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Famous Brands - Audited Group Results For The Year Ended 28 February 2006

Release Date: 29/05/2006 07:00
Code(s): FBR
Wrap Text

Famous Brands - Audited Group Results For The Year Ended 28 February 2006 Famous Brands Incorporated in the Republic of South Africa Registration number 1969/004875/06 Share code: FBR & ISIN: ZAE000053328 ("Famous Brands" or "the group") AUDITED GROUP RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2006 - Up 44% Gross revenue R669,2 million (2005: R464,7 million) - Up 34% Attributable profit R70,9 million (2005: R53,1 million) - Up 38% Headline EPS 83,5 cents (2005: 60,7 cents) - Up 67% Dividends 30 cents (2005: 18 cents) Consolidated Income Statement 28 Feb 28 Feb 2006 2005 Change R000"s R000"s % Gross revenue 669 178 464 729 44 Operating profit 109 385 93 220 17 Net interest paid (7 942) (14 531) Net income before taxation 101 443 78 689 29 Taxation (30 568) (25 628) Attributable profit 70 875 53 061 34 Adjusted for: - Impairment loss on intangible assets 730 313 - Impairment on loan 881 - - Loss on loans written off - 1 075 - Profit on disposal of non-current assets - (2 564) - Profit on disposal of tangible fixed assets (416) (164) Headline earnings 72 070 51 721 39 Weighted average numbers of shares in issue 86 287 304 85 155 132 Operating margin 16,3% 20,1% (19) Earnings per share - cents 82,1 62,3 32 Fully diluted earnings per share - cents 77,4 58,5 32 Headline earnings per share - cents 83,5 60,7 38 Fully diluted headline earnings per share - cents 78,7 57,0 38 Dividends - Interim 13,0 8,0 - Final (proposed) 17,0 10,0 Total dividend for the year 30,0 18,0 Consolidated Balance Sheet 28 Feb 28 Feb 2006 2005
R000"s R000"s Assets Non-current assets 304 204 240 707 Tangible fixed assets 80 454 35 642 Intangible fixed assets 218 457 200 019 Deferred taxation 4 468 3 303 Loans 825 1 743 Current assets 141 040 125 691 Inventory 50 041 29 055 Trade and other receivables 85 980 77 054 Cash and cash equivalents 5 019 19 582 Total assets 445 244 366 398 EQUITY AND LIABILITIES Share capital and reserves 248 234 193 809 Ordinary shareholders" interest 248 234 193 809 Non-current liabilities 81 887 82 988 Interest-bearing borrowings 61 637 70 562 Deferred taxation 20 250 12 426 Current liabilities 115 123 89 601 Trade and other payables 80 873 67 474 Short-term portion of Interest-bearing borrowings 25 215 20 326 Taxation 9 035 1 801 Total equity and liabilities 445 244 366 398 Consolidated Cash Flow Statement 28 Feb 28 Feb 2006 2005 R000"s R000"s
Net cash flow from operating activities 61 668 49 586 Cash generated by operations 107 063 98 749 Net interest paid (7 942) (14 531) Taxation paid (17 670) (24 420) Dividends paid (19 783) (10 212) Net cash flow from investing activities (69 141) (15 766) Expended on non-current assets (52 551) (17 615) Investment in subsidiaries (18 213) 164 Proceeds from disposal of non-current assets 1 623 1 685 Net cash flow from financing activities (7 090) (11 066) Movement in share capital and reserves 2 496 1 438 Decrease in interest-bearing borrowings (9 586) (12 504) Change in cash and cash equivalents (14 563) 22 754 Cash and cash equivalents at beginning of year 19 582 (3 172) Cash and cash equivalents at end of year 5 019 19 582 Consolidated Statement of Changes in Equity 28 Feb 28 Feb 2006 2005 R000"s R000"s
Balance at beginning of year 169 461 135 543 - Adjustment on adoption of IFRS 24 348 14 127 Restated balance 193 809 149 670 Net gains not recognised in the income statement - currency translation differences 326 (503) Shares based payments 550 632 Attributable profit 70 875 53 061 - As previously disclosed 43 472 - Adjusted on adoption of IFRS 9 589 Dividends (19 822) (10 205) Disposal of minority interest - (143) Issue of share capital 902 - Issue to participants of Share Incentive Trust 1 594 1 297 Ordinary shareholders" interest 248 234 193 809 Segment Report 28 Feb 29 Feb 2006 2005 Change R000"s R000"s %
Gross Revenue Franchising 182 796 157 114 16 Food Services 486 182 308 290 58 Corporate Services 36 383 34 883 4 Eliminations (36 183) (35 559) 2 Total 669 178 464 729 44 Operating Profit Franchising 81 533 65 119 25 Food Services 22 935 20 595 11 Corporate Services 5 464 8 354 +100 Eliminations (547) (848) +100 Total 109 385 93 220 17 Notes 1. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The date of transition to IFRS is 1 March 2004. 2. The accounting policies applied by the group are consistent with those applied in the comparative financial periods, except for those which have arisen due to the transition to IFRS. 3. These financial statements have been audited by RSM Betty & Dickson (Johannesburg) and their unqualified audit opinion is available for inspection at the company"s registered office. 