Famous Brands Limited (FBR) Earnings Call Transcript & Summary

Good morning. Welcome on behalf of myself, Darren and Nelly to our F '25 Interim Financial Results Presentation. We're hosting them from our Midrand offices. We really value the interest that you've shown to register for this live audio webcast. Thank you, and a special welcome to Board Members of Famous Brands who are on the call, and to the Famous Brands family from our various offices across continent. And really, we've all worked hard to produce these results or these interim results in a very, very tough trading environment, particularly the first quarter. So, glad that you can share them with us and also nice to see some franchise partners registered on the call, which is also really good. And we're really privileged, Nelly and I, to be presenting these results on behalf of everybody at Famous Brands. They are, though, a mixed set of results as we certainly felt the bumps in the road, particularly in Q1 in the SA environment, which was definitely a follow-on from the Q4 of F '24. The last -- certainly last couple of months were rather challenging, but the underlying business anchored by Leading Brands is rock solid and we've got numerous exciting platforms for growth, which we're really, really excited about. And I think just a reminder for those who don't follow our business and are not necessarily clear on our business model is the driving force in our business is the restaurant. And nothing happens in our business until a sale happens in a restaurant. I'll take you through the agenda briefly as we go through this presentation. The presentation will be around an hour and split around 50 minutes for presentation and 10 minutes for questions. The presentation, together with the supplementary slides, will help assist in understanding the business and that will obviously be uploaded to our website after the presentation. I'm going to handle up till Slide 23. Nelly will handle the financial review and I'll come back with a strategy update and outlook. And then together, we will handle questions and answers. Ntando, as he has done historically, will handle the questions and he will bring those to us, certainly without fear or favor. And Ntando is our Group Risk Executive. Just some information from your perspective, you can make the full screen. At the bottom right, there's a button that you can click on and the questions for us, you can load via the portal on the top left of your screen. So, feel free to do that at any time during the presentation, but they will be dealt with after the formal presentation. The external environment has been rather tough, as I'm sure most of you know. You don't need me to tell you that, particularly in the SA environment. I want to talk briefly at a macro level how we felt around the economic and socio-economic factors. And it really is, I suppose, a tale of 2 halves, particularly in the SA context, the pre-election period and the post-election period, which I'm sure a lot of other people will talk to you about. And March to May was very difficult around pre-election uncertainty. In fact, when we presented to you in May, our full-year results was just before elections and I'm sure you picked up that we were anxious at the time and certainly had a very difficult lens to look through the forward-looking 6 months. There was severe load shedding in January to March, and the beginning of the year started with load shedding in March, a difficult time. And of course, the weak economy with low GDP growth is no news to anybody. But post the election and definitely mid-June when the GNU got formed in the SA context, definitely positives. Early stages of the national coalition policies are looking positive. No load shedding, probably the biggest positive factor for us in our particular industry, particularly as it assists with consistency of consumers moving out and about. And yes, in an environment in not just SA, in the African space with modest GDP growth and not off a great base either, but definitely post the elections and the GNU, an increased movement of consumers just generally from a social perspective, which is really positive for us, particularly around travel. There are challenges though. I mean, the global environment is difficult. In the SA context, local government instability is still a challenge. So outside of the GNU, across the municipalities and the major metros, there are still challenges and we're not seeing any significant improvements there. Service delivery protests continue and of course, water being a new battleground in the business front, making sure that you've got backup, which is nowhere near as easy as electricity is. And of course, the interest rate cycle is just turning. But through this period, we've seen significantly high interest rates. And from our perspective, our primary purpose through the 6 months has really been to support our franchisees through this tough economic cycle. And we definitely feel that we're emerging into a recovering economy. And although we are cautiously optimistic, we head towards the second half of the year feeling pretty, pretty bullish about the opportunities versus the first half of the year and certainly the back end of our previous financial year. In terms of the operating environment that we find ourselves in more specifically, and I'm really going to focus at a closer look at the first half of the year because it's quite easy to get drawn into the current situation as we speak today. I mean, this is a review of the first half of the year. The retail and restaurant industry landscape is feeling the bumps in the road, as most industries are. There's a few things that I suppose are unique to ourselves, and that is really around the online growth and mobile apps. Definitely, a part of the consumers' drive for convenience and we are definitely seeing the retailers continuing to climb in that space, although we do think that, that has got to a level of stability now and we're seeing that in our metrics. From our perspective too, the inconsistent labor policy monitoring, the hospitality sector has been quite aggressive in the past 6 months, particularly the back end of the interim period. But again, there's some inconsistency in the way that is policed and of course, there has been quite a lot of media hype around that particular issue. So, from our perspective, that is a different part of the industry that we have to deal with it that other sectors may not. But we are starting to see that creep through into our manufacturing business, but that is post the reporting period. On the consumer dynamics, definitely change is there, but there's a lot of consistency too, so probably more evolution than revolution. And the nice part of what we're seeing is that the third bullet point there is that sociability and people getting out and about is happening again at a much greater growth. And of course, that is good for our business, but that's balanced with the digital ordering focus on health, which still has a base and of course, provenance also being a key, key issue. The consumer confidence we talk about, though, it hasn't necessarily materialized through the half around spending, so definite period of pressure on our franchise partners for the period under review, which is what we are talking about right now. There have been obviously some great highlights. I mean, from our perspective, really looking to continue to drive the business, drive forward, be positive around the activities and sticking to our strategy and making sure that we deliver on some key things. So, a few of those highlights that we are very proud of. I mean, for the first time we've been recognized as a Level 1 BBBEE contributor, up from Level 2, which we've been consistent at. Our strategic intent still remains to focus on Level 2, but we have performed well and we will certainly make sure that where we can continue to retain that focus, we will. And we believe that has strong benefits for not just ourselves, but for our contribution to South African society. We're in the process of relocating our cold storage facilities from Crown Mines, and that project is well underway now and it commenced in May '24. And we're on track for Q1 of our next financial year for occupation. Shareholding in Munch, which happened in the back end of our last financial year, is also progressing well and as is the focus that we're putting continually into technology and developing our capabilities within the realms of our business. So yes, the Munch integration is nearly 12 months down the track and very good positive progress there. We continue to focus on our drive-thru presence and really focus strategically on closing the gap that we have there. And that again is without losing focus on our delivery hub concept. And through the period, the team added 12 new delivery hubs, so fantastic traction and momentum there. And we're really glad that we are