Famous Brands, owners of the Mugg & Bean franchise, last year acquired UK-based Gourmet Burger Kitchen, which has severely underperformed and caused its debts to rise.Photo: Simphiwe Mbokazi/ANA

JOHANNESBURG - Famous Brands, Africa’s biggest food franchisor said yesterday that its debt climbed to R2.9billion in the six months to August as a result of trading conditions it described as the toughest in its recollection.

The company, whose subsidiaries include Wimpy and Steers, said adverse economic and socio-political environment locally and in the UK also continued to impact negatively on the results.

The franchisor last year acquired UK-based Gourmet Burger Kitchen (GBK), which has a footprint of 10 restaurants, for R2.1bn last year, resulting in the withholding of a dividend payment. The company said it would pay the dividends in the 2018 financial year, subject to future acquisitions. It said it hoped that GBK would return to profitability in the next financial year.

Chief executive Darren Hele said there were “green shoots” in GBK.

“We are looking forward to the festive season, and things are looking better,” Hele said. “We started to see green shoots in September and October.”

The company’s debt was zero last year. It said the group’s gearing was high relative to prior years, adding that “debt management is a key priority that’s proceeding according to agreed financing commitments”.

Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, said the results were poor as all regions had underperformed.

Mthombeni said operating profit growth lagged the revenue growth even in South Africa, which most investors would have looked to.

“There were also a lot of restaurant closures across the group’s portfolio, which means the second half will not likely be much better,” Mthombeni said, adding that management had to identify where things went wrong with the GBK deal.

“If you look at the like-for-like sales trends of the restaurant industry in the UK, most months show positive growth, which is divergent to the negative number reported by GBK,” she said. “That said, GBK will most likely recover upon more stability within the UK macros, but it’s a medium-term outlook.”

36ONE Asset Management analyst Shmuel Simpson said the company had acknowledged the environment in which it operated was challenging. Simpson said Famous Brands was aware of the challenges and the changing UK fast food landscape and was working to try and stem the losses.

He also said Famous Brands’ decision to continue to withhold the interim dividend was correct. “Given the current debt level and uncertainty around some of its operations, it was prudent to wait for operations to improve before declaring a dividend,” he said.

Famous Brands set an ambitious target of opening 130 new restaurants by the end of the financial year and said it would revamp 160 others.

A total of 77 restaurant were opened in the reporting period. Basic earnings a share declined by 56percent to 171cents a share from 391c a share last year, while headline earnings a share decreased by 59percent to 170c compared with 411c last year. Famous Brands shares dropped marginally 0.09percent on the JSE yesterday to close at R102.25.