Famous Brands Limited (FBR) Earnings Call Transcript & Summary

Good morning. Welcome on behalf of myself, Darren Hele and Lebo to our end August 21 interim financial results presentation. I hope that you're familiar with the 2 of us, and you should be if you follow us -- following us. A special welcome to Deon Fredericks, Group Financial Director-Elect, who is with us. And Deon, whilst you won't be presenting, will participate in the Q&A if necessary. Lebo has been easing him into the role over the last couple of months as she enters the final stretch of her tenure and will be leaving us at the end of November. So you're hearing quite a lot from Lebo today. Thank you for the interest that you've shown to register for our audio webcast. We really do appreciate it. A special welcome to the Board members of Famous Brands who've dialed in, really great to have you. And a very special welcome to all our Famous Brands family who have started to, over the last few years, dialed into this webcast and to share the results that they've worked so hard to achieve over this past 6 months. So thank you, and we hope you have an informative session with us. The results are probably our most simple to explain in a few years, and we'll be talking through that. We plan to take up about an hour of your time. We will definitely try not to run over. I'm going to have a quick flick over to the agenda there, which should be in the slide in front of you. We're going to try and split around an hour for presentations. We've got 3 simple sections, 50 minutes for talking through and then 10 minutes for Q&A. In terms of the agenda, I will be talking first and then handing over to Lebo regarding financial results, and then I will come back for the performance overview, and then we will handle Q&A. Q&A will be coordinated by Ntando, who is our Group Risk Executive. So he will make sure that he manages that queue of questions and put those questions to myself, Lebo, and Deon. As always, some of the usual info in the presentation has been relegated to the supplementary section, so when -- that is uploaded to our website after the presentation, some usual information that you may request is in there, and you can then refer to that. So where information has become quite typical and you just require an update. It may not make it into the long form, but is in the supplementary section of those slides. And that supplement section has grown over the years and continues to grow. The -- just a reminder regarding questions, that there is a portal in front of you. If you dial in, please make sure you access the portal to log those questions in. You can log them at any time as we go through the presentation, but we will also be only picking those up at the end. I'm going to move over to the operating context and really try and give you the performance at a glance, and I suppose really give you a sense of where we've been over the last 6 months up to end of August. And it's really quite simple. So although these results are pretty uncluttered compared to where we've been. They really are characterized by revenue recovery. Now that is obviously a function of COVID-19, and that's just macro momentum, and we really are grateful for that. But I think the context of us bouncing back is really, really encouraging. And I think we bounced back very nicely. Therefore, will unpack the revenue number a little bit more because it is complex with the exiting of GBK. That has really led to strengthening of the balance sheet and really us feeling comfortable around where we are and having got through a really difficult period last year, we're feeling very comfortable around our balance sheet right now. And of course, improved profitability as a result of that. I'm not suggesting that the business model has been fundamentally enhanced, but we are back where we needed to be with margins on the right trajectory, and you'll see that as we go through the presentation. We still got a way to go because the 6 months hasn't been an easy month -- 6 months, but relative to the prior year, fairly easy given the April lockdown last year. So I mean COVID continues to be a shadow over all companies right now and to us as individuals in South Africa and around the globe. But I mean, we're managing that impact, and we continue to have an impact on our business. As you know, our sector has been one of the harder hit sectors. So we are still living with the impacts, the consumer behavior, particularly, but we are really feeling that we are making progress in the last 6 months despite having gone through a fairly hard lockdown in a very crucial period being June, July and feeling the effects of that. And of course, the whole period gets overshadowed by the setback of the civil unrest. And in our particular results, that's quite challenging because the unrest happened right towards the end of our financial period. We ended August, the last 7 or 8 weeks of our trading for the period were really overshadowed by this difficulty. But a positive of that is that we're comfortable that we've put it behind us and that the results going forward will be improved in terms of -- we've gone through the lows of this, and we're starting to recover, but the effects have been significant. So just in terms of the operating context trends, I mean, there's a lot that happens out there and just provide you some general trends. I'm going to talk through some buckets here and I've got consumer behavior in front of you. The items in bold are probably the items that are more pronounced in our business and certainly things that we've been taking note of, but it doesn't put anything else on the back burner. But from a consumer perspective, we've definitely seen decline in consumer visits. If you strip out the lockdown period, but higher spend. So we're not overly stressed around it, but certainly, there's a decline in customer visits and you are finding that your impulse purchases are dropping out, which typically tends to get your transaction count up. In terms of COVID-19, I mean there's a lot of obvious that we're all feeling effects, I suppose we all know about the impacts on our personal lives like curfews and alcohol restrictions and there are fears around health and safety. But in our business, the limited travel and entertainment is really having the most impact on us. And that restriction on people, not just necessarily from a legislative perspective, but also just people inhibited from just things that they used to do, going away for a cycle race for a weekend or going down, watching your kids play sport on scooter and that kind of mobility is really impacting our business the most. In terms of dining trends, I mean there's lots of literature around this, but -- and there's lots