focused on that, particularly given some of the labor challenges in the SA environment at the back end of the reporting period. It certainly helps when you are able to leverage your position. And during the period, we acquired the minority shareholding in our Famous Brands Coffee Company. We're acquiring it from our long standing partners of some 12 years, and we have integrated that fully into our manufacturing business during the period. In terms of our brand performance, which, as I said, the front end of the business is what drives it. That picture there is of our new combo store in Lorraine, Gqeberha. This is drive-thru and Mugg & Bean as we call it Clip-On. And really good progress from a brand perspective. And I'm going to cover South Africa first and really talk with an SA hat on and provide some context to that. So, our iconic world-class brands continue to enjoy consumer support and growth, and that is really the cornerstone of our business, very focused around the leading brands. We're making -- gaining momentum on drive-thru. Two of our 8 planned drive-thrus for this year have opened in the period. We're building momentum on our new restaurant pipeline. We're not necessarily comfortable with the level of openings in H1, and I'll talk about that a bit later, the hubs I spoke about. No load shedding since April is really a great highlight, probably a sad one to be saying, but really has made the business for ourselves and our franchise partners, our suppliers and for our consumers, a lot less complex and easier to navigate. The low consumer disposable income is certainly prevalent out there. We can see that in some of our data points. And again, one is hoping for that to slowly ease as some of the macro metrics are indicating that it will. Reduced food inflation has been a relief. And again, I will talk about that a little bit later and try and provide some insight as to where we've come from and where we're going to. South Africa, Signature Brands underperformed and the Signature Brands are only in the SA context now. We have closed our last restaurant in SADC with Signature Brands. So it's purely an SA business. And that's really due to fewer restaurants. So, we've had some closures there. And, of course, cost pressures in running that business. We want to make sure we continue to run it well, and there's been some cost increases there. Just in terms of the brands performance, if you saw the announcement earlier, you would have picked up the data. But clearly, finding some pressure on Signature Brands, both at like-for-like and system-wide sales. Leading Brands, and again, you'll see the difference in the 2 quarters are pushing through nicely, particularly given the underperformance in Q1. And given how tough March and April were, that is a very, very pleasing result. In terms of the -- obviously, overall, that pressure gets put down because of the Signature Brands performance, but we're pretty comfortable with that, as you'll see in a few slides' time as to how that got made up in terms of the 2 quarters. Our focus on Leading Brands and Signature Brands as 2 entities and 2 focus areas in the business continues. We think that has worked well for the business. You can see in some of the metrics, Leading Brands really starting to come back into its own. Although we opened 35 restaurants, it's not the number we're looking for, but we will be catching a lot of that up in H2, and we'll again talk about that number a little bit later. Significant progress on revamps. That does have some short-term pressure on some of the revenue, too, having done such a vast number in the period, particularly given that Easter was early this year. And of course, in line with some of the demographic changes we feel in the SA context, we regrettably had to close 14 restaurants in Leading Brands and 4 in Signature Brands. The positive there is that the momentum continues, and we continue to grow at like-for-like in Leading Brands' system-wide and continue to grow in new stores. There is work to do in Signature Brands, and that work is well underway. In terms of the geographic performance of that, I'll get to that. But really, I think important first to talk about retail selling price increases because in our business -- and I repeat what I said at our year-end webcast, I think it's important, although it's repeating, is that we are proud that our brands are consumer brands. That's a key aspect. And what we sell, people put in their mouths. And as hard as we might try, the reality is that these iconic products have become more expensive through this long food inflation cycle. And I'll focus on that over the next 2 slides. The orange trend line is really the important trend line because that's showing you what inflation we are carrying in our menu base and what consumers would be experiencing at that particular time. Again, the April peak pushed some pressure on sales. But now that, that is working out of the base, we are very comfortable that the number that we are seeing now and certainly going into H2 is a number that we are very comfortable with. So, focus on the August end point because that's really a snapshot of where we are now and making it a little bit easier. But it's really clear that this has placed pressure on the consumer and you can see that in the next graph, which I'll go through right now. So taking a wider view on that, if you go back to July '23, which that graph indicates, you can see where our pressure point has been. And ultimately, that's been a pressure on the consumer and that's where we're at right now. If you focus in on August '24, I'll show you what H2 looks like. We're feeling very, very confident. So, there's a clear easing coming in H2, if you look at the August starting point and then the gray block with lower menu pricing, which has really happened in this October or about to happen during the October month. So, we'll be completed with menu cycles by the 1st of November, generally. And those numbers are a lot lower and starting to ease the basket price that consumers have felt. So, we try and mitigate this through value and innovation. And as I said at our full-year results, too, we don't use shrinkflation as a tactic. A Wimpy Burger as an example, is as wholesome, filling and familiar as it always has been. However, we do need to provide consumer with value, and that's where innovation is so important. So looking at where we've come from, it puts pressure into context and really positive around the outlook moving forward. And I understand there was some inflation data pushed out this morning, which again supports what we are saying and what we've experienced. So in terms of that geographic performance and if you take that inflation picture in your mind, you can see that there's a mixed bag of performance across our business. The like-for-like that we spoke about in the earlier graph for Leading Brands and system-wide at 3.2% is contextualized there by province. And of course, there are some real challenges within that provincial lens. Our most concerning right now is the Eastern Cape, and that does feel very pressurizing at this point and particularly the kind of belt running from Buffalo City through to Umtata, that sort of geography is where some of the pressure has been felt. It's typically been an area that's quite productive and is starting to feel quite suppressed from a consumer perspective right now. And the North West, we know that mining activity to some degree has been limited. You've heard about retrenchments, and we can see that coming through. And the Western Cape is probably a better bellwether for what we'd like good to look like and some nice recovery there despite the weather that they've had a very tough winter and consumers haven't enjoyed getting out and about too much, particularly during the week. So again, I've spoken a lot about quarter 1 and quarter 2 and alluded to it earlier. So if you take that 3.2% on Leading Brands and you unpack it, you can see why I talk about Q1, and it really, really was a particularly tough period for us, so both at system-wide and I'll get to like-on-like. The new store activity is starting to reflect better in Q2. So, we hadn't done a lot in Q1, as you can see there, particularly on QSR. So, that system-wide number was down. The revamp activity was creating some pressure in Q1, but not necessarily the real reason. And then, of course, the Eastern Cape slowdown I spoke about, definitely feeling a lot of that in Q1, but it's not necessarily easy in Q2, but other areas are starting to pull that up. From a like-for-like basis, again, a similar trend. So, you exclude the new store openings and the closures and definitely QSR bouncing back after a tough 6 months at the back end of H2 F '24 and you take these, the quarter 1, we've been through a really tough period. So, Q2 definitely improvement. And if you take quarter 1, how tough it was, I mean, if it wasn't for May, which had