Johannesburg - Quick service restaurant (QSR) and casual dining franchisor
Famous Brands [JSE:FBR] (FBR) on Tuesday reported a 27% rise in diluted headline earnings per share to 202c for the year ended February 2010 from 159ca year ago. Headline earnings per share were up 29% to 206c.
Revenue was up 8% to R1.7bn, while operating profit grew 17% to R305m. Cash generated by operations grew 25% to R346m.
Total dividends per share for the year were up 50% to 114c from 2009's 76c.
"Trading conditions remained extremely tough, however, the effects of the recession continued being offset in our case by the performance of our growing repertoire of best-in-class brands. It is a well known phenomenon that South African consumers gravitate towards familiar, reputable brands when faced with limited disposable income and we have benefited from that trend," said CEO Kevin Hedderwick.
The group's brand portfolio includes Steers, Wimpy, Debonairs Pizza, FishAways, Mugg & Bean, tashas, House of Coffees, Brazilian Café and Blacksteer. It has a presence in Africa, United Kingdom and Mauritius, representing a global footprint of 1 779 restaurants. It also manufactures and supplies its franchisees, the retail trade and broader hospitality industry with a wide range of meat, sauce, bakery, ice cream, fruit juice and mineral water products.
Hedderwick said much of the growth in recent years has been driven by the emerging middle class, however, growth in this market was curtailed significantly in the last year as a direct result of some 900 000 jobs being shed in the South African economy.
Competition across the QSR and casual Ddning landscape continues to intensify, particularly in brand clusters with similar competitive sets where there has been a fierce battle for market share as consumers are driven to frequent more than one restaurant type.
The group reported a 1.3% increase in the operating profit margin to 18.2% from 2009's 16.9% - a direct result of improved efficiencies, better asset utilisation, astute just-in-time stock management and a lower diesel price within the Supply Chain division where profitability has exceeded expectations, said Hedderwick.
The Local Franchising division performed well and contributed notably to the group's overall performance. Revenue increased by 14% and operating profit was up 9%. The division produced like-on-like sales growth of 4%, marginally below the average weighted menu price increase, while system-wide sales, including new restaurant openings which totalled 125, grew at 9%.
Hedderwick pointed out that Steers and Wimpy traded within a highly competitive landscape, resulting in a contraction of same store growth versus previous years. In contrast, Debonairs Pizza continued to trade very much in a space of its own and remains at the forefront of the growing trend towards pizza consumption per capita in South Africa. The FishAways brand was largely unaffected by the downturn in the economy, evidenced by like-on-like restaurant turnover growth of 15%.
During the year, the group added Mugg & Bean to its portfolio, strengthening its position in the casual dining category. "The integration of Mugg & Bean has proceeded swiftly and we have seen early extraction of synergies, including the supply of product to the national franchise network," said Hedderwick.
Commenting on tashas, the group's boutique café offering, Hedderwick said that during the year the group expanded the tashas network from two to four restaurants, with a further four planned for the coming year.
The International Franchise division, consisting of Wimpy United Kingdom (UK), recorded revenue of R138m, down 23% (8% in Sterling) and operating profit down 19% to R14m, from the prior period, in light of the deteriorating trading conditions that prevailed in the UK.
As part of the group's strategy, the Manufacturing and Logistics divisions were consolidated into a single Supply Chain business during the year. The Manufacturing division reported revenue of R626m and operating profit of R61m, resulting in a strong recovery in margin achieving 9.7% compared to the 7.3% margin of a year ago.
"This division benefitted immensely from a range of structural and organisational changes made at the beginning of the year. One of the changes was the recruitment of best-in-class skills in the engineering department which resulted in improved factory, operating and machine efficiencies."
The Logistics division performed exceptionally well during the year surpassing for the first time the R1bn milestone to deliver revenue of R1.103bn.
Looking ahead, Hedderwick said extensive preparations have been undertaken to benefit from the 2010 FIFA World Cup in June and July of this year. This has included measures to ensure the uninterrupted supply of product to our franchise partners supported by a range of national marketing and promotional activities.
"Given our strong presence at national airports, transient motorway sites, shopping centres and coastal resorts we are well positioned to benefit from the upside of this major sporting event," he said.
"With few positive signs of any sustained economic recovery in the year ahead, it is likely that consumer spend will remain under pressure. However, with the group's sound business model, complemented by an excellent management team, strong cash flows and our growing portfolio of best-in-class brands, we believe that we are well positioned for future growth in the long term and to benefit from any short term recovery in the economy," he concluded.
- I-Net Bridge