Class rep is to submit the group member names.

Once the groups have been

submitted and approved by your lecturers, you may commence with the
assignment.

Due date for written presentation and powerpoint slides : Monday 14 October
2024

Famous Brands Ltd. (FB) is Africa’s leading food services company, owning such well-
known brands as Wimpy, Steers, Debonairs Pizza and Mugg and Bean to name just a
few. In the online publication ‘inceConnect’ dated 1st June 2021, report was published
on the just released results of the company (copied below) which could be described
as particularly negative.

Famous Brands' cupboard is bare

The food industry has been among the worst-affected industries under lockdown restrictions.
Famous Brands went into the pandemic on the back foot, reeling from a disastrous acquisition in
the UK and a vulnerable balance sheet.

In the 12 months to February 2021, group revenue fell 35% and operating profit took a 79%
hiding. The headline loss per share of 86 cents per share is a sorry state of affairs vs. positive
headline earnings of 417 cents per share in FY20.

Unsurprisingly, the dividend is gone from the menu. At this stage, the lenders are putting
significant debt covenants into the system which will restrict Famous Brands from showing the
love to shareholders. Famous Brands must achieve net debt: EBITDA of less than 2.5 times
before declaring any dividends.

The South African businesses reported a 42% decline in revenue, as our country followed a
particularly harsh lockdown approach. Companies simply aren't structured to do well under
these circumstances, with fixed costs that aren't easy to reduce in response to an industry being
shut down. As a result, operating profit margin dropped to 29.9% from 48.5%.

The Signature brands portfolio took the biggest hit, with sit-down restaurants affected terribly by
the pandemic. The situation is best summed up by this excerpt: "During the review period, we
sold tashas and mothballed the Europa and Keg brands."

The Africa and Middle East region fared better than South Africa, with sales down 22.9%.
Operating profit margin was just 9.5% (vs. 17.5% in the comparable period).
The UK situation has gone from bad to worse for Famous Brands. Wimpy UK saw its turnover
drop 19.4% and that's the highlight from that region. Gourmet Burger Kitchen, which has been
to Famous Brands what David Jones has been to Woolworths (and arguably worse), is under
administration and fully impaired by Famous Brands in the interim period to August 2020.

Famous Brands is up 26% YTD as investors look to a brighter future. The significant risk is a
third wave and associated lockdowns, although we simply have to live in hope that the economic
horror movie of 2020 will not have a sequel.
Extracts from the Consolidated Financial Statements of Famous Brands Limited for the
Year end 28th February 2021 that the reporter was commenting on, are included
below.
^Relates to impairments
- Cost of sales include Depreciation of R275.983m (2020:R306.252m) and Amortisation of intangible assets
R22.847m (2020: R23.641m)
- Loss from discontinued operations relates to the insolvency of a British subsidiary. Reduction in Property Plant
and Equipment and Intangibles were similarly largely as a result of the disposal and impairment respectively of
this business.

Whereas FB declared a dividend of 90c per share in 2020, no dividend was declared for
the financial year to 28 February 2021. The number of shares in issue averaged
100.197million (2020:100.102 million). Headline EPS for the current year amounted to
a loss of 86 cents (2020: +417) whereas Basic EPS was a loss of 1237 cents (2020: +362).
At the current financial year end FB shares were trading at R4.597 (2020: R5.500), but
had rebounded to trade at R6.199 when the inceConnect report copied above was
written.

Whilst Famous Brands may be most well-known for its Brands, its key pillars as per the
company’s web site extend to manufacturing and logistics. The company has 12
manufacturing plants and 10 logistics sites. The manufacturing division produces a
range of licensed products for delivery to the franchise network, company owned stores
and to selected retail customers, whilst the logistics business delivers the product to
the company owned stores and the franchise network.

References:
• https://www.inceconnect.co.za/article/famous-brands-cupboard-is-
bare?cid=PDM17653&bid=540862142

• https://thevault.exchange/?get_group_doc=275/1622476409-
FamousBrandsAnnualResultsBooklet20211522020210531V10AES17h07singles.pdf
Required:
PART A: WRITTEN

1. Based on the information provided, perform a ratio analysis of the financial

performance and financial position of the Group for the 2021 financial
year.
Calculate the following :
a) Growth in revenue as a percentage 2
b) Net profit growth as a percentage 2

Liquidity ratios
c) Calculate the current ratio for 2020 and 2021 2
d) Calculate the acid test ratio for 2020 and 2021 2
e) Comment on the liquidity ratios. Compare ratios of the group in 2020
to that of 2021. 2

Efficiency ratios
f) Calculate the inventory turnover for 2020 and 2021 2
g) Calculate the days inventory was on hand for 2020 and 2021 2
h) Calculate the receivable in days ( debtors collection period) for 2020
and 2021 2
i) Calculate the payables in days ( creditors payment period) for 2020 and
2021 2
j) Discuss the efficiency ratios under their relevant headings. Compare
ratios of the group in 2020 to that of 2021 5

Profitability ratios
k) Calculate the gross profit (GP) margin for 2020 and 2021 2
l) Calculate the operating profit margin for 2020 and 2021 2
m) Calculate the Return on operating assets for 2020 and 2021 2
n) Calculate the Return on Equity for 2020 and 2021 2
 Solvency ratios
o) Calculate the debt to equity ratio for 2020 and 2021 2
p) Calculate the interest cover ratio for 2020 and 2021 2
q) Comment on the solvency ratios. Compare ratios of the group in 2020 3
to that of 2021.

Your answer should include appropriate calculations and relevant ratios

and should compare the performance of the group in 2020 to that of 2021.
(Work percentages and ratios to 2 decimal places).

2. Write your own report where: 20

based on your analysis of the profitability, you consider and comment on m
the views expressed in the inceConnect report (10) , ax
expanding your analysis where necessary, identifying more fully the impact
of Covid-19 on the group (8)
and identifying whether there is any positives in what is presented as a very
negative picture on the profitability of the company (5)

3. Include in the report: 10

A discussion on the market value of the shares, taking into account the most
updated results.

4. Discuss the strategic challenges faced by Famous Brands in light of their 10

international expansion strategy, specifically focusing on the UK
operations.

o Overview of the UK expansion: 3 marks

o Challenges faced (e.g., acquisition failures, COVID-19
impact): 4 marks
 o Recommendations for strategic improvement: 3 marks

5. Based on the group's financial position, suggest two key strategies that 10
Famous Brands could implement to improve its liquidity and profitability
post-pandemic. Justify your suggestions by Identification of strategies.
Provide a justification with examples or data

Format and presentation 2

Maximum 90 90

PART B : COMPULSORY ZOOM PRESENTATION

In addition to your written assignment, each group will be required to

present an oral summary of your analysis.

• Presentation Topic: "Financial Performance and Strategic

Challenges of Famous Brands Ltd: A Post-Pandemic Analysis"
• Format: Each group of six will present a 10-minute summary,
highlighting the key points from your written assignment.
• Platform: The presentations will take place over Zoom.
• Duration: Each group has 10 minutes to present, followed by a
short Q&A session.
• Make sure your presentation is clear, concise, and well-
coordinated. All group members must participate in the
presentation.

In this presentation, each group will be required to:

1. Summarize their ratio analysis and discuss the key financial

highlights for Famous Brands Ltd for 2020 and 2021.
2. Reflect on the impact of COVID-19 on the company’s profitability,
liquidity, and solvency.
3. Discuss the strategic challenges faced by the company, particularly
focusing on its UK operations and international expansion.
4. Offer recommendations for improving the company’s financial
position.

The presentation should condense their findings into a clear,

concise format, ensuring that each member contributes.