some decent trading at the end with the Election Day, it just really puts into context how tough March and April were. And the like-for-like sales do in Q2 reflect a better trend of the menu inflation and the outlook that I spoke about. There were some really positive moments around June and the long weekend, which was buoyant and school holidays, although they moved, definitely showed some buoyancy. And of course, the menu pricing in Q1 was also marginally helpful and that we didn't push the kind of prices through in April that we may have had to. And of course, Western Cape weather has suppressed that number in Q2 as well. They've had a very tough winter. Although that's certainly not an excuse, but definitely was underperformance versus what our anticipation was. Signature Brands, definitely not the same story in a very tough trading environment. We saw a significant deterioration in Q2. The store closures were also early in Q1. So, that did make it more difficult in terms of Q2. But March, April were tough, as I've said, and July were tough trading periods. Liquor license delays have added to some of the pressures. So, some of the new restaurants that we've opened or relocated as an example, we're battling, particularly in Gauteng to get liquor licenses out on time. Like-for-like, again, under pressure. So, not just the factors we've spoken about, but the discretionary income bracket is certainly putting pressure on the fun dining and luxury side. And we did also see less activity in hospital trade over election week, particularly with some of the potential noise around NHI also clouding that. But definitely, typically that week versus the prior year base, there wasn't a lot of activity in elective procedures, et cetera. The menu pricing is higher than Leading Brands. So the situation probably looks even worse than what it is due to the nature of the menu construct. But we are confident again that we're starting to see movement, people getting out and about and very optimistic around the performance in H2. In terms of the geographical lens, it extends beyond South Africa, really talking about SADC. And we've split the business up into these buckets at full year. So, you would be seeing some of this if you've been following us. But SADC is a key part of Leading Brands, and we're very excited about the growth prospects. We're building on an improved view of the business for investors, so splitting this out for you to see. And we're very excited about the performance and prospects of SADC. And those blocks there do give you some highlights. The revenue in rands increased by 3.8% because, obviously, it's a mixed bag of currency. Botswana in bullet terms was up nicely, which has been a bit of an achilles heel in this business for a while, given some of the macro pressures in Botswana. And Zambia, despite load shedding, which we're experiencing there and some pressure, sales up nicely and particularly a good performance out of that region. We opened our first Steers drive-thru outside of SA in Zimbabwe, which has also been exciting as a franchise store. And we're on track to open the delayed restaurants in DRC that I think I've spoken about for 2 reporting periods now. So, that's a really exciting highlight for SADC. The AME and the U.K. market has been very, very tough. We still believe there's growth potential, but there's also economic uncertainty. There's more focus on the performance for the business and the strategy, and we believe that this will provide improved disclosure to investors. Unfortunately, the performance picture is not good, but you didn't see the split at interims last year. So the split is now there, and you can see a fair comparative and, of course, track our progress. A few highlights there is that, I mean, inflation is still trending upwards in some markets. The Mauritius turnaround, where we've acquired 51% of the operation and are in the process of a turnaround project there is progressing well. We're putting our consumer-facing technology into the market, and we opened Debonairs Pizza in Cairo, which is an exciting moment for us. And we, in fact, subsequently opened a second store after the reporting period. But the low consumer confidence in the U.K. has definitely impacted, and Nelly will talk about that in the results. You'll see that number jumping out. Now supply chain, which is a key part of our business and really is a servicing front -- the service -- the back end is in service of the front end, where there's been inflation there that has driven those price increases that I spoke about earlier. And I'm going to just give you a quick snapshot there of the impact of inflation on input costs. So, coffee prices have probably been the most aggressive. I bumped to my colleagues earlier. They tell me that there's stability right now, but it's at this elevated level. And there is another pivotal moment coming soon as to whether that moves up or down again, but we've definitely felt pressure. The soya and sunflower market continues to see upward pressure, and that is a key ingredient into our cold sauces. Chicken pricing continues to trend upwards. Potato prices are stable, but at a high level. And of course, that remains a level of anxiety for us. Beef prices have also been stable, and we are seeing some marginal movement there, but potentially downwards even though they've been expected to go up. And then milk prices have come down slightly and which has been helpful. So again, managing inflation is not just as simple as everything going up, you're also managing some of the downward cycles, which are things that are gratefully received at times. In manufacturing, again, a very interesting picture, and this is a new insight that we are providing. We haven't provided this at previous presentations. So, we've seen a revenue increase, but it's been driven in a strange way. And it's our basket that is changing in mix. And of course, you're seeing some volume decline, but we've got price inflation. And of course, that mix is actually -- is putting pressure on the revenue. And that really is a function of what is happening on the menu front in the restaurants and really what consumers are buying, what we're promoting. And of course, that's around adapting to value and moving through that. We recognize that we had some savings in diesel around generator savings, which were in the base last year, but those have definitely been negated by these lower volumes and certainly increase in overhead. So, not necessarily splitting back out of the bottom line. So again, I think this is something that we'll watch going forward. You'll see how this also pans out into logistics because this is everything that we make for franchisees and for retail. And again, that mix changes over time. But we're definitely seeing mix changes probably more radically than we have done in the past. On logistics, that mix also comes through. So, a very similar graph on that side. You can see in this case, though, we had more volume. And again, that will talk to the mix. And remember that logistics doesn't just carry our own manufacturing items, it carries third-party items, which our franchise partners use. So the volume to back door in cases is growing, but the price inflation number is not where you would think it would be. So, we're carrying lower inflation than probably what you would have anticipated, but then a negative change in mix, which again talks to menu changes and talks to consumer changes on consumer behavior. So, a number that we haven't previously disclosed, and I'm sure investors will find that interesting and be able to talk through that. But again, it just shows you how nimble and agile our supply chain business is and how we can adapt to these changes. From a retail perspective, again, a disappointing story for us and that we've been building momentum on this particular business. And in this period, we've really struggled with one category, as you can see on that graph, and that's potato chips. So, we had a very good period this time last year, where we were performing well. There was a competitor struggling to supply. And I don't think we've adapted as well as we could have to that competitor coming back into the marketplace, as well as imports that have come in. So, that is really the knock on the performance in that particular category. Coffee, as you would expect, is under pressure given the high pricing that has come through. So, I'm not sure that there's anything different there other than it's a highly competitive category and a lot of price has been passed on to consumer across the category. But really need to continue to focus on our innovation. We think we've done good work on the innovation, and we'll continue to focus on that. Right. So, I'm going to just pause there, and I'm going to ask Nelly to take you through the financial side of it, which hopefully will put some context to the comments that I've given you. Thanks, Nelly.

