Wrap Text
Unaudited consolidated interim results for the six months ended 31 August 2012
Famous Brands Limited
(Incorporated in the Republic of South Africa)
(Registration number 1969/004875/06)
JSE share code: FBR
ISIN code: ZAE000053328
('Famous Brands' or 'the Group')
You're in good company
Unaudited consolidated interim results for the six months ended 31 August 2012
Highlights
Revenue up 17% to R1 184 million
Operating profit up 12% to R207 million
Headline earnings per share up 20% to 150 cents
Interim dividend per ordinary share up 35% to 108 cents
Commentary
Overview
The Group has reported strong results for the six months ended 31 August 2012 in an environment of continued subdued consumer spend and intensive
margin pressure across the retail landscape.
Trading conditions remained competitive but stable, with the key driving forces in the industry being the unrelenting demand from consumers for a
convenient value proposition, and their gravitation to tried-and-tested brands in the context of constrained disposable income.
Continuous innovation at the front end of the business, represented by the Group's extensive brand portfolio, and enhancements at the back end of
the business, comprising the backward integrated supply chain, served to drive growth in the review period.
Financial results
Group revenue increased by 17% to R1.18 billion (2011: R1.01 billion) while operating profit rose by 12% to R207 million (2011: R184 million),
reflecting the greater contribution of the disproportionately lower-margin Logistics business. In line with this changed mix in relative profit
contribution, the operating margin declined to 17.5% (2011: 18.1%).
Profit after tax was up 21% compared with the pre-tax increase of 14%. The lower tax rate of 28.5% (2011: 32.7%) is directly attributable to the
replacement of Secondary Tax on Companies ('STC') by the new Dividends Tax levied directly on shareholders.
Average net borrowings were negligible given the strong cash-generating ability of the Group and intensive cost management. Accordingly, net
interest paid amounted to only R2.1 million, an improvement of 57% on the prior comparable period.
Basic earnings per share ('EPS') and headline earnings per share ('HEPS') both increased by 20% to 150 cents per share (2011: 125 cents per share),
while diluted EPS and HEPS increased by 22% to 147 cents per share (2011: 120 cents per share).
Cash generated from operations before changes in working capital rose 10% to R223 million (2011: R203 million). Working capital absorbed a modest
R13 million reflecting an increase in inventories in anticipation of the forthcoming peak trading season. Net cash flow from operating activities of
R157 million was more than sufficient to service a greater dividend yield, totalling R118 million and net capital expenditure of R22 million, which
included R7.3 million incurred on the acquisition of Java Lava Beverage Manufacturers (Pty) Ltd ('Java Lava') and other fleet and manufacturing plant
expansions.
Borrowings of R37 million, net of cash and bank balances of R32 million, represent a mere 4% of equity (2011: 25%).
In light of the Group's healthy cash position, the board has declared an interim dividend of 108 cents per share (2011: 80 cents), an increase of 35%.
Operational reviews
The past decade has been one of rapid organic and acquisitive growth for Famous Brands. To date the existing business model has served the Group
well, but in order to ensure sustained growth of this vastly transformed enterprise, management has undertaken a major strategic intervention to build a
'fit-for-purpose' business model which will support future expansion of the Group.
Fundamental to this model is the single-minded focus on getting closer to customers (franchisees) and consumers. Initiatives implemented in this
regard have already delivered significant results, exemplified by the tremendously positive response received from the 118 franchisees now serviced
directly by the Group's new in-house Nelspruit depot rather than third-party vendors, and reflected by the impact that this business has had on the Group's
results. Further improvements in the Group's performance and results are anticipated as the model is bedded down.
FRANCHISING DIVISION - LOCAL
This division reported an increase in both revenue and operating profit of 12%, to R234 million (2011: R209 million) and R138 million (2011: R123
million) respectively. The operating margin remained virtually unchanged at 58.8% (2011: 58.9%).
The solid 10.1% system-wide sales growth reported in South Africa was boosted by an increase in turnover of 33.3% in the Group's African markets
north of the border. Revenue contribution from these territories now comprises 7.3% of total sales (2011: 6.1%).
