Food services franchisor Famous Brands managed to increase its cash generation, earnings a share and operating profit in the financial year ended February 29.

CEO Darren Hele attributed the strong performance to the company continuing to commit resources to ensuring its offering has a strong value for money component, continuing to invest in its technology capability in the digital and social media areas and continuing to upweight its delivery offering, while ensuring that menus evolve to wellbeing trends.

Famous Brands’ portfolio comprises 24 restaurants brands, with 2 898 restaurants across South Africa, Africa, the Middle East and the UK.

The company posted an 11% year-on-year increase in cash from operations to R1.1-billion, which resulted in a cash realisation rate of 107%.

Famous Brands grew its operating profit to R912-million in the year under review, compared with an operating profit of R847-million generated in the year ended February 28, 2019.

Hele says profitability improved on the back of improved results from the British fast food operation Gourmet Burger Kitchen and the disposal of the Coega Concentrate tomato paste plant, which reported an operating loss of R22-million in the prior year.

Headline earnings a share increased by 32% to 417c apiece in the year under review, compared with headline earnings of 316c apiece in the prior year. Earnings a share increased by 175% to 362c apiece in the reporting year, compared with a loss of 484c apiece in the prior year.

Hele explains that the prior year had lower earnings a share as a result of nonrecurring costs and impairments.

The company’s free cash flow after debt service requirements improved to R246-million in the year under review, compared with a negative free cash flow of R217-million reported in the prior year.

While the company declared a 90c a share dividend for the first six months of the year under review, no dividend was declared for the second half of the financial year, with Famous Brands opting to rather preserve cash owing to Covid-19.

Meanwhile, Hele comments that the company’s leading brands delivered solid results in the reporting year, which reflects their market leadership in the categories they are in.

“Consistent with recent years and in line with general market trends, our quick service (QS) brands, Steers, Debonairs Pizza, Fishaways and Milky Lane outperformed the casual dining (CD) brands, namely Wimpy, Fego Caffé and Mugg & Bean.

“All four of the QS brands grew system-wide and like-for-like sales, and Steers, Debonairs Pizza and Fishaways continued to gain market share, while Milky Lane retained its competitive posture. Our CD brands all retained market share, with a particularly pleasing performance by Wimpy, after several years of decline.”

Hele adds that the signature brands operate in an overtraded, highly competitive CD market segment and their performance for the period reflects the difficulties faced.

Although the company closed 17 signature brand restaurants in the year under review, a notable performance was delivered by the Lupa Osteria brand, largely attributable to a menu and pricing review, followed by the PAUL brand, which appeals to a niche premium-end market segment.

The company’s coffee brands continued to benefit from partnerships with hospital partners Netcare and Mediclinic.

Meanwhile, since the reporting year ended, Famous Brands has been focused on rightsizing the business, reducing costs and preserving cash to facilitate balance sheet flexibility.

Hele says a range of measures were swiftly implemented across the business. These include a freeze on operational and capital expenditure; providing franchisees with temporary financial relief; strategic temporary hibernation of parts of the business not permitted to operate under lockdown restrictions; and a limited retrenchment programme where all other options have been exhausted.

“Following the easing of restrictions, operational focus has been on optimising the group’s home delivery competence, where practicable and in line with regulations. The viability of the limited delivery-only model remains to be proved, but at this early stage is showing positive signs, given that this channel is the only access available to consumers,” he adds.

Nonetheless, Famous Brands will continue to roll out its three-year strategic roadmap, which includes an expansion programme to grow and leading brands and retail businesses in the Africa and Middle East region, a disinvest from noncore brands and optimisation of capital allocation. 

“We will also continue to align the supply chain and cost drivers to afford our franchise partners a competitive advantage while maintaining return on capital targets,” Hele affirms.