993) (111)            
Other segments  25 916  22 181  16.8  13 114  8 991  45.9          
Unallocated  –  –     (6 492) (5 345) (21.5)         
Total International  32 463  32 051  1.3  (4 371) 7 619  (157.4) (13.5) 23.8  (37.3)
Total  667 192  648 016  3.0  233 181  214 751  8.6  34.9  33.1  1.8 

* Sold with effect from 1 March 2018.
+ Profit before income tax excluding share of loss/profit from equity-accounted investee and including profit/loss from discontinued operation.

Operating margin in the manufacturing and distribution segment declined in part due to lower product volumes supplied to Spur brand restaurants and higher input costs in the sauce manufacturing facility. The increased costs were not passed on to franchisees to maintain franchisee profitability. Revenue relating to the outsourced distribution business, which essentially operates at a 100% margin, declined to a greater extent than restaurant sales. This was a result of certain brands that participate in the distribution model, particularly Spur Steak Ranches, moving key products away from central procurement to be manufactured in-restaurant.

Revenue in The Hussar Grill, John Dory’s and RocoMamas increased in line with restaurant turnovers. Revenue in Spur Steak Ranches declined slightly more than restaurant sales, and revenue in the Pizza and Pasta division increased slightly less than restaurant sales because of temporary franchise fee concessions granted to franchisees to trade through the difficult conditions. Operating margins have declined across all trading brands except RocoMamas, as employment costs, which comprise the majority of direct operations costs, grew more than revenue growth. Profit in the Pizza and Pasta division included intellectual property development costs related to the wood-fired pizza concept and additional marketing costs for Casa Bella. The Hussar Grill was impacted by the employment of additional operations employees.

Captain DoRegos’ profit included the intangible asset impairment loss of R6.8 million and the write-off of the marketing fund loan of R1.0 million in the prior year, while the current year includes the profit on disposal of the business of R4.8 million.

The retail division performed well in the year under review.

The “Other segments” category of the South Africa segmental results includes the group’s décor manufacturing, export, radio station, training and call centre businesses. Apart from the export business, the other businesses are not intended to make significant profits as they are functions to support franchisees. The increase in revenue is largely attributable to a greater value of ancillary items sold to franchisees that generate a very small margin. The decline in profitability stems from an increase of R1.3 million in the loss realised in the group’s décor manufacturing business, as décor sales declined in response to smaller new restaurants and fewer bespoke décor items being utilised in the latest restaurant specification. The loss recognised by the group’s training division increased by R0.5 million due to a shift away from expensive traditional classroom training to more efficient online training which is cheaper for franchisees and more effective.

Local franchise operating profit margin   2018
Manufacturing and distribution  32.8   36.4  37.9  38.6  33.1 
Spur Steak Ranches  83.6  86.3  89.6  89.3  88.9 
Pizza and Pasta  61.0  64.7  67.9  68.6  62.7 
John Dory’s  47.2  49.3  51.6  56.2  54.2 
Captain DoRegos*  208.0  (285.9) (393.7) (194.5) 26.4 
The Hussar Grill  77.0  86.5  77.3  53.7  67.3 
RocoMamas  70.0  69.1  70.1  63.7  – 

* Sold with effect from 1 March 2018.

Unallocated South Africa loss before income tax includes:

  • administration fee income of R20.7 million (2017: R21.7 million) from marketing funds (refer note 39 of the consolidated financial statements) determined as a percentage of marketing fund inflows;
  • net finance income of R30.5 million (2017: R35.8 million);
  • profit on the sale of Braviz shareholder loans of R17.5 million compared to the impairment loss on the loans in the prior year of R44.2 million;
  • share-based payment expense of R4.2 million (2017: R2.3 million) relating to the group’s share-linked employee retention and incentive schemes;
  • the fair value adjustment related to the RocoMamas contingent consideration of R12.7 million (2017: R0.8 million); and
  • tax litigation costs of R1.7 million (2017: R0.2 million).

Excluding the above items, unallocated local costs increased by 11.7%. The bulk of these costs comprise employment costs which increased by 12%. Other unusual costs include:

  • increased rent as we expanded our Johannesburg corporate office;
  • legal costs related to the Braviz sale; and
  • external consulting costs incurred for a leadership culture transformation journey initiated during the year.

The reported lower restaurant sales and the increased temporary franchise fee concessions in Australia have negatively impacted revenue and profitability of the Australasia segment. The challenging trading environment and high labour costs in Australia required us to reassess the recoverability of loans granted to franchisees and we have had to impair loan receivables to the extent of R6.8 million. In addition, the division’s loss includes R2.3 million related to the establishment of the RocoMamas franchise business and first company-owned RocoMamas outlet in Australia.

