Famous Brands Integrated Annual Report 2013 - JSE€¦ · 2008 2009 2010 2011 2012: 2013 3 000 2 500 2 000 1 500 1 000 500 0: ... Famous Brands Integrated Annual Report 2013 About

Integrated Annual Report 2013

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CONTENTS

About Famous BrandsFinancial highlights IFC

Key stakeholders 2

Growth agenda 3

Trading footprint 4

Business model 4

Franchise network 5

Board of directors 8

Key management 12

Chairman’s statement 14

Chief Executive’s report 18

Report to stakeholdersSix year review 26

Value added statement 27

Corporate governance and sustainability report 28

Financial resultsAnnual financial statements 40

Shareholder analysis 95

Shareholders’ diary 95

Notice of annual general meeting 98

Form of proxy 103

Administration IBC

Financial highlights

BRAND HIGHLIGHTS› Satisfying results delivered by all

brands

›Grew existing market share and gained access to new markets

› 140 new restaurants opened and 136 revamped

›Rest of Africa growth continued to gain traction

›Awarded a range of consumer and industry best-in-class accolades

17%Revenue R2 516 million

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Financial highlights

13%Operating profit R466 million

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22%Headline earnings per share 339 cents

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LOGISTICS HIGHLIGHTS›Commissioned new distribution

centre capacity

›Maintained excellent operating margin

›Momentum gained in owner-driver programme

25%Dividends per share 250 cents

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MANUFACTURING HIGHLIGHTS›Capability built across the

business

› Strong growth fuelled by both organic and new business

› Solid operating margin despite increased input costs

8%Net borrowings to equity improved

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Key stakeholders

CLOSER TO THE CONSUMER

The Group has enjoyed a decade of strong organic, numeric and acquisitive growth, which has been fuelled by the “brand stewardship” business model.

While this has been extremely effective, in order to ensure another decade of growth, a shift is required from a single-minded focus on brands to that of a total food services business solution.

This will be achieved through an intensified focus on the Group’s two key stakeholders, its customers and consumers

ANOTHER DECADE OF GROWTH WILL BE UNDERPINNED BY FAMOUS BRANDS’ GROWTH CHAMPIONS AND FIT 4 PURPOSE INITIATIVES ...

CLOSER TO THE CUSTOMER

Every customer touchpoint housed within a stand-alone, decentralised and fully

accountable region

Develop a deep and intimate knowledge of markets in which we trade and compete

Become easier to do business with, speed of response times

Build greater insight into franchisee profitability, improve benchmarking

and share best practices

Break down brand operations versus logistics silo mentality and improve quality

of products and service to customers

Build manufacturing capability and drive lowest-cost producer status

expanding the basket

Marketing and innovation must become the PRIMARY accelerator of top-line growth

Develop an in-depth, intimate, strategic understanding of diverse South African consumer psyche

Deliver marketing and innovation that is break-through and cutting edge

Ensure continuity, consistency of brand positioning, all IP and unique properties

Share best practice and leverage scale

Build a reservoir of skilled marketing talent that is best of breed


Growth agenda

VISIONTo become Africa’s first choice branded food services franchisor by 2015.

STRATEGIC INTENTOur business is focused on building capability across brands, logistics and manufacturing, providing a total solution to our investment partners and consumers.

CORE BELIEFSChampions

Quality

Innovation

Speed

Agility

Integrity

Humility

4We are a business

characterised by people who share a strong sense of self belief.

3We are passionate about continuous improvement and high performance

execution.

2We are obsessed

with being close to our customers and

consumers.

1We are an integrated

food services business encompassing franchised

brands, logistics and manufacturing.

5We are focused on

South Africa and the rest of Africa.


Trading footprint

110 UK

1 881 South Africa

3 Lesotho

Business model

SA operations and logistics International operations Joint venture partner operations Development Marketing Manufacturing Corporate

Brand portfolio Centres of excellence Brand portfolio Country

representation Brand portfolio Countryrepresentation

Casualdining QSR Retail

wholesaleSauce advertising• Franchise

enquiries• Strategic

alliance partnerships

• Plans• Costing• Project

management

Wholly owned Joint venture • Finance• Human

Resources• Information

Technology• Legal• Procurement

• Steers• Wimpy• Debonairs Pizza• Mugg & Bean• FishAways• Milky Lane• Europa• Fego Caffé• Pubs: – KEG – The Brewers

Guild

• Gauteng• Mpumalanga• Free State• KwaZulu-Natal• Eastern Cape • Western Cape

• Steers• Wimpy• Debonairs Pizza• Mugg & Bean• FishAways• Milky Lane• Europa• Fego Caffé• Pubs

• Namibia• Botswana• Swaziland• Lesotho• Mozambique• Zambia• Tanzania• Dubai• Nigeria• Ivory Coast• Zimbabwe• Kenya • Malawi• Mauritius• Sudan• United Kingdom

• tashas• Vovo Telo• Giramundo• House of Coffees• Juicy Lucy• Net Café• Blacksteer Home

of Shisanyama

• South Africa • Wimpy• Mugg &

Bean• Europa• Fego Caffé• Pubs• tashas• Vovo Telo• House of

Coffees• Net Café

• Steers• Debonairs Pizza• FishAways• Milky Lane• Giramundo• Blacksteer Home

of Shisanyama• Juicy Lucy

• Steers• Wimpy• Mugg &

Bean

• Below- the-line

• Social media• Locality

marketing• Website

develop ment

Product Location Product Location

• Meat and chicken

• Bakery

• Sauces and spices

• Ice-cream

• Fruit juice

• Gauteng and Western Cape


• Gauteng

• Gauteng and• KwaZulu-Natal

• KwaZulu-Natal

• Coffee

• Cheese

• Gauteng

• Eastern Cape (Coega)

Dubai 3

Swaziland 8

8 Nigeria

4 Ivory Coast

27 Zambia

28 Botswana

27 Namibia

Mozambique 3

Zimbabwe 8

Malawi 4

Tanzania 3

Kenya 13

Sudan 5

Mauritius 28


Franchise network

Total number of restaurants at 28 February 2013

Domestic International Total

Steers 503 43 546Wimpy 490 29 519Wimpy UK – 110 110Debonairs Pizza 344 60 404FishAways 132 9 141House of Coffees 15 – 15Brazilian Café 55 – 55tashas 10 – 10Mugg & Bean 133 8 141Blacksteer Home of Shisanyama 5 – 5Blacksteer 1 – 1O’Hagan’s 8 3 11McGinty’s 1 – 1KEG 20 1 21Giramundo 14 – 14Vovo Telo 12 – 12Milky Lane 59 16 75Juicy Lucy 8 1 9The Brewers Guild 8 – 8Creative Coffees 8 – 8Net Café 1 – 1Europa 25 1 26Fego Caffé 29 1 30

Total 1 881 282 2 163

SA operations and logistics International operations Joint venture partner operations Development Marketing Manufacturing Corporate

Brand portfolio Centres of excellence Brand portfolio Country

representation Brand portfolio Countryrepresentation

Casualdining QSR Retail

wholesaleSauce advertising• Franchise

enquiries• Strategic

alliance partnerships

• Plans• Costing• Project

management

Wholly owned Joint venture • Finance• Human

Resources• Information

Technology• Legal• Procurement

• Steers• Wimpy• Debonairs Pizza• Mugg & Bean• FishAways• Milky Lane• Europa• Fego Caffé• Pubs: – KEG – The Brewers

Guild

• Gauteng• Mpumalanga• Free State• KwaZulu-Natal• Eastern Cape • Western Cape

• Steers• Wimpy• Debonairs Pizza• Mugg & Bean• FishAways• Milky Lane• Europa• Fego Caffé• Pubs

• Namibia• Botswana• Swaziland• Lesotho• Mozambique• Zambia• Tanzania• Dubai• Nigeria• Ivory Coast• Zimbabwe• Kenya • Malawi• Mauritius• Sudan• United Kingdom

• tashas• Vovo Telo• Giramundo• House of Coffees• Juicy Lucy• Net Café• Blacksteer Home

of Shisanyama

• South Africa • Wimpy• Mugg &

Bean• Europa• Fego Caffé• Pubs• tashas• Vovo Telo• House of

Coffees• Net Café

• Steers• Debonairs Pizza• FishAways• Milky Lane• Giramundo• Blacksteer Home

of Shisanyama• Juicy Lucy

• Steers• Wimpy• Mugg &

Bean

• Below- the-line

• Social media• Locality

marketing• Website

develop ment

Product Location Product Location

• Meat and chicken

• Bakery

• Sauces and spices

• Ice-cream

• Fruit juice



• Gauteng

• Gauteng and• KwaZulu-Natal

• KwaZulu-Natal

• Coffee

• Cheese

• Gauteng

• Eastern Cape (Coega)

BUILDING BRAND

CAPABILITY


Board of directors

Panagiotis Halamandaris (66)Non-executive Chairman

Peter, a founding member of the company, has made an important contribution to the Famous Brands Group since 1974. He has served on various portfolio committees over the years, assuming the position of Chairman of the listed entity upon listing in November 1994. As from March 2007, Peter assumed the position of Non-executive Chairman.

Periklis Halamandaris (58)Non-executive Director

Periklis was one of the original founding members of the Group and has in excess of 20 years’ experience in the food and franchising industry. He was appointed to the board of Famous Brands Limited in 1994 and was responsible for expanding the operations of the Group beyond the borders of South Africa. Periklis resigned from the board during the course of 1999 to concentrate on his private business. In March 2001 he was re-appointed to the board as a non-executive director.

HUMAN CAPITAL IS CONSIDERED A CORE CORPORATE ASSET AT FAMOUS BRANDS, WITH THE CALIBRE OF OUR PEOPLE BEING A KEY INGREDIENT OF OUR SUCCESS.


Theofanis Halamandaris (62)Deputy Chairman

Theofanis has made a significant contribution to the Group since 1974 through the fulfilment of various responsibilities. He assumed the position of Chief Executive Officer in March 2001, after serving as the Group Managing Director for three years. After retiring as Chief Executive Officer in May 2010, Theofanis took over from John Halamandres as Deputy Chairman of the Group.

Stanley John Aldridge (60)Group Financial DirectorMember of the social and ethics committeeCA(SA)

Stan is a chartered accountant and completed his articles with Deloitte. He was a financial executive and director of the Edcon Group with a career spanning 20 years from 1981 to 2001. Thereafter he was Finance Director, Card Division at Standard Bank until 2007. He has consulted to various companies including Nando’s and Master Card Africa Inc. Stan joined Famous Brands in 2008.

John Lee Halamandres (59)Non-executive DirectorMember of the audit committee and remuneration committee

With experience in all aspects of Famous Brands’ business, John retired from executive management in March 2001. A founding member of the company, he served as Managing Director from November 1994 until March 1997, after which he assumed the role of Chief Executive Officer until his appointment as Non-executive Deputy Chairman in March 2001, a position he held until May 2010. John continues to serve on the Famous Brands board in the capacity of non-executive director.


Board of directors continued

Kevin Alexander Hedderwick (60)Chief Executive

Kevin joined the Group in February 2000 as Managing Director of the Steers brand. He has an excellent business record, combining food, beverage and franchising. Kevin has held senior executive positions in a number of blue-chip companies including SA Breweries, Distell and Foodcorp. Prior to joining the Group, Kevin was a partner and Managing Director of KEG Franchising. In March 2001 Kevin was appointed Chief Operating Officer, a position he held for nine years, before being appointed Chief Executive of Famous Brands in May 2010.

Bheki Lindinkosi Sibiya (56)Independent Non-executive DirectorMember of the remuneration committeeBAdmin, MBA

Bheki is currently Chief Executive of the Chamber of Mines. Prior to this appointment, he was the Director of the Wits Business School. He is also Chairman of Smartvest, CapAfrica, Brait South Africa, Pretoria Portland Cement and a Deputy Chairman at Tiger Brands. He brings to the board a wealth of expertise in BEE, employment equity, change management and corporate governance gained as former Chief Executive Officer of Business Unity South Africa, and from experience attained in a range of positions held at companies including Transnet, Tongaat Hulett Sugar, SA Breweries and Ford Motor Company.Hymie Reuvin Levin (68)

Non-executive DirectorChairman of the audit committee and remuneration committeeBCom, LLB, LLM, H Dip Tax Law, H Dip Company Law

Hymie has been a non-executive director of Famous Brands Limited since its listing on the JSE in 1994. He is a senior partner of HR Levin Attorneys and his experience spans more than 40 years. His areas of expertise include corporate law, mergers, local and international taxation, acquisitions and listings. Hymie is also a non-executive director of several listed and non-listed companies and chairman of some of them.


Santie Botha (48)Lead Independent DirectorMember of the remuneration committeeBEcon Honours

Santie is currently Chancellor of the Nelson Mandela Metropolitan University in Port Elizabeth and a non-executive director of Tiger Brands and Imperial Holdings.

She served as an Executive Director of the MTN Group (2003 to 2010) and prior to that, of Absa Bank (1996 to 2003). She commenced her career at Unilever, which culminated in her appointment as Commercial Sales Director of VdB Foodservice in 1996.

