Johannesburg - Restaurant franchiser Famous Brands [JSE:FBR] on Thursday posted a 14% increase in interim operating profit to R347m on the back of a 27% increase in group revenue of R1.998bn.
The operating margin for the six months to end-August 2015 declined to 17.4% from 19.3% in 2014, primarily as a function of margin erosion in the logistics business, the group said at its interim results announcement.
Famous Brands' share price climbed as much as 5% following the results release despite the group experiencing "generally subdued economic conditions and constrained consumer spend" in most of its trading markets.
By 13:23 the shares were changing hands at R130.70, 2.82% up from the previous close.The group said basic earnings per share (EPS) increased by 14% to 242 cent, while headline earnings per share (Heps) rose 14% to 241c. Diluted EPS improved 13% to 240c, while diluted Heps grew by 14% to 240c.
An interim gross dividend of 190c per share has been declared.
According to group CEO Kevin Hedderwick, apart from top line turnover growth failing to translate into corresponding growth in operating profit, the final phase of the group’s programme aimed at bringing the business closer to its customers (franchisees) and consumers, incurred further costs.
The quick-service and casual dining restaurant franchiser is working at integrating new high-volume, low-margin businesses into its manufacturing and logistics operations. It said this proved more onerous than anticipated.
The group’s franchise footprint comprises a total of 2 565 restaurants in South Africa, other African countries, the UK and in the Middle East. Combined revenue recorded by this division increased 7% to R321m, while operating profit improved 4% to R181.
The group opened 75 restaurants across its brand portfolio during the period. A further 139 new restaurants are scheduled for opening during the remainder of the current fiscal year.
Hedderwick said he was pleased with the performance of, among others, Mugg & Bean, which delivered double digit growth during the interim period, and Debonairs Pizza.
“Sustained growth of the pizza category in the rest of Africa region and strong demand for Debonairs Pizza’s offering continues to drive expansion of this brand, which recorded double digit system-wide sales,” said Hedderwick.
“The Debonairs Pizza-Shoprite Master License arrangement in Angola has bedded down well and will gain traction in the second half of the year with the opening of a further five restaurants.”
Steers also reported a strong performance in the region, delivering a 20% increase in system-wide sales. New restaurants were opened in Zimbabwe, Malawi and Botswana.
In the Middle East, although he said it offers good growth potential for the group, political instability has frustrated interest from prospective franchisees.
“In this context, Debonairs Pizza and Steers reported solid results, but will benefit from increasing their trading footprint in due course,” said Hedderwick.
"Tashas’ Dubai restaurant delivered another strong performance, continuing to exceed management’s expectations."
In other divisions of the group logistics reported revenue of R1.35bn, an increase of 29%, while operating profit rose 12% to R43m.
This disparity is largely due to the initial set-up costs of commissioning the group’s new Crown Mines Distribution Centre.
The manufacturing division recorded an increase in revenue of 42% to R848m, including the first-time contribution of the high-volume Cater Chain meat manufacturing business acquired in April 2015. Operating profit improved 45% to R101m, while the operating margin rose very slightly to 11.9%.
“We are resolute in our pursuit of growth strategies outlined at the start of the year, despite challenges," said Hedderwick.