| Mon 23 May 2011, 7:05 | | FBR - Famous Brands Limited - Audited results for the year ended 28 February |
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FBR
FBR
FBR - Famous Brands Limited - Audited results for the year ended 28 February
Famous Brands Limited
Incorporated in the Republic of South Africa
Registration number 1969/004875/06
JSE Share code: FBR
ISIN: ZAE000053328
"Famous Brands" or "the Group"
Audited results for the year ended 28 February 2011
www.famousbrands.co.za
Revenue
Up 11% to R1 878 million
Operating profit
Up 16% to R358 million
Cash generated by operations
Up 13% to R397 million
Net borrowings to equity
Improves to 14%
Headline earnings per share
Up 17% to 242 cents
Dividends per share
Up 36% to 155 cents
Commentary
Overview
The year under review proved to be an exceptional one for Famous Brands, both
in terms of organic and acquisitive growth.
Notwithstanding the subdued economic climate, the Group has delivered another
outstanding performance. Famous Brands benefited from strong sales during the
2010 FIFA World CupTrade Mark and, despite fears to the contrary, our
traditional peak trading period in December was also extremely robust. Our
high profile brand portfolio continued to ensure that we remained top of mind
amongst consumers seeking tried-and-tested quality offerings.
Whilst there was no significant improvement in the economy, limited food
inflation and reduced interest rates assisted in improving disposable income
levels among our target consumers.
Financial results
Group revenue increased by 11% to R1.9 billion from R1.7 billion. Operating
profit improved 16% to R358 million (2010: R308 million), while the operating
margin grew to 19.1% from 18.3% in the prior year. This robust margin
improvement is based primarily on best operating practices achieved in the
Manufacturing and Logistics divisions. Net interest paid declined 28% to R14.9
million (2010: R20.6 million) due to the sustained low interest rate
environment and reduced net borrowings arising from strong cash flows.
After a slightly increased effective tax rate, headline earnings per share and
earnings per share rose by 17% and 20% respectively to 242 cents per share.
Cash generated from operations increased by a robust 13% reflecting the
Group`s sound cash-generating nature and tight management of working capital.
Despite sharply higher taxation and dividend payments, net cash retained for
the year of R130 million (2010: R132 million) was in line with last year`s
record level.
Total investing activities absorbed R87 million comprising R44 million in
acquisitions and a net R43 million on replacement and expansion capital
expenditure. Over and above routine replacement activities, expansion included
new capacity for the take-on of acquisitions, relocation of the Meat
Processing and Bakery plants to the new Western Cape Logistics centre, fleet
expansion and bolstering the Group`s Information Technology support service.
These outflows were accommodated from cash funds leaving a healthy R43 million
to pay down net debt.
After proceeds from share incentive scheme issues, borrowings net of cash
reduced by R59 million to R101 million (2010: R160 million). Net borrowings as
a percentage of equity improved to 14% (2010: 28%). Net interest paid was
covered 24 times by operating profit, substantially ahead of last year`s
already strong 15 times. The future capital expenditure programme of R75
million, including R31 million for the Milky Lane/Juicy Lucy acquisition,
planned for the year ahead will be settled from existing cash reserves and
borrowing facilities.
Operational reviews
Franchising Division - Local
This division delivered a pleasing performance and made an important
contribution to the Group`s results. Revenue increased 18% to R386 million
(2010: R327 million) and operating profit improved 15% to R235 million (2010:
R205 million). The division`s operating profit margin was 60.9% compared with
62.5% in the prior year, primarily due to investment ahead of royalty
collections from our recently acquired brands, notably an investment in
personnel to ensure adequate capacity to continue to grow, and, or where
necessary, repackage and reposition these brands.
Our mainstream brands continued to build on well-established platforms, whilst
our niche brands gained traction in their respective markets.
A total of 111 (2010: 125) new restaurants were opened during the year
bringing the network to a total of 1 861 restaurants. In addition 81 (2010:
72) existing restaurants were revamped.
Once again we enjoyed heart-warming support from our customers reflected by
the range of awards received this year, including for best burger, best chips,
best pizza, best breakfast and best coffee.
Franchising Division - International
Trading conditions in the United Kingdom were amongst the most difficult
experienced in the past decade. In this environment, revenue in Sterling
declined 21%, and in Rand terms by 31% to R95 million (2010: R138 million).
Operating profit fell 23% to R11 million (2010: R14 million). A further factor
impacting these results was the termination of the Roadchef agreement which
resulted in reduced turnover levels in the short term. The implementation of
right-sizing measures ensured that the operating profit margin improved to
record levels, from 10.1% to 11.3%.
