Famous Brands acquires Mugg & Bean Franchise

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

Famous Brands Limited is pleased to announce the acquisition of the South African and African business of Mugg & Bean, the brand leader in the unique fast-casual, coffee-themed category. Kevin Hedderwick, Chief Operating Officer of Famous Brands says,”The Group’s stated strategic intent has always been to acquire and grow best-in-class franchised brands and the Mugg & Bean brand fits perfectly into this strategy. We are absolutely delighted at the acquisition of a brand, pioneered by one of our industry’s legends, Ben Filmalter and which has grown to become the iconic South African brand that it is today. A brand which, since inception has become sought after by potential franchise partners, landlords and consumers alike.” The Mugg & Bean franchise started in 1996, with the opening of the first restaurant in the V&A Waterfront in Cape Town. It has grown vigorously to 96 restaurants nationwide, all of which are franchised. Although coffee-themed, Mugg & Bean is perceived to be a restaurant rather than a coffee shop, and has achieved remarkable success in South Africa by fulfilling the growing need for premium fast-casual dining. Its patrons are typically shoppers and business people during the week and families on weekends. Commenting on the transaction, Ben Filmalter, founder and CEO of Mugg & Bean said,”Since its inception we have nurtured the Mugg & Bean concept and steered the business to the leading position it enjoys today. We are delighted to pass the torch to Famous Brands, whom we are confident will ensure that the concept is further developed and its success continued into the future.” Famous Brands has acquired the business of Mugg & Bean for a cash consideration of R104 million, the result of which will translate into Famous Brands’ gearing level increasing to 56%.

Famous Brands is comfortable with this debt level given it’s strongly cash generative operations. The effective date of the transaction is 1 September 2009 subject to suspensive conditions which Famous Brands is confident will be met. There are no profit warranties in place. The financial effects of the transaction are such that initially earnings per share and headline earnings per share will remain neutral. Ben Filmalter and Michael Maree will remain part of the management team for a three-month period to ensure a smooth hand over and integration of the business into Famous Brands whereafter their intention is to further develop the brand outside of South Africa and Africa. Their unique skills and experience will continue to be available to the local business working along side local management. The two vendors aside, it is Famous Brands’ intention to retain the existing management and staff of Mugg & Bean, who are considered vital in terms of ensuring operational continuity of the business going forward. “We have been interested in the Mugg & Bean business for a long time. We are confident of not only integrating it into our existing and unqiue business model, thereby extracting synergies and adding value as a consequence, but also rolling out the concept further across the South Africa and Africa landscape. We feel privileged to add this premium brand to our portfolio of leading brands ,” concludes Hedderwick.

Popularity of the Group’s brands is unmistakable with Leisure Options rating Steers as having the “best burger” for the 14th consecutive year and “best chips” for the 12th consecutive year. Debonairs Pizza won “best pizza” for the 10th time and Wimpy “best breakfast” for the 12th time. The Group’s most recent acquisition, Mugg & Bean, took “best coffee shop”, yet another 10th time accolade. During the period a total of 52 new restaurants were opened and 43 existing restaurants were revamped. Some 83 new restaurant openings are planned for the remainder of the financial year, along with 39 revamps. Wimpy, an icon in South Africa marked the period with its 500th restaurant opening in August 2009. FishAways will open its 100th restaurant in November 2009, an important milestone in the brands short history. The division continues to extend its footprint across strategic transient sites, airports in particular, by way of new Wimpy, Steers and now Mugg & Bean restaurant openings, which augurs well to capture traffic volumes during the 2010 FIFA World Cup. “The Group’s stated strategic intent has always been to acquire and grow best-in-class franchised brands, and so during the period, the Group successfully concluded the acquisition of the South African and African business of Mugg & Bean, brand leader in the unique fast-casual, coffee-themed category” says Hedderwick. He goes on to say that, “The process of extracting synergies and supply chain efficiencies since the acquisition is already well underway.” Nine new restaurants will be opened during the remainder of the fiscal year and eight revamps are to be concluded.

Internationally, extreme economic conditions prevailed and hampered recovery of the Wimpy UK brand. Like-on-like sales growth was down 6.3% for the period. One new restaurant was opened and two restaurants revamped. Hedderwick explains that, “Trading volumes over the key Easter and summer holidays were down on last year, impacted further by the closure of restaurants as part of an upgrade of the network and alignment of the estate with Group operating standards.” The Manufacturing Division posted revenue of R300.3 million (2008: R261.2 million), 15% up on the previous period, and an operating profit of R25.2 million (2008: 17.4 million), resulting in a margin of 8.4%. These results reflect the marked turnaround in this division as critical objectives to consolidate and stabilise operations were achieved through a strong focus on yields, preventative maintenance, productivity and efficiencies. In an effort to expand the division’s offering, a number of volume enhancement initiatives are being assessed and are expected to materialise in the second half of the financial year. The Logistics Division grew on the back of increased volumes and improved efficiencies, the latter which included commissioning of a Warehouse Management System at the Midrand Distribution Centre designed to improve warehouse utilisation and prevent the need for additional real estate expansion and capital expenditure. Revenue was R524.1 million (2008: R434.7 million), up 21 %, yielding an operating profit of R13.2 million (2008: R8.5 million) for the period. A satisfactory operating margin of 2.5% was achieved. Expenses for the division were held at 6.4% as a function of lower fuel prices and better fleet utilisation, despite significant volume increases. Hedderwick says, “Preparations are progressing well for the first phase take on of distribution in November 2009, to our newly acquired Mugg & Bean franchised restaurants.”

The Group’s Food Services Division continued to record good growth of 7% and 17% respectively from sales into the retail and wholesale trade channels of our Steers and Wimpy sauces, salad dressings and marinade ranges. Prospects Whilst the Group usually experiences a better second half, Hedderwick says, “We expect difficult trading conditions to continue during the period ahead, however our best in class brand portfolio will continue to serve us well.” “The Famous Brands business model remains a compelling strategic advantage, especially the Group’s unique backward integration model and our strategic positioning at transient sites, coastal resorts and major shopping centers should enable us to capitalize on the summer holiday trade,” 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.

 

 

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