The Group’s results for the six months ended 31 August 2019 will be published on or about 28 October 2019. In the interim, it is appropriate to provide shareholders with a brief voluntary performance update on the business.
This update pertains to the six months ended 31 August 2019 for the Group’s South Africa (“SA”) and rest of Africa and Middle East (“AME”) regions. The United Kingdom (“UK”) operation’s narrative relates to the Gourmet Burger Kitchen Restaurants Ltd. (“GBK”) business for the 26-week period ended 25 August 2019. Collectively this reporting period is referred to below as the “review period”.
Difficult trading conditions persisted across the Group’s primary markets in SA and the UK, featuring subdued consumer sentiment and spend, and intense competitor activity and margin pressure.
Revenue reported for the review period is in line with management’s expectations. Growth was recorded across the Brands division in SA and AME, however the Supply Chain division fared less well. The Manufacturing business reported a marginal decline in sales, and while the Logistics business delivered revenue growth, Logistics profits will be negatively impacted by both internal and external factors as discussed below.
The Group’s restaurants trade in three markets, SA, AME and the UK. The brand portfolio is categorised into Leading (mainstream) and Signature (niche) brands.
Leading brands’ system-wide sales grew 6.0%, while like-for-like sales rose 4.0%. Signature brands’ system-wide sales improved 14.0%, largely reflecting the opening of a number of new stores in the network during the period; like-for-like sales increased by 1.4%.
System-wide sales in this region improved by 10.3% (2018: 12.8%).
The results reported by GBK for the review period are in line with management’s projections. As anticipated, the business continued to benefit from the extensive range of operational improvements implemented, together with the Company Voluntary Arrangement (CVA) restructuring programme completed over the past year. System-wide UK sales (Sterling) decreased by 12.5% (2018: decrease of 6.8%), reflecting the closure of stores as part of the CVA process. Like-for-like sales rose by 8.6% (2018: decrease of 9.7%).
Management cautioned at the year-end that softer sales and persistently lower food inflation had started to impact on this component of the business.
The loss of a major client at Lamberts Bay Foods resulted in a 39% decline in sales at the plant. This contributed significantly to the marginal decline in revenue for the Manufacturing division relative to the prior comparable period.
This division produced weaker results relative to the prior comparable period, recording a 3.0% increase in revenue, but a material decline in margins. This performance is attributable to several factors, including flat case sales in the domestic market and lower export sales; planned once-off expenditure related to the relocation of the Free State facility; reallocation of internal costs to this division; and higher fuel costs. Furthermore, in the context of constrained consumer income, sustained low food inflation inhibited opportunities to increase prices. This, together with the Group’s deliberate strategy to trim margins to maintain the competitiveness of our Supply Chain also served to erode profits.
On balance, the Group will deliver satisfactory results for the review period.
If required, a Trading Statement will be issued in accordance with the Listings Requirements of the JSE Ltd. as soon as the Board of Directors of Famous Brands (“Board”) is satisfied that a reasonable degree of certainty exists with regard to the Group’s results for the six months ended 31 August 2019.
For the purposes of comparison to the prior comparable period, supplementary information regarding the operating profit numbers will be published in the results announcement for the review period and will include the impact of IFRS 16 Leases.