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FBR - Famous Brands - Unaudited consolidated interim results for the six months
ended 31 August 2008
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number 1969/004875/06
Share code: FBR ISIN: ZAE000053328
"Famous Brands" or "the group"
UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS
ENDED 31 AUGUST 2008
Revenue up 25% to R715 million
Operating profit up 13% to R124 million
Headline earnings per share up 10% to 80 cents
Interim dividend up 9% to 36 cents
Condensed income statement
unaudited unaudited audited
six months six months year
ended ended ended
31 August 31 August % 29 February
2008 2007 2008
R000 R000 change R000
Revenue 714 751 570 968 25 1 190 301
Gross profit 293 308 272 453 8 541 946
Expenses 169 454 163 097 4 332 370
Operating profit 123 854 109 356 13 209 576
Net interest paid (19 782) (11 127) 78 (19 117)
Profit before 104 072 98 229 6 190 459
taxation
Taxation (28 042) (28 375) (59 378)
Total earnings 76 030 69 854 9 131 081
Attributable to:
Equity holders of 75 264 68 653 128 642
the company
Minority interest 766 1 201 2 439
Total earnings 76 030 69 854 131 081
Reconciliation to
headline earnings
for the period
Earnings for the 75 264 68 653 128 642
period
- Impairment of - - 7 810
intangible assets
- (Profit) on - - (1 833)
disposal of
business
- (Profit)/ loss (75) (426) 574
on disposal of
tangible assets
Headline earnings 75 189 68 227 10 135 193
for the period
Operating margin - 17,3 19,2 17,6
%
Earnings per share
- cents
- basic 80 73 10 137
- diluted 78 74 5 134
Headline earnings
per share - cents
- basic 80 73 10 144
- diluted 78 73 7 141
Distribution to
shareholders -
cents
- interim: 36 33 9 33
dividend declared
- final: dividend - - 33
declared
Total distribution 36 33 9 66
for the period
Ordinary shares
- in issue net of 94 397 435 94 247 435 94 397 435
treasury shares
- weighted average 94 360 140 93 995 868 94 120 964
- diluted weighted 96 469 479 95 545 208 95 670 304
average
Segmental information - business units
unaudited unaudited audited
six months six months year
ended ended ended
31 August 31 August % 29 February
2008 2007 2008
R000 R000 change R000
Revenue
South Africa
Franchising 138 648 122 329 13 259 515
Food services 481 171 358 301 34 756 114
261 156 244 925 506 193
Manufacturing
Logistics 434 652 328 392 691 553
(214 637) (215 016) (441 632)
Eliminations
Eliminations - (390) (499)
South Africa 619 819 480 240 29 1 015 130
International 94 932 90 728 5 175 171
franchising
Total 714 751 570 968 25 1 190 301
Operating
profit
South Africa
Franchising 85 926 67 839 27 141 953
Food services 25 940 26 682 (3) 61 453
17 407 22 866 48 154
Manufacturing
Logistics 8 533 8 580 14 705
- (4 764) (1 406)
Eliminations
Corporate 2 517 2 400 (1 027)
services
South Africa 114 383 96 921 18 202 379
International 9 471 12 435 (24) 15 007
franchising
Total 123 854 109 356 13 217 386
(excludes
impairment
write-offs)
Condensed statement of changes in equity
unaudited unaudited audited
six months six months year
ended ended ended
31 August 31 August 29 February
2008 2007 2008
R000 R000 R000
Balance at beginning of 408 311 303 479 303 479
period
Net gains/(losses) not (910) 1 717 8 697
recognised in the income
statement - currency
translation differences
Share-based payments - - 4 824
Attributable profit 76 030 69 854 131 081
Distribution to shareholders (31 168) (28 334) (59 502)
Net movement in share (315) 31 195 17 939
capital and minority
interest
Issue to participants of - 860 1 793
share incentive scheme
Balance at end of period 451 948 378 771 408 311
Condensed balance sheet
unaudited unaudited audited
six months six months year
ended ended ended
31 August 31 August 29 February
2008 2007 2008
R000 R000 R000
ASSETS
Non-current assets 691 907 510 768 525 227
Property, plant and 131 111 98 803 110 965
equipment
