Famous Brands hit by Eskom and Brexit
The branded food services franchisor says earnings are set to fall by more than 20%
Africa’s largest branded food services franchiser Famous Brands on Monday prepared investors for a grim set of results, blaming Eskom’s blackouts as well as "economic and political uncertainty" across all its markets, including the UK where the prospects of a
damaging Brexit looms large.
In a statement released shortly after markets closed, the owner of the Steers, Wimpy, Tashas and Mugg & Bean brands said it expected earnings in the year to February to fall more than a fifth.
In the UK, where it owns the Gourmet Burger Kitchen chain, sales across the group fell 7% in pounds.
"During the review period, economic and political uncertainty persisted across all our market," the quick service and dining restaurant franchiser said. "Challenging trading conditions constrained consumer discretionary spend and keen competitor activity intensified margin pressure."
Inconsistent power supply in SA due to the implementation of power rationing had stifled consumer sentiment, it said.
Eskom, the crisis-hit power utility that has been described as the single biggest risk for SA’s economy, reintroduced load shedding late in 2018, which resumed in 2019, as it sought to prevent a total collapse of the power system.
When the company released interim results in October 2018, Famous Brands CEO Darren Hele said trading would be
hurt by shorter year-end school holidays and "sustained financial hardship" experienced by consumers.
In its latest update, Famous Brands, which has a market capitalisation of about R8.6bn, said its traditional peak holiday period results had failed to meet management’s expectations.
It expected its UK business to come under pressure as a result of the uncertainty about the country’s departure from the EU, which it said would weigh on consumer sentiment and spending.
Hele said in October that the UK market would be defined by the outcome of the Brexit process and the company’s priority was to ensure that Gourmet Burger was "optimally structured to manage ongoing trading challenges".
The deal to buy Gourmet Burger in 2016 failed to produce the desired returns in the wake of that country’s Brexit vote in June of that year.
Gourmet Burger, which in October announced a process to secure more favourable rental agreements for its restaurants, reported an operating loss of £2.6m in the six months through August, while Famous Brands took an impairment of R874m before tax.
Famous Brands said that its Africa and Middle East markets had delivered a good return "with pleasing performances reported in the region by Debonairs Pizza, Steers, Wimpy and Mugg & Bean".
Famous Brands share price on Monday closed 1.77% down at R85.66. It’s down 12% in 2019, compared with a 5.4% gain by the JSE all share index.