Tuesday, 24 October 2023
Famous Brands is bullish about its prospects in Africa and the Middle East
Famous Brands, the owner of Wimpy, Steers and Turn ’n Tender, is looking beyond South Africa’s borders to expand operations despite slow business growth back home, it announced in its interim results for the six months ended 31 August.
On Tuesday, the group said the South African restaurant industry was under strain due to rising costs, alternative power costs and reduced consumer spending, with customers facing several challenges including political uncertainty, water shortages, the electricity crisis, high food and fuel prices and rising interest rates.
Rolling blackouts are costing restaurants in terms of lost revenue, higher food input prices resulting in menu increases, higher operating costs and capital investment, more risk of food waste and disrupted deliveries to consumers.
Consumers are spending more time in shopping centres, especially during the cold winter experienced in Johannesburg and Cape Town. Hospital foot counts are also up, which supports Famous Brands restaurants in those locations.
Consumers are still spending at its restaurants, which Famous Brands says offer “affordable indulgent moments as a reprieve from their daily challenges. However, with tighter budgets, consumers do not eat out as lavishly as before”.
Famous Brands has four divisions: Brands, Manufacturing, Logistics and Retail. It operates franchised, master-licenced and company-owned restaurants.
The group’s restaurant portfolio includes quick-service outlets such as Steers, Debonairs Pizza and Fishaways; the Wimpy and Mugg & Bean casual dining restaurants; and signature brands Mythos, Turn ’n Tender, Salsa Mexican Grill and Lupa Osteria.
Famous Brands has 2,522 restaurants in South Africa; 311 in 17 countries throughout Africa and the Middle East; and 65 in the United Kingdom.
It said while the supply chain challenges and inflationary pressures related to the Russia/Ukraine war have eased somewhat, food inflation remains elevated due to the costs of rolling blackouts. It imports its hake and coffee, which have become more expensive due to the weak rand, while eggs, chicken, pork and vegetable prices have risen sharply.
The potato harvest has been poor this year due to unusual weather patterns, which has led to a sharp increase in the cost of frozen chips.
Consumer behaviour is also changing due to the weak economy. Customers are spending less at restaurants and opting for takeaways, deliveries and drive-throughs. They’re also seeking out value deals, discounts, smaller and cheaper meals, competitions and loyalty programmes.
Famous Brands said the Western Cape’s eight-day taxi strike in August caused restaurant closures and delivery cancellations, which further hurt its bottom line.
Rolling blackouts also increased significantly during the period under review which affected prime trading hours, although about 91.3% of its Leading Brands portfolio had alternative power solutions and saw an 18% increase in sales during blackout periods.
From March 2023, the group helped franchisees with a 1% reduction (0.5% royalty and 0.5% marketing) on their franchise fees for sales generated while trading during rolling blackouts, which, at the end of August 2023, amounted to total financial relief of more than R11.6-million.
The 2023/24 insurance renewal cycle, which fell within the review period, saw a 470% increase in premiums (to R22-million) for property damages and business interruption insurance, due to higher reinsurance costs as food facilities are deemed greater risks than before.
Performance
In the review period, Famous Brands saw some organic growth, but earnings are lower, mostly due to the Gourmet Burger Kitchen liquidation dividends of R75-million received in the first half of 2023.
Excluding the liquidation dividends, basic earnings per share is 8% up on the prior period.
Total revenue for the review period was up by 10% to R3.94-billion, with a 6% reduction in operating profit and a 7% decline in headline earnings per share (a profit measure stripping out some items).
The group said it was bullish about its prospects in Africa and the Middle East (AME) region, which saw sales increasing by 15.3%. Several African markets have abnormally high inflation due to political instability, poor economic policies and external shocks.
“Here, we will cautiously enter three new markets (Côte d’Ivoire, Egypt and the Democratic Republic of Congo) with the Debonairs Pizza and Steers brands.
“We will split the management structure for AME so that the Southern African Development Countries are managed by the Leading Brands team in South Africa. The rest of Africa, where we have a smaller footprint, will be managed out of the Middle East.
“We believe this will refocus our attention on those countries where we need to invest and build our brands and networks.”
