GPI INVESTS POTENTIAL PROFITS INTO GROWING THE BURGER KING BRAND AND EXPANDS INTO MANUFACTURING AND ELECTRONICS
Break-even point expected by 2015
(Cape Town: 28 August 2014) Grand Parade Investments Limited (GPI) has invested heavily in its Burger King operations as it seeks to achieve accelerated growth in this area. The growth has exceeded its development commitments by 400% and has consequently led to a decrease in adjusted headline earnings of 26% per share. GPI is forecasting that it will make up the temporary losses and expects to break even by 2015.
Revenue for the period was R735-million, up by 50%, while EBITDA increased by 15.7% to R211-million. The adjusted HEPS of 22.5c was down from last year’s 30.46c primarily due to the investment into the Burger King business, which accounted for 11.4c of the decrease.
The company has reaffirmed its policy of being dividend–active, but has delayed an announcement of a dividend until such time as the proceeds from the sale of its Gaming assets to Sun International and other parties is certain. Current cash resources have been earmarked for growth, especially for the expansion of the Burger King business, where the company is not following a traditional franchise model, and has elected instead to initially own all the stores until such time as it is satisfied they have achieved the desired quality standards and food margins.
Funds to be raised through the unbundling of gambling interests will be used to cover the Burger King brand’s expansion into South Africa and new markets, as well as providing a significant cash pile for further acquisitions and growth. A total of 18 stores have been rolled out across the Western Cape, Gauteng and KwaZulu-Natal during the period, creating an additional 1 000 jobs, most of which were to first–time job-seekers.
GPI CEO Alan Keet said: “Burger King has had to deal with costs related to establishing its business, and the initial losses reflect that. The supply chain has now been secured and established, and the food margins are at appropriate levels. The losses should be seen more as an investment into the future and they have now been stemmed, with Burger King budgeted to break even in 2015”.
Keet further confirmed that GPI will be using its cash reserves to acquire businesses in food and related industries to complement the Burger King supply chain.
In May this year, GPI announced that it had undertaken a deal with Sun International to sell off various casino and limited payout machine (LPM) industry interests.
In the deal, GPI would receive R1.55-billion in cash from Sun International to exit its entire 25.1% shareholding in Sunwest (which operates GrandWest Casino and the Table Bay) and its 25.1% interest in Worcester (which operates the Golden Valley Casino and Lodge). In a second, unrelated deal, GPI disposed of its 5.6% indirect shareholding in Sibaya Casino in KwaZulu-Natal for R130-million.
A separate, parallel deal also includes the sale of up to 70% of GPI slots to Sun International, to be implemented in three separate stages based on the financial results of GPI Slots for the financial years ending 30 June 2014, 2015 and 2016. The first stage involved the initial sale of a 25.1% stake for R276.6-million (equity and shareholder loans) plus a R20-million cash payment for the cancellation of certain management services provided by GPI to GPI Slots.
Forecasting the year ahead, Keet said: “Burger King’s appeal has been phenomenal and we are confident that our investment in the brand will begin to pay off by as early as 2015. Expansion comes with a cost and in GPI’s case has required a reinvestment of profits into new stores, but to make an omelette you have to break some eggs.”
In a further expansion into the food industry, GPI announced at the end of July that it had entered into an agreement with Spur Corporation Limited to acquire 10% of Spur’s issued share capital. The transaction will see GPI subscribe for R10.85-million new Spur shares for a total consideration of R294.7-million or R27.16 per share. This equates to a 10% discount to the 90 day VWAP of Spur shares on the JSE. This deal is subject to certain Conditions Precedent, which is expected to be fulfilled by end-October.
GPI is also looking to grow its footprint in manufacturing. On 21 August the company announced it had entered into a manufacturing joint venture with leading electronics contract manufacturer Tellumat to acquire 51% of the joint venture company Grand Tellumat Manufacturing (Pty) Limited, with Tellumat owning the balance of 49%.
Tellumat CEO Andrew Connold said: “We have a wealth of experience and skill in electronics and electronic engineering, and possess the capability to manufacture any electronic product locally.”
GPI Chairman Hassen Adams said: “For GPI, it has always been about offering broad-based empowerment opportunities to disadvantaged communities and using our financial muscle to create new jobs. The business decisions that have been taken this year are aimed at elevating GPI as a company to an entirely new level, and we believe that the direction the company is taking will deliver returns beyond the expectation of our shareholders.
“We are also excited about the long-term potential of our relationship with Tellumat. There is no need to fully import or outsource the manufacture of high tech electronic products to companies overseas. We have all the necessary skills to do this competitively in South Africa, which will create jobs and retain engineering skills.”
In summarising the year he stated: “Our position is one of work-in-progress, where we are forging a substantial future for our business on our journey of implementing our growth strategy”.
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Grand Parade Investments Limited (GPI) was formed in 1997 to conduct business as an investment holding company with interests in the gaming and leisure industry. The company comprises a substantial shareholder base representing a broad-based spectrum of the population of the Western Cape, and making GPI a true B-BBEE enterprise. The company has traded effectively on the JSE since 2008, consistently growing its portfolio to the benefit of all its shareholders.
In June 2010 GPI acquired 100% ownership of its Limited Payout Slot Machine (LPM) operations, becoming an investor and operator. In November 2012, GPI announced that it had entered into a joint venture with global fast food retailer BURGER KING® Worldwide to form BURGER KING® South Africa (Pty) Ltd (BKSA). This entity holds the long-term Master Franchise agreement for BURGER KING® locally, and has exclusive rights to develop and expand the BURGER KING® brand in South Africa.
In May 2014, GPI announced that it had sold 70% of its LPM business to Sun International (effective over two years), along with its investment in Sun International properties (GrandWest, Golden Valley Casino & Lodge, Sibaya and Table Bay). In July 2014, GPI entered into an agreement with the Spur Corporation Limited to acquire 10% of the issued share capital of Spur. This was followed in mid-August by a joint manufacturing venture with electronics contract manufacturer Tellumat, to acquire 51% of the joint venture company Grand Tellumat Manufacturing (Pty) Ltd.