Santie has received a range of awards including Marketer of the Year (Marketing Federation of South Africa, 2002) and Business Woman of the Year (2010).

Santie joined the Famous Brands Limited board in June 2012.

Christopher Hardy Boulle (41)Independent Non-executive Director (Alternate)Chairman of the social and ethics committee and member of the audit committeeBCom, LLB, LLM

Chris is a commercial, corporate finance, tax and trust attorney and his expertise includes cross-border transactions, mergers and acquisitions, BEE transactions and advising on stock exchange listings both locally and internationally. He currently serves as a non-executive director of four companies listed on the JSE and as a trustee of various trusts. His experience as a non-executive director of listed companies spans over a decade. He commenced his legal career at HR Levin Attorneys where he is now one of the two senior partners. Chris joined the Famous Brands Limited board in December 2011.

Darren Paul Hele (41)Chief Operating OfficerMember of the social and ethics committeeBCom

Darren commenced his career at Pleasure Foods Limited while studying for and completing a BCom Degree. After participating in the management buyout of Pleasure Foods in 1996 he held executive roles at Whistle Stop and Wimpy before joining Famous Brands in 2003. He served as Managing Director of Wimpy in South Africa and later the United Kingdom. He was appointed Chief Operating Officer – Franchising Division in May 2011 and in January 2013 assumed the position of Chief Operating Officer.


Key management

Mark Hedderwick (52) Managing Executive – Emerging Markets

Mark has extensive experience in the retail industry. In 1989 he turned to mainstream food retail and became one of the pioneering members of the Spar group’s entry into the Eastern Cape whereafter he was appointed to the Spar National Guild board of directors in 1995. In 2001 he and his family emigrated to Perth, Australia where they owned and ran a franchised restaurant. Having returned to South Africa in 2003, he rejoined the Spar group and was appointed as Divisional Marketing and Merchandise Director in the Eastern Cape region and subsequently the Northern and Southern Inland regions. He joined Famous Brands in March of 2010 as managing executive of the Wimpy brand. In March 2013 he was appointed Managing Executive – Emerging Markets.

Arlene Botha (50) Group Human Resources Executive

Arlene has extensive experience in the human resources field, having started her career in the brewing industry whilst completing her postgraduate Diploma in Management – Human Resources at Wits Business School. She later joined the soft drinks industry and thereafter spent some time with a multi-national tobacco company, before joining Famous Brands in October 2008.

Chris Botha (54) Group IT Executive

Chris’s career in Information Technology spans 30 years, with 20 of those being in a senior management role. During his career he has facilitated the design and implementation of business systems for organisations operating in the financial, utilities, mining and FMCG business space, including the evaluation, selection and implementation of ERP solutions. Before joining Famous Brands Chris managed his own IT Consulting business for six years, assisting clients to define their IT governance frameworks based on King III and establishing IT strategies to support business objectives. Chris was appointed Famous Brands Group IT Executive in July 2012.

Darryl Denton (45) Group Manufacturing and Technical Executive

Darryl has extensive experience in the manufacturing field. He began his career in the brewing industry in which he served for 20 years. He subsequently worked for five years in the household and cosmetics FMCG manufacturing field. He has a diploma in Supply Chain Management, as well as a Certification in Production and Inventory Management. Darryl joined Famous Brands in January 2013.


Derrian Nadauld (40) Chief Marketing Officer

Derrian joined Famous Brands in May 2000 as a member of the Debonairs Pizza operations team. Over the past 12 years, he has held various operational, management and executive roles within Debonairs Pizza, Steers, Coffee Brands and Wimpy. Between November 2008 and December 2011, Derrian served as Managing Executive of Debonairs Pizza and was appointed Managing Executive of Wimpy in January 2012. In March 2013 he was appointed Chief Marketing Officer.

Tony Stephens (51) Managing Executive – Logistics

Tony started his career as an operations trainee with SA Breweries Beer Division and spent the next 23 years with the company in various sales and distribution capacities within South Africa, as well as in Botswana and Zambia. He joined Famous Brands in 2005 and was appointed head of the Group’s Logistics division. In March 2009 responsibility for the Manufacturing division was added to his portfolio and he assumed responsibility for the Group’s entire inward and outbound supply chain. In April 2012 Tony was appointed Managing Executive of the Logistics Division.

Pedja Turanjanin (45) Group Procurement Executive

Pedja started his career in a family business with his father, whilst studying engineering at Sarajevo University. Upon arrival in South Africa in 1991 he joined Steers Holdings. After starting at Steers Restaurants he moved into operations and thereafter into manufacturing and logistics. Pedja was appointed Group Procurement and Quality Assurance Executive and was later Managing Executive Developing Brands and Markets. In November 2012 he moved back into the position of Group Procurement Executive.

Geoff Pyle (49) Group Financial Executive and Company Secretary

Geoff completed his accounting articles at Ernst and Young before qualifying as a chartered accountant in 1991. From 1992 to 2006 Geoff was employed by the Edcon Group where he held various financial positions including Group Executive Treasury. He is well versed in all aspects of retail financial management, including treasury, tax, management accounting, company secretarial, insurance and risk management. In the three years prior to his appointment at Famous Brands in 2009 he managed his own consultancy business.

Norman Richards (59) Change Management Executive

Norman joined Famous Brands in September 2012 as Change Management Executive, responsible for managing and driving the Fit 4 Purpose business model transformation intervention. Norman is a Fellow of the Institute of Chartered Secretaries, has an MBA degree and is a 21-year veteran of SA Breweries Beer Division, where he held a number of executive positions in finance, both locally and internationally. Post 2001 Norman founded and managed two consulting companies and a software services company, all within the supply chain field.


Chairman’s statement

Year in overviewMacro-economic environmentDuring the reporting period trading conditions in the industry deteriorated further as both consumer sentiment and spending declined due to general economic uncertainty in the country combined with continued erosion of disposable income. While the upper income market segment proved relatively resilient, the poor outlook on economic prospects weighed particularly heavily on the middle income segment, the primary target market for food services operators in South Africa.

Group performanceResultsDespite the context of this subdued macro-economic environment, the Group delivered commendable results for the year ended 28 February 2013, surpassing our four-year vision to double the size of the business.

“DESPITE THE SUBDUED MACRO-ECONOMIC ENVIRONMENT, THE GROUP DELIVERED COMMENDABLE RESULTS, SURPASSING OUR FOUR-YEAR VISION TO DOUBLE THE SIZE OF THE BUSINESS BY EXCEEDING OUR MILESTONE PROFIT BEFORE TAX GOAL OF R450 MILLION.”

Highlights

● Five-year compound growth in revenue of 16%

● Five-year compound growth in headline earnings per share of 20%

● Five-year compound growth in dividends of 30%

● Five-year compound growth in share price of 39%

● First place and Overall Winner in Financial Mail Top 100 Companies survey


Revenue improved by 17% to R2.52 billion (2012: R2.16 billion) while profit before tax rose 15% to R462 million (2012: R402 million), exceeding our milestone goal of R450 million. Headline earnings per share grew by an impressive 22% to 339 cents per share (2012: 278 cents).

Net interest paid decreased 64% to R4 million (2012: R11 million) due to a combination of reduced interest rates and a well-managed working capital cycle.

The Group’s tax rate declined to 28.3% (2012: 33.3%) in the reporting period due to the replacement of Secondary taxation on companies with the dividends tax levied on shareholders.

Cash generated by operations before changes in working capital increased by 11% to R503 million (2012: R452 million). Working capital requirements absorbed R21 million due to increased business activity, offset by higher utilisation of interest-free funding compared to the prior year. This working capital increase was impacted quite markedly following the expansion of our newly acquired coffee business. After

changes in working capital, cash generated by operations improved by 21% to a robust R482 million (2012: R399 million). After tax and dividend payments of R360 million (2012: R291 million), net cash retained from operations amounted to R119 million, some R22 million higher than last year. Net financing raised of R82 million included proceeds from a well-priced two-year loan as well as a cash contribution from the Coega Cheese non-controlling shareholder. Net capital expenditure of R162 million (2012: R84 million) was incurred. This included R85 million for the acquisition of the Europa and Fego Caffé trademarks, R7 million for the acquisition of Java Lava Beverage Manufacturers Proprietary Limited – subsequently renamed “Famous Brands Coffee Company” – together with coffee roasting equipment of R5 million, R33 million for the Coega Cheese plant, as well as supply chain expansion activities. R47 million in aggregate has been approved for the year ahead.

The low level of borrowings, net of cash and bank balances, is unchanged from last year’s R81 million and represents merely 8% of equity (2012: 10%), enabling capacity to grow our business organically or by acquisition.

Panagiotis Halamandaris, Non-executive Chairman


Chairman’s statement continued

Market recognitionOur efforts to satisfy our stakeholders were once again recognised by both the financial market and our loyal customers. The Group was awarded first position and Overall Winner in the annual Financial Mail Top 100 Companies survey, and fifth place in the Sunday Times Business Times Top 100 Companies awards.

I am also pleased to announce that our brands continued to find favour with consumers, reflected by a range of accolades received including: Leisure Options’ “Best Burger” award to Steers for the 17th consecutive year, Daily News’ “Best Breakfast” title to Wimpy, the honour of “Coolest Coffee Shop” to Mugg & Bean in the Sunday Times Next Generation survey, and Pretoria News’ “Best Fish Takeaway” award to FishAways.

University sports sponsorshipWe have concluded a R10 million-a-year sport sponsorship agreement over a five-year period with Varsity Sports, in a programme designed for university students across South Africa to participate in their preferred sports on a televised platform. This is the Group’s first-ever participation in sports sponsorship and we believe the corporate social responsibility component of this investment will benefit all stakeholders. In terms of the agreement, Wimpy will sponsor netball and athletics, Mugg & Bean – hockey, Debonairs Pizza – soccer, and Steers – beach volley ball and 7’s Rugby.

Human capitalHuman capital is considered a core corporate asset at Famous Brands, with the calibre of our people being a key ingredient of our success. We recognise that the Group derives significant competitive advantage from a team of employees which is motivated, well-trained and passionate about what they do. Succession planning and skills development feature permanently on our agenda and are measured bi-annually through our human capital review process.

The Group recently concluded its first ever national recognition agreement with the Security, Cleaning, Manufacturing and Allied Workers’ Union, whereby for the first time, substantive conditions of employment will now be negotiated centrally. Our relationship with our workforce remains cordial as we embark on this new journey.

Food safety, product quality and labellingIn the current environment where scrutiny is firmly focused on food safety, quality and labelling, we can vouch for the fact that Famous Brands has always been, and will continue to be committed to achieving high product safety and quality standards in all our manufacturing business units. An internal total quality management system is in place and through continuous improvement, enhances practices and lifts standards. A supplier quality assurance programme exists to measure, control and manage food safety and quality of products manufactured by suppliers. Independent audits are conducted at suppliers’ facilities and quality control testing is performed to ensure compliance. The Group is also compliant with the new Labelling and Advertising of Foodstuff Regulation (R146 of 2010) pertaining to product labelling, product liability and product safety.

DirectorateIn May 2012 the board announced the appointment of Darren Hele as an executive director. Darren joined Famous Brands in 2003 and served as Managing Director of Wimpy in South Africa and later the United Kingdom. He was appointed Chief Operating Officer – Franchising Division in June 2011 and in January 2013 assumed the position of Chief Operating Officer.

Santie Botha was appointed as a non-executive director to the board in June 2012. She is also the Group’s lead independent director. Santie is currently Chancellor of the Nelson Mandela Metropolitan University in Port Elizabeth. She served as an executive director of the MTN Group (2003 – 2010) and prior to that, of Absa Bank (1996 – 2003). In 2010 Santie received the Business Woman of the Year award.

Group Financial Director (FD), Stanley Aldridge, will be retiring on 30 June 2013, and accordingly will not seek re-election at the Group’s annual general meeting to be held on 25 July 2013.

Stanley joined Famous Brands as FD in 2008 and has made a significant contribution to the Group’s success during that time. The board is pleased to be retaining his services as chairman of several of its subsidiary joint venture companies.


Stanley will be succeeded as FD on 1 July 2013 by Norman Richards, who joined Famous Brands in 2012 as Change Management Executive. Norman is a Fellow of the Institute of Chartered Secretaries, has an MBA degree and is a 21-year veteran of SAB Beer Division where he held a number of executive positions in finance, both locally and internationally. Post 2001 Norman founded and managed a number of consulting companies and a software services company, all within the supply chain field.

The board welcomes Norman in his new capacity and looks forward to his contribution.

Dividends and dividend policyThe final gross dividend of 142 cents per share, together with the interim gross dividend of 108 cents per share, equate to total dividends of 250 cents per share (2012: 200 cents) declared for the year, an increase of 25%. The dividend has been declared from income reserves. The dividend cover is 1.4 times, and is considered sustainable given Famous Brands’ strong cash generating ability. In considering future dividend declarations, the board will be guided by the Group’s cash requirements according to future cash flow forecasts.

