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FAMOUS BRANDS LIMITED - Provisional summarised results for the year ended 28 February 2017

Release Date: 29/05/2017 07:05
Code(s): FBR     PDF:  
Wrap Text
Provisional summarised results for the year ended 28 February 2017

Famous Brands Limited 
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN: ZAE000053328

Provisional summarised results for the year ended 28 February 2017 

Financial highlights
- Up 33% 
  Revenue up to R5.7 billion 
  
- Up 18% 
  Operating profit before non-operational items and additional interest costs up to R938 million

- 16.4% 
  Operating margin before non-operational items 

- Up 13% 
  Headline earnings per share before non-operational items and additional interest costs
  up to 613 cents per share 

Highlights                                         
- Core business delivers strong organic growth       
- New acquisitions integrated successfully           
- Built scale to facilitate future growth            
- Business model transformed with GBK acquisition    
- Refined and advanced Strategy 2020                 


COMMENTARY
GROUP PERFORMANCE
Famous Brands reported a very strong set of results for the year under review. The Group's resilience in the face 
of adverse trading conditions is attributable to a strategic and integrated business model, dedicated leadership, 
and unwavering focus on constant innovation in the business's branded food service solutions which are designed 
to ensure relevance to consumers, competitive advantage for franchise partners and rewarding returns for all 
stakeholders.

Strong organic growth was reported by the Brands, Logistics and Manufacturing operations, complemented by solid
results derived from the integration of newly acquired businesses. In the Brands division, both the Leading and 
Signature portfolios delivered rewarding performances, underpinned by the Group's compete-to-win culture and best 
practice disciplines across the offering. The Logistics and Manufacturing divisions successfully integrated higher 
volumes of existing business as well as new volumes arising from acquisitions, as reflected in their pleasing 
results.

As advised in the respective SENS announcements, Famous Brands concluded seven acquisitions during the period. 
These included:
- The UK's premium burger category market leader, Gourmet Burger Kitchen (GBK), the Group's largest acquisition to 
  date and a transformational one for the business model.
- The establishment of joint venture partnerships with local emerging brands, Salsa Mexican Grill, Lupa Osteria and
  Catch.
- The acquisition of a 49.9% stake in commercial catering company, By Word of Mouth.
- The acquisition of Lamberts Bay Foods (LBF), a manufacturer of French fries and other potato products, and Coega
  Concentrate, a tomato paste processing plant based in the Eastern Cape.

All of the abovementioned acquisitions were successfully integrated into the Group's operations during the year. 
They are discussed in more detail under the respective divisional reports in this announcement.

FINANCIAL RESULTS
Famous Brands' strong results track record is exemplified by another consecutive year of improved turnover and
operating profits.

Revenue for the period grew by 33% to R5.7 billion (2016: R4.3 billion), which includes 20 weeks of turnover contribution 
from the GBK business which was acquired with effect from 7 October 2016. Operating profit before non-operational items 
increased 18% to R938 million (2016: R792 million). The operating margin before non-operational items declined to 16.4% 
(2016: 18.4%) due to a higher percentage of joint venture entities and company-owned restaurants in the system; the
incorporation of high-volume lower-margin manufacturing business; and continued investment in resources to enhance
operational capabilities.

The Group's results for the year under review were impacted on by the following once-off non-operational items related
to the GBK acquisition: a realised derivative loss of R33 million on the call option that was utilised to hedge the
purchase price of the acquisition; a realised foreign exchange loss of R23 million arising from the unfavourable movement
in the ZAR:GBP exchange rate between the acquisition payment date and the effective date; and professional fees related
to the acquisition of R50 million. 

As previously disclosed in the interim results announcement on 24 October 2016, the Group recognised an impairment
loss of R20 million on the investment made in 2013 in UAC Restaurants Limited in Nigeria. 

Net finance costs incurred for the period were R132 million compared to R7 million in the prior corresponding period
mainly as a result of interest-bearing borrowings raised to fund growth in operations and to optimise the Group's capital
structure.

Accordingly, headline earnings per share (HEPS) decreased 21% to 428 cents per share (2016: 541 cents per share). HEPS
before non-operational items and additional interest costs, rose 13% to 613 cents per share (2016: 541 cents per
share).

Cash generated by operations before changes in working capital increased to R932 million (2016: R875 million). Working
capital changes improved to R137 million (2016: R156 million). After changes in working capital, cash generated by
operations increased to R795 million (2016: R718 million).

The Group raised interest-bearing borrowings of R2.4 billion to fund its operating activities, while employing the
cash generated from operations to fund among others, the GBK acquisition and related transaction costs. Cash utilised in
investing activities was R2.3 billion (2016: R202 million).

The effective tax rate for the period increased to 34% from 29% in the prior year as a result of the once-off
non-operational items related to the GBK acquisition. Tax payments were R215 million (2016: R244 million).

At the end of the period, net cash increased to R405 million (2016: R6 million). The Group's gearing ratio relative to
its market capitalisation as at 28 February 2017 was 16%.

OPERATIONAL REVIEWS
BRANDS 
The Group's Brands portfolio is strategically structured to appeal to a wide range of consumers across the income and
demographic spectrum and across meal preferences and value propositions. 

The Brands division comprises the following regions: South Africa, Rest of Africa and the Middle East (AME), and the
United Kingdom (UK). 

Throughout this division, management's focus was on building capability and advancing market penetration. 

During the review period, 192 restaurants were opened, bringing the Group's total brand network to 2 782 restaurants
(2016: 2 614). The trading environment is monitored closely by management to ensure the restaurant footprint is aligned
with market demand; while new restaurant openings were in line with the prior year, there is a general trend to more
closures than in previous years given the current economic environment and changing demographic landscape. The Group's
restaurant revamp programme continued to gain traction, with 220 restaurants refurbished; post-revamp results have been
rewarding.

The performance of the Group's brands in the three operating regions is discussed below.

