| Mon 25 Oct 2010, 7:05 | | FBR - Famous Brands Limited - Unaudited consolidated interim results for the six |
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FBR
FBR
FBR - Famous Brands Limited - Unaudited consolidated interim results for the six
months ended 31 August 2010
Famous Brands Limited
(Incorporated in the Republic of South Africa)
(Registration number 1969/004875/06)
Share code: FBR ISIN code: ZAE000053328
("Famous Brands" or "the company")
Unaudited consolidated interim results for the six months
ended 31 August 2010
-Revenue up 12% to R908,3 million (2009: R811,4 million)
-Headline earnings per share up 24% to 115 cents (2009: 93 cents)
-Cash generated by operations up 13% to R180,1 million
(2009: R158,8 million)
-Operating profit up 22% to R170,1 million (2009: R139,8 million)
-Interim dividend up 40% to 70 cents (2009: 50 cents)
-Net borrowings to equity improved to 16% (2009: 22%)
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2010 2009 % 2010
R 000 R 000 change R 000
Revenue 908 329 811 447 12 1 674 331
Gross profit 395 115 339 892 712 974
Selling and (225 033) (200 091) (407 802)
administrative
expenses
Operating profit 170 082 139 801 22 305 172
before impairment
losses
Impairment losses - - (4 507)
Net interest paid (7 698) (12 042) 36 (17 872)
Profit before taxation 162 384 127 759 27 282 793
Taxation (53 100) (40 132) (91 153)
Profit for the period 109 284 87 627 25 191 640
Foreign currency (5 589) (15 588) (26 300)
translation
differences
Total comprehensive 103 695 72 039 165 340
income for the period
Profit attributable
to:
Equity holders of 109 054 87 639 191 367
Famous Brands Limited
Minority interests 230 (12) 273
Total comprehensive
income
attributable to:
Equity holders of 103 465 72 051 165 067
Famous Brands Limited
Minority interests 230 (12) 273
Reconciliation to
headline earnings
for the period
Earnings attributable
to equity holders
of Famous Brands 109 054 87 639 191 367
Limited
Impairment losses - - 3 245
Profit on sale of - - (382)
company-owned
restaurant
Loss/(profit) on
disposal of property,
plant and equipment 135 (91) 76
Headline earnings for 109 189 87 548 25 194 306
the period
Earnings per share -
cents
- basic 115 93 24 202
- diluted 112 91 23 199
Headline earnings per
share - cents
- basic 115 93 24 206
- diluted 112 91 23 202
Dividends to
shareholders - cents
- interim: dividend 70 50 40 50
declared
- final: dividend 64
declared
Total dividends 70 50 40 114
Ordinary shares
- in issue net of 95 277 435 94 427 435 94 894 435
treasury shares
- weighted average 95 051 602 94 402 435 94 508 393
- diluted weighted 99 401 357 98 224 435 97 378 393
average
Condensed consolidated segmental information - business unit and geographical
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2010 2009 % 2010
R 000 R 000 change R 000
Revenue
Franchising 191 727 158 003 21 341 167
Supply chain 660 072 575 641 15 1 205 944
Manufacturing 330 079 300 335 625 988
Logistics 594 871 524 094 1 102 709
Eliminations (264 878) (248 788) (522 753)
Corporate - - (10 511)
South Africa 851 799 733 644 16 1 536 600
Franchising (UK) 56 530 77 803 (27) 137 731
Total 908 329 811 447 12 1 674 331
Operating profit
Franchising 113 161 94 185 20 202 808
Supply chain 52 689 38 432 37 93 690
Manufacturing 36 379 25 221 60 725
Logistics 16 310 13 211 33 210
Eliminations - - (245)
Corporate 29 117 (5 214)
South Africa 165 879 132 734 25 291 284
Franchising (UK) 4 203 7 067 (41) 13 888
Total 170 082 139 801 22 305 172
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R 000 R 000 R 000
Cash flow from operating
activities
Cash generated by operations 180 059 158 751 346 392
Net interest paid (7 698) (12 042) (17 872)
Taxation paid (43 596) (26 695) (114 089)
Net cash flow from operating 128 765 120 014 214 431
activities
Dividends paid (60 959) (37 773) (85 021)
Net cash retained from 67 806 82 241 129 410
operating activities
Cash flow from investing
activities
Acquisition of business - - (96 351)
including intangible assets
Expansion capital expenditure
Property, plant and equipment (11 638) (6 851) (8 891)
Intangible assets (1 393) (4 011) (9 679)
Replacement capital (10 543) (645) (3 337)
expenditure on property, plant
and equipment
