Wrap Text
Summarised results for the year ended 28 February 2021
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004875/06
JSE share code: FBR
ISIN code: ZAE000053328
SUMMARISED RESULTS
for the year ended 28 February 2021
35% decrease
R5 billion
Revenue
121% decrease
-86 cents
Headline (loss)/earnings per share
79% decrease
R193 million
Operating profit
7.9 decrease
3.8%
Operating profit margin
Overview
Famous Brands is a branded food services business operating franchised, master license and Company-owned restaurants. Our vertically integrated business
model comprises three core pillars: Brands, Manufacturing and Logistics. The Brands portfolio consists of 19 restaurant brands, represented by 2 773
restaurants across South Africa ("SA"), the rest of Africa and the Middle East ("AME"), and the United Kingdom ("UK").
Operating environment
The food services industry was one of the worst affected by the COVID-19 pandemic during the reporting period. In addition, the reporting period was
characterised by:
- lockdown restrictions in different markets, including curfews, alcohol bans and capacity restrictions;
high food inflation;
- economic and political turmoil across our trading markets leading to low business and consumer confidence;
- concentrated competition in a subdued consumer spend environment;
- technology becoming increasingly pervasive in the food services industry and a differentiating driver; and
- South African-specific challenges such as unemployment, load shedding, service delivery protests and credit rating downgrades.
Group performance
Across our trading markets in SA, AME and the UK, the negative financial impact of the COVID-19 pandemic and resulting national lockdowns and trading
restrictions were severe. During the lockdowns, in line with regulations, our SA and UK operations were shut in April 2020, excluding the SA retail
division. Restrictions in the AME region were slightly less onerous, affording some trading activity.
The gradual easing of restrictions in SA and the UK during the reporting period enabled the business to improve performance while complying with
regulations.
Remaining relevant and responsive to changing consumer trends continues to be a priority. We continue to invest resources in:
- developing and promoting value offerings;
- enhancing technological capability across the digital and social media spheres;
- improving own delivery capacity and partnerships with third-party aggregators;
- ensuring that our menus reflect a growing demand for healthier options;
- rolling out of more environmentally friendly practices;
- ensuring that customers are aware of our stringent health and safety standards and adherence to COVID-19 safety protocols.
The Board and management team executed on the first year of our 2021 - 2023 strategic roadmap, which is customer inspired, brand led and supported by a
strong back-end value chain. This roadmap is consistent with the long-standing emphasis on the front-end (brands) component of the business, but with a
narrower geographical focus in terms of expansion into international markets.
The Group's results for the reporting period are outlined in the table below.
Group financial results
Salient features %
Unit 2021 2020 change
Revenue R million 5 021 7 780 (35)
Operating profit before non-operational items R million 193 912 (79)
Basic (loss)/earnings per share Cents (1 237) 362 (442)
Headline (loss)/earnings per share (HEPS) Cents (86) 417 (121)
Net asset value per share Cents 390 1 797 (78)
Dividend per share Cents - 90 (100)
Gearing
As announced on SENS on 3 April 2020, management successfully concluded negotiations with the Group's primary lender regarding a more appropriate debt
finance structure. The debt covenants were concluded at the same level as the previous debt structure.
Post-balance sheet events
Famous Brands Design Studio (Pty) Ltd trading as DHQ has from March 2021 transitioned to an associate company. Famous Brands now holds 49% -formerly 60%-
after the creation of the DHQ employees share trust. Famous Brands Management Company (Pty) Ltd donated the shares to the trust.
Famous Brands Great Bakery Company (Pty) Ltd trading as Bread Basket was 51% owned by Famous Brands and this majority stake was sold on 1 May 2021 to our
long standing partner and family founders of the business.
Lupa Osteria was 51% owned by Famous Brands. On 1 May 2021 Famous Brands acquired the 49% non-controlling interest from the founders of Lupa Osteria, Guy
Cluver and Chris Black.
Attainment of strategic imperatives
Our overriding strategy is centred on creating value for our stakeholders. Good progress was achieved in regard to each of our key strategic imperatives,
namely: to improve our operational efficiencies; enhance our financial performance; lead in the categories we compete in; prioritise our franchise
partners; develop and transform our people; and optimise capital management. It is important to recognise that our plans for the reporting period were
approved in February 2020 before the onslaught of the COVID-19 pandemic. Consequently, it meant that our primary focus was on financial sustainability.
Operational review
Brands
This portfolio consists of 19 restaurant brands, represented by a network of 2 725 franchised and 48 Company-owned restaurants across SA, AME and the UK.
The business 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 categorised as Quick Service and
Casual Dining.
SA
The SA restaurant industry was affected by the various lockdown levels which commenced with a hard lockdown on 27 March 2020. Our combined SA Brands
division reported a 42% decline in revenue to R567 million (2020: R974 million). Operating profit fell by 64% to R169 million (2020: R472 million), while
the operating profit margin dropped to 29.9% from 48.5%.
