Wrap Text
Unaudited condensed consolidated interim financial results for the six months ended 31 August 2017
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN code: ZAE000053328
Unaudited condensed consolidated interim financial results for the six months ended 31 August 2017
Key performance indicators
Revenue up 39% to R3.4 billion
Headline earnings per share down 59% to 170 cents
Operating profit before non-operational items at R406 million
South African business delivered satisfactory organic growth
Gourmet Burger Kitchen (GBK), UK acquisition in 2016, underperformed
77 new restaurants opened across the Group
Commentary
GROUP PERFORMANCE
The Group’s focus for the period under review has been on growth, despite challenging macro-economic conditions and
socio-political uncertainty in its trading markets. A range of strategies aimed at achieving this goal were outlined,
including building capability and scale in the business; leveraging synergies and enhancing efficiencies across the
operations; optimising recent acquisitions to extract their inherent value; and instilling unrelenting focus on
innovation and improvement to deliver unique customer experiences in the branded franchised and food services space.
While local trading conditions in the review period equalled some of the toughest in management’s recollection, the
Group made good progress in advancing these growth ambitions. The integration of all recent acquisitions in South
Africa was concluded, adding scale; improved efficiencies were achieved in the operations and management remained
resolute in its commitment to cost containment and focus on core competencies; the depth of management and capability
in the business was enhanced with key appointments; across the Group, 77 new restaurants were opened; and, while
financial constraints inhibited consumer spend, the Group’s market-leading portfolio of brands remained top of mind,
with consumer loyalty demonstrated by the proliferation of industry awards won by both the Leading and Signature
brands during the period.
In the UK market, the adverse economic and socio-political environment continued to impact negatively on the
operation’s results. While the Wimpy business delivered a satisfactory performance in Sterling terms, the GBK
business underperformed management’s expectations. As noted in the Voluntary Performance Update and Trading
Statement published on 16 August and 9 October 2017 respectively, the integration of GBK is on track and management
remains optimistic about the medium-term potential of the business.
FINANCIAL RESULTS
Group revenue grew by 39% to R3.4 billion (2016: R2.5 billion), while operating profit before non-operational items
remained in line with the prior comparable period at R406 million (2016: R404 million).
The following non-operational items, which were included in the results for the six months ended 31 August 2016,
distort the comparison with the current comparable period, and have no bearing on the results under review:
a derivative gain of R141 million on the call option utilised to hedge the purchase price of the acquisition of GBK;
and a R20 million impairment of the investment made in 2013 in UAC Restaurants Limited in Nigeria.
The operating margin before non-operational items decreased to 11.9% (2016: 16.5%) due to a higher percentage of
company-owned stores in the UK.
Basic earnings per share (EPS) declined by 56% to 171 cents per share (2016: 391 cents per share), while headline
earnings per share (HEPS) decreased 59% to 170 cents (2016: 411 cents).
Cash generated by operations before changes in working capital increased 19% to R543 million (2016: R457 million);
while net cash inflow from operating activities rose to R247 million (2016: inflow of R82 million).
Net cash outflow from investing activities of R133 million (2016: R162 million) was incurred primarily on investment
in company-owned operations in the UK, information technology systems and enhancing Supply Chain capabilities.
At the end of the period, cash and cash equivalents were R493 million (2016: R452 million). Borrowings were
R2.9 billion (2016: nil). The Group’s gearing ratio relative to its market capitalisation as at 31 August 2017 was
21% (2016:nil). While the Group’s gearing is high relative to prior years, debt management is a key priority, and is
proceeding according to agreed financing commitments. Subsequent to the review period, and in line with the repayment
schedule, the Group met its first debt reduction obligation.
OPERATIONAL REVIEWS
BRANDS
The Group’s Brands portfolio comprises its Leading and Signature brands which are strategically positioned to appeal
to a wide range of consumers across the income and demographic spectrum and across meal preferences and value
propositions.
The Brands’ division consists of the following regions: South Africa, Rest of Africa and the Middle East (AME), and
the United Kingdom (UK). The brand network trades through 2 797 restaurants (2016: 2 626 restaurants).
In the six months under review, pleasing revenue growth was reported by this division, however profits were
negatively impacted by a weaker performance in the New Business Development division, lower sales reported by the
Signature brands’ portfolio, commissioning of a new Gauteng office, and appointment of key personnel across both the
Leading and Signature portfolios.
The Group opened 77 restaurants and revamped 107 during the period, in line with the prior comparable period. The
roll out of new stores was hampered by subdued investor sentiment and the slowdown in expansion activity of
petroleum companies and retail mall developers (particularly in the Rest of Africa region). The performance of the
brand portfolio continues to be closely monitored to ensure it remains relevant to its target market and aligned
with demand.
Company research reveals that consumers in South Africa visited Casual Dining (CD) and Quick Service (QS) restaurants
approximately 16% less frequently than in the prior year, and also moved away from CD to QS offerings, which are
perceived to be less costly. They have also narrowed their brand repertoire usage, a function of diners with reduced
discretionary income wanting to ensure a predictable, reliable experience. Consumer choice continued to be driven by
the demand for value and convenience. Aligned to this demand for convenience, online ordering remains a growing
phenomenon, while delivery offerings are also growing in popularity.
With consumers increasingly seeking an element of excitement and experimentation, established operators have had to
revisit the in-store experience to ensure they retain market share from new novelty brands.
