Famous Brands Limited (FBR) Earnings Call Transcript & Summary

Good morning. Welcome, on behalf of myself and Deon, to our end Feb '22 financial results presentation. We're here at our Leading Brands offices in Waterfall. Hopefully, if you're following us, that you're familiar with the 2 of us, and it's not the first time that you're engaging with us. Thank you very much for your interest in registering for this video webcast. It is our first video webcast in a while. We've been on audio. And as we emerge out of COVID, hopefully, we'll be getting back into live. Really, a special welcome to our Board members who've dialed in today. Thank you very much for giving us your time. And really, also great to have the Famous Brands family on our webcast. Really, really important that all of our key stakeholders, including our own people, are involved in listening to the results that they've put so much work into to bring to you today. We're really confident that our journey on continued and improved disclosures is an ongoing journey and is really improving based on feedback from shareholders, potential shareholders and nowadays, the IFRS specialists as well. And we're very confident that over the past 12 months that our continuous improvement journey has improved there, Deon.

No, for sure, Darren, and it will continue. However, we need to balance between competitive advantage and the disclosures we make to the market.

Yes, absolutely. Got to keep those competitors at bay. And you'll also see when we release our IRR towards the end of June that those improved disclosures will continue through to that product as well. I'm really glad, as we present our results to you today, that we're able to focus more on the business with only a few distractions, but a lot less distractions than we had last year when we were talking about things like IFRS impacts for the first time and also dealing with a discontinued operation, which was complex.

But don't forget COVID-19.

Yes, a hell of a lot of talk about COVID-19 last year. And hopefully, you'll pick up less of that in this presentation as we move forward. Also, a reminder to those of you familiar with us, you will see in the supplementary section of the slide, when it gets uploaded, that some of the regulatory information has actually been pushed to the back, but you will still have access to that and be able to review that. So I'm going to move on to our agenda now and just talk you through broadly what the plan is for this morning. We're going to be spending about an hour with you, hopefully, roughly leaving about 10 minutes at the end for some Q&A. And Deon will be coming through on Section 2 once I've handled Section 1, and then I'll be coming back for Section 3 to talk about the performance overview. And then for Q&A, which I will ask that you please look at the block in the top left-hand corner of the Corpcam app where you can actually put in your questions, Ntando Ndaba, who's our Group Risk Executive, is going to be looking at those independently. And he will come up a little bit later to put those questions to Deon and I so that you know that they've been fairly reviewed, and he will obviously put them through and try to rank those priorities. So we look forward to engaging with Ntando a little bit later. But really, just to give you a sense now about our operating context, I'm sure there's lots of questions. And for those in the business, I mean, we've lived it for the past 12 months, but just to give you a little bit of insight as to what has been happening within our business. And post the exit of GBK and really in our business, 2 full years of COVID, we remain the leading branded food services franchisor in Africa. And our business model and the management in this business have been stress-tested, and the business remains a growth business and remains rock solid. And we're really confident in our ability to move forward and having built on a solid base of 2 years of tough trading. So our business model being compelling really for 3 key reasons. We have a solid footprint across the African network, but we also have a solid portfolio of brands and some exceptional brands within our Leading and Signature Brands portfolios. We have a business model that is built on franchise restaurants. And I know I'm sure there will be the question, as much as we have company restaurants, too, they serve a purpose in our business, but our growth engine is around franchise restaurants. And those company restaurants serve to enable best practice and help us to grow, particularly see new markets. In terms of our Manufacturing business, which is a key part of our business where we manufacture licensed products primarily for our franchise partners and for retail, we have done a little bit of trimming there as we have done on our Brand portfolio to make sure that we are fit for purpose. We have 5 wholly owned plants, and we have joint venture partners in 5 of our other plants. And they are a key part of our business and the manufacturing environment as we move forward. You will see that, that number has come down marginally, and we're just really aligning our focus, and we'll talk about that a little bit later. And then absolutely key to our business, and we've learned through the COVID years is that logistics is a key capability of ours. It really is a superior service that we operate and provide to our franchise partners and now through to the retail network. And of course, it's been a key part of our business and it's part of our DNA, and it's been with the business since the family founded the business, but it really is a key part of what we do and make sure that our franchisees receive high-quality products for us, well priced and on time. So from our own perspective, in terms of the group, we really believe we're in good shape. We've gone through some tough times, and we've come out strong on the other side. And we really look forward to the year ahead in terms of driving that. Just to give you a sense of our context, though, because we all know it hasn't been easy, particularly the socioeconomic perspective in South Africa has been very, very tough. And we continue to adjust to that macro environment, especially in the SA context where things are getting difficult because of some of the factors that I've put there, which, for those of you who operate in this market, understand are probably not new to you around what's happening with the consumer. COVID-19 restrictions are still in place until consumers can take off their masks and feel comfortable. We know that there's going to be a psychological barrier, particularly to getting people to sit down as frequently as they used to pre-COVID. Rising food inflation is really something that we're dealing with today and has been a little bit of a feature of the past year, but not certainly a feature of the entire year. And of course, in the SA context, difficult to explain to international investors, but load shedding and the social unrest that we've experienced in the SA context. The competitive landscape, too, remains pretty fierce, but we are seeing a slowdown in new entrants into the marketplace. And really understanding the marketplace is probably at a point where the competitors that we've been used to are competing fiercely, and there's less of a new entrant into that market. And COVID has created an accelerator for the food aggregators, but we see them as part and parcel of the marketplace now, and we're pretty confident in our ability to work with them, but also to compete with them. Consumer behavior has been affected by COVID. There's no doubt we are seeing declining consumer visits, and that's natural as people have changed habits. Meal times are blurring. Although as restrictions have eased, we're starting to see it turning back to normal where those meal times are starting to get a little bit more definitive, but they have changed. And the health driver around consumers continues, and we believe that we are confident in the way we're managing that. And of course, home dining and convenience has become a part of it. People have become accustomed to eating at home, enjoying cooking and they're bringing that into their repertoire. But fundamentally, out-of-home consumption continues to rise. And ESG is not something that's unfamiliar to everybody, and we are coping and adjusting to those pressures that are coming through and rightly so. So in terms of the impact of the industry of those factors, really just to give you a sense of what is it really translating to in terms of our industry, and there's obviously pressure on margins and that's not unfamiliar to most businesses. There's a few of new brand entrances I spoke about. Difficult conditions for single operators. We've even seen it in our own business that unless you've got volume, it's becoming harder. And as that volume returns, we're finding that the single operator model is under pressure. And of course, the tightening of the franchise market is normal. What we do is sell franchises fundamentally. And there's a lot of other franchise offerings outside of food, and we compete in that particular space as well. So I mean it's our job to react and to respond to these contexts and the environment that we trade in. We believe that we've done a strong job over the past year about promoting our value offerings and making sure we're relevant to the consumers, coping with the pressures on technology which don't go away. And again, we're not a tech business, but we think that we are doing a strong job in terms of making sure we adjust cost effectively to those changes. And of course, through that, improving our own delivery capability and working with aggregators as well so that we have a balanced model. And responding to the health needs of consumers, and we think we've done a solid job in that aspect, too. And of course, the ESG that I spoke about, we've got to bring our part. There's a lot of work to do there, and I think we can do a better job. But we certainly have embarked on that journey, and we're moving forward at a very, very solid pace. And really, the year has been characterized by adapting to the ongoing stringent COVID-19 protocols that have evolved over time but are certainly still in place, and we need to continue to work with those. And I'd like to say that our franchise partners, particularly, and our teams and our operations have done a really good job in coping with those stringent protocols. And hats off to them, it hasn't been easy to continually adjust then to work with those. So enough from my side around the impact on the industry and our response. I want to pass over to Deon and allow him to just take and amble through the financial results to give you a sense of how that has impacted on our financial numbers. [Presentation]

