Famous Brands reports bump in revenue, while profits decline for 2024 financial year

20th May 2024 By: Darren Parker - Creamer Media Contributing Editor Online

Famous Brands reports bump in revenue, while profits decline for 2024 financial year

Branded food services franchisor Famous Brands has reported an 8% increase in revenue to R8-billion for the financial year ended February 29, although a 6% decrease in profit to R812-million and a 1.5% profit margin contraction from 11.6% to 10.1% dampened results.

Despite the group’s carefully managed cost base, the operating profit margins were negatively impacted on by input cost pressures and increases in overheads, namely electricity, water, diesel, repairs, maintenance and employee costs.

Despite these pressures, the group paid a final dividend of R3.02 a share to maintain attractive shareholder returns.

Headline earnings a share declined by 5% from R4.88 a year prior to R4.65, while basic earnings per share (BEPS) declined to R4.57 from R5.23. This was attributed to the Gourmet Burger Kitchen liquidation dividend of R75-million received in August 2022, which contributed to higher BEPS in the 2023 financial year.

Excluding the liquidation dividend, the adjusted operating profit margin was 10.6%, and BEPS was R4.48 for February 28, 2023. Based on this calculation, Famous Brands pointed out, its BEPS of R4.57 for the 2024 financial year was actually 2% higher year-on-year.

“During our financial year, South Africa grappled with its most severe power cuts on record. The rand was volatile and inflation, particularly food inflation, continued to climb.

“Consumer household spending was under immense pressure, while operating costs at the restaurant level were on the rise. Our management team, who are well-versed in navigating difficult environments with significant inflation, steered us through,” Famous Brands CEO Darren Hele said on May 20. 

The brands division, which houses the group’s 16 restaurant brands such as Steers, Debonairs Pizza, Wimpy and Mugg & Bean, saw revenue increase by 5% to R1.2-billion, up from R1.1-billion a year ago. The improvement is owing to growth in the number of restaurants and higher restaurant turnovers, resulting in higher franchise fees.

Leading brands’ revenue grew by 5.6% to R954-million from R904-million, while signature brands’ revenue improved by 2.3% to R207-million, up from R203-million in 2023. Ten Fego Caffés were converted to Mugg & Bean restaurants and moved out of the signature brands portfolio into the leading brands portfolio, which impacted on the revenue for signature brands.

Famous Brands said the domestic trading environment remained tough as South African consumers have reduced discretionary spending, which is evident in lower transaction size growth.

Meanwhile, growth in the delivery channel slowed across all brands, with the collect ordering and drive-through channels continuing to perform strongly. As such, the group opened five new drive-through restaurants during the period.

Leading brands’ system-wide sales improved by 6.4%, while like-for-like sales increased by 4.3%. Famous Brands said these solid results could be attributed to the well-established brands, value offerings, careful management of menu price increases and access to alternative power solutions.

Casual dining restaurants, namely Wimpy and Mugg & Bean, delivered a better performance than quick service restaurants such as Steers, Debonairs Pizza, Fishaways and Milky Lane. This was partly because they tended to be situated in shopping centres where landlords could provide alternative power solutions to minimise downtime during power outages.

The signature brands portfolio, which includes restaurants such as Lupa Osteria, Mythos, Salsa, Vovo Telo and Paul, experienced a mixed performance owing to increased loadshedding, the closure of non-performing restaurants and consumers with low disposable incomes.

In this category, like-for-like sales were up by 6%, while system-wide sales were up by 2.5%. However, the operating profit margin declined to 1.9% from 4%.

Famous Brands said it had reviewed the expected performance of the signature brands' portfolio against the constrained operating environment with lower consumer demand and decided to further impair this portfolio by R13-million.

Within the Southern African Development Community (SADC) region, the group implemented a new management structure for the Africa and Middle Eastern (AME) region, placing the SADC market under the management of South Africa’s leading brands team.

This revised structure has resulted in lower costs for the SADC business through closer alignment with the leading brands' infrastructure.

The SADC market, which includes Angola, Botswana, Eswatini, Lesotho, Malawi, Namibia, Zambia and Zimbabwe, showed an improvement compared with the prior year. Revenue was up by 4% to R409-million from R395-million, mainly driven by the appreciation of Botswana’s pula.

Operating profit improved to R55-million from R50-million. The operating profit margin was 13.4%, up from 12.7%.

Famous Brands operates in seven countries in the AME market outside of SADC. These countries include Côte d’Ivoire, Ethiopia, Kenya, Nigeria, Mauritius, Saudi Arabia and the United Arab Emirates.

In these countries, revenue improved by 68% to R55-million from R33-million in 2023, while the operating loss was reduced to R14-million from R26-million. In addition, the operating loss margin was reduced to -26% from -77.7% a year ago.

Famous Brands currently operates 92 restaurants in this market. During the 2024 financial year, it closed its operations in Sudan owing to the war and exited Oman, as its licensee closed its quick service restaurant operations.

Meanwhile, political and economic uncertainties in the UK resulted in lower consumer spending for its network of 63 Wimpy restaurants. Revenue increased by 14% to R161-million up from R142-million, mainly owing to the weakening rand. Operating profit decreased to R18-million from  R19-million, with the operating profit margin at 11.4%, an improvement over -11.4% last year.

Overall manufacturing revenue grew by 9.4% to R3.3-billion, up from R3-billion, despite weaker demand and lower volumes from the front end, including volumes for core products. The operating profit declined, however, by 1.7% to R297-million from R302-million a year ago, owing to higher input costs and loadshedding in South Africa and an operating profit margin that declined to 9% from 10% in 2023.

Logistics revenue increased by 7% to R5-billion from R4.7-billion last year, owing to higher volumes and price increases. However, operating profit also declined to R94-million, down from R114-million in 2023. However, the comparative year included a R10.8-million July 2021 civil unrest insurance settlement. Famous Brands noted that its revenue remains under pressure, while increased expenses and loadshedding impacted operating profit.

Retail revenue grew by 35% to R368-million from R273-million, while operating profit increased to R6-million from R200 000 in 2023 owing to increased sales volumes and expanded distribution. The division launched 14 new products, compared to 13 in 2023.

Famous Brands said it would continue implementing its leading brands restaurant rollout plan in South Africa, SADC and AME during the 2025 financial year. This includes boosting its drive-through presence as new sites become available. The group said it would also invest in consumer-facing technology to enhance the consumer experience and own-home delivery capabilities.

“Our 2025 financial year will be difficult owing to poor macroeconomic conditions in South Africa and many other markets. However, we are convinced that we have the right brands and strategy to grow, win market share, and claw back our margins.

“As always, we will safeguard the sustainability of our franchise partners by continuing to offer a lower royalty rate for sales generated during loadshedding,” Hele said.