Famous Brands Limited (FBR) Earnings Call Transcript & Summary

Welcome on behalf of myself and Nelisiwe to our end August '23 Interim Financial Results Presentation. My name is Darren, and I hope you're familiar with me if you do follow us. Now this is, however, Neli's first presentation or official presentation in the role of Group FD, which she took over on 1 August. So welcome to Neli. Neli is very familiar with our business, having served as FD designate prior to this, so this won't be unfamiliar territory for her. But thank you for the interest you've shown to register for this audio webcast, and we look forward to sharing some great information with you. Special welcome to Board members of Famous Brands who've dialed in. We really appreciate the effort, and thank you to the family of FB who hold out on this webcast. I know they enjoy hearing results that they've worked hard at over the past 6 months. We're going to split the presentation into around 50 minutes of presentation and leaving 10 minutes of questions. The questions are in the top left-hand block on your screen. So if you do feel fit, please put questions in there for us, and I'll talk about that just now. At times, we will be making some short statements as we shift the focus on to looking forward, but that doesn't take away from the detail that we'll be providing. There are 2 unusual themes that are overshadowing the review period, and that is alternative power or alternative power solutions and the GBK liquidation dividend. So that doesn't take away, though, from what we believe are a resilient set of results, underpinned by a resilient performance for the 6 months, and we're very proud to present these results. There is some usual and new information that has been relegated to the supplementary section, so that you have access to the historical operational data. That won't be shared in the presentation, but will be available in the version that is uploaded after the presentation for you to reference any detail that you may be looking for that we haven't covered. In terms of the agenda, I'll talk through the operating context. Neli will then come in and talk around financial results. I'll come back and look at our performance and provide some insights on that, and then we'll head into Q&A. And Ntando Ndaba, as always, is here, our Group Risk Executive, and he will be reading out the questions to us unfiltered. So please make an effort on the top left of your screen to provide us questions, which you can do as the presentation runs. You don't need to wait till the end, they can come through as and when you have some things to ask. In terms of the operating context, it's clear that in our primary market of South Africa, we've lived through a trading half of less power supply compared with H1 of last year. Besides that it was not a perfect half in terms of trading conditions, but we believe we have navigated the challenges well. Over the next 7 slides, I'm going to try and share some insights about where our franchise partners are at. And hopefully, that will give you some insight as to what they have been facing during the reporting period. I think it is important to stress, particularly in the context of trade in SA that these are not excuses that franchisees or ourselves offer. These are realities that we face. And it's about what you do within these realities that count. The slide in front of you talks about our context and the geopolitical and socioeconomic challenges are quite universal. However, in our world, looking particularly at persistent and severe load shedding, which has impacted the business. And that's certainly underpinned by the political instability which is leading in some cases to local protests and unrest or in the case of Western Cape, more wider spread protest. That's not unique to South Africa. We've also felt it in a market like Kenya, particularly around Nairobi, which over the past 6 months has been disrupted, and we're feeling it in our performance. So it's not a uniquely South African issue. But certainly, in some of our markets, we are experiencing that. Water shortages as a knock-on effect of load shedding and local governance issues is becoming more of a prevalent issue in our primary market of South Africa. In the backdrop of this, we still trade in a highly competitive landscape, and we have fierce competitors. We like to rise to that challenge. And take each other on. But certainly, we all have to work particularly hard in a highly competitive market. And that's in the backdrop of us all experiencing rising input costs, particularly around food and alternative power costs which are primarily driven by diesel in the SA context. There's been some shift around home delivery and the shift in the mix, but primarily the competitive landscape is still around our takeaway and sit-down restaurants. The consumer is evolving to the conditions that they face. And quite interestingly, we are seeing that even in a lower disposable income environment, that sit-down restaurants are actually a good time out for people, I think, driven, particularly in the SA context, by load shedding, casual dining, not necessarily prevent across Africa to the same degree, but it's seen as an indulgent treat outside of the difficulties that people are facing. So that's an evolution that we are particularly seeing. However, that is driven by lower transaction sizes fueled by people potentially sitting longer, taking time out, which we're quite happy to service that occasion. And then continually focused on value offerings in the marketplace, people looking for value for money, not just in retail and in general shopping, but in terms of the in-home consumption trend, too. And the market continues to evolve from a digital perspective. So our context is really around the operating environment that requires adaptability and resilience. And that's from both our franchise partners and ourselves in terms of navigating that operating market, particularly in SA, but also across the African continent. Important to talk about load shedding in the context of restaurants. We all understand it and what it does to our specific lives or a particular business. Consumers are definitely reluctant to go out during load shedding for a variety of reasons. And we believe that this is leading to a net loss revenue number. Although there is a fact of people going out for takeaways in terms of actually fundamentally getting out and about, there's less of that, particularly in peak load shedding. The reality is that some of our restaurants are closing in load shedding, and I'll talk about that a little bit later. So a restaurant close is a restaurant that's not revenue generating and certainly not a royalty that's generated for us or potential product sale from our supply chain. And then we are seeing more and more around cellular connectivity, which does make it difficult for people interacting with us digitally to place orders and makes it certainly more difficult for them to have certainty that they're going to get the order. Of course, what that does is impact on profitability. We, in our own world, we're having to spend more on diesel and again, provide some insight on that but also having to look at those costs being passed on from suppliers, having to try and spend more money locally around marketing spend to try and get that local message through because even load-shedding is impacting above-the-line television media as you can imagine, where people don't have access to alternative power, they're not exposed to your advertising. And that's really leading to disruptions. So the load shedding impact is disruptive. Not only are we delaying deliveries at times to retailers and to the back door of our franchisees, we too experienced product shortages from our own suppliers coming into our logistics and manufacturing chain. So those are creating knock-on effects and putting pressure on service levels that we provide to our franchise partners and to retailers. And of course, alternative