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Unaudited consolidated interim results for the six months ended 31 August 2013
Famous Brands Limited
(Famous Brands or the Group)
Incorporated in the Republic of South Africa
Registration number 1969/004875/06
JSE Share code: FBR
ISIN code: ZAE000053328.
Unaudited consolidated interim results for the six months ended 31 August 2013
Revenue up 16% to R1 377 million
Operating profit up 23% to R254 million
Headline earnings per share up 20% to 180 cents
Dividends per share up 20% to 130 cents
Overview
Trading environment
The economic climate experienced in the review period remained constrained and the branded food
service trading environment fiercely competitive. In addition, heightened industrial action served to
create further instability and dampen sentiment in the country.
Notwithstanding these subdued conditions, the fast food industry remained relatively buoyant and
the incidence of usage continues to grow. Industry statistics* reveal that the percentage of South
African consumers aged 16+ who bought fast food over a four week period has increased from 65% (20,4
million) in 2008 to 78% (26,5 million) in 2012.
Group performance
Famous Brands strong performance in the reporting period is attributable to its unique vertically
integrated business model designed to leverage opportunities across its brands, logistics and
manufacturing operations, and the deliberate strategy to provide a total food service solution across
most LSM categories. The Groups sought-after brands which are strategically populated across the South
African landscape, with an ever-growing presence across the rest of Africa, continue to build a
loyal following based on their availability, affordability and accessibility.
The business model transformation project implemented at the end of the prior period aimed at
getting closer to our customers (franchisees) and consumers has delivered encouraging initial results,
endorsing the introduction of this intervention. Management is satisfied that this restructuring has
positioned the Group to realise its longer-term growth ambitions.
Financial results
Group revenue increased by 16% to R1,38 billion (2012: R 1,18 billion), while operating profit
grew by 23% to R254 million (2012: R207 million). The operating margin rose to 18,4% (2012: 17,5%).
Improved profitability was derived from economies of scale achieved across the business and prudent
cost containment.
The tax rate increased marginally to 28,8% and profit after tax reported for the period rose 23%
to R180 million.
Basic earnings per share (EPS) and headline earnings per share (HEPS) both increased by 20% to
180 cents per share (2012: 150 cents per share). Diluted EPS rose 22% to 179 cents (2012: 147 cents
per share), while diluted HEPS improved by 22% to 180 cents per share (2012: 147 cents per share).
Cash generated by operations before changes in working capital increased by 22% to R271 million
(2012: R223 million). Working capital absorbed R39 million, resulting in a net cash flow from
operating activities of R164 million (2012: R157 million), more than sufficient to service higher
dividend payments totalling R143 million.
Net capital expenditure of R29 million was incurred on manufacturing capacity expansion and fleet
replacement.
Borrowings of R117 million, net of cash and cash equivalents of R71 million, represent a mere 4%
of equity (2012: 4%).
Operational reviews
FRANCHISING
The Groups footprint as at 31 August 2013 comprised 2 180 restaurants across Africa, the Middle
East, India and the United Kingdom (UK).
SOUTH AFRICA
Total revenue reported by this division increased by 16% to R261 million. Operating profit rose
21% to R158 million, with a strong improvement in the operating margin to 60,7% from 57,9%.
System-wide sales (including new restaurants) grew 14,9% while same store sales increased 8,5%.
Improved like-on-like sales were reported across the Groups portfolio of 23 brands, (with the
exception of three niche brands that are currently undergoing further development), underlining
the Groups deliberate total food service solution strategy.
The review period featured a slow-down in frequency of visits to Casual Dining Restaurants
(CDR), a trend which benefitted Quick Service Restaurants (QSR) as consumers continued to
purchase home-meal replacements but with smaller budgets.
During the six months expansion of retail property developments was subdued; in this context,
53 (2012: 51) new restaurants were opened across the South African network. Increased expansion
activity is forecast for the second half of the year and the Group plans to open a further 115
restaurants within its home market.
REST OF AFRICA, MIDDLE EAST AND INDIA
Revenue reported by this division increased 36% to R23 million. Operating profit grew 57% to
R9 million. System-wide sales improved by 30,4%, while like-on-like sales rose 15,7%. This
territory now contributes 8,2% (2012: 7,3%) of total system-wide sales (excluding UK).
Ten restaurants were opened in the rest of Africa region during the period, and a further 23
are planned for the balance of the year.
In March 2013 the Group concluded a Master Licence agreement in India with Diwa Hospitality Pvt
Ltd and in July 2013 opened its pilot Debonairs Pizza restaurant in Mumbai. The response to this
offering has been encouraging. In the short term, a second restaurant is being planned for Mumbai.