The increase in revenue from the “Other international” segment, comprising largely the African operations, was exaggerated by the inclusion of initial franchise fees of R3.4 million (2017: R1.3 million) including R1.6 million from franchisees in India, Pakistan and Cyprus. In these regions, costs are only likely to be incurred in the 2019 financial year once suitable sites are secured. Excluding the impact of initial franchise fees and associated restaurant development costs, the division increased profit by 3.5%. Costs of servicing African countries are high, as they are incurred in US dollars, while revenue is earned in local currencies, which have been weak in many of the countries where we trade.

Unallocated international loss before income tax includes a foreign exchange loss of R0.4 million (2017: R0.7 million). Excluding this adjustment, the loss increased by 32.5% in rand terms and by 28.3% on a comparable exchange rate basis. This is partly due to European travel costs for group employees now included in full as part of the unallocated loss. Previously, a portion was allocated to the UK division. Additional professional services costs incurred were related to international tax compliance.

Financial position

The group invested R5.3 million for its 45% interest in the Australian RocoMamas venture. All shareholders contributed funding in proportion to their shareholding. The funds invested have been utilised to establish the intellectual property of the brand and set up the first RocoMamas in Australia. The group’s share of these initial losses, amounting to R1.8 million for the year, have been equity-accounted against the carrying value of the investment.

Loans receivable have increased by R15.9 million. Of this increase, R4.0 million relates to deferred proceeds on the sale of the Captain DoRegos business, R11.0 million was advanced to Australasian franchisees, and R9.0 million relates to an increase in the loan receivable from the Spur marketing fund (refer to note 15 of the consolidated financial statements). The increased loan to the marketing fund arises from an overspend in the fund following the decline in restaurant turnovers and resulting marketing fund contributions over the past 15 months. The loan is financed by Spur Corporation (refer note 15.10 of the consolidated financial statements). The board, management of the marketing fund and franchisees are reassessing the priorities of the marketing fund to ensure that expenditure is curtailed in a responsible manner, such that the loan can be repaid with the least negative impact for the brand and franchisees.

Tax receivable of R36.2 million includes R22.0 million of taxes and interest paid for additional assessments issued by SARS related to the dispute of the 2004 to 2009 share incentive scheme, as referred to below. It also includes withholding tax credits related to foreign jurisdictions which can be used once the foreign subsidiaries in question are in a tax-paying position.

Trade receivables have increased by R27.2 million, the bulk of which pertains to franchise and marketing fees receivable in the last month of the financial year. June 2017 marked the peak of the impact of the social media incident and franchise fees receivable for that period were unusually low. The increase reflects the recovery in restaurant turnovers and related fees receivable. Trade receivables related to manufacturing and distribution sales increased for the same reason and contributed to the overall increase in trade receivables.

The increase in trade payables of R14.1 million includes increases in VAT payable due to higher revenue for the month of June relative to the prior year, increases in leave and bonus provisions and increased purchases of raw materials by the manufacturing facility as a result of higher production volumes relative to the prior year.

Loans payable include marketing contributions collected by the group’s marketing funds from franchisees, net of marketing expenditure incurred by the funds for the benefit of their respective bodies of franchisees. In terms of the group’s franchise agreements, unspent marketing contributions are to be used for the exclusive benefit of the respective bodies of franchisees. The payables in this regard increased by R3.8 million because certain expenditure items have been deferred to the next financial year.

The acquisition of 51% of RocoMamas in 2015 led to the raising of a contingent consideration liability. The purchase consideration was determined as five times the profit before income tax of the business for the 12-month period ended 28 February 2018. Following an initial payment of R2.0 million made on the acquisition date, further payments were made on the first, second and third anniversary dates of the acquisition. These were calculated as five times the profit before income tax of each anniversary period less any previous payments made. The final payment of R18.5 million was settled in cash during the year (2017: R18.3 million), denoting a total purchase consideration for the 51% interest of R59.2 million. With effect from 1 April 2017, the group acquired an additional 19% of RocoMamas, to increase its holding to 70%, at a cost of R14.0 million. The transaction has yielded a compelling return to date on the aggregate investment of R73.2 million, with an after-tax return of 17.0% (or 23.7% pre-tax) realised for the 2018 financial year.

The group acquired an additional 160 000 treasury shares at an aggregate cost of R4.2 million during the year. The group intends to repurchase shares in the financial year ahead, provided that the repurchases remain earnings enhancing.

