Chairman’s statement

Our strength lies in our ability to learn, adapt and respond to changing trading conditions.

As a Board, we are pleased with the performance of the Group in 2023. We improved across our major financial metrics. Our portfolio of brands, especially our Leading Brands, held their own to endure the COVID-19 pandemic and continue to grow and generate good cash flows. We remain a relatively capital light business with strong cash generation capabilities.

We recognise that our future growth will come mainly from this portfolio in South Africa as well as from focused expansion in selected other markets. A difficult operating environment means that we will continue to evaluate our Group portfolio of brands, including our Signature Brands portfolio. These are strong brands with inherent potential, but they operate in the Casual Dining Restaurant category, not yet fully recovered from the impact of the COVID-19 pandemic.

Applied governance at Famous Brands

At Famous Brands, we put our franchise partners and our business-to-business clients at the centre of the business.

Small businesses under pressure

South Africa’s economic outlook remains lacklustre, with the biggest risk to small business owners being the acute and ongoing power shortage. Not only was this the worst year of load shedding in South African history, but it was the first year that most load shedding^* was at Stage 4, not Stage 2 as before. Some franchise partners are also operating without regular access to water. In addition, rising interest rates and persistent inflation has meant a rise in the cost of living and increased pressure on consumer wallets.

Restaurants are highly exposed to load shedding. In these difficult economic conditions, the added support that our franchise partners access from Famous Brands makes a real difference to their bottom line. This is a very difficult market to be in as a standalone operator. In 2023, our support included assisting our franchise partners in renegotiating better rental terms with landlords, including better terms for pandemic-related arrear payments. For our Quick Service Restaurant brands, we enhanced our applications and online sites to drive higher volumes through our own delivery channel. We continue to see an opportunity in delivery and especially own delivery.

We acknowledge that pricing remains critical in the products we sell to our franchise partners and the menu prices to the end consumer. At Famous Brands, we consider our menu pricing carefully to strike a good balance between being competitive and maintaining a healthy level of franchisee profitability.

As load shedding persists into 2024 and with potentially difficult winter months ahead, we will continue to offer our South African franchise partners support to ease the burden of load shedding where and when needed. We believe this is essential to ensure the long-term sustainability of our Group.

Read more about how we manage the franchise partners’ relationship.

Taking our Supply Chain to the next level

In the last year, we have made significant improvements to our Supply Chain. These enhancements have meant that our Supply Chain is more focused, modernised and serves our franchise partners better. In our Manufacturing arena, we are reaping the benefits of the ‘Manufacturing Way’ programme, which was first established in 2020. These improvements to processes and technology make us more resilient in the face of rising input costs. For example, machine-to-person interfaces across several of our plants allow for better tracking of production time, trends and challenges.

In our Logistics division, our medium-term plans are bearing fruit. In 2023, we relocated our KwaZulu-Natal Distribution Centre to a larger site better suited to our needs. In addition, we purchased our Midrand Campus, intending to redevelop the site to accommodate and expand our Johannesburg cold storage facilities. In time, we will realise greater efficiencies and cost savings from this investment.

In our Retail division, we continue to develop and refine our products. The Wimpy chips and hash browns range, launched in August 2022, has exceeded all expectations to take a category leadership position. The products are valuable brand extensions, and we have exciting plans to grow our geographic footprint and volumes.

Read more about our Supply Chain’s performance in 2023 in our operational review.

Leading in transformation

We view transformation as a social, moral and strategic business imperative. We foster a more equal and inclusive society through the ongoing transformation of our business and initiatives that improve the lives of previously disadvantaged South Africans.

As we place high importance on the value of transformation, it was especially gratifying to receive Level 2 B-BBEE status when we were assessed in August 2022. This is a notable improvement from level 4 in 2022. This status means that we contribute to transforming South Africa and have positively impacted thousands of lives, including our employees, Black-owned suppliers and the beneficiaries of our socio-economic development programmes.

I thank our Group Transformation Manager and executive leadership team for diligently working towards this achievement for several years. I also thank the Social and Ethics Working Committee and the Board’s Social and Ethics Committee for their guidance on transformation matters. The challenge going forward is maintaining this status, regardless of changes to B-BBEE legislation.

Read more in our transformation report.