The board has declared an interim dividend of 138c per share, which it will pay out on 18 December 2023. DM
Wednesday, 18 October 2023
Pick n Pay’s 97.5% loss in trading profit means it’s back to basics, says CEO Summers
It’s back to basics for Pick n Pay, says CEO Sean Summers, as the retailer returns to the drawing board after posting dismal results reflecting a 97.5% loss in trading profit for the half-year to 27 August, reaching just R31.8-million compared with the R1.25-billion it achieved in 2022.
In reporting its first interim loss, Pick n Pay described its results as “disappointing”. That is an understatement; the retail giant has declared a pro forma loss before tax and capital items of R837.2-million.
Reality check
Trading profit would have been R597-million, not the R31.8-million declared, had it not been for the R565-million of incremental abnormal costs (R190-million spent on net incremental energy costs; R116-million on duplication of supply chain costs from the Longmeadow/Eastport DC handover; and R259-million spent on retrenchments).
Gross profit margin was down by 0.9% to 18.5%.
Yet again, the cost of keeping stores powered ate a chunk out of its profits: it spent R396-million on diesel to run generators and keep stores open, which not only affected its expense growth but also limited its ability to run promotions.
Group turnover grew by 5.4% (like-for-like 2.3%), with Boxer South Africa delivering an exceptional performance, growing by 16.1%.
Silver linings
It wasn’t all terrible, though, as Boxer enjoyed strong overall growth over the 26 weeks to 27 August 2023.
Other highlights included online sales, value-added services and keeping a lid on internal inflation, which the group kept at 8.3%, well below CPI Food of 11.4% for the period.
Online sales grew by 76.3% – driven by on-demand platforms Pick n Pay asap! (which was refreshed this month) and Takealot’s Mr D.
On-demand sales doubled year-on-year.
Value-added services income grew 13.5%, as the group maximises opportunities in banking and financial services, and mobile.
Its Rest of Africa segment contributed R2.7-billion in sales, up 14.4% year on year (or 12.2% in constant currency).
“Project Future” saved the group R334-million in the first half of the year, with R124-million in energy savings.
During the period under review, the group opened its new Eastport distribution centre and sold Longmeadow. It also modernised its franchise model to increase its franchisee loyalty rate and acquired Tomis, a state-of-the-art abattoir and meat packaging business, which will help boost the quality of its fresh meat offering.
‘Potent cocktail’
Pick n Pay chairman, Gareth Ackerman, said the six months from March to August were among the most difficult consumers have had to endure in the recent past. Rolling blackouts reached the worst level since they were first introduced in 2008, which has had a disproportionately negative impact on the retail industry.
“Food inflation topped 14% in March, its highest level in 14 years, and the price of fuel has risen by about 20% so far this year. Interest rates also reached their highest point since 2009, thanks to 10 successive increases since the end of 2021.
“All of this has proved to be a potent cocktail that has once again put consumers under extreme financial pressure.”
Ackerman said although they were proud of their efforts to support consumers with lower prices and keep internal price inflation well below CPI Food, there was no avoiding the fact that the group’s result was extremely disappointing.
“There are, however, some encouraging signs and the Pick n Pay story currently is really one of two main operating brands – Boxer and brand Pick n Pay.
“Boxer delivered double-digit South African sales growth and is the main growth driver for the group at the moment.”
The group has 454 Boxer stores countrywide and plans to expand the low-cost offering.
Pick n Pay Clothing’s sales at standalone stores also grew in double digits, leading the market, which Ackerman says proves that its strategy is working.
“We have seen superb online sales growth, driven by strong growth in our on-demand platforms, asap! and Pick n Pay groceries on Takealot’s Mr D app. Income from value-added services also grew encouragingly, as the group focused on maximising opportunities in banking services, financial services and mobile.”
More than 40% of the group’s 1,599 stores in South Africa are owned and run by franchisees.
On 1 October, Pick n Pay announced Summers had replaced Pieter Boone, under whose watch the retailer lost significant market share to Shoprite Checkers.
The announcement sent the share price plummeting by almost 15%, after stating that it expects to report a half-year loss of between 79.31 and 98.18 cents per share, which is down between 184% and 204% year on year.
Bring on Summers
Summers, back with Pick n Pay after a 16-year absence, reassured shareholders and staff, saying the results are “not the end of the world”.
“It’s a huge privilege and an honour to be back in the place that I love,” said Summers.