In response to these trends the Group has substantially enhanced its social/digital media strategy and online ordering
platform and extended its delivery offering through its own channels and third-party suppliers. Menu innovation and
strategic pricing of value layers and promotions remained a key priority. In addition, the in-store experience was
improved with interventions such as new store designs, enhanced staff training, in-store activations and
customer-centric initiatives such as bottomless Wi-Fi (Mugg & Bean).
Competition intensified further over the period with the entry of new local and international operators.
South Africa
For the six months under review, revenue grew 8% to R415 million (2016: R382 million). Operating profit declined
by 1% to R202 million (2016: R205 million), and the operating margin declined to 48,8% (2016: 53,6%). System-wide
sales (including new restaurants opened in the period) increased by 7%.
Leading brands portfolio
Mainstream middle income consumers continued to reduce their spend on dining out, particularly in the CD category.
The general downturn in foot count in medium and major malls exacerbated pressure on this market segment.
For the six months under review, Mugg & Bean, Steers, Milky Lane, Fishaways and Fego Caffé delivered positive
system-wide and like-on-like growth, while Wimpy reported a decline in system-wide and like-on-like sales.
Wakaberry continued to underperform management’s expectations, delivering lower system-wide sales (due to nine
restaurant closures), as well as a decrease in like-on-like sales.
Debonairs Pizza recorded strong results for the period and continued to gain market share among upper and middle
income consumers, demonstrating its resilience in an extremely competitive sector.
Constant emphasis was placed on developing and aligning trading formats with market demand. In this regard the
Mugg & Bean On The Move restaurants on Total forecourts continued to gain traction, delivering strong system-wide and
like-on-like growth, while Fego Caffé’s To Go concept situated in Kaap Agri stores in the Western Cape also gathered
momentum.
The Group’s focus on developing and upgrading its online ordering platforms for the QS brands has had an important
impact on transaction growth, and while still in its infancy, the programme has delivered gratifying results for
Debonairs Pizza, Steers and Fishaways.
Signature brand portfolio
Trading conditions proved extremely difficult for the niche brands in this portfolio. Positive system-wide and
like-on-like growth was reported by NetCafé, Coffee Couture and Keg, while tashas, Turn ’n Tender, Mythos,
Catch, Salsa and Lupa Osteria reported an increase in system-wide sales but a decline in like-on-like growth.
Europa, Vovo Telo and The Bread Basket recorded lower system-wide sales (due to restaurant closures), as well as
weaker like-on-like sales. A stand-out performance was delivered by Turn ’n Tender. Celebrating its 40th anniversary,
the brand continued to evolve to meet consumer demand and trends - preparing to open its first cross-border restaurant
in Zambia later this year, launching a home delivery offering, and entering the KwaZulu-Natal (KZN) market for the
first time. Mythos also expanded its Gauteng footprint into KZN during the period, receiving a favourable response
from consumers.
The Signature brands division is structured to capitalise on Research and Development opportunities, serving as an
incubator for new, emerging entrepreneurial brands. During the period the Group collaborated on a pioneering venture
with a major fashion retailer to launch Made Café, a bespoke deli-style offering situated in the retailer’s flagship
store. To date, the offering has been warmly received by the clientele.
The Group’s flagship PAUL restaurant opened during the period in Melrose Arch, Gauteng, exceeding management’s
store-level profit targets from the outset and remaining on track to achieve the performance anticipated of the
brand, although further opportunities exist to contain costs and improve margins. The Group will proceed cautiously
with new store expansion plans as the pre-opening and capital costs are relatively high, and securing appropriate
sites is vital.
REST OF AFRICA AND THE MIDDLE EAST (AME)
The region’s consolidated revenue grew in local currency terms, but declined in Rand terms to R123 million
(2016: R127 million). Operating profit decreased to R19 million (2016: R23 million), while the operating margin
dropped to 15.5% (2016: 18.1%). System-wide sales for the period increased by 1%. The region contributed
9.2% (2016: 9.7%) to the Group’s total system-wide Brands division sales.
Across the AME, six restaurants were opened and four were revamped. In keeping with prior years, Debonairs Pizza
and Mugg & Bean were the best performing brands in the region, supported by solid results from Steers.
Disappointing results were reported by the Group’s joint venture business in Botswana, attributable to the weak
local economy and significantly reduced consumer spend. While like-on-like sales declined marginally in local
currency terms, the decrease in revenue and profitability was more marked when converted to Rands. During the
review period the average ZAR/Pula exchange rate was ZAR1.26:P1 versus ZAR1.33:P1 in the prior comparable period.
The business comprises 36 restaurants, 25 of which are company owned.
The Group continued to pursue its narrow-and-deep strategy in the region. With representation in 16 countries,
the strategic focus is on investing in and growing the existing brand portfolio in strong markets, while exiting
those that underperform. During the period, in-country franchise managers were appointed in Malawi, Mauritius and
the UAE which will further fortify these good operations; the Group terminated its Bread Basket operation in Egypt,
and entered a new market with the launch of Mugg & Bean in Ghana.
UAE
Debonairs Pizza continued to deliver strong like-on-like sales growth despite subdued economic conditions and
intense competition in the region. Management’s challenge remains to source suitable franchise partners to grow
the brand’s footprint.
GBK’s Dubai and Saudi Arabia restaurants reported a significant slowdown in sales, and the restaurant in Oman was
closed. The Master Licensee has subsequently replaced the former management team and a dedicated Franchise Manager
has been appointed to the brand. These initiatives are expected to yield an improvement in GBK’s performance in
the territory.