UNITED KINGDOM
Early signs of an economic improvement in the UK food services industry became evident during
the period. While consumers remained value conscious, they continued to support established brands
with tried and tested offerings.
The Groups UK operation delivered revenue of R44 million, in line with the prior year. Operating
profit grew by 72% to R4,7 million. This disproportionately high profit is a function of
right-sizing the business and the benefit of foreign currency translation improvements during the
period. This division remains a very small component of the Groups business, comprising less than
3,3% of total revenue.
The Group launched its maiden Steers restaurant in Clapham, London in July 2013 to warm acclaim.
The business has delivered consistently good results since opening. Further expansion of the
Steers UK offering will be cautious in the context of the current economy, and will be dictated
by availability of suitable sites and franchise partners.
SUPPLY CHAIN
Consolidated revenue increased by 17% to R1,05 billion, while operating profit rose 22% to
R81 million. The operating margin was 7,7% (2012: 7,4%).
Manufacturing
Revenue increased by 33% to R414 million, whilst operating profit grew by 17% to R47 million;
the relatively lower profit to revenue ratio is a function of start-up costs at the Coega Cheese
facility. The operating margin was 11,4% (2012: 13,0%).
Capital expenditure of R15 million was incurred, building manufacturing capability across a number
of the Groups plants in order to increase capacity and/or improve yields and efficiencies.
During the period the Famous Brands Coffee Company successfully took on the supply of coffee for
the Groups Mugg & Bean, Fego Caffé, Europa and The Bread Basket brands.
In the forthcoming six months the Famous Brands Choice Meats facility will commence the supply of
product to the Steers brand whilst the Turn n Tender sauce products will be integrated into the
Groups Sauce and Spice plant at Midrand. Furthermore, the Famous Brands Great Baking Company will
integrate the supply of specialist bread and baked products to the Wimpy, Mugg & Bean, Fego Caffé
and Europa networks.
Logistics
Revenue grew 15% to R982 million, while operating profit rose 30% to R34 million. The
disproportionately higher profit to revenue ratio is due to the inclusion for the first time of
supply to the recently acquired Fego Caffé, Europa, The Bread Basket and Turn n Tender
franchised businesses.
Despite the impact of fuel price volatility, the division managed to improve the operating margin
to 3,4% (2012: 3,1%).
In May the Groups Port Elizabeth distribution centre was relocated to a new state-of-the-art
multi-temperature facility in the Coega Industrial Development Zone.
Subsequent events
Shareholders were advised on 16 September 2013 that the Group had acquired from UAC of Nigeria PLC
(UAC), a 49% stake in their hitherto wholly-owned company UAC Restaurants Limited (UACR). UACR
manages the QSR component of UACs business and houses the flagship Mr Biggs brand, the single
largest food franchise brand in Africa, north of the South African border. The acquisition
consideration was not disclosed, but falls below the threshold of a categorised transaction in
terms of the Listings Requirements of the JSE Limited. The acquisition will be funded out of cash
reserves and was effective as at 1 October 2013.
UACR comprises 165 franchised restaurants across Nigeria as well as a nationwide distribution
network and Lagos-based manufacturing infrastructure. This acquisition boosts Famous Brands
strategy to expand its presence in the broader African QSR market and enables the Group to
acquire a substantial stake in an existing leading home-grown brand in Nigeria.
Prospects
Prevailing trading conditions are likely to persist for the foreseeable future. Consumer
disposable income will continue to be constrained, and competition amongst industry participants
is likely to accelerate. Margin pressure will remain a feature as fuel and food inflation continue
to rise.
Despite these factors, the food services category remains a robust one. Industry statistics*
predict that consumption of fast food (as viewed over a four week period) is expected to increase
by a compound annual growth rate of 5,2% to 34,1 million consumers in 2017 up from 20,4 million
consumers in 2008. In this context and by virtue of its affordable, accessible and aspirational
offerings, the Group is optimistic regarding its future growth opportunities.
Famous Brands is well positioned to capitalise on any available disposable income over the
forthcoming period which includes the peak summer holiday trading period. The Groups brands are
represented at all major consumer hubs, ranging from suburban shopping malls, casinos, coastal
resorts and airports to national road transit sites and outlying rural areas. This accessibility
to potential customers has been enhanced with the recent awarding of the food service licence at a
range of Kruger National Park sites including Pretoriuskop, Satara and Letaba (Wimpy), and Lower
Sabie and Olifants (Mugg & Bean).
The rest of Africa offers good growth opportunities as the shift from informal to branded food
service offerings becomes entrenched. The Groups recent investment in Nigeria exemplifies its
conviction that this region will become increasingly significant to the business over time.
