Strong Brand performance bolsters results at Famous Brands

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

Gross revenue up 25% to R714 million (2007: R571 million) Operating profit up 13% to R124 million (2007: R109 million) Headline earnings per share increase of 10% to 80 cents (2007: 73 cents) Interim dividend up 9% to 36 cents (2007: 33 cents) Overview: Underpinned by its portfolio of leading brands, Famous Brands Limited has turned in a satisfactory performance for the six months ended 31 August 2008. Famous Brands is Africa’s leading Quick Service Restaurant and Casual Dining franchisor and is also represented in the United Kngdom. The global footprint of the Group now stands at 1,557 franchised restaurants spread across South Africa, 17 other African countries and the UK. Its brand portfolio includes Steers, Wimpy, Debonairs Pizza, FishAways, House of Coffees, Brazilian Café and tashas. The group manufactures and supplies its franchisees, the retail trade and broader hospitality industry with a wide range of meat, sauces, bakery, ice cream and fruit juice products. Kevin Hedderwick, Chief Operating Officer of Famous Brands, said he was pleased with the group’s performance and described the macro economic trading conditions in the first half of the ear as the toughest the group had experienced in ten years. “This latest performance is a testament to the strength of the Group’s brands and the known gravitation by consumers towards trid and tested brands in times of economic downturn,” said Hedderwick.

Financial Review: In the six months under review, the Group recorded gross revenue of R715 million (2007: R571 million), an increase of 25% including growth of 32 % in the low margin logistics business which extended its activities to the existing Wimpy franchise network. Profitability during the first six months of the year was adversely affected by the Group’s deliberate strategy of absorbing csts within the Manufacturing and Logistics Divisions to the combined value of R10.25 million. Operating margin settled at 17.3%. “This strategy was implemented to ensure the long-term sustainability of the business through maintaining price competitiveness at the point of sale, as well as protecting individual franchisee margins and profit,” says Hedderwick. Tight control of costs ensured that operating profit improved by R15 million from R109 million,an increase of 13%, boosted by an exceptional performance in the local franchising division. Headline earnings per share increased 10% to 80 cents (2007: 73 cents). For the first time, the interim results include the business of Cape Franchising which was acquired effective 1 March 2008. The impact on earnings has not been material. An interim dividend of 36 cents per share has been declared, an increase of 9%. Like on like sales, net of new restaurant openings, within the Domestic Franchise division grew by 9.3 % compared with the previous period and system wide sales grew by 13.6 %. “When viewed against a weighted average menu price increase of 6.7 %, indications are that the margin absorption strategy has worked well and that our brands, in tough trading conditions, have continued to gain market share.” adds Hedderwick. This resulted in a 13% increase in revenue to R139 million up from the R122 million in the prior year and a 27% improvement in operating profit for the division from R68 million to R86 million. The division’s operating margin improved to 62% from 55%.

Some 43 new restaurants were opened and 60 existing restaurants were revamped in the period, with a further 79 new restaurants and 56 revamps planned for the next six months. The Group’s brands continue to grow their footprint with milestones reached as Steers opened their 500th restaurant and Debonars Pizza their 250th restaurant. The Brazilian Café format was successfully repositioned to include a bakery option, and is poised for an aggressive rollout in partnership with the Shell Petroleum Company. The brands continue to win accolades in 2008 where Leisure Options voted Steers “best burger” and “best chips” for 13 and 11 years in a row, respectively. Debonairs Pizza won “best pizza” for 9 consecutive years and Wimpy has won the award for “best breakfast” 11 times. The Business Times Top Brands Survey featured Steers, Debonairs Pizza and Wimpy amongst the top 10 fast food and restaurant brands. Internationally, comparative restaurant turnovers are down 2.63 %, affected primarily by the global economic slowdown. The division continues to make great strides improving the Wimpy brand look, feel and experience in the UK. Six restaurants were revamped in the period and a further four are planned for the second half of the year. The Manufacturing Division was hampered by raw material price increases well above food inflation across products that are fundmental to the manufacturing process. These include red meat, chicken, flour, oil, tomato paste, yeast, sugar and packaging. Revenue for the period was R261 million and operating profit was R17 million, resulting in an operating margin of 6.7% adversely affected by the deliberate margin absorption strategy which in this division accounted for R8 million. The Group invested in improving its production management skills at executive and plant manager levels to align with several yers of capex investment in factory upgrades and modernisations.

The Logistics Division remains a key component of the Group’s unique backward integrated franchise system and has continued to row being influenced by completion of the Wimpy “dry goods” business take on and the commencement of take on of the Wimpy “frozen goods”. Preparation for the latter included a number of once-off start up costs, the benefits of which will flow through in the future. Revenue for the period was R435 million with operating profit of R9 million, reflecting a margin of 2% adversely affected by the deliberate margin absorption strategy, which in this division, accounted for R2.25 million. A full service depot was commissioned in Bloemfontein to service the Free State and improve service levels to franchisees in the region. The Food Services division continues to fulfil the important role of sourcing quality business for the Group’s brands where spae manufacturing capacity exists. “We are pleased with progress being made by this division, which during the period, included the highly successful launch of Wimpy Tomato Sauce and Mustard into the retail trade as well as the launch of the fla ‘o’ full catering range intended for the general food service and hospitality industry,“ says Hedderwick. More recent developments include extension of the Trufruit brand into retail, the unveiling of two new exciting Steers sauce variants and the imminent launch of a mineral water brand. The Cape Franchising acquisition (effective 1 March 2008) has been successfully concluded and fully integrated into the Group. The first phase of extracting synergies has been completed. Similarly the 51 % controlling stake in tashas (effective 1 July 2008) has been concluded and there are plans to open at least four new restaurants early in the new year. Prospects: Looking ahead, Hedderwick commented, “The Group expects difficult trading conditions to continue however we have embarked on a robust cost reduction programme on the one hand and an aggressive marketing programme across all of our brands on the other, benefits of which should flow through during the second half of the current fiscal year.” “The Group’s business model remains sound, representative of a portfolio of strong brands being underpinned by a unique backward integration model and excellent managemet. We are confident the Group will weather the current economic storm, and would expect earnings growth to be maintained at the current level.” concludes 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