South African franchising company Gold Brands recorded a 15.9% increase in profit after tax to R3.5-million for the six months ended August 31, translating into headline earnings a share of 3.18c.

Commenting on Gold Brands’ performance, CEO Praxia Nathanael on Monday said the results were strong, despite the company facing the backdrop of a muted domestic economy, which impacted the pace of rolling out new stores.

The roll-out of new stores slowed during the period, with less funding available for new franchises.

Consumer spending was constrained in lower living standard measurement categories, offset by growing customer support in the middle-income market. Group revenue dropped 13.8%.

“We mitigated the revenue impact with a pleasing increase in gross margin to 30.9% as a result of improved procurement, increased volumes of in-house production and better internal controls.

“Our flagship Chesanyama brand and the more recently acquired BlackSteer brand, continue to enjoy high levels of consumer support, which supported our accelerated growth trajectory in the four years since launching the business,” Nathanael said.

Following this period, which saw the roll-out of a substantial franchised store network, Gold Brands turned its focus inwards to ensure that it was positioned to show sustained growth in future. This includes enhancing its internal controls and increasing its head office capacity to support the growing franchise base.

“Our improved profile as a listed company enabled us to attract a number of skilled industry specialists, including Manny Nichas who is responsible for franchising operations. In a very short space of time, he has made pleasing progress in improving franchisee compliance, as well as introducing more stringent requirements for new entrants to ensure their sustainability. We also reviewed the quality of existing operators to evaluate profitability at store level, including the closure or relocation of nonperforming stores.

“Our ultimate objective is to provide consistent quality and service to end-consumers regardless of which store they frequent. We are confident that these initiatives will reposition our brands to continue growing profitably and that Gold Brands is well positioned to weather the current economic environment,” she highlighted.

Meanwhile, to curb the economic downturn, menu prices were increased, on average, by 8% in March, having absorbed higher input costs to continue offering value to consumers for as long as possible.

Operating expenses declined by 7.4% to R25.9-million, notwithstanding the recruitment of sector-specific skills to increase franchisee-support capacity at head office. The group achieved lower transport costs as a result of better route planning, while maintenance costs decreased owing to capital investments in new equipment. Tighter internal control of operating expenses was also beneficial.

Net working capital rose to R37.7-million, up from R5.3-million a year ago. Factors contributing to the increases included an additional R7.3-million in inventories after repurchasing several strategically located stores from franchisees to defend these sites.

The higher trade and other receivables of R39-million, was impacted by the timing of new BlackSteer franchise fees.

The group closed the period with cash and cash equivalents of R585 263.