Thank you, Darren. Good morning, ladies and gentlemen. Darren has provided quite a lot of in-depth context in terms of our operating environment. So as he has also just indicated, in this instance, I will then endeavor to provide some financial context into some of the performance areas. But before I move on to talk about the numbers, I just want to say we appreciate our consumers who continue to elect our brands for their meal occasions, whilst they are undergoing recovery of their own from a disposable income perspective. Now if we have a look at our half year set of results, this is truly a demonstration of our world-class iconic brands, which continue to provide quality and value offering. It reflects our capital allocation, which is in line with our strategic focus and those capitals, which, including very important asset, our Famous Brands' employees, are the inputs that we have to maintain our strong cash-generating position. Now if we have a look at some of our key measures, comparing these to our August 2023 results, revenue slightly increased by 2% due to a combination of volume and pricing already mentioned by Darren earlier. Our gross margins remained stable and consistent with prior period. We reached the same results as August 2023, with our operating profit of ZAR 371 million and operating profit margin of 9.2% due to top line and cost management initiatives. Our reported headline earnings of ZAR 2.18 per share is 9.5% higher to prior period, and this is driven mainly by the reduction in our finance costs, which has been a focus on our debt capital repayment. And it's something, which, as Famous Brands, we have continued to say is a key focus area for us. And we've also recently bought 38% of the non-controlling interest of Famous Brands Coffee Company. We remain focused on managing our working capital to fund the requirements of the business, despite that we have reported a slight decline on our cash generated from operations against prior period. If you have a look in our long form, this is also reflected in the slight decline of our cash realization rate. It's at the back of these results that we are proud to say we are providing -- we are paying a dividend of ZAR 1.50 per share to our shareholders. If we take an in-depth look at our revenue, the focus is on our segment revenue. These results are from revenue pools, which are before eliminations. You will clearly see that some of our divisions are reflecting pressure in reflection of our trading environment. From an overall revenue, marginally, we have ZAR 77 million, which has increased from the prior period, and this is driven by a mix of our volume and pricing, though in some areas, we have seen a slowdown in volume, especially if we had a look at our QSR. At the front end, the Leading Brands portfolio continues to maintain its performance levels, mainly driven by our casual dining restaurant brands. However, Signature Brands portfolio performance has declined due to some of the matters mentioned around fewer company-owned stores, which has also contributed to lower franchise fees. We significantly reduced the energy relief to our franchise partners who were trading during load shedding as there was no load shedding for 5 of the 6 months in our reporting period. At the back end of our vertically integrated business, manufacturing and logistics revenue was driven by a combination of price inflation and in some cases, also case volumes, which is an activity from the front end and our retail sales. Our retail revenue was below our expectation as the demand for potato chips significantly declined due to alternative supply. The growth in SADC and AME was due to restaurant growth in Botswana, as well as our acquisition of the company-owned stores in Mauritius at the back end of 2024. Our operating profit was flat from the prior period, where franchising results across the group were below our expectations, except for Leading Brands in South Africa, which benefited from growth and elements of cost savings. Supply chain was shy of its performance from the prior period as logistics operating profit decline was driven by pressures on top line due to product mix margins. However, we have made some savings in terms of our operating overheads, where we have costs that we have saved from load shedding resulting from diesel usage and generator maintenance and supply chain, as well as energy breaks and franchising and marketing fees. In addition to some of these overheads where we've made savings is depreciation as we have deferred some of our capital expenditure, which I will deal with later in our -- around our CapEx matters, as well as in areas of employee costs where we have not necessarily filled the roles. Unfortunately, as we do savings in one area, there's additional costs that we incur. So in our usage of electricity, we have seen that the increase in the usage has also resulted in higher costs, which partially wiped off some of our savings that we've made. We maintained operating margins at similar historical levels despite some of our top line and cost pressures, which I've already discussed. We are circumspect in terms of our capital expenditure. Thus, we are focusing only on critical investments to deliver on our strategy. The approved budgets are evaluated before any funding is allocated. And we will take a similar position in our H2, where both our budgeted and deferred projects will be evaluated for returns before we allocate any funding. We will seek to keep our CapEx at similar historical levels. And to date, we have spent ZAR 91 million, which is about 2.3% as CapEx to our revenue across all our divisions and geographies. We thought we'd add a little bit more color in terms of where the spend was allocated. So from a brand perspective, the spend was across our different markets where we've had leasehold improvements in terms of our store rollouts and revamps. Centrally, we are investing in consumer-facing technology. From a back end, our supply chain, we've allocated capital for alternative power solutions, focusing on operational efficiency as well as implementation on technology. You will see we've got a new category of property investment. We thought we should just highlight that and put it as a stand-alone. That relates to the construction of our cold storage facility, which is in Midrand, and then that is currently in the asset class of land and buildings. We have a healthy balance sheet. When we look at our net working capital, that has slightly increased in line with our operational needs of the business. And for inventory holdings, those are at similar levels in prior period in anticipation of our peak season and the activity thereof. From a trade receivables, we are at similar levels. Thus, we have maintained consistent credit risk management policies. What I also just -- the difference to highlight is on the prepayments, which have increased due to our IT costs and insurance-related costs. Our trade and other payables have been driven mainly by the business activities. Our borrowings are currently standing at ZAR 1.1 billion. Just on a different call out is that we have ZAR 450 million, which we've classified as current liabilities. That is financing, which is due for repayment in 12 months' time, but what we're currently doing is we are in discussions with our lender on refinancing. Our cash balances have reduced at the end of the period, mainly due to the acquisition of our non-controlling shareholder interest in Famous Brands Coffee. And on the very same course, we were able to return ZAR 302 million as dividends to our shareholders. Based on our financial performance, our balance sheet maintains its strength and our net asset value has increased by 16% to ZAR 10.96 per share from August 2023. Important to any business is how cash is being managed. So in terms of where we are around our cash flow, our cash generated from operations declined from prior period. However, we still proceeded to fund our capital allocation priorities, including the settlement of our long-term incentive scheme as part of our executive rewards. We were able to pay our dividends to our both Famous Brands shareholders and non-controlling shareholders, investing in our significant capital projects. We repaid our debts and the related finance costs, and we also commenced the development of our cold storage facility, which we aim to relocate our Crown Mines facilities in May 2025. Ladies and gentlemen, in addition to the closing balance that we have of ZAR 324 million, we have access to ZAR 213 million under our undrawn credit facilities, indicating that we have sufficient liquidity and flexibility to fund the business. In my conclusion, we remain committed to the delivery of our strategy. Thus, we are very circumspect and selective on our investment opportunities. Our balance sheet strength provides us with the attractive leverage levels to explore viable asset growth for the future. Thank you, Darren.