South Africa
Revenue increased 15% to R781 million (2016: R681 million). Operating profit rose by 10% to R427 million (2016: 
R389 million), while the operating margin declined to 54.7% (2016: 57.1%). System-wide sales grew 11.5%.

Leading brands portfolio
The Group's Quick Service brands recorded another excellent set of results, while the Casual Dining brands performed
solidly in a category that experienced intensified pressure as the economy worsened over the review period. Particularly
impressive performances were reported by Debonairs Pizza, Steers, Fishaways and Milky Lane, with each of these brands
reporting robust double-digit growth.

Signature brand portfolio
Among the established Signature brands, strong double-digit system-wide sales were delivered by tashas, Turn 'n Tender
(with the brand also opening its first two restaurants outside of Gauteng), NetCafe, Coffee Couture and Thrupps; the
growth reported across these brands was derived primarily from consistent menu innovation and new restaurant openings.

As announced in November 2015, Famous Brands signed an exclusive licence agreement with global bakery-cafe business,
PAUL, to become the brand's South African Licenced Partner for a 10-year period. On 2 March of this year, the Group
opened its flagship PAUL restaurant in Melrose Arch, Gauteng, to widespread acclaim from customers. 

Hospitality portfolio
The acquisition of a 49.9% stake in multi-awarded commercial catering company, By Word of Mouth, affords the Group
access to the broader food services category. Key strategic initiatives planned for the business include growing its
existing presence in the premium corporate market, establishing a footprint in Cape Town and Durban, and entering the 
home meal replacement retail space through high-end stand-alone stores retailing bespoke products. 

REST OF AFRICA AND THE MIDDLE EAST (AME)
Overview
Combined revenue in Rand terms grew to R249 million (2016: R145 million). Operating profit rose by 47% to R50 million
(2016: R34 million), while the operating margin declined to 19.9% (2016: 23.3%). System-wide sales for the period rose
8.3%. The AME region contributes 9.3% to the Group's total system-wide Brands division sales.

The Group has in excess of 20 years of experience in the Rest of Africa and is represented in 15 countries. Seventeen
restaurants (2016: 33) were opened in the review period, substantially fewer than management's initial forecasts. This
disappointing new restaurant roll-out is a function of weak trading conditions in the region, financial institutions'
tighter lending criteria and restricted access to foreign exchange for prospective franchisees. 

Debonairs Pizza and Mugg & Bean were once again the best performing brands in the region. 

Management continues to assess and evaluate the Group's participation in the region and in line with the stated policy
to implement a narrow and deep strategy, the business exited three underperforming markets, Ivory Coast, Democratic
Republic of Congo and Tanzania, while additional resources have been allocated to more favourable markets, including
Malawi, Zambia and Mauritius. 

Debonairs Pizza in the United Arab Emirates (UAE) benefited from the introduction of new management, resulting in
improved sales growth. The brand will focus on sourcing new franchisees in the forthcoming period.

tashas' maiden restaurant in the UAE, launched in Jumeirah in 2015, has traded strongly since opening. Based on this
success, extensive groundwork has been conducted over the past two years in preparation for the brand's robust expansion
in the UAE. Subsequent to year-end, one restaurant was opened in Abu Dhabi and another in Dubai. Three additional
restaurants will be opened in Dubai during the remainder of the 2018 financial year. 

UNITED KINGDOM
Overview
As noted, the effective date of the GBK acquisition was 7 October 2016, and therefore GBK's contribution to the Brands
division's total results is for a period of 20 weeks only. In order to present an accurate comparison with the prior
corresponding year, the pre-existing (Wimpy and Steers) UK business will be reported on separately for the purposes of
this report. Henceforth the combined results of the entire UK operation will be presented. 

Economic uncertainty, largely due to Brexit concerns, was a key feature during the period, and the consequent devaluation 
of the currency, while encouraging an influx of tourists, exacerbated existing inflationary pressure on disposable income.

Wimpy UK
This business reported a marginal decline in revenue in Sterling. Revenue in Rand terms decreased to R105 million
(2016: R116 million), mainly as a function of foreign exchange translation loss, which amounted to R8 million (2016: 
R15 million gain). Operating profit decreased to R19 million (2016: R33 million), while the operating margin declined 
to 18.1% (2016: 28.2%).

Several constructive initiatives were introduced during the period, including a new restaurant design, which has had a
positive impact on sales growth and in attracting a younger customer base. Further investment in strengthening the
operations team has also delivered benefits to the business. Management is confident that Wimpy's offering is structured 
to capitalise on growth opportunities as the economy improves.

The Steers brand has failed to gain traction in the UK market, with only one restaurant remaining. There are no plans
to grow this footprint.

GBK
In the 20-week period from the acquisition of GBK to Famous Brands' 28 February year-end, the business contributed 
£35 million in revenue (R599 million) and £2 million (R36 million) in operating profit to the Group's Brands division
results.

GBK's higher system-wide and like-on-like turnover was driven by increased sales derived from online, entertainment
venue restaurants and London city restaurants. Industry statistics confirm that the brand's results outperformed the
market average.

Eight restaurants were opened and two revamped in the specified period.

In June 2016, GBK acquired its five formerly franchised restaurants in Ireland and converted them to company-owned sites. 
Over the past year, three of the restaurants underwent major revamps to align them with the brand's current look and
feel. The focus in the period ahead will be on streamlining the performance of these restaurants. 

Management is satisfied that the integration of GBK into the business has proceeded according to programme and is
optimistic that the operation will add significant value to the Group over time.

SUPPLY CHAIN
The Group's Supply Chain division comprises its Logistics and Manufacturing businesses, which are managed and measured
separately. Consolidated revenue for the period increased 18% to R4.0 billion (2016: R3.4 billion), while operating
profit rose 31% to R455 million (2016: R348 million). The operating profit margin improved to 11.4% (2016: 10.3%).

