Famous Brands fattens margins

2010-10-25 08:00

Johannesburg - Fast food restaurant chain Famous Brands [JSE:FBR] on Monday reported diluted headline earnings per share and diluted EPS of 112c for the six months ended August 2010 from 91c a year ago. The board declared an interim dividend of 70c per share from 50c in 2009.

Revenue was up 12% to R908.3m and operating profit grew 22% to R170.1m.

Famous Brands said that notwithstanding the difficult operating environment, it succeeded in delivering a noteworthy performance in the reporting period.

"In South Africa, the six months under review featured constrained consumer spend as the group's mainstream middle income consumer target market continued to be affected by limited disposable income and tight lending criteria, while interest rate reductions partially offset these conditions, a sustained, meaningful improvement in the economy did not develop," the company said.

Operating profit margin improved to 18.7% from 17.2%, largely a reflection of the sustained improvement in the manufacturing margin, which resulted from enhanced efficiencies in procurement and capacity utilisation, prudent cost control and reduced input costs.

Cash generated from operations continued to grow strongly, improving 13% to R180.1m. The group's robust cash generating ability resulted in net cash retained of R67.8m after interest and taxation.

The company said it enjoyed a surprisingly buoyant holiday trading period in March and April and benefited materially from strong trading during the Fifa World Cup.

However, as anticipated, a marked decline in sales was experienced in the latter part of July and August following the conclusion of World Cup activities.

Product innovation drove a 9% increase in customer count for the Steers brand. Revenue from franchising grew 21% to R191.7m.

During the reporting period Mugg & Bean launched its 'Mini' concept on Sandton Drive in Sandton, Gauteng, in partnership with Total Petroleum, which has traded extremely well since opening.

Famous Brands said that new restaurant openings over the six months were sluggish as a result of the slow-down in new build activity over the World Cup period.

A total of 42 new restaurants were opened and 24 existing stores were revamped.

Trading conditions in the UK remained depressed in the review period. Wimpy UK's middle-income target market continued to be restrained by high levels of unemployment and limited disposable income.

In this environment, exacerbated by the effect of currency fluctuations and strengthening of the rand, revenue declined 27% to R56.5m, while operating profit decreased to R4.2m from R7.1m.

Looking ahead, the company said that the sector remained extremely competitive and this, together with the onerous trading environment, indicates that it is not unlikely that there will be further rationalisation of certain brands and individual operators lacking strong consumer equity over the next six to 12 months.

- I-Net Bridge