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FBR - Famous Brands - audited group results for th 14 May 2007
FBR
FBR
FBR - Famous Brands - audited group results for the year ended 28 February 2007
FAMOUS BRANDS LIMITED
Incorporated in the Republic of South Africa
Registration number 1969/004875/06
Share code: FBR & ISIN: ZAE000053328
"Famous Brands" or "the group"
AUDITED GROUP RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2007
CONSOLIDATED INCOME STATEMENT
28-Feb-07 28-Feb-
06
R 000`s R 000`s change
Gross revenue 872 151 669 178 30%
Operating profit 137 812 109 384 26%
Net interest paid (6 275) (7 942)
Net income before taxation 131 537 101 442 30%
Taxation (44 423) (30 567)
Attributable profit 87 114 70 875 23%
Adjusted for:
- Impairment loss on 12 777 730
intangible assets
- Impairment on Loan 70 881
- Profit on disposal of (275) (416)
tangible fixed assets
Headline earnings 99 686 72 070 38%
Weighted average number of 87 523 898 86 287
shares in issue 304
Fully diluted weighted average 94 596 090 92 693 095
number of shares in issue
Operating margin 15.8% 16.3% -3%
Earnings per share - cents 99.5 82.1 21%
Fully diluted earnings per 93.1 77.4 20%
share - cents
Headline earnings per share - 113.8 83.5 36%
cents
Fully diluted headline 106.3 78.7 35%
earnings per share - cents
Distributions to shareholders
- Interim 18.0 13.0
- Final (proposed) 30.0 17.0
Total distribution for the 48.0 30.0 60%
year
CONSOLIDATED BALANCE SHEET
28-Feb-07 28-Feb-06
R 000`s R 000`s
ASSETS
Non-current assets 318 957 304 200
Tangible fixed assets 95 574 80 450
Intangible fixed assets 217 670 218 457
Deferred taxation 4 815 4 468
Loans 898 825
Current assets 266 144 141 040
Inventory 56 326 50 041
Trade and other receivables 109 701 85 980
Cash and cash equivalents 100 117 5 019
Total assets 585 101 445 240
EQUITY AND LIABILITIES
Share capital and reserves 303 480 248 234
Ordinary shareholders` 303 480 248 234
interest
Non-current liabilities 93 958 81 887
Interest bearing borrowings 75 745 61 637
Deferred taxation 18 213 20 250
Current liabilities 187 663 115 119
Trade and other payables 124 675 80 869
Short term portion of interest 42 729 25 215
bearing borrowings
Taxation 20 259 9 035
Total equity and liabilities 585 101 445 240
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
28-Feb-07 28-Feb-06
R 000`s R 000`s
Balance at beginning of year 248 234 169 460
- Adjustment on adoption of - 24 348
IFRS
Restated Balance 248 234 193 808
Net gains not recognised in 1 054 327
the income statement -
currency translation
differences
Share based payments 350 550
Attributable profit 87 114 70 875
Distribution to shareholders (30 735) (19 822)
Issue of share capital 902
Issue to participants of Share (2 537) 1 594
Incentive Trust
Ordinary shareholders interest 303 480 248 234
CONSOLIDATED CASH FLOW
28-Feb-07 28-Feb-06
R 000`s R 000`s
Net cash flow from operating 115 225 61 671
activities
Cash generated by operations 172 054 107 066 61%
Net interest paid (6 275) (7 942)
Taxation paid (35 902) (17 670)
Dividends paid (14 652) (19 783)
Net cash flow from investing (28 776) (69 144)
activities
Expended on non-current assets (31 620) (52 588)
Investment in subsidiaries (3 794) (18 214)
Proceeds from disposal of non- 6 638 1 658
current assets
Net cash flow from financing 8 649 (7 090)
activities
Movement in share capital and (18 418) 2 496
reserves
Increase / (decrease) in 27 067 (9 586)
interest bearing borrowings
Change in cash and cash 95 098 ( 14 563)
equivalents
Cash and cash equivalents at 5 019 19 582
beginning of year
Cash and cash equivalents at 100 117 5 019
end of year
Segment Report
28-Feb-07 28-Feb-06
R 000`s R 000`s
Gross Revenue
Franchising 227 988 182 796 25%
Food Services 645 420 486 182 33%
Corporate Services 43 816 36 383 20%
Eliminations ( 45 073) ( 36 183) 25%
Total 872 151 669 178 30%
Operating Profit
Franchising N 4 112 127 81 533 38%
Food Services N 4 35 954 22 935 57%
Corporate Services 2 507 4 916 -49%
Total N 4 150 588 109 384 38%
Notes
1.These financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS). The date of transition to
IFRS is 1 March 2004.