Like-on-like sales across the Group's network improved 7.1% (2011: 4.1%) with encouraging growth reported by both established and new brands.
Central to this pleasing performance is Famous Brands' portfolio of high profile aspirational brands which are relevant, contemporary and
innovative, being underpinned via a strong market presence, compelling consumer value propositions and exceptional product quality.
Notable achievements recorded in the reporting period include Debonairs Pizza's milestone 21st trading year in which the brand will celebrate the
opening of its 400th restaurant in November 2012. A total of 42 new Debonairs Pizza restaurants will be opened in South Africa and a further 9 in Africa
during the current fiscal year.
Mugg & Bean opened a new restaurant in the OR Tambo Airport Duty-free terminal, the response to which has been hugely positive, and provides
outstanding exposure of the brand to international tourists. The brand's presence will be enhanced further when it launches the Mugg & Bean retail offering
of four coffee variants to supermarkets for at-home consumption.
In response to market conditions, Steers recently launched an 'everyday value' offering which has started to deliver market share gains.
Despite intense competition in the breakfast category, Wimpy succeeded in retaining and growing market share in its traditional specialist sector.
The re-launch of the Group's Keg brand was celebrated at the revamped Keg & Crow restaurant in Bedfordview, Gauteng. Consumer response since opening
has been extremely positive.
The Group's footprint as at 31 August 2012 comprised 2 048 restaurants across South and Southern Africa and the United Kingdom ('UK').
During the review period 51 new restaurants (2011: 50) were opened across the Southern African network, and 65 were revamped. Development activity
typically peaks in the second half of the calendar year; accordingly, a further 134 restaurants will be opened in the next six months, which will
equate to 185 new restaurants opened for the full year. In South Africa, previously under-serviced rural areas continue to offer robust expansion
opportunities for the Group's brands, whilst heightened interest from prospective franchisees continues to be experienced in the Rest of Africa.
FRANCHISING DIVISION - INTERNATIONAL
This business, which comprises Wimpy UK, contributes only 3.7% to Group revenue and is scaled in accordance with the adverse trading conditions
prevalent in the UK market. Revenue in Rand terms increased 6% to R44 million up from R42 million in the prior comparative period, while revenue in
Sterling declined 7%. In the context of severe inflationary pressure and the Group's deliberate decision to withhold menu price increases, operating
profit declined 22% to R2.7 million; the operating margin decreased to 6.1% from 8.4%. Development activity included the opening of two new restaurants
and the revamp of three existing restaurants. Two additional restaurants will be opened in the forthcoming period.
SUPPLY CHAIN
This division, comprising the Group's Manufacturing and Logistics operations reported pleasing results, reflected by an increase in consolidated
revenue of 19% to R897 million (2011: R755 million) and an improvement in operating profit of 17% to R67 million (2011: R57 million). Key to this
improved performance was first-time revenue contribution from the Group's Nelspruit distribution centre commissioned in April 2012, improved
turnover from the chicken fillet manufacturing plant, and two month's income from the recently acquired Java Lava coffee roasting business (discussed
further under 'Corporate actions'). Despite intense margin pressure resulting from increased input and utilities costs, the operating margin declined
only very slightly to 7.42% from 7.54%.
The revenue of Warehousing activities previously reported on under the Manufacturing division's results has been transferred to the Logistics
division's results. Accordingly the prior year comparative figures have also been adjusted.
* Manufacturing
Revenue generated from this division increased by 17% to R313 million (2011: R268 million), whilst operating profit grew by 14% to R41 million
(2011: R36 million). The operating margin of 13.0% is in line with the Group's best-practice target.
* Logistics
This division reported robust revenue growth, up 21% to R852 million from R702 million in the prior comparable period. Operating profit rose 22% to
R26 million (2011: R21 million), producing an operating margin of 3.1% up from 3.0% in 2011.
Corporate actions
The Group's stated strategy is to build and expand its manufacturing capability and capacity, and leverage growth opportunities in the supply chain.
During the review period Famous Brands concluded two transactions in pursuit of this goal.
