Higher costs put bite on Fairwood

Business | Gary Poon 28 Nov 2018

Fast-food chain Fairwood Holdings (0052) reported a 14 percent drop in interim net profit to HK$100.7 million. The company declared an interim dividend of 37 HK cents per share.

Chief executive Chan Chee-shing said the drop in profit was due to increased labor and rental cost while the cost of food ingredients did not change.

Gross profit ratio decreased from 15.13 percent last year to 13.7 percent while the net foreign exchange and valuation on investment property lost HK$5.29 million and HK$2.15 million respectively.

He said the group's average food price increased 1 to 2 percent to HK$38 per order in the first half year and the group would not increase prices in the last half year.

The group will launch new products to boost the average price level.

Meanwhile, Chan said he thought the cost of labor would not be strongly affected by the minimum wage increase to HK$37.50 next May and said that labor took up almost 29 percent of the total business cost.

The group opened five new Fairwood restaurants in the first half of the year and is operating 138 fast-food stores and 10 specialty restaurants in Hong Kong, and 10-fast food stores in China.

The group's executive chairman, Dennis Lo Hoi-yeung, said they want to open five to six more restaurants in the last half of the year.

He said the rental cost increased 13 percent during the period and one-third of their branches incurred higher rent while he predicted the cost would fall as the Hong Kong economy slows.

Lo also said the cost of sales would not be affected by the China-US trade war and African swine fever as the group sourced food ingredients globally.

He agreed that the trade war may affect market sentiment.

Meanwhile, the group is seeking small to medium-sized shops in China to open new branches and develop delivery service business while they will open at least two more shops next year.

Fairwood's share price dropped 6.59 percent to HK$26.95 yesterday on a turnover of 46.29 million after rising 4 percent yesterday on the increased net profit of rival Cafe de Coral.

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