Wrap Text
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2018
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN: ZAE000053328
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2018
GROUP FINANCIAL INDICATORS
Brands
- Strong organic growth reported in SA and AME by Leading brands
- GBK’s continued underperformance mitigated with CVA restructure strategy
Logistics
- Commenced 10-year capacity-building programme
Manufacturing
- Launched plant-wide efficiencies programme with rewarding initial results
REVENUE up 5.4%
OPERATING PROFIT BEFORE NON-OPERATIONAL ITEMS up 3.9%
OPERATING MARGIN 11.8%
HEADLINE EARNINGS PER SHARE up 10.6%
COMMENTARY
OPERATING ENVIRONMENT
- SOUTH AFRICA AND THE REST OF AFRICA AND MIDDLE EAST (AME) REGION
While the influx of new international operators has slowed, the competitive landscape remained intense, with
industry participants under pressure to innovate on menu offerings and price ladders to retain market share
and generate viable margins in the current price-sensitive environment.
Country-specific risks in SA also continued to shape the operating context, with consumers facing sustained
financial hardship and socio-political uncertainty. Businesses across the economy were adversely affected
by service delivery protests, industrial action and civil unrest, while the provision of basic services
deteriorated further, exacerbated by local administration inefficiencies and disruptions caused by water
shortages and cable theft.
Despite this context, segments of the South African consumer base showed early indications of optimism and
improved confidence in the wake of recent positive developments in government leadership.
- UNITED KINGDOM (UK)
The trading environment was characterised by intensified competition, declining footfall in malls, and
rising input costs of labour and property rates. The slow pace of progress on Brexit negotiations also
continued to subdue consumer sentiment.
- GENERAL
Across all our markets, delivery and online ordering remained key drivers of growth in the industry.
Notably, Fast Casual and Quick Service offerings continued to outperform Casual Dining establishments,
largely due to their perceived appeal as convenient and less expensive, in a constrained disposable income
environment. In SA and the AME, the Quick Service segment of the industry continued to benefit from upward
social mobility of the population, the relatively young demographic profile of consumers and growing
urbanisation.
GROUP PERFORMANCE
In line with the information provided in the voluntary performance update issued on 16 August 2018, the
Group’s SA and AME operations (with the exception of Coega Concentrate) delivered good growth and a solid
improvement in operating profit for the six months ended 31 August 2018. As forecast, the GBK operation
continued to underperform the Board and management’s expectations, recording a larger operating loss than
the prior comparable period.
Remedial measures regarding the two underperforming entities, Coega Concentrate and GBK, are discussed in
the "Subsequent events" commentary in this document.
At the start of the review period, management reiterated our strategic focus on the key pillars and core
competencies of this business, being our Brands, Logistics and Manufacturing operations. We noted that
our priorities are: to promote sustainable growth through increasing capability and capacity across the
divisions; judicious capital allocation; and to sweat our investments and ensure the projects we expend
the most resources on deliver a proportional return on investment.
As reflected by the Group's results for the period, good progress was achieved in delivering against
the following strategies:
SOUTH AFRICA
Brands
- We prioritised our Leading mainstream brands, upweighting resource support.
- Expanded the home delivery offering across all our brands.
- Grew capability in the digital and social media arenas; and
- Entrenched our presence in key AME markets.
- We are currently rolling out ground-breaking campaigns to entrench market leadership of our Leading brands.
- Our plans to expand tashas footprint in the UAE are on track.
- The pipeline of new and relevant branded offers is well advanced.
Logistics
- We commenced implementation of a 10-year programme, Project Decade, aimed at steadily building capacity
and catering for planned longer term growth.
Manufacturing
- We launched our plant-wide efficiencies programme, Manufacturing Way, with rewarding initial results.
- We have established new partnerships in our general foodservice supply and fruit juice businesses, namely
FoodConnect and TruBev (formerly TruFruit), and expect them to deliver good results.
- The Lamberts Bay Foods business, acquired in 2016, has delivered satisfying results.
AME
- We continued to grow the footprint and contribution of our Leading brands in the region.
- We commenced trialling an improved delivery offering, with pleasing initial results.
- Solid progress was made in strengthening our marketing capability and aligning social media platforms
with the SA operation.
- We continued to leverage remedial improvements in the Mr Bigg's business in Nigeria.
UK
Notwithstanding the effect of the difficult macroeconomic climate on the GBK business, management identified
the following areas at the end of the prior financial year as requiring urgent attention: operational benchmarks
which no longer met gold standards; the need for improved customer engagement across the offering; sub-optimal
management capacity; and lack of traction in key growth areas, including the delivery component. In this regard,
a range of key strategic imperatives and corrective measures were outlined, and good progress has been achieved
regarding the following:
- The core leadership team has been strengthened and management oversight improved.
- We have re-established and leveraged GBK's brand assets.
- A targeted refurbishment and high-street brand facelift programme has commenced.
- We have simplified menu design and entry and exit pricing.
- The supply chain has been simplified and streamlined.
- The targeted closure programme for distressed sites has progressed, with the closure of six stores.
The narrative under "Subsequent events" elaborates on the restructuring programme to be implemented in the
business.
GROUP FINANCIAL RESULTS
Six months Six months
ended ended
31 August 31 August %
2018 2017 change
Statement of profit or loss and other comprehensive income
Revenue Rm 3 583.6 3 401.2 5.4
Operating profit before non-operational items Rm 421.8 406.1 3.9
Operating profit margin % 11.8 11.9
Impairment Rm (873.9) -
EBITDA before impairment losses Rm 526.4 502.0 4.8
Basic (loss)/earnings per share Cents (572) 171 (434.5)
Headline earnings per share (HEPS) Cents 188 170 10.6
Statement of cash flows
Cash generated from operations Rm 540.4 463.0 16.6
Net cash outflow utilised in investing activities Rm (47.6) (133.3)
Net cash outflow from financing activities Rm (102.1) (0.4)
Cash realisation rate* % 102.7 92.2
Statement of financial position
Cash and cash equivalents Rm 924.7 477.8
Net debt^ Rm 1 840.4 2 422.8
Net debt/equity % 133.9 145.3
Total equity Rm 1 375 1 667
* Cash generated by operations as a percentage of EBITDA.
^ Total interest-bearing borrowings less cash.
The Group continues to comply with its financial covenants and comfortably meet its debt repayment
obligations, in line with agreed financing commitments. The level of gearing has been reduced relative
to the prior comparable period. In light of robust cash reserves, management is in discussions with
financiers to further decrease gearing, aimed at reducing the Group's gross debt:EBITDA ratio to two times.
As noted at the end of the prior year, the reallocation of corporate costs and administration fees to the
pertinent business units in the Group has been prioritised and finetuned. These segmental reallocations
have an impact on the margins of the individual business units, but not on the Group's overall margin.
The effect of this restructuring is evident in the additional disclosures provided in the Segment
report under "Corporate".
OPERATIONAL REVIEWS
BRANDS
The Group's Brands portfolio comprises 25 restaurant brands, represented by a network of 2 874 (2017: 2 797)
restaurants across South Africa, the rest of Africa, the Middle East and the United Kingdom.
The portfolio is segmented into Leading (mainstream) brands and Signature (niche) brands, strategically positioned
to appeal to a wide range of consumers across the income and demographic spectrum and across meal preferences and
value propositions. The Leading brands are further categorised as Quick Service, Fast Casual and Casual Dining.
Our brand network consists of both franchised and company-owned restaurants.
This division reported revenue of R432.2 million (2017: R415.0 million), an improvement of 4.1%, with Leading brands
contributing R366.5 million, up 4.6%, and Signature brands R65.7 million, an increase of 1.6%.
