After wrapping up the 2017 financial year with seven successfully integrated acquisitions and a strong financial performance, JSE-listed Famous Brands plans to remain strongly focused on growth in a difficult operating climate.

However, while the group remained acquisitive by nature and was receptive to acquisitions, the scale of the acquisition pipeline of the past year is unlikely to be repeated as Famous Brands settles in from a solid platform for expansion and growth, CEO Darren Hele said on Monday.

It is was now time to synergise and build upon the work that had been concluded in the past year, he told Engineering News Online.

During the year ended February 28, the branded food services franchisor had embarked on its largest acquisition to date – the £120-million buy-out of UK-headquartered premium burger category market leader Gourmet Burger Kitchen (GBK).

Famous Brands had also established a joint venture partnerships with local emerging brands Salsa Mexican Grill, Lupa Osteria and Catch, and had acquired a 49.9% stake in commercial catering company By Word of Mouth.

In addition, Famous Brands absorbed potato products manufacturer Lamberts Bay Foods and Eastern Cape-based tomato paste processing plant Coega Concentrate.

The acquisitions were all successfully integrated into Famous Brands’ operations during the year, with GBK significantly furthering the group’s aims of diversifying its earnings and expanding its geographical footprint.

“Management is enthusiastic about the opportunities presented by the business and the UK market,” said Hele, adding that the company planned to open additional company-owned restaurants in the UK and invest in building capacity and scale across the business.

Now, the company’s key priorities included leveraging synergies and enhancing efficiencies across the operations to contain costs and implement opportunities within the business to build scale across the brands and manufacturing divisions.

While the acquisitions meant that Famous Brands would not declare a dividend for the 2017 financial year as the group’s gearing was pushed up higher than in prior years, the group reported solid financial results for the period ending February 28.

FINANCIAL PERFORMANCE
“Despite the food services sector facing sustained pressure over the past year . . . strong organic growth was reported by the brands, logistics and manufacturing operations, complemented by solid results derived from the integration of the seven newly acquired businesses,” Hele said.

Revenue increased 33% to R5.7-billion during the period under review, including 20 weeks of turnover contribution from GBK.

Operating profit was up 18% to R938-million, excluding nonoperational items, while the operating margin before nonoperational items declined from 18.4% in 2016 to 16.4% in 2017.

Before nonoperational items and additional interest costs, headline earnings per share (HEPS) increased 13% to 613c. Including the costs, basic HEPS fell 21% to 428c.

The one-off nonoperational items are related to the GBK acquisition and include a realised derivative loss of R33-million on the call option that was used to hedge the purchase price of the acquisition, R23-million in foreign exchange losses and R50-million in professional fees related to the acquisition.

In addition, Famous Brands suffered an impairment loss of R20-million on a 2013 investment in UAC Restaurants, in Nigeria.

By year-end, Famous Brands had net cash of R405-million and a gearing ratio relative to its market capitalisation of 16%.