A further six restaurants were revamped during the period and three new
restaurants were opened. Management is satisfied that the business is now well
positioned to benefit from any improvement in the economy. Plans to open the
first pilot Steers restaurant have been finalised and a suitable location is
currently being sourced.
Supply Chain
This business unit comprises the Group`s Manufacturing and Logistics
divisions. Combined revenue for the division increased to R1.4 billion (2010:
R1.2 billion), an improvement of 15%. Operating profit increased 24% to R116
million (2010: R94 million) with the margin improving to 8.4% from 7.8% based
on a range of productivity and efficiency initiatives.
Manufacturing Division
The Manufacturing Division reported a 6% increase in revenue to R664 million
(2010: R626 million). Operating profit rose 28% to R78 million (2010: R61
million), resulting in an improved margin of 11.7% (2010: 9.7%).
The slightly constrained revenue growth is primarily a reflection of the
introduction of the Get Real Burger range by the Steers brand, which impacted
on turnover in both the Group`s Meat Processing and Bakery Plants. The healthy
improvement in gross profit margins is derived from lower input costs,
sustained productivity improvements and further efficiency gains reported
across all manufacturing plants.
During the period, a range of key projects were concluded including expansion
of the in-house manufactured basket of products and relocation of the Western
Cape manufacturing facilities to accommodate the Bakery and Meat Processing
Plants within the existing Logistics and Administrative building.
Capital expenditure of R10 million was invested in the review period in
upgrading technology and equipment. A further R20 million has been budgeted
for additional optimisation projects in the year ahead, including equipping
the Meat Processing Plant with the capability to supply chicken fillets,
thereby achieving another profitable backward integration opportunity.
Logistics Division
The Logistics Division grew revenue by 14% to R1.3 billion (2010: R1.1
billion). Operating profit increased 16% to R38 million (2010: R33 million),
producing an unchanged operating margin of 3.0%.
The goal to increase critical mass and enhance productivity continued in the
year under review. A number of achievements in this regard can be noted
including the conversion of all distribution centres, excluding Midrand, to
full multi-temperature capability; completion of the take-on of Mugg & Bean`s
refrigerated basket in the Eastern Cape, Free State and KwaZulu-Natal;
completion of the take-on of Wimpy`s refrigerated basket in the Western Cape
and Bloemfontein, phased introduction of the Group`s owner-driver programme
and introduction of a five-day rolling week shift system at Midrand.
Capital expenditure of R20 million was invested in a range of projects
including a state-of-the-art frozen storage facility in the Western Cape and
racking and handling equipment at a number of other logistics centres. A
further R6 million has been budgeted for the year ahead primarily aimed at our
multi-temperature vehicle fleet upgrade programme.
Corporate actions
The Group employed an aggressively acquisitive strategy in the review period
facilitated by its strong cash reserves, depth of management, and
opportunities afforded by the depressed market. Each of the acquired
businesses will play a key role in rounding off our portfolio of best-in-class
franchised leisure brands.
The trademarks and franchise agreements of the following businesses were
acquired:
- KEG and McGinty`s - effective 1 September 2010, for a purchase consideration
of R27 million.
- O`Hagan`s - effective 1 December 2010, for a purchase consideration of R13
million.
In addition, a controlling 51% stake was acquired in the following businesses:
- Giramundo, a peri-peri flame-grilled chicken offering - effective 1 August
2010, for a purchase consideration of R1.2 million.
- Vovo Telo artisan bakery and cafe - effective 1 October 2010, for a purchase
consideration of R3.8 million.
After funding costs and taxation, the net contribution from these acquisitions
during the reporting period was insignificant.
Subsequent events
The trademarks and franchise agreements of Milky Lane and Juicy Lucy were
acquired with effect from 1 March 2011. The acquisition of these iconic South
African brands at a compelling price, together with the synergies afforded by
their integration into the Group`s business model, make this transaction an
exciting, low-risk one, which will deliver returns for shareholders from the
outset. The purchase consideration was R31 million and no income was earned or
recognised in this set of results.
Prospects
We expect trading conditions to remain difficult in the year ahead. Economic
recovery will be muted and consumer spend will remain under pressure due to
factors including electricity tariff hikes, increased fuel costs and the
proposed toll road levies. Red meat prices have also risen steeply during the
early part of the year, driving up food inflation. In this environment and
without the benefit of World Cup sales, the Group believes that it will be
difficult to achieve the same levels of growth delivered in the review period.