Great. Thanks, Nelly. So as we head towards question time, I just really wanted to spend a little bit of time just to recap on strategy because we really are confident that we are delivering on the strategy. We're leveraging our assets and most importantly, meeting consumer needs. And we remain excited about the journey that we're on despite a few setbacks over this past 6 months. In terms of our strategic intent, which, again, those of you who follow us will be familiar with, and I've really tried to keep it simple there, but we're really about growing capability and capacity to create innovative branded food service solutions and that remains a focus for us. Mutually beneficial relationship with our franchise partners is absolutely critical. It's the cornerstone of our business. As I said, nothing happens in our business unless the sale happens in a restaurant, and that's more than likely to be a franchise restaurant. And ultimately, this industry is around great consumer experiences, and that's what we strive for every day and what we hope that our franchise partners strive for with us every day. And of course, sustainable like-for-like growth is critical in this industry, and you've seen the past 6 months have been relatively tough. And as we emerge into a much brighter future, we're very positive around delivering on that in a more stable inflation environment. And we've achieved marginal revenue growth in the period in tough trading conditions. So, again, we think that, that aligns well with the strategy. Our operating profit is stable. We've improved our HEPS. And again, the balance sheet is helping to support the business to grow. We've achieved organic growth, which is, again, a key metric for us. And most importantly, continue to support our franchise partners where we need to do through this period and delivering on the promises that we have to make and making sure we are supporting them to run their businesses properly. And of course, you get to a point in time where you have to take a view on the future, and we have -- we are very focused on the outlook and priorities. We are very confident we have the right brands, the right strategy to grow, to focus on increasing our market share and of course, to rebuild our margins both for ourselves and our franchise partners. There's no doubt that there's headwinds out there. You don't need me to tell you that. And some of those headwinds around electricity are probably going to continue. The consumer disposable income is likely to be constrained even over the next 6 months, maybe eased versus the first 6 months. The competitive environment that we're in is highly competitive. It's not amateur. We're up against global and local brands, and we continue to fight for our market share. Signature Brands remain subscale, and we continue to focus on that. We have some very exciting brands there. We have a motivated team. We're across a couple of segments. But ultimately, the business remains subscale, and that's the challenge that we face and we need to continue to focus. And of course, in a tight environment, that has become more difficult. We're investing ahead of revenue in AME. And as you're seeing and you're seeing some of the historical data that, that has cost us and we need to be very, very focused on that and making sure that we deliver returns moving forward. The chicken category is definitely building momentum, and we're seeing that over other food types. So across the board, we're seeing that chicken is definitely starting to be, I suppose, the consumer's favorite, which is not new in the SA context, but there's definitely a shift, and that's across chicken types as well or the way chicken is prepared. So, some interesting things coming out of there. I wouldn't say that something else is falling out of favor, but definitely something that we're watching. And there's been a lot said around the coffee environment. I mean, coffee is a global exciting product. But again, in the SA context, we think that the environment is potentially overtraded and a lots going on in that space, and kind of reminds me of the craft beer environment probably 8 years to 10 years ago. In terms of the tailwinds, though, it's not all difficult. So, we can't sit here and say life is tough, with the macro environment we deal with. But the downward pressure on interest rates, as we've already seen one signal is really positive, and we can already see that there's some momentum around that. The decreasing fuel prices, although they do fluctuate, but just generally is a positive. I'm not going to dwell on food inflation because I spoke a lot about that earlier, but it's a very key part of our business. And if we can get food inflation in line with core inflation, that would be a nice sweet spot for us to work with. Our brand teams, particularly Leading Brands have got aggressive promotional activity. They're well planned and well versed in what they need to do. Tough environment out there, but we're confident in that pipeline and we'll execute over the next 6 months. There's definitely increased disposable income from retirement fund withdrawals. If you just look at the data that is coming out in terms of the quantum, and I suppose anybody in business can see that from their own environment and the kind of traction that this -- the Two-Pot system has had is definitely going to translate into consumer spending of some sort. So, we think we'll be a beneficiary of that over certainly the next 6 months. Our new store opening pipeline, as I alluded to earlier, is definitely rebuilding momentum. We had a slower H1 than we hoped. We are targeting a bank number of 89 new restaurants across the group in the second half. So, some pressure on our projects teams and operations teams to perform on that, but we're very confident around that and more focused on exceeding that number than under-delivering against that particular number. And we are blessed and that we continue to have interest from new franchise partners interested in joining our business as well as existing franchise partners. So from our perspective, that is probably one of the best tailwinds to have in a business like ours. In terms of just some of the way we respond to these headwinds and less so the tailwinds is really a relentless focus on marketing quality. These are consumer brands in the most case that we deal with, both at retail, Leading Brands and to a degree, Signature Brands, and we need to make sure that we continue to focus on making sure that we do the best job possible from a marketing perspective. And that's, I suppose, as oldest time immemorial, but it does get harder out there as the digital landscape changes, the media landscape changes, and of course, you're in a highly competitive environment. And making sure that our menu meets the price points and product ranges that the consumer has in their wallet. And I mean, ultimately, that's what it's about. And I think you've seen -- I spoke a lot about product mix that's impacted on the supply chain and a lot of that has been driven from the front end. So, you're seeing the net result of how that changes. And of course, when you're in an environment that's potentially overtraded in some categories is avoiding marginal sites. We're a franchising business. At the heart of what we do, we sell franchises, and we need to make sure that we avoid getting sucked into a situation where we're chasing marginal sites. Again, I spoke about the chicken side, but we have definitely put more work into chicken, and that is more prevalent on our menus across the board in certain key brands. Obviously, excluding brands like Fishaways and Milky Lane, it goes without saying. But in terms of how we adjust chicken and take the chicken to the consumer. And of course, again, I spoke about we sell franchises, but making sure that we focus on sustainable franchising, not just new but existing, and you hear us talk a lot around that and how we provide assistance to franchisees to get through these tough times. We really think that we've got through the toughest of the tough times and looking forward to the future. But that will always continue to be a key part of how we deal with the headwinds that we face. So from our perspective, we've been talking a lot about building momentum up to now, but we're absolutely confident we have momentum and that is very, very important. And we're feeling confident about our future performance. So with that, probably the right time to jump into Q&A, and let's hope the questions are as positive as we feel. So, I'm going to ask Ntando, our Group Risk Executive, to address those questions that have come through.

