HONG KONG: Local fast-food chain Fairwood Holdings has reported a 20 percent drop in full-year net profits as higher rents, increasing food costs and a challenging business environment hit earnings.

Net earnings fell to HK$80 million for the 12 months ended March 31 from HK$101 million in the previous year. However, revenue rose slightly by 2.2 percent to HK$1.47 billion. Gross profit margin fell 1 percentage point to 12.8 percent this year.

The company will distribute a final dividend of 28 HK cents to its shareholders, compared with 29 HK cents in the previous year.

Chairman Dennis Lo said the surge in rental charges and food costs were the major challenges to Fairwood in the first half, while the business environment became even more challenging in the second half because of the global financial crisis.

Fairwood opened 14 new fast food outlets in this fiscal year, with 12 in Hong Kong and two on the mainland. The fast-food chain operated 98 restaurants in Hong Kong and 13 on the mainland by the end of March.

Lo said the company will continue its plan to operate 100 fast food outlets in Hong Kong next year, as food costs gradually stabilize and the rental market becomes less competitive.

Fairwood's new central food processing plant in Tai Po will begin production in the third quarter. The new plant is expected to improve the company's profit margin and lower food costs. The company is also expected to hire 600 to 800 more staff this year.

Despite the recent drop in food costs, Lo said the company has no plans to adjust its menu prices.

"We have, in fact, adjusted our menu price in the middle of the year," Lo said in a press conference yesterday, "Our average consumer spending amounts to HK$27 this year, while the average spending in the industry is around HK$30."

Lo also noted that the company has recorded a single-digit same store sales growth from April to June, and he expects to maintain a slight increase in same store sales in the rest of the year.

The company's rival Cafe de Coral posted full-year results on Wednesday, with net profits up 5.15 percent to HK$442 million and revenue rising 9.11 percent to a historical high of HK$4.67 billion.

Fairwood shares dropped 6.17 percent, or HK$0.48, to end at HK$7.30 yesterday, while Cafe de Coral advanced 3.21 percent, or HK$0.5, to finish at HK$16.08.

(HK Edition 07/10/2009 page3)