4. The following items represent the significant changes to the group"s accounting policies as a result of the adoption of IFRS: IFRS 3 - Business Combinations Business Combinations occurring after the date of transition to IFRS are accounted for by applying the requirements of IFRS 3. The group has in terms of the exemption provisions of IFRS 1, elected not to retrospectively apply IFRS 3 to business combinations occurring prior to the transition date. In terms of IAS 3, Business Combinations, goodwill is no longer amortised, but is subject to at least annual impairment reviews. The group previously recognised goodwill on acquisition at cost and amortised it on a straight-line basis over its expected useful life. Goodwill was reviewed for impairment when events or changes in circumstances indicated that the carrying value was potentially not recoverable. Goodwill amortisation, subject to the exemption provisions of IFRS 1, previously recognised in the income statement has been reversed with a resultant increase in equity. IAS 16 - Property, Plant and Equipment In terms of IAS 16, Property, Plant and Equipment, the residual value of property, plant and equipment should be assessed at each balance sheet date. In order to establish the depreciation charge on an annual basis the assets depreciable amount is reduced by its residual value. In terms of SA GAAP the estimated residual value was fixed on recognition of the asset and not re- assessed annually. A retrospective re-assessment of residual values for property, plant and equipment has resulted in the carrying values of certain previously fully depreciated assets being partially re-instated to reflect the applicable residual value. Where items of property, plant and equipment have not been fully depreciated, re-assessment of residual values has resulted in a reduction of depreciation. Depreciation previously recognised in profit or lossd has thus been reversed or reduced resulting in a corresponding increase in equity. IAS 38 - Intangible Assets In accordance with IAS 38, Intangible Assets, trademarks have been assessed to be indefinite useful life intangibles. Trademarks are no longer amortised, but are subject to at least annual impairment reviews. The group previously amortised trademarks on a straight-line basis over their expected useful lives. Trademarks were reviewed for impairment when events or changes in circumstances indicated that the carrying value was potentially not recoverable. Trademark amortisation previously recognised in the income statement has been reversed with a resultant increase in equity. 5. The effect on equity as a result of the transition to IFRS is detailed below: 28 Feb 1 Mar 2005 2004 R000"s R000"s
Balance Sheet Equity as previously reported 169 461 135 543 Restatement for IFRS and other adjustments 24 348 14 127 IFRS 3/IAS 26 - Goodwill amortisation and impairment 7 756 - IAS 16 - Property, plant and equipment 6 775 5 861 IAS 17 - Leases (2 896) (2 979) IAS 38/IAS 36 - Intangible asset amortisation and impairment 23 638 20 224 IAS 39 - Fixed interest rate adjustment (1 962) - Deferred taxation (8 963) (8 979) Restated equity per IFRS 193 809 149 670 Income statement Net profit as previously reported 43 472 Restatement for IFRS and other adjustments 9 589 IFRS 2 - Share-based payments (632) IFRS 3/IAS 26 - Goodwill amortisation and impairment 7 756 IAS 16 - Property, plant and equipment 914 IAS 17 - Leases 83 IAS 38/IAS 36 - Intangible asset amortisation and impairment 3 414 IAS 39 - Fixed interest rate adjustment (1 962) Deferred taxation 16 Restated net profit per IFRS 53 061 Trading Environment, Overview and Group Performance: Famous Brands is Africa"s leading Quick Service Restaurant "QSR"/casual dining franchisor, with 1 165 restaurants under franchise. The group"s brand portfolio comprises Steers, Wimpy, Debonairs Pizza, FishAways, House of Coffees Coffee Shops, Brazilian Coffee Shops and Whistle Stop. The group"s Food Services division supplies the Franchise division with a wide range of dry goods, butchery, bakery and sauce products and includes Pouyoukas Food, Baltimore ice cream and Trufruit Juice Company businesses. Famous Brands" strong results for the year ended 28 February 2006 reflect the combination of favourable macro-economic conditions, positive industry trends and management"s achievements in unlocking value inherent in the business. Potency of the group"s brands and optimisation of capital expenditure and investment produced vigorous performances in both the Franchise division and Food Services division. Record turnover was reported for the year by both operations. The primary drivers propelling the category remain robust, namely the exponential growth of the emerged middle class, the pursuit of lifestyle convenience and the evolving trend of out of home consumption. Competition