Grand Parade Investments Limited (GPI), the active empowerment investment holding company with investments predominantly in the food, gaming and leisure sectors, increased revenue by 54% to R772.3 million for the full year, ended 30 June 2016, as the Group intensified execution of its strategy in the food industry.
GPI chief executive Alan Keet says the Group showed a pleasing return to profitability with headline earnings per share from continuing operations of 1.99 cents (against a loss of 10.17 cents per share in the prior year) as a result of significant improvement in the operating performance of the food related investments, in particular, BURGER KING®. Improvement for the year across a range of financial performance measures was achieved for the period, with the Group reporting a profit of R192.5 million from continuing operations after tax, a 448% increase from the R55.2 million loss reported in the prior period.
“GPI’s investments have held their own in extremely tough trading conditions and have yielded significantly better results compared to the prior year. The strong improvement in results from continuing operations is commendable as this was achieved in the context of a perfect storm for consumers who faced headwinds of rising food prices, fuel prices and interest rates, coupled with a low-growth economy,” says Keet.
“The Group’s improved results indicate that the early stage food investments are migrating towards profitability, having reached a level of maturity where the scale of the business and resultant synergies allow for better efficiencies,” he explains.
GPI’s active investment during the year has resulted in a significant realisation of its investments. A further 25% of GPI Slots was sold to Sun International for R270.3 million and a 10% holding of Sunwest and Worcester Casino to Tsogo Sun for R675.0 million, which resulted in a net of R858.7 million in cash from the two disposals. The proceeds from the disposals to Tsogo Sun will be received in equal instalments of R37.5 million per month until September 2017.
Over the past 36 months, the Group had increased its gearing levels from 11% to in excess of 35.0%, in order to fund the start-up of its Food businesses and, in particular, BURGER KING®.
As a result of the Group's part disposals in its gaming and leisure investments, it has generated a significant amount of proceeds which will also be used to reduce the overall gearing in the Group, in line with the lower end of the Group's targeted debt equity range of between 20.0% and 35.0%. At 30 June 2016, the Group had used some of the proceeds from the second tranche disposal of GPI Slots to reduce its current debt levels by R178.9 million to R642.9 million. This has resulted in a reduction in the debt equity ratio of 8.4% from 35.5% in the prior year to 27.1%, within the Group's debt equity ratio target range.
The Group continued to restructure its investment portfolio during the year, in line with its strategy of increasing its investments in food, moving towards strategic investments in gaming and leisure and divesting from non-core investments.
The Group acquired the master franchise licences for Dunkin Donuts® and Baskin-Robbins® for a combined cost of R12.3 million and roll-out of these operations will take place in Q4 2016. The Group also increased its holding in Grand Foods Meat Plant to 96.9%, gaining control of the production facility which produces all BURGER KING®’s beef burger patties.
Food’s contribution to the Group’s headline earnings improved by 55%, amounting to a loss of R33.8 million (compared to a loss of R75.0 million in 2015) as a result of improved operating performances by BURGER KING® and Mac Brothers Catering Equipment.
The gaming investments’ contribution to the Group’s headline earnings increased by 5% to R130.2 million from R128.7 million in the prior period. The increase is largely due to GPI Slots increasing its revenue by 16.9% from R799.6 million in the prior year to R934.7 million this year due to an additional 155 limited Pay-Out machines being added to the national network and a 9% increase in the average gross gaming revenue per machine.
The Group’s net central costs for the year amounted to R67.3 million, 12% lower than the prior year as a result of an optimisation of the Group’s central head office costs.
Keet expects that the South African economy will continue to come under pressure for the remainder of the financial year with further increases in interest rates, food prices and the weakened rand. He remains optimistic despite the weak economy.
“GPI will focus on delivering on its strategy to grow its food business which includes the continued improvement in the profitability of BURGER KING®, launching Dunkin Donuts® and Baskin-Robbins® and unlocking synergies between the various food investments. In addition the Group will look to continue investing in food businesses via premium restaurant brands and supply chain services and products to support the restaurant brands,” added Keet.
“GPI’s strategy is to remain a dividend payer and will look to balance our dividend policy with the Group’s growth plans in the food industry. By strengthening our portfolio by bringing in strong brands to the country we strive to increase shareholder value whilst also creating jobs for the country,” concluded Hassen Adams, GPI’s Executive Chairman.