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Famous Brands keeps taking a pounding in the UK.
Date: 15 October 2018 Category: Economics |
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Famous Brands (FBR) used to be the market darling on the JSE, With their aggressive growth by acquisition strategy in South Africa, they bought food franchise after food franchise and ended up with a massive portfolio most South Africans would instantly recognize. Some of their brands include:
Steers Fishaways Debonairs Mugg & Bean House of Coffees Vovo Telo Tashas So they thought they could replicate this successful strategy in the UK. Oh boy were they wrong. |
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SENS investors were fearing.
The text below is a trading update released by Famous Brands (FBR) earlier today. To FBR shareholders, be warned, it doesn't make for pretty reading.
A Gourmet Burger Kitchen Chicken Burger. Image taken from their Instagram account
TRADING STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2018
Famous Brands is satisfied that a reasonable degree of certainty exists that the financial results of the Group for the six months ended 31 August 2018 (“the review period”) will differ by at least 20% from those reported for the six months ended 31 August 2017 (“the prior comparable period”), and thus is in a position to issue this trading statement in terms of Section 3.4(b)(i) of the Listings Requirements of the JSE Limited.
BACKGROUND
On 16 August 2018, the Group published a voluntary performance update (“the update”) for its South African (SA) and Rest of Africa and Middle East (AME) regions for the five-month period ended 31 July 2018, as well as for the Group’s GBK Restaurants Limited (“GBK”) business, for the 22-week period ended 29 July 2018. The update advised that the Group’s results for the six months ended 31 August 2018 were expected to be stronger than those reported in the prior comparable period, primarily due to an improved performance by the SA and AME operations which would record a solid increase in operating profit; however, GBK would report a larger operating loss than in the prior comparable period.
RESULTS
here has been no change to the information provided in the voluntary performance update, and accordingly, an improved performance will be reported at Group operating profit level, while GBK has recorded an operating loss of GBP2.6 million (2017: GBP872 000) for the review period. In light of the continued adverse trading conditions and sustained underperformance of GBK, shareholders are advised that the decision has been taken by the board of directors (“the Board”) to recognise an impairment of R874 million (pre-tax) at Group level. The post-tax amount is R760 million. The Board is of the opinion that this impairment value is prudent in the current situation. For the six months ended 31 August 2018, the Group’s basic headline earnings per share (“HEPS”) compared to the prior comparable period are expected to be within the range of 175 cents per share to 194 cents per share (2017: 170 cents per share), being an approximate increase of 3% to 14%. The Basic loss per share is expected to be within the range of 566 cents per share to 623 cents per share; this is an approximate decrease of 431% to 465%, compared to the prior comparable period’s Basic earnings of 171 cents per share. The Group’s results for the review period will be released on SENS on or about Monday, 29 October 2018. A live audio webcast of the results will be held at 10h00 (SAST) on 29 October 2018.
End quote from SENS
Famous Brands is satisfied that a reasonable degree of certainty exists that the financial results of the Group for the six months ended 31 August 2018 (“the review period”) will differ by at least 20% from those reported for the six months ended 31 August 2017 (“the prior comparable period”), and thus is in a position to issue this trading statement in terms of Section 3.4(b)(i) of the Listings Requirements of the JSE Limited.
BACKGROUND
On 16 August 2018, the Group published a voluntary performance update (“the update”) for its South African (SA) and Rest of Africa and Middle East (AME) regions for the five-month period ended 31 July 2018, as well as for the Group’s GBK Restaurants Limited (“GBK”) business, for the 22-week period ended 29 July 2018. The update advised that the Group’s results for the six months ended 31 August 2018 were expected to be stronger than those reported in the prior comparable period, primarily due to an improved performance by the SA and AME operations which would record a solid increase in operating profit; however, GBK would report a larger operating loss than in the prior comparable period.
RESULTS
here has been no change to the information provided in the voluntary performance update, and accordingly, an improved performance will be reported at Group operating profit level, while GBK has recorded an operating loss of GBP2.6 million (2017: GBP872 000) for the review period. In light of the continued adverse trading conditions and sustained underperformance of GBK, shareholders are advised that the decision has been taken by the board of directors (“the Board”) to recognise an impairment of R874 million (pre-tax) at Group level. The post-tax amount is R760 million. The Board is of the opinion that this impairment value is prudent in the current situation. For the six months ended 31 August 2018, the Group’s basic headline earnings per share (“HEPS”) compared to the prior comparable period are expected to be within the range of 175 cents per share to 194 cents per share (2017: 170 cents per share), being an approximate increase of 3% to 14%. The Basic loss per share is expected to be within the range of 566 cents per share to 623 cents per share; this is an approximate decrease of 431% to 465%, compared to the prior comparable period’s Basic earnings of 171 cents per share. The Group’s results for the review period will be released on SENS on or about Monday, 29 October 2018. A live audio webcast of the results will be held at 10h00 (SAST) on 29 October 2018.
End quote from SENS
So basically FBR is saying the business they bought (Gourmet Burger Kitchen) is now worth R760million less (post taxes) than it was when they purchased it. A price of roughly R2billion was paid for Gourmet Burger Kitchen) by Famous Brands. So this write off suggests that FBR now things the business is worth 38% less than what they paid for it And this does not discount potential future write offs in the business if FBR cannot bring it back to profitability. This shows that the success achieved in one country does not necessarily guarantee success in another country. FBR management in for a tough time with this UK acquisition and we are sure shareholders will be putting a few difficult questions forward for the management of FBR regarding the due diligence of GBK and the price paid for it.