2.The accounting policies applied by the Group are consistent wih those applied
in the comparative financial periods, except for those which have arisen due to
the transition to IFRS.
3.These financial statements have been audited by RSM Betty & Dickson
(Johannesburg) and their unqualified audit opinion is available for inspection
at the company`s registered office.
4. The operating profit as per the segment report is recorded after adding back
R12 777 256, being the amount by which certain intangible assets have been
impaired in terms of IAS 36, Impairment of Assets. Management is of the opinion
that the earnings capacity of the the groups operations has not being
negatively affected as a result of impairing the intangible assets, and
accordingly the charge to operating profit as a result of accounting for the
impairment is reversed for purposes of the segment report. The impairment to
intangible assets relates mainly to the Whistle Stop trademark in the
Franchising Division. During the course of the year the company commenced the
process of converting all the Whistle Stop franchise sites to Steers Diners and
in terms of the requirements of IAS 36, the Whistle Stop trademark was impaired
to a carry value of R1. As a result of this conversion to Steers Diners, the
outlets are achieving on average in excess of 40% growth to prior year volumes.
TRADING ENVIRONMENT, OVERVIEW AND GROUP PERFORMANCE
Famous Brands is Africa`s leading Quick Service Restaurant (QSR) / casual dining
franchisor, with 1274 restaurants under franchise. The group`s brand portfolio
comprises Steers, Wimpy, Debonairs Pizza, FishAways, House of Coffees Coffee
Shops, Brazilian Coffee Shops and Whistle Stop. The group`s Food Services
division supplies the Franchise division, retail and broader hospitality
industry with a wide range of dry goods, butchery, bakery and sauce products and
includes the Pouyoukas Foods, Baltimore Ice Cream, Trufruit Juices and Coffee
Contact businesses.
The year under review witnessed a number of highlights for the group, including
the successful evolution of the business model, conclusion of the integration of
Wimpy manufactured product, and two acquisitions, Wimpy UK and Coffee Contact,
which will assist in forging the group`s strategic intent to become a world
class integrated food and beverage company by 2008. Significantly, the group
has also reported record turnover and profit for the year ended February 2007
and best-ever restaurant development performance.
Also contributing to the group`s results is the current bullish economic
environment experienced and the strong consumer affinity for Famous Brands`
offering which is regarded as highly aspirational, based on its powerful brand
equity and integrity.
Famous Brands` portfolio, positioned as a contemporary, relevant, value-for-
money offering benefited from the sustained growth of the emerged middle class,
the continued shift to out of home consumption and the strengthening perception
of QSR and casual dining as a way of life.
FINANCIAL RESULTS
The Franchising and Food Services divisions both delivered high quality
performances. Gross revenue improved 30% to R872.2 million (2006: R669.2
million). Headline earnings per share increased 36% to 113.8 cents (2006: 83.5
cents). Operating profit achieved a record R137.8 million (2006: R109.4
million) and attributable profit rose 23% to R87.1 million (R70.9 million).
It is encouraging to report improved margins across the divisions as a result of
extracting efficiencies from existing and new capacity in the business. Margins
increased from 16.3% to 17.3% (see Note 4 below). The group`s current surplus
capacity suggests there is scope for further growth, and in this regard
independent retail, hospitality and catering services opportunities will be
aggressively pursued.
IDC LOAN FACILITY
During the review period, the group advanced its goal to improve accessibility
of its brands to franchisees of colour. Previously disadvantaged individuals
currently comprise 15% of the franchise network and the intention is to raise
that to 20%. In this regard, the Industrial Development Corporation of South
Africa (IDC) has undertaken to provide a wholesale loan facility of R25.5
million to potential franchisees for the establishment of Wimpy, Steers,
Debonairs Pizza and FishAways franchised stores under their Pro SME Job Scheme.
Loans ranging from R500 000 up to a maximum of R1.5 million will be granted to
approved candidates. The group receives up to 1 000 enquiries each month from
potential franchisees and management is optimistic that this facility will be
widely utilised.
ACQUISITIONS
Advancement of the group`s strategic intent was manifest by two acquisitions
undertaken during the year.
