Cafe de Coral cooks up spin-offs

PUBLISHED : Wednesday, 11 July, 2007, 12:00am
UPDATED : Wednesday, 11 July, 2007, 12:00am

Cafe de Coral, the world's biggest Chinese fast-food chain, plans to spin off its speciality eateries, mainland units and North American operations after a 15.7 per cent rise in full-year earnings on higher turnover.

Net profit rose to HK$370 million for the year to March, up from HK$320 million a year ago. Earnings per share were 67.95 HK cents against 59.24 HK cents a year earlier. Earnings were below the mean estimate of HK$379 million by seven brokers in a Thomson Financial poll.

Cafe de Coral, which has 584 restaurants worldwide, including 238 in Hong Kong, saw sales rise 12.8 per cent to HK$3.88 billion on a 6 per cent increase in same-store turnover.

Chairman Michael Chan Yue-kwong said that the plan to spin off its businesses was inspired by the recent wave of fund-raising activities by Hong Kong eateries.

Ajisen (China) Holdings, a Japanese-style noodle restaurant operator, raised HK$1.6 billion in an initial public offering in March to fund its expansion in the mainland and Hong Kong. Tao Heung Holdings, a Chinese restaurant chain, in which Cafe de Coral owns a 10 per cent, raised HK$396.8 million selling new shares last month.

'Spinning off the group's operations can help reflect their hidden value in Cafe de Coral,' Mr Chan said. 'Investors can choose to invest in a particular operation rather than a bundle of operations.'

He said the group's speciality eateries, including 25 Spaghetti House outlets and 14 Oliver's Super Sandwiches shops, had already achieved profitability that made them eligible for a main-board listing. The group is likely to spin off its special eateries first, followed by its 133-outlet mainland operation and, finally, its United States division, Manchu Wok.

The spin-offs could take place over a five-year period, Mr Chan said, without specifying timetables.

The speciality eateries in Hong Kong made up between 12 per cent and 13 per cent of Cafe de Coral's HK$409 million operating profit in the city. Mr Chan said the profit margin was higher than that of fast-food restaurants and that same-store sales grew 10 per cent in the past year. Operating profit on the mainland surged 50 per cent to HK$36.8 million on a 21.5 per cent gain in sales to HK$259 million during the period.

As for Manchu Wok, which has 201 outlets, Mr Chan said he expected it to start generating profit in the next 12 months after a restructuring that involved closing loss-making shops.

Manchu Wok's operating loss was HK$23.6 million while its earnings before interest, tax and amortisation reached HK$14 million.

The company will pay a final dividend of 30 HK cents a share, representing a payout ratio of 62 per cent, after distributing an interim dividend of 12 HK cents a share.

Cafe de Coral, which has HK$600 million in net cash, plans to spend HK$300 million to open 30 stores in Hong Kong and the mainland, build a food-processing factory in Hong Kong and buy store properties.

Having risen 26.8 per cent in the past 12 months, the company's share price dropped 3 per cent yesterday to HK$14.90 after the results announcement at midday.