The group’s financial position remains ungeared with no formal external borrowings.

Cash generated from operations declined by 16.0% to R197.2 million (2017: R234.7 million). Operating profit before working capital changes declined in line with the lower profitability of local operations, while investment in working capital increased significantly, due primarily to the increase in trade receivables, as detailed above.

Capital expenditure 2018
Maintenance 10 291 10 983 9 890
Expansion 2 709 35 808
Total 10 291 13 692 45 698

Capital expansion in 2016 and 2017 related largely to the extension of our corporate head office in Cape Town. The biggest contributor to maintenance expenditure is information technology.

Tax queries

During prior years, SARS had issued the group with additional assessments in respect of the 2005 to 2012 years of assessment totalling R22.0 million, following the disallowance of a deduction claimed in respect of the 2004 share incentive scheme. The assessments were settled in cash in prior years. Following failed alternative dispute resolution proceedings, the matter was heard in the income tax court in February 2018. The tax court found in favour of the group, but SARS has appealed the ruling. A trial date to hear the appeal has yet to be set. The board, in consultation with its tax advisors, remains confident that the probability of SARS’ appeal being successful is low. Consequently, no liability has been raised in respect of the assessments issued and the payments made to date are accounted for as prepayments of income tax.

Long-term share-linked employee retention and incentive scheme

A cash-settled long-term share-linked employee retention scheme was implemented in December 2010 in terms of which a maximum of 1.5 million cash-settled share appreciation rights were issued to senior management each financial year up to the 2015 financial year. The group’s obligations in respect of these rights were hedged to the extent possible to mitigate the liquidity risk associated with the rights. A number of forward purchase transactions were accordingly concluded to hedge the possible cash outflow resulting from the rights. The hedges were designed to be effective only if the share price appreciated above the forward price of the contracts.

The final tranche of cash-settled share appreciation rights vested in December 2017. As the share price on vesting was below the grant price, no payments were made to participants of the scheme this year. In addition, the group was required to settle the deficit between the forward price of the forward purchase contracts referred to above and the value of the shares on vesting date, which amounted to R13.4 million, in cash during the year. The impact on profit of the rights and related hedging instruments, as well as an indication of the straight-lined cost of the scheme is included in the comparable profit table above.

In 2015, shareholders approved two new share schemes, a forfeitable share plan retention scheme and a share appreciation rights incentive scheme, to replace the previous cash-settled share appreciation rights employee retention scheme. Both schemes are equity-settled, have an initial three-year vesting period, and a subsequent two-year lock-in period during which the participants are restricted from trading in the shares that have vested. The vesting of the share appreciation rights is subject to performance criteria linked to return on equity and growth in comparable headline earnings per share, relative to inflation.

The new schemes are more aligned with the remuneration practice recommendations of King IV™. The first two tranches of awards in terms of the schemes were granted in April 2016 and April 2017. No awards were granted in the current financial year, pending further engagement with key stakeholders on the implementation of King IV™ principles adopted. It is anticipated that the next awards will be granted by November 2018.

The accounting for the new schemes is much simpler, in that the grant date fair value of the shares and rights granted are expensed evenly over the vesting period, resulting in less volatility on earnings. Further details of all share schemes are included in the remuneration committee report.
of this report.


Spur Corporation acquired 51% of Nikos Coalgrill Greek after year-end with effect from 1 August 2018. The purchase price mechanism is similar to that of the RocoMamas acquisition. While we do not expect the expansion of this brand to be as prolific and quick as RocoMamas, it is scalable, and a number of sites have already been identified for expansion of the footprint. This presents an opportunity to expand into a product offering that is gaining popularity, and make a meaningful contribution to group profits.

Heading into an election in 2019, we expect politics to monopolise the national discourse in the months ahead, and populist rhetoric on economic and other policies to potentially unsettle markets. In this environment, it is unlikely that meaningful measures will be implemented to stimulate economic growth. Trading is likely to remain difficult. To ensure that we can maintain a sustainable business, we will continue to be responsibly cost-conscious in the year ahead, balancing the need to grow profits with the need to retain and attract key skills. We will do what we do best – provide our customers with quality, value and innovation. Our strategy will be to continue to expand in international markets, in an effort to diversify our geopolitical risk away from South Africa. Expansion in India, Pakistan and Cyprus, in addition to certain of our existing markets in Africa, and the expansion of RocoMamas in Australia could present opportunities to grow the international business.

Phillip Matthee
Chief financial officer