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Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
A2X share code: FBR
ISIN code: ZAE000053328
("Famous Brands" or "the Company")
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2023
FAMOUS BRANDS PROFILE
Famous Brands owns a portfolio of world-class brands operated by a dynamic network of franchise partners.
Famous Brands is Africa's largest restaurant franchisor known for its world-class brands, product
innovation, and long, mutually beneficial relationships
with franchise partners.
Our restaurant network
- South Africa (SA): 2 522 restaurants
- The rest of Africa and the Middle East (AME): 311 in 17 countries
- The United Kingdom (UK): 65 restaurants
Our business model comprises four core pillars: Brands, Manufacturing, Logistics and Retail. We operate
franchised, master licence and Company-owned
restaurants. The Brands portfolio is segmented into Leading (mainstream) Brands and Signature (niche)
Brands. Leading Brands are further categorised as
Quick Service and Casual Dining.
The Supply Chain comprising the Manufacturing, Logistics and Retail divisions supports our Brands' pillar
in South Africa and selected African countries.
These divisions are managed and measured independently.
FINANCIAL PERFORMANCE OVERVIEW AND COMMENTARY
Industry overview
The South African restaurant industry is under strain due to rising costs, alternative power costs and
reduced consumer spending.
South African consumers face several challenges, including political uncertainty, the ongoing water
shortage, electricity crisis, elevated food and fuel
prices and higher interest rates. Despite this background, consumers are more resilient than expected and
still spend time at restaurants. Here, restaurants
offer affordable indulgent moments as a reprieve from their daily challenges. However, with tighter
budgets, consumers do not eat out as lavishly as before.
While the supply chain challenges and inflationary pressures related to the Russia/Ukraine war have eased,
food inflation remains elevated due to load
shedding costs. Imported products such as hake and coffee were more expensive due to the weak rand. High
price increases were recorded for the key products
of chicken, eggs, pork, and vegetables. Due to unusual weather patterns and loadshedding, SA has
experienced poor harvests of potatoes from April to
October. This has led to the significant increase of input costs in our production of frozen chips.
Consumers are enticed through value deals, discounts, smaller meals with lower price points, competitions,
menu innovation and loyalty programmes. Shopping
centres, which tend to have alternative power, have recovered from their pandemic slump, with foot counts
returning. Hospital foot counts are up, which
supports restaurants in those locations. While consumers enjoy the convenience of delivery, collect and
drive thru channels, these options will never
replace the restaurant experience.
Socio-economic difficulties and service delivery failures result in growing social unrest. In August 2023,
the Western Cape experienced an eight-day taxi
strike, resulting in restaurant closures and cancelled restaurant deliveries due to transport
unavailability.
Supporting franchise partners through load shedding
Load shedding has increased significantly during the six months ended 31 August 2023 compared to the same
period in the prior year. Unlike the comparative
period, load shedding runs throughout the week, including weekends, affecting prime trading hours. At the
close of the review period, 91.3% of the Leading
Brands portfolio had alternative power solutions and experienced an increase in sales during load
shedding.
From March 2023, we have assisted franchise partners with a 1% point reduction (0.5% royalty and 0.5%
marketing) on their franchise fees for sales generated
while trading during load shedding. At the end of August 2023, the total financial relief provided to
franchise partners was just over R11.6 million. Around
18% of our sales occurred during load shedding. This relief is important to ensure the sustainability of
our franchise network.
Insurance cost increases
The 2023/2024 insurance renewal cycle fell within the review period and was challenging. The Group
property damages and business interruption (PDBI) premium
escalated at over 470% to R22 million (2023: R3,9 million excluding the aggregate deductible). These
increases are related to higher reinsurance costs and
increased risk perceptions around food facilities. We are executing a plan to secure and protect our
operating sites and assets and we have set up an
insurance cell captive to reduce our insurance costs.
Group financial performance
Despite a difficult operating environment, the Group demonstrated positive momentum in revenue growth.
Total revenue for the review period increased by 10% to R3 940 million (2022: R3 579 million). The
operating profit decreased 6% to R371 million (2022:
R393 million), and headline earnings per share decreased 7% to 199 cents (2022: 215 cents). In the review
period, Famous Brands continued to drive organic
growth while optimising the business for efficiencies and cash savings. However, the earnings are lower
than the prior period predominantly due to the
Gourmet Burger Kitchen liquidation dividends of R75 million received in the first half of 2023. Excluding
the liquidation dividends, basic earnings per
share (BEPS) is 8% up on the prior period.