Thank you, Darren, for that. Interesting introduction. But as I say, the more interesting part is the numbers. That's what it's all about at the end of the day. Good morning, ladies and gentlemen. It's a real pleasure for me to share Famous Brands' annual financial results for the period ending 28th February '22. As Darren has already indicated, it's been an interesting, though, uncertain and challenging year. And we had to navigate through this, especially the more material events and the impact of that on our business. I will now share a few with you. COVID-19, which we referred to previously, and we believe this will continue to impact our business going forward. The general country-wide civil unrest or disruptions, this is unpredictable, and we expect that it will continue. And it specifically impact our delivery channels, if we think specifically of the N1 to KwaZulu-Natal. We've seen rising inflation, and that unfortunately impact food inflation as well. And as a result of that, we've seen food inflation peaking at 6.9%, and that impacts our input costs. The economy is slowly recovering, but not sufficiently as we've seen. And that plays ultimately a significant constraint on consumer spending, which then impact our sales volume, but also the pressure on our margins. However, I'm pleased to announce that these results indicate or reveal a return to profitability from a loss after tax of ZAR 105 million in the previous financial year to ZAR 355 million profit after tax this year. The group made a significant recovery. Furthermore, and notwithstanding all the challenges, we were able to produce a sterling set of financial results, which for us now represents a true picture of our operational performance. Darren spoke earlier in terms of disclosures. Maybe just to share with you, yes, we're currently on a continuously improving journey for improving our annual financial statements and the related disclosures. We have improved in this set of financial statements the following: we've redesigned and updated our accounting policies; expanded our revenue disclosure so that you can clearly see the revenue represented to our franchisees; and lastly, presentation of the notes as well as some additional ratios. And this journey will definitely continue. I would like to share with you the highlights for continuing operations. Revenue increased by 38%, and this is mainly as a result of the improved operating environment to ZAR 6.5 billion. This enabled us to improve our operating profit from ZAR 119 million to ZAR 630 million, growth of 428%. We were able to improve our profit margin from 2.5% in the last financial year to 9.7%, a significant improvement of 7.2%. However, our margins, as Darren has also indicated, is still under pressure. In this period, we provided support to our franchisees, specifically on royalty breaks to approximately ZAR 72 million as well as marketing fee breaks to the value of ZAR 25 million. And we will continue to support our franchisees also in the new financial year. Our HEPS improved by -- from ZAR 0.53 to ZAR 3.56, growth of 568%, which is quite pleasant. And the increase is mainly as a result of the performance of our gross profit margin, which increased from 43% to 45%, driven by improved or increased volumes as well as price increases. It's important to note that last year, there were no increased pass-through to our franchisees. Through this, we've seen that our cash generation improved from ZAR 521 million to ZAR 871 million, growth of 67%. And this has enabled us with the cash to reduce our net debt, and our net debt-to-EBITDA improves by 1.32x. Our net debt and EBITDA, previously, we had net debt to equity. We believe from our perspective that net debt to EBITDA is more appropriate, specifically as that is linked to our covenants with our primary banker as well. I would like to unpack the income statement now. The key contribution to the revenues, which I've already indicated grew 38%, was our Logistics business with contribution of ZAR 1.1 billion and our Leading Brands increasing revenues by ZAR 523 million. I've referred previously that we made certain changes. Other income is now on the face of the income statement. Previously, it was under selling and administration expenses. Other income decreased by 31%, mainly as a result of profit or sale of businesses in the previous year to the value of ZAR 28 million. Included in this year's number of ZAR 20 million is the insurance claim of ZAR 16 million. The same with expected credit loss was also previously disclosed in selling and administrative expenses. We've seen an improvement of 31%, in line with the improved operating environment, but also better collections from the company. Selling and general -- selling and administrative expenses increased by 31%. The biggest driver for that was salaries. Salaries represent approximately 37% of that number. And we've seen salaries increase by ZAR 126 million, which included an average increase of 4.5%. It's important to note, the previous year's number of ZAR 1.7 billion at the benefit of salary cuts, as you would know, that was the peak of COVID as well as there was no increases in that year. On top of that, the bonus pool in 2021 was reduced to only 50%. Other material impacts on the increase in selling and administrative expenses was, and it's linked to the increased activity at the end of the day, a property and utility cost of ZAR 41 million; also selling and general -- selling and distribution expenses of ZAR 29 million; professional fees of ZAR 25 million. And all of these are linked to the activities, the increased activities and, as one would expect, vehicle costs as a result of the increase in fuel prices as well as the volumes that increased, and we've seen an increase of ZAR 16 million in that. This year, we've seen that our impairments reduced by 86% as a result of no impairments in South Africa. The only impairment that we have, the ZAR 25 million relate to the U.K. Wimpy, and that is as a result that the operating margins has not yet fully recovered to prior levels. The good news on net finance charges, which reduced to 39%, as you would expect, is linked to operating profit, which I indicated increased from ZAR 119 million to ZAR 650 million. That enabled us to add significant more cash flow, and we were able to reduce our debt by ZAR 358 million. And we're also able to improve certain of our funding rates, which gave us a 39% saving or ZAR 69 million. Tax, as you would expect, increased in line with our profits by 349%. And we can see our margins is more to the normalized 28% at 30.8%. And the only movement specifically from the 28% is the impairment, which I've shared with you. So if we take all of this into account, we believe it's a great performance, specifically the challenges that we have seen and then which I shared with you at the beginning of the presentation. What was important for us to test our plans to make sure that we can address any material matters or issues that arise. And I think the team has done well, and you can see it from the results. The big improvement was on the revenue slide. So I'll unpack the revenue slide, and you'll see it looks significantly different what it was previously. In line with IFRS as