Our sustainability journey

Sustainability is a business imperative for the food services industry. This includes where and how we source our products, the type of packaging we use, how we consider our consumers’ health and how we support the circular economy through recycling. Since 2019, we have been on a journey to improve our sustainability performance, with steady yearly improvements. For example, implementing more environmentally friendly packaging across our brands, has reduced our annual plastic consumption by 108.9 tonnes.

In 2020, we began contributing towards the United Nations SDGs and selected the five most relevant SDGs for our business. In 2022, management and the Social and Ethics Committee approved targets for each SDG.

This year, our teams worked hard to integrate these targets into our business practices and we are reporting our progress against our SDG targets for the first time. We have made satisfactory progress. For example, against SDG 12: Ensuring sustainable consumption and product patterns, a simple change, like removing single-use plastic wrapping on biscuits, can eliminate tonnes of potential plastic waste. There are several plastic reduction projects in the pipeline for 2024.

Read more about our sustainability journey.

Every business must work towards becoming energy independent.

Review of executive incentives

As part of its annual review of executive remuneration, the Remuneration Committee appointed an external consulting firm to conduct a detailed analysis of the LTI share scheme to determine whether it remains relevant, appropriate and in line with best practice. The committee concluded that full-value share-based plans, with the ability to vary performance conditions per award cycle, align better with leading market practice and King IV.

In April 2023, we issued a circular that detailed our proposed redesigned long-term share incentive plan. The share plan intends to attract, retain and reward key senior management employees by granting them shares in Famous Brands. The committee considered the balance between the implementation cost of the share plan and the dilution of current shareholders.

The share plan aligns senior management with the interests of our shareholders. The share plan was approved by shareholders at the general meeting held on 23 May 2023 and will replace the existing LTI. We believe that the share plan is easier to understand, is fit for purpose and supports the business objectives in its lifecycle.

Read more in our remuneration report.

Succession planning is a major priority for the Board both at executive and non-executive level.

In December 2022, we announced that Deon Fredericks, our Group Financial Director on a two-year fixed term, will retire on 31 July 2023. Deon will also be stepping down as a Board member, a position he has held since August 2018. He will be replaced by Nelisiwe Shiluvana, who assumed the role of Group Financial Director-designate on 1 January 2023.

Deon, who has had a distinguished corporate career, including Chief Financial Officer roles at Telkom and South African Airways has made an immense contribution to Famous Brands as a Board member and Group Financial Director. He brought maturity and experience to the finance division and reshaped the function to be more streamlined, focused and effective. We thank Deon for his time at Famous Brands and wish him the best for the future.

Deon was also tasked with finding a successor and we believe that Nelisiwe is an excellent choice. Nelisiwe, who joined the Group in October 2021, is a Chartered Accountant and has played a critical role in supporting Deon to strengthen the Group’s financial skills and capabilities. She was a partner and director at EY for several years.

Changes to the Board

In February 2023, Thabo Mosololi joined the Board as an independent non-executive director and a member of the Audit and Risk Committee. Thabo is a Chartered Accountant who has held several leadership positions in various organisations, including Tsogo Sun and Sun International. In addition, he has held audit committee and board memberships at Edcon Holdings, Telkom and MC Mining Ltd. He is a non-executive director at Truworths Ltd and Pan African Resources Ltd, and managing director of Mala Mala Game Reserve.

Thabo is a well-rounded business leader with extensive hospitability experience, and we look forward to his contributions.

John Halamandres, a long-standing non-executive director, will retire from the Board after the Annual General Meeting on 20 July 2023. John was appointed to the Board in November 1994 and held the roles of Managing Director and CEO at Famous Brands. As a founding member of the Company, he has played an important role in the Group’s success and continued evolution. We are thankful for his dedication to the Group over several decades and wish him well with his retirement.

Thank you John Halamandres for your incredible dedication to our continued success. You have been an integral part of the Famous Brands family for several decades and your contributions will be missed.

Appreciation

I thank our franchise partners for their continued faith in our brands and business model. Many of our franchise partners have been with the Group for many years, and growing and developing our brands with them is a privilege.

I thank Darren Hele for his exceptional leadership and positive influence on the business. He is a hands-on leader who is both strategic and operationally very strong. He has been with Famous Brands for over 20 years and together with his experienced executive team have steered the Group with aplomb.

I thank my fellow Board members for their commitment, wisdom and insights throughout the past year. Also, thank you to all our employees, shareholders, suppliers and other stakeholders for contributing to our success in the past financial year.

Santie Botha

Chairman

21 June 2023