Wrap Text
FBR - Famous Brands Limited - Unaudited consolidated interim results for the six
months ended 31 August 2011
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number 1969/004875/06
JSE Share code: FBR
ISIN: ZAE000053328
("Famous Brands" or "the Group")
Unaudited consolidated interim results for the six months ended 31 August 2011
REVENUE
Up 12% to R1 013 million
OPERATING PROFIT
Up 8% to R184 million
NET BORROWINGS TO EQUITY
At 25%
HEADLINE EARNINGS PER SHARE
Up 9% to 125 cents
INTERIM DIVIDEND PER ORDINARY SHARE
Up 14% to 80 cents
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28
February
2011 2010 % 2011
R 000 R 000 change R 000
Revenue 1 013 443 908 329 12 1 878 036
Gross profit 428 025 395 115 8 813 153
Selling and (244 189) (225 033) 9 (454 700)
administrative
expenses
Operating profit 183 836 170 082 8 358 453
Net interest paid (4 863) (7 698) (14 934)
Profit before 178 973 162 384 10 343 519
taxation
Taxation (58 523) (53 100) (112 520)
Profit for the 120 450 109 284 10 230 999
period
Foreign currency 2 242 (5 589) (5 182)
translation
differences
Total comprehensive 122 692 103 695 225 817
income for the
period
Profit attributable
to:
Equity holders of 119 949 109 054 230 260
Famous Brands
Limited
Non-controlling 501 230 739
interests
Total comprehensive
income
attributable to:
Equity holders of 122 191 103 465 225 078
Famous Brands
Limited
Non-controlling 501 230 739
interests
Reconciliation to
headline earnings
for the period
Earnings
attributable to
equity holders
of Famous Brands 119 949 109 054 230 260
Limited
Loss on sale of - - 406
company-owned
restaurants
Loss/(profit) on
disposal of
property,
plant and equipment 222 135 (164)
Headline earnings 120 171 109 189 10 230 502
for the period
Earnings per share -
cents
- basic 125 115 9 242
- diluted 120 112 7 237
Headline earnings
per share - cents
- basic 125 115 9 242
- diluted 120 112 7 237
Dividends to
shareholders - cents
- interim dividend 80 70 14 70
declared
- final dividend 85
declared
Total dividends 80 70 14 155
Ordinary shares
- in issue net of 96 162 435 95 277 435 95 817 435
treasury shares
- weighted average 96 022 435 95 051 602 95 245 418
- diluted weighted 100 054 274 99 401 357 98 905 257
average
Condensed consolidated segmental information
business unit and geographical
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2011 2010 % 2011
R 000 R 000 change R 000
Revenue
Franchising 208 534 184 170 13 386 015
Supply Chain 754 887 660 072 14 1 382 778
Manufacturing 351 486 330 079 663 812
Logistics 702 298 594 871 1 262 325
Eliminations (298 897) (264 878) (543 359)
Corporate 8 382 7 557 14 577
South Africa 971 803 851 799 14 1 783 370
Franchising (UK) 41 640 56 530 (26) 94 666
Total 1 013 443 908 329 12 1 878 036
Operating profit
Franchising 122 905 113 034 9 234 971
Supply Chain 56 913 52 689 8 116 233
Manufacturing 35 617 36 379 77 788
Logistics 21 296 16 310 38 445
Corporate 532 156 (3 489)
South Africa 180 350 165 879 9 347 715
Franchising (UK) 3 486 4 203 (17) 10 738
Total 183 836 170 082 8 358 453
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2011 2010 2011
R 000 R 000 R 000
Cash generated before 203 022 179 018 392 133
changes in working capital
(Increase)/decrease in (81 556) (5 633) 4 592
inventories
(Increase) in receivables (11 303) (15 960) (23 039)
(Decrease)/increase in (4 939) 23 365 23 243
payables
Cash generated by operations 105 224 180 790 396 929
Net interest paid (4 863) (7 698) (14 934)
Taxation paid (58 859) (43 596) (123 895)
Net cash flow from operating 41 502 129 496 258 100
activities
Dividends paid (81 589) (60 959) (127 817)
Net cash retained from (40 087) 68 537 130 283
operating activities
Cash flow from investing
activities
Acquisition of businesses (30 896) - (43 800)
including intangible assets
Expansion capital
expenditure
Property, plant and (16 398) (11 638) (15 794)
equipment
Intangible assets (610) (1 393) (3 893)
Replacement capital (3 600) (10 543) (25 546)
expenditure on property,
plant and equipment
Proceeds from disposal of 976 1 473 1 818
property, plant and
equipment
Net cash flow from investing (50 528) (22 101) (87 215)
activities
Cash flow from financing
activities
Movement in share capital 5 207 6 494 15 245
and reserves
(Decrease) in interest- (33 066) (33 978) (67 399)
bearing borrowings
Net cash flow from financing (27 859) (27 484) (52 154)
activities
(Decrease)/increase in cash (118 474) 18 952 (9 086)
and cash equivalents
Foreign currency effect 428 (731) 963
Cash and cash equivalents at 86 397 94 520 94 520
beginning of year
Cash and cash equivalents at (31 649) 112 741 86 397
end of period
Condensed consolidated statement of changes in equity