well, you will see some new names there that may not be quite familiar to everyone. The first one is revenue at the point in time and where we've listed Manufacturing revenue, Logistics revenue, Retail revenue, joining fees and company-owned stores. If we go first to Manufacturing revenue, which increased by 9%, the owned portion, that is what we produce by ourselves here, decreased by 17%. The main reason for that is in the ZAR 141 million in 2021 included certain retail products that Manufacturing sold directly to the retail market, and that's not included in this year's number. Subsidiaries, we've seen increase by 67%. And we can see from that, if we one compare it to owned, it did not perform badly as in owned because of the impact of the previous year's number. And in owned, we also had 7 -- around about for 11 months, ZAR 70 million included for the bakery, which operations we stopped now. If we look at the subsidiaries, we have seen that ZAR 52 million of that was sold directly to our TNT or Turn 'n Tender franchisees. Logistics, the biggest driver of our revenues, increased by 35%, and that improved by ZAR 3 million -- sorry, ZAR 3 billion to ZAR 4 billion, mainly as a result of improved margins, but also volumes. 63% of our Logistics revenue is as a result of our owned manufacturing and the balance we procure from third parties. Company stores improved by approximately ZAR 119 million or 36%. If we go to the next heading, which is sales-based royalties, where we find franchise revenue and marketing revenue, we have seen that franchise revenue increased by 43% or ZAR 274 million, and that's mainly the significant contribution of Leading Brands, which is 19 -- 94% of that category. So we're very happy with the increase of 38%. And through that, we were able also to improve the bottom line. The segment revenue slide presents a different view because where the previous slide was revenues after elimination, this slide present revenues before elimination for continuing operations. Revenues increased overall by ZAR 1.8 billion. And we have seen a strong recovery across all the divisions and markets and believe that will continue. The key contributors, again, was our supply chain with ZAR 1.1 billion and then Leading Brands South Africa with approximately ZAR 282 million. You would see that AME only showed an increase of 9% if you compare it with the other contributions. But the AME segment was less impacted than SA in the previous year as a result of COVID. On the percentage contribution, not significant changes. And that, we believe, will continue to be at that level. Then our operating profit, as already indicated, of ZAR 630 million, increased by ZAR 511 million with the key contributors being Leading Brands on the Brands of 100 -- contribution of ZAR 171 million and supply chain of ZAR 192 million. You would see that we say Signature Brands under review, although they have recovered significantly, nearly 100% increase off a low base. They improved by 75%, but still make a negative contribution of ZAR 8 million. The result significantly improved. And as a result of the improved financial performance, our balance sheet has been strengthened. And we achieved ROCE of 29%, and our net asset value improved from ZAR 3.90 to ZAR 7.19. As a result of the improved environment and as you would see later from a CapEx investment perspective, we were circumspect in terms of investing, but this enable us to invest in expansion for PPE as well as intangible to the value of ZAR 116 million and ZAR 17 million, respectively. Inventories also increased to ZAR 408 million, and that was specifically driven by increase in raw materials of 43% in support of the increased volumes to make sure that we have enough product as the market recovered. Net debt borrowings decreased from ZAR 1.5 billion to ZAR 1.1 billion, driven by the strong cash flow from our operations, which enable us to do actually a voluntary repayment on our debt of ZAR 350 million. So we reduced our RCF by ZAR 350 million or by 23%. The impact on that, the impact on cash and cash equivalents which reduced by 5%. If we look at lease liabilities, that reduced to ZAR 321 million. That was mainly a result of the unwinding, but also the cancellation of certain leases. Our trade and other payables is slightly higher due to an increase in VAT payable to 13 -- additional ZAR 13 million or 58% increase, and that's in line with the higher revenues that I've discussed with you. On CapEx, if you look at the previous year 2021, we only spent ZAR 84 million to make sure that we focus on the key things that need to be invested. This year, we increased that to ZAR 140 million and focusing specifically on our revenue-generating areas, which is the Brands and Manufacturing. On the Brands, ZAR 32 million of the ZAR 44 million was spent on company stores. And under Manufacturing, we had a few things. The one is we needed to create additional capacity, so we invest in the property to the value of ZAR 13.9 million. Also, we increased our production facility with a back-baked and press line and related equipment to the value of ZAR 12 million. And then some of you may know and may have been there, our coffee company moved to a new premises, and we invested ZAR 20 million. And we'll continue to be circumspect even in this year as a result of uncertainties in the market and make sure where we feel it's the right time to the required investments. Net working capital improved from ZAR 169 million to ZAR 180 million. And the main reason, as already indicated, was the growth in inventories. The last slide and I suppose the most important slide because as they say, you can make significant profit, but if it's not cash or in the bank, cash is king, as they say, it doesn't really make a difference. The slide indicates excluding restricted cash because restricted cash is only for the marketing front, what we use for the marketing activities on behalf of our franchisees. And we have seen that our cash from operations increased by ZAR 350 million to ZAR 871 million. That is what enabled us to do the voluntary ZAR 350 million on financing activities of ZAR 433 million. And as a result of that, we could invest in CapEx, which also the investment of ZAR 170 million. After all of the investments that we've done and we're comfortable with the position that we are at this stage, we closed with closing cash of ZAR 333 million, slightly lower than the previous year. So if you step back and you look at these results, you can see that we have reset and stabilized the business. And we're very positive as we continue to focus on our 3-year strategy, which I had to take some details because of COVID and other events. And we believe we're ready, as Darren has already indicated, to grow and to strive -- to thrive, sorry, going forward. But the best is it enabled us with confidence to resume our dividend payments with a final dividend of ZAR 2 per share. You will remember, in 2019, we started dividend payments again with ZAR 1 a share for a final dividend and the interim of ZAR 0.90 before COVID hit. We have reset the base, and we believe this is based on our current performance as well as our future prospects. And with that, I will hand over to Darren. [Presentation]