LOGISTICS
Revenue for the period increased 17% to R3.4 billion (2016: R2.9 billion), while operating profit improved 24% to 
R125 million (2016: R100 million). The operating margin increased to 3.6% (2016: 3.4%).

These pleasing results are a reflection of the integration of new brand business into the distribution network and a
full-year contribution from Crown Mines Distribution Centre, versus 10 months in the prior corresponding period (this
facility manages the previously outsourced frozen and chilled product basket in Gauteng). In addition, efficiencies were
improved with the significant increase in fleet size and the opening of the Long Meadow Distribution Centre in August
2016, which added substantial storage capacity to the operation.

Capital expenditure of R32 million was incurred on facility and fleet upgrades.

MANUFACTURING
This division reported an impressive performance in the year under review, delivering a 28% increase in revenue to
R2.3 billion (2016: R1.8 billion), while operating profit rose 33% to R330 million (2016: R247 million). These results 
are attributable to continued improvements across the operation with particularly strong performances recorded by the 
Famous Brands Cheese Company and Famous Brands Meat Company.

Despite the extended drought which resulted in higher beef, pork and chicken prices, the operating margin improved 
to 14.3% (2016: 13.7%) due to intensive cost containment achieved through enhanced efficiencies in the business.

Capital expenditure of R29 million was incurred on plant upgrades, machinery and equipment.

Lamberts Bay Foods Limited (LBF)
During the review period, LBF was successfully integrated into Famous Brands' operations, and, in addition to supplying 
its pre-existing retail customers, the business now also supplies the Group's entire restaurant network. Initiatives
have been identified within the plant to improve capacity and ramp up production to meet growing demand.

Famous Brands Coega Concentrate
This state-of-the-art tomato paste manufacturing plant was acquired out of liquidation in June 2016. During the
period, an experienced management team was appointed and the plant was recommissioned with a small volume of tomatoes,
successfully producing quality paste. 

While the business commenced with building a robust farmer-supplier pipeline for the forthcoming season, management's
key challenge for the foreseeable future will be to establish a strong long-term procurement base to ensure full,
sustainable utilisation of the plant's substantial capacity. This process will take considerable time and realisation 
of this operation's profitability is viewed as a protracted scenario.

DIRECTORATE and company secretary
During the year and as announced on SENS, the Board of Directors was restructured as follows:
- With effect from 1 June 2016, Ms Thembisa Skweyiya was appointed as an independent non-executive director to the
  Board.
- Effective 1 July 2016, Mr Norman Richards, formerly Group Financial Director, was appointed as Group Commercial
- Executive, and Ms Kelebogile Ntlha, formerly Group Financial Executive and Company Secretary, was appointed as 
  Group Financial Director.
- Mr Ian Isdale assumed the position of Company Secretary on a consultancy basis for six months with effect from 
  31 August 2016. As of 28 February 2017, Mr Isdale's appointment was extended to 28 February 2018.

Subsequent to the year-end and effective 2 May 2017, Mr Kevin Hedderwick was appointed as a non-executive director to
the Board. 

The Group remains committed to transforming the composition of the Board to ensure compliance with the JSE Listings
Requirements as well as to continually enhance the range of expertise and experience available to the business.

PROSPECTS
Management does not envisage an improvement in the Group's home market economy in the near future, and inevitably the
downgrade of the country's sovereign credit rating to sub-investment status will harm business and consumer confidence.
In the UK market, continued short-term uncertainty is anticipated as Brexit negotiations proceed.

Notwithstanding this context, the Group will remain strongly focused on growth. Management will assiduously implement
opportunities within the business to build scale across the Brands and Manufacturing divisions, while also remaining
receptive to prospective acquisitions which align with the Group's vision to be the leading innovative branded franchised
and food services business in South Africa and selected international markets by 2020.

Among the key priorities are to leverage synergies and enhance efficiencies across the operations to contain costs.
Constant innovation and improvement in the business aimed at delivering unique customer experiences will remain
management's firm intent.

The acquisition of GBK has been significant in furthering the Group’s goal to diversify its earnings and expand its 
geographical footprint.  Management is enthusiastic about the opportunities presented by the business and the UK market.

Higher levels of capital expenditure will be incurred in line with the Group's strategy to open additional
company-owned restaurants in the UK and invest in building capacity and scale across the business. This investment 
includes bolstering the human capital component and fortifying the depth of leadership structures across the business 
to align with growth ambitions. Management is confident that this investment is prudent and will deliver the anticipated 
benefits.

DIVIDEND
As outlined in this announcement, the Group concluded a number of acquisitions during the year to support its robust
growth targets. Consequently, the business's gearing is substantially higher than in prior years and the Board has
therefore resolved that no final dividend will be declared for the period. As reported in the interim results 
announcement, it is anticipated that, subject to future acquisitions, payment of dividends will resume in the 2018 
financial year. 

SL Botha                        DP Hele
Independent Chairman            Chief Executive Officer

Midrand
29 May 2017


AUDIT OPINION
These summarised consolidated financial statements for the year ended 28 February 2017 have been derived from the
audited consolidated financial statements of Famous Brands Limited for the year ended 28 February 2017, on which 
the auditors, Deloitte & Touche, have expressed an unmodified audit opinion. The information as set out in this 
announcement has been extracted from audited information but is not itself audited.

A copy of the auditor's report, together with the accompanying financial information, can be obtained from the
company's registered office. The auditor's report and the audited consolidated financial statements will be 
available on the company's website (www.famousbrands.co.za) on 30 June 2017.

The Board of Directors of Famous Brands takes full responsibility for the preparation of this provisional report and
for ensuring that the financial information has been correctly extracted from the underlying financial statements.