The Group invested R71 million (2022: R60 million) in capital expenditure across its markets. This capital
was allocated in line with the Group's strategy,
including expansion for Leading Brands in South Africa and selected AME markets and enhancing our
Manufacturing and Logistics infrastructure.
Salient features
Revenue
UP 10%
R3.9 bn
Dividends per share
UP 6%
138 cents
Operating profit
DOWN 6%
R371 mn
Headlines earnings per share (HEPS)
DOWN 7%
199 cents
Salient features Unit Six Six %
change
months months
(August
ended ended
2023
31 31
versus
August August
August
2023 2022
2022)
Statement of profit or loss and other comprehensive income
Revenue R'million 3 940 3 579
10
Operating profit R'million 371 393
(6)
Operating margin % 9.4 11
(1.6)
Earnings before interest, taxes, depreciation and amortisation (EBITDA) R'million 472 515
(8)
Basic earnings per share (BEPS) Cents 199 259
(23)
Headline earnings per share (HEPS) Cents 199 215
(7)
Statement of cash flows
Cash generated from operations R'million 537 552
(3)
Net cash outflow utilised in investing activities R'million (58) (71)
19
Net cash inflow/(outflow) from financing activities R'million 46 (165)
128
Cash realisation rate* % 114 107
4
Statement of financial position
Cash and cash equivalents** R'million 344 317
9
Net asset value per share R'million 941 783
20
Net debt*** R'million 1 254 1 020
(23)
Net debt/equity (gearing) Times 1.33 1.30
(2)
Total equity R'million 943 785
20
* Cash generated by operations as a percentage of EBITDA.
** Excludes restricted cash related to marketing funds.
*** Total interest-bearing borrowings (including lease liabilities) less cash and cash equivalents.
Gearing
The Group's total borrowings position at 31 August 2023 was R1 265 million (2022: R1 012 million). During
the review period, Famous Brands repaid R59
million of borrowings to our primary banker. Total debt facilities unutilised at 31 August 2023 were R219
million (2022: R600 million).
In May 2023, Famous Brands secured long-term financing for its head office campus in Midrand. The property
was purchased in February 2023, initially using
cash and credit facilities for R181 million. The Group is evaluating options to develop the property, with
a suitable developer, to create a fit-for-purpose
facility.
The Group's finance costs increased by 35% (excluding the settlement of the interest rate swap in the
prior period) mainly due to cumulative interest hikes
of 275 basis points during the review period and the drawdown of our credit facility. This was slightly
offset by interest rate hedging.
NOTICE OF DIVIDEND DECLARATION NUMBER 49 AND SALIENT FEATURES
The Board has declared an interim dividend of 138 cents per share (2022: 130 cents), reflecting the
Group's stable financial position and cashflows. In
light of the challenging economic environment in which our business currently operates, we acknowledge
its impact on earnings growth. Nevertheless, we
maintain an optimistic outlook for the future. The dividend will be paid out of profits for the review
period for a total amount of R138 million.
Event dates
Declaration date Tuesday, 24 October 2023
Last day to trade "cum dividend" Tuesday, 12 December 2023
Shares commence trading "ex-dividend" Wednesday, 13 December 2023
Record date Friday, 15 December 2023
Payment of dividend Monday, 18 December 2023
Those shareholders of the Group who are recorded in the Company's register as at the record date will be
entitled to the dividend. Share certificates may
not be dematerialised or rematerialised between Wednesday, 13 December 2023 and Friday, 15 December 2023,
both days inclusive.
In terms of dividends tax legislation, the following additional information is disclosed:
- The South African dividend tax rate is 20%
- The net local dividend amount is 110.40 cents per share for shareholders liable to pay the dividends tax
and 138 cents per share for shareholders exempt
from paying the dividends tax
- The issued share capital of Famous Brands is 100 202 284 ordinary shares
- Famous Brands' tax reference number is 9208085846
OPERATIONAL REVIEW
Brands
Total revenue for the review period grew by 7% to R570 million (2022: R534 million) due to solid sales and
inflationary increases. The operating profit
improved by 7% to R220 million (2022: R206 million), while the operating margin remains stable at 38.5%
(2022: 38.6%). Leading Brands' revenue was up 8%
to R465 million (2022: R431 million), while the revenue for Signature Brands improved by 3% to R105
million (2022: R103 million).