happening and there's macro trends that were happening before COVID. But 1 of the things that we're seeing is pronounced is that meal times continue to blur more and more, and certainly more pronounced than they were prior to COVID. We think that, that will come back. But right now, we're dealing with that and managing those effects with a much stronger lunchtime in the business than we've seen in prior years. To the socioeconomic factors, I mean, the 6 months has really been overshadowed by the social unrest and the impact, particularly in KZN, but it wasn't only limited to KZN and there was a knock-on effect across the country. So from our business, we were at the coalface, as a lot of other businesses were. Retail was hard hit, and so are we. The competitive landscape hasn't changed. I mean we think that competition is becoming more concentrated. It's not less competitive. What we are seeing is probably new or less new entrants into the market, which is why I say there's certainly a concentration and we're really starting to compete hard, but maybe newer entrants are slowing down because of the risk of capital coming into this particular market. And of course, food aggregators are a competitor as well as enabling our business. In terms of technology, we're seeing it in our personal lives, and it's no different in the commercial world in our space, is that e-commerce and contactless payments continue to grow and be something that we are dealing with. I think we're doing a good job on that, but it's not an event, it's a process and a journey that one continues on. So what have we been doing in response to those. We've been working damn hard. But I mean, fundamentally, what is it that you actually do to respond to those trends. I mean we've been focusing on our value offerings, not forgetting where the consumers add through all of these difficulties. We've continued to enhance our technological capability, particularly in digital and social media spheres. Our own delivery capacity within our business, amongst our franchisees as well as partnerships. We've continued to focus on that and making that progress. The health and meal blurring time trend continues, and we continue to adapt our menus to that. And of course, ESG is a matter that is a lot of concern to a lot of consumers, and it is to us, and we continue to try and adapt our business as we can to those environmentally friendly practices, I suggest that one can always do more, and we're very mindful of that. And then, of course, the -- through all of this, one has to believe and understand that you are operating in a very, very tough environment around COVID-19 protocols, and you can't ignore those, particularly if you think about the COVID period behind us in August, we may be feeling a little bit more comfortable now at the back end of October. But for the period under review, those 6 months were really quite intense. I don't want to dwell too much on this, but I think it needs to be said around the impact of the July unrest in our business. I mean I don't need to tell you anything about the unrest. We all lived through it as South Africans. In our business, we communicated at the time that there were 99 restaurants affected. In effect at the time as it happened, there were 109. I mean, by the time our announcement went out, we'd probably managed to restore 10. Our logistics facility was damaged. And as at the end of August, we hadn't reopened 54 restaurants. I am pleased to say that as of yesterday, that number is down to 50. So quite a significant improvement since the end of August, but for the reporting period, the 54 is the correct number. In terms of the brands, there's certainly a strong bias towards Debonairs Pizza, Unfortunately, in the way things panned out, and that was really just around site locations, but no part of the leading brands business was spared. The Signature Brands business was unaffected in terms of direct impact. And sales, I mean, it clearly had an impact on sales. We can talk about restaurants closed but the impact was just greater than that. I've never seen a trading week like that in our -- in our data. And really, that activity was subdued for the whole of August. So August was really a poor trading month. And there was a long weekend in August, which we typically benefit from our business thrives on people moving around, and that was really subdued. We don't really like to try and put numbers on the table about how that's impacted because the number will be wrong, depending on which assumptions you make. But certainly, from our perspective, in terms of restaurant sales and that's franchisee sales the team believes around close to ZAR 85 million was lost just in the impact of that civil unrest. So in terms of the impact on our results, I mean, over the period, we think that there's around 4,111 trading days lost in July and August. There was additional wastage costs both for us and for franchisees and staff cost in stores where people had to be paid rightly, but there also hasn't been support all over around UIF TERS, et cetera, to immediately step in. So there's a lot of pressure in the system as a result of that civil unrest. So we've done what we can to assist franchisees. We think that we've been very, very fair. We've been very supportive and done as best as we can in this context in the form of additional royalty breaks and marketing breaks. We've also put in place bridging finance to assist franchisees to get their business up and running, where they haven't been able to do it themselves. And I'm pleased to say that, that pressure wasn't significant. We've roughly made around ZAR 20 million -- we had to make ZAR 20 million available, and that hasn't even been utilized as yet. I think the key intervention was an insurance claims portal where we've helped franchisees manage to navigate this difficulty. Not all franchisees would use it because they -- often their businesses are intertwined with the businesses they may be involved in. But I think that's been a key enabler for franchisees. And I'm glad to say that in this past week, we've started to see a lot more flow of funds coming through the insurance industry. And then, of course, we also try to help particularly at the height of the civil unrest with deferred payments, particularly in our logistics business, where cash flow dried up instantly around a big chunk of those restaurants. All right, so I've given you some context. I think I'm going to come back just now and get into some more detail around the performance over the 6 months on the backdrop of all of that, I think we've put together a nice financial performance that we are very proud of. And I'm going to hand over to Lebo to talk you through that performance. Lebo, over to you.

