Famous Brands Delivers Strong results 2014
- ↑ Revenue up 12% to R2.83 billion
- ↑ Profit before tax up 23% to R567 million
- ↑ Dividend up 20% to 300 cents per share
- ↑ Headline earnings per share up 20% to 406 cents
- ↑ 20th anniversary of JSE listing
- ↑ Market capitalisation exceeds milestone R10 billion
Famous Brands’ performance for the year ended 28 February 2014 demonstrates that the Group is firmly on track to achieve its stated goal to become Africa’s first choice integrated branded food services franchisor by 2015.
Group Chief Executive Kevin Hedderwick says, “It is satisfying to report on a year which featured not only strong results but also substantial progress made on the programmes which will realise our goal and drive the Group’s future growth trajectory. Noteworthy advancements were achieved in building capability across our brands, logistics and manufacturing operations, providing a holistic solution to the Group’s investment partners and consumers.”
FINANCIAL RESULTS: In the Group’s 13th consecutive year of reporting record turnover and profit, revenue increased by 12% to R2.83 billion (2013: R2.52 billion), while operating profit grew 21% to R566 million (2013: R466 million). The operating margin attained a record high of 20.0%, up from 18.5%, and one year ahead of plan. This improvement is a remarkable achievement given higher input costs, and is a reflection of increased system-wide sales, intensive cost containment and improved efficiencies across the business.
Headline earnings per share grew 20% to 406 cents per share (2013: 339 cents).
Cash generated by operations, after changes in working capital, increased by 23% to a healthy R594 million (2013: R482 million).
“The Group is ungeared and has net cash on hand of R26 million. This strong position facilitates further growth, whether by acquisition or organically,” notes Hedderwick.
A final gross dividend of 170 cents per share (2013: 142 cents) has been declared. This brings the total cash dividends to 300 cents per share (2013: 250 cents) for the 2014 financial year, an increase of 20%.
The Group’s Franchising division comprises three regions, namely: South Africa, Rest of Africa and International (United Kingdom, Middle East, India and Mauritius). System-wide sales across the franchise network grew 13.0%, while like-on-like sales increased 6.7%. Across the brand portfolio, the Group opened 165 new restaurants and revamped 185. The Group’s total network comprises 2 378 restaurants.
FRANCHISING – SOUTH AFRICA: Revenue increased 13% to R538 million (2013: R477 million), with operating profit rising in line with turnover growth to R325 million (2013: R287 million). The operating profit margin improved to 60.4% from 60.1% in the prior year. System-wide sales, including new restaurants opened, increased 11.4%, while like-on-like sales grew 5.8%.
During the period 144 restaurants were opened locally and 181 were revamped.
“Solid performances were reported by our mainstream brands across the portfolio, while our recently acquired and emerging brands continued to gain traction in their respective markets and play an important role in bolstering the repertoire,” comments Hedderwick.
An ambitious target of 243 new restaurants has been set for the year ahead.
FRANCHISING – REST OF AFRICA: The Group has traded in this region for almost 20 years and has a presence in 16 countries.
This division reported an increase in system-wide sales of 32.5%, while like-on-like sales grew 17.9%. The Rest of Africa region now comprises 8.5% of total system-wide sales. During the period 16 new restaurants were opened and four revamped.
Hedderwick says, “We foresee operations in the Rest of Africa becoming increasingly significant to the Group over time. We plan to open 41 new restaurants across the brand repertoire this year and to enter Angola and Ghana, where we are currently not represented.”
FRANCHISING – INTERNATIONAL
UNITED KINGDOM (UK): “Notwithstanding dire trading conditions in this market, the Group’s UK operation recorded one of its best-ever results – a reflection of the significantly better-managed cost base,” explains Hedderwick.
Revenue Sterling decreased by 6%, while revenue in Rand terms improved 11% to R92 million (2013: R83 million). Operating profit rose to R13 million (2013: R5 million) as no repeat impairment of the UK goodwill was required. The operating profit margin grew strongly to 14.0% from 6.5% in the prior year.
During the period the Group opened its first Steers UK restaurant, situated in Clapham, London. Three restaurants were also added to the Wimpy network during the year.