During the period, tashas expanded its presence in the region, opening two ‘classic’ restaurants (which conform
with local custom), one in Abu Dhabi and the other in Dubai. Post the review period, the brand also launched its
signature concept ‘The Flamingo Room’ in Dubai; this restaurant is licensed and offers entertainment, thereby
affording the brand access to a new consumer market in the region.
UNITED KINGDOM
Overview
For the purposes of this report, and in order to present an accurate comparison with the prior corresponding
period, the pre-existing Wimpy UK business is reported on separately from the GBK business, which was acquired
effective 7 October 2016.
In the review period, like-on-like sales across the industry remained flat, failing to offset increased input
costs. Over the past three months, food cost inflation accelerated from 2% to 8%, exceeding projections, and
combined with higher labour and business rates, continued to pressure margins. Market experts opine that current
industry like-on-like sales growth will probably be insufficient to deliver neutral margins in the year ahead,
suggesting that growth in sales of between 3% and 6% will be required. In this environment, several
under-capitalised competitors have already exited the market and it is anticipated that further consolidation
in the industry is likely.
During the review period the average ZAR/GBP exchange rate was ZAR16.78:GBP1 versus ZAR20.51:GBP1 in the prior
comparable period.
Wimpy UK
Revenue in Rand terms reported for the period declined to R49 million (2016: R58 million), as a function of
foreign currency translation. Operating profit decreased by 17% to R8 million (2016: R10 million), and the
operating margin declined to 17.2% (2016: 17.6%).
While system-wide sales decreased due to the closure of two restaurants, the business reported like-on-like
growth.
The introduction of a new restaurant design is anticipated to have a positive impact on the brand as it is
rolled out, with five stores scheduled to undergo a comprehensive revamp over the next two quarters. To date,
the first recently revamped restaurant continues to achieve significantly improved sales growth. Store
openings for the period were behind budget, however new site prospecting is underway and discussions with
existing franchise partners have been fruitful and augur well for growth prospects in the year ahead.
Steers
This brand has exited the market with the closure of its sole remaining store in September 2017.
GBK
During the review period, GBK’s high-end consumer market shifted from dining casually and often to formally
and occasionally, impacting negatively on sales. Furthermore, in the business’s niche category, the range of
burger and non-burger offerings increased notably, affording consumers far wider choice than in the previous
period.
While this best-in-class brand continues to lead the premium burger category and grew system-wide sales,
like-on-like sales declined, reflecting the difficult trading conditions experienced in the period. For the
26 weeks to 27 August 2017, GBK's system-wide sales were 11.1% higher and like-on-like sales 3.2% lower
(in Sterling terms) compared to the prior comparable period.
Disappointingly, the business recorded a PBIT loss of GBP872 000 for the period. Higher input costs,
significant store pre-opening costs and intensified price competition in the sector resulted in a decline in
operating margin from 3.6% in the prior period to (2.1%).
While this poor result is primarily attributable to the prevailing economic and socio-political environment
in the UK, a range of interventions are currently being implemented in the business which are anticipated to
have a positive impact on future performance. These include intensified focus on the management of new
restaurants opened, improved operational efficiencies and enhanced cost controls.
As at 31 August, GBK’s footprint comprised 103 restaurants, with seven restaurants opened during the review
period. A flagship restaurant will open in December in Meadowhall Shopping Centre, Sheffield and management is
optimistic that the offering is optimally aligned to the site and target market. In the current economic
climate, the Board has resolved to curtail the opening of further restaurants in the short term given the
high pre-opening capital costs, averaging GBP1 million per restaurant.
GBK’s operation in Ireland, which comprises five restaurants, continued to gain traction following two
revamps during the period, while the addition of a new offering to the delivery platform served to grow
online sales.
NEW BUSINESS DEVELOPMENT DIVISION
This unit experienced a difficult six months, reporting lower revenue and profits for the period. This
performance is attributable to the slower than anticipated roll out of new stores in the AME, (specifically
in the Rest of Africa territories), based on limited economic growth in the region. In addition, increased
investment was made in building capacity in the division to facilitate improved efficiencies and contain
costs. Remedial steps have been taken to address the sub-standard results reported, with the business being
separated into two independent divisions, namely Project Management and Design. The Design component was
outsourced to a joint-venture partner, with effect from 1 September 2017, aimed at improving efficiencies
and reducing costs in the operation. Management also anticipates that new store roll out and revamps in the
second six months of the financial year will accelerate, thereby better leveraging capacity of these business
units than occurred in the first six months.
SUPPLY CHAIN
The Group’s integrated strategic Supply Chain division comprises its Logistics and Manufacturing operations,
which are managed and measured independently. Combined revenue for the period increased by 12% to R2.1 billion
(2016: R1.9 billion), while operating profit grew 3% to R221 million (2016: R215 million). The growth reported
for the six months is primarily attributable to improved efficiencies and the integration of new business.
The operating margin declined to 10.5% (2016: 11.4%).
LOGISTICS
This division recorded a 10% increase in revenue to R1.8 billion (2016: R1.7 billion). Operating profit
declined by 25% to R37 million (2016: R49 million), and the operating margin decreased to 2.0% (2016: 2.9%),
primarily due to once-off costs associated with industrial action undertaken during the period (discussed in
further detail in the Sustainability commentary).