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2011 2010 2011
R 000 R 000 R 000
Balance at beginning of year 708 594 583 926 583 926
Group total comprehensive 122 191 103 465 225 078
income for the period
Group dividends to (81 611) (60 957) (127 629)
shareholders
Share-based payments 5 174 3 060 7 339
Net movement in share 5 100 6 488 15 245
capital
Increase in non-controlling 501 230 4 635
interests
Balance at end of period 759 949 636 212 708 594
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31 August 31 August 28 February
2011 2010 2011
R 000 R 000 R 000
ASSETS
Non-current assets 831 532 738 608 793 323
Property, plant and 136 566 125 140 130 847
equipment
Intangible assets 692 158 608 676 659 668
Deferred taxation 2 808 4 792 2 808
Current assets 397 620 377 624 345 989
Inventories 157 108 85 790 75 552
Taxation 1 739 1 828 1 468
Trade and other receivables 192 238 177 265 182 572
Cash and bank balances 46 535 112 741 86 397
Total assets 1 229 152 1 116 232 1 139 312
EQUITY AND LIABILITIES
Equity attributable to
equity holders of
Famous Brands Limited 754 528 635 698 703 674
Non-controlling interests 5 421 514 4 920
Total equity 759 949 636 212 708 594
Non-current liabilities 144 659 206 879 177 032
Interest-bearing borrowings 88 402 155 249 122 011
Deferred taxation and lease 56 257 51 630 55 021
liabilities
Current liabilities 324 544 273 141 253 686
Trade and other payables 174 653 180 720 180 631
Short-term portion of 66 440 60 748 65 775
interest-bearing borrowings
Taxation 5 267 31 673 7 280
Bank overdraft 78 184 - -
Total liabilities 469 203 480 020 430 718
Total equity and liabilities 1 229 152 1 116 232 1 139 312
Notes
1) These results have not been audited by the Group`s auditors.
2) The unaudited results of the Group for the six months ended 31 August 2011
have been prepared in accordance with International Financial Reporting
Standards (IFRS), the AC500 standards as issued by the Accounting Practices
Board and its successor, the Companies Act, (Act No. 71 of 2008) and the
Listings Requirements of the JSE Limited.
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.
5) These condensed interim consolidated results were prepared under the
supervision of Mr SJ Aldridge CA(SA), in his capacity as Group Financial
Director.
Commentary
Overview: In line with management`s caution expressed at the end of the prior
year, the Group`s trading environment has proved difficult in the six months
ended 31 August 2011. In both South Africa and the United Kingdom (UK) consumer
confidence remained subdued in the context of general economic uncertainty and
limited disposable income; locally, previously buoyant growth in the volume-
based middle class market was curtailed, exacerbating competitive trading
conditions. Furthermore, input costs rose sharply during the review period,
including a dramatic spike in red meat prices and electricity tariffs.
Generally, unprecedented fragmentation was experienced in the marketplace. This
disarray was reflected in aggressive price-cutting, divergence from traditional
core menu offerings and portion size re-engineering as operators sought to drive
turnover. Additional pressure was experienced from retailers continuing to enter
the fray in an effort to gain market share from conventional convenience-
centered food services operators.
It is management`s opinion that the current short-term erratic trading behaviour
evinced in the industry is unsustainable; as a result, further rationalisation
in the marketplace could be anticipated. In this environment, Famous Brands
deliberately refrained from diluting its core focus on value, quality and
service, which stood it in good stead, indicated by the Group`s creditable
turnover growth and continued emphatic consumer support in industry benchmarks
such as Leisure Options.
The Group`s footprint as at 31 August 2011 comprised 1 982 restaurants across
South Africa, 15 other African countries and the UK.
Financial results: Given the adverse conditions described above and the fact
that the prior comparative period incorporated the benefits of robust FIFA World
CupTrade Mark sales, the Group delivered commendable results for the six months,
demonstrating the resilience of its business model and strength of its brands.
Group revenue increased by 12% to R1.013 billion (2010: R908 million), while
operating profit improved 8% to R184 million (2010: R170 million) reflecting the
deliberate pricing strategy to stimulate consumer sales and protect franchisee
margins. Notwithstanding this strategy, and the increase in staff complement to
service and reposition recently acquired businesses, judicious cost management
enabled the Group to report an operating margin of 18.1% (2010: 18.7%).
