A Gourmet Burger Kitchen restaurant in the UK. Picture: FAMOUS BRANDS
A Gourmet Burger Kitchen restaurant in the UK. Picture: FAMOUS BRANDS

Famous Brands said on Thursday that it will no longer fund its loss-making Gourmet Burger Kitchen (GBK) restaurants in the UK.

The SA owner of Mugg & Bean, Steers and Wimpy spent more than R2.3bn buying the upmarket hamburger chain in UK in 2016 but it has lost money ever since as UK consumer confidence plummeted after the Brexit referendum.

Famous Brands said its decision not to provide financial assistance to GBK comes after the UK and Irish governments forced all restaurants to close for an indefinite time to reduce the spread of Covid-19.

“The board’s decision to withhold further financial support for GBK may result in an impairment of the full value of Famous Brands’ investment in GBK,” it said.

Famous Brands has twice written off money it spent on GBK. In 2018 it wrote off R874m and announced a R373m impairment. Famous Brands has since closed more than 20 loss-making GBK restaurants.

In the six months to end August 2019, GBK’s operating loss narrowed 76%, from R45.4m to R10.7m.

Investment analyst Chris Gilmour said the burger chain was beginning to show signs it may turn a corner before the coronavirus hit. “GBK was showing nascent signs of recovery but now, with all the uncertainty surrounding the length of the lockdown, it was a time to put a lid on it.” 

SmallCaps analyst Anthony Clark said Famous Brands’ decision not to spend money on GBK means the business will not survive. “When you withdraw funding for a struggling business it is signalling its death knell.” 

He said Famous Brands’ purchase was funded by debt meaning the company has lost more than the R2.3bn it paid as it would have spent money on interest repayments.

Other costs sunk into GBK were the management time to sort out the ailing business, the cost of flying back and forth to the UK, and the legal fees when they closed restaurants.

Clark said it would have been a “material sum above and beyond the R2.3bn investment. It is a sad end to a business that should never been bought”.

He said the Famous Brands strategy to move offshore “may have been valid but the timing was awful. It was bought just before Brexit and the uncertainty regarding Brexit has seen consumer sales sink”.

The share price closed 8.33% higher at R26 a share.

childk@businesslive.co.za