Thanks, Darren. Sure. I have quite a busy deck. I mean, lots and lots of questions. Anthony Clark, quick out of the blocks and lots of questions from Matthew James. So I'll try and get through the deck as quickly as I can, obviously, considering the amount of time that we have for questions. So without any further ado, let's jump straight into it. Anthony Clark of Small Daily Talk research. The chicken suppliers indicated to me that the pull-through of product demand has improved in the past weeks. Is Famous Brands seeing that increased pull-through and consumer uptake? That's the one question. Followed up by, I'm also told that there is a growing incidence due to cost of consumers opting for cheaper chicken over beef patties. What is the Famous Brands' experience? How have chicken meals sales versus beef changed?

Thanks, Ntando. I'd like to think I answered some of that in the last slide, actually coincidentally. I mean, we spoke about chicken and the shift. So, I would concur with what Anthony is probably picking up from his suppliers. I'm not sure though that the comment about the growing instance of the cost of consumers opting for cheaper or the trade-off to beef. I wasn't quite sure how you said it. But -- so that perspective, we're not necessarily seeing, saying, okay, well, I'm going to trade from beef to chicken deliberately around price because we're quite focused around how we price those items. Our view is that chicken is just essentially just picking up around an interest in the food type. It could well have a health lens. And surprisingly, you would think that would be in favor of or leaning towards items like vegetarian, which it's not. So, I wouldn't like to say that, that chicken, beef interplay is the reason for that. I think, as an example, the price of lamb, which is a protein component, pork are having an impact on that, but there generally is an uptake. And also, there's a lot more availability in the chicken category. We are seeing some move -- a lot more interest around not just fried but also grilled chicken as a food type, which typically has always been there, but not to the same levels of consumer interest that is there now. So, I hope that answers that, Anthony.