The Long Meadow Distribution Centre, which warehouses bulk dry goods, was commissioned in September 2016 and
reported results in line with management’s expectations. The facility has eased capacity constraints and
improved efficiencies in the business. During the period, a satellite depot was also opened in Polokwane,
which will be instrumental in enhancing efficiencies and containing costs.
Export sales to the AME region grew strongly in the period.
Capital expenditure of R3 million (2016: R10 million) was incurred on facility and fleet upgrades.
MANUFACTURING
This division reported another strong set of results derived from good volume growth, improved efficiencies
and intensified cost containment in the operation. Revenue grew by 6% to R1.4 billion (2016: R1.3 billion),
while operating profit rose by 11% to R184 million (2016: R166 million). The operating margin increased by
0.6% to 13.4% (2016: 12.8%).
Famous Brands’ Cheese Company, in particular, outperformed management’s expectations, while Famous Brands
Meat Company also reported pleasing growth.
Lamberts Bay Foods, the Group’s French fries processing business acquired in August 2016, underwent rigorous
review during the period. Management is satisfied with the turnaround achieved and anticipates further
improvement in the operation’s performance.
Famous Brands Coega Concentrate tomato paste manufacturing plant remains the subject of continued development,
with the key challenge being to establish a large, sustainable procurement supply. The business reported a
loss of R11 million in the period, but management is heartened that ongoing interventions to ensure optimal
utilisation of capacity and containment of costs will enable the business to attain profitability over the
long-term and serve as an important component of the Group’s Supply Chain.
During the period, the Western Cape burger bun manufacturing facility was closed and the business outsourced
to a specialist third-party vendor. This strategy will effect notable efficiencies and cost savings in the
division.
Inventory levels were higher than normal at the end of the reporting period, a deliberate strategy aimed at
ensuring price stability for the Group’s franchise partners over the upcoming peak season.
Capital expenditure of R20 million (2016: R80 million) was incurred on machinery, equipment and plant
upgrades.
ASSOCIATES
The Group holds strategic stakes in the following entities: UACR Restaurants Limited (49%), By Word of Mouth
(49.9%) and Sauce Advertising (35%).
UAC RESTAURANTS Limited (UACR)
This Nigerian business, more popularly known as Mr Bigg’s, remains the subject of ongoing repair and
consolidation. Trading conditions in Nigeria are extremely difficult, featuring high inflation, energy
shortages, security risks and limited access to bank finance and foreign currency, which has severely
hampered existing operators and further expansion plans. The network comprises 99 restaurants, with
further consolidation likely should conditions continue to deteriorate. Through ongoing review and
re-engineering of the business, and by building on the existing Debonairs Pizza platform in the region,
UACR is well positioned to quickly capitalise on an upturn in the market.
BY WORD OF MOUTH Proprietary Limited
During the period, this high-end commercial catering company experienced trading volatility as a result
of the economic downturn and related decline in spend in premium-end entertaining.
When the Group acquired its stake in this company in December 2016 it noted that a key aspect of the
partnership would be the opportunity to enter the home meal replacement retail sector, through high-end
standalone stores supplying bespoke products created by the founder, Karen Short. The business will launch
its new “Frozen for you” online and in-store offering in the first quarter of calendar year 2018.
SAUCE ADVERTISING
The Group’s strategic stake in this below-the-line advertising agency is centred on enhancing marketing
capabilities and leveraging marketing spend.
SUSTAINABILITY
INFORMATION TECHNOLOGY
During the review period, the Group concluded the implementation of its R50 million Enterprise Resource
Planning system, on schedule and within budget. This new financial management and reporting system is
designed to support the Group’s future growth, and will add significant value to the Finance, Logistics,
Manufacturing and Procurement divisions.
PEOPLE DEVELOPMENT
At the year-end, it was noted that investment would be made in bolstering the human capital component and
strengthening the depth of leadership structures across the business to align them with the Group’s growth
ambitions. In this regard, key management appointments were made in the Finance, Manufacturing and New
Business Development divisions. Furthermore, continued investment was incurred on training facilities and
training and development initiatives for staff and franchisees to enhance capability and competence in the
business.
INDUSTRIAL ACTION AND WAGE AGREEMENT
During the review period the Group’s unionised Bargaining Unit members, represented by SCMAWU, undertook
industrial action regarding wage increases. The strike was confined to the Logistics and Manufacturing
divisions, and comprehensive work stoppage contingency plans limited severe disruption of operations.
Regrettably, however, costs arose as a result of the strike, negatively impacting on margins in the
Supply Chain. The three-week strike was resolved through constructive negotiations, and a market-related
two-year wage agreement was concluded.
DIRECTORATE
On 29 September 2017, Mr RM Kgosana advised the Board that he wished to resign from his position as a
non-executive director with immediate effect.
The Board would like to record its appreciation for his role as a director and Chairman of the Audit
Committee, which was conducted with professionalism and dedication. As announced on the Stock Exchange
News Service on 2 October 2017, Mr CH Boulle, a serving independent non-executive director, was appointed
as the Interim Chairman of the Audit Committee.
Looking forward
BRANDS
Management will continue to review and rationalise the brand portfolio and network footprint to ensure its
offering is optimally aligned with market demand and core competencies. A further 130 restaurants are
scheduled for opening by the end of the current financial year and 160 revamps are planned.
It is anticipated that the Group’s Leading brands will deliver stronger results in the second half of the
year, benefiting from the holiday season, although the CD brands are expected to lag the general
improvement.