In the forthcoming period the existing Wimpy Twickenham restaurant will be converted to the Steers brand and an additional new Steers restaurant will be opened, while two new Wimpy restaurants are also planned.
INDIA: The Group opened two Debonairs Pizza restaurants in Mumbai during the year. “We are satisfied with the progress delivered by these restaurants, and recognise that expansion in this market will be slow but steady,” says Hedderwick.
MIDDLE EAST: Famous Brands established a strong platform for growth in the Middle East and North Africa regions with the signing of a Master License agreement for Saudi Arabia, Lebanon, Morocco, Iran and Egypt. The agreement applies to the Steers, Wimpy and Debonairs Pizza brands in all of these countries, as well as the Mugg & Bean brand in Morocco and Egypt.
The Group’s premium offering, tashas, will open its first international restaurant in Dubai in May.
The Group’s supply chain comprises its Logistics and Manufacturing businesses, which are managed and measured separately. The results delivered by both divisions were extremely pleasing. Consolidated revenue increased by 12% to R2.15 billion (2013: R1.92 billion), while operating profit rose 27% to R204 million (2013: R161 million). The operating margin was 9.5% up from 8.4% in the comparative period.
DIVISIONAL REPORT: LOGISTICS: This division delivered strong growth, exceeding for the first time the milestone R2.0 billion mark, an improvement of 12% over the prior year. This result is in line with the brands’ system-wide sales growth, together with the additional turnover derived from growing the basket of products supplied to franchisees. The division’s operating profit improved 29% to R82 million, while a best-ever operating margin of 4.0% (2013: 3.5%) was reported despite a contextual environment characterised by above-inflation increases in labour and diesel and the impact of e-toll costs. Capital expenditure of R8 million was employed on new and replacement fleet and warehouse racking.
A range of capability enhancing projects will be prioritised in the forthcoming period and capital expenditure of R8 million has been budgeted for.
DIVISIONAL REPORT: MANUFACTURING: “This division reported very creditable results for the period, attributable to significant improvements in yields and efficiencies and substantial savings on utilities usage,” notes Hedderwick.
Revenue increased by 30% to R927 million (2013: R715 million), while operating profit improved by 25% to R122 million (2013: R98 million). The division’s operating margin declined to 13.1% (2013: 13.6%) due to deliberate margin absorption in certain plants, in line with the Group’s strategy to support franchisees’ value offering to consumers.
A range of integration projects were successfully concluded and capital expenditure of R23 million was incurred in the period.
Several capacity- and capability-building projects will be implemented over the next year aimed at leveraging opportunities in the supply chain. Capital expenditure of R18 million has been budgeted for.
PROSPECTS: Hedderwick says, “A major step-change strategy, aimed at ensuring the Group’s continued vigorous growth in future years, is in the process of being implemented. This strategy centres on cautious expansion into the related leisure sector by leveraging Famous Brands’ core competencies: leadership, brands, manufacturing, logistics and retail, and will be underpinned by the Group’s strong balance sheet.”
“Integral to this strategy is the continued growth of the Group’s bedrock Food Services business through organic, numeric and acquisitive growth of franchising; down-stream growth through expansion of logistics and manufacturing services and products; and up-stream growth through expanding our retail range. Potential expansion prospects in the leisure sector must meet the following key criteria: provide synergistic opportunities which grow the existing business; enhance shareholder value; and ensure continued market confidence,” he adds.
“We anticipate the period ahead to feature intense competition as operators strive to retain and gain market share; new and non-traditional participants joining the industry will exacerbate this competitiveness. Value and quality will remain the key drivers of growth as cash-strapped consumers selectively spend reduced disposable income. Margin pressure, which has been the watchword for several years will become more acute, both at Group and franchisee level,” Hedderwick notes.
He comments, “The Rest of Africa will remain an appealing expansion prospect for South African and international players and the race to be first-to-market will intensify. The Group’s long-standing experience, sought-after brands and solid partnerships in the region will continue to facilitate our strong position.”
Hedderwick concludes, “Famous Brands’ cash generative, integrated business model is optimally structured to continue to satisfy all stakeholders as we build further capability across the organisation through our existing business and explore new opportunities in the leisure sector to optimise our growth prospects.”