Operating profit grew by 9.9% to R222.5 million (2017: R202.5 million), of which Leading brands contributed
R218.6 million and Signature brands the balance.
The division's operating margin rose to 51.5% (2017: 48.8%).
Across our Leading and Signature brands, system-wide sales (including all restaurants opened during the period)
increased by 7.3% (2017: 7.1%), while like-for-like sales (excluding restaurants opened or closed in the period)
grew by 3.4% (2017: 1.4%). Independently, Leading brands' system-wide sales rose 7.1%, with like-for-like sales
4.1% higher. Signature brands' system-wide sales increased 8.6%, while like-for-like sales declined by 2.3%.
The discrepancy between Leading brands' revenue and system-wide growth is attributable to the reallocation of design
fees for five months of the review period relative to one month in the comparable prior period. As illustrated in the
Segment report, these costs are now reflected under "Corporate" following the establishment of a joint-venture
partnership, Design HQ. The discrepancy is in the order of R10 million.
The Brands division's results are particularly creditable given the significant challenges faced throughout the
period, as restaurants and distribution routes throughout SA were frequently temporarily disrupted due to
widespread civil unrest.
During the period, the Group opened 79 restaurants (2017: 77), comprising 59 Leading brands restaurants, 16 Signature
brands restaurants and four Mr Bigg's stores in Nigeria.
Ensuring that the brand footprint is optimally aligned with our target markets is key to the health and viability of
the entire business. This is particularly germane in our emerging economy, which features fluid market demographics. In
the absence of any alternative, closing non-performing restaurants and rationalising brands which have no potential for
growth under our stewardship, despite our best remedial efforts, is a long-standing Group policy. In light of the
prevailing weak economy, this will continue.
- LEADING BRANDS PORTFOLIO
Consumer disposable income remained under pressure in this category, evidenced by a decline in customer transaction
spend and stagnant frequency of visits during the period.
Notwithstanding this environment, amongst our major Leading brands, Debonairs Pizza continued to gain share in
existing and new markets, while Wimpy, Steers, Mugg & Bean and Fishaways retained market share. Solid system-wide
and positive like-for-like growth was reported by all of these brands, albeit partly supported by below-inflation
menu price increases.
Fego Caffe and Milky Lane both recorded like-for-like turnover growth, although Fego's system-wide turnover declined
marginally due to the closure of five stores.
Strong promotions focusing on our brands' great value proposition and high-quality meals drove top-line growth across
the portfolio. Particularly pleasing results were achieved from our investment in upweighting our online, digital and
social media capability, and expanding our delivery offering across our brands.
- SIGNATURE BRANDS PORTFOLIO
Spend in the premium segment of the Casual Dining consumer market remained constrained, and in this weak demand
environment the portfolio's growth was largely underpinned by new restaurant openings, with Salsa Mexican Grill,
Lupa Osteria and Turn 'n Tender each opening three new restaurants. These offerings are clearly differentiated,
have strong consumer appeal and offer upside growth potential.
Our tashas restaurants in the UAE continued to deliver robust results, and a further three new restaurants are
scheduled to open in the balance of the financial year.
In 2014, Total and Famous Brands announced the launch of a pilot project in which Famous Brands would introduce
the premium retail offering, Thrupps, to a selection of Total's upper-end service station forecourts. While the
five stores opened to date have been well received by customers, Total has elected to terminate the offering in
line with its revised long-term global strategy. In this regard, Famous Brands will withdraw the stores with
effect from November 2018, and conclude the relationship with Thrupps. The Group's strong, long-standing
strategic partnership with Total remains in place.
The reallocation of a higher proportion of central costs not previously allocated to this business unit has
fundamentally changed the margin model. While the new margin reported for the period has disappointed management,
the division is under intensified scrutiny, with the clear goal of driving higher margins and adding value to
the Group.
- AME
The Group is represented in 15 countries in this region.
We stated in the year-end results announcement published in May that we are optimistic our AME operations will
derive good returns from investments made over recent years. It is therefore pleasing to report that revenue
and profit grew in both local currency and Rand terms. Revenue for the combined region increased by 9.9% to
R135.2 million (2017: R123.0 million). Operating profit rose 27.2% to R24.3 million (2017: R19.1 million),
while the operating margin improved to 18.0% (2017: 15.5%).
System-wide sales increased by 12.8% (2017: 1.0%). The region contributed 10.8% (2017: 9.2%) to the Group's
total system-wide Brands' division sales.
Our 'deep and narrow' approach remains our core strategy in the region, with in-country resources having been
increased in Zambia, Mauritius, Malawi and Kenya. Our continued focus during the review period was on growing
the contribution of our four Leading brands in the region (Debonairs Pizza, Steers, Wimpy and Mugg & Bean),
which accounted for 91% of revenue.
The Group's joint venture with Retail Group in Botswana reported substantially stronger results compared with
the same period in the prior year. The business comprises 36 restaurants, 24 of which are company-owned. In
the context of the unfavourable Pula:Rand conversion rate, the good results are attributable to the improved
local economy, relatively stable inflation, and management and operational enhancements in the business.
A total of 16 restaurants (2017: six) were opened and four were revamped (2017: four). While restaurant
openings exceeded budget, the revamp programme was behind target, primarily due to franchisees' constrained
access to capital and cash flow challenges.
- UNITED KINGDOM
Overview
Our UK operation comprises Wimpy UK and GBK. The businesses are managed and report independently of each other.
During the review period, the average GBP:ZAR exchange rate was GBP1:ZAR17.29 versus GBP1:ZAR16.78 in the prior
comparable period.
Macroeconomic trading conditions remained unchanged in the six months under review, featuring intense
competition in a price- sensitive environment, and subdued consumer sentiment and spend, exacerbated by
socio-political uncertainty in the Brexit context. Dine-in sales continued to lose market share as foot
traffic in malls declined and online and delivery sales gained traction.
- Wimpy UK
The business reported a 13.6% increase in Sterling revenue for the review period, while revenue in Rand
terms improved 18.2% to R57.4 million (2017: R48.6 million), primarily as a function of foreign currency
translation. Operating profit rose by 2.1% to R8.5 million (2017: R8.4 million), while the operating
margin declined to 14.9% (2017: 17.2%) Wimpy's collaboration with GBK to leverage commodity purchase
volumes continued to deliver lower prices for core products, enabling the business to contain price
increases.
At 31 August 2018, the network comprised 75 restaurants, with none opened or closed during the review period.
- GBK (UK and Ireland)
As outlined in the "Group performance" narrative in this document, good progress was achieved in terms of
leveraging remedial measures in the operation. Additional operational opportunities exist and are being
explored, including launching a multi-vendor delivery platform to increase the current offering from one
to three vendors, which should enhance GBK's competitiveness in an area in which it has lagged recently.
GBK's results reported in this announcement are for the 26 weeks from 26 February 2018 to 26 August 2018.
An operating loss of GBP2.6 million (2017: GBP872 000) was reported for the six months, while the
operating margin declined to (6.6%) from (2.1%) in the prior comparable period.
System-wide UK sales (Sterling) decreased by 6.8% (2017: increase of 11.1%), while like-for-like sales
declined by 9.7% (2017: decrease of 3.2%).
The network comprises 100 restaurants, with 95 restaurants in the UK and Ireland and the balance in Greece
and the UAE. No new restaurants were opened in the period and six were closed, five in the UK and one
in Saudi Arabia.
In light of the continued adverse trading conditions and sustained underperformance of GBK, an impairment
of R873.9 million (pre-tax) has been recognised at Group level. The post-tax amount is R760.2 million.
The Board is of the opinion that this impairment value is prudent in the current situation.
