Famous Brands Limited (FBR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Third Virtual Annual General Meeting of Famous Brands Limited. Year 2021 was another uncertain year for the restaurant and hospitality industry. All our trading markets endured the dual pressures of continued COVID-19 restrictions and weak economic conditions. Many of our franchise partners are still in the process of recovering from the impact of COVID-19. Whilst conditions have improved somewhat, trading activity is still below pre-pandemic levels, particularly in our signature brand category. Famous Brands remained resilient due to stringent financial management measures in response to the pandemic. This prudent and conservative approach meant that our revenue numbers improved in response to the first signs of economic recovery. The Board was pleased to reinstate the payment of the dividend for the past financial year. The group has produced solid results and has a good outlook for future growth which allowed a dividend of [ ZAR 2 ] per share to be paid. The continued success of our franchise partners is integral to the group's sustainability, management strives to deliver the best possible service to franchise partners while offering high-quality products, add value for money prices. Building our specialist teams through dynamic retention, development and attraction strategies remain a priority and is included in our 3-year plan. I would like to thank Darren Hele, Group CEO and the executive team for the resilience and steadfast leadership during the past year. Also for their commitment in delivering on our strategy and the group's continued recovery. Sincere vote of thanks also from me to our Board for their dedication and commitment to the business during the past year. To all our employees, franchise partners, shareholders, customers and suppliers, thank you for your interest and continued support of our business. As a quorum of members is present and notice of this meeting has been given in an appropriate manner, I declare this meeting properly constituted. I confirm that we have sufficient voting rights present at the AGM to vote on all the resolutions. The notice convening this meeting was published on SENS on 23 June 2022 and emailed to shareholders, allowing sufficient time for members to peruse the contents thereof. I propose, therefore, that the notice be taken as read. The procedure for voting today. Voting in respect of this meeting shall proceed by way of a poll. Such poll voting shall be conducted entirely electronically as contemplated by the Company's Act and the MOI of the company through the electronic online facility provided by Computershare. For the purposes of the poll, I nominate a representative of Computershare present at this meeting to act as scrutineers. We will open the voting on all the resolutions now to enable you to vote at your leisure, whilst I read through the resolutions. You will be able to send questions and view the webcast whilst the poll is open. To vote simply select your voting direction from the options shown on screen. A confirmation message will appear to show your vote has been received. To change your vote, simply select another option. If you wish to cancel your vote, please press cancel. So that's for if you agree, against if you do not agree or abstain, if you do not wish to vote on the resolution. If you wish to ask a question, select the messaging icon. Type your message in the chat box at the bottom of the messaging screen and then press send. I will allow for questions after I have read all the resolutions. We will then close the poll after questions have been answered and display the results -- all the results on the screen. Darren Hele, CEO of Famous Brands, will do a short business update at the end of the AGM. The Companies Act requires that the audited annual financial statements, including the directors and Audit Committee report be presented at this meeting. A summary of the financial statements have been distributed to all our shareholders, the integrated annual report as well as the audited annual consolidated financial statements including the unmodified audit opinion, directors and Audit Committee reports are available on the Famous Brands website. The Companies Act requires a member of the Social and Ethics Committee to report on the affairs of this committee. A report by the Chairperson of the Social Ethics and Transformation Committee of Famous Brands, Chris Boulle, on behalf of the committee is included in the integrated annual report. Now let's start with the resolution -- ordinary resolutions. Ordinary resolution #1. Before I go in there, in order to avoid unnecessary repetition, Arlene Helberg has agreed to be the seconder of all resolutions placed before this meeting. So ordinary resolution #1, adoption of the annual financial statements for the year ending 28 February 2022, together with the auditors, Auditor Risk Committee and directors' reports. The voting on this resolution is now open. So please cast your vote. [Voting]

Ordinary resolution #2, the reappointment of KPMG as independent external auditors of the company. Voting on this resolution is open, so please cast your vote. [Voting]

