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Famous Brands earnings drop after shopping spree

May 29 2017 08:02

Cape Town - Africa’s largest branded food services franchisor Famous Brands [JSE:FBR] on Monday posted a 33% increase in revenue on the back of a robust acquisition spree and the successful integration into the business.

The group’s vertically integrated business model now comprises a portfolio of 27 brands represented by 2 782 restaurants across South Africa, the Rest of Africa and the Middle East, and the United Kingdom.

Revenue for the period grew by 33% to R5.7bn (2016:  R4.3bn), which includes 20 weeks of turnover contribution from the newly acquired Gourmet Burger Kitchen (GBK) of the UK, Famous Brands' largest acquisition to date.

Operating profit increased 18% to R938m (2016: R792m) excluding non-operational items. 

In the 20-week period from the acquisition of GBK to Famous Brands’ year-end, the business contributed £35m (R599m) in revenue and £2m (R36m) in operating profit to the Group’s Brands division results.

However, basic headline earnings per share (HEPS) decreased 21% to 428 cents per share. HEPS before non-operational items and additional interest costs rose 13% to 613 cents per share.

The group said in a statement on Monday its results for the year were impacted by the following once-off non-operational items related to the GBK acquisition: a realised derivative loss of R33m on the call option that was utilised to hedge the purchase price of the acquisition; a realised foreign exchange loss of R23m arising from the unfavourable movement in the ZAR:GBP exchange rate between the acquisition payment date and the effective date; and professional fees related to the acquisition of R50m.

Furthermore, the Group recognised an impairment loss of R20m on the investment made in 2013 in UAC Restaurants Limited in Nigeria.

Net finance costs of R132m were incurred (2016: R7m), mainly as a result of interest-bearing borrowings raised.

The Group said it raised interest-bearing borrowings of R2.4bn to fund its operating activities, while employing the cash generated from operations to fund among others, the GBK acquisition and related transaction costs. 

As a result of acquisitions concluded during the year, gearing is higher than in prior years and therefore no final dividend was declared for the period. It is anticipated that, subject to future acquisitions and operating requirements, payment of dividends will resume in the 2018 financial year. 

At the end of the period, net cash was R405m (2016: R6m).  The Group’s gearing ratio relative to its market capitalisation as at 28 February was 16%.

CEO Darren Hele said the strong performance came despite the food services sector facing sustained pressure over the past year.

Hele said strong organic growth was reported by the Brands, Logistics and Manufacturing operations, complemented by solid results derived from the integration of seven newly acquired businesses, including the UK’s premium burger category market leader, GBK.

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

Famous Brands shares closed 2.03% higher at R125.50 on the JSE on Friday.

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