Wimpy UK
In February 2007 the group acquired a 75% stake in Wimpy UK thereby achieving
its stated ambition to enter the first world branded QSR/casual dining market
via acquisition. The remaining 25% shareholding is owned by Halifax Bank of
Scotland. The acquisition consideration was UK GBP3 million, with a further UK
GBP2 million to be invested in re-energising the brand.
Wimpy UK is a suburban, casual dining restaurant offering which comprises 194
outlets across England, Scotland and Wales, and operates a further 20
restaurants under a master licence arrangement in Ireland. It is the largest
independently owned franchised restaurant chain in the United Kingdom. The
restaurant network includes representation on 25 Road Chef Motorway Service
Areas (petroleum station forecourts). The business is a pure franchise model;
it does not have manufacturing capacity and product for franchises is supplied
by third party vendors.
This acquisition rationale centered on a low risk / low cost strategy affording
optimal entry into a first world economy. The acquired business aligns with
Famous Brands` strategic intent and core competencies, and the group`s South
African intellectual property and experienced management will add significant
value in revitalising the business.
For an initial short term period the acquired business will not be earnings
enhancing. Famous Brands` investment will be aimed at reinvesting in the brand
and exploiting the inherent potential therein. Key to obtaining Board approval
to proceed with this transaction was the desire to protect existing
shareholders, which has been achieved through ring-fencing Wimpy UK`s existing
debt in the offshore subsidiary.
Short term ambitions for Wimpy UK will be to re-engineer the business to align
it more closely with the Wimpy SA model and offering. In this regard, the
current "tired" brand architecture and retail footprint will be overhauled and
re-engineered to ensure a fresh, contemporary presence.
Management`s immediate focus will be on consolidating and optimising the
existing network. As such, the group will proceed cautiously regarding the
opening of any new restaurants in the immediate short term. The same will apply
to the roll-out of any of the group`s other brands into the UK.
Over the medium term the intention will be to explore opportunities to expand
the Wimpy brand globally. Opportunities to export Famous Brands` manufactured
products to Wimpy UK will also be investigated.
The long term goal will be to use the Wimpy UK platform to launch a multiple
brand offering for Famous Brands in the United Kingdom.
Coffee Contact
In December 2006 the group acquired Coffee Contact, a privately owned company
which roasts and blends premium coffee beans sourced globally for the restaurant
and hospitality trade in Gauteng. Product is marketed under the Cafe Maestro
brand. The company also has the distribution rights for Tonino Lamborghini Cafe
in South Africa. The acquisition consideration was not material.
The rationale for this acquisition was twofold. In the short term the objective
is to expand the business nationally, thereby boosting Famous Brands` retail and
hospitality offering, and in the medium term the intention is to investigate
opportunities to supply coffee to the group`s franchise brands, which will have
significant impact on the business`s current revenue.
FRANCHISING DIVISION
Strong organic growth in the existing franchise network was complemented by a
net gain of 109 new restaurants. Approximately 25 jobs are created with the
opening of each new restaurant, making the group a significant contributor to
employment in the sector.
Like on like sales increased 14.3%, well ahead of inflation, whilst system wide
sales, which include new restaurants, grew 20.8%.
Gross revenue improved 25% to R228.0 million (2006: R182.8 million) and
operating profit grew 38% to R112.2 million (2006: R81.5 million)(see note 4
below).
The group`s strategy of situating its restaurants within arms` reach of desire
underpins the success of the brands. Experience has proved that new markets are
literally created in previously untapped areas as soon as a new restaurant has
been opened - a phenomenon enjoying particular success in emerging market
sectors.
Whilst the group plans to open a further 120 restaurants in the forthcoming
year, it is mindful that there is mounting pressure on high quality space in
prime shopping malls, and a premium on space in urban renewal and traditionally
black residential areas.
Key to the success of Famous Brands` business is the nature and depth of its
relationships with consumers. Significant time and resources have been expended
on research initiatives aimed at providing better insight into consumer
perceptions of the brands in an ongoing effort to ensure responsiveness.
Millward Brown was commissioned to conduct a research programme, which revealed
that the group`s brands enjoy strong "presence, relevance, performance, and
advantage" amongst consumers. The key challenge will be to deliver measurable
"bonding" gains with the group`s target market, which implies a loyalty rating
of "nothing else beats it". The programme`s results have served to endorse
Famous Brands` best-in-class strategy and will inform further brand
interventions.
