Decline in Earnings
South Africa’s renowned fast food and restaurant franchiser, Famous Brands, reports a decline in interim earnings. The company’s headline earnings per share dropped by 7% to 199 cents for the six months ending on August 31, 2023.
Factors at Play
The main contributors to this decline are constrained consumer spending and the escalating operational, food, and power costs.
Basic Earnings
According to a report by money web, Famous Brands’ basic earnings per share also witnessed a significant reduction, down by 23% to 199 cents. A portion of this decrease is due to the absence of the liquidation dividend of R75 million from Gourmet Burger Kitchen, which significantly boosted figures in the previous year.
Revenue and Profit
Although revenue experienced a 10% upswing, reaching R3.9 billion for the first half of the year, operating profit declined by 6%, settling at R371 million. Consequently, the operating margin dipped by 1.6%, standing at 9.4% compared to the 11% reported in the preceding year.
Cash Generation
During this period, the company generated R537 million in cash from operations, reflecting a 3% decrease from the R552 million reported in the previous half-year.
Dividend Declaration
Despite these challenges, Famous Brands has declared an interim dividend of 138 cents, marking a 6% increase compared to the same period in the previous year.
Brand Portfolio Performance
In South Africa, Famous Brands’ leading and signature brands portfolio reported a noteworthy 7.8% growth in system-wide sales during this period. However, the core South African restaurant operations, including renowned brands such as Mugg & Bean, Steers, and Wimpy, were impacted by reduced consumer spending, leading to fewer restaurant visits and reduced spending per visit.
Supply Chain Challenges
The company also faced challenges related to the cost and availability of key menu items, including poultry products, coffee, and potatoes. The weakening rand led to increased costs for imported products, and significant price hikes were observed for chicken, eggs, pork, and vegetables. Poor potato harvests between April and October, resulting from unusual weather patterns and power outages, added to input costs, especially for frozen chips.
Rising Insurance Costs
Famous Brands also grappled with rising insurance costs. Property damage and business interruption premiums surged from R3.9 million to R22 million in the 2023/2024 renewal cycle. The company attributed these rising costs to the classification of food facilities as high-risk during social unrest, the weak rand, and low insurer appetite for cold storage facilities.
Future Outlook
Despite these challenges, Famous Brands maintains optimism for the remainder of the 2024 financial year, particularly during the December holiday season. The company plans to expand its leading brands’ new restaurant rollout, invest in consumer technology and delivery hubs to bolster home delivery capabilities, and extend the presence of Debonairs Pizza and Steers to three new markets: Cote d’Ivoire, Egypt, and the Democratic Republic of Congo.
Furthermore, the company intends to restructure its African operations’ management to better concentrate on growth markets, diversify its product offering with 12 new product lines in the 2024 financial year, and mitigate insurance costs through a captive insurance cell.