Thank you, Darren. Good morning, ladies and gentlemen. At the beginning of the presentation, Darren highlighted 3 key themes underlying our results, being one, revenue recovery; two, improved profitability; and three, a strengthened balance sheet. He also reminded us of the 2 key contexts within which we operated during the review period, being the continued COVID-19 impact as well as the civil unrest we experienced in July. I will unpack the 3 themes in the next 7 slides, starting with salient features. The positive changes across the board clearly illustrate all 3 key themes. It is worth noting that our August 2020 figures include GBK, as GBK was put into administration in terms of the U.K. insolvency law in October last year. Therefore, in order to contextualize our revenue recovery relative to the pre-COVID-19 levels that August 2019. It is more meaningful to do this analysis using our SA revenue and operating profit figures. Excluding marketing funds, our SA revenue recovery rate for the review period was 93% of the pre-SA COVID revenue levels and 58% at operating profit level. Given the context of the civil unrest and the COVID-19 setbacks, we are very pleased with these recovery levels as they are in line with where we were expecting to be without the setbacks. On the liquidity front, the business remains highly cash generative as illustrated by our cash realization rate of 99% compared to 64% last year, August. The improved profitability reflected in our HEPS number is also reflected in our EPS number. This is important to point out because this is our first set of results in a number of reporting periods in which we have not had to recognize an impairment. As you will recall, there was significant impairments taken related to GBK to reassure our shareholders and as confirmed at year-end, the U.K. process relating to GBK, which is still ongoing and is outside of our control will not have any negative impact on our results. Our strengthened balance sheet is reflected in the improved gearing levels as well as the solid recovery in our equity position after the number of impairments taken over the past few years. We will focus on the revenue and operating profit lines in the next 2 slides, which provide a segmental view of the business. The ZAR 1.6 billion non-operational item in the comparative period related to the GBK impairment. Our net finance cost improved mainly as a combination of 3 factors. The first one, being that the interest cost savings from our efficient use of excess cash through leveraging the flexibility of our revolving credit facility. The second one, a reduction in the IFRS 16 interest costs resulting from the derecognition of the GBK-related leases. And lastly, this year's interest is not affected by the impact of the interest rate swap liability that had been building up and was settled in the prior year. Our tax expense of ZAR 48 million represents a blended effective tax rate of 30%. This is also pleasing to see as our effective tax rate in the recent past has been distorted by the impact of impairments. A notable reset on our segmental report is the percentage of revenue that is attributable to our SE business, which is at 92% compared to the 77% last year as a result of GBK. The positive percentage changes demonstrate the theme regarding revenue recovery. Worth pointing out too is that while the U.K. revenues show a loss of revenue because of GBK not being in the current year's results, this does not result in a loss of profit as GBK was loss-making, as you will see in the next slide. SA's profit represents about 92% of the Group's profit. The improved profitability is also evident across the majority of our profit pools. You may have noticed that while AME's revenue increased, the high revenue did not translate into an increase in AME's profit. The higher revenue is due to the addition of new company-owned stores in the portfolio in line with the strategy for our AME business, while the profit was impacted by once-off store preopening costs. You will have picked up from our balance sheet included in our long-form results announcement that the shape of our interim's balance sheet remains by and large similar to the F 2021 year-end balance sheet. For example, our total property plant and equipment and intangible assets of ZAR 1.5 billion represents just over 50% of our total asset base. We concluded F 2021 year-end at similar levels. Overall, our balance sheet is in a much stronger position compared to where we have been in the recent past. The reset you see on this slide mainly relates to the property, plant and equipment, intangible assets and lease liabilities, all of which decreased with the exit of GBK from the Group. We are pleased with the outcome of our continued focus on working capital management, a big thank you to JP and the supply chain team in this regard. Over and above the strong closing cash position of ZAR 391 million, I'm pleased to report that we continue to have a very comfortable headroom in our ZAR 1.1 billion revolving credit facility. Our utilization rate at year-end was 64%. This has improved further to 52% at the end of August. Our equity position of ZAR 471 million represents a net asset value per share of [ ZAR 4.70 ] (22.16). While our net asset value has been negatively impacted in the recent past by the impairments, which are non-cash. It is encouraging to see the recovery from the ZAR 391 million equity position we reported at year-end. The segmental view of our net working capital paints a similar picture to our income statement segmental view in terms of the percentages that are attributable to our SA business. This year's ZAR 237 million net working capital represents about 9% of our SA revenue, excluding marketing funds, which is a notable improvement from the 25% we concluded August 2020 with. Our cash position captures the strength of our vertically integrated model. The business' remarkable cash-generating ability continues to be supported by a number of strong fundamentals. I would like to call out the big 5. One, a formidable network of franchise partners whose resilience and resourcefulness are remarkable; two, a brand portfolio that continues to win the hearts of consumers. Thanks to Derrian, Andrew, and their teams for all the hard work that goes into ensuring that our brands remain relevant in an incredibly competitive environment and sluggish economy. Three, a restaurant footprint that is not easy to replicate. Four, my colleagues across Famous Brands, who passionately demonstrate the Group's core beliefs of growth, quality, innovation, speed, agility, integrity and humility day in and day out. And last but not least, a strong and ethical leadership. As I conclude, I would like to thank Darren, the Board and my colleagues for the wonderful memories and the learnings that I take with me as I embark on my next career chapter. I also wish to thank our shareholders and analysts for the positive and supportive interactions we have had over the years. When Darren introduced me 5 years ago, just as I was about to deliver my first presentation to the market. He asked you to go easy on me as it was my first. Well, thank you, for having on at his request. And for the ongoing confidence, you have invested in the business and the leadership team as we overcame the numerous challenges faced over the past 5 years. I am confident that Famous Brands will continue to strive to deliver value for all its stakeholders through the Group's unique investment proposition. And with that, I'll hand back to Darren.

