Wrap Text
Voluntary performance update
FAMOUS BRANDS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/004875/06)
Share code: FBR
ISIN code: ZAE000053328
(“Famous Brands” or “the Group”)
VOLUNTARY PERFORMANCE UPDATE
The Group is currently preparing its results for the first six months of
the financial year which will conclude on 31 August 2017. A brief
performance update for the domestic operation is provided below, followed
by a review of the recently acquired Gourmet Burger Kitchen (GBK)
Restaurants Limited business. This update is based on information
available to date related to the five month period ended 31 July 2017 for
South Africa (SA) and the Rest of Africa and Middle East (AME) regions,
and the 22 week period ended 30 July 2017 for the GBK operation.
In the SA market, trading conditions declined further in the reporting
period in light of continued economic pressure on disposable income and
sustained socio-political uncertainty. Consumer confidence remains at low
levels. During the five months under review, system-wide sales* in SA
increased by 7% while like-on-like sales** grew by 1.8%.
System-wide sales in the AME region decreased by 0.2% (in Rand terms).
Across the Group’s restaurants in SA and the AME region combined system-
wide sales increased by 6.3%, under-performing management’s expectations,
while the Group’s Logistics and Manufacturing operations performed solidly,
reporting volumes in line with management’s expectations.
A total of 52 restaurants were opened in SA, eight in the AME region, and
six in the UK. As at 31 July 2017, the Group’s entire network comprised
2 801 restaurants.
In the UK market, consumer confidence declined in the context of increasing
political uncertainty surrounding Brexit negotiations and recent terror
attacks and the general economic slow-down featuring rising inflation and
limited wage increases. Competition in the trading landscape intensified
and supply currently exceeds demand, resulting in the recent closure of
several competitor branded food businesses.
GBK OPERATION
As noted previously, the GBK acquisition is the Group’s largest transaction
to date, and a transformative one for the business model - introducing a
substantial company-owned restaurant component to Famous Brands’
traditional franchise model.
Recognised as the market leader in the popular premium burger category,
GBK is a well-managed, financially sound business with an extensive network
of 95 restaurants in the UK and Ireland and a secure pipeline of sites to
support its expansion programme. In line with the Group’s strategy, the
acquisition has served to diversify earnings, expand the Group’s geographic
footprint, and up-weight its company-owned restaurant base.
For the 22-week period under review, GBK’s system-wide sales in the UK
increased 12.1% from the prior comparable period, while like-on-like sales
declined by 2.6% (in Sterling terms).
Six restaurants were opened in the period, bringing the total number of
restaurants opened since the acquisition to 14.
To date, certain of the new UK stores opened since acquisition have not
met sales projections. The Board is confident that innovative
interventions currently being implemented will rectify this situation over
time.
Given the average capital cost per store of GBP1 million and other notable
pre-opening costs, and in light of the weaker operating environment,
management’s store roll-out programme will be more conservative for the
foreseeable future. Only two of four planned UK sites will be opened in
the balance of the F2018 year. The Board deems this approach to be prudent
in the prevailing subdued macro-economic environment in the UK.
The Board is satisfied that the integration of GBK into the Group has
proceeded well and remains optimistic that the operation will add value to
the business in time.
OUTLOOK
The Group anticipates that trading conditions in its local and
international markets will remain challenging for the coming year,
reflected by constrained consumer demand and intensified competition.
Furthermore, GBK’s profitable contribution to the business will take longer
than initially anticipated.
The Group’s operating margin is expected to be lower than management’s
expectations, a function primarily of the recent integration of the
acquired lower-margin company-owned stores in the GBK business. Continued
margin pressure is anticipated over the short-term and achieving the
desired margin benchmark is a key management priority.
In light of these factors, the Group expects that its results for the full
six months to 31 August 2017 will be weaker than those reported in the
prior comparable period.
The forecast financial information in this voluntary performance update is
based on information available at the time of publication and has not been
reviewed or reported on by the Group’s external auditors.
A Trading Statement may be issued (if necessary) in accordance with the
Listings Requirements of the JSE Limited as soon as the Board is satisfied
that a reasonable degree of certainty exists with regard to the financial
results of the Group for the six months ended 31 August 2017.
The Group will publish its results for the six months ended 31 August on
or about Monday, 30 October 2017.
* System-wide sales refer to sales reported by all restaurants across the
network, including new restaurants opened during the period.
** Like-on-like sales refer to sales reported by all restaurants across
the network, excluding new restaurants opened during the period.
Midrand
16 August 2017
Sponsor
The Standard Bank of South Africa Limited
Date: 16/08/2017 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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