Management is mindful that a continued focus on product innovation, value, quality, service,
trading formats and break-through communications will be critical in retaining its market
leadership position, and is satisfied that the appropriate teams and structures are in place
to do so.
*Source: Analytix Consumer Analysis
On behalf of the board
P Halamandaris KA Hedderwick
Non-executive Chairman Chief Executive
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2013 2012 % 2013
R000 R000 change R000
Revenue 1 376 948 1 183 918 16 2 516 287
Gross profit 582 468 490 775 19 1 052 566
Selling and administrative expenses (328 828) (284 181) 16 (586 724)
Operating profit 253 640 206 594 23 465 842
Net interest paid (695) (2 077) (3 969)
Profit before taxation 252 945 204 517 24 461 873
Taxation (72 751) (58 313) (130 821)
Profit for the period 180 194 146 204 23 331 052
Foreign currency translation differences 33 748 15 678 19 337
Total comprehensive income for the period 213 942 161 882 350 389
Profit attributable to
Equity holders of Famous Brands Limited 177 462 145 319 328 805
Non-controlling interests 2 732 885 2 247
Total comprehensive income attributable
to Equity holders of Famous Brands Limited 211 210 160 997 348 142
Non-controlling interests 2 732 885 2 247
Reconciliation to headline earnings for
the period
Earnings attributable to equity holders
of Famous Brands Limited 177 462 145 319 328 805
Impairment of goodwill - - 1 469
Loss/(profit) on disposal of property,
plant and equipment and businesses 357 120 (86)
Headline earnings for the period 177 819 145 439 22 330 188
Earnings per share - cents
- basic 180 150 20 338
- diluted 179 147 22 334
Headline earnings per share - cents
- basic 180 150 20 339
- diluted 180 147 22 335
Dividends to shareholders - cents
- interim dividend declared 130 108 20 108
- final dividend declared 142
Total dividends 130 108 20 250
Ordinary shares
- in issue 99 242 435 97 757 435 97 827 435
- weighted average 98 662 435 96 962 435 97 377 435
- diluted weighted average 99 297 435 99 032 435 99 377 435
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
R000 R000 R000
Cash generated before changes in working
capital 271 053 222 921 503 396
Increase in inventories (41 881) (36 121) (47 281)
Increase in receivables (37 422) (18 817) (46 911)
Increase in payables 40 367 41 869 73 075
Cash generated by operations 232 117 209 852 482 279
Net interest paid (695) (2 077) (3 969)
Taxation paid (66 950) (50 585) (136 507)
Net cash flow from operating activities 164 472 157 190 341 803
Dividends paid (142 650) (117 596) (223 173)
Net cash retained from operating
activities 21 822 39 594 118 630
Cash flow from investing activities
Acquisition of businesses including
intangible assets (14 522) (7 260) (92 257)
Expansion capital expenditure
Property, plant and equipment (14 665) (9 692) (49 608)
Intangible assets (4 620) (3 401) (4 291)
Replacement capital expenditure on
property, plant and equipment (14 192) (1 606) (18 433)
Proceeds on disposal of business 274 - -
Investments in associate (810) - -
Proceeds from disposal of property,
plant and equipment 5 135 187 2 239
Net cash flow from investing activities (43 400) (21 772) (162 350)
Cash flow from financing activities
Increase in share capital and reserves 37 775 25 167 26 219
Decrease in interest-bearing borrowings (47 633) (55 813) (86 325)
Interest-bearing borrowings raised - - 130 000
Contribution by non-controlling
shareholders 10 643 - 12 283
Cash flow from financing activities 785 (30 646) 82 177
(Decrease)/increase in cash and cash
equivalents (20 793) (12 824) 38 457
Foreign currency effect 6 851 3 933 5 699
Cash and cash equivalents at beginning
of year 84 736 40 580 40 580
Cash and cash equivalents at end
of period 70 794 31 689 84 736
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
2013 2012 2013
Restated % Restated
R000 R000 change R000
Revenue
Franchising and Development 260 712 225 521 16 476 896
Supply Chain 1 048 682 897 031 17 1 919 400
Manufacturing 414 470 312 625 33 715 418
Logistics 981 955 851 576 15 1 812 358
Eliminations (347 743) (267 170) 30 (608 376)
Corporate 672 668 1 296
South Africa 1 310 066 1 123 220 17 2 397 592
International (rest of Africa and UK) 66 882 60 698 10 118 695
UK 44 071 43 945 0 83 030
Rest of Africa 22 811 16 753 36 35 665
Total 1 376 948 1 183 918 16 2 516 287
Operating profit
Franchising and Development 158 370 130 650 21 286 639
Supply Chain 81 258 66 588 22 160 694
Manufacturing 47 444 40 600 17 97 618
Logistics 33 814 25 988 30 63 076
Corporate 347 901 722
South Africa 239 975 198 139 21 448 055
