Food services franchisor Famous Brands delivered solid results in a challenging environment, CEO Darren Hele indicated in a statement announcing the group’s interim results for the six months ended August 31, on Monday. 

He highlighted, in particular, the good performance of the Brands division; but lamented that this performance had not pulled through to the Supply Chain, which experienced weaker sales and significant margin pressure.

“Across our trading markets, consumer behaviour continued to be driven by the demand for convenience, value and enhanced brand experiences,” Hele said.

He stated that, locally, consumer and business confidence remained at low levels throughout the period, while, in the UK, uncertainty arising from the change in political leadership and progress regarding Brexit impacted heavily on consumer sentiment and spend.

“Rewarding progress was achieved across our key strategic focus areas to ensure the total value chain delivers franchisee profitability; to entrench the gold standard in the Gourmet Burger Kitchen (GBK) business resulting in a more focused and relevant offering and an improvement in costs and efficiencies; and to focus on working capital management; ensure the best return on investment in key areas of the business and exit noncore business.”

Famous Brands’ vertically integrated business model comprises a portfolio of 20 restaurant brands, represented by 2 879 restaurants across South Africa, the rest of Africa and the Middle East, as well as the UK.

Revenue of R3.57-billion was in line with the R3.58-billion generated in the first half of the prior financial year.

Operating profit before nonoperational items was, however, down 4% year-on-year, at R405-million.

The group reported basic earnings a share of 159c, compared with a loss a share of 572c in the prior comparable period.

This increase relates primarily to recognition of an impairment of R874-million in the GBK UK business in the prior comparable period. No impairment was recognised in the first half of the current financial year.

Headline earnings a share decreased to 159c from 188c in the prior comparable period.

Cash generated before working capital changes was R583.8-million.

The net debt/equity ratio was 165%, with net debt having increased to R2.7-billion, from R2-billion in the prior interim period.

Having considered the group’s optimal capital allocation programme, the board declared a dividend of 90c.

Looking ahead, Hele noted that while trading conditions were likely to remain challenging across the markets in which it operates, the company was satisfied that good progress had been made in positioning the business for growth.

“Across the operations we will maintain intense focus on driving profitability by capitalising on opportunities internally and in the market. Cost optimisation across the operation will continue to be prioritised.”

In the GBK operation, the focus will remain on leveraging efficiencies achieved over the period and driving profitability and margin growth across the operation.

The trading environment is expected to remain challenging for at least the medium term, and the group does not anticipate GBK returning to profitability before the end of the 2022 financial year.

“We are cautiously optimistic that wide-ranging initiatives to provide consumers with ease of access to our brands and to deliver unique customer experiences at every touchpoint will provide the group with a competitive advantage during the forthcoming holiday season.

“Notwithstanding macroeconomic challenges faced in the Supply Chain, an improved performance in the Brands division should filter through and positively impact on the Manufacturing and Logistics divisions,” Hele concluded.