Furthermore, the Board is of the opinion that GBK’s return to profitability will be achieved in the next
financial year, however, the range of corrective measures implemented should expedite improved performance.
The Board remains optimistic that the operation will add value to the Group in the medium term.
Logistics
The investment made in increasing capacity in this division during the review period will contribute to
improved results in the future. Continued efforts will be made to contain costs and improve efficiencies to
realise management’s expectations of the business.
Manufacturing
Pleasing performances were reported across the majority of the Group’s manufacturing and processing plants;
these results will continue to improve as and when trading conditions improve and the front-end restaurant
operation gains further momentum. Continued investment will be incurred to leverage additional efficiencies.
PROSPECTS
The operating environment in both the local and UK markets is expected to remain testing, with prevailing
conditions anticipated to persist for at least the next six months domestically and possibly longer in the
UK. While the Group’s peak trading holiday season lies ahead, management does not foresee a significant
improvement in consumer sentiment during this period. Accordingly, management’s challenge will be to
leverage the market-leading position of its brands and prioritise strategies which will enable it to
capitalise on all opportunities to capture disposable income.
Management remains receptive to prospective local acquisitions which align with the Group’s core
competencies and which will further its goal to be the leading innovative branded franchised and food
services business in South Africa and select international markets by 2020.
DIVIDEND AND ALLOCATION OF CAPITAL
Following the acquisition of a number of businesses in the 2017 financial year, undertaken to meet
robust growth targets, the Group’s gearing is substantially higher than in prior years. Accordingly, the
Board and management are reviewing the options available to ensure that the allocation of capital reserves
optimises the return on investment for shareholders in the future. Such options include accelerated debt
reduction, dividend payments and acquisitions. In the year-end announcement on 29 May 2017, it was stated
that payment of dividends will resume in the 2018 financial year subject to future acquisitions and will
be dependent on operational requirements. Accordingly, no interim dividend will be paid.
On behalf of the Board
SL Botha DP Hele
Independent Chairman Chief Executive Officer
Midrand
30 October 2017
Condensed consolidated statement of financial position
as at 31 August 2017
Note Unaudited Unaudited Audited
31 August 31 August 28 February
2017 2016 2017
R000 R000 R000
ASSETS
Non-current assets 4 415 927 1 488 811 4 315 513
Property, plant and equipment 4 1 465 164 353 221 1 397 601
Intangible assets 5 2 844 137 1 101 312 2 818 755
Investments in associates 83 059 32 983 83 083
Deferred tax 23 567 1 295 16 074
Current assets 1 883 564 1 766 602 1 570 940
Inventories 530 566 367 740 454 656
Current tax assets 61 301 182 921 38 174
Derivative financial instruments - 189 837 -
Trade and other receivables 798 703 573 911 649 290
Cash and cash equivalents 492 994 452 193 428 820
Total assets 6 299 491 3 255 413 5 886 453
EQUITY AND LIABILITIES
Equity attributable to owners of Famous Brands Limited 1 552 193 1 633 293 1 383 509
Non-controlling interests 115 051 92 325 101 805
Total equity 1 667 244 1 725 618 1 485 314
Non-current liabilities 3 356 735 220 429 3 407 380
Borrowings 13 2 663 473 - 2 740 744
Derivative financial instruments 220 362 130 363 196 469
Lease liabilities 84 869 14 641 80 122
Deferred tax 388 031 75 425 390 045
Current liabilities 1 275 512 1 309 366 993 759
Non-controlling shareholder loans 22 253 21 198 22 130
Derivative financial instruments 24 306 - 23 381
Lease liabilities 11 962 - 6 548
Trade and other payables 943 492 629 221 790 891
Shareholders for dividends 2 221 - 2 221
Current tax liabilities 18 948 121 513 10 109
Borrowings 13 237 092 - 114 853
Bank overdrafts 15 238 537 434 23 626
Total liabilities 4 632 247 1 529 795 4 401 139
Total equity and liabilities 6 299 491 3 255 413 5 886 453
Condensed consolidated statement of profit or loss and other comprehensive income
for the six months ended 31 August 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 % 2017
Note R000 R000 change R000
Revenue 3 401 195 2 451 327 39 5 720 363
Cost of sales (1 584 260) (1 373 418) (2 948 744)
Gross profit 1 816 935 1 077 909 69 2 771 619
Selling and administrative expenses (1 410 853) (673 413) 110 (1 833 571)
Operating profit before
non-operational items 406 082 404 496 938 048
Non-operational items 7 - 120 602 (120 755)
Operating profit including
non-operational items 406 082 525 098 (23) 817 293
Net finance costs (138 146) (8 272) (131 557)
Finance costs (167 268) (17 263) (184 389)
Finance income 29 122 8 991 52 832
Share of profit of associates 1 726 2 688 4 314
Profit before tax 269 662 519 514 (48) 690 050
Tax (77 630) (108 953) (235 246)
Profit for the period 192 032 410 561 (53) 454 804
Other comprehensive income, net of tax:
Exchange differences on translating
foreign operations* (13 764) (33 898) (245 603)
Movement in hedge accounting reserve* (7 301) - (2 704)
Effective portion of fair value
changes of cash flow hedges (10 140) - (3 867)
Tax on movement in hedge
accounting reserve 2 839 - 1 163
Total comprehensive income for the period 170 967 376 663 206 497
Profit for the period attributable to:
Owners of Famous Brands Limited 170 986 390 702 (56) 413 747
Non-controlling interests 21 046 19 859 41 057
192 032 410 561 454 804
Total comprehensive income attributable to:
Owners of Famous Brands Limited 149 921 356 804 165 440
Non-controlling interests 21 046 19 859 41 057
170 967 376 663 206 497
Basic earnings per share (cents) 6.1
Basic 171 391 (56) 414
Diluted 171 389 (56) 413
* This item may be reclassified subsequently to profit or loss.
