Tough UK conditions dampen Famous Brands performance

Steers and Debonairs owner Famous Brands [JSE:FBR] reported a 23% jump in revenue to R7bn, helped by strong performance from its South African operations while the UK business suffered from difficult trading conditions, annual earnings for the year ended February 28 showed.

Operating profit before non-operational items dipped 5% to R890m, while headline earnings per share came in at R3.93, a decline of 8%.

Famous Brands' South African operations performed well across the value chain, supported by a strong performance in the logistics and manufacturing businesses.

“The solid results delivered by our mainstream Leading brands portfolio underpinned a pleasing performance in our Logistics and Manufacturing businesses, which reported improved efficiencies and strong volume growth respectively,” said CEO Darren Hele.

With operations in a number of African countries, the Middle East and the UK, Famous Brands operates a range of popular fast food restaurants like Wimpy, Steers, Milky Lane and Debonairs Pizza. 

The company said its UK operations, Wimpy and Gourmet Burger Kitchen (GBK), reported losses, due to the foreign currency exchange rate. 

Other factors which hampered earnings were the “adverse economic and socio-political environment” and the deteriorating consumer confidence as a result of Brexit.

Africa’s largest branded food service franchiser said Brexit had caused consumers to become more price sensitive and value conscious.

• READ: Famous Brands CEO: There are no green shoots in the UK

Wimpy UK revenue slumped slightly in rand terms, from R105m the previous year to R102m, due to currency exchange, while operating profit also dropped 20% to R15m. The operating margin of the fast food outlet was also down 15% from 18% the previous year.

"The UK food services sector continued to face difficulties, with businesses subjected to notably higher property rates and increased labour and food costs. Despite this, Wimpy reported satisfactory results," said Hele.

Famous Brands acquired GBK in October 2016, in a period that had seen aggressive acquisition activity by the group.

GBK's disappointing financial performance over the past year is largely attributable to testing trading conditions, the company said, adding that the UK food services sector was experiencing difficulties conditions, such as higher property rates and increased labour and food costs.

The challenging business climate has temporarily halted plans to open more company-owned restaurants, particularly in the UK.

It forecast that the UK consumer sentiments were likely to “remain subdued in the inflationary and uncertain economic and political Brexit environment”. 

In a bid to optimise capital reserves, the company said the board resolved that no dividend would be declared.

In January 2017, Tiger Brands announced it had extended its footprint to Ghana but exited the Democratic Republic of Congo, Ivory Coast and Tanzania.