The prospects information has not been reviewed by the company`s auditors. New
store expansion will continue to be managed cautiously, with a planned roll-
out of a further 176 stores across the Group`s network in the year ahead.
Acquisitive growth was the overriding feature of 2011. In contrast, the 2012
fiscal year will be focused on consolidation. The Group`s immediate priorities
are to ensure that all recent acquisitions are firmly bedded down and wherever
possible integrated into the Group`s supply chain.
Dividend to shareholders
Notice is hereby given that a final dividend No. 33 of 85 cents (2010: 64
cents) per ordinary share, payable out of income, has been declared in respect
of the year ended 28 February 2011.
Salient dates are:
Last day to trade cum-dividend Friday, 24 June 2011
Shares commence trading ex-dividend Monday, 27 June 2011
Record date Friday, 1 July 2011
Payment of dividend Monday, 4 July 2011
Share certificates may not be dematerialised or rematerialised between Monday,
27 June 2011 and Friday, 1 July 2011, both dates inclusive.
On behalf of the board
P Halamandaris
Non-executive Chairman
KA Hedderwick
Chief Executive Officer
Midrand
19 May 2011
Condensed consolidated statement of comprehensive income
28 February 28 February
2011 2010 %
R000 R000 change
Revenue 1 878 036 1 684 840 11
Gross profit 813 153 715 749 14
Selling and administrative (454 700) (407 802)
expenses
Operating profit before 358 453 307 947 16
impairment losses
Impairment losses - (4 506)
Net interest paid (14 934) (20 648)
Profit before taxation 343 519 282 793 21
Taxation (112 520) (91 153)
Profit for the year 230 999 191 640 21
Foreign currency translation (5 182) (26 300)
differences
Total comprehensive income for 225 817 165 340
the year
Profit attributable to:
Equity holders of Famous Brands 230 260 191 367 20
Limited
Non-controlling interests 739 273
Total comprehensive income
attributable to:
Equity holders of Famous Brands 225 078 165 067
Limited
Non-controlling interests 739 273
Reconciliation to headline
earnings for the year
Earnings attributable to equity 230 260 191 367 20
holders of Famous Brands Limited
Impairment losses - 3 245
Loss/(profit) on sale of company 406 (381)
owned restaurants
(Profit)/loss on disposal of (164) 76
property, plant and equipment
Headline earnings for the year 230 502 194 307 19
Earnings per share - cents
- basic 242 202 20
- diluted 237 199 19
Headline earnings per share -
cents
- basic 242 206 17
- diluted 237 202 17
Dividends to shareholders -
cents
- interim: dividend declared 70 50 40
- final: dividend declared 85 64 33
Total dividends for the year 155 114 36
Ordinary shares
- in issue net of treasury 95 817 435 94 894 435
shares
- weighted average 95 245 418 94 508 393
- diluted weighted average 98 905 257 97 678 232
Condensed consolidated statement of cash flows
28 February 28 February
2011 2010
R000 R000
Cash generated by operations 396 929 351 961
Net interest paid (14 934) (20 648)
Taxation paid (123 895) (114 089)
Net cash flow from operating activities 258 100 217 224
Dividends paid (127 817) (85 021)
Net cash retained from operating 130 283 132 203
activities
Acquisition of businesses, subsidiaries (43 800) (96 351)
and intangibles
Expansion capital expenditure
Property, plant and equipment (15 794) (8 891)
Intangible assets (3 893) (3 337)
Replacement of capital expenditure on (25 546) (9 679)
property, plant and equipment
Purchase of non-controlling interest and - 33 137
debt restructure in foreign subsidiary
Proceeds from disposal of property, 1 818 5 268
plant and equipment
Cash flow from investing activities (87 215) (79 853)
Movement in share capital and reserves 15 245 7 524
Decrease in interest-bearing borrowings (67 399) (51 767)
Cash flow from financing activities (52 154) (44 243)
Change in cash and cash equivalents (9 086) 8 107
Foreign currency effect 963 (2 793)
Cash and cash equivalents at beginning 94 520 89 206
of year
Cash and cash equivalents at end of year 86 397 94 520
Condensed consolidated statement of financial position
28 February 28 February
2011 2010
R000 R000
ASSETS
Non-current assets 793 323 733 687
Property, plant and equipment 130 847 115 580
Intangible assets 659 668 613 315
Deferred taxation 2 808 4 792
Current assets 345 989 337 142
Inventories 75 552 80 157
Taxation 1 468 1 159
Trade and other receivables 182 572 161 306
Cash and cash equivalents 86 397 94 520
Total assets 1 139 312 1 070 829