in the QSR/casual dining sector is aggressive and the challenge is to deliver a consistent, contemporary and relevant offering. In this regard attention is focused on the cornerstones of the group"s brand portfolio: affordability (value for money), accessibility (situated within arms" reach of desire), and appeal (high quality innovative offerings). At the forefront of management"s strategy is to establish the concept of quick service and casual dining restaurants as a way of life. During the review period a decision was taken to realign the business model. The group"s two major divisions, Franchising and Food Services, were compartmentalised into four operating divisions: Franchising (housing the group"s brands and intellectual property); Food Services (comprising production, warehousing and distribution facilities servicing predominantly the franchising business); Catering Services (consisting of the Trufruit Juice company, Baltimore Ice Cream and Pouyoukas Foods); and Retail Services (exclusively servicing the retail and hospitality industry). The long-term strategy is to establish the independence of the Catering and Retail Services divisions, reducing reliance on the group as a customer. This realignment, which commenced on 1 March 2006, is aimed at capitalising on core competencies and best effecting the group"s strategic intent to grow its position as the leading branded QSR/casual dining franchisor in Africa, using this platform to diversify into an integrated food and beverage company. Financial Results: Gross revenue increased 44% to R669,2 million (2005: R464,7 million). Operating profit improved 17% to R109,4 million (2005: R93,2 million), and attributable profit rose 34% to R70,9 million (2005: R53,1 million). Whilst margin squeeze was experienced in the Food Services Division due to operating and capital expenditure, this investment has substantially strengthened the group"s strategic position to capitalise on growth opportunities. Operating margins in the Franchise division continued to improve. Headline earnings per share grew 38% to 83,5 cents (2005: 60,7 cents). Franchise Division: Without exception, each of the group"s brands improved system wide turnover and like-on like sales (which exclude new restaurants). Across the network, system wide sales for the year increased 22,7%. Strong organic turnover was boosted by the opening of a further 64 restaurants across the network. Notwithstanding sub-inflationary menu price increases, gross revenue increased 16% to R182,8 million (2005: R157,1 million), whilst operating profit rose 25% to R81,5 million (2005: R65,1 million). The philosophy of "renovation and innovation" continues to be vigorously applied to the brand portfolio via ongoing upgrades of the individual restaurants" retail footprints and introduction of new menu offerings which are innovative and customer-driven. Investment in powerful communications campaigns proved successful in underpinning these strategies. The group"s brands are represented in rival categories, each vying for a share of consumer spend; consequently, the model of brand stewardship and healthy competition between brands continues to deliver real benefits. This does not, however, preclude sharing best practice across the group"s portfolio. The aspirational value attached to the group"s brands is evidenced by the growing usage amongst the emerged middle class. The expansion of Famous Brands" target audience, and the sector as a whole, continues to present the group with new markets, illustrated most recently by the successful opening of several new restaurants in and on the fringes of traditional black residential areas. Previously the international component of the franchise business was managed as an independent entity. This structure has subsequently been streamlined and integrated into the group"s brand functions facilitating alignment and integrity of brands locally and internationally. Franchise network as at 28 February 2006 Brand Nat- Inter- ional national Total Steers 346 39 385 Wimpy 416 16 432 Debonairs Pizza 172 30 202 FishAways 52 0 52 House of Coffees 36 0 36 Brazillian Coffee Shop 20 2 22 Whistle Stop 31 0 31 Market Cafe 5 0 5 Total 1 078 87 1 165 Food Services Division: This division benefited from three important inputs: strong growth experienced by the franchise division; implementation of strategic capital expenditure; and integration of an initial portion of the Wimpy manufacturing component. Income derived from Trufruit, Baltimore and Pouyoukas is reflected in this division"s results. Gross revenue increased 58% to R486,2 million (2005: R308,3 million), while operating profit improved 11% to R22,9 million (2005: R20,6 million). The lower operating margin of 4,7% (2005: 6,7%) is mainly attributable to increased operating and capital expenditure