A SIGN hangs outside a Gourmet Burger Kitchen restaurant in London.     Bloomberg
A SIGN hangs outside a Gourmet Burger Kitchen restaurant in London. Bloomberg

Constrained spending hits Famous Brands

By Sandile Mchunu Time of article published May 30, 2019

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DURBAN - Famous Brands yesterday said that its profits fell on constrained consumer spending and impairment charges at its UK business Gourmet Burger Kitchen (GBK) leaving its earnings on a decline in the year to end February.

Africa’s largest branded food services franchisor yesterday blamed the conditions for the 19percent decline in headline earnings per share to 319cents a share from 393c compared to last year.

The group said economic and political uncertainty defined its major markets in the results, both locally and in the UK, as the Brexit process continues to unfold.

Chief executive Darren Hele said the group’s decision to turn around its GBK unit through a company voluntary arrangement (CVA) was, however, beginning to bear fruit.

“The CVA programme and extensive remedial measures undertaken at GBK in the past year gives us confidence that the business is better structured for growth,” Helle said. “We will continue to capitalise on opportunities in the operation and in the market, and we remain hopeful that once progress is made regarding Brexit, consumer sentiment and spending will improve in a more certain environment.”

The group had to deal with a double whammy of a struggling economy in its home market of South Africa and insolvencies that grew 24percent in the UK restaurant sector.

Famous Brands said impairment charges on GBK increased to R899million during the period from R373m last year, despite the turnaround strategy it undertook last year to stabilise the business.

GBK’s like-for-like sales in the UK declined 9.7percent in the first six months, but grew by 1.4percent in the second half. In the 12 weeks after year-end, the brand recorded like-for-like sales growth of 8.1percent.

Overall revenue increased 2percent to R7.2bn, while operating profit declined by 5percent to R850m.

The group which owns brands such as Steers, Debonairs Pizza, Wimpy and Mugg & Bean, resumed paying a dividend of 100c a share.

Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, said the results reflected subdued consumer spending. Mthombeni said group brands such as Debonairs, Wimpy and Steers came under increased pressure in line with the prevailing economic conditions. However, she added that the CVA process could help stabilise and turn the businesses around.

Half the problem lies in the UK retail environment being subdued, the rest is due to high competition in the burger market, Mthombeni said.

Famous Brands stock declined 2.32percent on the JSE yesterday to close at R80.


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