Food services franchisor Famous Brands reported an improved financial performance in the six months ending August 31, with headline earnings a share having increased by 121% year-on-year to R2.15.

The group’s improved financial performance was mainly driven by increased revenue across the business, with total revenue having increased by 19% to R3.5-billion, while operating profit increased by 77% to R393-million.

During the half-year period, the group continued to reduce its debt obligations by repaying R150-million of its primary borrowings.

At the end of August, the group’s total interest-bearing debt was just over R1-billion, down from R1.3-billion in August 2021.

“These results demonstrate a continued revenue recovery and the successful management of our cost base. This performance is gratifying considering a difficult operating environment with fierce competition and consumers facing increased financial pressures,” says CEO Darren Hele.

The company’s “Brands” division refers to Famous Brands’ portfolio of 17 restaurant brands. Leading Brands’ revenue was up 25% to R431-million, while Signature Brands’ revenue improved by 68% to R103-million.

The franchisor attributed this to better trading conditions for franchise partners, which it said allowed Famous Brands to wind down most of its Covid-19-related royalty relief packages. 

Leading Brands, in particular, delivered strong results owing to its compelling brands, continued investment in technology and a return to sit-down dining.

The growth of the home delivery channel slowed as consumers returned to sit-down and take-away orders, the company says, adding that casual dining restaurants experienced a strong recovery as consumers spent more time in restaurants.

The royalty relief to casual dining partners in South Africa has eased relative to the height of the pandemic and is now being applied on a selective basis.

Leading Brands opened 36 new restaurants, revamped 54 and closed 20 during the six-month period under review.

“We continued to grow our restaurant footprint, and strong revamp activity shows our franchise partners continued faith in our brands,” says Hele.

Meanwhile, Signature Brands’ overall sales turnover bounced back post-Covid-19 but still lags in comparison to pre-pandemic levels. However, turnover continues to improve every month, the recovery of which was boosted by consumers celebrating special occasions, improved evening trade and strong alcohol sales.

Famous Brands still offers Covid-19 royalty relief packages to some franchise partners. Many franchise partners are paying back rental arrears, negatively impacting their cash flow and ability to reinvest in their restaurants.

Signature Brands opened five new restaurants, revamped three and closed eight restaurants during the six-month period.

REGIONAL UPDATE

The South African restaurant industry benefited from the lifting of Covid-19 restrictions as consumers returned to restaurants, events and shopping centres.

South Africa also welcomed more international tourists.

South African Brands’ revenue improved 31% to R534-million owing to higher royalty payments as restaurant turnovers recovered.

However, Famous Brands stresses that local consumers remain under pressure owing to an inflationary environment, and external pressures such as the severe floods in KwaZulu-Natal in April, which impacted on the group’s performance as many restaurants closed and holidaymakers cancelled their Easter trips.

“We are pleased to see the continued recovery in restaurant turnovers and a return to pre-pandemic consumer behaviour. Higher input costs meant we had to increase our menu prices in line with food inflation trends,” comments Hele.

Combined system-wide sales across the company’s Leading and Signature Brands portfolios improved 20%, while like-for-like sales increased by 19%. Leading Brands’ system-wide sales and like-for-like sales grew by 18%, while Signature Brands’ system-wide sales and like-for-like sales improved 42%.

REST OF AFRICA AND THE MIDDLE EAST

As Covid-19 trading restrictions were lifted across all markets, trading activity in the rest of Africa and the Middle East returned to pre-pandemic levels.

System-wide sales increased by 42%, with the region’s revenue increased by 22% to R205-million, while operating profit increased to R11-million and the operating profit margin improved to 5.3%.

The home delivery channel grew in Botswana, Ethiopia, Kenya and Nigeria as consumers increasingly enjoyed this convenient option.

Further, the UK’s cost of living crisis eroded consumer confidence, resulting in declining spending. Wimpy UK experienced a drop-off in home delivery sales. However, in-store sales did not decline to the same extent.

System-wide sales were down 14%, while revenue in rand terms increased by 11% to R71-million.

The operating profit declined to a loss of R20-million, resulting in an operating margin of -28%.

Excluding the impairment of R31-million, profit would have been R11-million and the margin 15%.

“Our Wimpy UK franchise partners are experiencing unprecedented challenges with high inflation, supply chain pressures, higher interest rates and looming energy and electricity increases,” says Hele.

The number of restaurants remained unchanged as three restaurants opened and three closed.

The group also received a liquidation dividend of R75-million, paid in August, related to the Gourmet Burger Kitchen liquidation process.

SUPPLY CHAIN

The group’s vertically integrated supply chain comprises the manufacturing, logistics and retail operations that support the Brands pillar in South Africa and selected African countries.

The supply chain gives franchise partners a competitive edge through efficient supply, product innovation and margin management.

Manufacturing turnover increased by 8.2% to R1.4-billion during the period owing to good volumes and inflationary increases, while operating profit improved by 11% to R143-million, driven by sustained front-end demand.

The operating margin improved to 9.9% as manufacturing plants improved their production processes and reduced waste.

Logistics turnover rose 19% to R2.3-billion, while operating profit increased by 597% to R46-million.

The operating margin increased to 2.1%.

Case volumes grew 8.6% period-on-period and compare favourably with pre-pandemic levels, Famous Brands says, adding that the retail business, in particular, grew its sales by 15% to R121-million.

However, operating profit reduced to a loss of R2-million mainly owing to product write-offs.

“The retail trading environment remains price sensitive and highly competitive. However, we continue to benefit from our well-known brands and value-for-money offerings, which allowed us to grow our volumes and retail footprint,” says Hele.

Famous Brands launched four new products during the review period.        

OUTLOOK

Famous Brands expects consumer spending to remain under pressure for the remainder of the 2023 financial year as consumers contend with ongoing inflation, rising interest rates, loadshedding and political instability.

However, it notes that “South Africa is a resilient nation” and that the combination of the 2022 Qatar Soccer World Cup excitement, Black Friday specials and the festive season should lift spending.

Managing food costs and developing value offerings remain a focus in menu development, it adds.

Famous Brands will continue to invest in delivery technology to enhance its last mile efficiency for own delivery. Partnerships with third-party platforms will remain critical.

“We remain agile and committed to ensuring a profitable and sustainable business model for our franchise partners without compromising the value and quality of our products,” concludes Hele.