Purchase of UK minority - 34 346 33 137
interest and debt restructure
Proceeds from disposal of 1 473 1 362 5 267
property, plant and equipment
Net cash flow from investing (22 101) 24 201 (79 854)
activities
Cash flow from financing
activities
Movement in share capital and 6 494 360 7 524
reserves
Decrease in interest-bearing (33 978) (131 743) (51 767)
borrowings
Net cash flow from financing (27 484) (131 383) (44 243)
activities
Increase/(decrease) in cash 18 221 (24 941) 5 313
and cash equivalents
Cash and cash equivalents at 94 520 89 207 89 207
beginning of year
Cash and cash equivalents at 112 741 64 266 94 520
end of period
Condensed consolidated statement of changes in equity
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R 000 R 000 R 000
Balance at beginning of year 583 925 492 290 492 290
Total comprehensive income for 103 695 72 039 165 340
the period
Dividends to shareholders (60 957) (37 758) (84 983)
Share-based payments 3 060 2 351 3 754
Net movement in share capital 6 489 348 7 524
Balance at end of period 636 212 529 270 583 925
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31 August 31 August 28 February
2010 2009 2010
R 000 R 000 R 000
ASSETS
Non-current assets 738 608 643 172 733 687
Property, plant and equipment 125 140 129 311 115 583
Intangible assets 608 676 509 323 613 312
Deferred taxation 4 792 4 538 4 792
Current assets 377 624 355 495 337 141
Inventories 85 790 85 043 80 157
Taxation 1 828 2 697 1 159
Trade and other receivables 177 265 203 489 161 305
Cash and bank balances 112 741 64 266 94 250
Total assets 1 116 232 998 667 1 070 828
EQUITY AND LIABILITIES
Equity attributable to equity
holders of
Famous Brands Limited 635 698 529 270 583 640
Minority interests 514 - 285
Total equity 636 212 529 270 583 925
Non-current liabilities 206 879 173 300 242 068
Interest-bearing borrowings 155 249 135 363 189 206
Deferred taxation and lease 51 630 37 937 52 862
liabilities
Current liabilities 273 141 296 097 244 835
Trade and other payables 180 720 198 197 157 355
Short-term portion of interest- 60 748 46 160 65 979
bearing borrowings
Taxation 31 673 51 740 21 501
Total liabilities 480 020 469 397 486 903
Total equity and liabilities 1 116 232 998 667 1 070 828
Notes
1) These results have not been audited by the Group`s auditors.
2) The unaudited results of the Group for the six months ended 31 August 2010
have been prepared in accordance with International Financial Reporting
Standards.
3) The accounting polices applied by the Group are consistent with those applied
in the comparative financial periods.
4) The interim results have been prepared in accordance with IAS 34: Interim
Financial Reporting.
Commentary
Overview
Notwithstanding the difficult operating environment, Famous Brands succeeded in
delivering a noteworthy performance in the reporting period ended 31 August
2010. The Group enjoyed a surprisingly buoyant holiday trading period in March
and April and benefited materially from strong trading during the FIFA World
Cup. However, as anticipated, a marked decline in sales was experienced in the
latter part of July and August following the conclusion of World Cup activities.
In South Africa, the six months under review featured constrained consumer spend
as the Group`s mainstream middle income consumer target market continued to be
affected by limited disposable income and tight lending criteria. While interest
rate reductions partially offset these conditions, a sustained, meaningful
improvement in the economy did not develop. The sector remained extremely
competitive and this, together with the onerous trading environment, indicates
that it is not unlikely that there will be further rationalisation of certain
brands and individual operators lacking strong consumer equity over the next six
to 12 months.
The economic climate in the United Kingdom (UK) remained even more subdued than
locally, featuring high levels of unemployment, negligible earnings growth and
pessimistic consumer sentiment. The performance delivered by Wimpy UK is a
direct reflection of these conditions.
The Group`s footprint as at 31 August 2010 comprised 1 789 restaurants across
South Africa, 16 other African countries and the UK.