Great. Thanks, Deon. I really appreciate that. I will try and color in between the lines now the very solid picture that you've drawn and helping people to understand the business and how we've performed over the past year. So really just to try and add a little bit of flavor there in terms of some key themes that we've experienced over the past year. I mean it's certainly been a resilient performance given the operating context in a challenging environment. And really, thank you to our franchise partners who've stood up and been counted. We've seen recovery across all of our divisions and markets. So it's been very solid in terms of that. And that's really translated to the improved profitability and margin that Deon has shown you. And through that process, been able to open new restaurants, particularly in H2. You would have seen the strong H2 as a result some of those coming through, and then kudos to the teams for getting that done. A lot of that was pushed out, and we are still behind where we'd like to be. But having -- putting a good score on the board there is great. And also, restaurants being revamped is a great lead indicator. We're still not where we would like to be. And franchisees are starting to reinvest, but we need to really try and crank that up and keep up with the consumer, but it's not a strategic priority right now. So very comfortable with the number that's on the board there in terms of just getting that momentum. Sadly, we treat any closure very seriously. And COVID has put pressure on certain areas. But we also understand there's a strong demographic change in certain trading markets in SA and across AME, and we've responded to that. So very responsible on our closures, probably slightly elevated versus where we would like them to be, but monitoring that and keeping very close to it. And again, as Deon said, we've continued to support our franchisees where appropriate through those royalty breaks. I'm comfortable to say that we've halved the royalty break number from the prior year, but it's still nearly double where we were in F '20. So still support being provided. We think it's the right thing to do. But we want to try and obviously get our business back and get our franchisees' margins up as well, and the 2 go hand in hand. In terms of the strategy, it's important that even through this difficult period, I think we can be comfortable that we've delivered against the strategy. The strategy hasn't had to course correct too much. We had a very solid plan going into the COVID period. We're confident in terms of what we're doing. And we're getting growth through new franchisees, but also through our existing base, which is very, very important. We simplified our operating structure for Signature Brands this year with the buying out of 2 of our partners, creating what we call a fun dining structure, a luxury structure in captive markets and really getting a lot of focus and getting much better benefit from our resources, which has been helpful. We have divested from some manufacturing operations, as you would have seen in our notes. And that's become necessary to actually get trimmed and also really focus on what we're good at and making sure we don't put capital into projects where we are not going to be competitive. In terms of Logistics, we're very comfortable that the strategy has been well executed. Logistics has been through a very tough period with having lack of volume. And you're seeing as that volume comes through, the business is starting to recover. And of course, the part that I'm always excited about, it's small, but we're getting there, is the expansion of our retail range. So I really think we've delivered well against the strategy, haven't got distracted and continued to keep one eye on the prize. And of course, the easy part to talk about, and Deon has done all that work, is the improved financial position. So you've seen all those details. But I think it's important because having less debt, less pressure on management, being able to have much better gearing levels enabled us to talk to our bankers and do some more creative things in the business. And of course, putting a nice return on capital employed number on the board also helps in terms of conversations with yourselves as shareholders. So overall, we think that the key theme is positive, and we're comfortable in terms of where we are and moving forward. But our business is about brands. And what we sell, people put in their mouths. Brands are at the heart of everything we do. Their performance drives the entire business. So it's important that we talk through them. And they are a 24/7, 365, cross-border operation. There's always somebody trading in one of our brands. There's always a restaurant open. And of course, that brings operational complexities to that. And we have a solid support structure with our franchisees and very, very proud of the service they provide. We have a clear distinction between our Leading Brands and our Signature Brands, and we continue to focus on that. We have 2 non-SA brands: the one being Mr Bigg's in Nigeria; and PAUL that we have under license in the South African context, of which we have 5 restaurants. And again, providing support to our franchisees has been important. And looking at those sales figures on the graph there, you can see that we have come out very close on like-for-like and system-wide, and we prefer to have those numbers a little bit further apart. We'd like to see the system-wide numbers growing. And there's quite a lot of movement, and I'll talk about it a little bit later. But lots of movement within that because you had parts of the business that were performing last year through restrictions where areas actually traded because they benefited from lockdowns being eased, so tourist destinations, et cetera, but definitely, a big comedown from the half year. If you think about like-on-like for Leading Brands at half year, it was around 76.4%, so really a much more normalized number. And you're starting to see the -- and again, this -- I will stress that this is 12 months versus 11, and I'll recap on that just now. System-wide, again, for the total was 75.6% at half year, so come down to a more normalized number. And also in terms of the inflation environment, which we started to see in H2, H1 wasn't necessarily getting much. And we've probably only seen that in the last 3 months of H2 coming through. But just generally from a South African perspective because that's where the bulk of our business and our brands trade within, we have seen revenue and profit recovery, which has been nice. And it's given the team some momentum and given franchisees something to aim at. But COVID restrictions haven't been easy, and they have definitely continued to hamper performance despite our best efforts in coping with them. We still believe that we have something holding us back. And as those ease, we can see performance improving. There's certainly low levels of consumer spending. We're definitely seeing it, as I said to you earlier, less visits. And we are coping with that, we understand that. There are some trade-offs where trading hours are slightly shorter. So it's not all bad news around the way that money gets spent, but definitely less visits. As Deon has said and I mentioned, we continue to support franchisees in SA context through royalty breaks, and not just in the SA context, but that has been very focused this year on casual dining. So the difference between F '22 and F '21 was that initially even QSR got support. But this year, the primary focus has been around casual dining in Leading Brands and on the Signature Brands side providing that support. The impact of the July unrest has been reported on in our half year, but we can't ignore that. And we've been blessed to have insurance payouts, as Deon has said. And you'll see in some of the subtext further payment coming through on that side. December, unfortunately, the timing wasn't great for us. We -- it's been 2 years in a row now where the restrictions have really dampened December season. So again, some upside in the year ahead that we are looking forward to, to having a proper uninterrupted December tourism