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FBR
FBR
Famous - Unaudited consolidated interim results: six months ended
31 August 2006
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"
Unaudited consolidated interim results for the six months ended 31 August
2006
Gross revenue up 33%
R406,3 million (2005: R304,9 million)
Attributable profit up 23%
R45,4 million (2005: R36,9 million)
Headline EPS up 22%
51,8 cents (2005: 42,7 cents)
Distributions Up 38,5%
18 cents (2005: 13 cents)
COMMENTARY
Trading environment, overview and group performance
Famous Brands, Africa"s leading Quick Service Restaurant "QSR"/casual
dining franchisor has reported satisfactory results for the six months
ended 31 August 2006.
Several factors contributed to this performance: sustained growth of the
group"s target market, pursuit of lifestyle convenience and steadfast
demand for the group"s best-in-class brand offerings.
Interest rate and fuel price increases cooled consumer sentiment to some
extent, but not sufficiently to dampen large scale demand for the group"s
products. With average spend per head at approximately R30, the group"s
brands, by virtue of their value-for-money positioning, are typically
less susceptible to adverse economic conditions than competitors offering
higher value meal options.
Existing and new store growth in the Franchise Division was vigorous,
which in turn drove improved performance in the Food Services Division.
Net store growth of 44 restaurants produces a total franchise network of
1 211 restaurants across the brand portfolio comprising Steers, Wimpy,
Debonairs Pizza, FishAways, House of Coffees, Brazilian Coffee Shops and
Whistle Stop.
Whilst significant operating and capital expenditure in the Food Services
and Catering Services Divisions has put margins under pressure in the
short term, this investment has afforded increased capacity and
positioned the group to capitalise on new opportunities across its
businesses.
FINANCIAL RESULTS
Consolidated gross revenue (incorporating revenue from the entire group"s
operating divisions: Franchising, Food Services, Retail and Catering
Services) rose 33% to R406,3 million (2005: R304,9 million). Operating
profit increased 25% to R70,1 million (2005: R56,2 million), while net
income after tax improved 23% to R45,4 million (2005: R36,9 million).
Headline earnings per share increased 22% to 51,8 cents (2005: 42,7 cents
per share).
Whilst the margin in the Franchise Division remained stable, the margin
in the Food Services Division continued to be pressured. The consolidated
operating margin declined to 17,3% from 18,4% in the prior comparative
period, but reflects an improvement on the prior full year margin of
16,3%, indicative of management"s intensified efforts in this regard.
Further initiatives should continue to improve consolidated margins over
the next six months.
FRANCHISE DIVISION
Across the franchise network, system-wide sales grew 24%. Like-on-like
sales, which exclude the contribution from new restaurants, improved 16%,
despite sub-inflationary menu price increases. Gross revenue for the
period increased 24% to R106,7 million (2005: R86,1 million), while
operating profit improved 24% to R52,6 million (2005: R42,3 million).
This robust performance is a reflection of the strong demand for the
group"s brands and evidence that the market still has significant
expansion potential.
Famous Brands plans to add an additional 74 restaurants to the existing
network by the end of the current financial year. Importantly, despite
the proliferation of new shopping malls and abundant rental space
available, management is exceptionally discriminating in site selection.
The group is mindful that optimum location is critical to the success of
its restaurants.
The review period witnessed several new developments across the franchise
portfolio. Steers enjoyed a dynamic six months during which the brand
celebrated the opening of its 400th restaurant. In addition, seven Bimbos
stores were converted to Steers restaurants, and on average have reported
increased turnover growth of 90%. The conversion of Whistle Stop outlets
to Steers Diners restaurants also progressed well, with another five
scheduled for conversion by the year end. Turnover growth in these
restaurants, post conversion, has improved on average by 30%.
Pizza as a category continues to experience phenomenal growth amongst the
emerged market. Improved availability of the product and the sociable
"sharing" element associated with pizza drives growth in the sector.
Debonairs Pizza restaurants recently opened in downtown city centres and
in traditional black areas have performed exceptionally well and afford
strong growth opportunities for the brand.
The group"s Brazilian brand has undergone a comprehensive repositioning.
This new and exciting "on the go" model will be launched at the end of
October with the intention of pioneering an entirely new category within
the South African coffee market.
FOOD SERVICES DIVISION
Gross revenue in the Food Services Division increased 34% to R298,4
million (2005: R222,8 million), while operating profit rose 12% to R15,5
million (2005: R13,9 million). The strong turnover increase is derived
from the growth of the franchise network, and also includes the positive
impact of the Wimpy burger patty, burger roll and sauce business.