Financial results
In the six months under review, the Group`s revenue increased 12% to R908,3
million (2009: R811,4 million), while operating profit grew 22% to R170,1
million (2009: R139,8 million). The operating profit margin improved to 18,7%
from 17,2%. This higher margin is largely a reflection of the sustained
improvement in the manufacturing margin which resulted from enhanced
efficiencies in procurement and capacity utilisation, prudent cost control and
reduced input costs. Net interest paid reduced 36% to R7,7 million (2009: R12,0
million) due to the Group`s strong balance sheet, lower financing rates and the
effect of restructuring of foreign debt (Wimpy UK) in the second quarter of
2009.
Headline earnings per share and basic earnings per share both rose 24% to 115
cents per share (2009: 93 cents).
Cash generated from operations continued to grow strongly, improving 13% to
R180,1 million (2009: R158,8 million). Notwithstanding the increased dividend
payment, the Group`s robust cash generating ability resulted in net cash
retained of R67,8 million after interest and taxation.
Increased capital expenditure of R23,6 million (2009: R11,5 million) was
employed to enhance capacity for the take on of new franchise business gained
through recent acquisitions. In addition to routine replacement activities,
expenditure was incurred on building Meat Processing and Bakery plants in the
Western Cape at the new Logistics centre, fleet expansion and bolstering the
Group`s Information Technology support service.
Net borrowings decreased by R57 million to R103 million during the half year,
reducing the net borrowings to equity ratio to an extremely healthy 16% (2009:
22%), providing adequate financial capacity to fund further expansion or
investment if required. Interest cover improved to 22,1 times (2009: 11,6
times).
The board has declared an interim dividend of 70 cents (2009: 50 cents), an
improvement of 40%. The dividend cover of 1,64 times is sustainable given the
Group`s cash generative nature.
Operational reviews
Franchising Division - Local
The strong performance of the Group`s brands over the World Cup period and the
inclusion of Mugg & Bean`s revenue for the six months contributed to improved
system wide sales and operating profit.
Revenue from franchising grew 21% to R191,7 million (2009: R158,0 million).
Operating profit rose 20% to R113,2 million (2009: R94,2 million), whilst the
operating margin declined 0,6% on the prior comparative period, to 59,0%.
System wide sales, which include new restaurant openings, increased 13,1%, and
like-on-like sales improved 7,4%. The weighted menu price increase across the
Group was 3,3%, illustrating real growth achieved by the division.
New restaurant openings over the six months were sluggish as a result of the
slow-down in new build activity over the World Cup period. A total of 42 new
restaurants were opened and 24 existing stores were revamped.
Brand performance
Product innovation drove a 9% increase in customer count for the Steers brand.
This increase is a reflection of the success of Steers` new value burger range,
GET REAL BURGERS, in attracting new users and the price conscious mass middle
market.
Wimpy continues to extend its penetration into emerging markets and attract new
consumers. The brand`s solid performance was boosted by the tremendously
successful marketing campaign conducted during World Cup 2010 which achieved
cult status when its television advert became a viral marketing sensation on a
number of social networking sites.
In a first-to-market coup, Debonairs Pizza launched mobile and online ordering
via cellphone and the internet respectively, a development which has been
extremely well received by consumers. Product innovation is key to this brand`s
competitive advantage and four new products were successfully launched during
the past six months.
Debonairs Pizza has developed an `Express` trading format targeting emerging
market areas. These restaurants are smaller than the conventional footprint and
feature a limited menu, but offer the same experience.
During the period the brand opened its milestone 300th outlet, with 17 of those
restaurants comprising the new Express format. In total, a record 40 outlets
will be opened in the current financial year, driven largely by per capita
consumption growth in the emerging black market.
During the reporting period Mugg & Bean launched its `Mini` concept on Sandton
Drive in Sandton, Gauteng, in partnership with Total Petroleum. The outlet has
traded extremely well since opening, and the Group has signed an exclusive
agreement with Total to expand this concept further in the forecourt market.
Mugg & Bean is also currently developing a `Metro` trading format for rural
areas. The smaller footprint and menu will offer the same experience but require
less investment. There is strong potential to roll-out this format on a large
scale, which will have important upside for the brand.