Condensed consolidated statement of changes in equity
for the six months ended 31 August 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R000 R000 R000
Balance at the beginning of the period 1 485 314 1 550 599 1 550 599
Movement in capital and share premium - 6 121 6 121
Recognition of share-based payments 18 763 13 372 26 306
Recognition of put-options over non-controlling interests - - (73 233)
Total comprehensive income for the period 170 967 376 663 206 497
Payment of dividends (7 800) (218 429) (227 512)
Non-controlling interest arising on business combination - 1 033 1 033
Change in ownership interests in subsidiaries - (2 173) (2 929)
Contingent consideration - (1 568) (1 568)
Balance at the end of the period 1 667 244 1 725 618 1 485 314
Condensed consolidated statement of cash flows
for the six months ended 31 August 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
Note R000 R000 R000
Cash generated before working capital changes 543 200 456 575 931 852
Increase in inventories (76 872) (27 767) (91 118)
Increase in receivables (144 867) (74 783) (16 033)
Increase/(decrease) in payables 141 559 68 960 (29 439)
Cash generated from operations 463 020 422 985 795 262
Net interest paid (110 306) (859) (84 628)
Tax paid (97 468) (121 680) (214 715)
Cash available from operating activities 255 246 300 446 495 919
Dividends paid (7 800) (218 078) (227 164)
Net cash inflow from operating activities 247 446 82 368 268 755
Cash utilised in investing activities
Additions to property, plant and equipment (114 893) (76 457) (282 440)
Intangible assets acquired (31 245) (13 087) (40 807)
Proceeds from disposal of property, plant
and equipment and intangible assets 12 413 9 921 10 004
Net cash outflow on acquisition of subsidiaries 10 (1 295) (82 474) (1 897 991)
Net cash outflow on change in ownership in
investments in subsidiaries - (2 173) -
Net cash outflow on acquisition of associate - - (50 573)
Dividends received from associate 1 750 2 450 4 550
Net cash outflow utilised in investing activities (133 270) (161 820) (2 257 257)
Cash flow from financing activities
Borrowings raised - - 2 484 979
Underwriting and participation fees paid
on borrowings raised - - (62 073)
Cash repaid to non-controlling shareholders (431) - (2 315)
Proceeds from issue of equity instruments
of Famous Brands Limited - 6 121 6 121
Acquired from non-controlling interests
in subsidiaries - (4 522) (2 929)
Net cash (outflow)/inflow from
financing activities (431) 1 599 2 423 783
Net increase/(decrease) in cash and
cash equivalents 113 745 (77 853) 435 281
Foreign currency effect (41 183) (13 272) (35 971)
Cash and cash equivalents at the
beginning of the period 405 194 5 884 5 884
Cash and cash equivalents at the end of the period 477 756 (85 241) 405 194
* Comprises cash and cash equivalents of R493 million (2016: R452 million) and bank overdrafts of R15 million
(2016: R537 million).
Primary (business units) and secondary (geographical) segmental report
for the six months ended 31 August 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 % 2017
Note R000 R000 change R000
Revenue
Franchising and Development 414 984 382 572 8 780 887
Supply Chain 2 101 201 1 882 629 12 3 983 297
Manufacturing 1 377 435 1 299 052 6 2 300 418
Logistics 1 830 534 1 664 820 10 3 415 746
Eliminations (1 106 768) (1 081 243) 2 (1 732 867)
Corporate 1 448 1 401 2 800
South Africa 2 517 633 2 266 602 11 4 766 984
International 883 562 184 725 953 379
United Kingdom (UK) 760 536 57 560 704 182
GBK (Gourmet Burger Kitchen) 711 933 - 598 849
Wimpy 48 603 57 560 105 333
Rest of Africa and Middle East (AME) 123 026 127 165 249 197
Total 3 401 195 2 451 327 39 5 720 363
Operating profit
Franchising and Development 202 471 205 204 (1) 426 755
Supply Chain 221 105 214 738 3 454 671
Manufacturing 184 342 165 903 11 330 103
Logistics 36 763 48 835 (25) 124 568
Corporate (30 265) (48 587) (48 463)
South Africa 393 311 371 355 6 832 963
International 12 771 33 141 105 085
United Kingdom (UK) (6 333) 10 117 55 468
GBK (14 687) - 36 354
Wimpy 8 354 10 117 19 114
AME 19 104 23 024 49 617
Operating profit before
non-operational items 406 082 404 496 938 048
Franchising and Development - (20 000) (20 000)
Impairment loss 7 - (20 000) (20 000)
Corporate (214 050) 26 065 (463 244)
Non-operational items 7 - 140 602 (100 755)
Net finance costs (138 146) (8 272) (131 557)
Share of profit of associates 1 726 2 688 4 314
Tax (77 630) (108 953) (235 246)
Profit for the period 192 032 410 561 (53) 454 804
Primary (business units) and secondary (geographical) segmental report continued
for the six months ended 31 August 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
% % change %
Operating margins
Franchising and Development 48.8 53.6 (4.8) 54.7
Supply Chain 10.5 11.4 (0.9) 11.4
Manufacturing 13.4 12.8 0.6 14.3
Logistics 2.0 2.9 (0.9) 3.6
South Africa 15.7 16.4 (0.7) 17.5
International 1.4 17.9 11.0
United Kingdom (UK) (0.8) 17.6 (18.4) 7.9
GBK (2.1) - 6.1
Wimpy 17.2 18 (0.8) 18.1
AME 15.5 18.1 (2.6) 19.9
Total 11.9 16.5 (4.6) 16.4
Statistics and ratios
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 % 2017
R000 R000 change R000
Basic earnings per share (cents)
Basic 171 391 (56) 414
Diluted 171 389 (56) 413
Headline earnings per share (cents)
Basic 170 411 (59) 428
Diluted 169 408 (58) 426
Ordinary shares (000)
in issue 99 862 99 862 99 862
weighted average 99 862 99 821 99 842
diluted weighted average 100 179 100 455 100 092
Operating profit margin (%) 11.9 16.5 16.4
Net debt/equity (%) 146.6 4.9 165.0
Net asset value per share (cents) 1 670 1 728 1 487
Notes to the condensed consolidated financial statements
for the six months ended 31 August 2017
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 and containing
information required by IAS 34: Interim Financial Reporting, as well as 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: Interim Financial Reporting, the JSE Listings
Requirements, and the Companies Act of South Africa.