“It’s equally distressing for me as it is for all of us in this room (to see these results). My focus is to return the core supermarkets business to growth and profitability, and maintain the growth of other key parts of the business.”
He said Pick n Pay is an exceptional company and a much-loved brand with a rich heritage.
“We have a lot of work to do, and I have received strong support from our people. They want to see Pick n Pay succeed, and my task will be to see that we work hard on the basics and improve significantly both on customer service and on execution in our supermarkets.”
He said their buying capabilities need work, and they will be engaging closely with their suppliers as a matter of urgency.
“Importantly, we need to rekindle customers’ affection for the Pick n Pay brand and energise our staff to focus their efforts on the critical road ahead.” DM
Thursday, 28 September 2023
Capitec increases market share, grows customer base to 21.1m
Capitec saw headline earnings growth move up 9% to R4.7-billion for the six months to end August, while increasing its client numbers to a whopping 21.1 million.
Gerrie Fourie, chief executive at Capitec, says the bank has grown its non-interest income streams through product diversification and digitalisation, insurance licensing and broadening payment services.
“Our ongoing investment in innovation and 11% active client growth resulted in an 18% increase in retail transaction volumes. Net insurance registered 33% growth to R1.5-billion,” he says.
The digital bank’s latest results reveal that the number of clients embracing digital transactions has grown 8% to 11.7 million, while the number of app users climbed to 10.2 million, making Capitec the biggest digital bank in South Africa.
Fourie says this surge has propelled digital transaction volumes by 21% to 957 million, with the banking app claiming 83% of these transactions. Income from Send Cash payments and voucher sales soared 56% to R1.1-billion. DM
Thursday, 21 September 2023
Grim impact on Astral: Rolling blackouts and bird flu ‘ravaging’ the chicken industry
Astral Foods was a top loser on the JSE on Thursday after a trading update sent its share price crashing by 13.1% in early morning trade, regaining just 2.12% at the close.
The leading chicken producer had previously warned that rolling blackouts and water issues were expected to have a significant impact on their production for the remainder of the financial year ending 30 September 2023, as the outages increased extra costs to power diesel generators, cutting back on poultry production due to a backlog in the slaughter programme, higher feed costs (to maintain older broilers), and overtime costs.
For the six months ended 31 March 2023, these costs came to R741-million, and for the remainder of the financial year, they are forecast to rise to an additional R919-million.
Astral said operating diesel generators was now an embedded expense burden that was costing it R45-million every month.
Rolling blackouts, including capital costs of R200-million, are expected to cost the group about R1.9-billion this year, which is the biggest reason for the sharp decline in its results.
The slaughtering backlog, which was caused by the blackouts, was cleared at the end of June 2023, increasing broiler efficiencies on targeted age, live weight and feed consumption.
In the Sens statement, Astral said it had been forced to discount its big birds at a time when chicken consumption had slowed over winter.
The selling prices for chicken were not sufficient to recover input costs.
However, other factors have weighed down its financial performance during the second-half period – the biggest among them is causing its chickens to “die like flies”, Astral CEO Chris Schutte confirmed during an investor call.
Astral and other producers have been forced to cull their broiler breeding stock to control the disease, incurring additional costs beyond the birds, including measures taken for their safe disposal and implementation of biosecurity measures.
The poultry industry has seen significant losses as the new strain of bird flu (H7N6) has inundated producers in Gauteng and Mpumalanga, causing short supplies of table eggs and a likely dwindling supply of chicken.
This is the worst bird flu outbreak the country has seen: it has already cost producers about R220-million.
Astral expects this year’s profits to be down by about 165% on last year’s.
Schutte told investors that the poultry industry was being “ravaged” by the current outbreak, which started in Paarl in the Western Cape before mutating into a different strain by June, which is now dominant in Gauteng, the Free State and Mpumalanga.
Dr Abongile Balarane, the CEO of the South African Poultry Association, told Daily Maverick on 13 September that the situation was ruining farmers.
“It’s been catastrophic. We’ve lost about 15% of national production, which is more than four million chickens.”
Last week, Anthony Clarke, of Smalltalkdaily Research, predicted that Astral’s pre-closed briefing “will be pretty fowl”.
