South African franchise group Famous Brands, which is known for its Wimpy, Debonairs Pizza, Steers and Tasha’s brands, will hold on to its final dividend after reporting that the Covid-19-induced lockdown has had a severe impact in its finances.
During its annual results presentation on Tuesday for the year to end-February, the franchisor admitted that it has been hit hard by the lockdown and therefore no dividend will be paid for the second six months of the reporting period.
This is despite it recording a profit of R426 million in the period under review.
“The Covid-19 global pandemic and subsequent lockdown measures implemented across the group’s various trading jurisdictions have had a significant adverse financial impact on the business,” it acknowledged.
It said there was a “likely breach of the currently agreed debt covenant requirements” for this year. This is why it “proactively” engaged its primary lender to restructure its future debt maturity profile and debt covenants.
It has long-term borrowings of R1.65 billion and a net debt/equity ratio of 143%.
The group says the 2021 financial year is going to be “severely” characterised by Covid-19, even though it has enough cash flow to service its current debts.
During lockdown Level 5, the group had no material revenue generated as its businesses were not permitted to trade. It had only one plant that could continue to work.
“What we could do is really not that different from what other businesses did during this period and which is to focus on our employees, and also really preserve our own balance sheet and things we could do within our business,” says CEO Darren Hele.
In Level 4, as lockdown regulations eased it could deliver takeaways and the company was able to gain at least 20% of its usual revenue, with only 40% of its stores trading.
“However, the curfew made things very difficult from our perspective and certainly limited operations,” Hele says.
The group anticipates that within alert Level 3, it will generate 35% of its usual revenue in June as the country eases lockdown restrictions further as its signature brands will be able to trade under strict regulations.
The group’s portfolio comprises 24 restaurants brands, with 2 898 restaurants across South Africa, Africa, the Middle East and the UK.
It reported an 11% year-on-year increase in cash from operations to R1.1 billion, which resulted in a cash realisation rate of 107%.
The company says considering the weak trading conditions, it has a taken a deliberate decision to scale back on new store openings, as it anticipates the downturn to continue to the 2021 financial year.
This has been amid a challenging operating environment with SA edging into recession in the latter half of the reporting period, compounded by the country’s specific adversities, “including the sluggish pace of transformational socio-economic reforms, frequent load shedding, sustained poor community service delivery, and evidence of unsanctioned corruption”.
The group says it made efforts during the current year to enhance in-store technology to drive the customer experience through digital menu boards, digital payment options and self-ordering terminals.
“Our goal to improve the total customer experience was pursued through optimising opportunities in the online ordering and home delivery space,” Hele says.
It says it has improved accessibility to customers through new flexible, convenience-centred trading formats. It added that it is has ended the reporting period on track with the three-year programme to return its troubled Gourmet Burger King (GBK) business in the UK to profitability by 2022.
No more cash injection for struggling GBK
Famous Brands purchased GBK in 2016 as part of its strategy to reduce its dependence on South African consumers, who were under financial pressure. However, the group found itself taking on more pressure due to economic struggles faced in the UK post-Brexit.
It says “remedial” measures are being implemented to stabilise the GBK business which has 72 restaurants and return it to profitability, but its year-on-year sales continued to decline.
The company recognised an impairment of R53 million (2019: R873.9 million) in GBK UK, and concludes that “it will not provide further financial assistance to the GBK business”.