Summarised consolidated statement of financial position
at 28 February 2017
                                                                              2017              2016
ASSETS                                                      Note              R000              R000
Non-current assets                                                       4 315 513         1 436 377 
Property, plant and equipment                                  5         1 397 601           286 448 
Intangible assets                                              6         2 818 755         1 095 888 
Investments in associates                                                   83 083            52 746 
Deferred tax                                                                16 074             1 295 
Current assets                                                           1 570 940           971 906 
Inventories                                                                454 656           301 625 
Current tax assets                                                          38 174            60 786 
Derivative financial instruments                                                 -               100 
Trade and other receivables                                                649 290           463 261 
Cash and cash equivalents                                                  428 820           146 134 
Total assets                                                             5 886 453         2 408 283 
Equity and liabilities                                                                          
Equity attributable to owners of Famous Brands Limited                   1 383 509         1 474 780 
Non-controlling interests                                                  101 805            75 819 
Total equity                                                             1 485 314         1 550 599 
Non-current liabilities                                                  3 407 380           214 690 
Borrowings                                                    13         2 740 744                 - 
Derivative financial instruments                                           196 469           124 821 
Lease liabilities                                                           80 122            10 858 
Deferred tax                                                               390 045            79 011 
Current liabilities                                                        993 759           642 994 
Non-controlling shareholder loans                                           22 130            24 988 
Derivative financial instruments                                            23 381                 - 
Lease liabilities                                                            6 548             1 689 
Trade and other payables                                                   790 891           462 481 
Shareholders for dividends                                                   2 221             1 873 
Current tax liabilities                                                     10 109            11 713 
Borrowings                                                    13           114 853                 - 
Bank overdrafts                                                             23 626           140 250 
Total liabilities                                                        4 401 139           857 684 
Total equity and liabilities                                             5 886 453         2 408 283 


Summarised consolidated statement of profit or loss and other comprehensive income
for the year ended 28 February 2017            

                                                                              2017              2016         %
                                                            Note              R000              R000    Change                                                  
Revenue                                                                  5 720 363         4 308 318        33    
Cost of sales                                                           (2 948 744)       (2 469 947)              
Gross profit                                                             2 771 619         1 838 371        51    
Selling and administrative expenses                                     (1 833 571)       (1 046 263)       75    
Operating profit before non-operational items                              938 048           792 108        18    
Non-operational items                                          8          (120 755)          (12 000)              
Operating profit after non-operational items                               817 293           780 108              
Net finance costs**                                                       (131 557)           (6 909)             
Finance costs                                                             (184 389)          (27 375)              
Finance income                                                              52 832            20 466              
Share of profit/(loss) of associates                                         4 314              (622)              
Profit before tax                                                          690 050           772 577       (11)   
Tax                                                                       (235 246)         (221 011)              
Profit for the year                                                        454 804           551 566       (18)   
Other comprehensive income, net of tax:                                                                           
Exchange differences on translating foreign operations*                   (245 603)           65 753              
Movement in hedge accounting reserve*                                       (2 704)                -              
Effective portion of change in fair value of cash flow                
hedges                                                                      (3 867)                -              
Tax on movement in hedge accounting reserve                                  1 163                 -              
Total comprehensive income for the year                                    206 497           617 319              
Profit for the year attributable to:                                                                              
Owners of Famous Brands Limited                                            413 747           527 699              
Non-controlling interests                                                   41 057            23 867              
                                                                           454 804           551 566              
Total comprehensive income attributable to:                                                                       
Owners of Famous Brands Limited                                            165 440           593 452              
Non-controlling interests                                                   41 057            23 867              
                                                                           206 497           617 319              
Basic earnings per share (cents)                                                                                  
Basic                                                        7.1               414               529       (22)   
Diluted                                                      7.1               413               528       (22)   
Basic earnings per share before non-operational items and             
additional interest costs (cents)                                     
Basic                                                        7.1               614               541        13    
Diluted                                                      7.1               612               540        13    
*  This item may be reclassified subsequently to profit or loss
** The increase in net finance costs relates to borrowings raised during the year under review


Summarised consolidated statement of changes in equity
for the year ended 28 February 2017            
                                                                              2017              2016
                                                                              R000              R000
Balance at the beginning of the year                                     1 550 599         1 417 154    
Issue of capital and share premium                                           6 121               217    
Recognition of share-based payments                                         26 306            10 173    
Recognition of put-options over non-controlling interests                  (73 233)         (118 426)    
Total comprehensive income for the year                                    206 497           617 319    
Payment of dividends*                                                     (227 512)         (398 389)    
Non-controlling interests arising on business combinations                   1 033            24 889    
Change in ownership interests in subsidiaries                               (2 929)           (3 906)    
Contingent consideration                                                    (1 568)            1 568    
Balance at the end of the year                                           1 485 314         1 550 599    
* Dividend relates to final dividend for F2016 and dividends paid to non-controlling interests


Summarised consolidated statement of cash flows
for the year ended 28 February 2017            
                                                                                                2017          2016
                                                                              Note              R000          R000
Cash generated before working capital changes                                                931 852       874 733 
Increase in inventories                                                                      (91 118)      (84 357)
Increase in trade and other receivables                                                      (16 033)     (131 452)
(Decrease)/increase in trade and other payables                                              (29 439)       59 446 
Cash generated from operations                                                               795 262       718 370 
Net interest paid                                                                            (84 628)         (205)
Tax paid                                                                                    (214 715)     (243 993)
Cash available from operating activities                                                     495 919       474 172 
Dividends paid                                                                              (227 164)     (398 003)
Net cash inflow from operating activities                                                    268 755        76 169 
Cash utilised in investing activities                                                                              
Additions to property, plant and equipment                                                  (282 440)      (82 199)
Intangible assets acquired                                                                   (40 807)      (42 749)
Proceeds from disposal of property, plant and equipment                                       10 004         2 527 
Net cash outflow on acquisition of subsidiaries                                 11        (1 897 991)      (83 989)
Net cash outflow on acquisition of associate                                                 (50 573)            - 
Dividends received from associate                                                              4 550         4 200 
Net cash outflow from investing activities                                                (2 257 257)     (202 210)
Cash flow from financing activities                                                                                
Borrowings raised                                                                          2 484 979             - 
Underwriting and participation fees paid on borrowings raised                                (62 073)            - 
Cash (paid to)/contributed by non-controlling shareholders                                    (2 315)          539 
Proceeds from issue of equity instruments of Famous Brands Limited                             6 121           217 
Acquired from non-controlling interests in subsidiaries                                       (2 929)      (18 084)
Net cash inflow/(outflow) from financing activities                                        2 423 783       (17 328)
Net increase/(decrease) in cash and cash equivalents                                         435 281      (143 369)
Foreign currency effect                                                                      (35 971)       23 025 
Cash and cash equivalents at the beginning of the year                                         5 884       126 228 
Cash and cash equivalents at the end of the year*                                            405 194         5 884 
* Comprises cash and cash equivalents of R429 million (2016: R146 million) and bank overdrafts of R24 million 
  (2016: R140 million)

