Famous Brands CEO Darren Hele. Picture: DAYLIN PAUL
Famous Brands CEO Darren Hele. Picture: DAYLIN PAUL

Famous Brands, the owner of the Steers, Wimpy and Debonairs Pizza brands, appears to have turned around the fortunes of its struggling Gourmet Burger Kitchen (GBK) business, whose value it has written down by more than R1bn since 2016.

GBK, a restaurant chain in the UK specialising in gourmet burgers, has been a drag on the group’s profits amid poor trading conditions due to uncertainty around Brexit, the rise of online food delivery and heightened competition in the premium burger segment there.

The quick-service and casual-dining restaurant franchiser bought GBK in 2016 for £120m in 2016, its largest acquisition.

Famous Brands was upbeat about GBK’s prospects when it released results for the year to end-February on Wednesday. The group said despite a constrained consumer spend environment in the UK, GBK improved its performance as measures implemented during the year gained momentum. This included the reduction of GBK’s network from 106 restaurants to 80. A total of 24 stores were closed in the UK in the year to end-February.

GBK’s like-for-like sales in the UK in the first six months fell by 9.7%, though in the second six months it recorded positive like-for-like sales of 1.4%. In the 12 weeks following the year-end, the chain produced like-for-like sales growth of 8.1%.

“Management is optimistic that remedial actions under way to ensure the long-term sustainability of the business are gaining momentum, reflected by the stronger trading results reported for the second half of the year compared to the first half, and the positive like-for-like sales recorded in the period since year-end,” the group said.

With its troubles in the UK, Famous Brands has joined the growing list of SA companies that struggle in overseas markets.

Analysts have previously criticised Famous Brands for underestimating the difficult trading conditions in the UK and overpaying for GBK. “They definitely overpaid,” said Wayne McCurrie of FNB Wealth and Investments.

When it bought GBK, Famous Brands cited the benefits of diversifying its earnings base and the prospects of earning hard currency. It had identified the UK as a strategic growth region.

McCurrie said the recent growth in sales was indicative of the impact of the restructuring of the UK business. “Things are looking a little better now. The restructuring will have to work. Otherwise Famous Brands will have to get out. It is a highly competitive environment,” he said, citing the growth of online food delivery.

McCurrie said Famous Brands erred by acquiring a struggling business, hoping to turn it around. “I think they underestimated the fact that the UK is extremely competitive,” he said.

The company said group revenue in the year rose 2% to R7.2bn, while headline earnings per share fell 19% to 319c. Famous Brands said it would resume dividend payments, starting with a dividend of 100c a share for the financial year to end-February.

The group, which is Africa’s largest branded food service franchisor with a market capitalisation of R8bn, said it aimed to open 187 restaurants in the new financial year. “This programme will however be determined by an improvement in trading conditions,” the company said.

Famous Brands said it could make acquisitions in SA and in “selected” African markets “if appropriate opportunities arise”.

Famous Brands’ share price closed 2.32% lower at R80 on Wednesday, its biggest one-day fall in more than a month.