Gross profit margin fell 1.2 percentage points from the same period last year to 14.4 per cent.

Chairman Michael Chan Yue-kwong said profit margin had been eroded by surging food costs, which rose 15 per cent during the first half.

'We expect that rising costs in food materials, rent and labour may result in a decrease in earnings next year,' Chan said.

During the period, the company spent HK$845 million on raw materials and other consumable goods, up 13 per cent from the same period last year. Labour costs are estimated at HK$643 million, 8.8 per cent higher than before.

As the new minimum wage will take effect in May next year, the company, which employs 16,000 people, will have to pay an extra HK$80 million in salaries. About 7,600 employees are paid less than the required HK$28 per hour and half of them are part-time staff.

Cafe de Coral had wanted to scrap meal breaks for staff in exchange for higher pay but withdrew the plan following strong criticism from the labour sector.

Chan said it would cut expenditure by developing automation systems, sourcing raw materials globally and enhancing central processing productivity.

Currently, the company has no plans for lay-offs or price rises. Instead, it intends to hire 1,000 to 1,500 more people to expand its business.

The city's biggest fast-food chain recorded interim revenue of HK$2.63 billion, up 10.3 per cent compared with a year earlier. It opened a record 37 outlets during the period.

About 80 per cent of the revenue was from its Hong Kong business and 14 per cent from the mainland. The rest was generated by the North American market.

Of the three markets, the mainland surged about 26 per cent, making it a major driver for the company's growth.

With 79 outlets spread across the Pearl River Delta and the Yangtze River Delta regions by September, the company aims to raise the total to 200 by 2014.

An unchanged interim dividend of 17 HK cents per share will be paid.