{"id":2972,"date":"2022-06-18T18:35:47","date_gmt":"2022-06-18T16:35:47","guid":{"rendered":"https:\/\/famousbrands.co.za\/iar2022\/leadership-commentary\/group-financial-directors-report\/"},"modified":"2022-06-23T08:57:40","modified_gmt":"2022-06-23T06:57:40","slug":"group-financial-directors-report","status":"publish","type":"page","link":"https:\/\/famousbrands.co.za\/iar2022\/leadership-commentary\/group-financial-directors-report\/","title":{"rendered":"Group Financial Director\u2019s report"},"content":{"rendered":"<\/section>\n<\/article>\n<\/div>\n<\/div>\n<\/div>\n
\n
\n
\n
\n

The Group\u2019s financial performance recovered in varying degrees across SA, AME and the UK. <\/p>\n

Famous Brands is beginning to see the benefits of a local economic recovery combined with a gradual reduction of COVID-19<\/keep> restrictions. These results reveal a return to profitability, an improvement in cash generation and a strengthened balance sheet.<\/p>\n<\/p><\/div>\n

\n \"\"\n <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n
\n \"\"<\/p>\n
\n
\n

The operating environment has improved, however, the Group had to carefully navigate the impact of COVID-19<\/keep>, general countrywide civil disruptions, rising inflation and constrained consumer spending.<\/p>\n

Within this context it was another difficult year, however, the Group delivered resilient financial results. We continued to deliver against our stated financial objectives of improving our financial performance and optimising our capital management. The key focus was to control our costs and reduce our interest-bearing debt to facilitate greater balance sheet flexibility.<\/p>\n

COVID-19<\/keep> continued to have a pronounced impact on restaurant operations with restrictions including reduced operating hours, alcohol sales and seating limits. Famous Brands supported franchisees through reduced royalties and marketing fund contributions.<\/p>\n

Revenue: Continuing operations<\/h2>\n

Revenue improved by 38% to R6.5 billion<\/keep> (2021: R4.7 billion)<\/keep>. This increase can be attributed to improved trading conditions across our markets due to less stringent COVID-19<\/keep> restrictions. Revenue is currently in line with 2020 levels, although the mix is different. <\/p>\n<\/p><\/div>\n

\n
\n

Key features of 2022 <\/p>\n

Strong signs of recovery<\/b><\/p>\n

We are seeing a recovery across our Brands and Supply Chain. <\/p>\n

Renegotiated debt facilities<\/b><\/p>\n

In the 2021 financial year, we renegotiated our debt facilities to take cognisance of the difficult and challenging operating environment. We have observed the benefits of a more appropriate debt structure in the 2022 financial year. <\/p>\n

Deleveraging the balance sheet<\/b><\/p>\n

We have delivered on our commitment to significantly reduce debt by focussing on cash
\n flow generation. <\/p>\n

Strengthening internal controls<\/b><\/p>\n

Risk, Internal Audit and Finance have collaborated to improve financial controls throughout the Group. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

<\/div>\n<\/p><\/div>\n

Logistics experienced a strong rebound due to increased trading activity from the Brands division in SA. Logistics revenue increased by 35% to R4.1 billion<\/keep> from R3 billion<\/keep> in the prior year.<\/p>\n

Franchise fees revenue increased 43% to R918 million<\/keep> from R644 million<\/keep> in the prior year, reflecting improved restaurant turnovers. Leading Brands contributed 96% or R882 million of this revenue, an improvement of 42% year on year. Signature Brands revenue was R36 million, an improvement of 66% year on year.<\/p>\n

Company-owned stores revenue improved by 36% to R447 million compared with R328 million<\/keep> in the prior year, reflecting higher trading activity and improving restaurant turnovers. Leading Brands contributed 76% or R338 million<\/keep> of this revenue, an improvement of 23% year on year. Signature Brands revenue was R109 million, an improvement of 101% year on year.<\/p>\n

Manufacturing revenue increased by 9% to R222 million compared to prior year of R204 million. <\/p>\n

The Retail division, which supplies SA supermarkets with branded licensed products, continued to experience strong sales thanks to growing consumer demand, new products and expanding distribution. Retail revenue was R222 million, an improvement of 47% over prior year revenue of R151 million. <\/p>\n

\n \"\"\n <\/div>\n

Operating profit and margin<\/h2>\n

Due to a recovery in our business, the Group\u2019s operating profit improved 428% to R630 million (2021: R119 million). However, margins remain under pressure.<\/p>\n

