Famous Brands delivers in tough trading environment

FAMOUS BRANDS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/004875/06)
Share code: FBR ISIN code: ZAE000053328
(“Famous Brands”)
Revenue increase – 14% to R811 million (2008: R715 million)
Operating profit increase – 13% to R140 million (2008: R124 million)
Headline earnings per share increase – 16% to 93 cents (2008: 80 cents)
Interim dividend increase – 39% to 50 cents (2008: 36 cents)
Cash generated by operations of R159 million, up 64% (2008: R97 million)
Net borrowings: equity improves to 22% (2008: 62%)

Overview

Kevin Hedderwick, Chief Operating Officer of Famous Brands, expressed his satisfaction with the interim set of results produced by the Group in exceptionally difficult trading conditions. He says, “Across the quick service and casual dining market, fierce competition is the order of the day, with all players focused on defending and growing market share.” He goes on to say that, “The modest gains in consumer disposable income, made available through interest rate cuts and lower fuel prices, appear to have been directed at paying off personal debt.” Famous Brands is Africa’s leading Quick Service Restaurant and Casual Dining franchisor and is also represented in the United Kingdom. The global footprint of the Group now stands at 1,723 franchised restaurants spread across South Africa, 17 other African countries and the UK. Its brand portfolio includes Steers, Wimpy, Debonairs Pizza, Mugg & Bean, 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, sauce, bakery, ice cream, fruit juice and mineral water products. “Aggressive competition in our market has led to a high degree of “switching” between brands as consumers are swayed by innovative marketing and promotional activity,” comments Hedderwick. The same is not nearly as pronounced for brands like our own Debonairs Pizza and FishAways, which remain at the forefront of pioneering and developing new categories and markets.

Financial review

In the six months under review, Group revenue rose 14% to R811.4 million (2008: R714.8 million). Operating profit of R139.8 million (2008: R123.9 million), up 13 %, reflected an unchanged operating profit margin of 17.2%. Earnings and headline earnings per share both increased by 16% to 93 cents (2008: 80 cents). Cash generated from operations increased by 64% to R158.8 million. Interest cover reached a healthy 11.6 times, which provides financial capacity to fund further expansion should appropriate investment opportunities present themselves. An interim dividend of 50 cents per share was declared, improving the distribution to shareholders by 39% on the prior comparative period. Operational review Hedderwick says that, “The local Franchising Division was again a major contributor to the Group’s performance, a direct result of our strong brand portfolio.” Revenue grew by 14% to R158 million (2008: R140 million). Operating profit rose 10% to R94.2 million (2008: R85.9 million), while the division’s operating margin settled at 59.6% diluted through the inclusion of a company-owned tashas restaurant. System-wide sales, which include new restaurant openings, grew 9.5 % with like-on-like sales growth of 4.0%. In contrast, Debonairs Pizza and FishAways showed like-on-like sales growth of 13.4% and 16.6% respectively, indicating the growing consumer equity for these two brands within those categories in which they compete.

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.

For further information:

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