Notwithstanding GBK's disappointing financial performance and the announcement of the Company Voluntary
Arrangement (CVA) process discussed under "Subsequent events", the Board is satisfied that the positive
impact of remedial interventions under way in the operation and the inherent strength of the GBK brand
will, in time, add value to the Group. The brand remains the leader in the premium burger category in
the UK in terms of consumer sentiment, and management's focus is on re-establishing the gold standard
across the entire value chain and customer journey to leverage that position.
Supply chain
The Group's integrated strategic Supply Chain division comprises its Logistics and Manufacturing operations,
which are managed and measured independently.
Stronger sales recorded by the Leading brands underpinned volume growth in the Supply Chain, while the sustained
drive to improve efficiencies and control costs also continued to enhance performance across these businesses.
Combined revenue for the period increased by 7.3% to R2.25 billion (2017: R2.10 billion). Operating profit
grew 15.8% to R256.0 million (2017: R221.1 million) and the operating margin improved to 11.4% from 10.5% in
the prior comparable period.
- Logistics
Revenue increased by 6.8% to R1.96 billion (2017: R1.83 billion). Operating profit grew 44.2% to R53.0 million
(2017: R36.8 million), while the operating margin rose to 2.7% (2017: 2.0%), reflecting improved operating
efficiencies and enhanced cost containment, and the non-recurrence of industrial action costs reported in
the prior comparable period. The reallocation of a higher proportion of central costs to this business unit
has fundamentally changed the margin model, and in the short-term, a more realistic target margin is 3%.
Following an extensive organisational review, the business commenced implementation of Project Decade,
an intervention aimed at optimising current efficiencies in the operation and accommodating planned growth
over the next decade. The initial focus of the project is on expanding capacity in the Group's Centres of
Excellence in the Western Cape, Free State and Crown Mines operations.
The division incurred capital expenditure of R2.7 million (2017: R10.0 million).
- Manufacturing
Revenue increased by 6.4% to R1.47 billion (2017: R1.38 billion). Operating profit grew 10.1% to
R203.0 million (2017: R184.3 million), while the operating margin improved to 13.8% (2017: 13.4%).
Turnover growth was reported by most of the Group's Manufacturing businesses, including the bakery,
meat processing, sauce and spice, and cheese plants. Further opportunities exist to enhance capacity
utilisation in the cheese plant to take on previously outsourced grated cheese volumes.
Lamberts Bay Foods delivered a notable set of results, including strong growth in revenue and profit,
and an improved operating margin. This enhanced performance is attributable to increased management
oversight and enhanced operational efficiencies. Following the loss of a major customer in the latter
half of the review period, the operation has been right-sized to mitigate lower volume take-up.
Revenue declined in the ice-cream plant, while improved profitability was reported by the coffee plant,
despite lower sales volumes.
During the period, the division commenced implementation of the Manufacturing Way, a standardised system
and approach to managing all facilities, focusing on teamwork, work flow, problem solving and attainment
of key performance indicators. Initial results are positive and management is optimistic that the programme
will have ongoing benefits for this business unit.
In the six months under review, the business incurred capital expenditure of R16.4 million
(2017: R30.4 million).
The Coega Concentrate tomato paste plant made an operating loss of R17.8 million for the period, due to
underutilisation of capacity, resulting in severe inefficiencies. In light of the failure to secure an
adequate, consistent supply of high volumes of tomatoes, and in anticipation of ongoing losses,
management elected to cease operations until further notice. Further information in this regard is
contained in the commentary under "Subsequent events".
ASSOCIATES
The Group holds strategic stakes in the following entities: UAC Restaurants Ltd (49%), By Word of Mouth
(49.9%) Sauce Advertising (35%) and FoodConnect (49%).
- UAC Restaurants Limited, Nigeria
Management noted in the year-end results announcement that it was optimistic the repair programme and
remedial measures implemented across this business would start delivering good results in the period
ahead. While Mr Bigg's like-for-like revenue declined in the weak economic conditions, it is pleasing
to report that the operation recorded solid profits compared to the loss reported in the prior
comparable period. This improved performance is attributable to robust cost containment and margin
control, improvement in process efficiencies and expansion of the Manufacturing and Logistics offering
in the local market. High set-up costs and lack of access to capital for prospective franchisees remain
the major impediments to growing and upgrading the network.
- By Word of Mouth
During the review period, the business launched two company-owned "Frozen for You" retail stores in
Gauteng to complement the online/delivery offering. This premium product has been favourably received
by consumers in both formats of the offering. The goal is to open additional outlets over the course
of the year, pending availability of suitable sites and conducive market conditions.
By Word of Mouth's corporate catering business, which targets the upper-income market, continued to
experience difficult trading conditions as price-sensitive consumers further reduced spend on lavish
events. The business reported a loss for the period.
- Sauce Advertising
The Group's strategic stake in this below-the-line advertising agency is centred on enhancing marketing
capabilities and leveraging marketing spend. Albeit not material, the business continued to make a
positive contribution to profits.
- FoodConnect
With effect from 1 June 2018, a partnership was concluded with FoodConnect, a distribution business
which acquired the rights to the Group's Baltimore ice-cream brand and distributes and sells the product
on to third parties. Additional products will be added to the basket in time. The partnership qualifies
as a level 2 BBBEE enterprise in terms of preferential procurement, enterprise and supplier development
criteria. Although in its infancy, FoodConnect traded profitably for the three months since the
partnership was established.
RESPONSIVENESS TO CONSUMER ACTIVISM
Increasingly consumers are driving awareness of environmental issues and demanding that their preferred brands
follow suit. We are sensitive and responsive to this and are mindful of operational practices which may have a
negative impact on our stakeholders and the environment in general.
In this regard, we support the global campaign against plastic pollution, and are currently withdrawing plastic
straws from our restaurants in SA and the UK and replacing them with biodegradable paper straws. The programme
will be completed by December 2018.
With regard to the campaign against cage-laid eggs, while the Group is fully compliant with industry regulations,
we support the goal to procure 100% cage-free eggs throughout our operations by 2025. We are currently in
discussions with industry authorities, suppliers and other stakeholders to ascertain the process of
transitioning to a more humane, cage-free procurement policy. Our feasibility study includes determining
and obtaining the assurances required regarding meeting the Group's volume demands, securing consistent
supply of safe, quality product and remaining compliant with future prescribed legislation. While we
recognise that this transition will be a phased process, we are fully committed to this worthy cause.
DIRECTORATE
Appointment of independent non-executive director
With effect from 1 August 2018, Mr Deon Jeftha Fredericks was appointed as an independent non-executive director
to the Board, as well as a member of the Audit and Risk Committee. The Board welcomes Deon and looks forward to
his contribution.
Withdrawal of resignation of Group Financial Director
On 17 July 2018, shareholders were advised of the resignation of the Group Financial Director, Ms Kelebogile
(Lebo) Ntlha. A subsequent request to the Board by Ms Ntlha to withdraw her resignation due to a change in
personal circumstances has been accepted by the Board, per the announcement made on SENS on 6 September 2018.
SUBSEQUENT EVENTS
GBK: strategic decision
Shareholders are referred to the cautionary announcements issued on SENS on 17 August, 28 September and
24 October 2018.
In light of GBK's continued underperformance in the current macroeconomic environment in the UK and deteriorating
financial position, the Board of GBK has initiated a CVA process with the assistance of Grant Thornton. This
decision follows extensive investigation into the options available to improve GBK'S financial stability.
CVA Process
The CVA is a process which is unique to the UK and employed increasingly in the food services and other industries
given the rising percentage of distressed businesses in the current adverse trading conditions.
The CVA is designed to promote the long-term financial viability and sustainability of an operation. In this
regard, the goal will be to reach binding agreements or compromise with GBK's unsecured creditors, with a view
to restructuring the business's leased property portfolio in line with current market valuations. This could
potentially enable GBK to exit underperforming sites and achieve rental reductions on others, thereby
improving the health and profitability of the portfolio and general financial performance of the
business.