Franchise network as at 28 February 2007
BRAND NATIONAL INTERNATIONAL TOTAL
Steers 405 38 443
Wimpy SA 438 15 453
Debonairs Pizza 197 29 226
FishAways 74 1 75
House of Coffees 32 - 32
Brazilian Coffee 19 1 20
Shop
Whistle Stop 19 1 20
Market Cafe 5 - 5
TOTAL 1189 85 1 274
FOOD SERVICES DIVISION
Improved turnover in the Food Services division was underpinned by growth of the
franchising division. In addition, integration of Wimpy SA`s manufactured-
product component has finally been completed, and these results include the
contribution of that business for the first time.
Gross revenue improved 33% to R645.4 million (2006: R486.2 million), while
operating profit increased 57% to R36.0 million (2006: R22.9 million).
Capex of R28 million was incurred during the reporting period, with the benefits
of this investment including improved margins, which increased from 4.7% to 5.6%
(see Note 4 below).
The board has approved a budget of R35.6 million for further upgrades and
expansions, including fully automating the Midrand sauce production plant and
relocating the KZN warehouse and distribution facility in order to meet the
group`s five year capacity projections. Expenditure has also been approved for
improvements to the Eastern Cape warehouse and distribution facility.
This division`s goals for the year ahead are to target contract manufacturing
opportunities, explore house-brand and private label business possibilities and
aggressively expand its hospitality and catering customer base, thereby reducing
dependence on Famous Brands` franchise network.
DIRECTORATE
During the review period, Mr Peter Halamandaris, founding member of the group
and Executive Chairman, elected to retire from his position in favour of a non-
executive role, with effect from March 2007. Mr Halamandaris` association with
the company has spanned a 35 year period, and his legacy and vision will
continue to be implemented by the capable team he has put in place over recent
years.
RESIGNATION OF COMPANY SECRETARY
Shareholders are advised that Mr Paris Papageorgiou has tendered his resignation
as Company Secretary of the group, effective 30 June 2007.
With effect from 1 July 2007 Mr Papageorgiou will be appointed a director of
Tuvaestel Trading Limited, a 100% owned subsidiary of Famous Brands Limited,
which company is registered in Cyprus. Mr Papageorgiou will be based in Cyprus
and hold responsibility for overseeing and managing the group`s offshore
financial structures as well as exploring other potential global business
opportunities.
Mr Papageorgiou`s current responsibilities include that of finance, legal
services and information technology. Shareholders are advised that his services
will be available to the South African operations until such time as a suitable
successor has been sourced, at which point a further announcement will be made.
PROSPECTS
The South African market continues to afford the group significant opportunities
for growth across its business units: franchising, food services, manufacturing
and logistics. The Wimpy UK business will be consolidated.
Organic and new restaurant growth will be aggressively pursued, and leveraging
the recently granted IDC loan facility will assist in boosting this strategy and
improving demographic representation across the franchise network.
The group now has a well-rounded manufactured product portfolio comprising
sauces, juices, ice cream, coffee, meat and bakery products, which serves to
strengthen its access to opportunities in the hospitality and broader food
services category. Substantial growth is forecast for this sector, and the
group will ensure it is optimally positioned to capitalise on those
opportunities. Management`s focus in the year ahead will be on extracting value
from investment in manufacturing, achieving lowest cost producer status and
optimising investment in logistics capacity.
Famous Brands` business model will serve as a platform for future growth and the
goal for the forthcoming period is to consolidate the group`s category
leadership position in Africa whilst embarking on a programme of becoming a
global business.
Since listing, the group has delivered annual compound earnings growth in excess
of 30% and management is confident that this level will be maintained over the
forthcoming year.
DISTRIBUTION TO SHAREHOLDERS
Subject to the passing of an ordinary resolution by shareholders at the Annual
General Meeting approving a capital distribution to shareholders by way of a
reduction of share premium, it is proposed that, in lieu of a final dividend, a
capital distribution to shareholders of R28 334 429 or 30 cents per share be
made, which payment shall be effected by means of a reduction in share premium.
Further details with regards to the distribution will be included with the
Notice of the Annual General Meeting. It is expected that the distribution to
shareholders will be effected on or about 16 July 2007.
On behalf of the Board
P Halamandaris T Halamandaris
Non Executive Chairman Chief Executive Officer
11 May 2007
Date: 14/05/2007 07:30:02 Produced by the JSE SENS Department.