Capital expenditure incurred in this division has improved capacity
significantly and the meat processing plant and bakery are now fully
resourced to increase production substantially.
Management is of the opinion that efficiencies afforded through recent
capital expenditure have not been realised to their full extent and this
business unit is currently under rigorous review. A key component of
improving efficiencies will be upskilling of staff and stringent
benchmarking and performance measurements. Management remains satisfied
that the support from the franchise network and broader catering category
afford significant opportunities for growth of this division.
Catering Services and Retail Services Divisions
The Baltimore Ice Cream and Trufruit Juice Company businesses delivered
an improvement in sales of 25% and 21% respectively, but lagged
management"s forecasts. Results were negatively impacted by the harsh
winter weather experienced this year. It is anticipated however that the
forthcoming holiday period will see these businesses achieve their
targets.
The group has concluded an agreement to outsource the sales and
distribution of its juice products to Cater Plus, a division of Bidvest.
It is anticipated that this arrangement will significantly improve
Trufruit"s turnover, since the group is not currently represented in this
volume catering sector.
DIRECTORATE
Founding Member and Executive Chairman, Mr Panagiotis (Peter)
Halamandaris, has elected to retire from his executive position with
effect from the end of February 2007, and will assume the role of Non-
Executive Chairman of the company with effect from 1 March 2007.
In his 35 year association with the company, Mr Halamandaris has been
instrumental in building the foundations of the current-day Famous
Brands. His legacy will be continued by the strong management team he has
assembled in recent years.
The Board would like to express their gratitude to him and welcome his
continued contribution in his new role.
PROSPECTS
Management is optimistic that consumer spending over the peak holiday
period will remain strong. The group is well positioned to capitalise on
positive trading conditions during this period based on its
representation in popular shopping malls, on major transit routes, in
coastal resorts and at national airports.
This bullish short-term outlook is tempered by a cautiously optimistic
view of the longer term. Further interest rate increases will reduce
disposable income and serve to dampen the prevailing buoyant sentiment,
and compound growth at the group"s current levels will be challenging.
Notwithstanding these factors the group is satisfied that it will
continue to benefit from the cornerstones of the business: aspirational,
value for money brands supported by a growing target market and evolving
social trends which favour convenience and out of home consumption.
Volatility of the protein price and supplier increases related to
packaging and other raw materials will be factors for consideration in
the forthcoming period.
The key challenge for the group in the next six months will be to extract
value afforded by recent capital expenditure. With continued focus on
improvements in efficiencies and margins, the group should succeed in
achieving its proposed targets for the full year and deliver results in
line with the prior comparative period.
CAPITAL DISTRIBUTION
In lieu of the interim dividend, a capital distribution to shareholders
of R15 767 144 million or 18 cents per share is proposed, which payment
shall be effected by means of a reduction of share premium ("the
payment").
In order to effect the distribution to shareholders as a reduction of
share premium, JSE Limited ("JSE") approval for a circular is required
and a general meeting of shareholders will be called at which the
necessary approval by ordinary resolution will be proposed. Once JSE
approval for the circular has been granted, a further announcement
containing the financial effects of the payment as well as the salient
dates and times will be published.