power works on the simple principle that you have alternative power and even that is not always reliable as the intensity of load shedding increase through the review period. We forget that we've had a quiet weekend or load shedding, but through the review period often we're at Stage 6, and those generators are not designed necessarily to run that kind of constant trade. So we ourselves, as a franchisees have generated failures and as you know these things never happen on a Monday morning that always tend to happen at peak times. So I mean, really, fundamentally, load shedding is undermining franchise partners' profitability and sustainability and deterring potential franchise partners. So we are navigating that, but I think we all need to be wise to the reality is that load shedding in the SA context is not a positive contribution to everybody's contribution to the economy. So making it very difficult for us, but we continue to be comfortable in how we are navigating it. So to give you an example here, we have tabulated through using the Eskom data what sales we are generating, and we showed you this at the full year results for our brands during particular load shedding periods. And Leading Brands for the 6 months generated 17.7% of sales during load shedding, and Signature Brands was higher at 19.6%. If those restaurants were not trading in that -- or not trading an alternative power, they wouldn't be doing sales for that period of time. At this stage, we're up to around 91.3% as at current of franchise partners that have invested in alternative power, and that is up 10 percentage points from where we were in March. So quite a significant contribution, but that has phased in over the period. So that wasn't effective from 1 March. And we've had to ground that up slowly, and I'll give you a little bit of insight on that around Leading Brands. We have put load shedding financial relief in place for franchise partners, which we think is the right thing to do. We think this is a shared value problem and we have worked through that with them and tried to assist to share the load around what is happening in terms of their business. As you can see, the kind of sales they're generating with load shedding is coming at a high price around what the cost of that power is during that sale period. There are other challenges around what is happening in those times, but certainly the focus around how much sale has been generated is very, very important in the context of our relationship with our franchise partners. To give you a sense around alternative power supply, which we talk about a lot, as at the end of August, for our Leading Brands portfolios, just to give you a sense of what has happened over the period. So as I said, that 91 didn't just happen from one day to the next, it's been phased in over the 6 months, and we know that, that has created a lag on franchisee sales. And you can see, particularly the QSR portfolio is dragging behind the casual dining portfolio, and that is primarily around shopping centers and the kind of coverage that landlords have provided versus smaller developments and the franchisees funding it themselves. But I'm comfortable to say that in all brands and across Leading Brands, we're making progress, and we continue to drive, and we're very grateful to our franchise partners for the support that they've provided and for investing in their businesses the way they have, and having a strong base to work from coming into this period. So really just to take a snapshot for you to say, well, what are we seeing to the restaurants that don't have alternative power supply. So the national average there of 8% is the number we published in our data earlier in the long form. But there's a clear trend there in the red and the green that restaurants that don't have alternative power supply are not performing anywhere near the restaurants that have alternative power supply. So it would be fair to deduce from that slide is that had we had 100% coverage of alternative power or no load shedding, which is the preferable one, our performance would have been significantly better than the 8%. And we think that, that is a clear indication of our performance and what the opportunity lies ahead in H2, and of course, into the next financial year around closing that gap and improving our performance around that. And never mind the fact that if you're trading at a 5.9% down on last year and you're going to be spurred on to make that investment to try and get your business back on track. So we're comfortable in those conversations. The franchisees have been ongoing. This is not a new phenomenon. You're seeing the data now, but this conversation has happened over the last 12 months with franchisees, particularly since September last year. And then the financial relief to franchisees. I'm focusing on the slide around Leading Brands because it's just an easy narrative around that. But as I said, 91% of franchisees now have that backup power. We have provided around ZAR 11.6 million in total, 2 franchisees purely on the basis of the model that we've put on the right-hand side there, where we've provided a 0.5% reduction on the royalty, and 0.5% reduction in the marketing fee, and that's a very transparent process and it's based on the data that we're getting out of Eskom linked to the sales data. So it's not necessary to the franchisees usage or it isn't their usage. And it's a model that we've developed and collaborated with franchisees and it is a compromise for everybody, but we think that it's the right model. We're comfortable to say that we were going to continue this relief until February 2024. And then, of course, we will reassess it based on what's happening in the macro environment with load shedding, as well as the percentage of sales that have been generated during that time. But if we get to 95% coverage, at that point in time, we think that there will be a different conversation to potentially we had with franchisees, but we cannot predict what loading shedding look like from March 2024, and that conversation will emerge at that time. And again, from a more internal perspective, the impact of load shedding on supply chain is quite obvious as facilities go down. We need to use diesel, although we have invested in solar and we continue to do so. But if you just look at those numbers on the page, I mean, our significant increase on H1 versus H1 2023 on diesel numbers at 57.8% for non-fleet usage. So that is a significant cost. And if you work that back into our numbers, you could understand where some of the erosion on the manufacturing profitability has been caused. And then, of course, the other issue around this is on load shedding has been around increased insurance premiums, which we have spoken about in our long form, quite significant as insurers manage the risk, not just of load shedding, but the knock-on effects of potential civil unrest and historical civil unrest into insurance premiums, which we don't believe, and understand is a Famous Brands problem, it's an industry-wide challenge. In terms of our response, we have been investing in more efficient and larger generators, and that has come at a price and obviously moving some of our CapEx into that as well as on the OpEx side, increased maintenance and service of those generators and our engineering team has done a phenomenal job of upskilling themselves in terms of doing it. We have invested in solar and that continues to pay dividends, but that was really late in the financial period. So a lot more of that benefit will be coming through in H2. Sadly, the registration of the fuel rebate schedule has not been easy, and we still don't have any benefit from that. There is engagement with SARS, but disappointingly, that really hasn't come through and we haven't provided for that relief in our results either. So that brings me to the end of really just the operating context. Neli is going to provide some insight on the financial results now to hopefully balance those to you out.