FishAways continues to establish growing awareness and gain support from
consumers. Evidence of the success achieved in this regard was the brand`s top
ten position in the Sunday Times` Top Brands survey. In its maiden entry in the
competition, FishAways achieved a remarkable 7th position.
tashas opened a new restaurant in Brooklyn, Pretoria, bringing to five the
number of stores in the network. The outlet has traded strongly since opening,
complementing tashas` already successful business model. A further three
restaurants will be opened in Johannesburg, Durban and Cape Town in the current
fiscal year. Famous Brands holds a 51% controlling interest in tashas.
The solid like-on-like growth trend delivered by Brazilian Cafe is encouraging
and the network continues to expand, in partnership with Shell Petroleum.
Management is encouraged that Brazilian Cafe is rapidly becoming a challenger in
the forecourt convenience market.
Franchising Division - International
Trading conditions in the UK remained depressed in the review period. Wimpy UK`s
middle income target market continued to be restrained by high levels of
unemployment and limited disposable income. In this environment, exacerbated by
the effect of currency fluctuations and strengthening of the Rand, revenue
declined 27% to R56,5 million (2009: R77,8 million), while operating profit
decreased to R4,2 million from R7,1 million. Like-on-like sales expressed in
British Pounds were 8% lower than the prior comparative period.
A recent report released by Coffer Peach Business Tracker monitored performance
across the UK eating-and-drinking-out sector, and concluded that recovery in the
industry would be extremely slow. Their expectation is for performance to be in
line with the prior year, with no meaningful growth anticipated.
During the reporting period the Group`s master license agreement in Ireland was
terminated by mutual consent, and Wimpy`s presence was withdrawn from that
market. In England, the Group closed four non profitable company-owned
restaurants and continued with the revamp and repair programme, albeit at a
conservative pace given the current economic conditions. One new turnkey outlet
was opened in Basingstoke, in a prime shopping centre. This restaurant`s trading
format, franchise partner and site will become the blueprint for further new
restaurant openings. The outlet is trading well and in line with management`s
ambitions for the brand.
The adverse economic climate has resulted in a decline in rental rates from
previously punitive levels. This trend has encouraged the Group to explore
opportunities to launch other brands into the market, including Debonairs Pizza
and Steers.
Supply Chain
Manufacturing division
This division delivered another strong performance, reporting a 10% increase in
revenue to R330,1 million from R300,3 million and a 44% improvement in operating
profit to R36,4 million from R25,2 million. The operating margin grew vigorously
from 8,4% to 11,0% based on enhanced production efficiencies, prudent inventory
management and better procurement practices. Significant progress has also been
made in improving machine and operating efficiencies, a function of enhanced
planned maintenance and reduced downtime.
The Western Cape operation will be relocated to its new facilities in November
2010, which should afford further improvements.
Importantly, the Group has adequate capacity to take on additional business
gained from recent acquisitions, without having to incur further investment.
Logistics division
This division performed well to deliver a 14% increase in revenue to R594,9
million from R524,1 million. Operating profit grew 23% to R16,3 million from
R13,2 million. The operating margin improved to 2,7% from 2,5%.
The business benefited from the take-on of previously outsourced bakery
deliveries to Wimpy restaurants in Gauteng and the Mugg & Bean refrigerated
business in KwaZulu Natal, the Eastern Cape, Western Cape and the Free State.
During the reporting period the Group invested in its multi-temp fleet to
accommodate the take-on of both these pieces of new business.
The Group`s recently launched Black Economic Empowerment owner-driver programme
delivered excellent results in productivity improvements. The programme will be
extended to the Eastern and Western Cape during the current calendar year and
will be rolled out to the Gauteng region early in 2011.
Corporate actions
Giramundo
The Group secured its entry into the mainstream chicken category with the
acquisition of a 51% controlling stake in a peri-peri flame grilled chicken
offering, Giramundo. The effective date of the transaction was 1 August 2010 and
the Group`s investment was R1,2 million. The business currently comprises four
existing restaurants in Gauteng. A complete overhaul of the look and feel of the
brand has been concluded and the Group is on track to open its first two new
restaurants in Kokstad and Nelspruit on 1 November 2010. The manufacturing and
logistics components of the operation are in the process of being fully
integrated into Famous Brands` model. Management is confident of Giramundo`s
potential to become a leading contender in the category and one of the Group`s
mainstream brands. Early response to the brand from potential investors and
landlords has exceeded expectations.