Cash generated by operations before working capital changes improved 13% to R203
million. After working capital changes, this declined to R105 million (2010:
R181 million) due to higher inventories, specifically increased beef stocks
bought forward to secure current input prices, which are expected to continue to
escalate.
Net borrowings were R186 million (2010: R103 million) and the ratio of net
borrowings to shareholders` equity at 25% is well within internal constraint
levels. Net financing costs of R4.9 million (2010: R7.7 million) reflect the
continued low interest rate environment and average borrowings which were
contained at levels below the comparative reporting period.
Headline earnings increased by 10% to R120 million from R109 million. Headline
earnings per share and basic earnings per share both increased by 9% to 125
cents (2010: 115 cents).
Capital expenditure of R50.5 million was incurred in the period. It includes
expansion of the logistics fleet, enhanced capacity in the Manufacturing
Division, advance payments on the chicken fillet plant to be commissioned in
October 2011, as well as the settlement of R30.9 million for the acquisition of
the Milky Lane and Juicy Lucy trademarks in March 2011.
The board has declared an interim dividend of 80 cents per ordinary share (2010:
70 cents), an improvement of 14%.
Operational review
Franchising Division - Local: Revenue increased 13% to R209 million (2010: R184
million), while operating profit improved 9% to R123 million from R113 million.
This division`s operating margin declined to 58.9% from 61.4% largely due to
softer top-line growth and the cost of bedding down recently acquired brands,
which required investment ahead of royalty collections.
System-wide sales, including acquired businesses and new stores, grew by 7.0%
(2010: 13.1%). This lower growth rate must be viewed in the context of an
approximate 2.8% FIFA World CupTrade Mark sales boost in the prior comparative
period. Like-on-like sales increased 4.1% (2010: 7.4%).
During the reporting period 50 new restaurants were opened. Whilst this pace
lags historical levels, the period ahead will feature an aggressive restaurant
roll-out, with 90 new restaurants planned for South Africa and a further 30
restaurants for the rest of Africa. These 120 new restaurants will be opened
over five months, equating to 24 new restaurants per month. The total number of
new restaurants opened for the year - 170 - will be in line with management`s
targets set at the beginning of the financial year. The Group`s footprint will
exceed 2 100 restaurants by February 2012 - a significant milestone in the
current economic climate - and illustrative of the continued confidence in the
Group`s brand portfolio by consumers, franchisees and property developers alike.
Expansion plans in Africa are progressing well, with particular reference to
Zambia and Mauritius where the current complement of 13 and 23 restaurants
respectively will be increased to 25 and 31 restaurants by February 2012.
Famous Brands once again achieved a clean sweep of accolades in the consumer-
driven Leisure Options publication, including `best burger`, `best chips`, `best
pizza` and `best coffee shop`. Vovo Telo`s recognition as `best new restaurant`
and tashas `best breakfast restaurant` awards are positive endorsement of the
Group`s strategy to continue to introduce innovative offerings across its
portfolio.
Good progress was achieved in bedding down the Group`s recent acquisitions and
integrating them into the company`s business model. Milky Lane has undergone a
complete overhaul of its brand identity and menu offering and is ready for
relaunch in time for the summer season. The Keg model has also been re-
engineered and pending the granting of a liquor licence, is scheduled to launch
its flagship restaurant in Johannesburg in the near future. Conservative roll-
out of Giramundo, the Group`s flame grilled peri-peri chicken offering
proceeded. Consumer response to the product has been extremely favourable and
management is quietly confident of Giramundo`s potential to become a challenger
brand in its category.
The Group`s recently established Creative Coffees Company which specialises in
servicing the retail and food offerings in the private hospital industry has
advanced its captive market strategy and will be opening House of Coffees
restaurants at Life Eugene Marais Hospital in Pretoria and Mediclinic Limpopo in
Polokwane.
Franchising Division - United Kingdom: Trading conditions continued to
deteriorate as the UK government`s austerity measures gained traction in the
broader economy and consumer disposable income contracted further.
Increased commodity prices pushed up CPI inflation, and competition in the
industry intensified, manifested by aggressive price discounting and increased
promotional voucher activity.
In this context, revenue declined to R42 million from R57 million in the prior
comparative period, reflecting the challenging trading environment, the effect
of the closure in the second half of 2011 of a multiple franchisee, and the
impact of civil unrest on turnover levels in August 2011. Operating profit
decreased to R3.5 million (2010: R4.2 million). The UK business reported an
improvement in operating margin to 8.4% from 7.4% based on intensified cost
management.
