Famous Brands' UK burger chain acquisition bites
The company sees an R874 million impairment on its Gourmet Burger Kitchen acquisition.
JSE-listed Famous Brands shed R880 million from its market capitalisation on Monday after the restaurant franchiser said it faces an R874 million impairment on its R2.1 billion acquisition of a UK-based burger business in 2016.
Famous Brands – the owner and operator of eateries such as Steers, Wimpy, Debonairs Pizza, tashas, Mythos and others – blamed the impairment on tough trading conditions, which resulted in sustained underperformance of its UK-based Gourmet Burger Kitchen (GBK) business.
Its shares finished 8.8 percent lower to R93.20 on Monday.
Since Famous Brands acquired GBK in 2016 – the biggest deal under former CEO Kevin Hedderwick – the business has not lived up to expectations.
The R874 million impairment of GBK, which Famous Brands announced on Monday, suggests that it overpaid for the acquisition.
GBK’s contribution to Famous Brands’ profitability is taking longer than initially anticipated, as the UK burger business has been hit lower consumer spending and concerns that Brexit might result in disposable incomes being under pressure.
According to The Times UK, GBK plans to press ahead with an insolvency process to close outlets and cut rents. The process will require landlords of GBK’s outlets to agree to a rent reduction or face having the keys handed back on loss-making sites, said the media outlet.
Famous Brands will announce its results on October 29.
For the six months ended August 31, Famous Brands expects GBK to record an operating loss of £2.6 million (R49 million) compared to a loss of £872 000 (R16 million) in the corresponding period last year. Meanwhile, Famous Brands expects to report an interim loss of up to R6.23 per share compared with the R1.71 per share reported in the corresponding period last year.
The impairment of GBK by Famous Brands underscores the dangers of South African businesses buying large businesses in offshore markets without proper management and business strategies.
Domestic companies have diversified to offshore markets – with aplomb – in a desperate attempt to find growing economies and markers as South Africa flounders.
Market watchers have warned against South African businesses thinking they can easily replicate their home market success in offshore markets.
Famous Brands now joins clothing and food retailer Woolworths in writing down the value of their offshore businesses. Woolworths said in January that it would write down the value of its Australian department store retailer, David Jones, by R6.9 billion. It bought David Jones in 2014 for R21.5 billion.