Support of 75% is required from the unsecured creditors to proceed with the CVA.
Whilst this process evolves, shareholders will be updated when appropriate.
Coega Concentrate Tomato Paste Plant
The past growing season proved to be an extremely challenging one, with drought playing a significant
role in the outcome. Despite the best efforts by the plant's management team and growers, production
was substantially off the targeted volumes for viable operation of the plant and highlighted again the
necessity for expertise in, and support to primary farming and growing operations, to ensure consistently
high volumes of supply. The plant made an operating loss of R17.8 million for the review period; in
this light, and in anticipation of further losses, operations at the factory were ceased with effect
from 5 June 2018. Management is pleased to advise shareholders that subsequent to the review period,
a prospective buyer for the business has been identified and negotiations regarding the sale are
in progress.
Looking forward
Despite challenging local and global trading conditions, the Board and management are satisfied that the
Group's growth agenda and strategies are clear. The focus will be on the fundamentals and prioritising
allocation of capital and resources on growth projects.
The opportunities to deliver against the growth agenda have been identified both internally and in the
market. Management's outlook remains positive.
PROSPECTS
- SOUTH AFRICA AND AME REGION
Our operations are well positioned to capitalise on available discretionary spend in the Group's
traditional peak holiday period. Management is, however, of the opinion that trading will be relatively
muted, adversely affected by a shorter year-end school holiday duration and sustained financial
hardship (not least the impact of recent fuel price increases) experienced by consumers.
We anticipate that growth over the forthcoming period will be driven by our Leading brands
(specifically the Quick Service brands), which will benefit our Logistics and Manufacturing
operations, and we will ensure that they continue to be optimally resourced to maintain their
leadership position in the market. Our primary focus in the Signature portfolio will be on margin
improvement. We will continue to review our offering to ensure the footprint aligns with our markets
and offers the desired return on investment.
In terms of the current socio-political environment, management anticipates that social unrest is
likely to escalate leading up to the national elections in 2019, and will affect our staff and customers,
impacting on the performance of our operations.
With regard to the Constitutional Court ruling regarding temporary employment service providers, and
following an analysis conducted across all our business units, management has developed a programme
to ensure optimal manpower planning within the parameters of the legislation. The programme will be
implemented with effect from October 2018, and while every effort will be made not to compromise
recent efficiencies achieved in our operations, it is anticipated that a loss of flexibility will
arise and increased labour costs will be incurred.
The Board and management remain receptive to prospective local acquisitions which align with the
Group's core competencies and which will further our goal to be the leading innovative branded
franchised and food services business in South Africa and select international markets by 2020.
- UK
The market will continue to be defined by uncertainty as the Brexit process unfolds, which will
weigh on both sentiment and spend. Our primary challenge in the UK will be to re-establish GBK's
gold standard across the entire value chain and customer journey and ensure the business is optimally
structured to manage ongoing trading challenges.
DIVIDEND AND ALLOCATION OF CAPITAL
No dividend is declared for the period under review.
Following a capital structure review to ensure appropriate levels of debt and prudent capital allocation
practices, the Board has resolved that, subject to operational requirements and potential acquisitions,
future dividends will be triggered when the short- to medium-term gross debt:EBITDA ratio reaches two
times. The ratio as at 31 August 2018 was 2.49 times (2017: 2.66 times).
Shareholders are reminded that the company is trading under a cautionary announcement as released on
17 August 2018, 28 September 2018 and 24 October 2018.
AUDIO WEBCAST
A live audio webcast of the Group's results will be held at 10:00 (SAST) on 29 October 2018.
To pre-register link to: https://ccwebcast.eu/links/famousbrands181029/
On behalf of the Board
SL Botha DP Hele
Independent Chairman Chief Executive Officer
Midrand
29 October 2018
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 August 2018
Unaudited Unaudited Audited
31 August 31 August 28 February
2018 2017 2018
Note R000 R000 R000
ASSETS
Non-current assets 3 498 055 4 415 927 3 983 129
Property, plant and equipment 4 1 166 729 1 465 164 1 339 789
Intangible assets 5 2 236 718 2 844 137 2 547 845
Investments in associates 79 894 83 059 80 926
Deferred tax 14 714 23 567 14 569
Current assets 2 309 533 1 883 564 1 922 662
Inventories 483 746 530 566 436 102
Current tax assets 110 591 61 301 99 132
Derivative financial instruments 2 212 - -
Trade and other receivables 788 310 798 703 670 440
Cash and cash equivalents 924 674 492 994 716 988
Total assets 5 807 588 6 299 491 5 905 791
EQUITY AND LIABILITIES
Equity attributable to owners of
Famous Brands Limited 1 237 383 1 552 193 1 505 598
Non-controlling interests 137 510 115 051 126 429
Total equity 1 374 893 1 667 244 1 632 027
Non-current liabilities 2 983 133 3 356 735 3 014 460
Borrowings 14 2 533 354 2 663 473 2 513 489
Derivative financial instruments 18 396 220 362 32 370
Lease liabilities 99 317 84 869 86 355
Deferred tax 332 066 388 031 382 246
Current liabilities 1 449 562 1 275 512 1 259 304
Non-controlling shareholder loans 7 500 22 253 7 500
Derivative financial instruments 165 367 24 306 159 555
Lease liabilities 13 018 11 962 11 125
Trade and other payables 970 923 943 492 770 720
Provisions 6 32 464 - 32 851
Shareholders for dividends 3 215 2 221 2 221
Current tax liabilities 25 329 18 948 8 068
Borrowings 14 231 746 237 092 267 071
Bank overdrafts - 15 238 193
Total liabilities 4 432 695 4 632 247 4 273 764
Total equity and liabilities 5 807 588 6 299 491 5 905 791
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the six months ended 31 August 2018
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 % 2018
Note R000 R000 change R000
Revenue 7 3 583 615 3 401 195 5.4 7 023 095
Cost of sales (1 667 424) (1 584 260) (3 254 591)
Gross profit 1 916 191 1 816 935 5.5 3 768 504
Selling and administrative expenses (1 494 397) (1 410 853) (5.9) (2 878 246)
Operating profit before
non-operational items 421 794 406 082 3.9 890 258
Non-operational items 9 (873 925) - (372 592)
Operating (loss)/profit including
non-operational items (452 131) 406 082 (211.3) 517 666
Net finance costs (105 783) (138 146) (251 345)
Finance costs (140 025) (167 268) (304 687)
Finance income 34 242 29 122 53 342
Share of profit of associates 157 1 726 3 906
(Loss)/profit before tax (557 757) 269 662 (306.8) 270 227
Tax 14 119 (77 630) (206 876)
(Loss)/profit for the period (543 638) 192 032 (383.1) 63 351
Other comprehensive income, net of tax:
Exchange differences on translating
foreign operations* 278 174 (13 764) 21 440
Movement in hedge accounting reserve* 7 279 (7 301) (3 920)
Effective portion of fair value changes
of cash flow hedges 10 109 (10 140) (5 445)