Ordinary resolution 3.1, 3.2 and 3.3 deal with the reelection of directors to the Board of Famous Brands. So Ordinary Resolution 3.1 is the retirement by rotation in terms of the MOI of the company and the re-election of Mr. Chris Boulle as a Director of the company Chris is available to serve. His photograph is displayed on the screen. Chris is a commercial, corporate, finance, tax and trust attorney and his expertise includes global transactions, mergers and acquisitions, black economic empowerment transactions and advising on stock exchange listings both locally and internationally. His experience as a nonexecutive Director of listed companies spans more than 2 decades. The voting on this resolution is now open. So please cast your vote. [Voting]

Ordinary resolution 3.2, the retirement by rotation in terms of the MOI of the company and the re-election of Mr. John Halamandres as the Director of the company. John is available to serve, his photograph is displayed on the screen. With vast experience in all aspects of Famous Brands business, John retired from executive management in March 2001. The founding member of the company, he served as Managing Director from November 1994 until March 1997. He assumed the role of CEO of Famous Brands, until he was appointed nonexecutive Deputy Chairman in March 2001, a position he held until May 2010. The voting on this resolution is now open, so please cast your vote. [Voting]

Ordinary resolution 3.3, retirement by rotation in terms of the MOI of the company and the re-election of Mr. Alex Maditse as the Director of the company. Alex is available to serve, his photograph is displayed on the screen. Alex is an admitted attorney and is currently the CEO of Copper Moon Trading PTY Limited. He serves as a Nonexecutive Director on several boards and committees of listed entities. He has previously held the positions of Country Manager for Coca-Cola East and Central Africa and Franchise Operations Director of Coca-Cola South Africa. Voting is now open. So please cast your vote. [Voting]

Ordinary resolution #4.1, the confirmation of the appointment of Ms. Busisiwe Mathe as a Director of the company in terms of the MOI. Busisiwe is available to serve, her photograph is displayed on the screen. Busisiwe is a seasoned business leader with a rich background in internal audit, external audit, digital transformation, cybersecurity and data privacy. She has worked across multiple industries and sectors, both locally and globally. She has previously held the position of Africa Cyber Security & Data Privacy leader for PwC and served as the chairperson of the South African Governing Board, a member of the Africa Governance Board and Chairperson of the Human Capital Sub-Committee. Busisiwe was recognized as an emerging business leader by the African Woman Chartered Accountants organization in 2019. The voting on this resolution is now open. So please cast your votes. [Voting]

The following 4 resolutions related to the appointment of members to the Audit and Risk Committee. So ordinary resolution 5.1 is the reappointment of Mr. Chris Boulle as a member and Chairperson of the Audit and Risk Committee of the company. Chris is available to serve, his photograph is displayed. And I have provided his resume under Resolution 3.1. So please cast your vote. [Voting]

In ordinary resolution #5.2, the reappointment of Mr. Norman Adami as a member of the Audit and Risk Committee of the company. Norman is available to serve, his photograph is displayed on the screen. Norman had an extensive career with SABMiller, which commenced at SAB in 1979. He was appointed Managing Director of SABMiller in 1994 and Chairman in the year 2000. In 2003, he was appointed President and CEO of SAB Americas based in the U.S. In October 2008, he once again took on the role of Managing Director and Chairman of SAB Limited. He retired from SABMiller on 31 October 2014. Currently, Norman is a partner in Stud Game Breeders, one of the 3 imminent groups in SA's game breeding industry. The voting on this resolution is open. So please cast your vote. [Voting]

Ordinary resolution 5.3, the reappointment of Ms. Fagmeedah Petersen-Cook, as a member of the Audit and Risk Committee of the company. Fagmeedah is available to serve, her photograph is displayed on the screen. Fagmeedah currently serves as a nonexecutive Director for a diverse range of companies where she applies a strategic thinking and well-developed understanding of risk. She is a CD(SA) Charter holder, a certified Director and an experienced investment professional. She has held C-suite roles in the public as well as the private sectors. Fagmeedah's professional career as a qualified actuary spans 24 years. So the voting on this resolution is open, so please cast your vote. [Voting]

Ordinary resolution 5.4, appointment of Ms. Busisiwe Mathe as a member of the Audit and Risk Committee of the company. Busisiwe is available to serve. You've seen her photograph, and I have provided her resume under Resolution 4. So the voting on this resolution is open. So please vote. [Voting]

Ordinary resolution #6, general authority. The purpose of this resolution is to authorize any director or the company's Secretary, to execute and sign any documentation in order to implement resolutions passed at this AGM. The voting on this resolution is open. So please cast your vote. [Voting]