“Despite being a well-managed and plucky bird, Astral Foods has had to endure factors way beyond its control in 2023. These will come to peck it badly, especially in its second half. It’s tough currently in the domestic poultry sector but Astral Foods and its management team box on as best they can.”
He said he has had a “buy” position on Astral for some months, with a target of 21,500 cents.
“I’m not changing that. However, the market needs to prepare itself – if my scenario is correct – for a pretty nasty pre-closed update on 21 September.” DM
Monday, 18 September 2023
Oceana expects energy, raw material costs and a weaker rand to take their toll
Oceana’s Lucky Star brand might have sold 8% more cans over the past 11 months, but even with an increase in selling prices and a reduction in freight costs, the past five months have been less stellar as sales volumes declined by 5% due to above-inflation increases in energy, the cost of tin cans and tomato paste, and the impact of the weaker rand against the US dollar on the cost of imported raw materials.
On the local front, canning production volumes in South Africa were up by 15% to 4.7 million cartons (compared with 4.1 million cartons in August 2022). The company expects strong demand going forward, driven by continued demand for affordable and shelf-stable protein.
In its SA fishmeal and fish oil business, strong fish oil pricing and the weaker rand resulted in a 32% increase in average rand selling prices for the 11-month period. Sales volumes of 21,246 tonnes were also 8% lower than the prior year-to-date period and a 24% drop in production volumes due to adverse weather conditions impeding fishing.
Rolling blackouts cost the group’s canning, fishmeal and fish oil operations R28-million over the period.
In the US, above-average water temperatures in the Gulf of Mexico and abnormally lower water levels in the Mississippi caused a 5% decline in catches. The 28-week season ends on 31 October. Fish oil yields were also down by almost 8%, due to the landed fish’s lower fat content.
Fishmeal and fish oil sales were up by 49% and 27%, respectively, but the cancellation of Peru’s main anchovy fishing season (related to the effect of El Niño on fish stocks) hurt fishmeal and fish oil production levels from that supplier in the period, which drove up sales prices by 9% and US-dollar fish oil sales prices by 38%.
The R72-million insurance payout from Hurricane Ida plus a 10% weaker rand also helped to lift performance.
Closer to home, horse mackerel sales volumes were in line with the prior period as improved catch rates and vessel utilisation in Namibia were offset by poorer catch rates and vessel utilisation in SA. But hake sales volumes were down by 38% due to fewer sea days and lower catch rates.
Selling the group’s interest in its cold storage business on 4 April realised a profit of R370-million after tax, which was used to settle debt in South Africa.
The group’s results are expected to be released on Monday, 27 November. DM
Thursday, 14 September 2023
FirstRand at the bottom of the ‘bad debt highway’ despite SA’s poor macroeconomic environment
Group chief executive Alan Pullinger was not fazed, explaining that the company’s ‘bad debt highway’ falls within the 80 to 110 basis points range.
FirstRand Bank posted an 11% rise in profits for the year to the end of June, with 60% of its profits coming from First National Bank (FNB), the star in the stable. The overall credit performance for the year was in line with expectations with a credit loss ratio of 78 basis points.
Group chief executive Alan Pullinger was not fazed, explaining that the company’s “bad debt highway” falls within the 80 to 110 basis points range.
“Right now, we are just touching the bottom of the highway. Our cost to credit over a 10- to 15-year period should be on that highway. We think in the next 12 months, we are going to get into the middle point of that highway, and that would be around 95 basis points,” he told Daily Maverick.
Pullinger says the low credit loss ratio is a direct outcome of the group’s origination strategy from mid-2020 to late 2021, as the country emerged from the Covid-19 pandemic.
“The decision to tilt origination to low- and medium-risk customers has resulted in a credit loss ratio below the group’s range, despite a higher interest rate and inflation cycle than initially anticipated. Over the past 18 months, the group has gradually lifted origination back to pre-pandemic appetite,” he says.
TymeBank hot on the heels of FirstRand performer FNB
The star in the stable, FNB delivered on its strategy of gaining more customers and increasing interactions with existing customers, growing its client base by 5% to 11.5 million. However, this is no time to rest on its laurels. African Rainbow Capital, which is the majority shareholder in digital challenger TymeBank, revealed this week that the bank had grown its customer base to 7.7 million. An impressive feat, given that TymeBank launched just over four years ago.