Thank you, Lebo. That's very generous of you and thank you for all that you're doing to a smooth hand over to Deon. I mean we're all very, very grateful to have such an opportunity to transition and we look forward to the next month. So thank you, and also pleased to be able to deliver such financial results. So there's probably not a lot more for me to say other than to try and sort of dig a bit deeper into the performance overview. And I think it's important that we understand that we've had a COVID trading period, which has been difficult but we've also probably had a bit of a tailwind with the bounce on last year. So it's important to try and see through some of that stuff and trying to understand the fundamentals of the business. So I'm going to share some insights with you as we go, and we start to work towards our peak period this year. From a Group perspective, again, I think COVID restrictions continue to impact us, except in the U.K. where things seem to be back to normal relatively. We've offered significant support to franchise partners. I'm sure it's never enough, but are we finding a balance between us and working well together. We've still managed to open new restaurants through this period, which is encouraging, although there may not be as always thought through in terms of different profiles. There are not so much shopping mall driven, et cetera, et cetera. We are still managing to find those opportunities, albeit at a lower level than you may be accustomed to us producing in pre-COVID levels. So that is very encouraging. And of course, we need to continue to find operational efficiencies through various aspects whether that be menu optimization, focusing on our own delivery capability, working with third-party aggregators. So it's business unusual right now in terms of the way we cope with these things. But I'm comfortable to say we got our head down and that we're doing these things. And of course, higher food inflation, which you would be seeing is creating a slight difference in our business, and we are not uncomfortable with that. But we're working with that right now, and we're sort of entering that transition period right now, and there's a little bit of tailwind of that in the first 6 months, but really expecting to get more in the second. So if you look at our business geographically, from an SA context, I'll narrow it down a little bit. We've obviously seen revenue and operating profit recovery after last year. So some of that just not having to do a lot, but I think we've done a lot more than is required of us. COVID-19 continues to impact the business, and we're not trading where we need to be, and I'll show you that a little bit later. There's certainly lower levels of consumer spending, which could well be macro, it could be COVID. There's a lot of dynamics at play, and we're dealing with those. We've continued to support franchisees through royalty breaks, particularly on the casual dining side. And that continues to be a drag on our revenue, but it's not something that we are concerned about because we know it's been -- it's money put into the right areas of the business. Casual dining will come back, and we will be in a strong position to capitalize. From an SA context, the 52 of those 69 were open in the SA context. So again, comfortable that there's a fair amount of buoyancy in SA. The July restaurants of 99 that we spoke to you about were rendered non-operational, the 109 was the initial impact, but certainly 99 was the number that we had to work down from and to try and get open with difficulty. And again, the high food inflation is experienced in the SA context, and we'll filter through to other markets. From an Africa perspective, so again, lot's happening in the AME space. We are very still focused on our deeper narrow approach. But again, COVID is everywhere, and it's not unique to the SA context, and we're still feeling it in Africa and to varying degrees. And of course, COVID-19 restrictions are also putting pressure on franchise partners. We've passed just in the AME space, brakes relating to COVID of around ZAR 1.3 million in this period of time. But we are finding franchisees are resilient in the AME space just as they are in the SA space. And I'm pleased to say that we haven't had a COVID-19 related closure. I mean, there's macro factors involved and stresses, but we're working through those. Sadly, the typically low vaccination rates in Africa are concerning. Again, the stats are maybe not as clear as they are in the SA context, so please don't quote us, but some of the data that we're seeing can be as low as 3% and the team opened 17 new restaurants across various markets. And the same trends we're seeing in SA are very encouraging, and we've had some really good success with ramping up home delivery with our QSR brands, particularly in Botswana, where we're predominantly company stores, but also in markets like Ethiopia, which is licensed; Kenya, where we're driving company stores and Nigeria, where we -- and we are also driving company stores in Sudan, where we have up until a few weeks ago where the political unrest has occurred, we've been seeing really good progress. And we've now started to adopt home delivery in Angola for Debonairs Pizza. So in terms of the business, there's a lot of activity going on, and the learnings from SA are being rolled out across Africa and returned where we need to get learnings from Africa. And in terms of the local supply chains, the COVID disruptions globally are putting pressure on and we're really having to strengthen those local supply chains to avoid disruption, and of course, to support localization, which is not just the drive in the SA context, by our own government but also governments in other countries. In the U.K. space, I mean, it's been a fairly easy period relative to last year. So I mean, the team has really still had some headwinds. But relative to the prior period, it was a lot better. As sitdown came back earlier than we've experienced. And of course, everything dropped in mid-July. So as we were kind of exiting our hard lockdown and going to civil unrest, the U.K. was opening. So sort of 2 different tails there. Delivery continues to grow. There are supply chain disruptions, which we are feeling. So what you see in the press is not unique, and we are feeling it. I would like to say, the team has navigated pretty well. So thanks to Chris and Jackie there, who've been really doing a great job. But again, you can only control what you can control. And we haven't opened any restaurants in the U.K. So again, I'm mindful of the bounce back. But I mean, sales are important in our business. They're the lifeblood and I'm also proud to say that what we sell people put in their mouth. So people will vote with their wallets. Now this slide is really reflecting the bounce back, and I'm going to sort of unpack a bit. It's -- there's a slight nuance to this and maybe previous communication that we have made sure that we've excluded tashas out of here. If you remember, tashas was sold at the end of July last year. So this is completely excluding that number. And hence, the strong balance in Signature Brands, both at system-wide and like-on-like is the existing portfolio, but it's logical. The portfolio was heavily impacted last year. So that bounce is understandable. The Leading Brand's bounce, if you remember, Leading Brands got quite a strong momentum coming out of the hard lockdown last year. So come may, there was a little bit more momentum. So that bounce is logical that wouldn't be as high, but we're very comfortable with that bounce. Again, the revenue recovery has been led by QSR. Casual dining is still lagging somewhat and is not necessarily seeing those levels of recovery at one point or another. But we're coming out of half year, we're definitely seeing a different trend. But remember the period August -- end of August feels a long time away now, but the trends were very different to what we're experiencing. So the like-for-like in the SA context, for Leading Signature brands is 75.6%. I think is a pleasing number and we continue to be comfortable about our recovery, but the numbers are flattering