  
Primary (business units) and secondary (geographical) segment report
for the year ended 28 February 2017            

                                                                              2017              2016             %
                                                            Note              R000              R000        Change
Revenue
Franchising and Development                                                780 887           681 364            15
Supply Chain                                                             3 983 297         3 363 929            18
Manufacturing                                                            2 300 418         1 799 958            28
Logistics                                                                3 415 746         2 911 061            17
Eliminations                                                            (1 732 867)       (1 347 090)           29
Corporate                                                                    2 800             2 562              
South Africa                                                             4 766 984         4 047 855            18
International                                                              953 379           260 463           266
United Kingdom (UK)                                                        704 182           115 696           509
Rest of Africa and Middle East (AME)*                                      249 197           144 767            72
Total                                                                    5 720 363         4 308 318            33
Operating profit                                                                                                  
Franchising and Development                                                426 755           389 282            10
Supply Chain                                                               454 671           347 653            31
Manufacturing                                                              330 103           247 455            33
Logistics                                                                  124 568           100 198            24
Corporate                                                                  (48 463)          (11 239)             
South Africa                                                               832 963           725 696            15
International                                                              105 085            66 412            58
UK                                                                          55 468            32 640            70
AME*                                                                        49 617            33 772            47
Operating profit before non-operational items                              938 048           792 108            18
Franchising and Development                                                      -           (12 000)             
Impairment loss                                                8                 -           (12 000)              
Corporate                                                                 (483 244)         (228 542)              
Non-operational items                                          8          (100 755)                -               
Impairment loss                                                8           (20 000)                -               
Net finance costs                                                         (131 557)           (6 909)              
Share of profit/(loss) of associates                                         4 314              (622)              
Tax                                                                       (235 246)         (221 011)              
Profit for the year                                                        454 804           551 566           (18)
Operating margins                                                                                                  
Franchising and Development                                                   54.7              57.1          (2.4)
Supply Chain                                                                  11.4              10.3           1.4 
Manufacturing                                                                 14.3              13.7           0.6 
Logistics                                                                      3.6               3.4           0.2 
South Africa                                                                  17.5              17.9          (0.4)
International (Rest of Africa, Middle East and UK)                            11.0              25.5         (14.5)
UK                                                                             7.9              28.2         (20.3)
AME*                                                                          19.9              23.3          (3.4)
Total                                                                         16.4              18.4          (2.0)
*  Previously categorised as Rest of Africa


Statistics and ratios            
                                                                              2017              2016             %
                                                                              R000              R000        Change
Basic earnings per share (cents)                                                                                      
Basic                                                                          414               529           (22)   
Diluted                                                                        413               528           (22)   
Basic earnings per share before non-operational items                                                      
and additional interest costs (cents)                                                                      
Basic                                                                          614               541            13    
Diluted                                                                        612               540            13    
Headline earnings per share (cents)                                                                                   
Basic                                                                          428               541           (21)   
Diluted                                                                        426               540           (21)   
Headline earnings per share before non-operational items                                                   
and additional interest costs (cents)                                                                      
Basic                                                                          613               541            13    
Diluted                                                                        612               540            13    
Dividends per share (cents)                                                      -               405                  
Interim                                                                          -               190                  
Final                                                                            -               215                  
Ordinary shares (000)                                                                                                 
in issue                                                                    99 862            99 812                  
weighted average                                                            99 842            99 810                  
diluted weighted average                                                   100 092            99 892                  
Operating profit margin (%)                                                   16.4              18.4                  
Net debt/ equity (%)                                                          165.0              (0.4)                 
Net asset value per share (cents)                                            1 487             1 554                  


Notes to the summarised consolidated financial statements
for the year ended 28 February 2017            

Famous Brands Limited (the “company”) is a South African registered company. The summarised consolidated financial 
statements of the company comprise the company and its subsidiaries (together referred to as the Group) and the 
Group's interest in associates.

1.  Statement of compliance
    These provisional summarised consolidated financial statements have been prepared in accordance with the framework 
    concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) 
    and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting 
    Pronouncements as issued by Financial Reporting Standards Council, and contains at a minimum the information 
    required by IAS 34, the JSE Listings Requirements, and the Companies Act of South Africa.

2.  Basis of preparation
    The summarised consolidated financial statements do not include all the information and disclosures required for 
    the full set of audited consolidated financial statements, and should be read in conjunction with the full set of 
    the audited Annual Financial Statements which are available at the registered office of the company and will be 
    available on our website at www.famousbrands.co.za on 30 June 2017. 

    The consolidated audited Annual Financial Statements and the summarised consolidated financial statements as at and
    for the year ended 28 February 2017 were prepared on the going concern basis. The accounting policies applied in the 
    presentation of the summarised consolidated financial statements are consistent with those applied for the year ended 
    29 February 2016, except for new standards or amendments that became effective for the Group's financial period 
    beginning 1 March 2016, refer note 3.