OutlookThere is little evidence to indicate that current trading conditions will improve materially in the foreseeable future. In this light, the Group’s continued growth at above-industry rates will be derived from a range of strategic initiatives (discussed in detail in the Chief Executive’s report), and further optimisation of the business model to ensure that every component performs at its peak.

AppreciationFamous Brands’ continued ability to satisfy consumers and deliver value to shareholders is testament to the exemplary leadership of the Group’s Chief Executive, Kevin Hedderwick, and the extraordinary team effort of our executive management and all of our staff. I would like to thank each of you for your outstanding dedication to exceeding the high standards we set in this business.

I would also like to extend my gratitude to our franchise partners – we appreciate the significant contribution you make to the success of our Group.

We enjoy strong relationships with our suppliers, financiers and service providers and appreciate your support.

We value the endorsement of our institutional and individual shareholders. We will continue to strive to reward your confidence in Famous Brands’ investment proposition.

The continued loyalty of our consumers in this competitive environment is top of mind in our relentless efforts to surpass your expectations.

Panagiotis HalamandarisNon-executive Chairman


Chief Executive’s report

Despite deteriorating trading conditions, the Group succeeded in producing strong results. In addition, we made key acquisitions and established joint venture partnerships to bolster both our brand portfolio and supply chain capability.

Towards the end of the period we implemented a comprehensive business model transformation project which has positioned the Group for continued growth in the decade ahead.

Industry overviewAs a result of sustained economic hardship, and facilitated by a fiercely competitive trading environment, consumers have become trained to seek out value, and are now increasingly demanding that quality, relevance and convenience complement the ‘price only’ aspect of value offerings. This focus on value translated directly into intense margin pressure, which became the overriding industry feature for the period.

Review of the Group’s performanceIn my 2012 CE’s report I wrote that our unwavering goal is to build an organisation that exceeds the expectation of all our stakeholders, an ambition which could only be achieved by continuing to extract maximum value out of the front and back ends of the business.

Highlights

● Revenue up 17% to R2.5 billion

● Profit before taxation up 15% to R462 million

● Operating margin robust at 18.5%

● Net borrowings to equity improves to 8%

● Significant momentum gained in building franchising, logistics and manufacturing capability

“THE YEAR UNDER REVIEW HAS UNDOUBTEDLY BEEN ONE OF THE MOST CHALLENGING – AND EQUALLY REWARDING – IN FAMOUS BRANDS’ HISTORY.”


The narrative in this report illustrates that we have made substantial progress in attaining our goal.

ResultsAt the core of our business model is a relentless high-performance culture; the splendid results recorded below are testament to this.

Group revenue increased by 17% to R2.52 billion (2012: R2.16 billion), while operating profit grew by 13% to R466 million (2012: R413 million). The operating margin was lower at 18.5% (2012: 19.1%), largely a function of strategic margin absorption to facilitate the Group’s value offering to consumers via our franchise network.

Divisional reportFranchising – DomesticOverviewThis division, which comprises South Africa and 15 other African countries, delivered robust results. Combined revenue increased 12% to R495 million (2012: R440 million). Operating

profit rose slightly ahead of revenue growth to R300 million (2012: R265 million). The operating profit margin was 60.6% compared to 60.2% in the prior year, primarily due to increased system-wide sales and intensive cost containment achieved through attaining critical mass across the network.

System-wide sales across the Group’s total brand portfolio (including new restaurants opened) increased 13.1%, comprising an improvement of 11.2% in the South African operations and a 45% increase in our rest of Africa region.

Like-on-like sales for the Group grew 8.9%, comprising a 7.7% increase in South African sales, while our rest of Africa turnover grew by 28%.

Our rest of Africa division now comprises 7.3% (2012: 5.7%) of total sales.

Average weighted menu price increases were contained to 5.6%, illustrating the strong real growth achieved by this division.

Kevin Hedderwick, Chief Executive


Chief Executive’s report continued

Building brand capabilityMarket penetrationA total of 140 new restaurants were opened across our brand portfolio during the period (2012: 146), 110 of them in South Africa. In addition, 130 restaurants were revamped or relocated in South Africa (2012: 99) and a further six in Africa, north of our borders. This is a creditable performance given the general slow-down in new property developments and the reduction in capital expenditure incurred by our petroleum partners. I am particularly pleased with our entry into new rural South African markets in which we were previously under-represented.

Established brandsDespite the difficult trading conditions, each one of our brands delivered satisfying results.

Among the stellar achievements, the following should be highlighted:● Our mother brand, Steers, with a network of over

500 restaurants, succeeded in delivering double-digit system-wide sales growth as a result of its aggressive everyday value offering, attracting both new consumers and increasing consumption frequency of existing customers.

● Debonairs Pizza reported another strong set of results, underpinned by continued growth in pizza consumption per capita in the massive lower LSM market and desire for convenience among upper LSM consumers. During the period the brand opened its 400th restaurant and increased registered online users to in excess of 100 000. Debonairs Pizza’s growth in our rest of Africa region continues to surge, and now accounts for 15.9% of the brand’s total sales.

● Despite competing in the aggressively competitive, price-sensitive breakfast market, Wimpy retained market share and achieved solid like-on-like sales.

● Mugg & Bean continued to gain momentum by capitalising on the category’s key drivers – availability and accessibility – with its ‘on the move’ forecourt format in conjunction with our petroleum partner, Total. We also launched two very successful smaller-format restaurants in rural areas, which has given us a high degree of confidence to expand this offering to rural markets across South Africa.

● FishAways recorded further strong organic and numeric growth, a function of increased category activity and consumer awareness.

● Our Vovo Telo business requires a specialised skill and energy to drive it, and with the original founders playing a

less active role from a daily management perspective, it was agreed to bring in hands-on management to continue to grow the brand to its full potential. Two new partners, both former full-time employees of the Group, have acquired 39% of the business; the Group continues to own 51%, and the original owners retain 10%.

● The Netcare Group, which operates South Africa’s largest private hospital network, awarded Creative Coffees, our division which specialises in captive market hospital coffee shops, the contract to provide a branded restaurant and retail solution to the hospital group under the Net Café trademark. The contract was awarded after an extensive and keenly contested tender process which relates to the conversion of existing coffee shops situated in Netcare hospitals nationwide. Our first Net Café opened in December 2012 and the response has been phenomenal, with an average revenue increase of 30 to 35%.

● During the review period we completed re-engineering the intellectual property of each of our Milky Lane, Juicy Lucy and Keg brands, positioning them for improved future growth.

Acquisition of Europa and Fego CafféOur strategy is to acquire best-in-class brands which fill gaps in the Group’s repertoire and serve to establish a presence in market segments where we currently have limited or no representation. During the year we announced the acquisition, effective 1 December 2012, of the Europa and Fego Caffé brands comprising 27 and 31 restaurants respectively, thereby advancing our goal to enter the family casual dining sector and extending our presence in some of the key growth sectors namely: breakfast, coffee and snacking. The Europa and Fego Caffé network has already been successfully integrated into the business. We envisage growing the network to a national footprint comprising of 50 restaurants each over the next five years.

Subsequent eventsAcquisition of Turn ‘n TenderIn line with our strategic intent to extend the Group’s presence in the casual dining sector, we acquired a 51% stake, effective from 1 June 2013, in the family steakhouse restaurant group Turn ‘n Tender, a brand started in 1977 and relaunched in 2007. The business currently comprises five successful steakhouse restaurants and a choice-cuts butchery which will, in time, supply brand-specific choice-cut meat products to the wider Famous Brands franchised network. We anticipate that Turn ‘n Tender will achieve a national footprint of 25 restaurants over the next five years.


Acquisition of a strategic stake in McEwan AdvertisingEffective 1 March 2013, the Group acquired a strategic 35% stake in McEwan Advertising, a below-the-line agency which has supplied marketing services to Famous Brands for a number of years. This transaction will enhance our marketing capabilities, support our ambitions of being a world-class marketer and ensure we leverage our marketing expenditure through better utilisation of resources.

Franchising – InternationalOverviewThe results reported by the International Franchise division, comprising Wimpy United Kingdom, are contextualised by that country’s double-dip recession and the industry-wide decline in appetite for beef products in the wake of the equine-meat contamination crisis, despite Wimpy not being implicated in any way. This division reported a 9% decrease in revenue Sterling and a 1% increase in Rand terms to R83 million (2012: R82 million). Operating profit declined 28% to R5 million (2012: R8 million). The operating profit margin was 6.5% (2012: 9.2%). It is important to note that this division makes only a nominal contribution to Group revenue and operating profit, namely 3.3% and 1.2% respectively.

Market penetrationTwo new Wimpy restaurants were opened, in Rickmansworth and Andover, and in the ongoing process of revitalising the brand, a further four restaurants were revamped and one relocated.

We are preparing for the maiden launch of our Steers brand in the UK market in Clapham, London, scheduled for July 2013. The restaurant will be owner-managed by a South African franchisee. The location, franchise partner and offering provide a compelling ‘package’ for establishing Steers’ brand presence in this competitive market.

Expanding our international footprintIndiaIn March of this year, we announced the Group’s expansion into India with the launch of a pilot Debonairs Pizza restaurant scheduled for opening in Mumbai in July 2013. In the short term, five restaurants will be opened in Mumbai, India’s main economic hub and its wealthiest city. Famous Brands has appointed a Master Licence partner, Diwa Hospitality Pvt Ltd, a company founded 50 years ago which specialises in shipping, logistics and hospitality. There are very strong factors driving growth in the food services industry in India and we are optimistic that the success of this venture will enable us to extend our relationship with our partners to other markets in India.

Supply chainThe Group’s Manufacturing and Logistics divisions are contained in the Supply Chain business unit; these divisions are managed and measured separately.

Consolidated revenue grew by 19% to R1.91 billion (2012: R1.61 billion), while operating profit rose 14% to R161 million (2012: R141 million). The operating margin was 8.4% (2012: 8.7%).

ManufacturingOverviewThe Manufacturing division reported a 25% improvement in turnover to R715 million (2012: R573 million), derived from increased revenue contributions from the coffee company, ice-cream and chicken fillet plants, first-time revenue from the new boerewors and lamb sausage plant, and significantly increased beef patty volumes resulting from our aggressive Steers brand promotional activity. Operating profit improved 11% to R98 million (2012: R88 million), producing a margin of 13.6% (2012: 15.3%).

These solid results were delivered in the context of a 16.5% increase in electricity tariffs, volatile beef prices and deliberate margin absorption in our Meat Processing Plant to support the Steers activity referred to above.

The following integration projects were concluded during the period:● Within our Famous Brands Coffee Company, monthly

coffee roast volumes increased from 19 tons in June 2012 to 71 tons in February 2013. Hot chocolate production increased from 6 tons to 18 tons per month. The objective is to supply all of our brands with coffee produced from this plant by July 2013.

● Milky Lane ice-cream and syrup volumes, Wimpy syrups, boerewors and lamb sausages, and chicken and beef toppings for the Western Cape and KwaZulu-Natal markets.

Capital expenditure of R10.9 million was invested primarily in commissioning additional freezer capacity in the ice-cream plant, a vinegar sachet machine, a sausage and boerewors plant and a state-of-the-art pizza-toppings plant in our Western Cape region.


Chief Executive’s report continued

Building manufacturing capabilityIn pursuit of the Group’s deliberate strategy to build and expand our manufacturing capability and leverage opportunities in the supply chain, three key transactions were concluded:

Famous Brands Coffee CompanyDiscussed earlier, we acquired a 60% controlling stake in Java Lava Beverage Manufacturers Proprietary Limited, a privately owned state-of-the-art coffee roasting and packaging business in June 2012. The renamed and restructured “Famous Brands Coffee Company”, will supply coffee and related hot beverage products to the Group’s franchised network and will also facilitate taking certain of our franchised brand products to the retail market.

Coega Cheese Proprietary LimitedIn October 2012, we established a ground-breaking joint venture partnership with the Coega Dairy Company (Coega Dairy), an existing dairy manufacturing business in Port Elizabeth owned by local farmers, factory and farm employees, regarding the supply of cheese products to our brands. The new joint venture entity, Coega Cheese Proprietary Limited is 51% controlled by Famous Brands. In terms of the agreement, Coega Dairy will supply milk to the new company, which in turn will produce Mozzarella, cheese slices and cheese spread for the Group. The business commenced supply to Debonairs Pizza in June 2013, with the intention to expand supply over time to our other brands.

This partnership delivers tremendous benefits for those black farmers who partner with us via Coega Dairy, whereby they gain an instant, robust market for their product, and the potential to grow that market over time. By locating this business within the Coega Development Corporation node, which was specifically set up by government to attract investment, Famous Brands is helping to contribute to the economy of the Eastern Cape, one of the poorest provinces in the country. This transaction has to date, created 49 jobs in the cheese manufacturing company, as well as a further five jobs in the existing Coega Dairy business.