EQUITY AND LIABILITIES
Equity attributable to equity holders of 703 674 583 641
Famous Brands Limited
Non-controlling interests 4 920 285
Total equity 708 594 583 926
Non-current liabilities 177 032 242 068
Interest-bearing borrowings 122 011 189 206
Deferred taxation and lease liabilities 55 021 52 862
Current liabilities 253 686 244 835
Trade and other payables 180 631 157 355
Short-term portion of interest-bearing 65 775 65 979
borrowings
Taxation 7 280 21 501
Total liabilities 430 718 486 903
Total equity and liabilities 1 139 312 1 070 829
Condensed consolidated segmental information - business unit and geographical
28 February 28 February
2011 2010 %
R000 R000 change
Revenue
Franchising 386 015 327 134 18
Supply chain 1 382 778 1 205 944 15
Manufacturing 663 812 625 988
Logistics 1 262 325 1 102 709
Eliminations (543 359) (522 753)
Corporate 14 577 14 031
South Africa 1 783 370 1 547 109 15
Franchising (UK) 94 666 137 731 (31)
Total 1 878 036 1 684 840 11
Operating profit
Franchising 234 971 204 605 15
Supply chain 116 233 93 690 24
Manufacturing 77 788 60 725
Logistics 38 445 33 210
Eliminations - (245)
Corporate (3 489) (4 236)
South Africa 347 715 294 059 18
Franchising (UK) 10 738 13 888 (23)
Total 358 453 307 947 16
Condensed consolidated statement of changes in equity
28 February 28 February
2011 2010
R000 R000
Balance at beginning of year 583 926 492 291
Group comprehensive income for the year 225 078 165 067
Group dividends to shareholders (127 629) (84 983)
Share-based payments 7 339 3 754
Movement in share capital and reserves 15 245 7 524
Increase in non-controlling interests 4 635 273
Total equity 708 594 583 926
NOTES:
1. Basis of preparation
These annual financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), the AC 500 standards as
issued by the Accounting Practices Board and its successor, the South African
Companies Act (1973) and the Listings Requirements of the JSE Limited.
2. Accounting policies
The accounting policies applied by the Group are consistent with those applied
in the comparative financial periods, except for the adoption of improved,
revised or new standards and interpretations. The aggregate effect of these
changes in respect of the year ended 28 February 2010 is nil.
3. Auditors
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.
28 February 28 February
2011 2010
R000 R000
4. Operating profit
The following have been accounted for
in operating profit before impairment
losses:
- Amortisation of intangible assets 1 631 1 244
- Auditors` remuneration 3 462 3 350
- Depreciation of property, plant and 24 402 22 381
equipment
- Foreign exchange loss/(profit) 245 (289)
- Loss/(profit) on sale of property, 337 (339)
plant and equipment
- Operating lease charges on immovable 27 145 32 672
property
- Operating lease charges on movable 1 930 874
property
- Transfer of share-based payment 7 339 3 754
reserve
5. Capital commitments
Capital expenditure approved not 43 968 44 473
contracted
6. Prior year presentation restatement effects
A Circular 9 adjustment relating to financing elements within revenue and cost
of sales is now a disclosure item only. Included in revenue and cost of sales
are financing elements of R9 212 000 (2010: R10 511 000) and R7 543 000 (2010:
R7 735 000) respectively. Net interest paid now excludes the net financing
effect of R1 669 000 (2010: R2 776 000). Within segmental information, revenue
and the net loss attributable to Development Division activities have been
reclassified from Local Franchising to Corporate, affecting revenue by R14 577
000 (2010: R14 031 000) and operating loss by R1 211 000 (2010: R1 798 000).
In both instances comparative numbers have been restated.
Directors:
Non-executive: P Halamandaris (Chairman), JL Halamandres, P Halamandaris
(Jnr), HR Levin, B Sibiya
Executive: KA Hedderwick (Chief Executive Officer), T Halamandaris (Executive
Deputy Chairman), SJ Aldridge (Group Financial Director)
Registered office: 478 James Crescent, Halfway House 1685, PO Box 2884,
Halfway House 1685
Email: investorrelations@famousbrands.co.za
Transfer secretaries: Link Market Services (Pty) Limited, (Registration number
2000/007239/07),
Rennie House, 19 Ameshoff Street, Braamfontein 2001, PO Box 4844, Johannesburg
2000
Sponsor: Standard Bank (Registration number 1969/017128/06), 3 Simmonds
Street, Johannesburg 2001
Date: 23/05/2011 07:05:08 Produced by the JSE SENS Department.
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