    In light of a number of non-operational items and additional interest costs incurred during the year, the Group has 
    presented earnings per share and headline earnings per share excluding these items to enhance comparability to prior 
    year results. 

    The summarised consolidated financial statements were prepared on the historical cost basis, under the supervision 
    of Kelebogile (Lebo) Ntlha, Group Financial Director. 

3.  Changes in accounting policies
    The Group has adopted all the new, revised or amended accounting standards which were effective for the Group from 
    1 March 2016, none of which had a material impact on the Group.

                                                             2017              2016 
                                                             R000              R000 
4.  Capital expenditure and commitments                                             
    Invested                                              324 824           124 948 
    Property, plant and equipment                         282 167            82 199 
    Intangible assets                                      42 657            42 749 
    Authorised, not yet contracted                        426 163           169 815 
    Property, plant and equipment                         419 760           156 917 
    Intangible assets                                       6 403            12 898 

5.  Property, plant and equipment
    Opening balance                                       286 448           208 951 
    Additions                                             285 467            82 199 
    Acquired in business combinations                     992 605            38 025 
    Government grant                                       (2 992)           (1 078)
    Foreign currency translation                          (64 489)            1 945 
    Disposals                                              (5 091)           (2 405)
    Depreciation                                          (94 347)          (41 189)
    Closing balance                                     1 397 601           286 448 

6.  Intangible assets                                                               
    Opening balance                                     1 095 888           922 576 
    Additions                                              40 807            59 955 
    Acquired in business combinations                   1 888 402            90 219 
    Foreign currency translation                         (186 787)           46 859 
    Disposals                                              (3 955)                - 
    Amortisation                                          (15 600)          (11 721)
    Impairment                                                  -           (12 000)
    Closing balance                                     2 818 755         1 095 888 

                                                                             2017                                2016
                                                                     Gross      income                    Gross       Income
                                                                    amount         tax          net      amount          tax        Net 
                                                         Note         R000        R000         R000        R000         R000       R000     
7.  Basic and headline earnings per share                                    
7.1 Basic earnings per share                                                 
    Profit attributable to equity holders                                    
    of Famous Brands Limited                                                                413 747                             527 699    
    Basic and diluted earnings                                                              413 747                             527 699    
    Adjustments for:                                                                                                           
    Non-operational items                                   8      120 755     (16 288)     104 467      12 000            -     12 000    
    Additional interest costs                                      106 454     (11 837)      94 617           -            -          -    
    Interest on borrowings                                          94 000     (11 837)      82 163           -            -          -    
    Remeasurement of interest rate swap                                                                                        
    (ineffective portion)                                            5 416           -        5 416           -            -          -    
    Amortisation of underwriting and                                                                                           
    participation fees                                               7 038           -        7 038           -            -          -    
    Basic and diluted earnings before                                                                                          
    non-operational items and additional                                                                                       
    interest costs                                                                          612 831                             539 699    
    Basic earnings per share (cents)                                                                                                     
    Basic                                                                                       414                                 529    
    Diluted                                                                                     413                                 528    
    Basic earnings per share before                                                                                            
    non-operational items and additional                                                                                       
    interest costs (cents)                                                                                                     
    Basic                                                                                       614                                 541    
    Diluted                                                                                     612                                 540    
7.2 Headline earnings per share                                                                                                            
    Basic earnings                                        7.1                               413 747                             527 699    
    Adjustments:                                                    12 829         268       13 097      11 878           34     11 912    
    Profit on disposal of property, plant                                                                                      
    and equipment                                                     (958)        268         (690)       (122)          34        (88)    
    Gain on bargain purchase                                        (6 213)          -       (6 213)          -            -          -    
    Impairment loss                                                 20 000           -       20 000      12 000            -     12 000    
    Headline earnings                                                                       426 844                             539 611    
    Adjustments:                                                                                                                                                                                           
    Non-operational items                                          106 968     (16 288)      90 680           -            -          -    
    Additional interest costs                             7.1      106 454     (11 837)      94 617           -            -          -    
    Headline earnings and diluted headline                                                                                     
    earnings before non-operational items                                                                                      
    and additional interest costs                                                           612 141                             539 611    
    Headline earnings per share (cents)                                                                                                  
    Basic                                                                                       428                                 541    
    Diluted                                                                                     426                                 540    
    Headline earnings per share before                                                                                            
    non-operational items and additional                                                                                          
    interest costs (cents)                                                                                                        
    Basic                                                                                       613                                 541    
    Diluted                                                                                     612                                 540    
                                                   
                                                                                          2017         2016 
                                                                                          R000         R000 
8.  Non-operational items*                                                                                    
    Impairment loss                                                                     20 000       12 000 
    Derivative loss on call option utilised to hedge purchase price                     33 253            - 
    Foreign exchange loss on initial recognition of investment                          23 295            - 
    Professional fees                                                                   50 420            - 
    Gain on bargain purchase                                                            (6 213)           - 
                                                                                       120 755       12 000 
    * Represents non-operational items that are not expected to recur in future.  

9.  Related party transactions
    The Group entered into various sale and purchase transactions with related parties, in the ordinary course 
    of business, on an arm's length basis. The nature of related-party transactions is consistent with those 
    reported previously. 

10. Financial instruments
    Accounting classifications and fair values
    The table below sets out the Group classification of each class of financial assets and liabilities, as well 
    as a comparison to their fair values. The different fair value levels are described below:
    Level 1: quoted prices (adjusted) in active markets for identical assets or liabilities that the Group can 
    access at the measurement date.

    Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, 
    either directly or indirectly. 

    Level 3: unobservable inputs for the asset or liability.