season, both domestically and internationally. I don't need to remind us all how tough December was and quite easy to forget. And high food price inflation, we're in it. We are coping with it. But we need to understand that it was part of the back end of the year, the last 3 months of the year, we started to see that coming through and really passed through to menus. And thus far, consumers have accepted those prices and managing it within their basket of spend. So in terms of Leading Brands specifically, I mean, I just thought it was important to give you a little bit of a snapshot here in terms of an 11-month versus 11-month perspective. And we always look at system-wide versus like-on-like. So I think Leading Brands is a good indicator of the South African landscape across the 9 provinces in the country. And the obvious blip on that graph is pretty much in the middle there around KZN, where you can see a like-for-like number which is ahead of system-wide. And that really reflects the store closures as a result of that civil unrest in July, of which we haven't reopened all of them. So through the year, that number has reversed. The difficulty through the other province is quite interesting because you've had so much movement that probably some of those numbers are hard to explain because some of the provinces, particularly the more tourism-driven provinces, have actually had a suppressed like-on-like this year for the 11-month versus 11-month comparison because they benefited post the lockdowns last year when interprovincial travel was allowed and people started to get out and take weekend breaks. And of course, South Africa has benefited from lower prices at typically tourist-dominated destinations by international tourists. So from the other perspective, we're also seeing some nice system-wide gap in some of the provinces. And that really is testament to some new store openings in some outlying areas that have been beneficial to us, particularly in H2 where those stores came through. So you see a halo effect carrying us through and some benefit in some of those provinces. Western Cape recovering nicely on the like-for-like, particularly because as the tourism and particularly international has started to open up again at the back end of the year. As much as it wasn't what we would have liked, we're definitely seeing some benefit on that. Also in the likes of North West, starting to see some recovery from the mining sector in towns like Rustenburg, as an example, and getting some benefit from that. So an interesting picture, but lots of moving parts within that. So showing you, I think, the kind of inconsistency that we're having to deal with and the themes within those regions. But Leading Brands is a reflector of what happens in the South African economy and what happens in towns across the country and in those 9 provinces. So we are very comfortable. We've coped. And KZN probably is the toughest part of that, and I'll talk about that in our Logistics discussion. Just in terms of that pricing, just to give you a quick insight there, you can see the inflection point. So this is our internal model. So everybody views it differently. But typically, October is our price pass-through to consumers on menu. And again, on the Leading Brands side, you can see that index moving up. But if you look at the bottom right of that graph, from October, you can see though that our inflation to our franchise partners is slightly under the RSP that we are pushing through. And that is giving them some gap to cope with things like fresh fruit and vegetables and those costs that come through separately. So from this perspective, we are comfortable at this stage that we are coping with the inflation effect. You probably will see a similar picture in H1 of this year coming through from the May increases. So the step-up continues. But the peak in October there on the food inflation side is reflected in our owned business, and we're managing within that. So at this stage, there's a sense of calm, and we're not overly worried within the Leading Brands team around these challenges. Of course, it's challenging, but at this stage, we have comfort. But from an AME perspective, a slightly different picture because as Deon has said, AME wasn't as impacted as SA was from a COVID perspective immediately. But we're definitely seeing a longer drawn-out trend in Africa and feeling a lot more pressure in this past year. I think just to highlight there, we spoke about the company stores, the 66 company stores. And I know for some of you who follow us, you may not have tabulated that number to the same degree. But of that 66, 46 are in Africa, of which 30 of them are in Botswana, which has always been there in the base, and Botswana continues to be a key and lucrative market for ourselves; 5 are in Kenya as company-owned, and we are reviving our Kenya network; and the balance are in our UACR subsidiary in Nigeria. And a lot of effort and energy has gone into Nigeria this past year. It's a tough, tough trading environment right now for a couple of other reasons and probably the knock-on and lag effect of COVID, the worst. But also very proud of the fact that the team opened 31 restaurants in Africa this year and continue to gain momentum, continue to revamp restaurants and, of course, managing the closure network, of course, which also includes restaurants closed in the Nigerian context. So COVID is certainly being characterized by low vaccination rates, which is very difficult to sometimes fathom in these markets and not seeing the level of infection and hospitalizations as we would have been seeing in South Africa. The economies are slow to recover in Africa. We've also provided royalty breaks to franchisees. So the numbers we spoke about includes support to AME. So our policy has been the same, and it's been probably a little bit more targeted than in the SA context because each market is different, and we manage that accordingly. We've seen the home delivery trend continue. And we are comfortable that the effect of COVID has been positive for home delivery, and that trend was pre-COVID. And we're capitalizing in certainly in some of our key markets and really at the forefront of some of those markets, helped by tech providers in those particular markets. The company-owned restaurants are serving a key purpose as much as there's been a lot of activity, some capital spend this year, they are helping us drive scalability. It doesn't mean we're on an exclusively franchise-owned ban, not at all. In Nigeria, we want to keep the focus on company stores tighter just so we can actually reset the benchmark. But in the likes of Kenya, we have also opened franchise restaurants as in Botswana. And in terms of the supply chain, a lot of work done in Africa this past year on the supply chain, and the teams have had to do a lot of in-country work to help with certainly all the restrictions you're seeing on imports and the logistics disruption you're seeing globally. Wimpy, good work done this year by the team, positive, positive outcome. We only opened 1 restaurant. We're not happy about the 6 we closed. But I think, again, a knock-on effect from COVID. But we are comfortable that we're closing the right restaurants and opening the right restaurants and putting focus. We've seen delivery decline, which is what we'd like, and people getting back and sitting back in restaurants and benefiting from that. Of course, the same kind of disruptions globally have hit the U.K. and probably harder in some cases. They've had added complexity around labor availability and a few other things. And really, the team there has done an amazing job. So thanks to the team to just make sure that our franchisees are kept in stock, which hasn't been easy with the kind of challenges that they've had to face. On the Manufacturing side, again, a great effort from the team. We're seeing it in all of the metrics, lots of work. Operational performance improved, managing high food inflation, volatile costs, particularly, especially fuel and electricity escalating and managing to cope with those. So again, the revenue there has been driven by front-end demand. There's nothing specific that