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Famous Brands sees R874m impairment as UK burger business struggles

The company expects the sustained underperformance of its UK Gourmet Burger Kitchen (GBK) business to record an operating loss of 2.6 million pounds.
Famous Brands bought Britain's GBK in 2016 but its contribution to group profitability has taken longer than the company initially anticipated. Picture: Luke MacGregor, Bloomberg

South African fast-food chain owner Famous Brands, which owns Wimpy, Steers and Debonairs pizza said on Monday it will take a pre-tax impairment charge of R874 million ($60 million), sending its shares down 7%.

The company blamed the impairment on the difficult trading conditions and sustained underperformance of its UK Gourmet Burger Kitchen (GBK) business.

For the six-months ended August 31, the company expects GBK to record an operating loss of 2.6 million pounds ($3.42 million) compared to a loss of 872 000 pounds in the corresponding period last year.

The company said basic headline earnings per share — which strips out certain one-off items and is the most widely watched profit gauge in South Africa — are expected to increase between 175 cents and 194 cents versus 170 cents a year earlier.

Basic earnings will however turn into a loss of between 566 cents and 623 cents, the company said.

Famous Brands bought Britain’s GBK in 2016 but its contribution to group profitability has taken longer than the company initially anticipated, hampered by lower consumer spending in the context of Brexit as disposable incomes come under pressure.

At the same time, higher property rates in Britain and increased input costs, declining foot traffic in malls, exacerbated by the oversupply of restaurants as landlords continue to replace failing retailers with more food offerings has contributed to GBK’s estimated larger operating loss.

At 10:23 GMT, shares in Famous Brands were down 4.41% to R97.50 after having weakened 7.2%, its lowest since September 21.

The company will announce its results on October 29. 

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So now you have impaired 60 % of the value of the acquisition, diverted much-needed management focus and have widening operating losses. There are no plans to offload, doubling down on a bad decision ?

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