Thank you, Darren. Good morning, ladies and gentlemen. But before I get into the business of the day, I would like to extend an appreciation for being part of the Famous Brands family for the last 2 years. This has given me an opportunity to learn about the business which has served as an advantage in my role transition. I was able to establish connections with our various stakeholders, such as our Board, our auditors, internally our executive team and the broader Famous Brands family. I am looking forward to continuing on this journey of learning, strengthening the relationships group-wide across with our stakeholders. And to actually use the experience that I've gained over the last 2 decades, both from commerce and consulting to embed and enhance the role of finance as a strategic partner for the success of Famous Brands. I would like to say thank you to the Board for their confidence in my ability, yourself Darren, for making me part of this successful team. Deon, for the investment that he has made as my predecessor to my success in my career and Famous Brands, and last but not by any means least, the finance community across Famous Brands. Now getting into the business of financial results. We are presenting results which we are very proud of, as Darren has already mentioned. These results are an evidence of a consumer who is resilient and Famous Brands as well. We've had an economy of low growth in 2023 compared to the same period of 2022. We've had significant shortage of power, which has contributed to our cost of production. The increase in product cost from our suppliers has also meant that our cost management is under pressure. The volatility of our currency has also increased the cost of our imported goods. We have seen the impact of finance charges increasing because of the 275 basis points on our earnings. Not only because of South Africa, but because of our multiple geographies, those complex issues are coming through to our figures. But Famous Brands is an HR business. So we've had to roll out our solutions that have been across the value chain, addressing some of these challenges, which Darren has already mentioned. On the store front, we've got our franchise partners that we are supporting for our -- for their financial support by providing them with breaks. On our own operations, not only have we diverted capital to installing alternative power solutions, but we've also had to look at how we diversify our own sourcing of raw materials. At the center of all of this is our consumer, who is very loyal to our brands, but continues to be stretched, and as social beings we appreciate that you continue to go out and meet as families or as friends to celebrate over meals across our network. This has enabled us to report a double-digit growth in our revenues. However, the cost pressures of production and supporting that network has also escalated. The growth in our top line was more than offset by the cost in putting pressure on our revenues through our earnings. Looking at some of our key performance metrics. If you were to compare our results to August 2022, our revenue has increased by 10%. However, our operating profit and margin has declined by 5.6% and 1.6%, respectively. That has gone through our headline earnings by declining 7.1%. And our cash generating from operations also declining by 2.6%. This is just a demonstration of the cost pressures that we've got on our production lines. We continue to put pressure on our margin recovery, which is disrupting our efforts for regaining our margins. I also wanted to bring attention to our audience in terms of performance in relation to excluding the GBK dividend that you received last year. If you were to compare our results to what we are able to achieve, these adjusted results, excluding GBK, indicate significant improvement in our performance. The reason why we're adjusting for GBK is because of its nonrecurring nature. Looking at our operating profit and cash generating from operations, you're able to see double-digit growth which talks through the resilience of Famous Brands. Indicated by the graph is that we remain focused on executing our strategy to grow our business. Our revenues have increased by ZAR 361 million, mainly due to the net increase in the number of stores in Leading Brands, the improvements which have been made in supply chain volumes, as well as taking some price increases, as well as the strong performance of our Retail division. We continue to invest in growth drivers of our business by allocating ZAR 71 million to our capital spend across our markets. and this is an 18% increase from prior period. We are paying a dividend of 138 cents per share, which is a 5% payout ratio higher than what we had last year and also just to the north of our audience, we paid 233 cents per share in July. If we now take a look at our detailed income statement, you're able to see the growth in our revenues. We continue to monitor the cost base. However, this is also impacted by the challenges that we have in terms of our input costs. We have already made mention on some of the pressures around insurance premium, which we've had to then pay additionals, which has gone into our prepaid receivables. The pressure of diesel and generator maintenance is also pushing our costs. The high interest rates and the fact that we've had to do a drawdown on our facilities has driven the increase in our finance costs. And we've met -- our investment in Nigeria, we've had to take a devaluation of the loan due to the Nigeria currency devaluation against our brand. Taking a look at our revenue generated from our customers, net of intercompany elimination, you're able to see the contribution which has