JOHANNESBURG – Food stores franchisor Famous Brands yesterday flagged that it had incurred R874 million in impairments for six months to end August, piling pressure on its stock which fell nearly 7 percent to R94.94 in early trade.

The group said in its trading update that strong performances from its operations in South Africa, the rest of the continent as well as the Middle East operations were hampered by the continuous lag in the British chain Gourmet Burger Kitchen (GBK) which was expected to report large losses.

It said basic headline earnings per share would, however, lift between 175 cents per share to 194c per share, an about 3 to 14 percent increase, while the basic loss per share was expected to be up to 623c per share, a decrease of up to 465 percent from 171c last year.

“The core portfolio has done well over time, it is the UK investments that have been very poor, both Wimpy and more recently GBK,” said Damon Buss, analyst at Electus Fund Managers.

The group said in light of the continued adverse trading conditions and sustained underperformance of GBK, the board advised on the impairments that would result in a post-tax amount of R760m.

“The board is of the opinion that this impairment value is prudent in the current situation,” the group said in the update.

Last year, Famous Brands took a hammering after the group said GBK was going to record a R16m loss during the six months to end August.

The group acquired GBK for R2.1 billion in 2016.

Famous Brands yesterday said GBK would record an operating loss of £2.6m (R49.5m) during the period.

Buss said the options were thin on offloading GBK as there were no apparent buyers and the competition in both the gourmet burger category and quick service restaurant sector had intensified significantly.

“I struggle to see how they will turn the business around and get it back to profitability,” Buss said.

The group’s portfolio includes Steers, Wimpy, Debonairs, Fishaways, Milky Lane and Tashas among others.

Buss said the business was doing well locally, although there was the question of the scalability of the various signature brands such as Tashas, Turn n Tender and Paul.

Buss said the concerns limited the benefit Famous Brands could get through its manufacturing operations.

In August, Famous Brands said it was expecting stronger results than in the earlier comparable period, largely due to improved performance by the SA and AME operations. 

These operations were expected to record a solid increase in operating profit despite product recalls following a major listeriosis outbreak in South Africa.

Famous Brands closed 8.63 percent lower at R93.20 on the JSE yesterday.

BUSINESS REPORT