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A tough year for Famous Brands

‘We are keeping anchored and looking at 2019 as our comparative year. Not quite there yet,’ says CEO Darren Hele.

SIMON BROWN: I’m chatting now with Darren Hele, CEO of Famous Brands. Results out for the year ending February 2021. It was a tough year. Revenue down 35%, headline loss per share 86 cents – and no dividend declared.

Darren, a tough year. In fact in your career past and career future, hopefully the toughest year ever. We hope we’re not going to have a worse one. Are things starting to pick up? This is to February. Sort of March/April/May – are you seeing pickup or is it still tough out there? We seem to forget that we came into this pandemic in a recession locally in South Africa.

DARREN HELE: Morning, Simon. Thanks for the opportunity. Yes, we are starting to see some positive change. It’s obviously very difficult to compare, given the hard lockdown last April where there was zero trade. Obviously the numbers look fantastic right now to year comparatives – but we are keeping anchored and looking at 2019 as our comparative year. Not quite there yet, but starting to really see some nice traction; but it’s different. We don’t have the international tourism, and so your base has changed in different places. People are behaving slightly differently, but we are focused, we are confident for it to build slowly. We suspect that we’ll pull back now with the third wave, but we’ve seen that in the second wave. So we are feeling fairly confident there’s a level of normality creeping back in.

SIMON BROWN: There’s still pressure. I think of my habits – I’m doing more takeaways, quick-service restaurants (QSR) and the like. I’m still cautious around the sit-down, the more formal dining, which of course involves your signature brands. Is that something which you’re broadly seeing across your brands, with the signature brands perhaps still under a little more pressure than the QSR?

DARREN HELE: Definitely. The signature brands are probably a little bit more volatile. In other words, they come back quite strongly at times. Just as an example, more recently on Mother’s Day people were confident to get out. Where we are probably seeing a little bit more strain is in the casual-dining segment in shopping malls, as an example, in transit nodes, where we are not seeing the same kind of feet coming back. So also that’s habitual and people do not care to travel, but I suppose it also is a tight economy right now. So more difficult. The trend is, as you’ve said, but slightly different around mid-markets, the big shopping malls.

SIMON BROWN: You sold your half stake in Tasha’s back to the original owner. You’ve also closed down some of the brands – Keg, I think Europa at the same time – almost in a sense of ‘don’t let a good crisis go to waste’, repositioning the brands and perhaps getting, not so much Tasha’s but some of the brands that simply weren’t working; moving out of them completely.

DARREN HELE: Yes, we’ve definitely streamlined signature brands. We’ve got a nice portfolio now, obviously being the tough times.  So we try and capitalise on the difficulties and really just focus our energy and efforts on a certain portfolio. We’ve got that sort of for-fun dining, even casual dining brands; we’ve got on the luxury segment, Paul and Vovo Telo; and then we’ve got our hospital brands, as we call them, which effectively are positioned in the entrances of hospitals, your NetCafé and Coffee Couture. So we’ve got a very narrow portfolio now compared to what it was, although it’s still quite broad. We try to achieve very strong segments.

SIMON BROWN: Gourmet Burger Kitchen – is that now completely behind you from a perspective of results going forward?

DARREN HELE: Yes, we’ve reported it in our results as a discontinued operation from October 14. So I suppose if you go into the results they can be a bit messy because of that. We’ve tried to make it easy for people to read through doing that, but absolutely.

The only one outstanding matter is from a claim on the liquidateds from ourselves which we think will be resolved, but it’s not material and is not going to affect our business going forward. From mid-October we’ll be focused back on our core business.

SIMON BROWN: And you’ve  still got the Wimpy operations in the UK?

DARREN HELE: That’s gone nicely for the year. H1 in particular was great; H2 was more challenging as the second lockdown in the UK hit harder, and of course, a lot more competitors came on stream. But that business is going nicely its a …. and it has really delivered nice results.

SIMON BROWN: Last point. No dividend in this set of results make sense. You say that you want to get your Ebitda dividend less than 2.5 times. How long would you anticipate before you’re perhaps back to paying dividends to shareholders?

DARREN HELE: Probably at least another two reporting periods; half periods, because the requirement from our lender is that even if we’re in position – I think if you look at our cash position right now we’ve come out of this in a clearly healthy position. So it’s really more around satisfying our primary lender right now.

SIMON BROWN: We’ll leave that there. That’s Darren Hele, CEO of Famous Brands. I do hold some shares there. It has been a very rough ride. Darren, I appreciate the early morning time.

The poll we are asking you today is on our social media – Twitter, LinkedIn and Facebook. Certainly the results from Famous Brands we also saw from Spur, those quick-service brands. It has been incredibly tough out there. We get that, we totally do. But it depends, I suppose. We had another lockdown – Level 2 – over the weekend from the President, but it seems quite light. Are you buying these quick-service restaurants, Famous Brands, Spur and the like? They are cheap. There are pandemic risks. Well, perhaps in time, but not just yet.

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I hold Famous Brands and in my opinion there seems to be good potential for upside here in the future.

Famous Brands is dead in the water, the messed up royally with their overseas venture costing R1.5 billion..money out of shareholders pockets. Mark my words, the company is on a path to nowhere and the share price will be even lower next year.

Hele must get out of his ivory tower and start micromanaging brands like Steers and Wimpy where the quality of food has gone down and prices have shot up. Competitors like Mcdonalds, Burger King, KFC and others have sharpened their pencils and are discounting heavily by offering good deals whilst Famous Brands sits like a fast food laden obese walrus wallowing along in the background eating the crumbs. This company needs new fresh management that can be ahead of trends otherwise it will be left behind even more.

End of comments.

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