Casual Dining experienced a slow recovery due to seating capacity restrictions, reduced trading hours as a result of the curfew, as well as consumer
nervousness around eating out. As consumers changed their shopping and travelling habits this impacted sales in major malls and major transport routes.
Leading brands'# system-wide sales* declined by 28.6%, while like-for-like** sales declined by 29.1%. Signature brands'^ system-wide sales deteriorated by
53.7%, while like-for-like sales reduced by 52.0%.
* System-wide sales refer to sales reported by all restaurants across the network, including new restaurants opened during the period.
** Like-for-like sales refer to sales reported by all restaurants across the network, excluding restaurants opened or closed during the period.
# Leading brands' sales refer to sales of the Leading brands trading in SA.
^ Signature brands' sales refer to franchise and Company-owned store sales in SA as well as sales cross border only where the brand is a joint
venture partnership and the brand is not managed by the AME management team.
Leading brands portfolio
Our Leading brands delivered weaker results, reflecting a year of lockdown restrictions and poor economic conditions.
Consistent with recent years and in line with general market trends, our Quick Service brands, being Steers, Debonairs Pizza, Fishaways and Milky Lane
outperformed the casual dining brands, namely Wimpy and Mugg & Bean.
Leading brands strengthened its strategic partnership with third party delivery platforms ensuring that the brands were present in all key marketplaces.
We opened 69 new stores and revamped 77 stores.
Signature brands portfolio
Our Signature brands operate in a competitive and difficult Casual Dining market segment. Their performance reflects a year when lockdown forced restaurant
openings and closures. COVID-19 restrictions including capacity rules, curfews and alcohol bans further impacted trading conditions.
Operating margins declined to -41.1%. Store closures increased to 14 stores from 7 stores in the prior year. In addition, 26 stores were sold as part of
the tashas exit. To assist restaurants, menus were streamlined to simplify restaurant operations and manage gross profit margins. Restaurants had to
quickly adopt delivery platforms to enhance revenue where possible.
PAUL performed the best in the Signature brands portfolio attributed to strong day trading attributes and less reliance on alcohol and evening sales.
During the review period, we sold tashas and mothballed the Europa and Keg brands.
We opened five new stores and revamped one store.
AME
The Group is represented by 266 restaurants in 17 countries in this region.
All AME markets experienced border closures, curfews, travel restrictions and imposed health protocol measures in varying degrees and timeframes over the
year. Many restaurants underwent temporary closures and all franchise partners experienced financial stress.
In the context of less stringent COVID-19 trading restrictions, the AME region delivered solid results. System-wide sales in this region declined by 22.9%.
Combined revenue reported for the region was R316 million (2020: R314 million). Operating profit declined to R30 million (2020: R55 million). The operating
profit margin was 9.5% (2020: 17.5%).
Significant increase in home delivery channel sales was achieved by Quick Service brands in Botswana, Ethiopia, Kenya, Nigeria and Sudan as a result of an
agile response to consumer demand for delivery. Operational efficiencies were achieved by collaborating with strategic alliances, specifically petroleum
partnerships and by developing localised supply chains.
A total of 13 new stores were opened, 57 closed and five revamped during the period.
UK
Overview
The UK experienced incredible economic hardship due to the COVID-19 pandemic and stringent lockdown conditions. Since GBK was placed under administration
by the GBK Board, Wimpy is our only brand operating in the UK. Comparative results should be viewed from this perspective.
Wimpy UK
Turnover was down by a total of 19.4%. Revenue in Rand terms declined to R112 million (2020: R122 million). Operating profit declined by 38% to R14
million (2020: R23 million). The operating margin for the year was 12.8% (2020: 19.0%).
While trading conditions remained tough throughout the year, franchise partners embraced delivery across third-party platforms and take away services. This
meant Wimpy UK continued to trade throughout all lockdown stages.
The network comprises 71 restaurants (2020: 67).
Gourmet Burger Kitchen (GBK)
Due to the impact of the COVID-19 pandemic the Board decided to cease financial assistance to the GBK business. In October 2020, the GBK business was
placed under administration in accordance with the insolvency legislation in the UK. The Group's investment in GBK was impaired in full when the Group
published its interim results for the six-month period ended 31 August 2020. The Group awaits the finalisation of the administration process by the
Administrator. There are no further operating losses impacting the Group's results from the date on which GBK entered administration. The financial results
have been disclosed as a discontinued operation as a result of the disposal.
Vertical integration
The Group's vertically integrated supply chain comprises our Manufacturing, Logistics and Retail businesses, which are managed and measured independently.
Most of our manufacturing plants are wholly owned, but we also operate certain JV partnerships. The Retail business sells condiments, frozen meat products,
coffee, frozen chips and other value-added products. This division serves the front-end Brands division and provides a competitive advantage to franchise
partners through efficient and effective supply and margin support.