Keg and McGinty`s
With effect from 1 September 2010, the Group acquired the franchise agreements,
trademarks and intellectual property of the Keg and McGinty`s franchised pub and
restaurant brands for a purchase consideration of R27 million, funded through
cash reserves. The acquisition represents Famous Brands` first foray into the
pure leisure category. At acquisition date, the Keg brand comprised 28 outlets,
and McGinty`s constituted five outlets. The operations are currently being
integrated into the Group`s business model, with the intention of taking on the
logistics component by 1 November 2010. A complete new brand identity and
positioning is being developed for both brands and will be launched in March
2011. The Group has ambitious expansion plans for this business and is confident
of the earnings enhancing potential once growth opportunities and synergies have
been extracted.
Vovo Telo
Famous Brands acquired a 51% controlling interest in Vovo Telo artisan bakery
and cafe business, comprising two outlets in Port Elizabeth and one in Gauteng.
The acquisition consideration was not material and the effective date of the
transaction was 1 October 2010. This acquisition represents a further
opportunity to implement the Group`s strategic intent to grow its best in class
franchised leisure brands, and fills another gap in Famous Brands` franchise
portfolio. The operations are currently being integrated into the Group`s
business model. The Group is confident that the Vovo Telo brand has strong
franchising potential and this belief is supported by the enthusiastic response
from landlords seeking tenants offering a point of differentiation.
The Group is in the process of establishing a Vovo Telo Baking Academy aimed at
developing artisan baking skills and creating employment. An important rationale
for this academy is the potential to produce speciality bread and pastry
products for Group brands such as Mugg & Bean and tashas. This business is
currently outsourced to third-party contractors.
With regard to the abovementioned transactions, no income was earned or
recognised in this set of results.
Prospects
The Group`s traditionally strong December trading period should assist in
boosting sales in the forthcoming six months, although the second half of the
year is expected to be less robust than the first half, which enjoyed the
exceptional benefit of World Cup trading.
With only nominal menu price increases planned in the period ahead, tight cost
control and innovative product development and marketing will be demanded.
Famous Brands` immediate challenge will be to consolidate its recent
acquisitions. This includes the aggressive launch of Giramundo and full
integration of the Keg and Vovo Telo businesses.
Management is satisfied that the Group will continue to unlock value for
shareholders over the long term. The healthy balance sheet and strong cash
generating ability of the business position it well for further improvements and
acquisitions if suitable opportunities are presented. The excellent management
team, growing portfolio of best in class brands and the Group`s solid business
model affords strong growth potential. Management`s priority will be to leverage
those strategic advantages in the interests of all stakeholders.
Dividend to shareholders
Notice is hereby given that an interim dividend No. 32 of 70 cents (2009: 50
cents) per ordinary share, payable out of income, has been declared in respect
of the six months ended 31 August 2010.
Salient dates are:
Last day to trade cum-dividend Friday, 19 November 2010
Shares commence trading ex-dividend Monday, 22 November 2010
Record date Friday, 26 November 2010
Payment of dividend Monday, 29 November 2010
Share certificates may not be dematerialised or rematerialised between Monday,
22 November 2010 and Friday, 26 November 2010, both dates inclusive.
On behalf of the Board
P Halamandaris KA Hedderwick Midrand
Non-Executive Chairman Chief Executive Officer 20 October 2010
Directors
Non-Executive: P Halamandaris (Chairman), JL Halamandres,
P Halamandaris (Jnr), HR Levin, B Sibiya
Executive: T Halamandaris (Executive Deputy Chairman),
KA Hedderwick (Chief Executive Officer)
SJ Aldridge (Group Financial Director)
Registered office: 478 James Crescent, Halfway House 1685,
PO Box 2884, Halfway House 1685
E-mail: Investorrelations@famousbrands.co.za
Transfer secretaries: Link Market Services (Pty) Limited (Registration number
2000/007239/07),
11 Diagonal Street, Johannesburg 2001, PO Box 4844,
Johannesburg 2000.
Sponsor: Standard Bank (Registration number 1969/017128/06),
3 Simmonds Street, Johannesburg 2001
www.famousbrands.co.za
Date: 25/10/2010 07:05:03 Produced by the JSE SENS Department.
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