The newcomer has been aggressive in its strategy, offering customers zero bank fees and higher interest rates. In May, Tymebank reported that it was signing up as many as 200,000 customers a month.
FNB chief executive Jacques Celliers says the retail division increased advances by 7%, primarily driven by growth in residential mortgages, while deposits increased by 10%. FNB Commercial increased advances by 8% and delivered a robust 14% growth in deposits.
FNB’s wealth and investment management accounts increased by 5% to 629,000 and it has the leading market share of household deposits in South Africa. FNB Life has paid out R644-million in pre-emptive life claims to customers since its launch. This refers to its process of proactively paying out life insurance claims by routinely checking the National Population Registry for deceased policyholders. DM
Wednesday, 13 September 2023
Momentum Metropolitan shareholders might be smiling, but the market was unimpressed
Momentum Metropolitan shareholders will realise a final dividend of R1.20 a share, up 20% on last year and in addition to a share buyback scheme.
At an average price of R17.87 per share, the shares were purchased at a 43% discount to the 31 December 2022 embedded value per share of R31.39.
The board approved a further R500-million for the buyback programme of the group’s ordinary shares
Risto Ketola, group finance director, says the company’s dividend policy remains to declare dividends within a payout range of between 33% and 50% of normalised headline earnings.
“Our next set of results will be prepared according to the new accounting standard (IFRS 17), which will more closely align the economic and insurance outcomes with the accounting treatment,” he says.
Operating profit climbed 31% to R4.4-billion on the back of improved mortality experience post-Covid and a positive investment variance of R1.1-billion, compared with R353-million in the previous financial year.
However, lower new business volumes, higher distribution costs and a general change in new business mix towards lower-margin products across many of the business units saw the value of new business fall 4% to R600-million.
Management highlighted concern around recent pressure on sales volumes.
“Disposable income will remain under pressure due to rising interest rates and high inflation, as well as the lack of economic growth in South Africa. This is likely to put ongoing affordability pressure on new business volumes, particularly on long-term savings and protection business.
“Investment business is negatively affected by other factors such as low confidence in SA asset classes and by consumer preference to maintain their assets in liquid low-risk investments. New business volumes and profitability are receiving significant management attention,” the company said.
Incoming group chief executive Jeanette Marais noted the insurer paid out more than R38-billion in claims over the year to end June 2023, forked out R7-billion in staff remuneration, and invested more than R280-million on training and development.
The market seemed unimpressed, with the share sliding 1.6% from its close of R20.14 on Tuesday to close at R19.82 on Wednesday. DM
Monday, 11 September 2023
Fun and games at Sun International after group posts stellar interim results
Sun City has performed exceptionally well, with a 25.5% hike in income.
Sun International’s online betting and gambling platform, SunBet, is coining it. The hospitality group posted its interim results on Monday, revealing that SunBet generated record income over the past six months, with an increase of just over 138% on the first half of last year.
SunBet’s adjusted Ebitda – a profit measure – increased from R14-million during the prior comparative period to R90-million in the review period, which is a 542.9% increase.
It has grown unique active players by 702.8%, first-time depositors by 469.2% and deposits by 216.2%.
Gaming makes up 78% of the group’s income, which is also up by 6.6% despite the difficult economic climate, increased competition and rolling blackouts.
Sun International’s casino income was up by 3.2%, although Sun Slots was down slightly from the prior period due to the power crisis.
Group income for the first six months was up 11.7% to R5.8-billion, with adjusted headline earnings – a measure of how current performance stacks up to previous years’ performance – up by 10.1% to R482-million.
Sun City has performed exceptionally well, with a 25.5% hike in income.
The group has declared an interim cash dividend of 148 cents per share – up by 68.2% to R388-million.
Income from urban casinos was up 4.2%.
Sun International CEO Anthony Leeming said SunBet offers the group exciting growth potential: the business model is self-funding and capex-light.
“We have made significant improvements to registrations, customer deposits and withdrawal processes as well as an overhaul of the customer contact centre.
“Our customers are now able to interact with us seamlessly and we are well positioned operationally for higher volumes of business.” – Georgina Crouth/DM
This corporate portal will be updated continually as company results are announced.
Source: https://www.dailymaverick.co.za/article/2023-10-24-sa-company-results-the-latest/
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