International (rest of Africa and UK) 13 665 8 455 62 17 787
UK 4 656 2 702 72 5 391
Rest of Africa 9 009 5 753 57 12 396
Total 253 640 206 594 23 465 842
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31 August 31 August 28 February
2013 2012 2013
R000 R000 R000
ASSETS
Non-current assets 1 066 796 881 864 1 006 137
Property, plant and equipment 204 986 154 895 194 080
Intangible assets 849 567 717 546 800 470
Investments in associates 810 - -
Deferred taxation 11 433 9 423 11 587
Current assets 572 492 416 231 504 330
Inventories 209 633 159 217 167 277
Taxation 2 032 1 705 2 780
Trade and other receivables 290 033 223 620 249 537
Cash and cash equivalents 70 794 31 689 84 736
Total assets 1 639 288 1 298 095 1 510 467
EQUITY AND LIABILITIES
Equity attributable to equity holders
of Famous Brands Limited 1 102 751 907 362 991 743
Non-controlling interests 15 923 7 184 8 345
Total equity 1 118 674 914 546 1 000 088
Non-current liabilities 92 070 79 850 130 456
Interest-bearing borrowings 32 500 20 437 77 313
Deferred taxation and lease liabilities 59 570 59 413 53 143
Current liabilities 428 544 303 699 379 923
Trade and other payables 309 324 236 488 269 469
Non-controlling shareholders loans 22 926 - 12 283
Short-term portion of interest-bearing
borrowings 84 920 48 255 88 514
Taxation 11 374 18 956 9 657
Total liabilities 520 614 383 549 510 379
Total equity and liabilities 1 639 288 1 298 095 1 510 467
Condensed consolidated statement of changes in equity
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
R000 R000 R000
Balance at beginning of year 1 000 088 840 370 840 370
Group total comprehensive income
for the period 211 210 160 997 348 142
Group dividends to shareholders (141 880) (117 539) (222 866)
Share-based payments 3 216 3 695 5 456
Increase in share capital 37 776 25 167 26 219
Increase in non-controlling
interests 8 264 1 856 2 767
Balance at end of period 1 118 674 914 546 1 000 088
Notes
1. These results have not been audited by the Groups auditors.
2. The unaudited results of the Group for the six months ended 31st August 2013 have been prepared
in accordance with International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council, the South African 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 NS Richards,
in his capacity as Group Financial Director.
6. Within segmental information, revenue and operating profit attributable to the rest of Africa have
been reclassified separately and Development division revenues and operating profit reclassified
from Corporate to Franchising South Africa. In both instances comparative numbers have been restated.
Declaration of ordinary dividend
Notice is hereby given that an interim gross dividend No. 38 of 130 cents (2012: 108 cents)
per ordinary share, payable out of income, has been declared in respect of the six months
ended 31 August 2013.
The salient dates for the payment of the interim dividend are detailed below:
Last day to trade cum-dividend Friday, 29 November 2013
Shares commence trading ex-dividend Monday, 2 December 2013
Record date Friday, 6 December 2013
Payment of dividend Monday, 9 December 2013
Share certificates may not be dematerialised or rematerialised between Monday, 2 December 2013
and Friday, 6 December 2013, both dates inclusive.
In terms of Dividends Tax legislation, the following additional information is disclosed:
The local Dividends Tax rate is 15% before utilisation of Secondary Tax on
Companies (STC) credits.
There are no STC credits used or to carry forward. The net local dividend amount is 110,5 cents
per share for shareholders liable to pay the Dividends Tax and 130 cents per share for shareholders
exempt from paying the Dividends Tax.
The issued share capital of Famous Brands is 99242435 ordinary shares.
Famous Brands tax reference number is 9208085846.
By order of the board
JG Pyle Midrand
Company Secretary 23 October 2013
Directors and administration
Non-executive:
P Halamandaris (Chairman), JL Halamandres, P Halamandaris (Jnr), T Halamandaris
(Deputy Chairman), HR Levin, CH Boulle (Alternate to HR Levin), BL Sibiya,
SL Botha (Lead Independent Director).
Executive:
KA Hedderwick (Chief Executive), NS Richards (Group Financial Director),
DP Hele (Chief Operating Officer)
Famous Brands Limited:
(Incorporated in the Republic of South Africa)
(Registration number 1969/004875/06)
JSE Share code: FBR
ISIN code: ZAE000053328.
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),
30 Baker Street, Rosebank, 2196.
www.famousbrands.co.za
Date: 28/10/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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