Intangible assets 554 416 407 383 407 472
Deferred taxation 6 380 3 963 6 608
Loans - 619 182
Current assets 410 526 336 766 330 906
Inventory 117 621 77 412 85 372
Taxation 808 - 808
Trade and other receivables 188 291 165 127 123 963
Cash and cash equivalents 103 806 94 227 120 763
Total assets 1 102 433 847 534 856 133
EQUITY AND LIABILITIES
Equity attributable to 449 824 363 453 405 872
equity holders of the
company
Minority interests 2 124 15 318 2 439
Total equity 451 948 378 771 408 311
Non-current liabilities 336 015 232 168 228 114
Interest-bearing borrowings 296 534 213 813 188 333
Deferred taxation 39 481 18 355 39 781
Current liabilities 314 470 236 595 219 708
Trade and other payables 201 780 164 599 128 538
Short-term portion of 74 174 29 995 50 438
interest-bearing borrowings
Taxation 26 706 42 001 37 824
Bank overdraft 11 810 - 2 908
Total liabilities 650 485 468 763 447 822
Total equity and liabilities 1 102 433 847 534 856 133
Condensed cash flow statement
unaudited unaudited audited
six months six months year
ended ended ended
31 August 31 August 29 February
2008 2007 2008
R000 R000 R000
Cash flow from operating 5 875 22 483 124 098
activities
Cash generated by operations 96 581 67 970 187 863
Net interest paid (19 782) (11 127) (19 117)
Taxation paid (39 756) (5 892) (44 766)
Dividends paid (31 168) (28 468) 118
Cash flow from investing (166 168) (20 611) (30 638)
activities
Expended on property, plant (18 229) (22 883) (36 077)
and equipment
Expended on intangible - - (16 397)
assets
Acquisition of business (143 296) - -
Investment in subsidiaries (5 000) (11 226) (8 690)
Minority interest - - 2 439
Decrease in loans receivable 182 898 719
Movement in foreign currency - - 8 697
translation reserve
Proceeds from disposal of 175 12 600 18 671
non-current assets
Cash flow from financing 134 434 (7 762) (75 722)
activities
Movement in share capital 2 497 19 656 (39 769)
and reserves
Increase/(decrease) in 131 937 (27 418) (35 953)
interest-bearing borrowings
Change in cash and cash (25 859) (5 890) 17 738
equivalents
Cash and cash equivalents at 117 855 100 117 100 117
beginning of period (net)
Cash and cash equivalents at 91 996 94 227 117 855
end of period (net)
Notes
1) These results have not been audited by the company`s auditors.
2) The unaudited results of the group for the six months ended 31 August 2008
have been prepared in accordance with International Financial Reporting
Standards.
3) The accounting polices applied by the group are consistent with those applied
in the comparative financial periods.
4) The interim results have been prepared in accordance with IAS 34 - Interim
Financial Reporting.
Commentary
Overview: Underpinned by its portfolio of leading brands, the group has turned
in a satisfactory performance despite tough trading conditions, double digit raw
material and diesel price increase inflation. This latest performance is a
testament to the strength of the group`s brand portfolio and the well known
gravitation by consumers to tried and tested brands in times of economic
downturn. Further endorsement of the success of the group`s business model was
our 6th place ranking in the 2008 Financial Mail Top Companies survey, which
measures performance on returns over a five-year period.
The group`s global footprint now stands at 1 557 restaurants spread across South
Africa, 17 other African countries and the UK.
Financial results: In the six months under review, group revenue of R715 million
(2007: R571 million), increased by 25% including growth of 32% in the low margin
logistics business which extended its activities to the existing Wimpy franchise
network. Profitability during the first six months of the year was adversely
affected by the group`s deliberate strategy of absorbing costs in the
Manufacturing and Logistics Divisions to the combined value of R10,25 million.