Tax on movement in hedge accounting reserve (2 830) 2 839 1 525
Total comprehensive (loss)/income for (258 185) 170 967 80 871
the period
(Loss)/profit for the year attributable to:
Owners of Famous Brands Limited (572 099) 170 986 (434.6) 21 618
Non-controlling interests 28 461 21 046 41 733
(543 638) 192 032 63 351
Total comprehensive (loss)/income
attributable to:
Owners of Famous Brands Limited (286 646) 149 921 39 138
Non-controlling interests 28 461 21 046 41 733
(258 185) 170 967 80 871
Basic (loss)/earnings per share (cents)
Basic 8.1 (572) 171 (434.5) 22
Diluted 8.1 (570) 171 (433.5) 22
* This item may be reclassified subsequently to profit or loss.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 August 2018
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R000 R000 R000
Balance at the beginning of the period 1 632 027 1 485 314 1 485 314
Movement in capital and share premium - - 13 635
Recognition of share-based payments 18 434 18 763 26 600
Put-options over non-controlling interests* - - 42 716
Total comprehensive (loss)/income for the period (258 185) 170 967 80 871
Payment of dividends (18 870) (7 800) (17 182)
Change in ownership interests in subsidiaries 1 487 - 73
Balance at the end of the period 1 374 893 1 667 244 1 632 027
* Relates to the put option forfeited in F2018.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 August 2018
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
Note R000 R000 R000
Cash generated before working capital changes 528 767 543 200 1 135 121
Working capital changes 11 601 (80 180) (12 201)
(Increase)/decrease in inventories (46 529) (76 872) 18 768
Increase in receivables (60 749) (144 867) (12 730)
Increase/(decrease) in payables 118 879 141 559 (18 239)
Cash generated from operations 540 368 463 020 1 122 920
Net interest paid (100 044) (110 306) (207 440)
Tax paid (98 365) (97 468) (274 386)
Cash available from operating activities 341 959 255 246 641 094
Dividends paid (18 870) (7 800) (17 182)
Net cash inflow from operating activities 323 089 247 446 623 912
Cash utilised in investing activities
Additions to property, plant and equipment (48 241) (114 893) (192 588)
Intangible assets acquired (8 784) (31 245) (38 531)
Proceeds from disposal of property, plant
and equipment and intangible assets 8 263 12 413 29 171
Net cash outflow on acquisition of subsidiaries 12 - (1 295) (2 589)
Dividends received from associate 1 190 1 750 3 149
Net cash outflow utilised in investing activities (47 572) (133 270) (201 388)
Cash flow from financing activities
Borrowings repaid (106 667) - (106 667)
Cash paid to non-controlling shareholders - (431) (14 630)
Proceeds from issue of equity instruments of - - 13 635
Famous Brands Limited
Proceeds from disposal of non-controlling
interest in subsidiary 4 559 - -
Net cash outflow from financing activities (102 108) (431) (107 662)
Net increase in cash and cash equivalents 173 409 113 745 314 862
Foreign currency effect 34 470 (41 183) (3 261)
Cash and cash equivalents at the beginning
of the period 716 795 405 194 405 194
Cash and cash equivalents at the end of the period* 924 674 477 756 716 795
* Comprises cash and cash equivalents of R924.7 million (2017: R493.0 million) and bank overdrafts of
Rnil million (2017: R15.2 million).
PRIMARY (BUSINESS UNITS) AND SECONDARY (GEOGRAPHICAL) SEGMENT REPORT
for the six months ended 31 August 2018
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 % 2018
Note R000 R000 change R000
Revenue
Brands^ 432 172 414 984 4.1 851 021
Leading brands 366 502 350 354 4.6 722 172
Signature brands 65 670 64 630 1.6 128 849
Supply Chain 2 253 880 2 101 201 7.3 4 327 642
Manufacturing 1 466 108 1 377 435 6.4 2 850 530
Logistics 1 955 194 1 830 534 6.8 3 779 812
Eliminations (1 167 422) (1 106 768) (5.5) (2 302 700)
Corporate 13 276 1 448 10 878
South Africa 2 699 328 2 517 633 7.2 5 189 541
International 884 287 883 562 0.1 1 833 554
United Kingdom (UK) 749 055 760 536 (1.5) 1 580 947
Gourmet Burger Kitchen (GBK) 691 608 711 933 (2.9) 1 476 544
Wimpy 57 447 48 603 18.2 104 403
Rest of Africa and Middle East (AME) 135 232 123 026 9.9 252 607
Total 3 583 615 3 401 195 5.4 7 023 095
Operating profit before
non-operational items
Brands^ 222 476 202 471 9.9 431 170
Leading brands 218 605 193 243 13.1 411 737
Signature brands 3 871 9 228 (58.1) 19 433
Supply Chain 256 036 221 105 15.8 509 114
Manufacturing 203 008 184 342 10.1 405 171
Logistics 53 028 36 763 44.2 103 943
Corporate^ (44 173) (30 265) (46.0) (49 873)
Share-based payment charge (18 434) (18 763) 1.8 (26 600)
Foreign exchange movement 10 297 (4 556) 326.0 (3 470)
Consolidation entries (7 578) (6 097) (24.3) (12 160)
Corporate administration charges* (28 458) (849) (3 251.9) (7 643)
South Africa 434 339 393 311 10.4 890 411
International (12 545) 12 771 (198.2) (153)
UK (36 853) (6 333) (481.9) (44 671)
GBK (45 384) (14 687) (209.0) (59 977)
Wimpy 8 531 8 354 2.1 15 306
AME 24 308 19 104 27.2 44 518
Total 421 794 406 082 3.9 890 258
UK - - (68 592)
Impairment 9 - - (68 592)
Corporate (965 432) (214 050) (758 315)
Impairment 9 (873 925) - (304 000)
Net finance costs (105 783) (138 146) (251 345)
Share of profit of associates 157 1 726 3 906
Tax 14 119 (77 630) (206 876)
(Loss)/profit for the period (543 638) 192 032 (383.1) 63 351
* Corporate administration costs include internal audit, Board fees, corporate finance, CEO, other
head office costs not relevant to operations and operating profit from Design HQ.
^ This additional disclosure has not previously been provided, and hence the split for
the year ended 28 February 2018 is unaudited.
PRIMARY (BUSINESS UNITS) AND SECONDARY (GEOGRAPHICAL) SEGMENT REPORT continued
for the six months ended 31 August 2018
Unaudited Unaudited Unaudited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 % 2018
% % change %
Operating margins
Brands 51.5 48.8 2.7 50.7
Leading brands 59.6 55.2 4.4 57.0
Signature brands 5.9 14.3 (8.4) 15.1
Supply Chain 11.4 10.5 0.9 11.8
Manufacturing 13.8 13.4 0.4 14.2
Logistics 2.7 2.0 0.7 2.7
South Africa 16.1 15.6 0.5 17.2
International (1.4) 1.4 (2.8) -
UK (4.9) (0.8) (4.1) (2.8)
GBK (6.6) (2.1) (4.5) (4.1)
Wimpy 14.9 17.2 (2.3) 14.7
AME 18.0 15.5 2.5 17.6
Total 11.8 11.9 (0.1) 12.7
STATISTICS AND RATIOS
for the six months ended 31 August 2018
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August % 28 February
2018 2017 change 2018
Basic (loss)/earnings per share (cents)
Basic (572) 171 (434.5) 22
Diluted (570) 171 (433.5) 22
Headline earnings per share (cents)
Basic 188 170 10.6 393
Diluted 187 169 10.7 392
Ordinary shares (000)
In issue 99 977 99 862 99 977
Weighted average 99 977 99 862 99 872
Diluted weighted average 100 325 100 179 100 231
Operating profit margin (%) 11.8 11.9 12.7
Net debt/equity (%) 133.9 145.3 126.4
Net asset value per share (cents) 1 375 1 670 1 632
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 31 August 2018
Famous Brands Limited (the "company") is a South African registered company. The condensed 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 unaudited condensed consolidated interim financial statements have been prepared in accordance
with the framework concepts and the measurement and recognition requirements of International Financial
Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards
Board in issue and effective for the Group at 31 August 2018, 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 as a minimum contains the information required by IAS 34
Interim Financial Reporting, the JSE Listings Requirements, and the Companies Act of South Africa.