A 60% controlling stake was acquired in Java Lava Beverage Manufacturers (Pty) Ltd, a privately owned state-of-the-art coffee roasting and packaging
business. The new joint-venture entity, Famous Brands Coffee Company, has been integrated into the Group's business ahead of schedule, having
already successfully taken on supply of coffee to the Wimpy brand. It is anticipated that the Mugg & Bean franchise volume business will be integrated
in March 2013. The purchase consideration was R7.3 million and further capital expenditure of R7.9 million will be incurred on new equipment. Both
amounts will be settled from cash reserves.
In the second transaction, Famous Brands entered into a ground-breaking joint-venture partnership with the Coega Dairy Company ('Coega Dairy'), an
existing dairy manufacturing business in Port Elizabeth owned by local farmers, factory and farm employees, regarding the supply of cheese products to
the Group. Famous Brands Cheese Company, the new joint-venture entity, (entirely independent from the existing dairy business), has been established
for this purpose. Famous Brands controls 51% of the company's shares, while shareholders of Coega Dairy hold the balance of 49%. Coega Dairy will
supply milk to the new company, which in turn will produce mozzarella, cheese slices and cheese spread for the Group. The transaction comprises a
straightforward greenfield investment with significant earnings potential and a short payback period. Famous Brands' investment is limited to capital
expenditure of R17.9 million for latest-technology equipment. Construction of this new cheese plant is scheduled to begin in November 2012 with a May
2013 commissioning date.
The effective date of these transactions was 1 July 2012 and 1 October 2012 respectively.
Directorate
Shareholders are advised that with effect from 1 June 2012 two new board appointments were made. Darren Hele, Chief Operating Officer - Franchising,
was appointed as an Executive Director, and Santie Botha was appointed as a Non-executive Director. On 17 October 2012 Santie Botha was appointed
Lead Independent Director.
Prospects
There is little to suggest that relief from prevailing trading conditions is imminent. It is anticipated that consumer spend will remain under
pressure, which together with hyper-inflation in diesel and utility prices, will serve to impact negatively on the Group's margins.
Notwithstanding this environment, management is optimistic that the business is well positioned to capitalise on growth opportunities as they
develop. Additionally, the latter half of the calendar year incorporating the peak holiday season traditionally affords good growth for the Group. Famous
Brands' extensive brand network catering to consumers across the income spectrum and situated in a wide variety of destinations ensures that the
offering is accessible and top of mind at all times.
Aimed at underpinning the Group's ambition to be a lowest-cost producer, R10.1 million has been budgeted for capital expenditure to further enhance
manufacturing capacity in the Ice-Cream plant, Sauce and Spice operation, and Meat Processing plants in Midrand and the Western Cape. The Bloemfontein
distribution centre will be relocated and extensively upgraded in October 2012 and is expected to promote increased franchisee loyalty and deliver
strong results in line with the newly commissioned Nelspruit depot. Furthermore, Famous Brands Coffee Company is expected to add material volume and
value at the back end of the business.
Opportunities to expand the Group's presence in Africa remain a key focus area. Debonairs Pizza is represented by a steadily growing footprint and
roll-out of the Steers and Mugg & Bean network has been prioritised for the forthcoming period, pending access to suitable retail sites and partners.
Management is confident that the 'fit-for-purpose' business model transformation which is currently being implemented across the Group will provide
opportunities to unlock further value for stakeholders in the forthcoming decade.