This resulted in operating margin settling at 17,3%. The aims of this strategy
are to remain price competitive at the point of sale, and also to support the
margins and profitability of individual franchisees. These two objectives are
vital to the long-term sustainability of the business. The success of these
strategies is reflected in revenue growth of 13% in the local Franchising
Division. Tight control of costs translated the 8% increase in gross profit to a
13% improvement at the operating profit level.
Included in the results are the acquisitions of Cape Franchising and tashas with
effect from their respective acquisition dates. The impact on earnings has not
been material. The purchase consideration for the acquisitions was R160 million.
Initial indications are that this is represented by fair value of tangible
assets acquired of R12 million and the balance of R148 million as goodwill.
The group remains a strong cash generator. Cash flows from operating activities
rose 42% to R97 million, compared to last year`s R68 million. Net financing
raised of R134 million funded the acquisitions of tashas and Cape Franchising as
well as capital expenditure of R18 million on property, plant and equipment. Net
interest paid increased dramatically due to higher average interest rates and
borrowings. As a consequence, net debt as a percentage of equity increased from
30% to 62%. Interest cover of 6,3 times is exceptionally strong. Although profit
growth has slowed compared to prior years, profitability returns are exceptional
with an annualised Return on Equity of 35%.
Earnings and headline earnings per share both increased by 10% to 80 cents
(2007: 73 cents).
An interim dividend of 36 cents per share has been declared improving the
distribution to shareholders by 9%.
Franchising division - Local: The division was again a major contributor to the
group`s performance, posting revenue growth of 13% to R139 million (2007: R122
million) and an operating profit increase of 27% to R86 million (2007: R68
million). The division`s operating margin improved to 62% from 55%.
System wide sales (which include new restaurant openings) grew by 13,6%
(2007:15,6%), with like on like sales growth of 9,3% (2007: 8,4%). Viewed
against a weighted average menu price increase of 6,7%, this demonstrates that
market share gains continue to be made.
Some 43 new restaurants were opened in the period and 60 existing restaurants
were revamped. The footprint of the group`s main brands continued to grow with
Steers opening their 500th restaurant and Debonairs Pizza their 250th restaurant
during the period. The Brazilian Cafe format has been successfully repositioned
to include a bakery option and is poised for an aggressive roll out plan in
alliance with the Shell Petroleum Company.
The group`s brands continue to win accolades in 2008 where Leisure Options voted
Steers "best burger" and "best chips" for 13 and 11 years in a row,
respectively. Debonairs Pizza won "best pizza" for 9 consecutive years and Wimpy
has won the award for "best breakfast" 11 times. The Business Times Top Brands
Survey featured Steers, Debonairs Pizza and Wimpy amongst the top 10 fast food
and restaurant brands.
Franchising division - International: Comparative restaurant turnover within the
division was down 2,63%, affected by the global economic slowdown. Margin
absorption to the value of R900 000 was incurred as a result of the under
recovery of increases in the beef price. Costs for the period were inflated by
R2,7 million due to the necessity of right-sizing the business and the
retrenchment of two previously inherited senior executives. Associated cost
savings will be realised in the new financial year.
The drive to align branding and brand collateral with the South African business
continued and six restaurant revamps were concluded in the period. A further
four are planned in the second half. Restaurant turnovers after revamps have
improved between 17% and 57%.
While the momentum of the turnaround of the UK business has slowed due to
economic conditions, the division continues to service its debt and remains
profitable.
Manufacturing division: Revenue of R261 million and operating profit of R17
million was achieved in the period, resulting in a 6,7% (2007: 9,3%) operating
margin.
The division was hampered by raw material price increases well above inflation
across products that are fundamental to the manufacturing process. These include
red meat, chicken, flour, oil, tomato paste, yeast, sugar and packaging. The
group implemented its strategy to absorb costs, accounting for them in operating
profit, to the value of R8 million over the period. We also invested in
improving production management skills at executive and plant manager levels, to
align with several years of capex investment in factory upgrades and
modernisations.