                                                                                         Group
                                                                        2017            2017          2016          2016
                                                                    Carrying            Fair      Carrying          Fair
                                                                      amount           value        amount         value
                                                      Level             R000            R000          R000          R000
    Financial assets                                                                                                        
    Loans and receivables:                                                                                                  
    Trade and other receivables                                      551 844         551 844       444 069       444 069    
    Cash and cash equivalents                                        428 820         428 820       146 134       146 134    
    Fair value through profit or loss:                                                                                      
    Derivative financial instruments 
    (foreign currency options)                            2                -               -           100           100    
                                                                     980 664         980 664       590 303       590 303    
    Financial liabilities                                                                                                   
    Measured at amortised cost:                                                                                             
    Trade and other payables                                         648 162         648 162       367 494       367 494    
    Shareholders for dividends                                         2 221           2 221         1 873         1 873    
    Lease liabilities                                                 86 670          86 670        12 547        12 547    
    Non-controlling shareholder loans                                 22 130          22 130        24 988        24 988    
    Borrowings                                                     2 855 597       2 855 597             -             -    
    Bank overdrafts                                                   23 626          23 626       140 250       140 250    
    Fair value through profit or loss:                                                                                      
    Derivative financial instruments (put 
    options over non-controlling interests)               3          211 239         211 239       124 821       124 821    
    Fair value through other comprehensive income:                                                                          
    Derivative financial instruments (foreign 
    currency swaps and foreign exchange contracts)        2              102             102             -             -    
    Derivative financial instruments (interest 
    rate swaps)                                           2            8 509           8 509             -             -    
                                                                   3 858 256       3 858 256       671 973       671 973    

    Level 3 sensitivity information
    The fair values of the level 3 financial liabilities of R211 million (2016: R125 million) were determined 
    by applying an income approach valuation method including a present value discount technique. The fair value 
    measurement includes inputs that are not observable in the market. Key assumptions used in the valuation of 
    these instruments include the probability of achieving set profit targets and the discount rates. An increase/
    (decrease) of 1% in the discount rate would result in a (increase)/decrease of R7 million (2016: R5 million).

    Movements in level 3 financial instruments carried at fair value
    The following table illustrates the movements during the year of level 3 financial instruments carried at 
    fair value:
                                                                                Group
                                                                   2017            2017          2016          2016
                                                               Carrying            Fair      Carrying          Fair
                                                                 amount           value        amount         value
                                                 Level             R000            R000          R000          R000
    Put options over non-controlling interests:                                                                        
    Carrying value at beginning of the year                     124 821         124 821             -             -    
    Initial recognition in equity for new acquisitions           73 233          73 233       118 426       118 426    
    Unwinding of discount                                        14 813          14 813         6 395         6 395    
    Remeasurements                                               (1 628)         (1 628)            -             -    
    Carrying value at end of the year                           211 239         211 239       124 821       124 821    

                                                                           2017            2016 
                                                                           R000            R000 
11. Business combinations                                                                       
    Summary of cash outflow on acquisition of subsidiaries                                      
    Lupa Osteria                                                          3 958               -  
    Salsa Mexican Grill                                                   4 985               -  
    Lamberts Bay Foods                                                   73 530               -  
    Gourmet Burger Kitchen (GBK)                                      1 815 518               -  
    Cater Chain Food Services and City Deep Cold Storage                      -          38 082 
    Retail Group                                                              -          45 907 
    Total cash outflow on acquisition of subsidiaries                 1 897 991          83 989 

11.1 Purchase price allocation
     Details of the fair value of identifiable net assets acquired are set out below:

                                                                                                                             2016
                                                                         2017                            2017         Cater Chain
                                                        2017            Salsa            2017         Gourmet       Food Services           2016
                                                        Lupa          Mexican        Lamberts          Burger       and City Deep         Retail
                                                     Osteria            Grill       Bay foods        Kitchen*        Cold Storage          group
                                                        R000             R000            R000            R000                R000           R000
     Acquisition date                             1 May 2016      31 May 2016      1 Aug 2016      7 Oct 2017          1 Apr 2015       1 Aug 15
     Interest acquired                                   51%              51%            100%            100%                 75%            51%    
     Fair value of assets and liabilities acquired                                                                                                  
     Property, plant and equipment                         -            2 566          48 188         941 813              21 245         16 781    
     Intangible assets                                     -                -          16 277       1 495 809               6 609         27 515    
     Inventory                                             -              137          38 361          25 034              28 970          1 519    
     Trade and other receivables                           -               34          36 932         122 622              19 471          2 473    
     Provision for doubtful debt                           -                -               -         (14 332)                  -              -    
     Receivables from shareholders                         -                -               -               -                   -             56    
     Cash and cash equivalents                            42            1 197               8          11 275                   -         15 918    
     Current tax assets                                    -                -           1 314               -                 787          1 942    
     Borrowings                                            -                -               -        (427 301)                  -         (1 232)    
     Deferred lease liabilities                            -                -               -               -                   -           (923)    
     Deferred tax                                          -                -         (16 218)       (315 146)             (3 871)        (6 159)    
     Trade and other payables                             89           (1 952)        (45 110)       (375 471)            (45 296)       (16 923)    
     Bank overdraft                                        -                -          (3 539)              -              (8 082)             -    
     Current tax liabilities                              (5)               -               -          (2 130)                  -              -    
     Amounts due to shareholders                           -                -               -               -                   -            (75)    
     Net assets acquired                                 126            1 982          76 213       1 462 173              19 833         40 892    
     Non-controlling interests measured at their  
     share of the fair value of net assets               (62)            (971)              -               -              (4 958)       (20 038)    
     Amount capitalised                                   64            1 011          76 213       1 462 173              14 875         20 854    
     Goodwill/(gain on                                 3 936            7 760          (6 213)        364 620              15 125         40 971    
     bargain purchase)                                                                                                                              
     Purchase price                                    4 000            8 771          70 000       1 826 793              30 000         61 825    
     Contingent consideration                              -           (2 589)              -               -                   -              -    
     Cash and cash equivalents                           (42)          (1 197)          3 530         (11 275)              8 082        (15 918)    
     Cash outflow on acquisition of subsidiary         3 958            4 985          73 530       1 815 518              38 082         45 907    
     *Transaction costs related to the GBK acquisition are disclosed in non-operational items (refer note 8)

11.2 Goodwill and gain on bargain purchase
     Goodwill arises from anticipated scale and merger benefits related to franchising, manufacturing and 
     logistics capability. 
 