versus what we are coming out of. In the AME space, if you remember last year, there's clearly a currency translation in there, but the impact of Africa wasn't as strong last year. There was a setback, but nothing like in SA context. So hence, the recovery is not as strong. So we're really comfortable with that picture. We think that the core business has gone through strong revenue recovery at restaurant level. That's not all translating into revenue recovery at the back end because of the royalty breaks, but we are comfortable that, that will come through fairly soon. I think this creates a much better picture of the reality though in terms of where we are across provinces. So I've stripped out leading brands here because it really does represent the national picture across the SA context. Signature Brands tends to be quite concentrated, particularly in Gauteng, KZN and Cape province. So this really gives you a little bit of a better picture of our recovery. And again, saying that the casual dining would be lagging this and QSR would be leading these numbers. And again, I think if you look at some of the challenges we've had, we spoke about the Western Cape last time, I'm glad to see that, that has bounced back because it was more suppressed. But we are seeing some provincial nuances there. And what I am encouraged about is seeing if they're starting to be a bit of a gap building between like-for-like and system-wide, which reflects some of the new store activity having a positive impact. And we're not quite there yet. You'd like to see a nice clear daylight between those bands, but we are seeing some positive movement there, which is comfortable. So we're encouraged about some of the recoveries that we've seen in some provinces and there's some lagging in that bounce back. But more importantly, I think, is to really give you a sense of the recovery. So this is just the bounce, but the recovery versus F '20, which is the 2019 year, is really the reality that we all face, and probably of all the slides we're going to show you today, this is the reality that we are working on every day. We are not focused on how good it was to bounce back from last year. We've got our heads down working understanding what the base was pre-COVID and this is what the teams are focused on. So if you take the same perspective around leading brands and you take it from a provincial perspective, the flat line there is -- would be a recovery to 2019 levels of H '20 levels. And not a lot of provinces have bounced back. So Limpopo, which you saw that bounce has pushed us beyond where we were. But I mean, clearly, from an inflationary perspective, we are still be flat there. We're very close on Mpumalanga, which has been masked. But you can see the effect of tourism for example, on the Western Cape. We're just not back at that level of recovery that we would like to be for those. So this is what we're working hard at. I'm comfortable that as we enter H2 that this gap will close and continue to close, but that's what we're looking at every day in terms of the measurement. And that's how franchisees will be running their businesses and making sure that the cost base has been brought down to try and offset that drop. So in terms of the new store openings, again, I'm not going to dwell on this too much, but 69 stores has been offset by some closures of 31. And of course, that was a trend pre-COVID. Most of that would relate to macro factors. There probably are some COVID fatigue stores that are finding it difficult that are in that number. And it's really spread across the brand portfolio. So I'm quite comfortable to say that we're not sitting with a concentrated problem. The spread is generally quite broad across the landscape. So we continue to make progress. We're comfortable that the estate is in good shape relative to the COVID trading environment. And we -- our pre-COVID momentum is there. And I'm very happy to see that the revamped stores are really starting to climb. We had a real doldrum last year with revamps. I mean, we wouldn't expect any franchisee to make that decision unless they were sure about it in COVID, some were. But I think that, that momentum is starting to build and people are starting to see confidence around their businesses. So I'm going to drill down a little bit more into the back end of the business now. And in our world, we really talk about the back end and service of the front end. So from a supply chain perspective, we've had a fairly good time in terms of the recovery, and that's really been driven by the front-end recovery. So manufacturing has really improved significantly at over 60%. And the food inflation has started to come through. That's certainly not in this space, but it's starting to peak towards the end of the period. We started to really experience in June, July, that inflation is starting to come through. Increased shipping costs, as you would hear from other companies is a problem, and we're all facing it. We've continued to put CapEx into the manufacturing business we held back last year. The bulk of that CapEx, it does look like a high number, but 90% of it has actually gone into our JV -- 3 JV businesses, and I'll talk about that just now. So as a snapshot, if you talk about the supply chain business and having looked at manufacturing. You can see that, that balance is across the board. And at top line, at operating profit and the margins coming back and that CapEx spend in manufacturing, higher than certainly the other 2. Retail is a very CapEx-light business because the product is manufactured in manufacturing and delivered by logistics and our cost of going to market is built into the product. But I'm very pleased that, that snapshot it reflects the performance of the business, and we're showing some very good recovery, as Lebo highlighted, and getting those operating margins back to historical levels. And logistics took a real setback with the civil unrest, particularly in KZN, and there's some of that backed into those numbers. Apologies. From a supply chain perspective and manufacturing, at a 62% recovery in our own plants, we've had a really good recovery. Some of those plants that are showing much higher performance such as the bakery and the ice cream plant can be receiving is that they were shut down for longer last year. And the sales mix in the menus had quite a dramatic impact. And in fact, our bakery, we outsourced production for a period post-COVID last year because we wouldn't have been efficient to reopen the bakery with smaller volumes. So hence, the bounce is actually a lot higher, it's quite deceiving. But I think in general, the bounce is where you'd expect it to be and that throughput from the front end is coming through the back end. In terms of our joint venture plants as well, a similar kind of bounce back. Again, Central Kitchen and TruBev are plants that were closed for longer, and of course, were more exposed to Signature brands or to the broader industry. TruBev does supply other partners. So that recovery is slightly better because of a tougher time last year. But our 3 battleship plants there Cater Chain, Coffee Company and Cheese Company bounced back. They've all had CapEx put into them. So Cater Chain has invested quite heavily over the 6 months in the new bacon line. Coffee company has actually relocated into a new facility and really got more efficient opportunities that happened at the end of the period. So again, capital has gone in there. And the cheese company brought on a new line at the beginning of the financial year and has had around ZAR 12 million invested just in that plant. So the 90% of the ZAR 27 million is spread across those 3 plants. And again, some of that is CapEx that we held back last year, and we felt comfortable to do it this year. In terms of logistics, again, the business has bounced back strongly. Case volume is up, as you would expect, as consumers return to shops. We're making a lot of progress on our fleet mix. We're having to adapt it because we're not at full capacity yet. We still got a fleet that was designed differently. So we're struggling to get truck utilization right, but that is coming. And of course, we're