2. Basis of preparation
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 2017, except for the new standards that became effective
for the Group’s financial period beginning 1 March 2017, refer to note 3.
The condensed consolidated financial statements have not been audited or reviewed by the Group's external auditors.
The condensed 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 2017, none of which had a material impact on the Group.
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R000 R000 R000
4. Property, plant and equipment
Opening balance 1 397 601 286 448 286 448
Additions 114 893 76 457 285 467
Acquired in business combinations - 15 016 992 605
Government grant - - (2 992)
Foreign currency translation 41 308 (1 280) (64 489)
Disposals (1 489) - (5 091)
Depreciation (87 149) (23 420) (94 347)
Closing balance 1 465 164 353 221 1 397 601
5. Intangible assets
Opening balance 2 818 755 1 095 888 1 095 888
Additions 31 245 13 087 40 807
Acquired in business combinations - 40 969 1 888 402
Foreign currency translation 12 152 (34 991) (186 787)
Disposals (9 240) (8 903) (3 955)
Amortisation (8 775) (4 738) (15 600)
Closing balance 2 844 137 1 101 312 2 818 755
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R000 R000 R000
6. Basic and headline earnings per share
6.1 Basic earnings per share
Profit attributable to equity holders of
Famous Brands Limited 170 986 390 702 413 747
Basic earnings 170 986 390 702 413 747
Diluted basic earnings 170 986 390 702 413 747
Basic earnings per share (cents)
Basic 171 391 414
Diluted 171 389 413
6.2 Headline earnings per share
Basic earnings 170 986 390 702 413 747
Adjustments (net of tax):
Profit on disposal of property,
plant and equipment (1 212) (732) (690)
Gain on bargain purchase - - (6 213)
Impairment loss - 20 000 20 000
Headline earnings 169 774 409 970 426 844
Diluted headline earnings 169 774 409 970 426 844
Headline earnings per share (cents)
Basic 170 411 428
Diluted 169 408 426
7. Non-operational items*
Impairment loss - 20 000 20 000
Derivative (gain)/ loss - (140 602) 33 253
Foreign exchange loss on initial
recognition of investment - - 23 295
Professional fees - - 50 420
Gain on bargain purchase - - (6 213)
- (120 602) 120 755
* Represents non-operational items that are not expected to recur in the future.
8. 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.
9. 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
2017 2017 2016 2016 2017 2017
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
Level R000 R000 R000 R000 R000 R000
Financial assets
Loans and receivables:
Trade and other receivables 687 577 687 577 573 911 573 911 551 844 551 844
Cash and cash equivalents 508 554 508 554 452 193 452 193 428 820 428 820
Fair value through profit or loss:
Derivative financial instruments
(foreign currency options) 2 - - 189 837 189 837 - -
1 196 131 1 196 131 1 215 941 1 215 941 980 664 980 664
Financial liabilities
Measured at amortised cost:
Trade and other payables 760 164 760 164 626 997 626 997 648 162 648 162
Shareholders for dividends 2 221 2 221 2 224 2 224 2 221 2 221
Lease liabilities 96 831 96 831 14 641 14 641 86 670 86 670
Non-controlling shareholder loans 22 253 22 253 21 198 21 198 22 130 22 130
Borrowings 2 900 565 2 900 565 - - 2 855 597 2 855 597
Bank overdraft 15 238 15 238 537 434 537 434 23 626 23 626
Fair value through profit or loss:
Derivative financial instruments
(put options over non-controlling
interests) 3 223 135 223 135 130 363 130 363 211 239 211 239
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 21 533 21 533 - - 8 509 8 509
4 041 940 4 041 940 1 332 857 1 332 857 3 858 256 3 858 256
Level 3 sensitivity information
The fair values of the level 3 financial liabilities of R223 million (2016: R130 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 instrument include the probability of achieving set profits targets and the discount rates. An
increase/(decrease) of 1% in the discount rate would result in decrease/(increase) of R6 million
(2016: R5 million). An increase/(decrease) of 10% in the profit targets would result in an increase/
(decrease) of R6 million.