     Gain on bargain purchase arising from the Lamberts Bay Foods acquisition is attributable to fair value 
     adjustments relating to property, plant and equipment and Intangible assets.  
 
                                                                                           Salsa                     Gourmet       Gourmet
                                                                               Lupa      Mexican      Lamberts        Burger        Burger
                                                                            Osteria        Grill     Bay foods       Kitchen       Kitchen
     2017                                                                      R000         R000          R000          R000          £000
11.3 Performance of acquired businesses                                                                                                       
     Results since acquisition to reporting date                                                                                              
     Revenue                                                                  3 768       15 029       165 721        598 848       35 241    
     Operating profit/(loss)                                                     95        3 678          (339)        36 926        2 173    
     Pro-forma results from the beginning of the year to the reporting date:                                                                    
     Revenue                                                                  3 971       19 498       271 429      1 532 785       81 014    
     Operating profit/(loss)                                                    173        4 535        (4 765)        67 015        3 542    


12. UK business (Wimpy and GBK)                                                           
    The table below sets out the performance of the UK business segment in its underlying currency.                                                           
                                                                             %           
                                                2017          2016      change      
    Revenue                          £000     40 722         5 678         617    
    Operating profit                 £000      3 217         1 601         101    
    Operating profit margin             %        7.9          28.2                
    Revenue                          R000    704 182       115 696         509    
    Operating profit                 R000     55 468        32 640          70    
    Operating profit margin             %        7.9          28.2                

13. Borrowings
                                                                                   Interest
                                                                                       rate
                                                            Maturity                 Margin                  2017       2016         2017      2016        
                                              Currency          date      Nature          %       Rate          %          %         R000      R000    
    Unsecured                                                                                                                                         
    Long-term borrowings                                                                                                        2 740 744         -    
    Short-term portion of long-term borrowings                                                                                    114 853         -    
                                                                                                                                2 855 597         -    
    Terms of repayment                                                                                                                                   
    Syndicated facility: three-year bullet         ZAR        Sep 19    variable       2.35    3-month       7.36          -      720 000         -    
                                                                                                 JIBAR                                                
    Syndicated facility: four-year bullet          ZAR        Sep 20    variable       2.55    3-month       7.36          -      720 000         -    
                                                                                                 JIBAR                                                
    Syndicated facility: five-year amortising,                                                                        
    repayable quarterly                            ZAR        Sep 21    variable       2.45    3-month       7.36          -      960 000         -    
                                                                                                 JIBAR                                                
                                                                                                                                2 400 000              
    Syndicated facility: revolving credit            £                  variable       2.15    3-month       0.34          -      485 553         -    
                                                                                                 LIBOR                                                
    Transaction costs                                                                                                            (55 035)         -    
    Interest accrued                                                                                                               25 079         -    
                                                                                                                                2 855 597         -    
    Maturity analysis - capital
    Payable within one year                                                                                                       114 853         -    
    Payable between two and five years                                                                                          2 740 744         -    
                                                                                                                                2 855 597         -    
    Interest is paid quarterly in arrears.
    
    The company has unlimited borrowing powers in terms of its Memorandum of Incorporation.
    
    Sensitivity analysis
    A change of 1% in interest rates at the reporting date would have increased/(decreased) profit or loss by R10 million.
    
    Interest risk management
    The Group utilises interest rate swap contracts to hedge its exposure to the variability of cash flows arising from 
    unfavourable movements in interest rates.
    
    Facilities
    Total overdraft ZAR facility in place: R190 million. Unutilised portion at year-end: R166 million.
    
    Total borrowing GBP facility in place: £30 million. Unutilised portion at year-end: £nil.
    
    Guarantees
    Famous Brands Limited, Famous Brands Management Company Proprietary Limited, Mugg and Bean Franchising Proprietary 
    Limited, Venus Solutions Limited and Famous Brands UK Limited have guaranteed in terms of the syndicated loan 
    agreement:
    - Punctual performance by the Group of amounts due in the syndication agreement.
    - Immediate payment of amounts due which the Group has not paid.
    - To indemnify the finance parties against any cost, loss or liability it incurs as a result of the Group not 
      paying amounts that are due.

14. Subsequent events
    There were no material events after the reporting period.

15. Contingent liabilities
15.1 The Company and its South African subsidiaries have issued an unlimited suretyship in favour of FirstRand Bank 
     Limited to secure the banking facilities entered into by certain subsidiary companies.
 
15.2 Guarantees issued by banks in favour of trade creditors totalled R9 million (2016: Rnil).  

15.3 The Group's borrowings are unsecured, no pledges have been issued.

15.4 Refer to note 13 for cross guarantees issued on the Group's borrowings.


Administration

Directors 
NJ Adami, SL Botha (Independent Chairman), CH Boulle, P Halamandaris, P Halamandaris (Jnr), T Halamandaris, 
JL Halamandres, KA Hedderwick, DP Hele (Chief Executive Officer)*, RM Kgosana, K Ntlha (Group Financial Director)*, 
BL Sibiya, and T Skweyiya 
* Executive

Company Secretary
IWM Isdale

Registered office
478 James Crescent, Halfway House, Midrand, 1685
PO Box 2884, Halfway House, 1685
Telephone:                             +27 11 315 3000
Email:            investorrelations@famousbrands.co.za
Website address:                www.famousbrands.co.za

Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107

Sponsor
The Standard Bank of South Africa Limited 
30 Baker Street, Rosebank, 2196

Auditors
Deloitte & Touche

Monday, 29 May 2017

Date: 29/05/2017 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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