Famous Brands delivers robust results, with unwavering focus on building brand, manufacturing and logistics capability

FAMOUS BRANDS LIMITED (Incorporated in the Republic of South Africa) (Registration number 1969/004875/06) Share code: FBR ISIN code: ZAE000053328 (“Famous Brands”) REVENUE Up 16% to R1.38 billion HEADLINE EARNINGS PER SHARE Up 20% to 180 cents CASH GENERATED BY OPERATIONS Up 23% to R254 million DIVIDENDS PER SHARE Up 20% to 130 cents
Famous Brands has reported robust results for the six months ended 31 August 2013. Chief Executive, Kevin Hedderwick says, “This strong performance is attributable to the Group’s unique vertically integrated business model designed to leverage opportunities across its brands, logistics and manufacturing operations, and the deliberate strategy to provide a total food service solution across most LSM categories. Our sought-after brands which are strategically populated across the South African landscape, with an ever-growing presence across the rest of Africa, continue to build a loyal following – in the process driving the back-end of our business as well. Hedderwick comments that despite subdued macro-economic conditions, the fast food industry remained relatively buoyant and the incidence of usage continues to grow. He notes, “Industry statistics* reveal that the percentage of South African consumers aged 16+ who bought fast food over a four week period has increased from 65% (20.4 million) in 2008 to 78% (26.5 million) in 2012.” FINANCIAL RESULTS: Group revenue increased by 16% to R1.38 billion (2012: R 1.18 billion), while operating profit grew by 23% to R254 million (2012: R207 million). The operating margin rose to 18.4% (2012: 17.5%). Improved profitability was derived from economies of scale achieved across the business and prudent cost containment. Basic earnings per share (“EPS”) and headline earnings per share (“HEPS”) both increased by 20% to 180 cents per share (2012: 150 cents per share). Diluted EPS rose 22% to 179 cents (2012: 147 cents per share), while diluted HEPS improved by 22% to 180 cents per share (2012: 147 cents per share). An interim gross dividend of 130 cents (2012: 108 cents) per ordinary share has been declared. OPERATIONAL REVIEWS FRANCHISING: The Group’s footprint as at 31 August 2013 comprised 2 180 restaurants across Africa, the Middle East, India and the United Kingdom (“UK”). SOUTH AFRICA: Total revenue reported by this division increased by 16% to R261 million. Operating profit rose 21% to R158 million, with a strong improvement in the operating margin to 60.7% from 57.9%. System-wide sales (including new restaurants) grew 14.9% while same store sales increased 8.5%. “Improved like-on-like sales were reported across the Group’s portfolio of 23 brands, (with the exception of three niche brands that are currently undergoing further development), underlining our deliberate ‘total food service solution’ strategy,” says Hedderwick. During the six months, expansion of retail property developments was subdued; in this context, 53 (2012: 51) new restaurants were opened across the South African network. Hedderwick states, “Increased expansion activity is forecast for the second half of the year and the Group plans to open a further 115 restaurants within its home market.” REST OF AFRICA, MIDDLE EAST AND INDIA: Revenue reported by this division increased 36% to R23 million. Operating profit grew 57% to R9 million. System-wide sales improved by 30.4%, while like-on-like sales rose 15.7%. This territory now contributes 8.2% (2012: 7.3%) of total system-wide sales (excluding the UK operation). Ten restaurants were opened in the rest of Africa region during the period, and a further 23 are planned for the balance of the year. UNITED KINGDOM: “Early signs of an economic improvement in the UK food services industry became evident during the period. While consumers remained value conscious, they continued to support established brands with tried and tested offerings,” Hedderwick comments. The Group’s UK operation delivered revenue of R44 million, in line with the prior year. Operating profit grew by 72% to R4.7 million. This disproportionately high profit is a function of right-sizing the business and the benefit of foreign currency translation improvements during the period. This division remains a very small component of the Group’s business, comprising less than 3.3% of total revenue. SUPPLY CHAIN: Consolidated revenue increased by 17% to R1.05 billion, while operating profit rose 22% to R81 million. The operating margin was 7.7% (2012: 7.4%). MANUFACTURING: Revenue increased by 33% to R414 million, whilst operating profit grew by 17% to R47 million; the relatively lower profit to revenue ratio is a function of start-up costs at the Coega Cheese facility. The operating margin was 11.4% (2012: 13.0%). Hedderwick says, “Capital expenditure of R15 million was incurred, building manufacturing capability across a number of the Group’s plants in order to increase capacity and or improve yields and efficiencies.” He adds, “During the period the Famous Brands Coffee Company successfully took on the supply of coffee for the Group’s Mugg & Bean, Fego Caffe, Europa and The Bread Basket brands.” LOGISTICS: Revenue grew 15% to R982 million, while operating profit rose 30% to R34 million. The disproportionately higher profit to revenue ratio is due to the inclusion for the first time of supply to the recently acquired Fego Caffe, Europa, The Bread Basket and Turn ‘n Tender franchised businesses. Despite the impact of fuel price volatility, the division managed to improve the operating margin to 3.4% (2012: 3.1%). PROSPECTS: Hedderwick says, “Consumer disposable income will continue to be constrained, and competition amongst industry participants is likely to accelerate. Margin pressure will remain a feature as fuel and food inflation continue to rise.” “However,” he elaborates, “despite these factors, the food services category remains a robust one. Industry statistics* predict that consumption of fast food (as viewed over a four week period) is expected to increase by a compound annual growth rate of 5.2% to 34.1 million consumers in 2017 up from 20.4 million consumers in 2008. In this context and by virtue of its offerings, the Group remains optimistic regarding its future growth.” Hedderwick notes, “Famous Brands is well positioned to capitalise on any available disposable income over the forthcoming period which includes the peak summer holiday trading period. The Group’s brands are represented at all major consumer hubs, ranging from suburban shopping malls, casinos, coastal resorts and airports to national road transit sites and outlying rural areas. This accessibility to potential customers has been enhanced with the recent awarding of the food service licence at a range of Kruger National Park sites including Pretoriuskop, Satara and Letaba (Wimpy), and Lower Sabie and Olifants (Mugg & Bean).” He adds, “The rest of Africa offers good growth opportunities as the shift from informal to branded food service offerings becomes entrenched. The Group’s recent investment in Nigeria exemplifies its conviction that this region will become increasingly significant to the business over time.” “Management is mindful that a continued focus on product innovation, value, quality, service, trading formats and break-through communications will be critical in retaining its market leadership position, and I am satisfied that the appropriate teams and structures are in place to do so,” concludes Hedderwick. *Source: Analytix Consumer Analysis     Notes to editors:
The Group’s brand portfolio at end of August 2013 comprised 2 180 restaurants, namely: Steers (543), Wimpy including UK (626), Debonairs Pizza (420), FishAways (151), Mugg & Bean (144) and emerging brands (296) including tashas, House of Coffees, Brazilian Cafe, Giramundo, KEG, McGinty’s, Vovo Telo, O’Hagan’s, Milky Lane, Juicy Lucy, The Brewers Guild, Creative Coffees, Net Cafe, Europa, Fego Caffe, Turn ‘n Tender and The Bread Basket. The Group also manufactures and supplies its franchisees and the retail trade with a wide range of meat, sauces, spices, cheese, bakery, ice cream, fruit juice, mineral water, coffee and other hot beverage 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