Ordinary Resolution #7 is the nonbinding advisory vote on Famous Brands' Remuneration Policy. So the voting is open. So please vote. [Voting]

Ordinary Resolution #8, the nonbinding advisory vote on Famous Brands' implementation report of the Remuneration policy. Once again, the voting is open, so please cast your vote. [Voting]

We now move to the special resolutions, of which we have 3. The first special resolution #1, it's really 1.1 to 1.16. So if you can please vote on each of the subsections, is the approval of the remuneration payable to nonexecutive directors and the Chairman. And the proposal is around about a 4.5% increase. So if you can please vote on all the resolutions. [Voting]

In Special resolution #2 is the general authority to repurchase shares. So here, we're asking for a general authority for the company and its subsidiaries to repurchase shares issued by Famous Brands to a maximum of 10% in aggregate of the company's issued share capital. The voting on this resolution is open. So please cast your vote. [Voting]

And finally, special resolution #3, the general authority to provide financial assistance to related or inter-related companies. The voting is open. So please cast your vote. [Voting]

So this now brings me to the end of all the resolutions. So I will now allow time for questions before we close all the polls. So if there's questions, select the messaging icon as you see it on your screen, then type your question in the chat box at the bottom of the messaging screen and press send. So we will now await questions, please. Okay. It doesn't seem as if there are any questions. So I'm now going to close the voting and the results will then be displayed on the screen. So, let's just wait -- okay. So there are the results displayed on the screen. So if we have a look at ordinary resolution number 1, 2, 3.1, 3.2, 3.3, 4.1, 5.1, 5.2, 5.3 and 5.4 that's obviously the Audit Committee. Ordinary resolution #6, 7 and 8. So all the resolutions up to -- ordinary resolutions up to #6 are all carried. Ordinary resolution #7, is not carried, Ordinary resolution number 8 is carried, but that's a nonbinding advisory vote as well. So those ordinary Resolution 7 and 8 at 48.9% and 50.8% relates to the remuneration report and implementation report. So that's not carried. The special resolution #1.1, 1.2 and 1.3 are all carried. Okay. So those -- that's the voting results. So what we are concluding on is that all ordinary and special resolutions have been carried by the requisite majority, except for ordinary Resolution #7, pertaining to the rem policy and the implementation report has also been a very low score in terms of nonbinding. We will engage with shareholders in this regard, and we will make sure that in our sense, we will nominate the date at which shareholders will have to RSVP when we will engage with them. So that concludes the AGM, and I would really like to thank you for your interest in Famous Brands, and thank you for being here today. And I will now hand over to Darren Hele, the CEO. Darren will give you a brief ops update of the business. Thank you very much.