now becoming more and more automated, and I think COVID has accelerated that. From a business continuity plans perspective, it's something you talk about a lot, and it's hypothetical until it actually happens. And I really want to just say thank you to the team for what they did in terms of the business continuity plan. It was tested to the full KZN, and we lost operation for 3 weeks, and we managed to service the market. So I think that is really a true test of a business continuity plan. So our numbers in logistics look very flattering again, that bounce back. The cutting number is particularly factoring. But if you think about the change of the Mpumalanga and DC scale down to a cross dock depot, those revenue numbers now filtered through cutting. So the cutting number is inflated by Mpumalanga coming out of it. So we only have 5 full DCs now. And then we obviously have cross-dock facilities servicing Limpopo and Mpumalanga out of Gauteng. And Limpopo was always there, but the Mpumalanga DC was down scale on those numbers brought through. Exports, as I said, to -- spoke about the localization of supply chains in Africa and the recovery, we are finding exports a little bit harder given some of the restrictions, but also the localization. All right. I think this is quite important. We talk about Project Decade a lot. And I think at year-end, we sort of really guided the slide because we're in a dormant phase. So for those of you who follow us would understand where we've been in the Project Decade, which is the evolution of our logistics network. I think what's important to highlight here in the next steps in the future is that from an investor perspective, we are in a position where we would like to consolidate our Midrand campus. And to do that, we will likely be stepping into potentially be an investor in the property to facilitate the development and that is going to materialize itself in the second half of the year, and I think that it's important. It's not something to be concerned about. This is not a change in strategy for us to become a property owner. We need to facilitate this development to manage our capacity. We've been talking about it for a long, long time. So we've been communicating clearly to the market. As you would understand is that leases sit on the balance sheet anyway now with IFRS 16. So this is not anything to be concerned about. There will be a potential change in the numbers. And there is no transaction done yet. I'm communicating early so that the market understands where we're heading with Project Decade and what we need to do to control our own environment. So we have an opportunity to potentially acquire our existing campus and tag on 2 adjacent campuses or properties to form a bigger campus, and we will be able to do that with a view of either developing or finding a developer to do that. But our existing landlord is not desirous of developing it themselves, and we understand their position. And it is a related party transaction. So one would need to be very cautious, and we will communicate clearly to the market in line with the JSE requirements. And then we continue to -- they want to potentially relocate our frozen facility here. We also need to find a new KZN distribution center, which has nothing to do with the civil unrest. It has everything to do with our capacity plan. And if you go back to look at Project Decade presentations, you will see that in the slides. And then we need to -- as the Eastern Cape expands look at a cross-dock facility [indiscernible]. In terms of Retail, which I showed you up front is an integral part of the supply chain. We're really getting momentum there, not as fast as I would like, but we're doing the right things, and we're taking more products to market. So in the period, we launched 2 Mugg & Bean salad dressing, which are going through listings and getting on shelf currently as well as a Steers rib burger which is famous in store and is now available in retail. We are finding, of course, those inflationary pressures are starting to push through and are going to find their way on to the retail shelf, unfortunately. But again, a nice bounce back. I want to just give you a little bit of detail and again, probably providing you this insight because of COVID. And as we go on the retail journey, you can see as levels come in and out, how we get constrained. I mean we're probably a little bit baffled ourselves on the June performance. But if you think about the hard lockdown and what was happening and then moving into the uncertainty of when we were going to go out of that. We think that that's creating a destocking and restocking situation in retail. But overall, a 26% growth on last year, which if you think about H1 last year, I mean retail was the gig in town and people were really buying all the necessities via supermarkets. So we think that we are doing a good job here in terms of the strategy that we're trying to apply. But we've got a long way to go, and we're certainly not going to pat ourselves on the back yet. So really trying to close out now and move into Q&A. I've got a few minutes to give you your promised 10 minutes. To just give you a sense of the outlook and where we're heading in H2. Unfortunately, I'd like to be a lot more upbeat around the outlook, but I think we all understand as South Africans and then also trading on the African continent that we are in a very tough and unpredictable trading environment. We -- it doesn't matter who you talk to, but anybody who's got a scientific credential behind their name is very comfortable that there's likely to be a fourth wave. What the impact of that is probably unknown. And that is very difficult for us because our peak, as you would know, is the December- January period. And last year, we were heavily affected. So we're really hoping for a nice bounce. And the vaccination rates slowing down is not encouraging. But we will manage it. We're not overly concerned about it. We don't anticipate that it will be as severe as last year, and we're planning for a proper peak, and we'll work around it. So a fourth wave, we would all like to prevent fourth wave in January, would probably be more beneficial for us as a business, but it's certainly not beneficial anywhere for that to happen. So we would rather work on prevention, and we're doing as much as we can to encourage vaccination. And if you see that slide or on the right of the slide is the restaurant collector, which is the new industry body, which I'm proud to say we've been part of supporting, but kudos to Ocean Basket and to Grace Harding for driving that process. But as a restaurant industry, we really are driving hard on the vaccinations. And as a business internally, we are doing that, too. So avoiding the fourth wave is really the primary objective but one has to be realistic. We plan to open new restaurants in H2, so we continue with that. And all things being equal, we'll open 42. The inflation, we think is going to continue to come through. There is some tailwind for us on that, but we're seeing it across all categories, and our supply chain team is managing that risk very well currently. But it does land up translating into more expensive product on shelf or more expensive products on the menu. And we will continue to invest in technology, which is not something that I suppose is a restaurant industry we're always familiar with. But we continue to enhance our own delivery capabilities through investment, strengthening those partnerships with third-party platforms. And then, of course, you can't only rely on delivery because that's only a part of the business the old-fashioned counter or sit down transaction is still the key part of the business, and we continue to improve that with self-service terminals and app ordering, which we've invested in. And in H2, we really want to put a strong push, and that does predominantly relate to Mugg & Bean and to Wimpy. So from my perspective, I think opportunity to close out now and to move into questions. Hopefully, we've given you enough information to ask us some informed questions. So I'm going to hand over to Ntando and let him fire the questions at myself, Lebo and Deon.