Total volumes across both Manufacturing and Logistics declined in light of lower demand levels in the front-end Brands division. Combined revenue of R3.3
billion (2020: R4.5 billion) was reported, while operating profit reduced to R169 million (2020: R457 million). The operating profit margin declined to
5.0% (2020: 10.2%), due to rising food inflation and the need to offer competitive price points to franchise partners.
Capital expenditure of R24 million (2020: R63 million) was employed on plant upgrades, machinery and equipment.
The Retail business has operated for a full financial year as a stand-alone business unit with sales of R151 million (2020: R124 million). This business
unit saw an uptick in sales during the COVID-19 lockdown period as consumer demand for at home consumption increased.
Looking forward
COVID-19 caused significant disruption to our business, especially during the hard lockdowns, where minimal trading activity was possible. We predict that
our revenue recovery will be slow with incremental improvements as consumer confidence returns to the markets where we operate.
We are concerned about the weak state of the economy which, together with the financial and psychological impact of COVID-19, will continue to dampen
consumer confidence and discretionary spend. However, we are cautiously optimistic, barring any further unpredictable events, that we should see increased
consumer activity, reflected by upwards sales trends.
Management and the Board are confident that we have a solid business model as well as the required specialist skills to navigate and guide our recovery.
Our strategically structured, diverse portfolio, agility and the ability to continuously innovate across brands and trading formats remains key to driving
future growth. Trading in March and April 2021 has been encouraging and when compared to 2019 levels there is a clear picture of what the recovery
trajectory could look like.
Prospects
Trading is likely to remain subdued in the first quarter of FY2022 and is highly dependent on how well the COVID-19 pandemic and associated risks are
managed.
The certainty of a third wave in winter could potentially lead to tighter lockdown restrictions, resulting in further revenue pressure. We have observed
that as infections drop, consumer confidence improves and spending increases. Promotional activity and advertising spend will be a priority over the
winter months to drive sales activity. We anticipate that delivery, which is traditionally strong in winter, will remain a key channel across all brands
and lessen the impact of reduced foot counts in restaurants.
Our focus for the coming year will be centred on creating further operational efficiencies, prioritising core long-term operations, optimising investment
returns for our franchise partners and preserving cash.
As the world moves from crisis mode to a new type of normal, there will be new growth avenues to consider. While we have withheld capital expenditure in
the short term, our goal to be at the forefront of our industry is undiminished and we remain committed to further expansion opportunities.
Any forward looking statements contained in this announcement has not been reviewed or reported on by the external auditors.
Dividend
We will not be declaring a dividend for the period under review. The restriction from our primary lender is that the Group will need two measurement
periods to reduce net debt:EBITDA to less than 2.5 times before resuming a dividend. The Board acknowledged the importance of the dividend to shareholders
and has committed to resuming dividend payments in the future.
A live audio webcast of the Group's results presentation will be held on 1 June 2021 at 10:00 (SAST). To pre-register link to:
http:www.corpcam.com/famousbrands01062021.
On behalf of the Board
SL Botha DP Hele
Chairman Chief Executive Officer
Midrand
31 May 2021
Full announcement
The content of this announcement is the responsibility of the directors of Famous Brands, and is a summary of the information contained in the full
announcement as published on 31 May 2021 on Famous Brands' website at http://www.famousbrands.co.za and can be accessed on the JSE link:
https://senspdf.jse.co.za/documents/2021/jse/isse/fbr/FY_20.pdf
This announcement is itself not audited but extracted from audited results.
Any decisions made by investors or shareholders should be based on the full consolidated financial statements including the audit report from KPMG which
sets out the key audit matter. The basis for the unmodified opinion is furthermore available at http://www.famousbrands.co.za/investor-
relations/financial-results. Copies of the full announcement may be requested by email from investorrelations@famousbrands.co.za or
companysecretary@famousbrands.co.za.
www.famousbrands.co.za
Directors
NJ Adami, SL Botha (Independent Chairman), CH Boulle, DJ Fredericks, N Halamandaris, JL Halamandres, DP Hele (Chief Executive Officer)*, AK Maditse, TE
Mashilwane and K Ntlha (Group Financial Director)*.
* Executive
Company Secretary
CD Appollis
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
Transfer Secretaries
Computershare Investor Services Proprietary Limited
Registration number: 2004/003647/07
Rosebank Towers, 15 Biermann Avenue Rosebank, 2196
Private Bag X9000, Saxonwold, 2132 South Africa
Sponsor
The Standard Bank of South Africa Limited Registration number: 1969/017128/06
30 Baker Street, Rosebank, 2196
Auditors
KPMG
Registration number: 1999/012876/07
85 Empire Rd, Parktown, Johannesburg, 2193
Date: 31-05-2021 05:46:00
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