Thank you, [ Chi ]. Yes, I'll kick off, and thank you. The last 2 AGMs, we've had to share with you extraordinary detail on our trading performance as the macro environment around us was in turmoil and aggressively impacting heavily on our operating environment. I am thankful that at this AGM, we don't have a need to provide this extraordinary detail, and we're operating in a less tumultuous environment. That is for sure. And I will attempt in 8 bullet points to provide an express voluntary summary of how we're feeling about our performance currently and how the trading performance has been in the first 4 months of the financial year. And the first bullet point there is around our leading brands, which is a key part of our business and the strong revenue recovery in the first 4 months, particularly in the SA context, and that is thanks to a steady recovery in Casual Dining. So what does that mean? Well, it means that we're actually seeing more bums on seats and that has been since the restrictions on mask wearing on 23 June in SA has indicated ease in consumer's anxiety, which was caused by the COVID-19 pandemic and this buoyancy was definitely evident in the June month end shopping activity that we saw. And this increase in casual dining activity or CDRs, as we call it, will naturally have some offset in activity in retail and QSR in our business but a recovery in leading brands is really good for the business and has a positive flow through to the supply chain part of our business as well. And this trend that we're seeing seems to be corroborated by shopping centers, noting an increase 12x and that we're seeing through other channels. Naturally, the economic headwinds that are well reported on and we're all facing out there have dampened what we believe could have been an even more robust recovery. The second thing is around the wholesale royalty relief to casual dining franchise partners in South Africa ceased at the end of June. So what that means is the support that we're providing albeit small towards the end of June will cease from the end of June. From July, we would only be provided -- providing targeted relief to franchise partners which is what we would have always done pre-March 2020. So this was -- the wholesale relief was a phenomenal cause by COVID-19. And we did end this earlier than we had anticipated. So some positive news on that side, which obviously has a positive impact on our revenue. The Signature Brands business has been profitable for the past 4 months of this financial year, which I think, is a nice momentum and trend that we're building. It's a positive step change in this division when we compare it to this time last year. There are still headwinds, as the Chair referred to but we remain cautiously optimistic around this part of the business. Probably the most topical thing other than interest rates right now is around food inflation. And I say cautiously that we are coping with food inflation impact on menu items. But I don't use and we don't use the word coping with any delight or use it lightly. We recognize how tough these economic times are for our consumers, franchise partners and our own stock. The food price rises across our markets are upward. We recognize that, and there's only upward pressure, which is constant currently. Sorry, I think if you just go back. So we recognize these increases are pressurizing and no market is immune in our business currently across all our geographies. Particularly more disruptive we're seeing in African markets, where particularly the month of June has been disrupted on fuel pricing, and Nigeria is probably the most disrupted market that we're seeing in terms of that disruption. I have put a slide on the screen there, which I think just gives you a sense, and it is a slide that you would be comfortable with and that you could put that graph. It is a slide that we referred to in our year-end results. So it is really building on for the last 4 months. So you would have seen up to the end of February. And you can see that the March to June pressure is there. We have had 2 in the leading brands as a collective pass-through increases. That is a basket price, and we are seeing that the business is obviously struggling to cope with input prices and then had to pass prices on which consumers are facing across all sectors. We're relatively comfortable with the prices that we're passing on are in line with the trends, and we would normally put through prices during the March to May period. So these are not extraordinary input times, but there are actually extraordinary price increases versus what we would be normally doing. If you go back and look at sort of the 2% to 3% mark. So we are managing the system, and we are coping with that. We've also managed to open 45 stores year-to-date, and we're very pleased across all markets that we have done that. So we remain on track for the 176 openings that we said at our year-end results for the full year with around roughly 43 closures for the full financial year. So we -- that trend we're seeing coming through, and we're delighted that we've been able to open those 45 in the short period of time, given the uncertainty in the market. We also have begun the process of the relocation of our KZN logistics facility, which we spoke about at our year-end results, and that is on track for the first of November this year. The project is well on track to be relocated to a leased facility, which is in the North [indiscernible] area of KZN, and we're very excited for the prospects of the improved efficiencies, much easier peak operation over December ahead of us and improved service as we get closer to our center of activity with a new location, which is quite a significant distance from our current location. The business overall, we think is performing in line with our management planned budgets for the past 4 months. And I think budgets are important because that gives us a sense of what we had planned for the year and we are meeting those consistently month in, month out, even though the trading environment is a lot tougher than we had probably anticipated when we set those budgets. So it bodes well for where the business is at currently and gives us a sense of comfort around where we are. And lastly, I think it's important really for investors to get a sense that the business as usual is back to where we wanted to be. So as much as we've been through 2 years of disruptions, we feel that we're in an as-usual space, other than obviously load shedding, which I think is quite a unique from the South African context. So that's not in particularly other markets. But it feels like the extraordinary challenges that we faced over the past few years are behind us. There are obviously extraordinary times that we are in currently, but it feels that they are in their own right, more manageable and probably more familiar to us than what we've been through over the past 2 years. We have had to invest further in the SA context in generation capacity in our own operations because they could not cope with the intensity of the load shedding schedules that we had experienced. In fact, we've even experienced load shedding in the [indiscernible] area where historically, we have had guaranteed power. It is wonderful to see how resilient our franchise partners are having emerged from 2 years of turmoil. And at this stage, we remain confident in our and our franchise partners' ability to navigate the current trading environment. And that is a really important thing. So hopefully, I've summarized for you in 8 points where we're at currently. And myself and Deon look forward to engaging with you again at our half year results presentation, which is scheduled for the 26th of October 2022. So thank you very much, Chair. Thank you for the opportunity.