Johannesburg; Monday, 24 October 2016:
Famous Brands, Africa’s largest branded food services franchisor, has reported strong results for the six months ended 31 August 2016, growing revenue by 23% and operating profit by 17%.
The Group’s CEO, Darren Hele, says, “In the context of challenging trading conditions experienced during the review period, the Group’s unwavering focus on consistent improvement and investment in the business continued to deliver rewarding results.” He adds, “Management’s strategic drive to build capability and capacity across our Brands, Logistics and Manufacturing operations continued apace, with the successful integration of recently acquired businesses and the acquisition of additional new businesses.”
The Group’s vertically integrated business model comprises a portfolio of 30 brands represented by a franchise network of 2 626 restaurants across South Africa, the Rest of Africa, the Middle East and the United Kingdom. The Brand business is underpinned by substantial Logistics and Manufacturing operations.
Hele comments, “The pleasing performance delivered for the review period is a reflection of both organic and acquisitive growth in the Brand portfolio as well as in the Supply Chain operations.”
Group revenue increased 23% to R2.451 billion (2015: R1.998 billion), while operating profit, including exceptional items, rose 51% to R525 million. Exceptional items relate to a derivative gain of R141 million on the call option utilised to hedge the purchase price of the Gourmet Burger Kitchen (GBK) Restaurants Limited acquisition, and an impairment loss of R20 million recognised on the Group’s investment in the UAC Restaurants (UACR) Limited business in 2013 in Nigeria. Operating profit before exceptional items rose 17% to R404 million (2015: R347 million).
The operating margin declined to 16.5% (2015: 17.4%) primarily as a function of investment in resources to enhance operational capabilities, a higher percentage of joint-venture entities in the system, and the incorporation of lower margin manufacturing business.
Basic earnings per share (EPS) grew 62% to 391 cents per share (2015: 242 cents per share), while headline earnings per share (HEPS) increased 71% to 411 cents (2015: 241 cents). Basic EPS and HEPS, excluding exceptional items, improved 12% to 271 cents per share (2015: 242 cents) and 270 cents per share (2015: 241 cents) respectively.
Cash generated by operations before changes in working capital increased 19% to R457 million (2015: R385 million). Working capital increases totalled R34 million; while net cash inflow from operating activities rose to R82 million (2015: outflow of R55 million).
Net cash outflow from investing activities of R162 million (2015: R117 million) was incurred primarily on acquiring controlling stakes in Salsa Mexican Grill, Lupa Osteria and the outright purchase of Lamberts Bay Foods Limited. Included in this outflow is capital expenditure of R90 million (2015: R36 million) incurred on the acquisition of the Cape Concentrate tomato paste facility, investment in IT systems, as well as further enhancing Supply Chain capabilities.
Hele says, “In order to achieve our robust growth targets, the Group has recently made a number of acquisitions, including its largest ever, the GBK transaction in the UK. In this regard, the Group’s gearing is substantially higher than in prior years, and the Board has therefore resolved that no interim dividend will be declared for the review period.” He notes, “The Board will closely monitor the Group’s operating requirements as well as future strategic acquisitions to determine future dividend payments. It is anticipated that, subject to future acquisitions, payment of dividends will resume in the 2018 financial year.”
This division comprises three regions, namely: South Africa; Rest of Africa and the Middle East; and the United Kingdom (UK).
Hele states, “The Group’s brand portfolio is strategically designed to be aspirational, and offer value and convenience to a wide range of consumers across the income spectrum and across meal occasions.”
He observes, “Both the mainstream and signature (emerging) brand divisions delivered a gratifying performance. Central to their growth was intensified focus on key standard operating disciplines and innovation implemented across the offering, including product, marketing and in-store interaction.”
Combined revenue reported for the six months grew 19% to R383 million (2015: R321 million), while operating profit increased 14% to R205 million (2015: R181 million). System-wide sales across the total franchise network rose 14.2%, while like-on-like sales improved 9.6%.
“Notwithstanding the adverse trading environment, the Group opened 75 new restaurants across the brand portfolio, on par with the prior comparative period,” comments Hele.
The Group’s integrated Supply Chain comprises its Logistics and Manufacturing businesses, which are managed and measured separately. During the review period, consolidated revenue grew by 19% to R1.88 billion (2015: R1.58 billion), while operating profit increased 49% to R215 million (2015: R144 million).
Hele states, “These improved results are primarily due to organic growth in the front-end of the business and integration of new business in the Supply Chain.”
This division reported a 24% increase in revenue to R1.66 billion (2015: R1.35 billion), while operating profit grew 14% to R49 million (2015: R43 million). These solid results are a function of successfully stabilising and optimising the Crown Mine Distribution Centre operation which now manages the previously outsourced frozen and chilled product basket in Gauteng; the integration of new brand business into the distribution network; and a significant increase in fleet capacity to enhance efficiencies.
Revenue increased by 53% to R1.30 billion (2015: R848 million) for the period, while operating profit rose 64% to R166 million (2015: R101 million). This strong performance was driven by significant growth in the Fine Cheese Company, the Sauce and Spice plant and the Midrand Meat plant, which benefitted from organic growth in the Brand and Retail divisions; the commissioning of the cream cheese production line; as well as take-on of a portion of the previously outsourced pork and Halaal product basket.
Hele says, “Strong emphasis will be placed on ensuring the business is positioned to benefit from the peak holiday trading season. Our brands are represented at all major consumer hubs across the country and therefore optimally situated to capitalise on discretionary spend during the holiday period.”
“In the period ahead, the Group will continue to focus on building capacity and capability across our operations. In this regard a range of initiatives will be implemented.” Hele elaborates:
- Expanding the restaurant footprint will continue in line with market demand, while the extensive revamp programme currently underway will gain momentum in the forthcoming months, designed to ensure the Group’s brands remain contemporary, appealing and top of mind;
- Opportunities to leverage growth of the GBK business will be explored; and
- The Group will open South Africa’s first PAUL restaurant in late February 2017. The flagship store will be situated in the Melrose Arch Precinct in Gauteng and will encompass a bakery café take away offering with a full table service restaurant.
This division’s priority will be to entrench the Group’s newly commissioned Long Meadow Primary
Distribution Centre and extract further gains from the Crown Mines facility, ensuring both operations contribute to substantially improved efficiencies in the integrated Supply Chain.
: A range of capacity building projects will be implemented by this division in the next six months, including the commissioning of Coega Concentrate Tomato Paste Plant and the sliced cheese operation in the Group’s Fine Cheese Company. In line with the Competition Commission’s phased timetable (a condition of the acquisition), a further 30% of the Cater Chain pork basket was integrated in October 2016, with the final 10% to be taken on in April 2017.
Leisure and Consumer:
Subject to the acquisition becoming unconditional, By Word of Mouth will be integrated into the Group’s structures, and opportunities to expand the business in the commercial catering and home meal replacement segments will be explored.
Hele concludes, “Management is on track to execute its strategies, and optimistic that if the opportunities outlined are capitalised on, the business will deliver solid growth in the forthcoming period.”