World Cup boosts Famous Brands

2010-10-25 11:06

Johannesburg - Acquisitive fast food group Famous Brands [JSE:FBR] said its reduced net borrowings will provide it with adequate financial capacity to fund further expansion or investment if required.                                      

Reporting for the six months to August, Famous Brands said its net borrowings decreased by R57m to R103m during the half year, reducing the net borrowings to equity ratio to a healthy 16% (2009: 22%).

Famous Brands is the parent company of franchise chains Steers, Wimpy and Mugg & Bean among others. The group's footprint at the end of the interim period comprised 1 789 restaurants across South Africa and 16 in other African countries and the UK.  

"The group's healthy balance sheet and strong cash generating ability position it well for further improvements and acquisitions if suitable opportunities are presented," said Famous Brands CEO Kevin Hedderwick.                                    

During the six-month period, Famous Brands acquired three brands, adding to its already sizeable portfolio in the fast food and casual dining market.

The group secured its entry into the mainstream chicken category with the acquisition of a 51% controlling stake in family-owned grilled chicken chain Giramundo. The business currently comprises four outlets in Gauteng.

The group said a complete overhaul of the brand has been concluded and two new outlets are set to open in Kokstad and Nelspruit in November.

"Early response to the brand from potential investors and landlords has exceeded expectations," said  Hedderwick.                                           

In its first foray into the pure leisure category, Famous Brands acquired the franchise agreements, trademarks and intellectual property of the Keg and McGinty's franchised pub and restaurant brands for R27m, funded through cash reserves. 

"The group has ambitious expansion plans for this business and is confident of the earnings enhancing potential once growth opportunities and synergies have been extracted," said Hedderwick.
The last acquisition during the period was a 51% controlling interest in Vovo Telo artisan bakery and cafe business, comprising two outlets in Port Elizabeth and one in Johannesburg.
"This acquisition represents a further opportunity to implement the group's strategic intent to grow its best in class franchised leisure brands, and fills another gap in Famous Brands' franchise portfolio," said Hedderwick.

Famous Brands' interim results were marked by a 24% rise in headline earnings per share to 115 cents, boosted by strong trading during the 2010 Fifa World Cup.

Revenue was up 12% up at R908.3m while operating profit increased 22% to R170.1m from the previous corresponding period. Cash generated by operations improved 13% to R180.1m and the group declared an interim dividend of 70c, 40% up from last year.   

Hedderwick said notwithstanding continued recessionary trading conditions, the group delivered a noteworthy performance. He said economic conditions were  more subdued in the UK due to high levels of unemployment, negligible earnings growth and pessimistic consumer sentiment. 

The depressed trading conditions in the UK, exacerbated by currency fluctuations and the strong rand, resulted in a 27% fall in revenue to R56.5m while operating profit decreased to R4.2m from R7.1m. Comparable like-on-like sales expressed in pounds were 8% lower. 

Hedderwick said the group's traditionally strong December trading period should boost sales in the forthcoming six months. However, the second half of the year is expected to be less robust than the first, which enjoyed the exceptional benefit of World Cup trading. 

"With only nominal menu price increases planned in the period ahead, tight cost control and innovative product development and marketing will be demanded."

 - Fin24