come across from our entire value chain, which has driven the growth. Leading Brands has contributed to it, retail as well as supply chain. And to Darren's earlier point, Leading Brands has been reported net of the franchise benefit of the energy relief. Segment revenue shows our revenue pools before elimination. Power shortages continue to disrupt the trading at storefront and continue to impact our supply chain volumes. However, our product sales in retail have proven to be quite successful. Outside South Africa, Wimpy U.K. has increased 18% of its revenue irrespective of its challenges in its operating conditions and AME because some of the investments that have been made there, you're able to see the growth of 11% in revenue. This is despite some of the challenges in some of the markets where we've had to close some of our stores temporarily like in Sudan. Operating profit has decreased by 6%, predominantly because of the impact of the GBK liquidation dividend, which was recognized in the corporate segment last year. The increase in our operating costs related to alternative power and insurance in the interim period also contributed to the decline in operating profit. But wouldn't be fair not to show our audience, our comparable operating profit. If we were to strip out GBK, you're able to see the steady growth in our operating margin over the last 5 reporting period, which shows a testament to the stability of Famous Brands. In our statement of financial position, because of our performance, our balance sheet continues to strengthen and the net asset value has increased by 20%. From capital allocation, we've acquired the Midrand Campus and we have done installation of alternative power sources. We have invested in working capital and repaid our debt in line with our [Indiscernible] terms. Our debt has slightly increased because of the drawdown that we've done in our facility. To show our commitment to our ESG, our debt pricing is linked to sustainability KPIs, and we continue to strive to meet these. Even though our debt has increased, we remain comfortable in maintaining headroom in our undrawn borrowing facilities, and also satisfying the requirements of our covenant ratio requirements. The engine of our business in net working capital, we see that there has been an increase in inventory, mainly due to the fact that we've increased business -- the business activities have increased, there's been a slight change in the pricing mix in terms of our products. And we are taking advantage of some of our increases in -- before the increase in our pricing cycles. The receivables and payables have also increased in line with the business activity. Movement in our receivables, we wanted to just unpack a bit of the detail. You'll see that we have increased receivables by ZAR 124 million, unpacking some of the detail. Our trade receivables, the categories have increased line with our performance on our various revenue streams, if you were to compare that with our August 2022 performance. This increase, however, has not created any challenges with regards to any distress in our credit management metrics. Hence, we are still able to maintain it consistent as per prior period. The prepayment, you see the increase there coming through due to the insurance premium that we've had to pay in advance. And the increase in other receivables is due to us as a content playing around with the reporting that we've had to reclassify our marketing fund deficit in receivables, which is an adoption of a recognition method that we've done since February 2023. The story of our cash flow talks to strong growth and in line with the performance of our business. During the last 6 months, we were able to pay a dividend of ZAR 260 million, which also includes the performance of our noncontrolling interest, on our tax commitments as well. We've put down capital to grow the business. We've settled ZAR 29 million in terms of our share scheme for the shares that have vested in June 2023, and also in the process, managed to settle our overdraft position which we had in February -- that we reported in February 2023. Our focus is critical in terms of investing in our business. The significant allocation, you can see there in terms of our expansion, we've spent ZAR 69 million for expanding our business. If I were to give a little bit more color on where we're spending it in terms of our brands, we are rolling out stores, we are revamping our stores, and we're spending it on our consumer technology. Manufacturing to make sure that we up keep with the growth in the business, we've installed generators and made enhancements to some of our facilities. Logistics, in line with our ESG commitments, we are also in installing solar panels in our DCs and also rolling out our warehouse management software. We spoke earlier about the acquisition of the property in Midrand. So there in our cost -- in our CapEx line for corporate, it's some of the initial structural work that we are doing on our cold storage. Ladies and gentlemen, in my conclusion, the macroeconomics in the last 6 months have continued to be challenging to the consumer and to Famous Brands. However, we remain resolute to deliver on our strategy. Thus, we're always looking for opportunities to invest where we're able to grow our revenue through our presence in either existing or new markets, where we can invest to operate efficiently with our customers, investing in technology for us to be able to improve our consumer experience, and last but not least, investing in the growth of our people. These results demonstrate that we remain resolute and we have a resilient consumer and Famous Brands is on the path of growth. Thank you, Darren.