While our operating profit margins have improved across our trading markets, margins have not reached pre-COVID-19<\/keep><\/keep> levels. The Group\u2019s overall margin was 9.7% (2021: 2.5%)<\/keep>. In SA, our margin improved to 10.1% (2021: 1.8%)<\/keep>. The AME region recorded an improved margin of 9.9% (2021: 9.5%)<\/keep>. The UK\u2019s operating profit and margin lifted slightly from 2021 however remains under pressure at (6.1%) after impairments.<\/p>\n

\n \"\"\n <\/div>\n

Other income<\/h2>\n

Income from associates
\n<\/h3>\n

The Group holds equity shareholding in the following associates: Sauce Advertising (37%), UAC Restaurants (Mr Bigg\u2019s) in Nigeria (49%), FoodConnect (49%) and DHQ (48.5%). Our profit from associates was R260 000 (2021: R4.8 million).\n<\/p>\n

Profit attributable to non-controlling interests
\n<\/h3>\n

Non-controlling interests are interests the founders of key businesses hold in our Manufacturing division and
\nSignature Brands portfolio. The share of profit for non-controlling interests increased to R38 million<\/keep> (2021: R23 million)<\/keep>. In 2022, we purchased the non-controlling shareholder interests from the founders of Turn \u2019n Tender and LUPA Osteria.\n<\/p>\n

Headline earnings per share and earnings per share for continuing operations
\n<\/h2>\n

Headline earnings per share improved by 568% or 356 cents (2021: 53 cents)<\/keep>, while basic earnings per share improved to 317 cents (2021: (127) cents)<\/keep>.<\/p>\n

\n \"\"\n <\/div>\n\n\n
*<\/sup><\/td>\nCash generated by operations as a percentage of EBITDA.<\/td>\n<\/tr>\n<\/table>\n

Net cash inflow from operating activities
\n<\/h3>\n

The Group\u2019s cash generation capacity has recovered with cash generated from operations of R871 million (2021: R521 million)<\/keep>, with a cash realisation rate of 102% (2021: 108%)<\/keep>. Net working capital increased slightly by R10 million (2021: R9 million)<\/keep> due to investment in raw materials to support increased revenue. We continue to benefit from the stringent working capital management measures implemented due to COVID-19<\/keep>. The Group\u2019s net cash inflow from operating activities was R533 million<\/keep> (2021: R285 million)<\/keep>. <\/p>\n

Our cash flow forecasts show that the Group\u2019s overall liquidity has significantly improved and is adequate to meet our working capital investment requirements and operational needs for the foreseeable future.<\/p>\n

\n
\n

Net cash outflow from investing activities
\n <\/h3>\n

In 2021, we froze all non-critical capital investments due to COVID-19<\/keep>. In 2022, we began to re-invest in our business, including non-critical maintenance and repairs in our Manufacturing and Logistics divisions. Capital expenditure (capex) increased to R140 million<\/keep> (2021: R84 million)<\/keep>.<\/p>\n

Net cash outflow from financing activities<\/h3>\n

The net cash outflow from financing activities was R433 million (2020: R322 million)<\/keep>. The increase in outflow was primarily due to increased borrowings repayments in the year of R358 million<\/keep>. The Group\u2019s closing net cash position was R333 million<\/keep> (2021: R352 million)<\/keep>. The definition for cash and cash equivalents has been revised to exclude restricted cash i.e. cash ring-fenced<\/keep> and used for marketing purposes.<\/p>\n<\/p><\/div>\n

\n \"\"\n <\/div>\n<\/div>\n
\n \"\"\n<\/div>\n

Financial position
\n<\/h2>\n

The Group\u2019s balance sheet is sound with net assets of R721 million<\/keep> (2021: R391 million)<\/keep>. This represents a net asset value per share of R7.19 (2021: R3.90)<\/keep>. The Group\u2019s gearing improved to 1.56 times (2021: 3.75 times)<\/keep> and our leverage to 1.32\u00a0times (2021: 3.04 times)<\/keep> mainly due to the return to profitability. Our return on capital employed was 29% (2021: 5%)<\/keep>.\n<\/p>\n

\n \"\"\n<\/div>\n\n\n\n\n
*<\/sup><\/td>\nTotal interest-bearing borrowings (including lease liabilities) less cash and cash equivalents.<\/td>\n<\/tr>\n
**<\/sup><\/td>\nHeadline earnings as a percentage of average shareholders\u2019 interest. <\/td>\n<\/tr>\n
***<\/sup><\/td>\nOperating profit divided by the average capital employed (which is calculated as the sum of total equity and interest-bearing debt and lease liabilities).<\/td>\n<\/tr>\n<\/table>\n

Gearing and debt structure<\/h3>\n

In 2016, the Group made a series of acquisitions, resulting in considerable long-term structured debt on the balance sheet. The Group has a robust programme in place to:<\/p>\n