Famous Brands reports strong Organic Growth

 

  • Core business delivered robust organic growth – revenue up 33%
  • Seven acquisitions concluded – all integrated successfully
  • Business model transformed with largest acquisition to date – Gourmet Burger Kitchen (GBK) UK

Johannesburg; Monday, 29 May 2017: Famous Brands (JSE code: FBR) is Africa’s largest branded food services franchisor. The Group’s vertically integrated business model comprises a portfolio of 27 brands represented by 2 782 restaurants across South Africa, the Rest of Africa and the Middle East, and the United Kingdom. The Brands division is underpinned by substantial Logistics and Manufacturing operations.

GROUP PERFORMANCE OVERVIEW
Darren Hele, Famous Brands’ Chief Executive Officer says, “Despite the food services sector facing sustained pressure over the past year, the Group reported a very strong set of results for the period.”

He adds, “The Group’s resilience in the face of adverse trading conditions is attributable to a strategic and integrated business model, dedicated leadership, and unwavering focus on constant innovation in the business’s branded food service solutions which are designed to ensure relevance to consumers, competitive advantage for franchise partners and rewarding returns for all stakeholders.”

“Strong organic growth was reported by the Brands, Logistics and Manufacturing operations, complemented by solid results derived from the integration of seven newly acquired businesses, including the UK’s premium burger category market leader, Gourmet Burger Kitchen (GBK) – the Group’s largest acquisition to date and a transformational one for the business model,” notes Hele.

RESULTS: Revenue for the period grew by 33% to R5.7 billion (2016: R4.3 billion), which includes 20 weeks of turnover contribution from the newly acquired GBK business. Operating profit increased 18% to R938 million (2016: R792 million) excluding non-operational items.

The Group’s results for the year were impacted upon by the following once-off non-operational items related to the GBK acquisition: a realised derivative loss of R33 million on the call option that was utilised to hedge the purchase price of the acquisition; a realised foreign exchange loss of R23 million arising from the unfavourable movement in the ZAR:GBP exchange rate between the acquisition payment date and the effective date; and professional fees related to the acquisition of R50 million. Furthermore, as previously disclosed in the interim results announcement, the Group recognised an impairment loss of R20 million on the investment made in 2013 in UAC Restaurants Limited in Nigeria.

Net finance costs of R132 million were incurred (2016: R7 million) mainly as a result of interest-bearing borrowings raised.

Accordingly, basic headline earnings per share (“HEPS”) decreased 21% to 428 cents per share (2016: 541 cents per share). HEPS before non-operational items and additional interest costs rose 13% to 613 cents per share (2016: 541 cents per share).

The Group raised interest-bearing borrowings of R2.4 billion to fund its operating activities, while employing the cash generated from operations to fund amongst others, the GBK acquisition and related transaction costs. As a result of acquisitions concluded during the year, gearing is higher than in prior years and therefore no final dividend was declared for the period. It is anticipated that, subject to future acquisitions and operating requirements, payment of dividends will resume in the 2018 financial year.

At the end of the period, net cash was R405 million (2016: R6 million). The Group’s gearing ratio relative to its market capitalisation as at 28 February was 16%.

OPERATIONAL REVIEWS
BRANDS: The Group’s Brands portfolio is strategically structured to appeal to a wide range of consumers across the income and demographic spectrum and across meal preferences and value propositions.

The Brands division comprises of the following regions: South Africa, Rest of Africa and the Middle East, and the United Kingdom.

Hele says, “Throughout this division, management’s focus was on building capability and advancing market penetration. During the review period 192 restaurants were opened and 220 restaurants were refurbished – post-opening and revamp results have been rewarding.”

“Both our Leading and Signature brand portfolios delivered rewarding performances, underpinned by the Group’s compete-to-win culture and best practice disciplines across the offering,” Hele comments.

In the Leading brands’ portfolio particularly impressive performances were reported by Debonairs Pizza, Steers, Fishaways and Milky Lane, with each of these brands reporting robust double-digit growth. Among the established Signature brands, strong double-digit system-wide sales were delivered by tashas, Turn ’n Tender, NetCafé, Coffee Couture and Thrupps; the growth reported across these brands was derived primarily from consistent menu innovation and new restaurant openings.

In the 20-week period from the acquisition of GBK to Famous Brands’ year-end, the business contributed £35 million (R599 million) in revenue and £2 million (R36 million) in operating profit to the Group’s Brands division results. GBK’s higher system-wide and like-on-like turnover was driven by increased sales derived from online, entertainment venue restaurants and London city restaurants. Industry statistics confirm that the brand’s results outperformed the market average. Eight restaurants were opened and two revamped in the specified period.

Hele comments, “We are satisfied that the integration of GBK into the business has proceeded according to programme and are optimistic that the operation will add significant value to the Group over time.”

SUPPLY CHAIN:

The Group’s integrated Supply Chain comprises its Logistics and Manufacturing businesses. Both divisions successfully integrated higher volumes of existing business as well as new volumes arising from acquisitions.

LOGISTICS: This operation reported rewarding results, reflecting the integration of new brand business into the distribution network and a full-year contribution from Crown Mines Distribution Centre, versus 10 months in the prior corresponding period. In addition, efficiencies were improved with the significant increase in fleet size and the opening of the Long Meadow Distribution Centre, which added substantial storage capacity.

MANUFACTURING: This division’s impressive results are attributable to continued improvements across the operation with particularly strong performances recorded by the Famous Brands Cheese Company and Famous Brands Meat Company. Despite drought-related increases in beef, pork and chicken prices, the operating margin improved due to intensive cost containment achieved through enhanced efficiencies.

PROSPECTS:
The Group will remain strongly focused on growth, however Management does not envisage an improvement in the local economy in the near future, and in the UK market, continued short-term uncertainty is anticipated as Brexit negotiations proceed.

Despite this, Management will assiduously implement opportunities within the business to build scale in the Brands and Manufacturing divisions, while also remaining receptive to prospective acquisitions which align with the vision to be the leading innovative branded franchised and food services business in South Africa and selected international markets by 2020.

Hele notes, “The acquisition of GBK has been significant in furthering the Group’s goal to diversify its earnings and expand its geographic footprint and management is enthusiastic about the opportunities presented by the business and the UK market.”

Hele concludes, “Among our key priorities in the year ahead are to leverage synergies and enhance efficiencies across the Group to contain costs. Constant innovation and improvement in the business aimed at delivering unique customer experiences will remain Management’s firm intent.”

 

 

For further information:

Darren Hele
Chief Executive Officer
Famous Brands Ltd
Telephone: 011 651 5812
Frederic Cornet
Instinctif

Mobile: 083 307 8286