On behalf of the Board
P Halamandaris
Chairman
T Halamandaris
Chief Executive Officer
23 October 2006
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 Aug 31 Aug 28 Feb
2006 2005 % 2006
R000 R000 change R000
Gross revenue 406 280 304 944 33 669 178
Operating profit 70 145 56 225 25 109 385
Net interest paid (3 602) (2 710) (7 942)
Net income before taxation 66 543 53 515 24 101 443
Taxation (21 164) (16 617) (30 568)
Attributable profit 45 379 36 898 23 70 875
Attributable profit 45 379 36 898 23 70 875
Adjusted for:
Impairment loss on
intangible fixed assets - - 730
Impairment on loan - - 881
Loss/(profit) on disposal
of non current assets 38 (138) (416)
Headline earnings 45 417 36 760 24 72 070
Interest 455 414 841
Fully diluted headline
earnings 45 872 37 174 23 72 911
Weighted average numbers
of shares in issue 87 594 583 86 179 583 86 287 304
Weighted average diluted
numbers of shares in issue 94 200 374 93 253 374 92 693 095
Operating margin - % 17,3 18,4 (6) 16,3
Earnings per share - cents 51,8 42,8 21 82,1
Fully diluted earnings
per share - cents 48,6 40,0 22 77,4
Headline earnings
per share - cents 51,8 42,7 22 83,5
Fully diluted headline
earnings per share - cents 48,7 39,9 22 78,7
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 Aug 31 Aug 28 Feb
2006 2005 2006
R000 R000 R000
Assets
Non-current assets 300 748 259 282 304 204
Tangible fixed assets 80 973 44 512 80 454
Intangible fixed assets 218 482 212 059 218 457
Deferred taxation - 413 4 468
Loans 1 293 2 298 825
Current assets 173 332 126 956 141 040
Inventory 70 265 39 002 50 041
Accounts receivable 83 181 80 466 85 980
Bank 19 886 7 488 5 019
Total assets 474 080 386 238 445 244
Equity and liabilities
Share capital and reserves 279 085 222 362 248 234
Ordinary shareholders"
interest 279 085 222 362 248 234
Non-current liabilities 71 735 65 104 81 887
Interest bearing borrowings 56 393 63 346 61 637
Other 15 342 1 758 20 250
Current liabilities 123 260 98 772 115 123
Accounts payable 73 829 70 998 80 873
Short term portion of
long term liabilities 25 994 16 575 25 215
Taxation 23 437 11 199 9 035
Total equity and
liabilities 474 080 386 238 445 244
SEGMENT REPORT
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 Aug 31 Aug 28 Feb
2006 2005 % 2006
R000 R000 change R000
Gross revenue
Franchising 106 749 86 147 24 182 796
Food Services 298 443 222 823 34 486 182
Corporate Services 20 837 14 323 45 36 383
Inter-segment revenue (19 749) (18 349) 8 (36 183)
Total 406 280 304 944 33 669 178
Operating Profit
Franchising 52 619 42 295 24 81 533
Food Services 15 506 13 873 12 22 935
Corporate Services 2 020 1 352 49 5 464
Eliminations - (1 295) (100) (547)
Total 70 145 56 225 25 109 385
CONSOLIDATED CHANGES IN EQUITY
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 Aug 31 Aug 28 Feb
2006 2005 2006
R000 R000 R000
Balance at beginning
of period 248 234 193 809 193 809
Net loss not recognised
in the income statement -
currency translation
differences 288 (1) 326
Attributable earnings 45 379 36 898 70 875
Dividends (14 891) (8 618) (19 822)
Issued to participants of
Share Incentive Scheme - - 1 594
Net movement in share
capital - - 902
Share based payments 75 274 550
Balance at end of period 279 085 222 362 248 234
CONSOLIDATED CASH FLOW
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 Aug 31 Aug 28 Feb
2006 2005 2006
R000 R000 R000
Net cash flow from
operating activities 29 585 40 828 61 668
Cash generated
by operations 55 279 58 009 107 063
Net interest paid (3 602) (2 710) (7 942)
Taxation paid (7 201) (5 892) (17 670)
Dividends paid (14 891) (8 579) (19 783)
Net cash flow from
investing activities (10 254) (38 803) (69 141)
Expended on
non-current assets (10 256) (19 216) (52 588)
Proceeds from disposal
of non-current assets 471 138 1 623
Investment in subsidiaries - (19 170) (18 213)
(Increase)/decrease in
loans receivable (469) (555) 37
Net cash inflow from
financing activities (4 464) (14 119 (7 090)
Increase in share
capital and reserves - - 2 496
Decrease in long term
liabilities (4 464) (14 119) (9 586)
Change in cash and
cash equivalents 14 867 (12 094) (14 563)
Cash and cash equivalents
at beginning of period 5 019 19 582 19 582
Cash and cash equivalents
at end of period 19 886 7 488 5 019
NOTES
1. These results have not been audited by the company"s auditors.
2. The consolidated results of the group for the six months ended 31st
August 2006 have been prepared in accordance with International Financial
Reporting Statements.
3. The accounting polices applied by the group are consistent with those
applied in the comparative financial periods.
DIRECTORS
P Halamandaris (Chairman), T Halamandaris (Chief Executive Officer), KA
Hedderwick, JL Halamandaris*, HR Levin*, P Halamandaris (Junior)*, B
Sibiya*
*Non-executive
REGISTERED OFFICE
478 James Crescent, Midrand 1685
PO Box 2884, Halfway House 1685
E-mail: investorrelations@famousbrands.co.za
TRANSFER SECRETARIES
Link Market Services South Africa (Pty) Ltd
(Registration number 2000/007239/07)
11 Diagonal Street, Johannesburg 2001 PO Box 4844, Johannesburg 2000
Date: 23/10/2006 07:02:01 AM Produced by the JSE SENS Department