On behalf of the board
P Halamandaris K A Hedderwick
Non-executive Chairman Chief Executive Officer
Condensed consolidated statement of comprehensive income
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 29 February
2012 2011 % 2012
R000 R000 change R000
Revenue 1 183 918 1 013 443 17 2 155 615
Gross profit 490 775 428 025 15 922 967
Selling and administrative expenses (284 181) (244 189) 16 (510 311)
Operating profit 206 594 183 836 12 412 656
Net interest paid (2 077) (4 863) (10 652)
Profit before taxation 204 517 178 973 14 402 004
Taxation (58 313) (58 523) (133 950)
Profit for the period 146 204 120 450 21 268 054
Foreign currency translation differences 15 678 2 242 7 837
Total comprehensive income for the period 161 882 122 692 275 891
Profit attributable to:
Equity holders of Famous Brands Limited 145 319 119 949 266 811
Non-controlling interests 885 501 1 243
Total comprehensive income attributable to:
Equity holders of Famous Brands Limited 160 997 122 191 274 648
Non-controlling interests 885 501 1 243
Reconciliation to headline earnings for the period
Earnings attributable to equity holders of 145 319 119 949 266 811
Famous Brands Limited
Loss on sale of company-owned restaurants 194 - 455
(Profit)/loss on disposal of property, plant and equipment (74) 222 172
Headline earnings for the period 145 439 120 171 21 267 438
Earnings per share - cents
- basic 150 125 20 278
- diluted 147 120 22 272
Headline earnings per share - cents
- basic 150 125 20 278
- diluted 147 120 22 272
Dividends to shareholders - cents
- interim dividend declared 108 80 35 80
- final dividend declared 120
Total dividends 108 80 35 200
Ordinary shares
- in issue net of treasury shares 97 757 435 96 162 435 96 192 435
- weighted average 96 962 435 96 022 435 96 102 435
- diluted weighted average 99 032 435 100 054 274 99 937 435
Condensed consolidated segmental information - business unit and geographical
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 29 February
2012 2011 % 2012
R000 R000 change R000
Revenue
Franchising 234 042 208 534 12 439 946
Supply chain 897 031 754 887 19 1 613 907
Manufacturing 312 625 267 619 573 436
Logistics 851 576 702 298 1 516 375
Eliminations (267 170) (215 030) (475 904)
Corporate 8 900 8 382 19 829
South Africa 1 139 973 971 803 17 2 073 682
Franchising (UK) 43 945 41 640 6 81 933
Total 1 183 918 1 013 443 17 2 155 615
Operating profit
Franchising 137 598 122 905 12 264 685
Supply chain 66 588 56 913 17 140 508
Manufacturing 40 600 35 617 87 784
Logistics 25 988 21 296 52 724
Corporate (295) 532 (40)
South Africa 203 891 180 350 13 405 153
Franchising (UK) 2 703 3 486 (22) 7 503
Total 206 594 183 836 12 412 656
Condensed consolidated statement of cash flows
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 29 February
2012 2011 2012
R000 R000 R000
Cash generated before changes in working capital 222 921 203 022 451 636
Increase in inventories (36 121) (81 556) (44 430)
Increase in receivables (18 817) (11 303) (15 690)
Increase/(decrease) in payables 41 869 (4 939) 7 194
Cash generated by operations 209 852 105 224 398 710
Net interest paid (2 077) (4 863) (10 652)
Taxation paid (50 585) (58 859) (131 719)
Net cash flow from operating activities 157 190 41 502 256 339
Dividends paid (117 596) (81 589) (159 165)
Net cash retained from operating activities 39 594 (40 087) 97 174
Cash flow from investing activities
Acquisition of businesses including intangible assets (7 260) (30 896) (30 896)
Expansion capital expenditure
Property, plant and equipment (9 692) (16 398) (45 793)
Intangible assets (3 401) (610) (1 030)
Replacement capital expenditure on property, plant and equipment (1 606) (3 600) (9 776)
Proceeds from disposal of property, plant and equipment 187 976 3 263
Net cash flow from investing activities (21 772) (50 528) (84 232)
Cash flow from financing activities
Movement in share capital and reserves 25 167 5 207 5 657
Decrease in interest-bearing borrowings (55 813) (33 066) (65 634)
Cash flow from financing activities (30 646) (27 859) (59 977)
Decrease in cash and cash equivalents (12 824) (118 474) (47 035)
Foreign currency effect 3 933 428 1 218
Cash and cash equivalents at beginning of year 40 580 86 397 86 397
Cash and cash equivalents at end of period 31 689 (31 649) 40 580
