Steers-owner Famous Brands’ sales up but profit dips

Famous Brands reported strong revenue growth for the six months ended 31 August 2023, but its operating profit dipped as load-shedding, the struggling economy and its failed UK burger chain weighed on the company’s operations.

Famous Brands – which owns local brands such as Steers, Wimpy, Mugg & Bean, Debonairs and Fishaways – reported its results for the six months ended 31 August 2023.

Total revenue for the review period increased by 10% to R3.94 billion compared to R3.58 billion in 2022.

However, the company’s operating profit decreased 6% to R371 million compared to R393 million in 2022.

Headline earnings per share also decreased by 7% to 199 cents from 215 cents in the previous period. 

EBITDA is down 8% to R472 million, while basic earnings per share (BEPS) is down 23% to 199     cents per share.

The company attributed the lower earnings to the Gourmet Burger Kitchen (GBK) liquidation dividends of R75 million received in the first half of 2023. 

Famous Brands bought UK-based GBK in September 2016. However, the restaurant chain faced several challenges, including low consumer confidence following the UK’s exit from the EU and the Covid-19 pandemic. 

In 2020, Famous Brands announced that GBK had entered into administration in accordance with the UK’s insolvency legislation. The company also said that it would not be able to provide the chain with any further financial assistance.

Business Day reported in 2020 that Famous Brands had impaired about R2.6 billion of its investment in GBK since 2018.

Excluding the liquidation dividends, Famous Brands’ BEPS is up 8% from 2022.

During the reporting period, Famous Brands invested R71 million in capital expenditure across its markets, up significantly from the R60 million it spent last year. 

Another challenge the company faced in this period was that the 2023/2024 insurance renewal cycle fell within the review period. 

The company’s property damages and business interruption (PDBI) premium escalated by over 470% to R22 million. 

Famous Brands said these increases are related to higher reinsurance costs and increased risk perceptions around food facilities. 

However, the company assured shareholders that it is executing a plan to secure and protect its operating sites and assets and has set up an insurance cell captive to reduce its insurance costs.

The South African restaurant industry is under strain due to rising costs, alternative power costs and reduced consumer spending.

Famous Brands said South African consumers are currently facing several challenges, including political uncertainty, the ongoing water shortage, electricity crisis, elevated food and fuel prices and higher interest rates. 

“Despite this background, consumers are more resilient than expected and still spend time at restaurants,” the company said.

“Here, restaurants offer affordable indulgent moments as a reprieve from their daily challenges. However, with tighter budgets, consumers do not eat out as lavishly as before.”

In addition, while supply chain challenges and inflationary pressures related to the Russia/Ukraine war have eased, food inflation remains elevated due to load-shedding costs, the company said. 

Particularly, imported products like hake and coffee were more expensive due to the weak rand. 

Other key products like chicken, eggs, pork, vegetables and potatoes also saw considerable price increases. 

Famous Brands declared a dividend of 138 cents, up 6% from the previous year.