Movements in level 3 financial instruments carried at fair value
The following tables 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
2017 2017 2016 2016 2017 2017
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 beginning of
the period 211 239 211 239 124 821 124 821 124 821 124 821
Initial recognition in equity
for new acquisitions - - - - 73 233 73 233
Unwinding of discount 11 896 11 896 5 542 5 542 14 813 14 813
Remeasurements - - - - (1 628) (1 628)
Carrying value at end of the year 223 135 223 135 130 363 130 363 211 239 211 239
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R000 R000 R000
10. Business combinations
Summary of cash outflow on acquisition of subsidiaries
Lupa Osteria - 3 958 3 958
Salsa Mexican Grill* 1 295 4 985 4 985
Lamberts Bay Foods - 73 531 73 530
GBK - - 1 815 518
Total cash outflow on acquisition of subsidiaries 1 295 82 474 1 897 991
* Cash outflow for the period ended 31 August 2017 related to contingent consideration recognised at
28 February 2017 for the acquisition of Salsa Mexican Grill.
11. 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
2017 2016 change 2017
GBP
Revenue 45 360 2 805 1 517 40 722
GBK GBP000 42 435 - 100 35 241
Wimpy GBP000 2 925 2 805 4 5 481
Operating profit (357) 493 (172) 3 217
GBK GBP000 (872) - 100 2 188
Wimpy GBP000 515 493 4 1 029
Operating profit margin (0.8) 17.6 7.9
GBK % (2.1) - 6.2
Wimpy % 17.6 17.6 18.8
ZAR
Revenue 760 536 57 560 1 221 704 182
GBK R000 711 933 - 100 598 849
Wimpy R000 48 603 57 560 (16) 105 333
Operating profit (6 333) 10 117 (163) 55 468
GBK R000 (14 687) - 100 36 354
Wimpy R000 8 354 10 117 (17) 19 114
Operating profit margin (0.8) 17.6 7.9
GBK % (2.1) - 6.1
Wimpy % 17.2 17.6 18.1
12. Performance of acquired businesses
The table below sets out the performance of the entities acquired in 2017. The figures include
performances before the entities were acquired by the Group.
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August % 28 February
2017 2016 change 2017
Revenue
GBK (ZAR) R000 711 933 762 251 (7) 1 532 785
GBK (GBP) GBP000 42 435 37 156 14 81 014
Lamberts Bay Foods R000 144 736 152 503 (5) 271 429
Salsa Mexican Grill R000 11 972 4 465 168 19 498
Lupa Osteria R000 1 987 445 347 3 971
Operating profit
GBK (ZAR) R000 (14 687) 27 338 (154) 67 015
GBK (GBP) GBP000 (872) 1 332 (165) 3 542
Lamberts Bay Foods R000 5 248 7 645 (31) (4 765)
Salsa Mexican Grill R000 1 858 1 120 66 4 535
Lupa Osteria R000 470 8 5 775 173
Interest
rate
Maturity margin
13. Borrowings Currency date Nature % Rate
Unsecured
Long-term borrowings
Short-term borrowings
Interest is paid quarterly in arrears.
The company has unlimited borrowing
powers in terms of its Memorandum of
Incorporation.
Terms of repayment
Syndicated facility: three-year bullet ZAR Sep 19 variable 2.35 3-month JIBAR
Syndicated facility: four-year bullet ZAR Sep 20 variable 2.55 3-month JIBAR
Syndicated facility: five-year amortising ZAR Sep 21 variable 2.45 3-month JIBAR
Syndicated facility: revolving credit GBP variable 2.15 3-month LIBOR
Transaction costs capitalised
Interest accrued
Maturity analysis - capital
Payable within one year
Payable between two and five years
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
2017 2016 2017 2017 2016 2017
% % %
13. Borrowings continued
Unsecured
Long-term borrowings 2 663 473 - 2 740 744
Short-term borrowings 237 092 - 114 853
2 900 565 - 2 855 597
Interest is paid quarterly in
arrears.
The company has unlimited
borrowing powers
in terms of its Memorandum of
Incorporation.
Terms of repayment
Syndicated facility:
three-year bullet 7.35 - 7.36 720 000 - 720 000
Syndicated facility:
four-year bullet 7.35 - 7.36 720 000 - 720 000
Syndicated facility:
five-year amortising 7.35 - 7.36 960 000 - 960 000
2 400 000 2 400 000
Syndicated facility:
revolving credit 0.33 - 0.34 503 316 485 553
Transaction costs
capitalised (43 315) (55 035
Interest accrued 40 564 25 079
2 900 565 2 855 597
Maturity analysis - capital
Payable within one year 237 092 - 114 853
Payable between two and
five years 2 663 473 - 2 740 744
2 900 565 - 2 855 597
Sensitivity analysis
A change of 1% in interest rates at the reporting date would have increased/(decreased) profit or
loss by R15 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: R190 million. Unutilised portion at 31 August 2017: R190 million.
Total GBP facility in place: GBP30 million. Unutilised portion at 31 August 2017: GBPnil.
14. Subsequent events
There were no material events after the reporting period.
Administration
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN code: ZAE000053328
Directors
NJ Adami, SL Botha (Independent Chairman), CH Boulle, P Halamandaris, P Halamandaris (Jnr), T Halamandaris, JL
Halamandres, K Hedderwick, DP Hele (Chief Executive Officer)*, 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
30 October2017
Date: 30/10/2017 07:05:00 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,
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information disseminated through SENS.
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