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FAMOUS BRANDS LIMITED - Unaudited consolidated interim results for the six months ended 31 August 2013

Release Date: 28/10/2013 07:05
Code(s): FBR     PDF:  
Wrap Text
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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