Famous Brands Great Bakery CompanyThe Group acquired a 51% controlling stake in the much-loved and multi-awarded bakery and delicatessen brand, The Bread Basket (subsequently renamed Famous Brands Great Bakery Company), in April 2013. Significantly, the business comprises a bespoke manufacturing facility which supplies their six bakeries with croissants, pastries, confectionery and deli products. This transaction aligns with our deliberate strategy to build manufacturing capability at the back end of our business – in this case, specialist baked products and confectionery, which most of our existing brand portfolio and franchised network currently procure from external third-party suppliers.

LogisticsOverviewThe Logistics division grew both revenue and operating profit by 20% to R1.8 billion (2012: R1.5 billion) and R63.1 million (2012: R52.7 million) respectively, producing an operating margin of 3.5% unchanged from the prior year, which is an outstanding achievement given exorbitant price increases in diesel and electricity and our margin absorption strategy to support retail pricing to consumers at the front end of the business.

Building logistics capabilityThe following highlights were achieved during the period:● Commissioning of a new distribution centre in Nelspruit

and relocation of the Bloemfontein distribution centre to a new facility.

● Commissioning of a new distribution centre, scheduled for June 2013, in the Eastern Cape in conjunction with the Coega Development Corporation.

● Significant momentum gained in the owner-driver programme, with share of total volume delivered as high as 50% in certain regions.

Capital expenditure of R4.9 million (2012: R11 million) was employed during the period, including the commissioning of the Free State depot and fleet upgrades.

Building capability for the decade aheadFollowing a decade of remarkable organic, acquisitive and numeric growth, we concluded that to prepare the business for another decade of exceptional performance, we needed to re-engineer the business model substantially from a single-minded focus on brands to a holistic focus on the company as a total food services business solution.


This Group-wide business transformation programme culminated in a bespoke initiative – ‘Fit 4 Purpose’ which is all about getting closer to our two key stakeholders – our customers and our consumers. The foundations of this programme are:● The separation of our international business and markets

from our South African operations, creating two specialised divisions within the Group.

● The creation of six Centres of Excellence, located across South Africa, which ensure that every customer touch-point is housed within a stand-alone, decentralised and fully accountable region.

● The centralisation of all marketing resources, ensuring that marketing and innovation become the primary accelerators of top-line growth.

Emanating from this restructuring is a Growth Champion blueprint for the next five years which will bring us closer to achieving our stated goal of becoming Africa’s first choice branded food services franchisor by 2015 by building capability across our brands, logistics and manufacturing operations, providing a holistic solution to our investment partners and consumers.

ProspectsGeneral economic uncertainty will continue to hamper sentiment and spend, and value will remain the key watchword in our industry. In light of this, we expect that 2014 fiscal will be another period of intense margin pressure and concerted competition.

Our priority in the period ahead is to execute our Fit 4 Purpose goal of getting closer to our customers and our consumers.

It has taken enormous courage to re-engineer a business which is obviously successful and has continued to steadfastly deliver handsome returns to stakeholders over the past 10 years. However, I am convinced that the overhaul which we have implemented in the business will position the Group optimally to reach even greater heights in the decade ahead.

AppreciationThis has been a tumultuous year as we wrought the structure which will carry this business boldly into the future. Our executive management team and all our staff have been superbly supportive during this transition and I would like to thank each one of you – the achievement of these outstanding results is a testament to your commitment.

Our franchise partners are pivotal to our business, and the new Fit 4 Purpose structure will afford you the support you require to ensure our mutual investment is rewarded.

I would also like to thank our petroleum partners, suppliers, financiers, property developers and landlords for their continued valued contribution.

I appreciate the guidance received from my fellow board members and founding shareholders over this past year; your commitment to our strategic vision is rewarding.

On behalf of the Group, I would like to formally welcome our new business and joint venture partners to the Famous Brands family – we look forward to a long and mutually beneficial relationship with you.

In conclusion, I am satisfied that we end the year in even better shape than we started it. I am confident that the structure and goals we have put in place will ensure that Famous Brands continues to exceed our stakeholders’ expectations.

Kevin A HedderwickChief Executive

BUILDING LOGISTICS

CAPABILITY

26 Famous Brands Integrated Annual Report 2013 / Report to stakeholders

Basic earnings per share: Net profit for the year divided by the weighted average number of ordinary shares in issue during the year.Cash generated by operations: Comprises cash receipts from customers less cash paid to suppliers and employees as reflected in the statement of cash flows. Cash realisation rate: This ratio is calculated by expressing cash generated by operations as a percentage of EBITDA and reflects the proportion of cash operating profit realised after working capital movements.Closing dividend yield: Dividends per share as a percentage of market value per share at year end.Closing earnings yield: Headline earnings per share as a percentage of market value per share at year end.

Closing price to earnings ratio: Market value per share divided by headline earnings per share at year end.Dividend cover: Headline earnings per share divided by dividends per share declared out of earnings for the year.EBITDA: Earnings before interest, taxation, depreciation, amortisation and impairment losses.Headline earnings: Net profit for the year adjusted for profit/loss on sale of property, plant and equipment, investments and impairment losses.Headline earnings per share: Headline earnings divided by the weighted average number of ordinary shares in issue during the year.Interest cover: Operating profit divided by net interest paid. (Measures the capability to service borrowing obligations from current profit.)

Six year review

Definitions

Growth %* 2013 2012 2011 2010 2009 2008

Statement of comprehensive income and cash flowsRevenue 16.2 R000 2 516 287 2 155 615 1 878 036 1 684 840 1 549 244 1 190 301Operating profit before impairment losses 16.5 R000 465 842 412 656 358 453 307 947 261 916 217 383Operating profit margin % 18.5 19.1 19.1 18.3 16.9 18.3Profit after taxation R000 331 052 268 054 230 999 191 640 147 902 131 081Cash generated by operations R000 482 279 398 710 396 929 351 961 277 184 198 997EBITDA R000 499 397 441 692 384 486 331 572 281 806 233 838Cash realisation rate % 96.6 90.3 103.2 106.1 98.4 85.1 Headline earnings for the year 19.6 R000 330 188 267 438 230 502 194 307 150 283 135 189Statement of financial positionTotal assets R000 1 510 467 1 221 169 1 139 312 1 070 829 1 052 208 856 133Total equity 19.6 R000 1 000 088 840 370 708 594 583 926 492 291 408 311Net assets R000 1 152 796 985 227 871 200 815 363 796 089 603 661Net debt R000 81 091 81 572 101 389 160 665 225 286 123 846Profitability and asset managementReturn on total assets % 34.1 35.0 32.4 29.0 27.4 28.4Return on net assets % 43.6 44.5 42.5 38.2 37.4 45.2Return on equity % 35.9 34.5 35.7 36.1 33.4 38.0Net asset turn times 2.4 2.3 2.2 2.1 2.2 2.5Interest cover times 117.4 38.7 24.0 14.9 5.9 11.4Net debt/equity % 8.1 9.7 14.3 27.5 45.8 30.3Shareholders’ ratiosBasic earnings per share cents 337.6 277.6 241.8 202.5 159.3 136.7Headline earnings per share cents 339.1 278.3 242.0 205.6 159.2 143.6Dividends per share 30.5 cents 250 200 155 114 76 66Dividend cover times 1.4 1.4 1.6 1.8 2.1 2.2Net tangible asset value per share cents 204 151 51 (31) (71) 1Net asset value per share cents 1 022 874 740 615 521 432Stock exchange statisticsMarket value per share– at year end cents 8 350 4 405 3 850 2 560 1 475 1 624– highest cents 8 350 4 650 4 525 2 560 1 800 2 050– lowest cents 4 431 3 510 2 456 1 325 1 200 1 500Closing dividend yield % 3.0 4.5 4.0 4.5 5.2 4.1Closing earnings yield % 4.1 6.3 6.3 8.0 10.8 8.8Closing price to earnings ratio times 24.6 15.8 15.9 12.5 9.3 11.3Number of shares issued 97 827 435 96 192 435 95 817 596 94 894 596 94 448 096 94 448 096Market capitalisation 39.7 Rm 8 169 4 237 3 689 2 429 1 393 1 534

*Five-year compound growth % pa.

27

For the year ended 28 February 2013

Famous Brands Integrated Annual Report 2013 / Report to stakeholders

Net assets: Total assets other than cash, bank balances and deferred tax assets less interest-free trading liabilities.Net asset turn: Revenue divided by average net assets.Net asset value per share: Ordinary shareholders’ equity divided by number of shares in issue.Net debt: Total interest-bearing borrowings less cash. It is calculated by adding current and non-current interest-bearing borrowings and bank overdrafts and deducting positive cash balances.Net tangible asset value per share: Ordinary shareholders’ equity less intangible assets divided by the number of shares in issue.

Operating profit: Profit before impairment losses, interest and taxation.Operating profit margin: Operating profit as a percentage of revenue. (Measures the return on revenue of the operating activities of the Group.)Return on equity: Headline earnings as a percentage of average shareholders’ interest. (Measures the return earned on the capital provided by the shareholders.)Return on net assets: Operating profit as a percentage of average net assets. (Measures the effectiveness with which net assets were utilised.)Return on total assets: Operating profit as a percentage of average total assets. (Measures the effectiveness with which the total assets were utilised.)

Value added statement

Definitions continued

2013R000 %

2012R000 %

Wealth createdTurnover 2 516 287 2 155 615 Cost of materials and services (1 714 938) (1 444 728)Other income 5 499 8 053

806 848 100 718 940 100

Wealth distributedEmployeesSalaries, wages and related benefits 301 952 37 269 194 37

Providers of capitalDividends to shareholders 223 748 159 150 Interest paid on borrowings and finance charges 9 468 18 705

233 216 29 177 855 25

GovernmentCompany tax 130 821 117 961 Secondary taxation on companies – 15 989

130 821 16 133 950 19

Wealth retained for replacement of assets and future growthAmortisation of intangibles, depreciation of property, plant and equipment 33 555 29 036 Retained income 107 304 108 905

140 859 18 137 941 19

806 848 100 718 940 100

The value added statement shows the wealth that the Group has created through its activities and how this wealth has been distributed to stakeholders. The statement reflects the amounts retained and re-invested in the Group for the replacement of assets and the development of future operations.

■ Employees

■ Providers of capital

■ Government

■ Retained for future growth

Wealth distributed

201237%

25%

19%

19%

201337%

29%

16%

18%


Corporate governance and sustainability report

This corporate governance and sustainability report is presented to illustrate to shareholders how the company:●● applies the principles of good corporate governance;●● manages risk;●● considers its ongoing sustainability; and●● invests in the wellbeing of its people and society.

The board of directors of Famous Brands is fully committed to business integrity, fairness, transparency and accountability in all its activities. In support of this commitment, the board subscribes to sound corporate governance in all aspects of the business and to the ongoing development and implementation of best practices. In addition, a code of ethics, which seeks to raise the ethical awareness of conducting business, is in place. Other than as explained in the tables on pages 34 to 37, the company complies with the Listings Requirements of the JSE Limited (JSE Listings Requirements). Famous Brands generally embraces the principles incorporated in the Code of Corporate Practices and Conduct outlined in the third King report (King III) and our conduct is usually based on those principles. The board, comprising mainly of founding shareholders and long-serving directors, does not meet the independence criteria of King III (refer to note 2.6 on page 34). We believe the individual members apply their minds independently, comply with the Companies Act, No. 71 of 2008 and act in the interests of all shareholders motivated also by their personal shareholdings in the company. Their leadership, wise counsel and in-depth knowledge are all attributes that add value to the deliberations of the board. Our Integrated Annual Report deals with most of the requirements of an integrated report as required by King III but there is limited detailed reporting on our impact on the environment. This is because the board believes that our activities do not severely impact the environment nor threaten the sustainability of either the company’s existing operations or the environment which future generations will inherit.

The boardDuring the year under review the board of Famous Brands consisted of seven non-executive (including one alternate) and four executive directors. The board is chaired by a Non-executive Chairman, Mr P Halamandaris, a founding shareholder. At board level, there is a clear balance of power and authority to ensure that no one director has unfettered powers in decision making. The only changes to the membership of the board occurred on 1 June 2012 when SL (Santie) Botha was appointed non-executive director and DP Hele, Chief Operating Officer, was invited to serve on the board as an executive director. Both appointments were confirmed by shareholders at the annual general meeting (AGM) held on 23 August 2012. Santie subsequently accepted the board’s nomination of her as Lead Independent Director to act in those instances where the chairman is conflicted.

The primary functions of the board, which is governed by a charter, are to:●● review and approve corporate strategy;●● determine the Group’s purpose and values;●● retain full and effective control of the Group;●● approve and oversee major capital expenditures,

acquisitions and disposals;●● review and approve annual budgets and business plans;●● monitor operational performance and management;●● endeavour to ensure that information technology (IT)

governance is appropriate for the size and complexity of the business;

●● endeavour to ensure that the Group complies with sound codes of business behaviour;

●● endeavour to ensure that appropriate control systems are in place for the proper management of risk, financial control and compliance with all laws and regulations;

●● appoint the Chief Executive (CE) and ensure succession planning for executive management is in place;

●● regularly identify and monitor key risk areas;●● oversee the company’s disclosure and communication

process; and●● ensure that enlightened practices are in place to attract

talent and provide meaningful employment in a transforming society.