Thanks, Neli. Yes, indeed, we're absolutely on a path of growth, and it's really nice to be able to now go into some of the more detailed performance at a macro level. But I think from a group perspective, we're in good shape. So I'm going to get into some of the detail around where we're at now to provide some color in terms of what Neli has shown you. From our perspective, with healthy financial metrics, we're comfortable that we're able to meet or exceed targets for 2024, even in a tough environment. Our solid strategy execution is really forming the base of giving us the guardrails in terms of what we need to do, how our teams are doing it and what we're all aiming at. The digital enablement of our restaurants is an ongoing matter, but something we continue to be focused on. And I mean, technology is moving at the speed of light. So you've got to be careful not to make a mistake more than anything else. And you would have seen in the footnotes, our investment in a fledgling business called Munch, which we're very excited about, being able to help us on that particular journey. Our success of delivery hubs, which is something that [Indiscernible] team have driven hard this year and really enabled us at ground level, particularly all of the challenges that are posed right now with cellular connectivity, dark roads, pot holes, et cetera, makes that challenge that much harder. The focus on opening drive-thru restaurants, we've acknowledged before that we are behind the curve. So we have a big pool to aim at and the team is starting to get focused around that. The logistics team have done a fantastic job around strategy execution, particularly around the rollout of Manhattan SCALE which I'll talk about. And then ESG, even in the tough environment that we are, we need to keep focused on ESG and not forgetting what we all need to be doing around the environment that we live in and making the world a better place and taking less out of it and putting more back. So in terms of our growth, we continue to grow as you've seen new restaurants, we still have ambitious plans for H2. We always have a pipeline. We can't always necessarily get the timing 100% on the execution, but we're very focused on the execution right now across the network to -- in total, bringing, delivering a whole new pool of restaurants by the end of February, but acknowledge that certainly this year are running late, and we've seen that in H1 with the lower numbers coming through. We have 3 new markets planned in the AME region for this year. Again, some tight projects running through to February. But nevertheless, they're part of our growth plan. And we've already launched retail products this year with significant numbers going to be launched in H2. Now from our brand's perspective, in the SA context, I think our product market is important to talk about, where we actively drive the leading and Signature Brands portfolio. We continue to be proud that we grow capability and capacity to deliver great customer experiences in the branded franchise and food services space. And that's really our mantra and what we're doing that through those Leading Brands and Signature Brands. Again, coming back to the performance I showed you earlier around our combined numbers, we really feel that from an 8% perspective on Leading Brands that we are behind the curve from where we'd like to be, but we've got no doubt that load shedding has suppressed that growth number. So again, as that alternative power number comes through, we would like to see that performance improving. Generally, we're seeing that the casual dining portfolio has performed better than QSR, and that's really around the recovery in all environments, and as well as some of the effects of people's behavior on load shedding for the period. From a Leading Brands perspective, specifically, we have over many reporting periods now pulled out the provincial snapshot, which we believe is quite important in the SA context, we are a national business with a national footprint, and we see how movement in South Africa is important to us and the way people move around is critical. So from a like-on-like perspective, we are indexing lower than we would like to be. Again, some of that load shedding pressure that is coming through. But also there are some provincial nuances in there. If you look at KZN in particular, which is typically, normally a good contributor of growth where there are micro issues around beach closures, which have definitely had an effect on tourism and preventing some of those weekend gaps and as long weekends trips down there has been offset. And particularly, it's our province where we had the biggest exposure to alternative power or the lack of exposure to alternative power. So there's no coincidence for us that the province is underperforming. New stores have helped in terms of that particular growth and driving through. Western Cape continues to trend nicely in Leading Brands perspective. But again, we think given things like the Western Cape taxi strike, that is under-indexing from what we would like to have seen in that particular province. So definitely nuances in the SA context around provincial challenges and opportunities, obviously, in terms of us for growth, which you can see quite often the nuances between system-wide growth like-for-like growth in the Leading Brands portfolio. In terms of pricing. So again, this is a slide we like to share. I understand some people get a little bit confused with it. But I mean, we're really illustrating in the half food inflation environment that we are taking price because we need to keep up with inflation around the business model and the pressure is real around food inflation. So this is not trying to take price to improve margin. This is really around pricing around those input costs and the drivers. So the weighted number is always important to look at on that slide, in terms of where we are and the index is critical. So right now, it would tell you at the end of August that we are carrying around a 10.6% inflation across the portfolio at menu level. So that's what consumers would be experiencing in our restaurants right now. In terms of the August 2023 number is what I highlighted, that's the 10.6% right now. That index, as you see, is starting to drop, and that is as we lower inflation coming in, which you're seeing it at the line at the bottom there. Now that is a trend that's currently there. We are seeing lower pricing coming through, which is a relief. The menu pricing we're talking about towards the back end of this year is significantly lower than we have seen. So more in line or lower than the burgundy line on that particular graph. So that is good news for the consumer and ultimately, we think there's an avoidance of any kind of pressure on elasticity by those prices dropping. We don't really want low food inflation again in our environment, but we're very comfortable that we're on a downward trend, and we think that, that is a good relief for everybody in the value chain. From a Signature Brands perspective, it's been a very quiet period from a restaurant opening perspective and a revamp perspective. We have had some closures as well as conversion. It's been quite a tough trading environment. The load shedding impact, as you saw, over 19% of sales in the earlier slide generated during load shedding, evening trade as a general principle is still lower than pre-COVID levels, people not getting out as late as they used