Listed South African quick-service restaurant franchiser Famous Brands on Tuesday reported a 48% increase in headline earnings per share to 58,6 cents for the year ended February 28, from 39,6 cents a year ago.
On a fully diluted basis, headline earnings per share were 41% higher at 55 cents, from a previous 39 cents.
The board has resolved to declare a final dividend of 10 cents per share, making a total dividend of 18 cents for the year, from 10,5 cents a year ago.
Gross revenue was up 28% to R464,7-million, while headline earnings grew by 86% to R49,9-million. Operating profit increased 100% to R81,7-million, from R40,8-million a year ago.
The company said that management’s strategic drive to unlock intrinsic value in the group was favourably impacted by the buoyant trading conditions that continued to benefit the retail sector.
Low interest and inflation rates boosted disposable income, creating one of the most conducive macro-economic environments experienced in the 10 years since transition to democracy.
Famous Brands’ franchise portfolio comprises Steers, Wimpy, Debonairs Pizza, FishAways, House of Coffees coffee shops, Brazilian coffee shops and Whistle Stop restaurants. Other business units in the group include Pouyoukas Foods, Trufruit Juices and Baltimore Foods.
Chief operating officer Kevin Hedderwick attributed the enhanced performance to the continued buoyancy in the retail sector and the full-year inclusion of earnings attributable to the Wimpy and Whistle Stop brands (formerly Pleasure Foods).
“Evidence of the strong demand for the group’s products was the addition of 107 new restaurants to the franchise network over this past year, bringing the total complement to 1 101 outlets. We are confident that sustained demand for our offering will ensure that on average, 80 restaurants are opened per year across the total network over the next three years,” Hedderwick added.
Key to the rationale for the Pleasure Foods acquisition in 2003 are the synergies to be extracted from backward integrating the food supply chain into the group’s food services business.
Good progress was made on the comprehensive integration programme.
“The franchising division has already been fully integrated, which has provided for extraction of a range of synergies. Integration of the other major component of the business, food services, is in progress and will be focused on aggressively in the year ahead,” Hedderwick added.
Gross revenue from the franchising division increased by 79,9% to R157,6-million and operating profit improved by 133,1% to R54,3-million.
“Investment in brands was the main focus of this period. Management worked closely with renowned brand architects to ensure that the group’s brands remain strong and contemporary and are re-engineered where necessary to capitalise on their inherent competitive advantages.
“Our brand repertoire continues to be strengthened by the model of brand stewardship, which promotes healthy competition between brands as they vie for a share of consumers’ wallets,” noted Hedderwick.
The food services division reported gross revenue up 10,9% to R309-million, while operating profit rose by 16% to R19,6-million.
Increased revenue was derived from both organic growth of existing restaurants and numerical growth of the network. The introduction of revenue extracted from the initial integration phase of the Wimpy and Whistle Stop business also contributed to profits, he said.
In March this year, Famous Brands acquired Trufruit — a manufacturer of fresh and pasteurised premium fruit juices supplying the food services, hospitality catering and recreation sectors.
“The business currently supplies product to Steers, Debonairs Pizza and FishAways, which comprises roughly 30% of its gross revenue. The aim is to grow revenue by supplying product to our other brands in the franchise network, as well as to external food services vendors in the hospitality and leisure sector.
“We anticipate that Trufruit will contribute approximately 2% to the operating profit of the group,” Hedderwick said.
Advancing this strategy, in April this year, the group acquired Baltimore Foods — a manufacturer and distributor of soft-serve and hard ice cream, for R14-million, subject to a successful due diligence investigation.
“In its present form, Baltimore will contribute 5% to the group’s operating profit, with favourable potential expected in the medium term. The Wimpy franchise network currently contributes 40% to Baltimore’s turnover, and with the uptake of additional business from Famous Brands’ other brands, it is expected that turnover could be boosted by some 25%,” noted Hedderwick.
Looking ahead, Famous Brands’ strategic intent to become an integrated food and beverage company will remain the primary driver in the forthcoming year.
“Growing the group’s brands and optimal integration of acquisitions into the food services division will advance achievement of this goal, and appropriate capital expenditure and management input will be dedicated to achieving this.
“In this light, R46,7-million has been allocated to fast-track modernisation of the meat-processing plant, bakery and sauce-production facilities,” said Hedderwick.
“Management is cognisant that at this point in the country’s growth, the group’s products are accessible to a narrow percentage of the potential long-term market, which augurs well for the company’s prospects.
“As greater numbers of the population enter the mainstream economy, and South Africans adopt the global tendency to view casual dining and quick-service restaurants as a way of life, rather than a luxury, Famous Brands will continue to prosper in this market,” he concluded. — I-Net Bridge