The board met three times during the past financial year. Details of the directors in office during the year and their attendance at board and committee meetings are set out on page 30.

There are no service contracts with non-executive directors. Executive directors’ service agreements may be terminated with one to three months’ notice. In terms of the memorandum of incorporation not less than one-third of the non-executive directors have to retire on a rotational basis each year at the company’s AGM. The retiring directors are those who have been the longest in office. The retiring directors may offer themselves for re-election. The appointment of new directors is subject to confirmation by shareholders at the first AGM after their appointment. Biographical details of all directors are set out on pages 8 to 11 of the Integrated Annual Report.

The daily management and administration of the Group’s affairs are the responsibility of the CE. In addition to the board charter, he is guided by an approvals framework, setting out the respective responsibilities of the board and executive management.

All directors have access to the advice and services of the Company Secretary. In appropriate circumstances, they may seek independent professional advice about the affairs of the company at the company’s expense. The director concerned would initially discuss and clear the matter with the Chairman or the Company Secretary unless this would be inappropriate.

29Famous Brands Integrated Annual Report 2013 / Report to stakeholders

A nominations committee for appointments to the board has been constituted. Appointments to the board are made in a formal and transparent manner and are a matter for the board as a whole. The committee comprises all non-executive directors as identified on pages 8 to 11 and they are guided by an approved policy document. Considering the skills and expertise necessary on the board, any of the directors may propose an individual to serve on the board. Such a nomination will only be effective once approved by a majority of directors passed in a properly constituted manner. Appointments made by the directors require approval by shareholders at the next AGM.

An orientation and induction programme for directors is in place. Directors have unrestricted access to company information and records. Procedures are in place to address situations where directors may have a conflict of interest. A register of directors declarations of interests is retained.

Company SecretaryMr JG Pyle (CA)SA held office as Company Secretary throughout the year and maintained an arm’s length relationship with the board. The board considers him to be suitably competent and qualified to fulfil the role. His biographical details and curriculum vitae (CV) are set out on page 13 of this Integrated Annual Report.

Board sub-committeesTo enable the board to discharge its onerous responsibilities and duties, certain responsibilities of the board have been delegated to board committees. The following committees have been constituted:●● audit committee;●● remuneration committee; and●● social and ethics committee.

These committees’ activities are governed by charters approved by the board. All are chaired by non-executive directors and are directly responsible to the board.

Audit committeeThe audit committee consists of three non-executive directors and meets at least twice a year. Shareholders at the last AGM approved the appointment of the directors seen to be best suited for audit committee membership. Two of these appointments do not meet King III independence criteria. At the AGM to be held on 25 July 2013 shareholders will be asked to approve the appointment of Mr BL Sibiya as a newcomer to the committee replacing Mr JL Halamandres. Independent directors will then comprise a majority of committee members.

Meetings are attended by the CE, FD as well as internal and external auditors. The committee is entirely satisfied with the competence and expertise of the FD and has reported as

such to the board who endorses that recommendation. The committee provides support to the board on good corporate governance and on the risk profile and risk management in the Group. Both internal and external auditors have unlimited access to the chairman of the audit committee. The role of the committee is, inter alia:●● to review the effectiveness of the Group’s systems of

internal control, including financial control and business risk management, and to endeavour to ensure that effective internal control systems are maintained;

●● to satisfy itself of the expertise, resources and experience of the company’s finance function;

●● to monitor and supervise the effective functioning and performance of the internal auditors;

●● to ensure that the scope of the internal audit function has no limitations imposed by management and that there is no impairment of its independence;

●● to evaluate the independence, effectiveness and performance of the external auditors and obtain assurance from the auditors that adequate accounting records are being maintained;

●● to appoint the external auditors on an annual basis;●● to ensure that the respective roles and functions of

external audit and internal audit are sufficiently clarified and co-ordinated; and

●● to review financial statements for proper and complete disclosure of timely, reliable and consistent information and to confirm that the accounting policies used are appropriate.

Remuneration committeeThe charter of this committee provides for at least three members of which the majority must be non-executive. The chairman is a non-executive director. The committee meets at least twice a year.

The key mandate of the committee is to compile emolument proposals in accordance with the Group’s remuneration strategy. This is designed and tailored to:●● continue to attract, retain and motivate executives of the

highest calibre;●● enable the Group to remain an employer of choice; and●● ensure a blend of skills that consistently achieves

predetermined business objectives and targets.

The committee approves the appointment terms and remuneration for all executive directors. It is also responsible for making recommendations to the board on all fees payable by the company to non-executive directors for membership of both the board and sub-committees. Such recommendations are considered by impartial directors prior to submission to shareholders for approval.

The committee plays an integral part in succession planning, particularly in respect of the CE and executive management.


Corporate governance and sustainability report continued

Social and ethics committeeThe social and ethics committee comprises a non-executive chairman and two executive directors. In addition to performing the secretarial function for the committee, the Company Secretary also actively participates in the deliberations of the meeting which is also attended by the Human Resources Executive and the Transformation Manager. The committee meets at least three times a year and its charter includes the following duties:●● review and approve the policy, strategy and structures

to manage social and ethics issues within the Group;●● oversee the monitoring, assessment and measurement

of the company’s activities relating to good corporate citizenship, including the Group’s promotion of equality, prevention of unfair discrimination, reduction of corruption, contribution to development of the communities in which its activities are predominantly conducted or within which its services are predominantly marketed, and record of sponsorship, donations and charitable giving;

●● review the adequacy and effectiveness of the Group’s engagement and interaction with its stakeholders;

●● research, evaluate and make recommendations to the board regarding the appropriate nature, extent and methods of implementation of transformation at all levels within the Group;

●● create an enabling environment within the Group which encourages and develops a new way of doing business which embraces and celebrates diversity;

●● as a Group substantially invested in South Africa, develop a skilled and motivated workforce whose profile is representative of the demographics of the country;

●● report to the board on the transformation work undertaken, and the extent of any action taken by management to address areas identified for improvement;

●● oversee the monitoring, assessment and measurement of the Group’s consumer relationships, including the Group’s advertising, public relations and compliance with consumer protection laws;

●● oversee the monitoring of the Group’s labour and employment, including the Group’s standing in terms of the International Labour Organisation Protocol on decent work and working conditions, the Group’s employment relationships and its contribution towards the educational development of its employees; and

●● determine clearly articulated ethical standards (code of ethics) to be adopted by the Group, thus achieving a sustainable ethical corporate culture.

EthicsThe Group’s code of ethics requires all directors and employees to act with honesty and integrity and to maintain the highest ethical standards. The code deals with compliance with laws and regulations, conflicts of interest, relationships with customers and suppliers, remuneration, outside employment and confidentiality.

Stakeholder communicationThe board ensures that material matters of interest and concern to shareholders and other stakeholders are addressed transparently in the Group’s public disclosure and communication. The CE and FD meet with shareholders and analysts as well as with the financial press in order to ensure accurate reporting of Group matters. All pertinent Group announcements are placed on the Group’s website.

Attendance at board and committee meetings during the year ended 28 February 2013

BoardAudit

committeeRemuneration

committeeSocial and

ethics committee

Number of meetings 3 3 3 3

Board memberSJ Aldridge 3 3* n/a 3SL Botha*** 2 n/a n/a n/aCH Boulle 3 3 3 3P Halamandaris 3 3* n/a n/aP Halamandaris (Jnr) 2 2* n/a n/aT Halamandaris 2 n/a n/a n/aJL Halamandres 3 3 3 n/aKA Hedderwick** 3 3* n/a 2DP Hele*** 2 n/a n/a 1HR Levin – – – –BL Sibiya 2 n/a 2 n/a

*By invitation**Resigned from social and ethics committee October 2012 when Mr DP Hele was appointed in his place

***Appointed to the board 1 June 2012


The board has considered and concluded that three meetings per annum are sufficient to deal with the board’s annual agenda and direct the company appropriately.

As anticipated, Mr HR Levin was unable to attend the meetings during the year and was represented at all meetings by his alternate, Mr CH Boulle.

Risk management and internal controlsThe board, which is accountable for the total process of risk management and internal control, delegates responsibility for such activities to responsible executives. Importantly, risk management remains an integral part of executive management’s function and includes management of both operational and business risks. The board is satisfied with the effectiveness of the risk management process within the Group.

The internal control environment is constantly under review and subject to continual and ongoing improvements. A key cornerstone of internal control is monthly individual business unit financial reviews. This forum examines results against budget and the prior year rigorously and reviews assets for impairment.

The internal audit department has responsibility to review high-risk areas. Although the head of internal audit reports directly to the FD, the committee is satisfied that the FD respects the independence of the function. The incumbent has direct access to the audit committee chairman.

A formal process of business risk assessment is done at least annually. Key risks are highlighted and together with further control actions, are reported to the board. Major risks identified are:●● fluctuations in commodity food and fuel prices – while

these can be hedged on a short-term basis, in the long term, sustained price increases may damage individual franchisee profitability, thus jeopardising future income;

●● lack of economic growth in the markets in which we operate – leading to potential job losses and the resulting impact on consumers’ discretionary spend. This could lead to below budget sales, an increase in the number of underperforming franchised restaurants, possible closures and bad debts which could all affect future income;

●● a disruption in business activity, particularly IT, arising from disaster;

●● heightened industrial relations activity leading to disruption in Supply Chain service to the franchise network;

●● a threat to current business practices through legislation or regulation; and

●● loss of key personnel.

Our highly sought after brands are supported through ongoing marketing investment and backed by a successful and integrated business model. These factors, combined with excellent management, detailed control and strong cash generation are key factors in mitigating the above mentioned risks.

Directors’ shareholdingThe direct and indirect holdings, and share options of the directors of Famous Brands Limited at 28 February 2013 are set out in notes 26 and 28 respectively.

Non-executive directors do not participate in the share incentive scheme.

Personal share dealingsThe board complies with requirements of the JSE in relation to restrictions on the trading of Famous Brands shares by directors and employees during defined closed periods. Closed periods extend from 31 August and 28 February, being the commencement of interim and year-end reporting dates, until 24 hours after the date of announcement of the results. Closed periods also include any other period during which the company is trading under cautionary announcement. The Company Secretary notifies all directors and employees prior to the commencement of the closed trading periods of the prohibitions contained in the Securities Services Act (2004) relating to share dealings while in possession of price-sensitive information. Details of directors’ share dealings are disclosed to the listings division of the JSE and communicated through the Securities Exchange News Service (SENS). These dealings are disclosed at board meetings. There is a process in place in terms of the requirements of the JSE for directors to obtain prior clearance before dealing in the company’s shares.

Compliance with King III principlesAs can be seen from the table at the end of this corporate governance and sustainability report, the company complies with most principles and an explanation is provided where there is non-compliance.

Sustainability reportGoing concernBased on positive forward financial projections, the directors are confident that the Group operates a highly sustainable business model which will continue as a going concern in the years ahead. The annual financial statements set out in this Integrated Annual Report have been prepared in accordance with International Financial Reporting Standards and they are based on appropriate accounting policies that have been consistently applied.



Human capitalKey areas of focus are:●● empowerment and talent management;●● employee satisfaction and morale;●● group health and wellness;●● employment equity, skills development and broad-based

black economic empowerment;●● industrial relations;●● remuneration, benefits and performance bonuses;●● legislative compliance; and●● employee safety.

Empowerment and talent managementHuman capital is considered a core corporate asset at Famous Brands, with the calibre of our people being a key ingredient to our success. This means hiring the best and helping them fulfil their potential thus building management capability. Key competitive advantage will arise from a team of motivated, well-trained employees passionate about what they do. At Famous Brands we believe true empowerment gives people responsibility and also the freedom to live up to that responsibility.

Talent management (performance and potential) is measured through our bi-annual human capital reviews. Performance is assessed through a scorecard measurement process against clearly defined accountabilities or goals set out at the commencement of the year. Potential is identified through ranking employees and managers on a ‘People Balance Sheet’ and managing training and development opportunities arising from that intervention. Remuneration recommendations including discretionary performance-based bonuses are linked to the assessment process. Key to the sustainability and future of our business is managing the succession pipeline, in particular, of senior and executive employees. Our current target is to ensure a 1:2 succession cover ratio of the leadership level, meaning that each leader has at least two potential successors. One that can fill the position in a short time span and the second, in the long term. Famous Brands believes in motivating the entire workforce and has an annual recognition ceremony where appreciation is shown to those specific employees who have demonstrated dedication, devotion and commitment to their work beyond the norm.

Internal recruitment and promotion is a natural part of our growth culture where employees are positioned to align their capabilities with our business plan. Where additional skills are needed they are recruited externally in an efficient, rigorous and cost-effective process. The challenge is to balance the development of employees through promotional opportunities with the attraction of talent from the external market.

Employee satisfaction and moraleAnnual morale measurements continue to act as an indicator of overall organisational health. Our climate survey scores translate into business unit action plans and our effectiveness is monitored by successfully utilising this tool as the ‘People Barometer’ of the business. Our most recent survey indicated a high level of employee engagement and motivation.