SA
The South African consumer was more resilient than anticipated despite lower disposable income. Load
shedding hampered performance, resulting in lost
revenue. Casual Dining Restaurants, which tend to be less affected by load shedding, generally delivered
stronger performances than Quick Service
Restaurants.
Combined system-wide sales across our Leading and Signature Brands' portfolios improved by 7.8% while
like-for-like sales increased by 6.1%. Leading Brands
system-wide sales improved by 8%, while like-for-like sales grew by 5.8%. Signature Brands' system-wide
sales improved 5.4%, and like-for-like sales
improved 9.6%.
Important definitions
System-wide sales refer to sales reported by all restaurants across the network, including new restaurants
opened during the year.
Like-for-like sales refer to sales reported by all restaurants across the network, excluding restaurants
opened or closed during the year.
Leading Brands' sales refer to sales of the Leading Brands trading in SA.
Signature Brands' sales refer to franchises and Company-owned store sales in SA and cross-border sales
where the AME management team does not manage the
brand.
Leading Brands portfolio
The portfolio delivered solid results as a result of its well-established brands, value offerings, careful
menu price increases and access to alternative
power solutions. We focussed on encouraging franchise partners to implement alternative power solutions.
However, we have lost sales where alternate power
solutions are unavailable. Consumers have lower discretionary spending, as seen in the slowdown in
transaction size growth.
Signature Brands portfolio
The Signature Brands portfolio had a mixed performance due to increased load shedding, closing of
non-performing restaurants and consumers with low
disposable incomes. Evening trade has not recovered to pre-pandemic levels. The captive market segment
recovered strongly as hospital environments attracted
increased footfall.
AME
System-wide sales increased by 15.3% while revenue increased 11% to R227 million. The operating profit was
marginally higher at R13 million (2022: R11
million), and the operating profit margin improved to 5.7% (2022: 5.3%). Several African markets contend
with high inflation due to political instability,
poor economic policies and external shocks. The outbreak of war in Sudan has forced the temporary closure
of all restaurants in that country. The home
delivery channel gained momentum in several countries with several new consumer-facing technology projects
implemented.
UK
Operating conditions in the UK continue to be difficult due to economic pressures, inflation and low
consumer confidence. Revenue in rand terms increased by
18% to R83 million (2022: R71 million). The operating profit improved to R10 million (2022: (R20
million)). The operating profit margin improved to 12%
(2022: (28.1%)1).
1 The operating margin for 2022 was negatively impacted by a goodwill impairment of R31 million.
Vertical integration
Manufacturing
Manufacturing turnover increased by 12% to R1.6 billion (2022: R1.4 billion) due to good volumes and some
inflationary increases. Operating profit declined
by 5% to R135 million (2022: R143 million), with increased costs related to increased generator usage,
higher food prices and insurance premium increases.
The operating margin declined to 8.4% (2022: 9.9%).
Logistics
Logistics turnover increased by 9% to R2.5 billion (2022: R2.3 billion), driven by cases growth and price
inflation. Operating profit achieved was similar
to prior period at R46 million (2022: R46 million). The operating margin declined to 1.9% (2022: 2.1%),
mainly due to the R10.8 million civil unrest
insurance settlement received in August 2022.
Retail
The Retail division's revenue increased by 54% to R187 million (2022: R121 million), while the operating
profit improved by 179% to R1.6 million (2022: (R2
million)). This improved profitability is due to increased sales volumes, expanded distribution and
exceptional frozen chip sales. The division launched
two new products during the review period. There were no unusual product write-offs during the period
under review compared to the prior period.
OUTLOOK
We have a strong position due to our world-class brands and the buying power and agility offered by our
integrated Supply Chain.
While we expect the remainder of the 2024 financial year to be challenging, we are optimistic that we have
the right brands and strategy to grow, win market
share and improve our margins. Our Leading Brands new restaurant roll out plan will gain momentum,
including a drive to boost our drive thru presence. In
addition, we are investing in consumer technology and delivery hubs to improve our own home delivery
capabilities.
