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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