Famous Brands revenue exceeds R1 billion

FAMOUS BRANDS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/004875/06)
Share code: FBR ISIN code: ZAE000053328
(“Famous Brands”)
Johannesburg, 19 May 2008:

Gross revenue up 36% to R1 190 million (2007: R872 million)
Operating profit up 52% to R210 million (2007: R138 million)
Operating margin up to 17.6% (2007: 15.8%)
Final dividend up 38%% to 66 cents (2007:48 cents)

General overview

“Our stable of leading brands continues to distinguish Famous Brands as a leader in the quick service and casual dining restaurant industry”, says Kevin Hedderwick, Chief Operating Officer of Famous Brands. Testimony to the strength of these brands is that for the first time in the Group’s history, revenue exceeded R1 billion. This exceptional 36% growth in turnover reflects benefits derived from consumer demand shifts to out-of-home consumption and convenience which is a lifestyle choice for time-poor and cash-rich customers. Operating profit improved 52% to R209.6 million from R137.8 million with strong performances being reported across all business units. The operating margin increased from 15.8% to 17.6%. Attributable profit increased by 50% to R131.1 million from R87.1 million. Diluted earnings per share increased by 44% to 134 cents (2007: 93 cents) and diluted headline earnings per share increased by 33% to 141 cents (2007: 106 cents). The Famous Brands balance sheet remains strong and profitability returns are exceptional with Return on Net Assets of 44% (2007: 38%) and Return on Equity of 38% (2007: 36%).

Famous Brands announced the payment of a final dividend of 33 cents, resulting in a total dividend distribution for the year ended 29 February 2008 of 66 cents per share, a 38% increase on the 2007 dividend of 48 cents per share. The year under review was unique in that it presented in two distinct halves. During the first half, good trading conditions were experienced. Traditionally the second half shows stronger growth, however with economic factors such as the increases in interest rates, fuel prices, raw material input costs and exceptionally high food inflation, trading conditions slowed down. Business unit reviews The Local Franchise division contributed significantly to the Group’s overall performance returning growth in revenue of 14% to R260 million (2007:R228 million) and an operating profit increase of 27% to R142 million (2007:R112 million). Operating margin improved from 49% to 55%. System wide sales across the Group’s brand portfolio grew by 14% and like-on-like restaurant growth was 9%. A total of 106 new restaurants were opened during the year. Kevin Hedderwick said, “Although this was fewer than the previous year, it is attributed to a general slowdown in the economy and the impact of new developments being put on hold by developers due to uncertainty surrounding the national power shortage.” A total of 116 existing restaurants were revamped during the period.

The International Franchise division, consisting of Wimpy UK and the Group’s offshore financial holdings in Cyprus, contributed R175 million in gross revenue and operating profit of R15 million, translating into an operating profit margin of 9%.The Wimpy franchise division, however, reported a 38% operating margin which is encouraging given where this business is currently at in terms of the turnaround which is well under way. Hedderwick states that, “The Group’s entry into the UK market, via the acquisition of the Wimpy brand, remains on track. When we assumed control of Wimpy UK, every aspect of the business was interrogated and a process of consolidation and continuous improvement implemented.” Some notable projects were completed in the last year, which have established a solid platform on which the Group can build. Once stabilised, this business will provide a springboard from which to launch the Group’s other mainstream brands within the UK.

The Manufacturing division posted revenue of R506 million and operating profit of R48 million, resulting in an operating margin of 10%. These strong results are attributable mainly to an improvement in operating efficiencies resulting from investments in plant and equipment and rationalisation and outsourcing of non-profitable line items. The Logistics division, a key component of Famous Brands’ unique backward integrated franchise system, continues to grow in stature, contributing revenue for the year of R692 million and an operating profit of R15 million, resulting in an operating margin of 2.1%. In the period the relocation of the KwaZulu-Natal regional warehouse and distribution centre and the Eastern Cape warehouse and distribution capacity upgrade were completed as was the first phase take on of the Wimpy distribution business. Hedderwick says, “The take on of the Wimpy distribution business will be accelerated in the year ahead, requiring a further investment in fleet as well as an extension of the existing Midrand hub with a further 2000m2 of warehouse space.”

The Food Services division, established to source quality business for the Group’s brands where spare manufacturing capacity exists, continues to make encouraging gains. This is evidenced by the successful launch of the Wimpy tomato sauce and mustard variants into the retail and wholesale trade. Further innovation includes the launch of a range of sauces, salad dressings and burger patties under the Flav-‘O’-Full brand aimed at the general catering and hospitality markets.

Prospects

Kevin Hedderwick says, “Whilst there is likely to be further pressure on consumer spend during the year ahead, I am confident that consumers will target their spending at well known and trusted brands. It follows then that the Group’s strategy needs to be one of ensuring that our brands remain relevant and deliver value for money.” The Group’s unique model of backward integration into the manufacturing and logistics businesses will shore up competitiveness, helping to ensure that price increases are contained and efficiency benefits are passed on to customers. Famous Brands remains a South African-based company and will continue to leverage the competencies and experience of its home base to enhance and grow their UK network. “The Group has delivered an impressive 52% annual compounded earnings growth over the last six years. Our focus, in the coming fiscal year, will be one of solidity rather than one of expansive growth” concluded Hedderwick.

 

Notes to editors:

The Group’s brand portfolio includes Steers (524], Wimpy including UK (642), Debonairs Pizza (315), FishAways (112), Mugg & Bean (108), tashas (6), House of Coffees (19), Brazilian/Brazilian Café (48), Blacksteer (12), Giramundo (6), Keg (27) and McGinty’s (5), Vovo Telo (3) and O’Hagan’s (26). The Group also manufactures and supplies its franchisees and the retail trade with a wide range of meat, sauce, bakery, ice cream, fruit juice and mineral water products.

For further information:

Kevin Hedderwick
Chief Executive Officer
Famous Brands Ltd
Telephone: 011 651 5812
Del-Maree English
Investor Communications
Mobile: 083 395 8608