Condensed consolidated statement of changes in equity
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 29 February
2012 2011 2012
R000 R000 R000
Balance at beginning of year 840 370 708 594 708 594
Group total comprehensive income for the period 160 997 122 191 274 648
Group dividends to shareholders (117 539) (81 611) (158 565)
Share-based payments 3 695 5 174 9 378
Net movement in share capital 25 167 5 100 5 657
Increase in non-controlling interests 1 856 501 658
Balance at end of period 914 546 759 949 840 370
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31 August 31 August 29 February
2012 2011 2012
R000 R000 R000
ASSETS
Non-current assets 881 864 831 532 859 304
Property, plant and equipment 154 895 136 566 155 739
Intangible assets 717 546 692 158 694 977
Deferred taxation 9 423 2 808 8 588
Current assets 416 231 397 620 361 865
Inventories 159 217 157 108 119 987
Taxation 1 705 1 739 1 386
Trade and other receivables 223 620 192 238 199 912
Cash and bank balances 31 689 46 535 40 580
Total assets 1 298 095 1 229 152 1 221 169
EQUITY AND LIABILITIES
Equity attributable to equity holders of Famous Brands Limited 907 362 754 528 834 792
Non-controlling interests 7 184 5 421 5 578
Total equity 914 546 759 949 840 370
Non-current liabilities 79 850 144 659 106 624
Interest-bearing borrowings 20 437 88 402 52 216
Deferred taxation and lease liabilities 59 413 56 257 54 408
Current liabilities 303 699 324 544 274 175
Trade and other payables 236 488 174 653 191 523
Short-term portion of interest-bearing borrowings 48 255 66 440 69 936
Taxation 18 956 5 267 12 716
Bank overdraft - 78 184 -
Total liabilities 383 549 469 203 380 799
Total equity and liabilities 1 298 095 1 229 152 1 221 169
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 2012 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 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 IAS34 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.
Declaration of ordinary dividend
Notice is hereby given that an interim dividend No. 36 of 108 cents (2011: 80 cents) per ordinary share, payable out of income, has been declared in
respect of the six months ended 31 August 2012.
The dividend cover for the period has been reduced to 1.39 times (2011: 1.56 times), which is considered sustainable given Famous Brands' strong
cash-generating ability and also compensates shareholders for any dividend withholding tax that they may be liable for under the Dividends Tax
introduced on 1 April 2012. In considering future dividend declarations, the board will be guided by the Group's cash requirements according to future
cash flow forecasts.
In terms of the abovementioned Dividends Tax, the following additional information is disclosed:
The local dividend tax rate is 15%.
There are no STC credits used or to carry forward. The net local dividend amount is 91.8 cents per share for shareholders liable to pay the Dividends
Tax and 108 cents per share for shareholders exempt from paying the Dividends Tax.
The issued share capital of Famous Brands is 97 757 435 ordinary shares; and
Famous Brands' tax reference number is 9208085846.
The salient dates for the payment of the interim dividend are detailed below:
Last day to trade cum-dividend Friday, 30 November 2012
Shares commence trading ex-dividend Monday, 3 December 2012
Record date Friday, 7 December 2012
Payment of dividend Monday, 10 December 2012
Share certificates may not be dematerialised or rematerialised between Monday, 3 December 2012
and Friday, 7 December 2012 both dates inclusive.
By order of the board
JG Pyle Midrand
Company Secretary 17 October 2012
Directors and administration:
Non-executive:
P Halamandaris (Chairman), JL Halamandres, P Halamandaris (Jnr), HR Levin, CH Boulle (Alternate to HR Levin),
BL Sibiya, SL Botha (Lead Independent Director)
Executive:
KA Hedderwick (Chief Executive Officer), T Halamandaris (Executive Deputy Chairman),
SJ Aldridge (Group Financial Director), DP Hele (Chief Operating Officer - Franchising)
Registered office:
478 James Crescent, Halfway House 1685, PO Box 2884, Halfway House 1685
Email:
investorrelations@famousbrands.co.za
Transfer secretaries:
Link Market Services (Pty) Ltd, (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
Date: 22/10/2012 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
