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Famous Brands Limited (JSE:FBR) News - Summarised interim financial results for the six months ended 31 August 2021
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN code: ZAE000053328
SUMMARISED INTERIM FINANCIAL RESULTS
for the six months ended 31 August 2021
ABOUT FAMOUS BRANDS
Famous Brands is Africa's leading branded food services franchisor.
The Group owns several well-known brands supported by a vertically integrated business model and operations on three continents. Famous Brands is listed on
the JSE in the Travel and Leisure sector.
Our portfolio of market-leading brands offers a powerful business proposition to franchise partners and a high-quality solution across a diverse range of
dining occasions to consumers across income groups. The Brands portfolio consists of 19 restaurant brands, represented by 2 813 restaurants across South
Africa (SA), the rest of Africa and the Middle East (AME) and the United Kingdom (UK). The portfolio is segmented into Leading (mainstream) Brands and
Signature (niche) Brands. Leading Brands are further categorised as Quick Service restaurants and Casual Dining restaurants.
FINANCIAL HIGHLIGHTS
Revenue
R3.0 billion up 50%
Headline earnings per share
97 cents up 140%%
Operating profit
R222 million up 302%
Operating profit margin
7.4% up 12.9
FINANCIAL PERFORMANCE OVERVIEW AND COMMENTARY
Industry overview
COVID-19 has forced restaurants to adapt quickly and changed the way consumers experience dining.
Some of these shifts include the adoption of contactless technology, a rise in take away and delivery sales, a preference for outdoor dining, adjusted
staffing levels, and menu rationalisation.
Trading activity remains muted due to COVID-19 restrictions related to sit-down dining, travel, seated capacity, trading times and alcohol sales. Research
indicates that fear of contracting COVID-19 is a first or second barrier to consumers eating at a sit-down restaurant. This has led to a dramatic rise in
take-away and delivery channels.
Consumers remain under financial pressure in most markets, and many can no longer eat out or increasingly seek value purchases. As consumers work from home,
they tend to cut back on the frequency of eating at Casual Dining restaurants.
Responding to consumer trends to draw foot traffic and boost revenues:
- Re-engineering menus to simplify restaurant operations and ensure high quality take away products
- Keeping menu price increases below food inflation and focusing on value for money propositions
- Reduced trading hours has required a renewed focus on breakfast and lunch promotions
- Embracing take away and delivery, including kerbside pick-up, own delivery, third-party delivery, order ahead options and increasing drive-through capacity
- Reassuring customers regarding our stringent COVID-19 health and safety protocols
- Maintaining the highest brand and quality standards to offer a superior customer experience
Group performance
The Group's performance recovered in varying degrees across SA, AME and the UK compared to the prior comparable period. This recovery was slowed by SA's
civil unrest, COVID-19 restrictions and poor economic conditions.
Total revenue for the review period increased by 50% to R3 004 million (2020: R2 009 million). Compared to 2019, revenue was down 22% from R3 862 million.
The operating profit increased 302% to R222 million (2020: R(110) million), and the headline earnings per share increased by 140% (2020: (271)%). Compared
to 2019, operating profit was down 41% (R376 million) and headline earnings by 31%.
Salient features Six Six %
months months change
ended ended (H1 2022
31 August 31 August versus
Unit 2021 2020 H1 2021)
Net asset value per share Cents 470 464 1.2
Basic earnings/(loss) per share Cents 96 (1 535) 106
Revenue R'million 3 004 2 009 50
Headline earnings/(loss) per share (HEPS) Cents 97 (240) 140
Operating profit/(loss) before non operational items R'million 222 (110) 302
Discontinued operations
Gourmet Burger Kitchen ('GBK') became a discontinued operation when it was placed into administration in terms of the UK Insolvency Act on 14 October 2020,
and was accounted for accordingly in the Group's results for the year ended 28 February 2021. For the six months ended 31 August 2020, GBK was still part
of the Group's continuing operations.
Gearing
Total borrowings position at 31 August 2021 was R1.4 billion (2020: R1.6 billion) and Famous brands repaid net borrowings of R104 million for the
period under review. Total debt facilities available at 31 August 2021 was R725 million.
Operational review
Brands
Total revenue for the review period increased by 119% to R406 million (2020: R186 million). Leading Brands revenue was up 114% to R345 million (2020: R161
million), while Signature Brands revenue improved 146% to R61 million (2020: R25 million). The operating profit was R134 million (2020 R4 million), and the
operating margin increased to 33.0% (2020: 2.3%).