Despite the adverse circumstances, the division remains profitable, is well
managed and is not a distraction from the Group`s local core business. One new
restaurant was opened during the period and one third of the total estate is now
aligned with the new Wimpy UK design.
Given management`s cautious outlook for the period ahead, the Group has elected
to delay plans to launch its Steers brand in the UK market until such time as a
sustained meaningful recovery of the economy occurs.
Supply Chain: Combined revenue for this division`s manufacturing and logistics
businesses was R755 million (2010: R660 million), an improvement of 14%.
Operating profit increased by 8% to R57 million (2010: R53 million), while the
operating margin declined slightly to 7.5% from 8.0%, primarily due to margin
pressure in the Manufacturing Division.
Manufacturing Division: Revenue increased by 6% to R351 million from R330
million. Operating profit decreased 2% to R35.6 million from R36.4 million, due
to the deliberate strategy to support the Group`s franchisees by containing menu
price increases.
Operating margin declined to 10.1% from 11.0%, primarily a function of absorbing
red meat price increases and the impact of launching the smaller Steers` Get
Real burger product, introduced to meet demand from price-sensitive consumers
for a value offering.
A further backward integration opportunity has been capitalised on with the
installation of a R14.8 million chicken fillet manufacturing facility. The
commissioning of this plant in October will enable the Group to service its own
brands, thereby gaining business which was previously outsourced.
The Western Cape soft serve business has been brought back in-house and the
Group is also set to manufacture and distribute the Milky Lane soft serve
product from October, in good time for the Group`s peak holiday trading season.
Logistics Division: Revenue increased strongly to R702 million from R595
million, an improvement of 18%, while operating profit rose 31% to R21 million
from R16 million, reflecting a significant expansion of the logistics basket,
facilitated by enhancements in multi-temp fleet capability. The division`s
operating margin increased to 3.0% from 2.7%.
During the review period the dry basket business of Milky Lane, Juicy Lucy and
the Pubs Division was successfully integrated into the supply chain.
The Group`s owner-driver pilot project in KwaZulu Natal has proved very
successful in terms of productivity, customer service and empowerment.
Accordingly, management has set a goal to reach 50% owner-driver status across
the company within three years. At present 11 owner-drivers are in the programme
and this number will reach 19 by the end of the financial year.
Prospects
The Group`s outlook for the forthcoming six months is cautious in the context of
prevailing macro-economic factors. The impact of global uncertainty and the
weakening local currency will undoubtedly weigh on consumer sentiment.
Disposable income will remain restrained in the absence of economic recovery,
and intense competition in the industry will persist.
Notwithstanding its circumspect outlook, the Group is confident that
opportunities for growth exist. Management is enthusiastic about potential in
the lower-end entry level market in which its participation to date has been
restricted; expansion prospects in Africa; and opportunities to further expand
its manufacturing capability as part of the Group`s backward integration
business model.
Famous Brands has traditionally experienced stronger second half trading. This
eventuality will be determined by the success of the December holiday period;
however management is optimistic that the Group will benefit from its robust
marketing and promotion campaigns, high profile brands, and long-standing
strategy to ensure widespread restaurant presence at national airports,
transient sites on all major motorways, and prime coastal resorts and shopping
malls.
The board is satisfied that the Group`s best-in-class brand portfolio, strong
management team and cash generative nature position it well for improvements in
the economy.
Dividend to shareholders
Notice is hereby given that an interim dividend No. 34 of 80 cents (2010: 70
cents) per ordinary share, payable out of income, has been declared in respect
of the six months ended 31 August 2011.
Salient dates are:
Last day to trade cum-dividend Thursday, 8 December 2011
Shares commence trading ex-dividend Friday, 9 December 2011
Record date Thursday, 15 December 2011
Payment of dividend Monday, 19 December 2011
Share certificates may not be dematerialised or rematerialised between Friday, 9
December 2011 and Thursday, 15 December 2011, both dates inclusive.
On behalf of the board
P Halamandaris KA Hedderwick
Non-executive Chairman Chief Executive Officer
Midrand
19 October 2011
Directors
Non-executive: P Halamandaris (Chairman), JL Halamandres,
P Halamandaris (Jnr), HR Levin, B Sibiya
Executive: KA Hedderwick (Chief Executive Officer), T Halamandaris (Executive
Deputy Chairman), SJ Aldridge (Group Financial Director)
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), Rennie House, 19 Ameshoff Street, Braamfontein 2001, PO Box
4844, Johannesburg 2000.
Sponsor: The Standard Bank of South Africa Limited (Registration number
1969/017128/06), 3 Simmonds Street, Johannesburg 2001.
www.famousbrands.co.za
Date: 20/10/2011 07:06:56 Supplied by www.sharenet.co.za
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