incurred to position the division to capitalise on growth opportunities. Some R33,9 million was invested in the review period culminating in the commissioning of additional capacity in the butchery, bakery and sauce production plant. This enhancement facilitated improved integration of the manufacturing component of Wimpy"s business. In December 2005, the group recorded its highest ever production and sales figures for both the butchery and bakery. Further capacity expansion is envisaged through sourcing additional warehousing and distribution facilities in Durban, as well as installation of additional manufacturing equipment in the sauce plant at Midrand. In addition to opportunities for the manufacturing component under these conducive conditions, management is also optimistic about the prospects afforded via the group"s extensive warehousing and distribution infrastructure which provides Famous Brands with much sought after route to market. With improved resources in the logistics division, the feasibility of taking on the Wimpy distribution business will be thoroughly investigated. Catering Services Division: Trufruit and Baltimore, the group"s fruit juice and ice cream businesses reported record year on year sales, reflecting improvements of 65% and 49% respectively. Re-engineering of Pouyoukas Foods continues, with strong focus now directed at the catering services and the hospitality industries. Opportunities within the franchising division continue to be extracted, and uptake of the products across the group"s network is comprehensive. Based on strong demand, a new Baltimore plant will be commissioned in Durban, commencing operation in October 2006. It is a key strategic imperative that this division aggressively targets the broad food services and hospitality industries. Acquisitions: During the year under review the company acquired the following investments: On 1 March 2005 the entire issued share capital of Trufruit (Pty) Limited, a fruit juice manufacturing business, for R4,61 million. On 1 April 2005 the entire issued share capital of Baltimore Foods (Pty) Limited, an ice-cream manufacturing company, for R13,9 million. On 9 November 2005, the Bimbo"s franchise agreements linked specifically to Engen Petroleum sites, for R4,75 million. All suspensive conditions with regards the above acquisitions have been fulfilled. Events after Balance Sheet Date: No items subsequent to the end of the year, material to the appreciation of the results for the period and the financial position of the company as at the end of the year, have come to the attention of the company or its directors. Prospects: A review of the business reveals an organisation that is favourably resourced in terms of depth of talent, expert skills and capital investment to deliver against the ambitious goals which management has outlined for the future. The realignment of the business to capitalise on its core competencies will re- energise the company and continue to improve returns for stakeholders. Management is satisfied that efforts and initiatives implemented during the review period position Famous Brands to unlock further value. Whilst the group is realistic that sustained compound growth at current levels will be challenging, management is confident that Famous Brands is now better structured to capitalise on opportunities across the group in the franchise, food services, retail and catering services businesses. Dividends: The Board of Directors has resolved to declare a final dividend (number 26) of 17 cents per ordinary share (2005: 10 cents). The last date to trade in order to participate in the dividend will be Friday, 21 July 2006. The shares will commence trading "ex" dividend from Monday, 24 July 2006. The dividend will be payable to all shareholders recorded in the books of the company at the close of business on Friday, 28 July 2006 "record date". The dividend will be payable on Monday, 31 July 2006. No dematerialisation or rematerialisation of share certificates may take place between Monday, 24 July 2006 and Friday, 28 July 2006, both days inclusive. On behalf of the Board P Halamandaris T Halamandaris Chairman Chief Executive Officer 29 May 2006 Directors P Halamandaris (Chairman), T Halamandaris (Chief Executive Officer), KA Hedderwick, JL Halamandaris*, HR Levin*, P Halamandaris (Junior)*, B Sibiya* *Non-executive Registered office 478 James Crescent, Midrand 1685 PO Box 2884, Halfway House 1685 E-mail: investorrelations@famousbrands.co.za Website: www.famousbrands.co.za Transfer Secretaries: Ultra Registrars (Pty) Limited (Registration number 2000/007239/07) 11 Diagonal Street, Johannesburg 2001 PO Box 4844, Johannesburg 2000 Date: 29/05/2006 07:00:16 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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