2. Basis of preparation
The Group's unaudited condensed consolidated interim financial statements as at and for the period
ended 31 August 2018 have been prepared on the going-concern basis. The accounting policies applied
in the presentation of the condensed consolidated interim financial statements are consistent with
those applied for the year ended 28 February 2018, except for the new standards that became effective
for the Group's financial period beginning 1 March 2018, refer to note 3.
The condensed consolidated interim financial statements have not been audited or reviewed.
The condensed consolidated interim financial statements were prepared on the historical cost basis,
under the supervision of Kelebogile (Lebo) Ntlha CA(SA), 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 2018.
- IFRS 2 Share-based Payment Transactions (Amendment, effective for financial years beginning or
after 1 January 2018); and
- IFRIC 22 Foreign Currency Transaction and Advance Consideration (effective for financial years
beginning on or after 1 January 2018).
These do not have a significant impact on the Group's financial results or position.
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The standard, inter alia,
introduces a new approach to the classification of financial assets, which is driven by the business
model in which the asset is held and their cash flow characteristics. The standard further introduces
a single impairment model being applied to all financial instruments, as well as an Expected Credit
Loss (ECL) model for the measurement of financial assets. It introduces a new hedge accounting model
that is designed to be more closely aligned with how entities undertake risk management activities
when hedging financial and non-financial risk exposures.
The adoption of IFRS 9 from 1 March 2018 resulted in changes in accounting policy, as referred to below:
Overall financial impact
The transition to IFRS 9 does not have a quantitative financial impact on the condensed consolidated
statement of financial position, statement of profit or loss and other comprehensive income, statement
of changes in equity, statement of cash flows and Segment report.
Overall effect on classification and measurement of financial assets and financial liabilities
The classification categories for financial assets under IAS 39 were as follows: held to maturity,
loans and receivables, fair value through profit or loss (FVTPL), and available-for-sale, which
determined instrument's measurement. These are replaced by categories that reflect the measurement
per IFRS 9, namely amortised cost, fair value through other comprehensive income (FVOCI) and FVTPL.
The classification categories for financial liabilities under IFRS 9 remain relatively unchanged from
IAS 39. The financial liabilities continue to be classified as amortised costs or fair value through
profit or loss (when they are held for trading).
IFRS 9 bases the classification of financial assets on the contractual cash flow characteristics and
the entity's business model for managing the financial asset, whereas IAS 39 based the classification
on specific definitions for each category. Overall, the IFRS 9 financial asset classification
requirements are considered more principle-based than IAS 39.
A financial asset is measured at amortised cost if it meets the criteria below and is not designated
as measured at FVTPL:
- The financial asset is held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows; and
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
A financial asset shall be measured at FVTPL unless it is measured at amortised cost or at FVOCI.
Initial recognition
At initial recognition, the Group measures financial asset at fair value plus, in the case of financial
asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at FVTPL are expensed in profit and loss.
Subsequent recognition
Financial assets at FVOCI
These assets are measured at fair value. Movements in the carrying amount are taken to OCI, except for
impairment, interest income and foreign exchange gains and losses which are recognised in profit and
loss. On derecognition, the cumulative gain or loss previously recognised in OCI is reclassified from
equity to profit and loss except for equity investment, and management has made election to present
fair value gains and losses on equity investments in OCI. There is no subsequent reclassification on
derecognition of the investment.
Financial assets at FVTPL
These assets are subsequently measured at fair value. Gains or losses arising on remeasurement of
these assets are recognised in profit and loss.
Financial assets at amortised cost
These assets are subsequently measured at amortised cost using the effective interest method. Interest
income, foreign exchange gain and losses and impairment are recognised in profit and loss. Any gain or
loss on derecognition is recognised in profit and loss.
The effects of adopting IFRS 9 on classification and measurement is noted below in the table:
Original classification New classification Carrying
under IAS 39 under IFRS 9 amount
Trade receivables Loans and receivables Amortised cost No change
Cash and cash equivalents Loans and receivables Amortised cost No change
Receivables from Group companies Loans and receivables Amortised cost No change
Overall effect on impairment of financial assets
The impairment requirements under IFRS 9 are different from those under IAS 39. The standard introduces
a single impairment model being applied to all financial instruments, as well as an ECL model for the
measurement of financial assets, which is a move from the Incurred Loss model.
Under IFRS 9, loss allowances are measured on either of the following bases:
- 12-month ECLs: there are ECLs that result from possible default events within the 12 months after
the reporting date; and
- lifetime ECLs: these are ECLs that result from all possible default events over the expected life
of a financial instrument (simplified approach).
The expected credit loss model takes into account past events, current conditions, reasonable and
supportable forward-looking information that is available without undue cost or effort.
The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the receivables.
The adoption of the ECL impairment model did not have a material impact on the impairment allowances
recognised in the prior and current year.
Overall effect on hedge accounting
Hedge accounting has been simplified in IFRS 9 and basically expanded the scope of possibility to
hedge. It makes application of hedging more principle-based. It allows entities to designate
non-derivative financial instruments, that are accounted for at FVTPL, as hedging instruments.
The Group has the option to continue to apply the hedge accounting requirements of IAS 39 until
the current macro hedging project is finalised, as all documentation is already in place. Accordingly,
the Group has elected not to adopt the hedge accounting requirements of IFRS 9, but to continue
applying the hedge accounting requirements of IAS 39 on existing hedges.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 introduces a comprehensive framework for determining when to recognise revenue and how much
revenue to recognise. It replaces IAS 18 Revenue and related interpretations. The framework is a
five-step model to be applied to each individual contract. Under IFRS 15, revenue is recognised at
an amount that reflects the consideration to which an entity expects to be entitled for transferring
goods or services to a customer.
Revenue is measured based on the consideration specified in a contract with a customer and excludes
amounts collected on behalf of third parties. The Group recognises revenue when it transfers control
over a product or services to a customer.
The Group has elected to not restate prior period figures and adopt a cumulative effect method.
Overall financial impact
The transition to IFRS 15 does not have a quantitative financial impact on the condensed consolidated
statement of financial position, statement of profit or loss and other comprehensive income, statement
of changes in equity, statement of cash flows and Segment report.
Overall effect on disclosures
IFRS 15 requires the Group to disclose the disaggregated revenue by categories that depict the nature,
amount, timing or uncertainty of revenue. This information is disclosed in note 7.
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R000 R000 R000
4. Property, plant and equipment
Opening balance 1 339 789 1 397 601 1 397 601
Additions 48 241 114 893 192 588
Foreign currency translation 164 550 41 308 21 102
Disposals (5 769) (1 489) (21 496)
Depreciation (90 605) (87 149) (181 414)
Impairment (289 477) - (68 592)
Closing balance 1 166 729 1 465 164 1 339 789
Impairment
An impairment of R289.5 million was recognised during the period under review relating to the GBK
cash-generating unit (August 2017: nil and February 2018: R68.6 million). Refer to note 5 for further
details on the impairment.
Sensitivity
For the period under review, an increase/(decrease) of 1% in the discount rate would result in an
increase/(decrease) in the impairment charge of R100.9 million/(R132.9 million). An increase/(decrease)
in the like-for-like growth rate of 1% in the forecast profits will result in a decrease/(increase)
in the impairment charge of R270.3 million/(R174.1 million).
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R000 R000 R000
5. Intangible assets
Opening balance 2 547 845 2 818 755 2 818 755
Additions 8 784 31 245 38 531
Foreign currency translation 280 934 12 152 21 920
Disposals (2 389) (9 240) (5 963)
Amortisation (14 008) (8 775) (21 398)
Impairment (584 448) - (304 000)
Closing balance 2 236 718 2 844 137 2 547 845
Impairment
In line with the year ended 28 February 2018, the GBK business continued to be assessed as a
cash-generating unit for the period under review. The goodwill and brand name asset which arose
on the acquisition of the business were allocated to this cash-generating unit's carrying amount
for the purpose of its impairment assessment.
