How Famous Brands’ UK burger business went from bad to worse
The value of Gourmet Burger Kitchen has been reduced by R874m, following a R373m write-down five months ago
Famous Brands, owner of Steers and Wimpy, has now reduced the value of its premium burger chain in the UK by more than half since it bought the business two years ago.
The offshore acquisition has blighted the company’s otherwise solid track record, analysts say, comparing it to Woolworths’ overzealous move to buy Australian department store chain David Jones in 2014.
Famous Brands, which bought Gourmet Burger Kitchen (GBK) for £120m (R2.3bn) in 2016, said on Monday it had written down the value of that business by R874m. This follows a R373m impairment, with provisions for store closures, just five months ago.
GBK has been struggling due to lower consumer confidence amid Brexit talks, the rise of online food delivery and intense competition in the premium burger segment.
The group’s shares fell 8.6% to R93.20 following Monday’s announcement. They have fallen 46% since reaching an all-time high of R172.80 a month after the GBK deal was unveiled in September 2016.
In addition to the impairment, GBK’s operating loss in the 22 weeks to July 29 trebled to £2.6m (R49m), Famous Brands said. But excluding the write-down, group-wide basic headline earnings per share in the six months ended August would rise 3%-14%.
“As expected, GBK ruined the dinner party,” Vestact portfolio manager Byron Lotter said in a note to clients. He said the rest of the group “is still in good nick”.
Gryphon Asset Management portfolio manager Casparus Treurnicht said he “wouldn’t be surprised if they completely exit the GBK operation to rebuild what was a previous success”.
“It is going to take years for Famous Brands to recover from this mishap,” Treurnicht said.
Selling the business could prove to be tricky. Electus Fund Managers equity analyst Damon Buss said the group faced three bullet payments on the debt used to buy GBK — a R720m payment in 2019, R720m in 2020 and R960m in 2021.
“This debt sits on the SA balance sheet and hence will need to be serviced by the cash flows generated by SA, which will constrain Famous Brands’s ability to restart paying dividends…. This debt also makes it very difficult for Famous Brands to sell GBK,” Buss said.
Meanwhile, the UK’s Sunday Times reported at the weekend that GBK was launching an insolvency process to close outlets and cut rents.
The company had appointed restructuring advisers from Deloitte to renegotiate rents, according to the newspaper. It would soon launch a formal “company voluntary arrangement” process, whereby landlords are required to agree to a rental reduction or face having the keys handed back on loss-making sites.
According to Buss, the first sign the GBK acquisition was ill-conceived was the revelation that the Enthoven family were the sellers. “Why would the owners of Nando’s sell a business if it had such great potential?”