the team are doing. They're really servicing the front-end properly, which is what they have to do. And they have benefited from QSR, which has continued to cope well in the COVID environment. And so those plants that have had exposure have benefited better from that. And you saw earlier the 6.9% food inflation. The team have also coped, limiting those increases, becoming more efficient as they pass through. And dealing with all of the supply chain disruptions, our business is no different to what you're seeing unfold globally. And the team have managed to cope with those and been quite innovative. We've had some luck along the way, but we've also had some disruption and taken some big costs. We did close our Gauteng bakery for good strategic reason in January. We managed to absorb all of the employees within that operation, and we have outsourced that on a national basis. It was only servicing Gauteng and surrounds, and that is a closed operation there. We also have, at the end of February, consolidated our choice meats plant under the Cater Chain ownership. So that still exists as a self-standing facility, but we put it under our joint venture relationship with Cater Chain, and that was as a result of the acquisition of the minorities in the Turn 'n Tender business. So all around, a great year for Manufacturing. Thank you to the team, really done a phenomenal job in a tough environment. Logistics has probably been the one that's bounced back the quickest, but also thanks to the team for coping. It's very hard to run a logistics operation when you have lower volumes. And if you think about their operating margin up there, 1.9% at half year, it was barely just above 0. So the team has done a phenomenal job to bring it back in H2. Of course, they've had the benefit of case volumes and revenue. But you still have to get that product onto a truck, you've got to get it delivered to your customer and you got to have happy customers. And our owner drivers have also been very helpful in that process. So that performance has definitely been improved by the front end. As those restrictions have lifted, we can see the benefits of that through logistics. And we've also seen the team cope with the general disruption within the South African context, not just COVID, but also the July unrest and general civil disruption in some smaller towns. Every day is a challenge in the logistics environment. We also have been implementing tighter systems, and the team become more aligned from those systems to manage their business. And you don't get a better test, unfortunately, of your business continuity plans than the COVID and unrest. And the team stood up and were counted and did a phenomenal job. And they're doing lots of work right now as a result of those learnings from KZN on their fleet mix and how they can optimize that nationally. And of course, some of the change in the KZN dynamic has changed that fleet dynamic. Retail continues to be a great business. Lots of work done this year. We've really put our toe in the water on new products. We started to get the revenue through, getting the operating profit up and really taking our brands to market in a phenomenal manner. I'm very proud of what we're doing there, and there's more to come. It's also been helpful that retailers are more open to new line introductions as COVID has eased, and they can get back and operate the supermarkets better and more efficiently, and then we can get merchandisers back on the floor easily. So of course, like anything, also under pricing pressure, having to talk to the retailers to pass those prices on, not easy. We want to continue with our pipeline of innovation, and the plan is to launch 12 new products this year. And as we speak, the team are launching 2 ranges of frozen chips into the network. ESG continues to be a key part of our business, and we are very, very mindful of it. We have to work hard at this. The team are committed. And the 5 key points there for me is that Famous Brands has set targets for selected UN Sustainable Development Goals and committed to gender equality, decent work, industry innovation and infrastructure, responsible consumption and very, very importantly, the climate action. So those are the 5 that we're driving towards. And we really are evolving, but we also are having to make sure that we keep pace with the demands of society and moving forward on those things. So really to sum up, before I move into Q&A, just in terms of our priorities. We want to focus on 176 new restaurants this year. There will be a closure rate, but we think that will slow to around 43 restaurants. We'll spend a high level of CapEx, probably around ZAR 240 million, but really stressing, as Deon said, that we're going to be prudent. It doesn't mean because we plan to spend it that it's spent. We will watch what's happening with the marketplace, and we'll be very cautious. There are some other projects that we would like to do. But certainly, the ZAR 240 million is important in our life in the year ahead. But it's not spent, it's only planned to be spent. And from an operational perspective, we need to improve returns for our franchise partners. We need to manage our margins. We need to manage those upwards. And there's still lots of operational efficiency for us to unlock in the business and people working towards that. And continue to get out of things that are distracting and then invest in our logistics capacity. There is still work on Project Decade, which we've spoken about before. And there's activity, and we will update the market as and when that's appropriate. In terms of growth, we absolutely believe that we have a growth agenda. We believe we're capable of it. We want to grow our Leading Brands in SA and Africa, Middle East. We continue to focus on high-return assets, which is important, and really continue to look at opportunities for acquisition if they are appropriate and they're within our sweet spot. We're going to continue to have to invest in consumer-facing technology, very, very important from our perspective. And in terms of our Signature Brand portfolio, which was very, very hard-hit by COVID, we're going to assess that portfolio this year. We've done a lot this year to panel-beat it. The team are very focused on what they have to do. But we need to make sure that the recovery in that is in line with pre-COVID. And if not, we need to consider how do we adjust? Is it restaurant size? What are the various options that we need to look at? And then on the financial side, as I said earlier, Deon has made it very easy for us, but we're going to continue with more of the same, going to continue to reduce debt, continue to focus on improvements in processes and internal controls. We are on a journey there, and we'll focus on that. And then Deon has really brought a great set of skills to the party on that side. We continue to focus on cost saving. We still believe that there's costs to be saved as much as there's money to be spent. We need to be mindful and prudent of the environment that we trade in, particularly in the SA context. And nice to say that we would like to commit to resuming regular dividend payments. This is not a once-off. And we're very proud of the dividend and would like to see that continuing, and we believe we have the trajectory to make that happen. So I suppose to sum it all up, we've got to have a focus in 2023, and it's going to be focusing on operational excellence, and some of you might say boring, but that's what we have to do. We have to rewind and repeat every day, prioritizing the long-term operations. We know what is that's going to make us successful going forward. And I think we've been good at articulating that to you over the last couple of years. And most importantly, prioritizing our franchise partners and making sure that they're getting the returns that they need because, ultimately, it's an ecosystem and we need to all be working together on that particular side. So that brings it to an end from myself and Deon. We've given you 55 minutes. I've gone over a little bit, I apologize. But let's get straight into Q&A. I'm going to ask Ntando to join us up here. Thank you. [Presentation]