The recoverable amount of the cash-generating unit was determined on the basis of fair value less
cost to sell, which amounted to R1.45 billion. The fair value used in determining the recoverable
amount of the cash-generating unit is based on an income approach valuation method including a
present value discounting technique using level 3 inputs. Key assumptions used in the valuation
includes the probability that the cash-generating unit will achieve the set profit forecasts
which includes like-for-like growth rates and the discount rate.
Like-for-like growth rates have been based on past performance adjusted for current and expected
economic conditions. The discount rate is determined based on current market rates and
observable input, adjusted for risk associated with the business.
The future profits were forecast over a period of 10 years applying like-for-like sales growth
rates which start at 0% increasing to 3% over the 10-year period, including a negative growth
of 10.5% forecasted for the current year (February 2018: 0% to 3% over the 10-year period).
A long-term growth rate of 2.2% (February 2018: 2.2%) per annum was set for the years subsequent
to the forecast.
A discount rate of 7.9% (February 2018: 8.0%) was applied.
A total impairment of R873.9 million was determined based on the inputs above for the period
under review. The impairment was allocated to goodwill (R47.0 million), the brand name asset
(R537.4 million) and Property, plant and equipment (R289.5 million). The carrying amount of
the goodwill and brand name asset was nil (August 2017: R347.8 million and February 2018:
R39.8 million) and R1.08 billion (August 2017: R1.37 billion and February 2018: R1.37 billion)
respectively. For further details regarding the performance of GBK, refer to the commentary
in this document.
Sensitivity
For the period under review, an increase/(decrease) of 1% in the discount rate would result
in an increase/(decrease) in the impairment charge of R187.3 million/(R246.7 million).
An increase/(decrease) in the like-for-like growth rate of 1% in the forecast profits will
result in a decrease/(increase) in the impairment charge of R501.9 million/(R323.2 million).
Changes in key assumptions as well as the actual cash flows achieved compared to those
forecast can result in further impairments in the GBK business. The model is reliant on
some level of economic recovery post-Brexit.
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R000 R000 R000
6. Provisions
Opening balance 32 851 - -
Amounts raised during the period - - 32 851
Amounts utilised (5 512) - -
Foreign currency translation 5 125 - -
Closing balance 32 464 - 32 851
The provisions relate to property-related expenses at GBK restaurant level.
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
Note R000 R000 R000
7. Revenue*
Sale of goods 2 253 880 2 101 201 4 327 642
Services rendered and
franchise revenue^ 1 329 735 1 299 994 2 695 453
3 583 615 3 401 195 7 023 095
* February 2018 disclosure has been restated to reflect Brands, International and Corporate in
services rendered and franchise revenue to enhance disclosure. This is unaudited.
^ Includes revenue from Design HQ.
8. Basic and headline (loss)/earnings per share
8.1 Basic (loss)/earnings per share
(Loss)/profit attributable
to equity holders of Famous (572 099) 170 986 21 618
Brands Limited
Basic (loss)/earnings (572 099) 170 986 21 618
Diluted basic (loss)/earnings (572 099) 170 986 21 618
Basic (loss)/earnings
per share (cents)
Basic (572) 171 22
Diluted (570) 171 22
8.2 Headline earnings per share
Basic (loss)/earnings 8.1 (572 099) 170 986 21 618
Adjustments
Profit on disposal of
property, plant and equipment (76) (1 212) (1 232)
Gross (106) (1 683) (1 711)
Tax 30 471 479
Impairment 759 709 - 372 592
Gross 873 925 - 372 592
Tax (114 216) - -
Headline earnings 187 534 169 774 392 978
Diluted headline earnings 187 534 169 774 392 978
Headline earnings per share (cents)
Basic 188 170 393
Diluted 187 169 392
9. Non-operational items
Impairment 873 925 - 372 592
873 925 - 372 592
10. 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.
11. Financial instruments
Accounting classifications and fair values
The table below sets out the Group's 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.
Unaudited Unaudited Unaudited Unaudited Audited Audited
six months six months six months six months year year
ended ended ended ended ended ended
31 August 31 August 31 August 31 August 28 February 28 February
2018 2018 2017 2017 2018 2018
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
Level R000 R000 R000 R000 R000 R000
Financial assets
Measured at amortised cost*
Trade and other receivables 760 133 760 133 687 577 687 577 568 514 568 514
Cash and cash equivalents 924 674 924 674 492 994 492 994 716 988 716 988
Fair value through profit
or loss:
Derivative financial
instruments
(foreign currency options) 2 2 212 2 212 - - - -
1 687 019 1 687 019 1 180 571 1 180 571 1 285 502 1 285 502
Financial liabilities
Measured at amortised cost:
Trade and other payables 832 155 832 155 760 164 760 164 599 941 599 941
Shareholders for dividends 3 215 3 215 2 221 2 221 2 221 2 221
Lease liabilities 8 027 8 027 6 218 6 218 7 446 7 446
Non-controlling
shareholder loans 7 500 7 500 22 253 22 253 7 500 7 500
Borrowings 2 765 100 2 765 100 2 900 565 2 900 565 2 780 560 2 780 560
Bank overdraft - - 15 238 15 238 193 193
Fair value through profit
or loss:
Derivative financial instruments
(put options over non-controlling
interests) 3 179 420 179 420 223 135 223 135 176 186 176 186
Fair value through other
comprehensive income:
Derivative financial instruments
(foreign currency swaps
and foreign
exchange contracts) 2 103 103 - - 1 028 1 028
Derivative financial instruments
(interest-rate swaps) 2 4 240 4 240 21 533 21 533 14 711 14 711
3 799 760 3 799 760 3 951 327 3 951 327 3 589 786 3 589 786
* Previously classified and audited as loans and receivables for the year ended 28 February 2018.
11. Financial instruments continued
Level 3 sensitivity information
The fair values of the level 3 financial liabilities of R179.4 million (2017: R223.1 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 decrease/(increase) of R3.1 million/
(2017: R6.2 million). An increase/(decrease) of 10% in the profit targets would result in an increase/
(decrease) of R7.4 million/(2017: R6.0 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:
Unaudited Unaudited Unaudited Unaudited Audited Audited
six months six months six months six months year year
ended ended ended ended ended ended
31 August 31 August 31 August 31 August 28 February 28 February
2018 2018 2017 2017 2018 2018
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
R000 R000 R000 R000 R000 R000
Put options over
non-controlling interests:
Carrying value at
the beginning of the period 176 186 176 186 211 239 211 239 211 239 211 239
Unwinding of discount 3 234 3 234 11 896 11 896 13 481 13 481
Derecognition in equity - - - - (42 716) (42 716)
Remeasurements - - - - (5 818) (5 818)
Carrying value at the
end of the period 179 420 179 420 223 135 223 135 176 186 176 186
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R000 R000 R000
12. Business combinations
Summary of cash outflow on acquisition of subsidiaries
Chilango (Pty) Ltd (Salsa Mexican Grill)* - 1 295 2 589
Total cash outflow on acquisition of subsidiaries - 1 295 2 589
* Cash outflow relates to contingent consideration recognised for Salsa Mexican Grill.