Okay. Thanks for that. Nompilo Goba from Business Day. Over which period did the restaurant closures mentioned in the presentation take place? Is this during the 6 months in review? What were the primary reasons behind these closures? And are you foreseeing more closures in the near future?

Yes. So the data we spoke about is specifically closures in the 6-month period under review, so the March to August. So that is clear. The primary reasons -- I mean, generally, as a rule of thumb, what we're seeing is demographic changes. So we are trading precinct becomes just so challenging that you can't continue or the franchisee particularly can't continue to trade there viably. In some cases, as in Signature Brands, it may well be a shift over to a competitor. It's a slightly more competitive environment around that. But typically, with Leading Brands, it would be a demographic change. So, I mean, one that comes to mind was The Bridge Center in Gqeberha as example where we've got a triple combo that closed. I mean, we've traded there for a long time, but that trading precinct certainly is very difficult to trade in, impacted by load shedding, some challenges. So it's not that we would be losing to a competitor, but the viability of that precinct becomes a problem. And there are always other examples of that.

Okay. So a question from Matthew James, Laurium Capital. Can you provide some info on how Q1 sales differed to Q2? Was there a noticeable pickup post elections? And then can you comment on trading post August?

Yes. As I've said in the presentation, I think clear March and April were particularly tough. So, they had the biggest impact on Q1. May was interesting because Election Day itself was particularly buoyant, but then month end wasn't. So, I would say Q1 overall was suppressed. So, I'm not quite clear on the difference in sales. I mean, I think a lot of it is around pre-election uncertainty. The shift, though, between Easter falling fully into March over month end and having Ramadan was really not a great recipe. So, some of it may well just be a simple seasonality timing issue. And of course, with some of the macro factors and the election looming, people didn't necessarily travel, take school holidays, et cetera, the way that they may have done in the base period that we are comparing about. So in terms of the second half of the question -- there was a second part?

Yes. So the second half basically looking into how trade is looking post August.

Yes. September was positive versus where we've been below our own expectations, which were clearly set some time back, but we would be comfortable with September trading and October has been building momentum on that. So it's still obviously early October month end is always critical. So, I would -- I think the September, there was a public holiday. It was positive in September, not where we want to be, but definitely momentum. And we saw certainly across the provincial lens, a lot more of a consistent performance and some rectification of some data that we've seen that hasn't been great. So yes, I would put probably a green tick to September and then potentially October is may be a big green tick if month end delivers. At the moment, we're seeing positive signs.