Across our Leading and Signature Brands, combined like-for-like sales increased by 75.6%. Leading Brands' system-wide sales improved by 76.4%, while
like-for-like sales grew by 71.7%. Signature Brands' like-for-like sales improved 149.1%.
System-wide sales: Sales reported by all restaurants, including new restaurants opened during the period.
Like-for-like sales refer to sales reported by all restaurants, excluding restaurants opened or closed during the period.
Leading Brands' sales refer to sales of the Leading Brands trading in SA.
Signature Brands' sales refer to franchise and Company-owned store sales in SA as well as sales cross border where the brand is not managed by the
AME management team.
South Africa
The local restaurant industry faces headwinds due to COVID-19 restrictions, consumer apprehension regarding eating out and poor economic conditions.
For the first three months of the financial year, capacity was limited to 100 people or 50% of the available capacity. For the second three months, the
capacity limit was 50 people. Sit-down dining was not permitted for the first two weeks of July. Alcohol and trading time restrictions due to curfews
further dampened performance.
Impact of July's unrest on SA operations
Civil unrest occurred in South Africa's KwaZulu-Natal and Gauteng provinces from 9 to 18 July 2021, and several Famous Brands' and franchisee properties
were damaged. The Group's logistics facility in Westmead was damaged and was closed for three weeks before it resumed full operations. Through the
activation of our business continuity plan, we delivered to restaurants in the affected areas.
Famous Brands provided ongoing support to franchise partners where required in the form of royalty relief, assistance with insurance claims and bridging
finance between restoration and insurance payouts.
Gauteng and KwaZulu-Natal civil unrest 9 - 18 July 2021
109 stores damaged by looting
99 restaurants were rendered non-operational
1 logistics facility damaged
55 stores opened by end August 2021
An estimated 4 111 trading days lost in July and August 2021
Leading Brands portfolio
Leading Brands delivered improved results, despite continued COVID-19 restrictions and challenging economic conditions. The investment in own delivery
capability has paid off. Quick Service restaurants continued to outperform Casual Dining restaurants.
Leading Brands has strengthened its strategic partnership with third-party delivery platforms, ensuring that brands are present in all key marketplaces.
New restaurants 50
Revamps 41
Closures 19
Signature Brands portfolio
Our Signature Brands are particularly impacted by COVID-19 restrictions such as curfews, capacity reductions and alcohol restrictions. While sales improved,
they do not compare favourably with pre-pandemic levels.
NetCafe, Coffee Couture and Fego Caffe, operating in the hospital and captive market segment, struggled due to hospital visitor number restrictions. A pilot
project with Pick n Pay was conducted where the captive market team manages coffee kiosks in stores, with four outlets currently serviced.
PAUL, a licensed brand by PAUL International, performed the best in the Signature Brands portfolio, attributed to strong day trading attributes and
less reliance on alcohol and evening sales.
New restaurants 2
Revamps 0
Closures 8
Home delivery played a vital role in the Group's success in the past six months, with 14% year on-year turnover growth across own and third-party
aggregators.
Famous Brands' ongoing investment in technology and internal capability streamlines last mile home delivery. The Group has improved its own
delivery offering by optimising delivery zones, reducing drive distances, stimulating volume and tracking preparation and drive times. Delivery through
third-party aggregators will continue to grow, slowing our own delivery growth to some degree while also representing growth through accessing a new
customer base. We continue to invest in our own delivery capacity to remain competitive within high-density delivery nodes.
Africa Middle East
The COVID-19 pandemic continued to impact AME markets as second and third waves of infection occurred. While several countries started vaccination
programmes, vaccination rates tend to be low. COVID-19 restrictions placed franchise partners and licensees under increased financial strain.
Franchise partners have been resilient, with no restaurant closures during the period as a direct result of COVID-19.
System-wide sales in this region increased by 14.7% (2020: decrease of 30.1%). The region's revenue was R168 million (2020: R143 million). Operating profit
decreased 25% to R8 million (2020: R11 million). The operating profit margin declined to 4.8% (2020: 7.6%).
Quick Service brands in Botswana, Ethiopia, Kenya, Nigeria and Sudan had strong home delivery channel sales. We continued strengthening local supply chains
across several markets.
