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Famous Brands revenue was up 25% to R714m

Famous Brands, the quick service restaurant and casual dining franchisor, has reported a 7% increase in diluted headline earnings per share to 78 cents for the six months ended August from 73 cents a year ago.

An interim dividend of 36 cents was declared, up 9% from the previous year. Gross revenue was up 25% to R714 million and operating profit was up 13% to R124 million.

Chief operating officer Kevin Hedderwick described the macro-economic trading conditions in the first half of the year as the toughest the group had experienced in ten years.

"This latest performance is a testament to the strength of the Group's brands and the known gravitation by consumers towards tried and tested brands in times of economic downturn," said Hedderwick.

Profitability during the first six months of the year was adversely affected by the group's deliberate strategy of absorbing costs within the manufacturing and logistics divisions to the combined value of R10.25 million.

"This strategy was implemented to ensure the long-term sustainability of the business through maintaining price competitiveness at the point of sale, as well as protecting individual franchisee margins and profit," said Hedderwick.

For the first time, the interim results include the business of Cape Franchising which was acquired effective March 1 2008. The impact on earnings has not been material, it said.

Like-on-like sales, net of new restaurant openings, within the domestic franchise division grew by 9.3% compared with the previous period and system wide sales grew by 13.6%.

Some 43 new restaurants were opened and 60 existing restaurants were revamped in the period, with a further 79 new restaurants and 56 revamps planned for the next six months.

The group's brands continue to grow their footprint with milestones reached as Steers opened their 500th restaurant and Debonairs Pizza their 250th restaurant.

The Brazilian Café format was successfully repositioned to include a bakery option, and is poised for an aggressive rollout in partnership with the Shell Petroleum Company.

Internationally, comparative restaurant turnovers are down 2.63%, affected primarily by the global economic slowdown. The division continues to make great strides improving the Wimpy brand in the UK. Six restaurants were revamped in the period and a further four are planned for the second half of the year.

The manufacturing division was hampered by raw material price increases well above food inflation across products that are fundamental to the manufacturing process, including red meat, chicken, flour, oil, tomato paste, yeast, sugar and packaging.

The logistics division remains a key component of the group's unique backward integrated franchise system and has continued to row being influenced by completion of the Wimpy "dry goods" business take on and the commencement of take on of the Wimpy "frozen goods".

Preparation for the latter included a number of once-off start up costs, the benefits of which will flow through in the future. A full service depot was commissioned in Bloemfontein to service the Free State and improve service levels to franchisees in the region.

The Cape Franchising acquisition has been successfully concluded and fully integrated into the group. The first phase of extracting synergies has been completed. Similarly the 51% controlling stake in tashas (effective July 1 2008) has been concluded and there are plans to open at least four new restaurants early in the new year.

Looking ahead, Hedderwick said the group expects difficult trading conditions to continue however it has embarked on a robust cost reduction programme on the one hand and an aggressive marketing programme across all of its brands on the other, benefits of which should flow through during the second half of the current fiscal year.

"The Group's business model remains sound, representative of a portfolio of strong brands being underpinned by a unique backward integration model and excellent management. We are confident the Group will weather the current economic storm, and would expect earnings growth to be maintained at the current level," concluded Hedderwick.

Published courtesy of

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