Thank you, Darren, thank you, Deon, for a good presentation, and morning to all. Are you ready for the exam?

Yes, it feels like an exam. Yes, absolutely.

So I'll try and be a little bit easy with you...

And we know with you, there's no fear or favors, so we know you put the hard ones at the top. Yes.

Yes, but I'll go easy and start with the more difficult ones.

Okay.

Okay. Cool. We do have a couple of questions. So I think the virtual audience is quite engaged today. So without any further ado, let's jump straight into it.

We do have a question from Akhona from Moneyweb. Is the decision to move the KZN depot in any way linked to the unfortunate events of the July unrest and recent floods?

No, I can put that one to rest. No, not at all, I mean, we've been looking for a new facility in KZN for a long time. We are out of capacity there. I think probably COVID allowed us to delay the decision, but we also had to find the right facility. So we're really grateful that we have, but no, not at all.

Okay. And have you identified where you're intending to move from KZN, including the cold storage, the Gauteng cold storage?

No, that, we haven't signed up, but KZN, absolutely. And we are moving up just near the airport, up to that North Coast.

Still within the KZN...

Yes. Yes, absolutely. I mean, a fair distance from where we are, but absolutely in the sweet spot and center of our gravity from a logistics perspective.

Okay. Thank you for that. We do have another question from [ Ahmed ], Denker Capital. Considering the relief given to franchisees on the marketing fees, I mean, did you cut back on the overall marketing spend? Or did you have to take some from good resources?

No, not at all. So I mean, obviously, the drop in revenue has cut spend. But the environment has changed, so there also hasn't been the same kind of priorities. And a lot of that has come out of above-the-line spend, and the entire category has dropped. So competitors have also dropped. But not at all, it hasn't come out of group resources. In fact, the other way around, as Deon spoke about, the restricted cash, we're actually sitting in a surplus. So we actually have spent less than what we could have had. The marketing team has done a good job of making sure that they adjust to the environment. So not at all, that money is ring-fenced, and we haven't held back at all in terms of where we need to. And in fact, the teams have been very prudent with what they've done.

Okay. Thank you for that, Darren. The next one is from [ Peter ] from [ Major Market ]. Famous Brands has indicated that it intends to further reduce the debt in 2023. Is there a specific gearing you are targeting? Deon, probably this one would be for you.

Yes. I think at the end of the day, you would remember that with our lenders, it was 2.5 before we could pay a dividend. We're currently -- although their measurement is slightly different of what we do for IFRS, we're currently sitting at 1.32. Ultimately, if we don't see any opportunities, 1 would not necessarily bring your debt further down. So around 2 on leverage, we would be comfortable with.

Okay. Thank you, Deon. I might actually have to throw this one back to you again. It's from Ahmed from Denker Capital. Would you say the cost base is now at a normal level following the reduced COVID cost base? Or is there more normalization to come?

I think it depends how you define normalization. If we look in terms of relating to revenues directly, we think we're there or thereabout. As Darren has indicated, there are certain opportunities. But ultimately, this is a journey for us. Because of all the uncertainties, we need to make sure that we balance it from day to day. But we believe there's more cost efficiencies that we can take out. We've learned quite a lot through COVID as well specifically with menus. And we'll take those learnings and implement it. And ultimately, the franchisees as well as the shareholders will then continue to benefit from that.

Okay. Cool. Thank you, Deon. Probably let me take a question from Jovan from Laurium Capital. This is more franchisee-focused. I mean you indicated that the franchise market has tightened with franchisee shopping around for better or best value proposition. Do you need to discount your fees to attract new franchisees as a result of this?

No, we're not seeing that. I mean, obviously, we need to remain competitive. Having dropped fees structurally through COVID, we believe, is supporting during COVID, particularly on casual dining. Whether those are going to recover to 100% will depend on the bounce out of COVID. We've seen that recover to 100% on QSR. So we're not overly worried about that. We're not seeing that as a trend. But we're mindful to it. One has to be clear on what your value proposition is. We think we have an overall value proposition that supports the rates that we charge. But we're also having to be very clear that we're providing the right support, and that's not just in what we may be used to do 10 years ago. So that package that we're offering franchisees is a lot more holistic now. It includes the value chain, but it also backwards in terms of logistics, et cetera. But it also includes, moving forward, some of the tech offerings that we are providing. So we're very, very mindful of that, and that you probably will see maybe more pressure on cost base than you would see on the revenue side.

