Fa­mous Brands served R2.9bn debt

The Mercury - - COMPANIES -

FA­MOUS Brands, Africa’s big­gest food fran­chisor said yes­ter­day that its debt climbed to R2.9 bil­lion in the six months to Au­gust as a re­sult of trad­ing con­di­tions it de­scribed as the tough­est in its rec­ol­lec­tion.

The com­pany, whose sub­sidiaries in­clude Wimpy and Steers, said ad­verse eco­nomic and so­cio-po­lit­i­cal en­vi­ron­ment lo­cally and in the UK also con­tin­ued to im­pact neg­a­tively on the re­sults.

The fran­chisor last year ac­quired UK-based Gourmet Burger Kitchen (GBK), which has a foot­print of 10 restau­rants, for R2.1bn last year, re­sult­ing in the with­hold­ing of a div­i­dend pay­ment. The com­pany said it would pay the div­i­dends in the 2018 fi­nan­cial year, sub­ject to fu­ture ac­qui­si­tions. It said it hoped that GBK would re­turn to prof­itabil­ity in the next fi­nan­cial year.

Chief ex­ec­u­tive Dar­ren Hele said there were “green shoots” in GBK.

“We are look­ing for­ward to the fes­tive sea­son, and things are look­ing bet­ter,” Hele said. “We started to see green shoots in Septem­ber and Oc­to­ber.”

The com­pany’s debt was zero last year. It said the group’s gear­ing was high rel­a­tive to prior years, adding that “debt man­age­ment is a key pri­or­ity that’s pro­ceed­ing ac­cord­ing to agreed fi­nanc­ing com­mit­ments”.

Nol­wan­dle Mthombeni, an in­vest­ment an­a­lyst at Mer­gence In­vest­ment Man­agers, said the re­sults were poor as all re­gions had un­der­per­formed.

Mthombeni said op­er­at­ing profit growth lagged the rev­enue growth even in South Africa, which most in­vestors would have looked to.

“There were also a lot of restau­rant clo­sures across the group’s port­fo­lio, which means the sec­ond half will not likely be much bet­ter,” Mthombeni said, adding that man­age­ment had to iden­tify where things went wrong with the GBK deal.

“If you look at the like-for­like sales trends of the restau­rant in­dus­try in the UK, most months show pos­i­tive growth, which is di­ver­gent to the neg­a­tive num­ber re­ported by GBK,” she said. “That said, GBK will most likely re­cover upon more sta­bil­ity within the UK macros, but it’s a medium-term out­look.”

36ONE As­set Man­age­ment an­a­lyst Sh­muel Simp­son said the com­pany had ac­knowl­edged the en­vi­ron­ment in which it op­er­ated was chal­leng­ing. Simp­son said Fa­mous Brands was aware of the chal­lenges and the chang­ing UK fast food land­scape and was work­ing to try and stem the losses.

He also said Fa­mous Brands’ de­ci­sion to con­tinue to with­hold the in­terim div­i­dend was cor­rect.

“Given the cur­rent debt level and un­cer­tainty around some of its op­er­a­tions, it was pru­dent to wait for op­er­a­tions to im­prove be­fore declar­ing a div­i­dend,” he said.

Fa­mous Brands set an am­bi­tious tar­get of open­ing 130 new restau­rants by the end of the fi­nan­cial year and said it would re­vamp 160 oth­ers.

A to­tal of 77 restau­rant were opened in the re­port­ing pe­riod.

Ba­sic earn­ings a share de­clined by 56 per­cent to 171 cents a share from 391c a share last year, while head­line earn­ings a share de­creased by 59 per­cent to 170c com­pared with 411c last year.

Fa­mous Brands shares dropped marginally 0.09 per­cent on the JSE yes­ter­day to close at R102.25.

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