New restaurants 17
Revamps 6
Closures 2
United Kingdom
At the beginning of the 2022 financial year, Wimpy UK was under stringent lockdown regulations. All 69 restaurants were restricted to take away and delivery
sales only. On 17 May 2021, restaurants were permitted to re-open with social distancing regulations in place. The seating capacity of all restaurants was
significantly reduced. On 19 July 2021, all social distancing measures were lifted.
System-wide sales were up 7.5% on the previous year and close to pre pandemic levels. Revenue in rand terms decreased to R64 million (2020: R65 million).
Operating profit declined by 12% to R8 million (2020: R9 million), while the operating margin deteriorated to 13.1% (2020: 14.5%).
New restaurants 0
Revamps 4
Closures 2
Vertical integration
Manufacturing
Manufacturing revenue improved 64.5% to R1.3 billion (2020: R808 million). Operating profit recovered to R129 million (2020: R31 million), 318% higher than
prior comparable period. This recovery was driven by increased demand from the front end of the value chain.There has been significant food inflation,
peaking at 6.7%, over the past six months. The stronger rand softened some of the significant increases in commodity prices.
COVID-19 continues to disrupt global supply chains leading to higher prices of imported goods and longer shipping timelines.
Logistics
Logistics' performance has improved due to the easing of COVID-19 restrictions, although slowed down by the COVID-19 third wave and July's civil unrest.
Logistics' turnover increased by 73.5% to R1.9 billion (2020: R1.1 billion) with a positive recovery in profit to R7 million (2020: R(46)
million). The operating margin increased to 0.4% compared to (4.2)% and case volumes grew by 49.6% compared to the comparable period.
Retail
In line with the trend towards increased home consumption, the Retail business saw a 46% increase in revenue to R105 million (2020: R72 million).
Changes to the composition of the Board of Directors
There have been several changes to the Board of Directors during the review period:
- 1 June 2021: Fagmeedah Petersen-Cook appointed as an independent non-executive director
- 11 June 2021: Lebo Ntlha resigned as Group Financial Director effective 30 November 2021
- 23 July 2021:
- Emma Mashilwane retired from the Board at the Famous Brands AGM
- Chris Boulle was appointed as Chair of the Remuneration Committee and stepped down as Chairman of the Investment Committee
- Fagmeedah Petersen-Cook was appointed as Chair of the Investment Committee
- Johnny Halamandres stepped down as a full member of the Investment Committee
- 1 August 2021:
- Deon Fredericks was appointed as Group Financial Director-elect and stepped down as a member and Chair of the Audit and Risk Committee
- Chris Boulle was appointed as member and Chairman of the Audit and Risk Committee
Post review period Board of Director appointments
- 20 October 2021: Busisiwe Mathe was appointed as an independent non-executive director to the Famous Brands Board of Directors
- 26 October 2021:
- Busisiwe Mathe was appointed as a member of the Audit and Risk Committee
- Chris Boulle stepped down as Chairman of the Social and Ethics Committee but will remain as a member
- Alex Maditse was appointed as Chairman of the Social and Ethics Committee
Looking forward
Our focus for the remainder of the year will be on creating further operational efficiencies, prioritising core long-term operations, improving franchise
partners' investment returns, and managing cash flows.
Despite the weak economy, we are optimistic that sales will recover further as vaccine programmes roll out and economic conditions improve.
The possibility of a fourth wave in several markets could lead to more stringent COVID-19 restrictions. The timing of this fourth wave is also critical; an
earlier fourth wave in November would have a lesser revenue impact than a wave during the December and January holiday period.
We anticipate higher food inflation in the second half of the year, mainly driven by dry goods, perishables and packaging. Expected currency weakness in the
period ahead will further intensify margin pressure for Manufacturing.
Dividend
Famous Brands will not be paying an interim dividend. The restriction from our primary lender is that the Group must reduce net debt: EBITDA to be less than
2.5 times for two consecutive periods before resuming a dividend.
On behalf of the Board
SL Botha DP Hele
Chairman Chief Executive Officer
Midrand
27 October 2021
www.famousbrands.co.za
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/2021/jse/isse/fbr/HY2021.pdf and on Famous Brands' website at www.famousbrands.co.za on 27 October 2021, 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, Deon Fredericks*, Nik Halamandaris, John Halamandres, Darren Hele (CEO)*, Fagmeedah
Petersen-Cook, Alex Maditse, Busisiwe Mathe and Lebo Ntlha (Group FD)*.
* Executive
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
Date: 27-10-2021 07:05:00
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