Johannesburg - Famous Brands, which embarked on an acquisition spree this year, on Monday reported an increase of 17 percent in operating profit to R404 million for the six months to end August and said it would hold back on a dividend payout.
Shares gained 0.27 percent to close at R162.
Famous Brands, the owner of Steers, Mugg & Bean and Wimpy, bought six companies this year including the UK’s Gourmet Burger Kitchen and Lamberts Bay Foods.
Chief executive, Darren Hele, said some of these acquisitions would add immediate returns to the company but it would take time before they could deliver expected returns.
“A company like Lamberts Bay Foods we bought from Oceana is a good example of a company that will give us immediate returns in the next six months, while Lupi Osteria in KwaZulu-Natal will take a bit longer to develop. The board has resolved that no interim dividend will be declared for the period,” Hele said.
He said that, subject to future acquisitions, the payment of dividends would resume in the 2018 financial year.
In the period under review the group increased revenue by 23 percent to R2.45 billion, from R2bn reported last year. Basic earnings per share grew 62 percent to 391 cents from 242c in the prior corresponding period, while headline earnings per share increased 71 percent to 411c as compared with 241c.
Famous Brands has a portfolio of 30 brands represented by a franchise network of 2 626 restaurants across South Africa, the rest of Africa, the Middle East and the UK.
In addition to operating different kinds of restaurants, the company has a supply chain division consisting of its logistics and manufacturing businesses, which are managed and measured separately.
The logistics business grew its operating profit by 14 percent to R49 million, while the manufacturing businesses’ operating profit increased 64 percent to R166m.
Investing activities
The logistics division houses the Crown Mine Distribution Centre and the manufacturing division is home to Sauce and Spice plant and the Midrand Meat plant. Net cash outflow from investing activities of R162m was incurred mostly because the group bought controlling stakes in Salsa Mexican Grill, Lupa Osteria, as well as Lamberts Bay Foods.
Nolwandle Mthombeni, an equity analyst at Mergence Investment Managers, said the 17 percent growth in operating profit was impressive.
“Famous Brands has a vertically integrated model, so if there is growth in the franchising revenue this leads to growth in the supply chain division, that is, the logistics and manufacturing for the franchisees,”she said.
Mthombeni added that the suspension of the dividend would work out well for the company in the long run.
“The biggest factor in suspending the dividend is the substantial debt incurred in financing the Gourmet Burger Kitchen acquisition of R2.1bn. Since this was financed through short-term funding, management planned on paying off this debt in less than three years and by suspending the dividend they would free up [about] R500m in cash a year.
“The 23 percent rise in the share price since the beginning of the year does somewhat compensate for no dividend,” Mthombeni said.
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