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FOOD & BEVERAGE | Tony Chua, Hong Kong
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Fairwood profit up 32.8% to HK$123.8mn

The fast food operator was able to provide more variety and better value products to our customers, which sustained its growth.

Leading local fast food operator Fairwood Holdings Limited (“Fairwood”) on Wednesday announced its annual results for the year ended 31 March 2011.

During the year under review, the Group recorded turnover of HK$1,665.9 million, up 6.6% against HK$1,562.3 million of last year. Gross profit margin increased to 14.5% (2010: 13.9%).

Profit attributable to equity shareholders was HK$123.8 million compared with HK$93.3 million of last year, representing a rise of 32.8%. Excluding a gain on disposal of non-current assets held for sale of HK$15.6 million, profit for the year amounted to HK$108.2 million. Basic earnings per share were HK98.55 cents (2010: HK74.21 cents).

The Board recommends to pay a dividend of HK44.0 cents per share (include final dividend of HK32.0 cents and special final dividend of HK12.0 cents to commemorate 20th anniversary of public listing). Together with the interim dividend per share of HK20.0 cents and the special interim dividend of HK8.0 cents per share already paid during the year, the total dividends for the year ended 31 March 2011 amounts to HK72.0 cents per share (2010: HK46.0 cents), representing a total distribution of approximately 73% of the Group’s profit for the year. Dividend yield went up to approximately 6.7%, being the total dividend for the year divided by the average closing price of the shares as for the 5 business days immediately proceeding the date of announcement.

Mr. Dennis Lo, Executive Chairman of Fairwood, said, “We are delighted to have achieved growth in both turnover and profit during the year despite such sharp rise in food cost and rental. To sustain growth, we maintained our dedication to providing more variety and better value products to our customers. Product innovation and menu modification are areas that we have always focused on. These factors have attracted customers who were willing to pay higher prices and thus resulting in higher average spending. Together with creative marketing strategies and greater efficiency brought by our central food processing plant, we are able to achieve such good results today.”

The enforcement of the statutory minimum wage in May 2011 undoubtedly put pressure on labour cost, however, we believe that the introduction of flexible scheduling shift will definitely help to improve labour productivity and gradually mitigate the margin erosion.

The Group’s central food processing plant located at Tai Po Industrial Estate operates seamlessly. It has been supplying food to over 100 stores during the year, bringing great leaps forward to the Group’s overall efficiency. The plant’s level of automation also enables our personnel to focus on other important areas, such as quality control, which has been strengthened during the year. Process streamlining at store level was carried out which helped improve productivity. Furthermore, the Group believes the third phase of SAP Enterprise Resources Planning (ERP) system will further enhance the Group's competitive edge, deliver higher supply chain efficiency, improves process integration and thus resulting in better cost control.

The Mainland China operations continued to progress in a stable manner with sales rising by 10.1% for the year. The Group’s specially tailored menus, effective pricing strategies and well located stores contributed to a solid customer base. The management will direct more resources and efforts towards making further inroads in this market.

During the year under review, the Group opened 9 new fast food stores including 7 in Hong Kong and 2 in Mainland China. As at 31 March 2011, the Group has a total of 103 stores in operation in Hong Kong, including 97 fast food stores, 2 Buddies Cafes and 4 specialty restaurants. In Mainland China, the Group operates 16 fast food stores.

Looking ahead, the Group’s objective will be to prudently manage expansion and to achieve sustainable same store sales growth. The Group will further capitalise on its central food processing plant to better manage costs, which will be crucial as food prices are expected to continue rising. Aside from production, the Group will continue to introduce innovative yet appealing menus that appeal to customers from all walks of life. The “No MSG” series will be reinforced to capture the health conscious customers, as mentioned in a Fairwood report.

For Mainland China expansion, the Group aims to increase the total number of stores to 21 by the end of next financial year, which will witness new openings in major cities, including Guangzhou, Beijing and Shenzhen.

Mr. Lo concluded, “Despite mounting pressure of cost in rent, food and labour, we believe that the Group is still in a strong position to maintain growth. Our competitive edges, including innovative products, efficient operations, commitment to quality, responsive management and dedicated workforce will enable the Group to achieve new milestones in the coming years.”

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