Strong brands help Steers fatten profit
October 28, 2003
By Zobuzwe Ngobese
Durban - Attributable profit at Steers Holdings, the fast food group, shot up 42 percent to R9.3 million due to its strong brands and franchise network, Kevin Hedderwick, the chief operating officer, said yesterday.
This translated into a 42 percent increase in earnings a share to 14.5c.
Hedderwick said:
"Improved cost containment measures and the strength of the group's brands, coupled with an increase in store numbers and related revenues, were significant contributors to profits."
In line with the strong performance of the franchising division, the manufacturing and distribution division grew 30 percent to register an operating profit of R8.46 million. The company said this was due to improved efficiencies in purchasing and manufacturing processes. Centralisation of the Eastern Cape and KwaZulu-Natal administration functions is expected to strengthen earnings in these two divisions.
Revenue grew 15 percent to R163.1 million. During the period under review, Steers Holdings acquired Creative Coffee Franchise System for an undisclosed amount and Pleasure Foods for R150.6 million.
Hedderwick said that although Creative Coffee had contributed marginally to group profits, the Pleasure Foods acquisition had not because it was still subject to Competition Commission approval.
The group said it would use R20 million of its remaining cash resources to co-fund the Pleasure Foods acquisition, for which it has already raised R95 million debt finance.
The balance of the money would come through a vendor consideration placement of 22.6 million shares, which would be issued at R1.55 each.
Lavan Gopaul, a portfolio manager at BP Bernstein, said the fact that many international fast food operators had closed down had presented Steers with an opportunity to grow.
"Given the rand's strength we should expect to see more expansion on their international operations as a logical step for further organic growth," he said.
However, Hedderwick ruled out any further acquisitions, saying the company would use the next three to five years to consolidate its businesses.
"We are cautiously optimistic that the second half would be better than the first half as up to 60 percent of our business is done in the second half," he said.
Steers Holdings has denied claims that the fire that destroyed its warehouse in Johannesburg had had a negative impact on its finances.
Steers shares gained 33c at R2.20 to the JSE Securities Exchange yesterday.
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