to. We are seeing a much stronger performance in certain categories like in our hospital restaurants, and the delayed opening of our new pool at the V&A, which we're very proud of, was causing financial stress on us at pool because we had delayed opening and there was cost associated with that, and then of course, impacted our expectations for the year. There is an insurance payout in the base. So you're seeing a distortion on the profitability, which relate to COVID payouts in the previous year. And we are in the process of conversion of Fego Caffe restaurants to Mugg & Bean and that primarily started at the back end of the period. So in August and coming through to September, and that program means that those franchisees effectively will become Leading Brands franchisees. The Lexi's project at restaurant level hasn't panned out as we hoped. And certainly, from that perspective, the healthy eatery market is not seeing the kind of growth post-COVID that we had anticipated, and we have some plans around retail for a particular product, which we're very, very excited about. So that would move out of Signature Brands then into retail. From a Signature Brands provincial perspective, again, a slightly different picture, but the state looks very, very different across the board. But again, you can see quite a significant pressure in like-for-like, as you saw in Leading Brands, but more significant. Again, I would believe that talks to the tourism impact and less exposure to potentially higher revenue customers. And then on the Western Cape, a significantly better performance than in the Leading Brands portfolio. Again, we're seeing growth down there, and we've got some nice exposure. But again, also talking to the growth in tourism and certainly the fleet going through iconic locations. But again, across the board, a fairly good performance from a provincial perspective, been buoyed particularly by our sites in hospital locations as well. In terms of Africa, Middle East, we're seeing improved revenue, but pressure on the profitability from a margin perspective. And again, quite a diverse portfolio across the board. Abnormally high inflation in several countries, which we're seeing, and the team is managing. Again, the similar trends that we're seeing globally and in the SA context, around out-of-home consumption, home delivery and technology penetrating slower into those markets, but definitely a lot of work done by the team and continue to be done by the team to continue to drive that. So very, very good work by them, and we continue to show growth. The very sad period though, for us in Sudan where our licensee had a particularly strong business. It was a very strong and profitable market for us, an individual that had built up a business over 20 years. And unfortunately, every one of those restaurants has closed and to our knowledge, in most cases, have been looted and/or destroyed. So a very sad day, I mean, although we're saying they're temporarily closed, it's unlikely, certainly in the near term that they will be reopening. So a bit of a blow to the AME team from a revenue and margin perspective as well. And they continue to open restaurants, they continue to open new markets, they continue to revamp restaurants, and of course in line with that there will always be closures, and that's really keeping up with the market. In terms of company-owned restaurants, it's a number that we talk about. Most of the company-owned restaurants Nigeria, Kenya and Botswana. In fact, all of them are in those 3 markets with the majority of restaurants in Botswana being company-owned restaurants. In terms of AME, we have gone through a restructure from the first of September. So when we put our full year results out, you were seeing slight changes in the reporting and really splitting the business into 2. So SADC is going to be pulled into brands, so Leading Brands is going to be Leading Brands, South Africa with the responsibility for Leading Brand, SADC will be the new terminology. And those markets in SADC will be transferred into Leading Brands South Africa. Mauritius at this stage is excluded. That is a SADC country. We are doing some work in Mauritius specific. And we're not clear as I report to you, whether that will fit into the AME outside of SADC or into the SADC market, and there's some work happening as we speak on that. So we think that the market outside of SADC will be less profitable. It is a more difficult market. We want to focus on growing our brands and networks there in a very responsible, deep and narrow focus and really report to the true costs and returns of those exercises and that work. That essentially is being managed out of our Dubai office, and we're going to be basically into 3 hubs: the West Africa hub, East Africa hub and a Gulf hub, and there is planning in place for other AME countries as we've mentioned in our long form, and that's working through that process right now. We hope to open 3 new territories by the end of February. So again, more information on this would be provided at our full year, but it's really just a forewarning to you that we've made an internal change as from the September 1, so it doesn't affect these reporting results. But in line with JSE regulations, we will report on that in our results in the correct manner at the end of the financial year. In terms of U.K., so again, I mean, a relatively stable business in terms of an unstable market right now. We are comfortable with our performance. From a sterling perspective, we're keeping a stable business going and get a benefit of effectively the currency changes. So a marginally positive growth in sterling sales, which is important and from what we can see, stable sit down sales and the signs of inflation there are definitely easing which is good news for everybody. So I've said it before, it's a steady business, and we continue to manage it well. The team is doing a great job of what they have to do there and continuing to look cautiously at new opportunities and making sure that we focus on quality, not quantity. From a supply chain perspective, it's been a relatively stable period with lots of activity though around, particularly driven by load shedding. So not a lot of concerns from our perspective on the business. Manufacturing is under pressure around some of the challenges, particularly on costs, primarily been driven by diesel cost that dropped in profitability is pressure from load shedding in essence. We have -- and insurance, of course, supported that challenge as well, and that we believe comes out of the load shedding challenges. There's lots of work to do, challenges around water, which the team are coping with, we have work to do on procurement as procurement is changing significantly, not just around being competitive, but also so supply, as you can imagine, in the current climate around eggs, avian flu, which is not in the reporting period, but having to deal with those challenges daily and work through them. But revenue up, which is important and volume up and that is really what we're focusing on and getting both franchise and retail volume coming through on manufacturing. Logistics, our team has done a phenomenal job on the Manhattan SCALE project in terms of rolling out the new WMS system and really focused and had we not had the insurance payout last year, which we were very grateful for around the KZN looting, the margin there would be significantly better. So there is a base that's distorting