South Africa’s biggest restaurant chains have concerns over future trading

Steers and Wimpy brand owner, Famous Brands, says that casual dining in South Africa will not return to normal until the global coronavirus pandemic has subsided – a process which it says will be “protracted and unforgiving”.

In reporting its annual financial results for the year ended 29 February 2020, the group’s performance over the period does not reflect the impact of the nationwide lockdown which came into effect in late March.

Famous Brands showed a return to profit, having suffered impairments from its Gourmet Burger Kitchen (GBK UK) business in the comparative reporting period.

Famous Brands said earlier in April that it would stop providing financial assistance to the company after the UK and Ireland closed all restaurants indefinitely because of Covid-19.

Group revenue was flat, up only 1% to R7.8 billion, with operating profits up 8% to R912 million.

Headline earnings per share climbed 32% to 417 cents.

Famous Brands said that no dividend will be paid for the second six months of the reporting period, to preserve cash.

The group has a portfolio of 24 restaurant brands, represented by 2,898 restaurants across South Africa (SA), the rest of Africa and the Middle East (AME), and the United Kingdom (UK).

“Trading conditions across our markets continued to deteriorate over the 2020 financial year, with South Africa edging into recession in the latter half of the review period.” it said. “Consumers in all our key jurisdictions faced significant financial pressure and business and consumer sentiment reached new lows.”

In its leading brands segment (including Steers, Wimpy, Debonairs, Milky Lane and Mugg & Bean) the group noted a strong performance across brands, with quick-service restaurants outperforming the more traditional diners in its portfolio.

Its signature brands including Salsa, Turn n Tender, and Tashas, struggled as a result of increasing competition, and pressure from the subdued economic environment over the period.

“In South Africa, weak macro-economic factors were compounded by country specific adversities, including the sluggish pace of transformational socio-economic reforms, frequent load-shedding, sustained poor community service delivery, and evidence of unsanctioned corruption,” Famous Brands said.

The group said that the first quarter of the current financial year, which commenced on 1 March 2020, has been extremely challenging for the business; “this trend will continue into the second quarter unless level 1 economic activity is implemented before then”.

The adverse financial impact on the travel and hospitality industry due to the Covid-19 global pandemic and the resultant national lockdown and trading restrictions has been severe thus far, Famous Brands said.

“The casual dining segment has been closed since the start of the lockdown. Our view is that it will only reopen once the Covid-19 global pandemic has subsided. This has a significant negative impact on our business.”

On Sunday evening, president Cyril Ramaphosa announced a relaxation in lockdown measures to level 3 from 1 June, which means the opening up of most retail activity, but excludes restaurant and pub facilities.

Some takeaway restaurants have been operational since 1 May through delivery only, while sit-down facilities will only be allowed at level 1.

Famous Brands said that the external operating environment post the Covid-19 global pandemic lockdown restrictions will provide ever-changing and challenging conditions.

“Our further concerns going forward are centred around how long the lockdown and trading restrictions will remain in force, as well as the potential impact on consumer spending behaviour post-lockdown,” it said.

The group said it has developed a three-prong strategy to secure its business over this period, specifically looking at expansion, consolidation and preserving cash.

In terms of expansion, Famous Brands said noted that its retail segment has continued to perform well during lockdown, due to retailers being able to remain in operation. It plans to expand on this segment, as well as its strongest leading food brands.

This includes ‘flexing’ brands like Wimpy, FEGO and Mugg & Bean and expanding their delivery options and capabilities.

However, the signature porfolio is likely to be consolidated, it said, where the group will focus on brands that show the best opportunity for scale, while exiting non-performing brands.

“Our ongoing programme to optimise the structure of this portfolio will be determined by the nature of the recovery of the casual dining segment – which is expected to be protracted and unforgiving,” Famous Brands said

Read: Tiger Brands faces R500 million-plus hit to profit because of lockdown

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South Africa’s biggest restaurant chains have concerns over future trading