Group health and wellnessThere is recognition that HIV/AIDS, among other challenges faced by South African businesses, is a serious concern and thus Famous Brands is in full support of the government in the fight against the pandemic. In alignment with the Employment Equity Act, No. 55 of 1998, which focuses on non-discrimination against employees diagnosed with the disease, we ensure a high level of confidentiality. Famous Brands partners with an outsourced third party, Occupational Care South Africa, a level 3 empowered supplier, to address the wellness needs of our employees. Assistance takes the form of on-site primary and occupational care in addition to external referrals for professional and medical support. This service includes the management of life threatening diseases where the company is committed to providing education and, in instances, medication to improve the quality of life of affected employees.

Famous Brands has also partnered with Campaigning for Cancer to educate our employees with respect to cancer as a life threatening disease. Our ice-cream plant was ear-marked as a pilot site to introduce and roll out this initiative.

Employment equity, skills development and broad-based black economic empowerment (BBBEE)Famous Brands supports the principles of BBBEE and has developed its own transformation policy and strategy. Each executive committee member takes accountability for the implementation of the strategy in their respective functional areas. Progress is monitored by the recently appointed Transformation Manager to ensure that initiatives are carried out across the organisation with integrity and conviction and there is ongoing executive support. BBBEE compliance is measured using the Generic scorecard and targets are aligned to the Department of Trade and Industry’s BBBEE Codes of Practice. The efforts are focused on contributing to a sustainable, equitable society and the transformation of our sector.

As a requirement of the Employment Equity and Skills Development Acts, Famous Brands has appointed a forum to enforce implementation of the acts. Compliance is monitored via acceptable procedures and guidelines. We are committed to creating a culture of learning and all stakeholders concerned are considered. Reporting to the social and ethics


committee is a nominated skills representative who is responsible for monitoring targets and progress against our committed plans. Our registered Skills Development Facilitator is tasked with the submission of plans and reports to the Department of Labour and Culture, Arts, Tourism, Hospitality, Sport and Education Training Authority (CATHSETA) on an annual basis. The budget for skills and development is measured accordingly, and deviations from the set plan are managed.

Industrial relationsDuring the year the company moved from the historic management of multi-unions per site to the signing of a national recognition agreement with Security, Cleaning, Manufacturing and Allied Workers’ Union (SCMAWU), a union which enjoys a 54% majority status across the operations. The agreement governs our relationship with respect to wage negotiations and related substantive issues.

Remuneration, benefits and performance bonusesThe remuneration committee has adopted a remuneration policy. Famous Brands has an ambitious growth objective that requires the Group’s remuneration strategies to be sufficiently robust and innovative to attract and retain people with the requisite skills. The remuneration policy and practices support the vision, mission and strategies of the Group. This policy has as its objectives to:●● continue to attract, retain and motivate employees of the

highest calibre;●● enable the Group to remain an employer of choice;●● ensure that appropriately talented and trained people are

available to achieve the business strategy;●● to determine the package of every individual using the

policy as a guideline; and●● align ourselves with market data and practices.

Management is guided by this policy and responsible for its implementation but the remuneration committee will revise it when necessary as circumstances change.

The primary role of the remuneration committee is to assist the board in fulfilling its corporate governance responsibilities with regards to remuneration. The committee sets and closely monitors executive remuneration for the Group. In allocating awards, the committee is guided by actual individual performance against individual scorecard goals. The committee approves the remuneration packages of key management, including the total discretionary bonus pool available for distribution to management.

Executive compensation comprises a guaranteed cost to company pay package paid monthly and two variable elements:●● short-term cash incentives in the form of performance

bonuses expressed as a percentage of total package; and●● longer-term share options.

Both variable incentives have been created within the Group for the purposes of executive retention and to enable executives to create individual long-term wealth as they align their personal interests with those of the company.

The remuneration process for other employees is:●● management assesses performance of administration

employees against measurable scorecards aligned with the business objectives on an annual basis. Employees’ rewards are influenced by both individual and company performance and employees are recognised by way of a discretionary performance bonus. Aggregate bonus pool amounts are reported to the remuneration committee; and

●● bargaining unit employees enjoy a basic plus benefits remuneration scheme where Famous Brands contributes to their provident fund. They also qualify for a guaranteed bonus.

Famous Brands remains committed to equitable and competitive pay practices when compared to the national market and regular benchmarking with credible institutions confirms this. The remuneration committee is accountable for ensuring that enlightened remuneration objectives are achieved.

Legislative complianceThe Group continues to comply with legislation governing the employment relationship in line with the requirements of the Department of Labour and CATHSETA. These include the Labour Relations Act, Employment Equity Act and the Skills Development Act. There are systems in place to monitor changes to legislation and if changes occur, the implications on our operations are assessed and communicated to relevant stakeholders.

Employee safetyAll necessary precautions and measures are taken to ensure the safety of employees, and the number of incidents involving injury during the year was negligible. All properties adhere to strict guidelines in terms of monitoring and implementing health and safety requirements. This is done through health and safety committees as well as appointed responsible people in terms of the Occupational Health and Safety Act. Health and safety training in respect of fire prevention and fire fighting as well as basic first aid is mandatory for all staff.



Corporate governanceAnalysis of the application of the corporate governance principles as recommended in the King III Report

Principles Applied

1. Ethical leadership and corporate citizenship

Responsible leadership, board responsibilities and ethical foundation

1.1 The board should provide effective leadership based on an ethical foundation √

1.2 The board should ensure that the company is and is seen to be a responsible corporate citizen √

1.3 The board should ensure that the company’s ethics are managed effectively √

2. Board and directors

Role and function of the board

2.1 The board should act as the focal point for and custodian of corporate governance √

2.2 The board should appreciate that strategy, risk, performance and sustainability are inseparable √

2.3 The board should provide effective leadership based on an ethical foundation √

2.4 The board should ensure that the company is and is seen to be a responsible corporate citizen √

2.5 The board should ensure that the company’s ethics are managed effectively √

2.6 The board should ensure that the company has an effective and independent audit committee

Explanation:Shareholders at the last annual general meeting (AGM) approved the appointment of the directors seen to be the best suited for audit committee membership. Two of these appointments do not meet King III independence criteria. At the AGM to be held on 25 July 2013 shareholders will be asked to approve the appointment of Mr BL Sibiya as a newcomer to the committee, replacing Mr JL Halamandres. Independent directors will then comprise a majority of committee members

2.7 The board should be responsible for the governance of risk √

2.8 The board should be responsible for information technology (IT) governance √

2.9 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards

√

2.10 The board should ensure that there is an effective risk-based internal audit √

2.11 The board should appreciate that stakeholders’ perceptions affect the company’s reputation √

2.12 The board should ensure the integrity of the company’s Integrated Annual Report √

2.13 The board should report on the effectiveness of the company’s system of internal controls √

2.14 The board and its directors should act in the best interests of the company √

2.15 The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act

Not applicable

2.16 The board should elect a chairman of the board who is an independent non-executive director. The CE of the company should also not fulfil the role of the Chairman of the board

Explanation:The CE and Chairman roles are separate. A lead independent non-executive director has been appointed to stand in when the chairman is conflicted

2.17 The board should appoint the CE and establish a framework for the delegation of authority √

Composition of the board

2.18 The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent

Explanation:The board comprises a majority of non-executive directors and includes founding shareholders and long-serving directors who do not meet the independence criteria of King III although the individual members apply their minds independently, comply with the Companies Act and act in the interests of all shareholders. Future appointments to the board will be proposed mindful of King III independence criteria

Board appointment process

2.19 Directors should be appointed through a formal process √

Director development

2.20 The induction of and ongoing training and development of directors should be conducted through formal processes

Explanation:An induction programme exists but no formal developmental one. Legislative changes are briefed to the board

√


Principles Applied

2. Board and directors continued

Company Secretary

2.21 The board should be assisted by a competent, suitably qualified and experienced Company Secretary √

Performance assessment

2.22 The evaluation of the board, its committees and the individual directors should be performed every year

Explanation:Assessment is of the board’s performance as a whole

Board committees

2.23 The board should delegate certain functions to well-structured committees but without abdicating its own responsibilities √

Group boards

2.24 A governance framework should be agreed between the Group and its subsidiary boards √

Remuneration of directors and senior executives

2.25 Companies should remunerate directors and executives fairly and responsibly √

2.26 Companies should disclose the remuneration of each individual director and certain senior executives

Explanation:Only directors are designated as prescribed officers

√

2.27 Shareholders should approve the company’s remuneration policy

Explanation:Such a non-binding advisory vote is included in the notice of the AGM to be held on 25 July 2013

3. Audit committee

Membership and resources of the audit committee

3.1 The board should ensure that the company has an effective and independent audit committee √

3.2 Audit committee members should be suitably skilled and experienced independent non-executive directors See 2.6 above

3.3 The audit committee should be chaired by an independent non-executive director See 2.6 above

Responsibilities of the audit committee

3.4 The audit committee should oversee integrated reporting √

3.5 The audit committee should ensure that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities

√

Internal assurance providers

3.6 The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function √

3.7 The audit committee should be responsible for the overseeing of internal audit √

3.8 The audit committee should be an integral component of the risk management process √

External assurance providers

3.9 The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process

√

Reporting

3.10 The audit committee should report to the board and shareholders on how it has discharged its duties √



Principles Applied

4. The governance of risk

The board’s responsibility for risk governance

4.1 The board should be responsible for the governance of risk √

4.2 The board should determine the levels of risk tolerance √

4.3 The risk committee or audit committee should assist the board in carrying out its risk responsibilities √

Management’s responsibility for risk

4.4 The board should delegate to management the responsibility to design, implement and monitor the risk management plan √

Risk assessment

4.5 The board should ensure that risk assessments are performed on a continual basis √

4.6 The board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks

√

Risk response

4.7 The board should ensure that management considers and implements appropriate risk responses √

Risk monitoring

4.8 The board should ensure continual risk monitoring by management √

Risk assurance

4.9 The board should receive assurance regarding the effectiveness of the risk management process

Explanation:The cost of obtaining external assurance is not warranted

Risk disclosure

4.10 The board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders

√

5. The governance of information technology

5.1 The board should be responsible for IT governance √

5.2 IT should be aligned with the performance and sustainability objectives of the company √

5.3 The board should delegate to management the responsibility for the implementation of an IT governance framework √

5.4 The board should monitor and evaluate significant IT investments and expenditure √

5.5 IT should form an integral part of the company’s risk management √

5.6 The board should ensure that information assets are managed effectively √

5.7 A risk committee and audit committee should assist the board in carrying out its IT responsibilities √

6. Compliance with laws, rules, codes and standards

6.1 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards

√

6.2 The board and each individual director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business

√

6.3 Compliance risk should form an integral part of the company’s risk management process √

6.4 The board should delegate to management the implementation of an effective compliance framework and processes √


Principles Applied

7. Internal audit

The need for and role of internal audit

7.1 The board should ensure that there is an effective risk-based internal audit √

Internal audit’s approach and plan

7.2 Internal audit should follow a risk-based approach to its plan √

7.3 Internal audit should provide a written assessment of the effectiveness of the company’s system of internal controls and risk management

√

7.4 The audit committee should be responsible for overseeing internal audit √

Internal audit’s status in the company

7.5 Internal audit should be strategically positioned to achieve its objectives √

8. Governing stakeholder relationships

8.1 The board should appreciate that stakeholders’ perceptions affect a company’s reputation √

8.2 The board should delegate to management to proactively deal with stakeholder relationships √

8.3 The board should strive to achieve the appropriate balance between its various stakeholder groupings in the best interests of the company

√

8.4 Companies should ensure the equitable treatment of shareholders √

8.5 Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence √

Dispute resolution

8.6 The board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible √

9. Integrated reporting and disclosure

Transparency and accountability

9.1 The board should ensure the integrity of the company’s Integrated Annual Report √

9.2 Sustainability reporting and disclosure should be integrated with the company’s financial reporting √

9.3 Sustainability reporting and disclosure should be independently assured

Explanation:The cost of obtaining external assurance is not warranted

BUILDING MANUFACTURING

CAPABILITY

40 Famous Brands Integrated Annual Report 2013 / Financial results

The reports and statements set out below were prepared under the supervision of Mr SJ Aldridge CA(SA), Group Financial Director, and comprise the annual financial statements presented to the shareholders.

Contents

Report by the audit committee 41

Declaration by the Company Secretary 41

Directors’ responsibilities and approval 42

Report of the independent auditors 43

Report of the directors 44

Statements of comprehensive income 46

Statements of financial position 47

Statements of changes in equity 48

Statements of cash flows 49

Notes to the annual financial statements 50

Annexure A: Schedule of investments in subsidiaries 94

Shareholder analysis 95

Level of assuranceThese annual financial statements have been audited in compliance with the applicable requirements of the Companies Act, No. 71 of 2008.