The first one comes from Douglas [indiscernible]. You mentioned some of the logistics coming for [indiscernible] constraints and bottlenecks. Are you are seeing bottlenecks developing amongst the [ native ] suppliers and the business can affect your business from an inflation point of view as well as on general availability of inputs?

Yes. Good question, Douglas. There's -- I mean, there's obviously a lot of noise around this. I'd like to say that we're probably less affected than what I'm seeing happening out there. But I mean, certainly, the procurement team are concerned around it. I think in the SA context, you do have some unique nuances. So I mean, as a good example of the way the team explained to me the other day, is that we used to be able to route coffee directly from Brazil to Durbin or Cape Town, and that's not possible anymore. Now that's because those routes have probably been taken off. They're less viable in managing that capacity. So those are the kind of challenges that will add costs. In terms of the overall cost, I mean it's not material. It's driving an inflationary part of that cost. So it's not as if your cost of coffee is doubling, but the cost of shipping it in, which is a relatively small cost is doubling, and that will add to that pressure. So yes, we're certainly seeing the pressures. Right now, as we speak, there's nothing that we're sitting and saying our business is going to come to a grinding halt because of it, and we're able to mitigate any risk we're facing as we speak. I mean, that can change, and we're working with that. So I think we're probably less affected than some other industries. We also, as a business, not overly exposed to importing, where we found the biggest challenge, and we've also managed to mitigate it has been around the resupplying of equipment for the looted restaurants, and we've worked well with suppliers. A lot of that equipment comes out of the U.S. and the parts come out of the U.S., but we've managed to try and procure alternatives or stock that were sitting in other countries. But again, there are potential some blockages there, but we think we're okay.

