What next for Steers owner after buying spree?

Cape Town – Africa’s largest branded food services franchisor has put its focus back on its winning outlets, following an acquisition spree which saw the company buy seven new firms.

Famous Brands CEO Darren Hele told Fin24 on Monday that 2017 is “all about getting to grips with new the balance sheet” following its acquisition strategy in 2016.

Famous Brands [JSE:FBR] on Monday posted a 33% revenue rise on the back of a robust acquisition spree and the successful integration into the business. However, basic headline earnings per share (HEPS) fell 21% to 428 cents per share.

In a statement on Monday, the group said its results for the year were impacted by the following once-off non-operational items related to the UK-based Gourmet Burger Kitchen acquisition: foreign exchange loss of R23m, and professional fees related to the acquisition of R50m.

Hele said shareholders won’t be surprised by Famous Brands’ decision to scrap its dividend for the first time in 13 years, because they had been warned beforehand.

“I don’t think shareholders will be surprised,” he said. “Our message was the same as last year – we said we would resume paying dividends in 2018. There has been consistency in that message.”

The message seems to have worked, as the share price on the JSE was up 1.26% to R127.08 on Monday shortly before 15:00.

Regarding the foreign exchange loss of R23m, Hele said the “dampener was the rand, which has been surprisingly strong”.

He said that Famous Brands managed to produce another set of credible results in tough times, by improving costs.

According to Hele, the “eco-system” strategy of focusing on the three pillars of brands, logistics and manufacturing is paying off. “Our acquisitions are longer-term players,” he said.

“Our business is about brands performing at the front end,” he said, adding that “they are performing”.

Brands in the Famous Brands portfolio include Debonairs Pizza, Steers, Fishaways and Milky Lane, Tashas, Turn ’n Tender, NetCafé, Coffee Couture and Thrupps.

Hele said his biggest challenge is keeping the consumer interested in the brands, and to keep those brands relevant. “It is a highly competitive market,” he said. “As the consumer wallet shrinks, we need to make sure we have the right proposition. If the consumer’s income is reducing, we have to work harder to reduce costs.”

While Hele didn’t rule out further acquisitions, he said they won’t be reckless.

“We are inquisitive by nature and that won’t change,” he said. “However, we have to be mindful of our resources. If we had to do something now, it would be through equity and not loan funding. It won’t be a prime focus like last year - 2016 was a unique year.

“We have to cut back accordingly,” he said. “We won’t do anything reckless."

"Among our key priorities in the year ahead are to leverage synergies and enhance efficiencies across the group to contain costs," he said earlier in a press statement.

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