Logistics division: This division remains a key component of the group`s unique
backward integrated franchise system and continues to grow, influenced by the
completion of the Wimpy "dry goods" business take on and the commenced take on
of the Wimpy "frozen goods" business. Preparation for the latter included a
number of once-off start up costs, the benefits of which will flow through in
the future. Revenue for the period was R435 million with operating profit of R9
million, reflecting a margin of 2,0% (2007: 2,6%). The division`s performance
was affected by the 46% increase in the price of diesel compared to the
comparable period last year. To lessen the impact of this increase on our
franchisees, the group absorbed R2,25 million against operating profit from this
division.
Food services division: The division continues to source quality business for
the group`s brands where spare manufacturing capacity exists. Performance of the
division has been pleasing and characterised by the highly successful launch of
Wimpy Tomato Sauce and Mustard into the retail trade as well as launch of the
flav `o` full catering range intended for the general food service and
hospitality industry. More recent developments include extension of the Trufruit
brand into retail, the unveiling of two new exciting Steers sauce variants and
the imminent launch of a mineral water brand.
Corporate actions: The Cape Franchising acquisition (effective 1 March 2008) has
been successfully concluded and integrated into the group. The first phase of
extracting synergies has also been completed.
The purchase of a 51% controlling stake in tashas (effective 1 July 2008), an
upmarket casual-dining cafe concept, has been concluded and fully integrated and
the opening of four new restaurants is planned for next year.
Directorate and company secretary: In September 2008, Mr Tom Pritchard,
Financial Director and Company Secretary, resigned to pursue his own interests.
We wish to thank Tom for his contribution to the group. A shortlist of
candidates for the position has been finalised and the group will make an
announcement in due course. In the interim, Mr Stanley Aldridge is assisting
Famous Brands on a three-month contract basis. He has extensive financial
experience gained primarily at Standard Bank and the Edcon Group.
Prospects: Whilst the group usually experiences a better second half, the
current economic environment coupled with a reduction in disposable consumer
spending will continue to make for tough trading conditions.
In light of the current environment, the group has embarked on a robust cost-
cutting programme, the benefits of which will flow through to the results in the
next six months. An aggressive redirection of marketing and advertising spend in
favour of value for money promotions and innovation has been implemented to
secure and grow market share across the group`s brand portfolio.
The group`s restaurant opening programme will continue with 79 openings planned
for the next six months as well as the revamp of 56 existing restaurants.
The group`s business model remains sound and resilient, representative of a
strong brand portfolio, being underpinned by a unique backward integration model
and excellent management. We are confident the group will weather the current
economic storm and would expect earnings growth to be maintained at the current
level.
Distribution to shareholders: Notice is hereby given that an interim dividend No
28 of 36 cents per ordinary share has been declared in respect of the six months
ended 31 August 2008. Salient dates are:
Last day to trade cum dividend Friday, 14 November 2008
Shares commence trading ex dividend Monday, 17 November 2008
Record date Friday, 21 November 2008
Payment of dividend Monday, 24 November 2008
Share certificates may not be dematerialised or rematerialised between Monday,
17 November 2008 and Friday, 21 November 2008, both dates inclusive.
On behalf of the Board
P Halamandaris T Halamandaris
Non-Executive Chairman Chief Executive Officer
Midrand 27 October 2008
Directors: Non-Executive: P Halamandaris (Chairman),
JL Halamandres (Deputy Chairman), P Halamandaris (Jnr),
HR Levin, B Sibiya
Executive: T Halamandaris (Chief Executive Officer),
KA Hedderwick (Chief Operating Officer)
Registered office: 478 James Crescent, Halfway House 1685.
PO Box 2884, Halfway House 1685
E-mail: Investorrelations@famousbrands.co.za
Transfer secretaries: Link Market Services (Pty) Limited (Registration number
2000/007239/07), 11 Diagonal Street, Johannesburg 2001
PO Box 4844, Johannesburg 2000
Sponsor
Standard Bank
www.famousbrands.co.za
Date: 27/10/2008 08:00:01 Supplied by www.sharenet.co.za
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