Exchange ratesThe following significant exchange rates were applied in the preparation of the Group’s results:

2013 2012

Rand to GB Pound (GBP) – average 13.31 11.83 – closing 13.39 11.96

Rand to Euro – average 10.82 10.23 – closing 11.58 10.14

Rand to US Dollar – average 8.39 7.39 – closing 8.85 7.55

Euro to GB Pound – average 1.23 1.16 – closing 1.16 1.18

Rand to Zambian Kwacha – average 0.60 – – closing 0.60 –

Annual financial statements

41


Famous Brands Integrated Annual Report 2013 / Financial results

Report by the audit committee

Declaration by the Company Secretary

In terms of section 94 of the Companies Act, No. 71 of 2008, the report by the audit committee, which is chaired by Mr HR Levin, is presented below. During the financial year ended, in addition to the duties set out in the audit committee’s charter (a summary of which is provided on page 29 of this report) the audit committee carried out its functions, inter alia, as follows:●● nominated the appointment of RSM Betty & Dickson

(Johannesburg) as the registered independent auditor after satisfying itself through enquiry that RSM Betty & Dickson (Johannesburg) is independent as defined in terms of the Companies Act, No. 71 of 2008;

●● determined the fees to be paid to RSM Betty & Dickson (Johannesburg) and its terms of engagement;

●● ensured that the appointment of RSM Betty & Dickson (Johannesburg) complied with the legislation relating to the appointment of auditors; and

●● approved a non-audit services policy which determines the nature and extent of any non-audit services which RSM Betty & Dickson (Johannesburg) may provide to the Group.

RSM Betty & Dickson (Johannesburg) provides non-audit services to the Group and the audit committee has pre-approved the contract for tax administration services by the auditor.

I certify that Famous Brands Limited has lodged with the Companies and Intellectual Property Commission all such returns as are required of a public company in terms of the Companies Act, No. 71 of 2008, as amended, and that all such returns are to the best of my knowledge and belief true, correct and up to date.

JG PyleCompany Secretary22 May 2013

The audit committee has satisfied itself through enquiry that RSM Betty & Dickson (Johannesburg) and Ms J Kitching, the designated auditor, are independent of the Group.

The audit committee is entirely satisfied with the competence and expertise of the Group Financial Director.

The audit committee recommended the financial statements for the year ended 28 February 2013 for approval to the board. The board has subsequently approved the financial statements which will be open for discussion at the forthcoming AGM.

HR LevinAudit committee chairman


Directors’ responsibilities and approval

The directors are required by the Companies Act, No. 71 of 2008, to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements present fairly the state of affairs of the Group as at the end of the financial year and the results of its operations and cash flows for the year then ended, in conformity with International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Council, the Companies Act, No. 71 of 2008 and the Listings Requirements of the JSE Limited. The external auditors are engaged to express an independent opinion on the annual financial statements.

The annual financial statements are prepared in accordance with IFRS and are based on appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that, in all reasonable circumstances, is above reproach. The focus of risk management in the Group

is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The audit committee, together with the internal auditors, perform an oversight role in matters related to financial and internal controls.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have reviewed the Group’s cash flow forecast for the subsequent year and, in light of this review and the current financial position, they are satisfied that the Group has access to adequate resources to continue in operational existence for the foreseeable future. The annual financial statements set out on pages 44 to 95, which have been prepared on the going concern basis, were approved by the board of directors on 22 May 2013 and are signed on its behalf by:

P Halamandaris KA HedderwickNon-executive Chairman Chief Executive

43Famous Brands Integrated Annual Report 2013 / Financial results

Report of the independent auditors

To the shareholders of Famous Brands Limited and subsidiariesWe have audited the consolidated and separate annual financial statements of Famous Brands Limited, as set out on pages 46 to 95, which comprise the statements of financial position as at 28 February 2013, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the annual financial statementsThe company’s directors are responsible for the preparation and fair presentation of these consolidated and separate annual financial statements in accordance with International Financial Reporting Standards, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and the requirements of the Companies Act, No. 71 of 2008, and for such internal control as the directors determine is necessary to enable the preparation of annual financial statements that are free from material misstatements, whether due to fraud or error.

Auditors’ responsibilityOur responsibility is to express an opinion on these consolidated and separate annual financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the annual financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the entity’s preparation and fair presentation of the annual financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the annual financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated and separate annual financial statements present fairly, in all material respects, the consolidated and separate financial position of Famous Brands Limited as at 28 February 2013, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and the requirements of the Companies Act, No. 71 of 2008.

Other reports required by the Companies ActAs part of our audit of the consolidated and separate annual financial statements for the year ended 28 February 2013, we have read the directors’ report, report by the audit committee and the declaration by the Company Secretary for the purpose of identifying whether there are material inconsistencies between these reports and the consolidated and separate audited annual financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate annual financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports.

RSM Betty & Dickson (Johannesburg)Registered Auditors

Per: J Kitching CA(SA) RAPartner

22 May 2013Randburg


Report of the directors

The directors have pleasure in submitting their report for the year ended 28 February 2013.

Nature of businessFamous Brands Limited is a holding company listed on the JSE Limited under the category Consumer Services: Travel and Leisure. Famous Brands Limited is Africa’s leading Quick Service and Casual Dining Restaurant franchisor and also has representation in the United Kingdom. The global footprint of the Group now stands at 2 163 franchised restaurants spread across South Africa, 15 other African countries and the United Kingdom. Its franchise brand portfolio includes Steers, Wimpy, Debonairs Pizza, Mugg & Bean, FishAways, Longhorn, House of Coffees, Coffee Couture, Brazilian Café, tashas, KEG, McGinty’s, O’Hagan’s, Giramundo, Vovo Telo, Milky Lane, Juicy Lucy, The Brewers Guild, Blacksteer Home of Shisanyama, Europa, Fego Caffé and Net Café. The Group manufactures and supplies its franchisees, the retail trade and broader hospitality industry with a wide range of meat, cheese, sauces, bakery, ice-cream, coffee, other hot beverage products, fruit juice and mineral water products.

Directors’ responsibilitiesThe responsibilities of the company’s directors are detailed on page 42 of this report.

Financial statements and resultsThe company’s and Group’s results and financial position are reflected in the annual financial statements on pages 46 to 95.

Corporate governance and sustainabilityThe corporate governance and sustainability report is set out on pages 28 to 37.

Tangible and intangible assetsThere was no major change in the nature or the use of the property, plant, equipment and intangible assets owned by the company or any of its subsidiaries during the year under review.

DividendsThe following information relates to the dividends in respect of the year under review:

Interim ordinaryThe directors declared an interim gross ordinary dividend No. 36 of 108 cents per ordinary share, which was paid on 10 December 2012 to ordinary shareholders recorded in the books of the company at the close of business on 30 November 2012.

Final ordinaryThe directors declared a final gross ordinary dividend No. 37 of 142 cents per ordinary share, payable on 15 July 2013 to ordinary shareholders recorded in the books of the company at the close of business on 5 July 2013.

Share capitalThe authorised and issued share capital of the company at 28 February 2013 is set out in note 15 to the annual financial statements.

Issued during the yearThe company issued 1 635 000 ordinary shares for a cash subscription of R26.2 million to participants of the Famous Brands Share Incentive Scheme.

Shareholder spreadIn terms of the JSE Listings Requirements, Famous Brands Limited complies with the minimum shareholder spread requirements, with 62.82% (2012: 61.32%) of ordinary shares being held by the public at 28 February 2013. Details of the company’s shareholder spread are as recorded on page 95.

Material shareholdersAccording to information received by the directors, besides the directors themselves, there were three shareholders beneficially holding, directly or indirectly, at 28 February 2013 close to 5.0% or more of the ordinary share capital. They are: ●● Arisaig Africa Consumer Fund 9.67%.●● Coronation Life Managers Limited 20.20% (2012: 28.68%).●● Enderle S.A. Proprietary Limited 4.96% (2012: 5.05%).

Staff share incentive scheme and option schemeDetails are reflected in note 28.

Directors and Company SecretaryThe names of the directors and the Company Secretary of the company at the date of this report are detailed on pages 8 to 11 and 13. In terms of the company’s memorandum of incorporation Messrs T Halamandaris, HR Levin and JL Halamandres retire at the AGM, and being eligible, offer themselves for re-election. Mr SJ Aldridge retires on 30 June 2013 and accordingly will not seek re-election at the forthcoming AGM. He will be succeeded by Mr NS Richards whose appointment is to be confirmed at the AGM.


SubsidiariesDetails of the company’s subsidiary companies are contained in Annexure A to the annual financial statements. The company had an interest in its subsidiaries’ aggregate profit after taxation of R339 029 093 (2012: R294 837 697) and in their losses after taxation of R634 533 (2012: R1 193 902).

AcquisitionsThe trademarks, franchise agreements and manufacturing assets of the following businesses were acquired during the year: ●● Europa and Fego Caffé – effective 1 December 2012, for

a purchase consideration of R85 million.●● Java Lava Beverage Manufacturers Proprietary Limited

(subsequently renamed Famous Brands Coffee Company Proprietary Limited) – effective 1 July 2012, for a purchase consideration of R7.3 million.

In October 2012, Famous Brands announced that it had entered into a ground-breaking joint venture partnership with Coega Dairy Proprietary Limited regarding the supply of cheese products to the Group. Famous Brands controls 51% of the shares in the newly formed company named Coega Cheese Proprietary Limited with the balance of 49% owned by Coega Dairy Holdings Proprietary Limited which, in turn, is owned by the shareholders of Coega Dairy Proprietary Limited. Latest technology equipment costing approximately R33 million has been imported from Italy for the custom designed plant to be built in the Coega Development Zone. Cheese supplies to the Group commence in June 2013 and the day-to-day operations of the cheese manufacturing business will be managed by Coega Dairy Proprietary Limited for an agreed management fee.

Subsequent eventsSubsequent to 28 February 2013 the Group acquired 51% of the following businesses:●● The Bread Basket – effective 2 April 2013 (subsequently

renamed Famous Brands Great Bakery Company Proprietary Limited).

●● Turn ‘n Tender – effective 1 June 2013.

The purchase consideration in both instances was not a material sum to the company, but the acquisitions are in line with the strategy to build capability across brands, logistics and manufacturing, providing a total solution to our investment partners and consumers.

Special resolutionsOn 23 August 2012 shareholders approved the following special resolutions:●● Adoption of a new memorandum of incorporation.●● General authority to provide financial assistance to related

or inter-related entities.●● Approval of a non-executive directors’ remuneration for

services as directors.●● General authority to repurchase shares of the company.

At the next AGM to be held on 25 July 2013 shareholders will be asked to renew the latter two approvals as set out in the notice to shareholders.

Special resolutions passed by subsidiariesApart from the adoption of new memoranda of incorporation (MOI), no special resolutions of any significance were passed by any subsidiaries during the year under review.

Borrowing powersThe company has unlimited borrowing powers in terms of its MOI.

Approval of the annual financial statementsThe annual financial statements were approved by the board of directors at Midrand on 22 May 2013 and are signed on its behalf by:

P Halamandaris KA HedderwickNon-executive Chairman Chief Executive

46



Statements of comprehensive income

Group Company

Notes2013R000

2012R000

2013R000

2012R000

Revenue 3 2 516 287 2 155 615 986 647Cost of goods sold (1 463 721) (1 232 648) – –

Gross profit 1 052 566 922 967 986 647Selling and administrative expenses (586 724) (510 311) 578 (60)

Operating profit 465 842 412 656 1 564 587 Dividends received from subsidiaries 222 000 175 000

Operating profit before interest and taxation 465 842 412 656 223 564 175 587 Net interest (paid)/received (3 969) (10 652) 41 122

Profit before taxation 4 461 873 402 004 223 605 175 709 Taxation 5 (130 821) (133 950) (845) (16 365)

Profit after taxation for the year 331 052 268 054 222 760 159 344 Foreign currency translation differences 19 337 7 837

Total comprehensive income for the year 350 389 275 891 222 760 159 344

Profit after taxation attributable toEquity holders of the company 328 805 266 811 222 760 159 344Non-controlling interests 2 247 1 243

Total comprehensive income attributable toEquity holders of the company 348 142 274 648 222 760 159 344Non-controlling interests 2 247 1 243

Earnings per share attributable to equity holders of the companyBasic earnings per ordinary share (cents) 6 338 278

Diluted earnings per ordinary share (cents) 6 334 272


At 28 February 2013

Statements of financial position

Group Company

Notes2013R000

2012R000

2013R000

2012R000

AssetsNon-current assetsProperty, plant and equipment 9 194 080 155 739 – –Intangible assets 10 800 470 694 977 – –Investment in subsidiaries 11 282 247 252 935 Deferred tax assets 12 11 587 8 588 1 866 2 276

Total non-current assets 1 006 137 859 304 284 113 255 211

Current assetsInventories 13 167 277 119 987 – –Taxation 2 780 1 386 – –Trade and other receivables 14 249 537 199 912 308 –Cash and cash equivalents 22.6 84 736 40 580 1 740 1 085