The next question is from David from SaltLight Capital Management. Could you give us a sense of capacity transition in the supply chain business? Where does this fit in terms of your expectations of a steady-state level in calendar 2022?

Yes. So I mean, each plant is different. So David, it's not quite as simple as saying if I gave you an overall number. Right now, because of the drop in volumes, we are literally running under our capacity at almost all plants. Our cheese plant is probably less so in terms of where we're at. But that's why we've been investing in the CapEx that we spoke about. Capacity is not something that concerns me. I would be concerned about the fact that we are not there yet. But I mean, if you think about the bounce back next year, we'll be back to normal. I would be more worried about the logistics capacity right now and the truck utilization is not where it needs to be. But from a manufacturing perspective, each plant has its own capacity, of course, the shared costs of those. So effectively, your typical -- your corporate costs. Those costs are elevated slightly this period due to higher audit fee as well that came through with the transition. So there's various -- but there is a disclosure in there. And of course, any development costs in Group enterprise development or acquisitions, et cetera, would be in there. I think Deon wants to add to what I got to say.

Just to add back a little bit more [indiscernible ] and as Darren explained also this execution. So we said cross on insurance [indiscernible] well certain professional fees and also [indiscernible] perceptive and there is quite a few costs relating to legal matters that [indiscernible]. So most of these costs are once-off costs which we don't expect to repeat in the second half, the only thing around COVID, what may impact where maybe once-off costs related to that going forward.

And I think just to add is that last year's number was suppressed quite a lot given the salary cuts et cetera, that we put through, which we're quite aggressive. If you think about the April to August period, it was quite aggressive. So we had costs that were not sustainable in terms of cutting in there, although we did take -- there was some salary cutting this year, not to the same extent as in the sort of height of COVID.

The next question comes from Patrice [indiscernible]. Can you provide some color on riots financial impact in each division and overall and are operations largely restored?

Yes, yes, it's not easy, but I'll try and provide some color. So the operations are largely restored, except at the 50 restaurants that I spoke about. In terms of -- so our ability to service those markets within 3 weeks, we had our own capabilities back up and running. It's the 50 restaurants that are finding it difficult to reopen. And those are pretty much out of our control. They relate to landlords. In terms of cost, I mean there is obviously cost that has been spent that is in the cost primarily related to logistics and to those marketing breaks and royalty breaks. But there is some mitigation of the insurance claim. So there's no upside in there that we've said, where we're going to get money back. We've mitigated the insurance came down to 80%. So there's 20% that we've actually expensed in those numbers. And that's probably around ZAR 5 million. So there's ZAR 5 million potentially if we got paid out 100% of our claim would come back. And I think that's fair to understand. In terms of any potential BI claim, business interruption claim, we haven't factored that in. So that's not in our control, and that's unlikely to probably come in H2. So those are the real costs. I mean the breaks that have gone through is quite difficult because if the revenue is not, there's no break either. So that's quite difficult. And the ZAR 20 million, I spoke about, is bridging finance. It's not money that we've expensed. And we do hope to recover the investment in the insurance portal through a claims process, which we will get back. So I've given you a kind of fairly long-winded answer, Patrice, as that there's nothing in there that's material. But of course, there are costs that we've had to incur which will bounce back. But everything -- the business is back to normal other than those 50 restaurants.

Well, I'll take a question from [indiscernible]. What cost operating profit margin declined in the U.K.? Do you expect it to come to a historical level again?

Yes, we do. We've been doing a little bit of work there. Obviously, it's not business as usual with COVID because you still have COVID in the early part. We've also been doing a little bit of work there on maybe the future, so spending a little bit of money in the cost base. So I think it's just really about managing expenses and timing. There's nothing fundamental that's changed in the U.K. that, that margin can't restore itself. But I mean, given that it's a smaller business and you've got the exchange rate effects, it's just really, I suppose a bit of swings in roundabouts. And when you spend some money on a project, it's going to show in that margin.

Okay. Then a question here from Peter for [indiscernible] market. What is that the company has appetite for acquisitions. When we saw that what assets and markets are likely to be of interest?

Yes. Look, we've never taken our eye off potential acquisitions. I mean, obviously, we need to be very cautious around the balance sheet. So absolutely. And we continue to be clear about what it is that we understand and what we're good at. So from our perspective, we will be very comfortable at looking at brands in the SA context or in selected markets, in particular in Africa. So we'll be very clear whether those sit in the food service space or on the direct retail space. And we wouldn't be uncomfortable potentially looking at manufacturing provided that we could vend our own volume into that manufacturing facility, whether that be retail or food service. So a very narrow lens, but we continue to look. We're not shy. We do know that we would need to be very clear post the GBK disappointment that we're very clear to the market. So we're not of the view that we bulletproof, and we would need to bring that. But we're very clear on what we're looking for, and we continue to look. So yes, we have appetite.

Obviously, in the interest of time, [indiscernible] for the questions and thanks Lebo and Darren.

So if I could just close out and Ntando just to thank everybody for attending. We really do appreciate it, giving up your time, particularly to the marketplace. And the questions were very important to me because I think that they give us a sense of how you feel about the business. And I thank you to a few people, particularly KPMG, Nick Norkus, for the work that you've done, to our bankers Nedbank for the support through a very difficult period, you can imagine how they felt through the civil unrest, to our sponsor Standard Bank and to the franchise -- the Famous Brands' team, the franchising teams, the franchise partners, the supply chain teams, everybody in the business. Thank you very much to the Board, my executive colleagues for the personal support and then to Celeste, GMF and [indiscernible] for making all of this happen. It's easy to get the results together, but you've got to get into the market. So thank you to everybody, and I appreciate the support.