Okay. Perhaps a question for Nelly. [ Peter Combrink ], Major Market. Can you please elaborate on the preferred structure of refinancing of the debt maturing in August 2025?

Thank you, Ntando. Just to respond to Peter, I think where we are right now, we are at the early stages where we are engaging with our investment committee in terms of how to basically structure the debt or the refinancing going forward. But what I would say is important for us is that whichever structure we take, it's anchored on being able to give us the flexibility to drive and deliver on our strategy. So as we look to access debt and look at the structures of all of the different products, it's important that the leverages and the gearing from our balance sheet maintains a healthy position for us to be able to take it forward. So at this point, I would just conclude by saying it's still something that is in work in progress.

Okay. Probably let me take a question from Steph Erasmus, Anchor Capital. Thank you for the presentation. Of the new 89 stores to be opened in H2, how many are outside of SA and SADC? Are there not SA opportunities that offer less risky growth than investing ahead of revenue in AME?

So the bulk of the 89 are SA driven. It's probably about 82. I mean, the number for AME and the U.K. would be fairly small going forward in this particular half. The comment about opportunities in SA versus AME, I don't think it's an either/or. So from our perspective, we don't walk away from an opportunity in SA because we want to invest in AME. The SA strategy is clear. The Leading Brands team here run SADC and SA, and they're very focused. So it wouldn't be a trade-off, and we have a specific and separate strategy regarding AME to leverage our intellectual property. So I wouldn't, Steph, think that it's a trade-off of the 2. I hear what you're saying, but we're not saying, well, we could have opened 10 more stores in SA if we hadn't done that. I mean, AME are resourced to do what they've got to do and so are the SA team at this stage. And that's the part we talk about investing, I suppose, ahead of the curve in AME to make sure we can execute on that.

Okay. A question from Ian from [ AGON ]. Congrats on the results. To what extent do dark kitchens become part of the strategy, given the changing landscape and pivot towards digital platforms? Would there be a significant margin benefit to this?

Yes. Look, dark kitchens have always been part of what our potential offering is. We have a few, but they're limited. We have seen a lot more uptake of them in a market like Dubai, as an example, where the market is very strong and driven by aggregators. But I'm not sure that the margin benefit would be great. I mean, the margin for us as a franchisor is pretty much the same to some degree. But the margin for the franchisee is very, very different in a dark kitchen versus a retail store. But we definitely see that, that landscape is stable to some degree. We don't see the ramp-up that you saw probably the back end of sort of 2009 and then -- 2019, apologies. And then, obviously, the trigger from COVID. We're definitely not seeing that kind of data. So from our perspective, we think it's a very, very stable market and not something that is going to grow. But there's always a place for dark kitchen for whatever reason, and we have -- again, I'll repeat, have examples of those in our business.

Okay. I'll try and squeeze in 2 more questions. So one from Tinashe Hofisi, SBG Securities. Can you explain the disconnect in volumes between manufacturing and logistics in H1? Manufacturing volumes were down while logistics volume increased.

Okay. So, yes, I think that's fairly simple in that. So, logistics carries product for manufacturing and for third parties. So roughly, logistics has up to 1,400, 1,500 SKUs, depends on the menu mix at the time and only around 450 to 500 of those would be supplied out of manufacturing. So, what that's telling you is that what's been delivered to the back door and that mix is probably more cases that are coming out of the non-manufactured side for whatever reason. It could be a whole host of things. It may be non-food items. But that's really the mix. So essentially, less of what's coming through our own factories potentially versus what franchisees may be buying, and that's to execute on the menu at whatever that may be at the time.

Okay. So the final question I'll take, Darren, is from Nick Wilson, News24. On the point of the coffee sector being overtraded and a bit like the craft beer market a decade ago, what do you think the implications of this are locally, both for consumers and players in this segment?

For consumers, it's great. So, I think from a perspective, it helps to grow the category, consumers get access to the products. For the players, it's more challenging because potentially, you've got to try and run a business that is subscale. I mean, particularly coffee is a very tight trading time. It's not necessarily an all-day segment. I mean, some people would disagree that, but certainly has a daytime, early-day bias. So, yes, I think for the consumer, it's great, and you'll see it grow. But I think for the players, definitely more challenging because you have to run that operation and be open for the consumer, but you've got to do the volume, too. And of course, with the commodity price, there's not necessarily a huge competitive advantage that you get.

Okay. So, I mean, that's all the time we have for questions. So, I'll hand it back to you to close.

Great. Thank you, Ntando. Professional as always. Thank you on behalf of Nelly and myself to you for listening to us. A special thanks to the finance team for putting all this together, to our key partners in Nedbank who funds us, our sponsor, Standard Bank, to everybody at Famous Brands and particularly, our franchise partners for supporting us and delivering these results, my Board and executive colleagues for the personal support that they give to me and to our new Chairman, Chris, who's made the transition seamless. So it's really been great. He took his first meeting in August. And lastly, to the team that puts us together, to Celeste, Laura, the [ INS ] team and [ Yulandy ] for everything that they've done. So, thank you very much. And yes, we look forward to engaging with shareholders post this, but also to engaging with you at our next session.