that something we are grateful for at the time. I think just to put into context around how the team has simplified the business, how the business has been simplified post COVID, I have mentioned this number before. But at the end of February 2020, we had 1,690 SKUs in that business. The business has been simplified. We're at 1360 right now. It's a number that the team are very focused on. We have the capacity to run a significant number of SKUs, but the collaboration between the brand teams, manufacturing, logistics, third-party suppliers around keeping menu simplicity is very, very important in our business. In terms of Retail, the area of the business have been very, very, very excited around and certainly seeing that in the revenue growth, also much easier to report a profitable business than this time last year where we had product write-offs around house brand products for third-party manufacture retailer. And it's been a quiet half in terms of retail, we would like to have launched more product, but the back end as last year is going to be very exciting, we've got some really exciting products, which I've shown you the pictures on those slides, particularly excited around Milky Lane ice cream, which we're going through that process right now. The relaunch of the Mugg & Bean sauces in restaurant, but also tagging into retail now and the Lexi's portfolio, again, talking to a very nation specific customer, but we're very excited about the innovation and the intellectual property within that particular business and going to launch those. So very excited around that particular part of our business and that has really been supported this year through strong sales growth, but also through new categories such as frozen chips, which we launched last year. From an ESG perspective, we continue to acknowledge our obligations and really understand our impact on the environment. I'm not going to talk too much around this. I think it's important just to really reassure investors and our own team that with all of the things that we're doing and particularly the negative impacts in the SA context, that we are mindful and we continue to try and offset the impact of load shedding through investment in solar. Looking at water as the -- challenges on water happen and continue to look at menu, such as product launches that are nonprotein-based and nonmeat based. So looking forward in terms of our outlooks and priorities, I think it's important to put some context that we're obviously in an environment where there are headwinds, and we have to accept those. Those are not the excuses that we offer. They are the challenges that we embrace. The tailwinds we're always grateful for, and often we'll take those victories at the time. But sometimes, they also create a few complexities. But we're comfortable that in this environment, there's both, and we will manage to try and get traction out of both of those. So we continue to see positive tailwinds, so we will maximize those. In terms of our response, we need to continue to boost energy independents, particularly in the South African context. Leading brands is our growth driver in the business, and we continue to focus on that, both in the SA and Africa, Middle East context, obviously, with a narrow and deeper portfolio in AME. Our franchise partners are the lifeline of our business. We're grateful for those relationships. We nurture them, as they nurture their communities, and that's very, very important to us. So we won't abandon that. And as much as there's going to be compromised, such as there has been on power support the 6 months, we will continue to work with them. High-value offerings is really around trying to make sure that in store, we're delivering good value for the consumer, but trying to get a balance of spend and really get the foot traffic through the stores. Managed margins and costs that Neli spoke a lot around that. I mean it's something that we don't ignore. We accept we're in a high inflation environment. We continue to be conscious about costs and how we work through those and how we also pass those on to our franchise partners. The supply chain team doing a lot of work, both on manufacturing and logistics around efficiencies and everything that they do is around the lowest cost of production, lowest cost of delivery, as well as balancing that off to service and really looking at the principle, same or better quality price for service that we deliver to our franchise partners. We continue to look at what's not core in our business, what can we get out of what is causing distraction. And there are some of those that have happened over the 6 months, but there's work to still do. We want to make sure that we don't destroy value for shareholders, but we also need to be clear as to what the decisions are. And I think you'll see some work emerging in H2 on that. And then again, I can't emphasize our excitement around retail, about the collaboration between our brands, particularly leading brands and taking that retail product range even further than we have done. But I think it's important to point out that our resilient business model has to adapt to a challenging environment. And I think it's something that in the SA and the selected markets we've been good at, but particularly in the SA market, and we're very excited around what the future holds and how we can challenge that in H2 despite it's been quite a tough trading environment. So I'm going to pause there and open up questions. And I'm going to hand over to Ntando to pass those questions unfiltered to us. Ntando, over to you.

Thanks, Darren. Thanks, Neli, for your presentations. My deck is very busy. So we're obviously tighten time, but I'll try and squeeze in as many questions as possible. And I'll take just one question per person, just to make sure that we can actually cover as many questions as possible. So the first out of the blocks, [Indiscernible] Signal AM has a question. What are the working capital changes in the cash flow statement? And I'd also like to probably know their comparative number for August 2022.

Thank you, Ntando. So I mean if you look at our business at this point in the performance which we've had in the last 6 months, all signs point to the fact that we had to increase our stock holding, and also just manage some of the challenges and shortages of some of our raw materials. So we've had to increase our investment in inventories, also just looking to the next couple of months of our business. And because of the increase or the improvements which we've had in trade receivables, that has also been an investment because of some of our, I'd say, terms, especially the increase in retail where we've had to provide terms that would also obviously operate in that sector. And that has also created an increase in our trade receivables as well. Inventory -- sorry, trade payables is just a function of how we are performing or managing in terms of our inventory. So that has also come up in terms of funding, the working capital.

Okay. Thanks for that, Neli. A bit of a [Indiscernible] from Anthony Clark, Small Talk daily. I'll try and be quick on it. Can I please ask on how your second half has started? I mean, feedback I've gained is that consumers are keenly looking at comparative menu pricing between the main fast food brands. Can you tell us how you manage your menu costings given how food inflation and consumers clearly shopping around for meal deals in these tough times.