Franchise partner sustainability remains critical. We will support franchisees by offering a lower royalty
rate during load shedding. We will work with
franchise partners to ensure that they have access to alternative power solutions. We are confident that
95% of Leading Brands restaurants will have these
in place by year-end. This should support a sales recovery.
We are bullish about our prospects in the AME region. Here, we will cautiously enter three new markets
(Cote d'Ivoire, Egypt and the Democratic Republic of
Congo) with the Debonairs Pizza and Steers brands. We will split the management structure for AME so that
the Southern African Development Countries (SADC)
are managed by the Leading Brands team in South Africa. The rest of Africa will be managed out of the
Middle East. This will refocus our attention on those
countries where we need to build our brands and networks.
In our Manufacturing division, we will drive operational efficiencies, manage our cost base, improve
product quality and reduce our environmental footprint.
We will develop our procurement capability to provide competitive value for our manufacturing plants and
franchise partners.
We will execute our strategy to optimise our Logistics footprint. This includes investing in new cold
storage facilities to allow us to relocate our
Gauteng Cold Storage Centre to Midrand.
While the retail trading environment is competitive, our strong brand names and quality products will
allow this division to expand. We plan to introduce 12
new product lines in the 2024 financial year.
Subsequent events
Famous Brands reached a mutual agreement with the licensee to close 8 restaurants operating in the
Sultanate of Oman.
With effect from 16 October 2023, Famous Brands has acquired an interest in an associate, Munch Software
(Pty) Ltd. The business is a recent entrant in the
Point of Sale software industry, offering a modern and agile cloud-based platform. This new partnership
will enable Famous Brands to achieve its ambitions
to digitise the restaurant management technology ecosystem and assist the Munch business in reaching
critical mass. The transaction falls below the
threshold for categorisation and therefore there is no requirement for an announcement in terms of the JSE
Listings Requirements.
On behalf of the Board
SL Botha DP Hele
Chairman Chief Executive Officer
Midrand
24 October 2023
Full announcement and Forward looking statements disclaimer
The contents of this short form announcement are the responsibility of the Board and have not been
reviewed or reported on by the Group's external
auditors. Shareholders are advised that this short form announcement represents a summary of the
information contained in the full announcement, published
on https://senspdf.jse.co.za/documents/2023/jse/isse/fbr/hy_24.pdf and on Famous Brands' website at
www.famousbrands.co.za on 24 October 2023, and does not
contain full or complete details of the financial results. Any investment decisions by investors and/or
shareholders should be based on consideration of the
full announcement as a whole and shareholders are encouraged to review the full announcement. The full
announcement is also available for inspection at the
registered office of the Company and at the offices of Famous Brands' sponsor, The Standard Bank of South
Africa Limited. Inspection of the full
announcement is available to investors and/or shareholders at no charge during normal business hours.
ADMINISTRATION
Directors
Norman Adami, Santie Botha (Independent Chairman), Chris Boulle, Nik Halamandaris, Darren Hele (CEO)*,
Alex Maditse, Busisiwe Mathe, Thabo Mosololi, William
Mzimba, Fagmeedah Petersen-Cook and Nelisiwe Shiluvana (Group FD)*.
* Executive
Group Company Secretary
Celeste Appollis
Registered Office
478 James Crescent, Halfway House, Midrand, 1685 | PO Box 2884, Halfway House, 1685
Telephone: +27 11 315 3000 | Email: investorrelations@famousbrands.co.za | Website address:
www.famousbrands.co.za
Transfer Secretaries
Computershare Investor Services Pty Limited
Registration number: 2004/003647/07 | Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 Private Bag
X9000, Saxonwold, 2132
Sponsor
The Standard Bank of South Africa Limited | Registration number: 1969/017128/06 30 Baker Street, Rosebank,
2196
Auditors
KPMG | Registration number: 1999/012876/07 | 85 Empire Rd, Parktown, Johannesburg, 2193
Contact information
Tel: +27 11 315 3000
investorrelations@famousbrands.co.za | companysecretary@famousbrands.co.za
478 James Crescent Halfway House, South Africa, 1685
www.famousbrands.co.za