Okay. And probably a follow-up question on that. I mean what is your outlook for your net restaurant growth?

So yes, the number that I spoke earlier, around the 170 and the 43 closures is still lower than where we were pre-COVID. So we think that there's probably another year of stabilization. But if we can get the traction back into Africa, as we believe we can, then we should be able to get back to pre-COVID levels there or thereabouts in F 2024.

Okay. Cool. And then probably another question from Peter, this one is a little bit more exciting, from Major Markets. Yes, is there any appetite for acquisitions? And if so, what areas or markets will be of particular interest?

Yes, we continue to look. So you saw -- we've seen recently the Lexi's acquisition, which we believe is a great addition to the Famous Brands family. It was small. But I think it indicates our appetite and our interest in terms of looking. So you're always going to have to look at 10 before you maybe land 1. The market is changing. We continue to look, but we will be conservative. We've got a clear strategy. We don't want to get distracted from that strategy. We want to be #1 or 2 in the categories that we trade in. So yes, it's not a [ ha-ha ] priority, but we need to make sure that if there's an asset on the market, that we have a good look and understand whether it fits our strategy or not.

Yes. Okay. Thank you for that. Let me take a question from Zaid, because we do have quite an active virtual audience, so I'll try and balance, from Aeon Investment Management. Many of your peers are targeting drive-through sites. Are you looking at something similar in your store expansion plans?

Yes. Drive-through is a critical part of the network and has been heightened by COVID. So I think one needs to just look at it through a clear lens. But even pre-COVID, our drive-through presence wasn't where we wanted it to be. That's been heightened, so it's absolutely part of the team's focus. We are in drive-through, but we need to elevate our presence and do that correctly. And we are seeing opportunities in that market. So spot on, we're there and we're chasing it.

Okay. Thank you for that, Darren. Probably to go back to Deon, a question from Thomas from Perpetual Investment Managers. What is management targeting from an absolute net debt figure?

We wouldn't necessarily put an absolute net debt figure out there. But as I say, from a leverage perspective, if we get around about 2 and depending what we're looking at, as Darren has indicated, if there's anything interesting in the market, fit into our strategy, makes us #1 or 2, we can probably go up until 2, 2.5.

Okay. And then probably another question from Charles from Titanium Capital. I mean, congrats on your recovery. But could you provide some more detail on why bakery strategy did not work and reason to move to outsource this?

Yes. So I think we'll take it as the last question, Ntando. I'm getting some pressure from the back there. Yes, it's a good question. I thought we'd get asked that. It wasn't that the strategy didn't work. I mean we -- that bakery is 15 years old. It would have required investment. And the market is very interesting. You've got a national footprint that you need to service. You cannot do it out of one bakery alone. We had a sort of [ patriot ] court of providers to fill in the gaps. And we found that a provider that had invested as a specialist in that market could be more competitive than us versus the reinvestment that we would have to make to get that competitive advantage or get back to being competitive again. So it was just the right use of capital not to invest in the plant, and we did the right thing for our franchise partners. So we work on the principle of same or better quality, price or service. And if you can't meet that and then, at the same time, the offset gets your returns, then you have to allow people to do it that are a little better at it. And in this case, it was a classic example. And of course, the route to market in distribution is a key decision-maker. And we actually got out of distribution of buns and bread quite some time ago, long, long before this decision.

Yes. I think probably, Darren, as we close, I mean it would be probably remiss of me not to take a question related to the Lexi's acquisition. I mean, are you concerned with -- that the vegetarian space seems to be becoming overtraded with lots of new entrants?

No, not at all. I mean there's always going to be activity in this category. It's very entrepreneurial. The barriers to entry are not easy, but they're not significantly high. So you're going to have that, and we see it in any category. So I don't see the activity in vegetarian or veganism any different to any other category. In fact, I'd say that the activity in the coffee category is probably even more elevated. And again, it's really around us with the strategy of being #1 or #2 in the category. And just to assure you, we're going to be there #1 in the category, not #2.

Yes, exactly. Okay. Yes, thank you for actually engaging the audience. And I must say, you're looking quite dapper. So I mean thank you to all. And I'll hand over back to you, Darren.

Great. Thanks, Ntando. I appreciate it. So good. Well, let me take this opportunity, on behalf of Deon and I, just to say thank you and remind you just about the supplementary slides when you get the upload on our website. Really thanks to KPMG, [ Nick ], [ Sara ] and [ Yousef ], all the work over this past year, great audit. Always a few tough questions, but thank you. Second year together. Really, really appreciate it, and you really did us proud. To Nedbank, our bankers who have been very good to us and continue to support us, understand our strategy and work with us. To our sponsor, Standard Bank, thank you for all the support, particularly through this active period. To everybody at Famous Brands dialing in, particularly our franchise partners, who are the life and soul of our business that we support every day, I really do appreciate the efforts and the energy. From a personal perspective, to the Board, really thankful to the support that you give to ourselves and the ExCo team and the support to me personally as well as to Santie Botha, our Chairman, who really always goes way and above beyond the call of duty to provide the support to us as a team and particularly to me as an individual. I really, really do appreciate that. To Celeste and Laura, who always have to put up with all the governance issues and get through this, thank you for all your effort. To the GMF team, for all the hours getting the stuff together. And then lastly, to you, [ Lambi ], for coordinating and getting us all in shape and getting us here on time. So thank you very, very much. We look forward to engaging with you one on one where you book time with us, but also seeing you again in our H2 results -- or H1 results, apologies. So thank you very much for dialing in, and enjoy the rest of your day.

Thank you.