13. UK business segmental results
The table below sets out the performance of the UK business segment in GBP and ZAR respectively:
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August % 28 February
2018 2017 change 2018
GBP
Revenue GBP000 43 324 45 360 (4.5) 92 064
GBK 40 001 42 435 (5.7) 86 583
Wimpy 3 323 2 925 13.6 5 481
Operating (loss)/profit GBP000 (2 135) (357) (498.0) (2 689)
GBK (2 628) (872) (201.4) (3 718)
Wimpy 493 515 (4.3) 1 029
Operating (loss)/profit margin % (4.9) (0.8) (2.9)
GBK (6.6) (2.1) (4.3)
Wimpy 14.9 17.6 18.8
ZAR
Revenue R000 749 055 760 536 (1.5) 1 580 947
GBK 691 608 711 933 (2.9) 1 476 544
Wimpy 57 447 48 603 18.2 104 403
Operating (loss)/profit R000 (36 853) (6 333) (481.9) (44 671)
GBK (45 384) (14 687) (209.0) (59 977)
Wimpy 8 531 8 354 2.1 15 306
Operating (loss)/profit margin % (4.9) (0.8) (2.8)
GBK (6.6) (2.1) (4.1)
Wimpy 14.9 17.2 14.9
Unaudited Unaudited Audited Unaudited Unaudited Audited
six months six months year six months six months year
ended ended ended ended ended ended
31 August 31 August 28 February 31 August 31 August 28 February
Maturity Interest rate 2018 2017 2018 2018 2017 2018
Currency date Nature Margin % Rate % % % R000 R000 R000
14. Borrowings
Unsecured
Long-term borrowings 2 533 354 2 663 473 2 513 489
Short-term borrowings 231 746 237 092 267 071
2 765 100 2 900 565 2 780 560
Interest is paid
quarterly in arrears.
The company has
unlimited borrowing
powers in terms of
its Memorandum
of Incorporation.
Terms of repayment
Syndicated facility:
3-year bullet ZAR Sept 19 variable 2.35 3-month 6.96 7.35 7.16 720 000 720 000 720 000
JIBAR
Syndicated facility:
4-year bullet ZAR Sept 20 variable 2.55 3-month 6.96 7.35 7.16 720 000 720 000 720 000
JIBAR
Syndicated facility:
5-year amortising ZAR Sept 21 variable 2.45 3-month 6.96 7.35 7.16 746 667 960 000 853 333
JIBAR
2 186 667 2 400 000 2 293 333
Syndicated facility:
revolving credit* GBP Oct 19 variable 2.15 3-month 0.67 0.33 0.52 496 483 503 316 422 799
LIBOR
Syndicated facility:
revolving credit* GBP Oct 19 variable 2.15 1-month 0.72 0.49 76 382 - 65 046
LIBOR
Transaction costs
capitalised (30 213) (43 315) (37 727)
Interest accrued 35 781 40 564 37 109
2 765 100 2 900 565 2 780 560
* Relates to the GBP30 million facility referred to below.
Maturity analysis - capital
Payable within one year 231 746 237 092 267 071
Payable between two and five years 2 533 354 2 663 473 2 513 489
2 765 100 2 900 565 2 780 560
Sensitivity analysis
A change of 1% in interest rates at the reporting date would have increased/(decreased) profit or loss
by R13.8 million/R15.0 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 ZAR facility in place: ZAR80 million. Unutilised portion at period end: ZAR80 million.
Total GBP facility in place: GBP30 million. Unutilised portion at period end: GBPnil.
Guarantees
Famous Brands Limited, Famous Brands Management Company (Pty) Ltd, Mugg and Bean Franchising
(Pty) Ltd, Venus Solutions Limited, Famous Brands UK Limited, GBK Franchises Limited, Lamberts
Bay Foods Limited, Famous Brands Logistics Company (Pty) Ltd, GBK Restaurants Limited, Gourmet
Burger Kitchen Limited and GBK Retail 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.
Borrowing restrictions
There are certain restrictions on the financial activities of other covenant subsidiaries within
the Group, who are not obligors, such as restrictions on the ability to raise additional financing.
Underwriting and participation fees
The unamortised portion of underwriting and participation fees paid have been recognised in the above
long-term borrowings balance. The amortised portion is included within finance costs.
15. Capital management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as
a going concern, to provide sustainable returns for shareholders, benefits for other stakeholders
and to maintain, over time, an optimal structure to reduce the cost of capital.
The capital structure of the Group consists of cash and cash equivalents, borrowings (note 14) and
equity as disclosed in the statement of financial position. There are no externally imposed capital
requirements.
Financial covenants
The Group's borrowings (refer to note 14) are subject to the following financial covenants, which
the Group is in compliance with:
31 August 31 August 28 February
2018 2017 2018
Debt to EBITDA* <2.75 <3.00 <3.00
Interest cover >3.50 >3.25 >3.25
Free cash flow to debt service >1.20 >1.20 >1.20
* EBITDA excludes non-operational items.
Gearing
The Group's gearing ratio is set out below:
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R000 R000 R000
Borrowings 2 765 100 2 900 565 2 780 560
Bank overdrafts - 15 238 193
Cash and cash equivalents (924 674) (492 994) (716 988)
Net debt 1 840 426 2 422 809 2 063 765
Equity 1 374 893 1 667 244 1 632 027
Gearing ratio** 133.9% 145.3% 126.4%
** Calculated as net debt divided by equity.
16. Subsequent events
GBK: strategic decision
Shareholders are referred to the cautionary announcements issued on SENS on 17 August, 28 September
and 24 October 2018.
In light of GBK's continued underperformance in the current macroeconomic environment in the UK
and deteriorating financial position, the Board of GBK has initiated a CVA process with the
assistance of Grant Thornton. This decision follows extensive investigation into the options
available to improve GBK'S financial stability.
CVA Process
The CVA is a process which is unique to the UK and employed increasingly in the food services and
other industries given the rising percentage of distressed businesses in the current adverse
trading conditions.
The CVA is designed to promote the long-term financial viability and sustainability of an operation.
In this regard, the goal will be to reach binding agreements or compromise with GBK's unsecured
creditors, with a view to restructuring the business's leased property portfolio in line with
current market valuations. This could potentially enable GBK to exit underperforming sites and
achieve rental reductions on others, thereby improving the health and profitability of the
portfolio and general financial performance of the business.
Support of 75% is required from the unsecured creditors to proceed with the CVA.
Whilst this process evolves, shareholders will be updated when appropriate.
Coega Concentrate Tomato Paste Plant
The past growing season proved to be an extremely challenging one, with drought playing a
significant role in the outcome. Despite the best efforts by the plant's management team and
growers, production was substantially off the targeted volumes for viable operation of the
plant and highlighted again the necessity for expertise in, and support to primary farming
and growing operations, to ensure consistently high volumes of supply. The plant made an
operating loss of R17.8 million for the review period; in this light, and in anticipation
of further losses, operations at the factory were ceased with effect from 5 June 2018.
Management is pleased to advise shareholders that subsequent to the review period, a
prospective buyer for the business has been identified and negotiations regarding the
sale are in progress.
29 October 2018
CORPORATE INFORMATION
FAMOUS BRANDS LIMITED
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN: ZAE000053328
DIRECTORS
NJ Adami, SL Botha (Independent Chairman), CH Boulle, DJ Fredericks,
N Halamandaris, JL Halamandres, DP Hele (Chief Executive Officer)*,
ET Mashilwane, 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
Registration number: 2004/003647/07
Rosebank Towers, 15 Biermann Avenue
Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107
SPONSOR
The Standard Bank of South Africa Limited
Registration number: 1969/017128/06
30 Baker Street, Rosebank, 2196
AUDITORS
Deloitte & Touche
20 Woodlands Drive
The Woodlands
Woodmead
2052
Contact information
Tel: +27 11 315 3000
investorrelations@famousbrands.co.za
companysecretary@famousbrands.co.za
478 James Crescent
Halfway House, South Africa, 1685
Date: 29/10/2018 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
