Famous Brands Produces Impressive Results
BUILDING BRAND, LOGISTICS AND MANUFACTURING CAPABILITY
REVENUE: Up 17% to R2.5 billion
CASH GENERATED BY OPERATIONS: Up 21% to R482 million
HEADLINE EARNINGS PER SHARE: Up 22% to 339 cents
DIVIDENDS PER SHARE: Up 25% to 250 cents
“Despite the subdued macro-economic climate experienced in the year ended 28 February 2013, the Group delivered a strong performance,” says Famous Brands Chief Executive, Kevin Hedderwick. “Robust results were reported across our franchising, manufacturing and logistics businesses. In addition, key acquisitions were made and joint venture partnerships established to bolster both our brand portfolio and supply chain capability. Towards the end of the period a comprehensive business model transformation project was implemented which has positioned the Group for continued growth.”
FINANCIAL RESULTS: “The Group succeeded in surpassing its four-year vision to double the size of the business,” Hedderwick notes.
“Revenue improved by 17% to R2.52 billion (2012: R2.16 billion) while profit before tax rose 15% to R462 million (2012: R402 million), exceeding our milestone goal of R450 million,” he says. The Group’s operating margin was 18.5% (2012: 19.1%). Headline earnings per share grew by an impressive 22% to 339 cents per share (2012: 278 cents).
A final dividend of 142 cents per share (2012: 120 cents) has been declared. This brings the total cash dividends to 250 cents per share (2012: 200 cents) for the 2013 financial year, an increase of 25%.
After changes in working capital, cash generated by operations improved by 21% to a robust R482 million (2012: R399 million).
Net capital expenditure of R162 million (2012: R84 million) was incurred. This included R85 million for the acquisition of the Europa and Fego Caffé trademarks, R7m for the acquisition of Java Lava Beverage Manufacturers (Pty) Ltd – subsequently renamed ‘Famous Brands Coffee Company’ – together with coffee roasting equipment of R5 million, R33 million for the Coega Cheese plant, as well as Supply Chain expansion activities. R47 million in aggregate has been approved for the year ahead.
The low level of borrowings, net of cash and bank balances, of R81 million represents merely 8% of equity (2012: 10%), enabling capacity to grow the business organically or by acquisition.
FRANCHISING DIVISION – DOMESTIC: The Domestic Franchising division, which comprises operations in South Africa and 15 other African countries, performed well, with each one of the brands delivering satisfying results. Combined revenue increased 12% to R495 million. Operating profit rose slightly ahead of revenue growth to R300 million. The operating profit margin was 60.6%, primarily due to increased system-wide sales and intensive cost containment achieved through attaining critical mass across the network.
System-wide sales across the Group’s total brand portfolio (including new restaurants opened) increased 13.1%, comprising an improvement of 11.2% in the South African operations and a 45% increase in the rest of Africa region. Like-on-like sales for the Group grew 8.9%, comprising a 7.7% increase in South African sales, while the rest of Africa turnover grew by 28%. The Group’s rest of Africa division comprises 7.3% of total sales. Average weighted menu price increases were contained to 5.6%, illustrating the strong real growth achieved.
Hedderwick comments, “A total of 140 new restaurants were opened across our brand portfolio during the period, 110 of them in South Africa. In addition, 130 restaurants were revamped or relocated in South Africa and a further six in Africa, north of our borders. This is a creditable performance given the general slow-down in new property developments. We are particularly pleased with our entry into new rural South African markets in which we were previously under-represented.”
He adds, “Our strategy to acquire best-in-class brands which fill gaps in our repertoire and establish a presence in market segments where we currently have limited or no representation was furthered with our acquisition of the Europa and Fego Caffé brands, and a 51% stake in the Turn ‘n Tender steakhouse restaurant group, all of which advanced our entry into the family casual dining sector.”
FRANCHISING DIVISION – INTERNATIONAL: Wimpy United Kingdom experienced another challenging year and reported a 9% decrease in revenue Sterling and a 1% increase in Rand terms to R83 million. This division comprises a very small component of the business, making only a nominal contribution to Group revenue and operating profit, namely 3.3% and 1.2% respectively.
Hedderwick says, “In terms of international expansion, the Group is currently preparing for the maiden launch of our Steers brand in the UK market, in Clapham, London, scheduled for July 2013. We also recently announced Famous Brands’ expansion into India with the launch of a pilot Debonairs Pizza restaurant scheduled for opening in Mumbai in July 2013.”
SUPPLY CHAIN: Consolidated revenue for the Supply Chain business unit grew by 19% to R1.92 billion, whilst operating profit rose 14% to R161 million. The operating margin was 8.4%.
MANUFACTURING: This division reported a 25% improvement in turnover to R715 million, derived from increased revenue contributions from the coffee company, ice-cream and chicken fillet plants, first-time revenue from the new boerewors and lamb sausage plant, and significantly increased beef patty volumes. Operating profit improved 11% to R98 million, resulting in a margin of 13.6%.
- In pursuit of the deliberate strategy to build and expand the Group’s manufacturing capability and leverage opportunities in the supply chain, three key transactions were concluded:
- The creation of ‘Famous Brands Coffee Company’ which supplies coffee and related hot beverage products to the Group’s franchised network and the retail market;
- The establishment of a ground-breaking joint venture partnership with the Coega Dairy Company to form Coega Cheese (Pty) Ltd, which will produce Mozzarella, cheese slices and cheese spread for the Group; and
- The acquisition, after year-end, of a 51% controlling stake in bakery and delicatessen brand, The Bread Basket, which will build manufacturing capability in specialist baked products and confectionery, much of which is currently outsourced to external third-party suppliers.
LOGISTICS: “This division grew both revenue and operating profit by 20% to R1.8 billion and R63.1 million respectively, producing an operating margin of 3.5% – unchanged from the prior year – an outstanding achievement given exorbitant price increases in diesel and electricity,” states Hedderwick.
Key to these results was the commissioning of a new distribution centre in Nelspruit and relocation of the Free State distribution centre to a new facility.
PROSPECTS: “There is little evidence to indicate that current trading conditions will improve materially in the foreseeable future. General economic uncertainty will continue to hamper sentiment and spend, and value will remain the key watchword in our industry. We anticipate that 2014 fiscal will be another period of intense margin pressure and concerted competition,” remarks Hedderwick.
“In this environment, the Group’s continued growth at above-industry rates will be derived from a range of strategic initiatives aimed at getting closer to our customers and our consumers, and further optimisation of the business model to ensure that every component performs at its peak. We are confident that the group-wide overhaul accomplished through the business transformation project will position Famous Brands optimally to reach even greater heights in the forthcoming years,” he concludes.