Yes. Thanks. I don't think that, that insight is necessarily new. I think consumers since I've been around always looked that way. I mean that was looking for deals. It's the way the industry works. I think people are noticing clearly inflation a lot more as it comes through, particularly on the retail side. So these consumers are looking around. I think that pretty normal in terms of what they've done and working through that. In terms of how H2 has started, I think that's, for me, more of an important question, and yes, I mean both September and certainly what we're seeing in October have been below our expectations. We're seeing quite a lot of disruption, which we think is primarily around Rugby World Cup, but I'm sure there'll be people who have a different view. We're all grateful for the results, but we definitely seeing change in consumer behavior, a lot of in-home consumption around festivities, the media challenges around, particularly trying to talk to consumers when there's a strong focus around one particular channel. So we think it's around that. I mean there's no doubt that the economy is biting, so we're not naive around that. And then just in terms of the menu pricing, I mean, we manage that as we have always done. So we work with our franchise partners. We look at the costs that are coming, we manage the margins, we're trying lock in pricing to cover them for the period ahead. So we will be locking in and menus will be launching currently in the end of October, early November period. Some brands are really put through their pricing for the next 6 months, and that would then be supported by ourselves and our suppliers over the period of time. Certainly looking at 3-month tranches moving forward. So we like to give franchisees certainty that on the menu pricing that they have as a business supply chain that can support that. And that menu has to be comparative in terms of the various value offerings that are out in the marketplace, which again is quite challenging in a current environment when you have things like egg shortages and the price of eggs nearly doubling becomes a bit of a challenge. So you have to work with those margins at the time. And sometimes you have to absorb that margin, which generally franchisees are comfortable to do.

Okay. Question from Sandile Magagula from Umthombo Wealth. Despite difficult trading conditions, your sales growth is still telling us you are gaining market share. How much of this is attributable to effective marketing and loss of share by small market participants? And secondly, would you recoup back the ZAR 11.6 million energy relief rebate in future from franchisees.

So on to the last part first, no. The relief is relief, it's gone. And essentially, it's not recoverable, and we're comfortable with it. So we hope that we have recovered it already by the mere fact that those franchisees have been encouraged to trade through load shedding by us providing some relief because we think there would have been a temptation to start cutting trading hours more than what's potentially happening, particularly in the dark periods of Stage 6 as an example on that particular issue. In terms of growth, we're seeing the revenue growth in the profile. So we're happy with that. We're not necessarily convinced that that's translating into market share growth other than we do think that we probably -- everybody is gaining from independents, which are feeling some of the pain, there's no doubt. We would be far more comfortable with our performance had we had a better power coverage -- alternative power coverage during the period for both Signature and Leading Brands. So we think that H2 and certainly, H1 of the next financial year would show a better picture. We don't know what our competitors' coverage is. We have a sense that some have got better coverage than us and others probably worse. And we think that those have logically who had better power coverage would have potentially gained more share or certainly been trading longer, which is just logical that they would then be ahead of the game.

Okay. So in the interest of time, Darren, I'll take one more question from [Katherine Child], company not mentioned. But companies from SA such as MTN, Pick n Pay and [Shopwise] have had issues in other markets in Africa. Why do you think Famous Brands will be any different and have success?

Look, we get asked that question a lot. I think we're being very cautious around our approach, slow and steady, and we've chosen selected markets where we have some legacy. And remember, we have 3 different models or route to market. So we have licensed model, which as an example Sudan was a license model. We have the franchise model, which is what we've done with most markets. And we have very successful franchise markets such as Zambia, and that is a model. And then of the company store model, which also has its place for regions like Botswana, which has also been successful. So we have those 3 models to choose from. And we can work within those models. I'm not saying we always get it right, and there are risks. And sometimes you have to change that model. So in our associate business in Nigeria, it was a franchise business when we invested in it, and it's transitioning to a company store model for various reasons. We have a very successful license business in Namibia. So I think fundamentally, those are the 3 reasons, but also, we do try and avoid risk. So there are markets that we just simply wouldn't go into. And we would be very cautious around certain markets, particularly where we have failed in the past.

Thanks for that, Darren. I mean, in closing, I mean, it would be remiss of me not to mention that we've also received a few compliments from the market. So -- but obviously, I'll just leave it there, but the deck is quite busy. So there's probably a lot more that you have to take up on your one to ones.

Good. Thanks, Ntando. It's nice to hear. I'll pick those up later. I'm sure both Neli and I will be very excited to read those. I think really just to wrap up in terms of a reminder around our vision around being the leading innovative branded franchise and food service business in South Africa and selected markets, and we continue to be focused on that as a team. Thank you to everybody at Famous Brands, particularly our franchise partners for the support over this period to the Board and our executive colleagues for the support they've given to both Neli and I. Nedbank is always there for us when we need them. We've just gone through the property transaction as an example, just our sponsor, Standard Bank, and then always putting these results together Celeste, GMF [Indiscernible] GMF team. And then, yes, let's all go [Indiscernible]. So hopefully, we have a great weekend ahead of us and lots of celebration other than our results. Thank you.