Total current assets 504 330 361 865 2 048 1 085

Total assets 1 510 467 1 221 169 286 161 256 296

Equity and liabilities Equity attributable to equity holders of the companyShare capital 15 978 962 978 962 Share premium 16 62 278 36 075 63 648 37 445 Non-distributable reserves 17 38 964 14 171 44 247 38 791 Retained earnings 889 523 783 584 168 423 168 549

991 743 834 792 277 296 245 747 Non-controlling interests 8 345 5 578

Total equity 1 000 088 840 370 277 296 245 747

Non-current liabilitiesLong-term borrowings 18 77 313 52 216 – –Deferred lease liabilities 19 2 544 5 658 2 544 5 658 Deferred tax liabilities 12 50 599 48 750 – –

Total non-current liabilities 130 456 106 624 2 544 5 658

Current liabilitiesTrade and other payables 20 261 348 186 774 40 240 Short-term borrowings 18 88 514 69 936 – –Deferred lease liabilities 19 5 271 3 165 4 120 2 470 Non-controlling shareholder loan 21 12 283 – – –Share-based payment liability 28.2 1 604 913 – –Shareholders for dividends 1 246 671 1 202 671 Taxation 9 657 12 716 959 1 510

Total current liabilities 379 923 274 175 6 321 4 891

Total equity and liabilities 1 510 467 1 221 169 286 161 256 296

48



Statements of changes in equity

Notes

Sharecapital

R000

Sharepremium

R000

Non-distribu-

tablereserves

R000

Retainedearnings

R000

Attribu-table

to equity holders

of the company

R000

Non-controlling

interestsR000

Totalequity

R000

Group29 February 2012Balance at 1 March 2011 958 30 422 (3 044) 675 338 703 674 4 920 708 594Issue of share capital and premium 4 5 653 5 657 5 657 Share-based payments 9 378 9 378 9 378Total comprehensive income for the year 7 837 266 811 274 648 1 243 275 891 Dividends 8 (158 565) (158 565) (585) (159 150)

Balance at 29 February 2012 962 36 075 14 171 783 584 834 792 5 578 840 370

28 February 2013Balance at 1 March 2012 962 36 075 14 171 783 584 834 792 5 578 840 370 Issue of share capital and premium 16 26 203 26 219 26 219 Share-based payments 5 456 5 456 5 456Total comprehensive income for the year 19 337 328 805 348 142 2 247 350 389Dividends 8 (222 866) (222 866) (882) (223 748)Non-controlling interest arising on business combination 1 402 1 402

Balance at 28 February 2013 978 62 278 38 964 889 523 991 743 8 345 1 000 088

Company29 February 2012Balance at 1 March 2011 958 31 794 29 413 167 770 229 935 229 935Issue of share capital and premium 4 5 651 5 655 5 655 Share-based payments 9 378 9 378 9 378Total comprehensive income for the year 159 344 159 344 159 344Dividends 8 (158 565) (158 565) (158 565)

Balance at 29 February 2012 962 37 445 38 791 168 549 245 747 245 747

28 February 2013Balance at 1 March 2012 962 37 445 38 791 168 549 245 747 245 747 Issue of share capital and premium 16 26 203 26 219 26 219Share-based payments 5 456 5 456 5 456Total comprehensive income for the year 222 760 222 760 222 760 Dividends 8 (222 886) (222 886) (222 886)

Balance at 28 February 2013 978 63 648 44 247 168 423 277 296 277 296

49



Statements of cash flows

Group Company

Notes 2013R000

2012R000

2013R000

2012R000

Cash flow from operating activitiesCash receipts from customers 2 482 019 2 137 562 986 647Cash paid to suppliers and employees (1 999 740) (1 738 852) (1 196) (864)

Cash generated by operations 22.1 482 279 398 710 (210) (217)Dividends received 222 000 175 000 Net interest (paid)/received (3 969) (10 652) 41 122Taxation paid 22.2 (136 507) (131 719) (986) (16 868)

Net cash flow from operating activities 341 803 256 339 220 845 158 037Dividends paid 22.3 (223 173) (159 165) (222 355) (158 580)

Net cash retained from operating activities 118 630 97 174 (1 510) (543)

Cash flow from investing activitiesExpended on property, plant and equipment – expansion (49 608) (45 793) – –– replacement (18 433) (9 776) – –Investment in subsidiaries 22.4 (7 257) – – –Acquisition of business 22.5 (85 000) (30 896) – –Expended on intangible assets (4 291) (1 030) (401) –Proceeds from disposal of property, plant and equipment 2 239 3 263 – –

Net cash flow from investing activities (162 350) (84 232) (401) –

Cash flow from financing activitiesMovement in share capital and reserves 26 219 5 657 26 219 5 654 Decrease in Group loans (23 653) (8 760)Cash contributed by non-controlling shareholder 12 283 – – –Interest-bearing borrowings raised 130 000 – – –Interest-bearing borrowings repaid (86 325) (65 634) – –

Net cash flow from financing activities 82 177 (59 977) 2 566 (3 106)

Change in cash and cash equivalents 38 457 (47 035) 655 (3 649)Foreign currency effect 5 699 1 218 Cash and cash equivalents at the beginning of the year 40 580 86 397 1 085 4 734

Cash and cash equivalents at the end of the year 22.6 84 736 40 580 1 740 1 085

50



Notes to the annual financial statements

Accounting policies1. Presentation of annual financial statementsThe annual financial statements have been prepared in accordance with International Financial Reporting Standards, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and the Companies Act, No. 71 of 2008. The annual financial statements have been prepared on the historical cost basis, except for the measurement of certain financial instruments at fair value, and incorporate the principal accounting policies set out below. They are presented in South African Rands.

These accounting policies are consistent with the previous period, except for the changes set out in note 2 – New standards and interpretations.

1.1 Significant judgements and sources of estimation uncertainty

In preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statements and related disclosures. Use of available information and the application of judgement are inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the annual financial statements include:

Allowance for slow-moving, damaged and obsolete inventoryJudgement is used to write inventory down to the lower of cost or net realisable value. Management has made estimates of the selling price and direct cost to sell on certain inventory items. The writedown is included in the operating profit.

Options grantedManagement uses the Black-Scholes-Merton model, which takes account of the vesting period (European style option), to determine the value of the options at issue date. Additional details regarding the estimates are included in the note 28 – Share-based payments.

Impairment testingThe recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the assumption may change which may then impact estimations and may then require a material adjustment to the carrying value of intangible and tangible assets.

The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, intangible assets are tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value-in-use of intangible and tangible assets are inherently uncertain and could materially change over time.

ProvisionsProvisions were raised and management determined an estimated amount based on the information available.

TaxationJudgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.


Allowance for doubtful debtsPast experience indicates a reduced prospect of collecting debts over the age of three months. Trade receivable balances older than three months are regularly assessed by management and provided for at their discretion. Debt arising from the sale of products to franchisees and franchise fees due, although past due, is generally regarded as recoverable if the related trading outlet continues to operate.

Property, plant and equipmentManagement has made certain estimates with regards to the determination of estimated useful lives and residual values of items of property, plant and equipment, as disclosed further in note 1.2.

LeasesManagement has applied its judgement to classify all lease agreements that the Group is party to as operating leases, as they do not transfer substantially all the risks and rewards of ownership to the Group. Furthermore, as the operating lease in respect of premises is only for a relatively short period of time, management has made a judgement that it would not be meaningful to classify the lease into separate components for the land and for the buildings for the current lease, and the agreement will be classified in its entirety as an operating lease.

1.2 Property, plant and equipmentThe cost of an item of property, plant and equipment is recognised as an asset when:●● it is probable that future economic benefits associated

with the item will flow to the Group; and●● the cost of the item can be measured reliably.

Property, plant and equipment is initially measured at cost.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

Property, plant and equipment are carried at cost less accumulated depreciation and any impairment losses.

Property, plant and equipment are depreciated on the straight-line basis over their expected useful lives to their estimated residual value.

The useful lives of items of property, plant and equipment have been assessed as follows:Item Average useful life

Buildings 50 years

Leasehold property Over expected remaining term of the lease

Plant and machinery 5 to 15 years

Furniture, fixtures and office equipment 4 to 10 years

Motor vehicles 5 to 8 years

IT equipment 3 to 5 years

Computer software 2 to 3 years

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. Depreciation commences once the asset is brought into use.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.3 Intangible assetsAn intangible asset is recognised when:●● it is probable that the expected future economic benefits

that are attributable to the asset will flow to the entity; and●● the cost of the asset can be measured reliably.

Intangible assets are initially recognised at cost.

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred.

52

Notes to the annual financial statements continued



An intangible asset arising from development (or from the development phase of an internal project) is recognised when:●● it is technically feasible to complete the asset so that it will

be available for use or sale;●● there is an intention to complete and use or sell it;●● there is an ability to use or sell it;●● it will generate probable future economic benefits;●● there are available technical, financial and other resources

to complete the development and to use or sell the asset; and

●● the expenditure attributable to the asset during its development can be measured reliably.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for on these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assets amortisation is provided on a straight-line basis over their useful life.

The amortisation period and the amortisation method for intangible assets are reviewed every year end.

Re-assessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life.

Internally generated brands, franchise agreements, recipes, customer lists and items similar in substance are not recognised as intangible assets.

Amortisation is provided to write down the intangible assets, on a straight-line basis, to their residual values as follows:

Item Useful life

Trademarks Indefinite

Lease premiums, franchise incentives or similar

Agreement period

1.4 Investments in subsidiariesCompany annual financial statementsIn the company’s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.

The cost of an investment in a subsidiary is the aggregate of:●● the fair value, at the date of exchange, of assets given,

liabilities incurred or assumed, and equity instruments issued by the company; plus

●● any costs directly attributable to the purchase of the subsidiary.

An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.

1.5 Financial instrumentsClassificationThe Group classifies financial assets and financial liabilities into the following categories:●● Financial assets at fair value through profit or loss –

designated.●● Loans and receivables.●● Financial liabilities at fair value through profit or loss –

designated; and●● Financial liabilities measured at amortised cost.

Classification depends on the purpose for which the financial instruments were obtained/incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fair value through profit or loss. This latter category shall not be classified out of the fair value through profit or loss category.

Initial recognition and measurementFinancial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments.

The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.


Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets.

For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument.

Subsequent measurementLoans and receivables are subsequently measured at amortised cost, using the effective interest rate method, less accumulated impairment losses.

Gains or losses arising on remeasurement of financial assets and liabilities at fair value through profit or loss are recognised in profit or loss.

Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest rate method.

DerecognitionFinancial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Fair value determinationThe fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option-pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

Impairment of financial assetsAt each reporting date the Group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.

For amounts due to the Group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment.

Impairment losses are recognised in profit or loss.

Impairment losses are reversed when an increase in the financial asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised.

Reversals of impairment losses are recognised in profit or loss.

Where financial assets are impaired through use of an allowance account, the amount of the loss is recognised in profit or loss within operating expenses. When such assets are written off, the write-off is made against the relevant allowance account. Subsequent recoveries of amounts previously written off are credited against operating expenses.

Loans to/from Group companiesThese include loans to and from subsidiaries and are recognised initially at fair value plus direct transaction costs.

Loans to Group companies are classified as financial assets at fair value through profit or loss.

Loans from Group companies are classified as financial liabilities at fair value through profit or loss.

Loans to shareholders, directors, managers and employeesThese financial assets are classified as loans and receivables.

Trade and other receivablesTrade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation, breach of contract and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

54




The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss.

Trade and other receivables are classified as loans and receivables.

Trade and other payablesTrade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Other payables are classified as other financial liabilities.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.

Bank overdraft and borrowingsBank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs.

1.6 TaxationCurrent tax assets and liabilitiesCurrent tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted by the end of the reporting period.

Deferred tax assets and liabilitiesA deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:●● the initial recognition of goodwill; or●● the initial recognition of an asset or liability in a transaction

which:– is not a business combination; and– at the time of the transaction, affects neither accounting

profit nor taxable profit (tax loss).

A deferred tax liability is recognised for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, except to the extent that both of the following conditions are satisfied:●● the parent, investor or venturer is able to control the timing

of the reversal of the temporary difference; and●● it is probable that the temporary difference will not reverse

in the foreseeable future.

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:●● is not a business combination; and●● at the time of the transaction, affects neither accounting

profit nor taxable profit (tax loss).

A deferred tax asset is recognised for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint ventures, to the extent that it is probable that:●● the temporary difference will reverse in the foreseeable

future; and●● taxable profit will be available against which the temporary

difference can be utilised.

A deferred tax asset is recognised for the carry forward of unused tax losses and/or unutilised capital allowances and recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and for unutilised capital allowances can be recovered. Deferred tax assets are reviewed at each reporting period and are adjusted if recovery is no longer probable.


Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Tax expensesCurrent and deferred taxes are recognised in profit or loss for the period, except to the extent that the tax arises from:●● a transaction or event which is recognised, in the same or

a different period, to other comprehensive income; or●● a business combination.

Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.

Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity.

1.7 LeasesA lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Operating leases – lessorOperating lease income is recognised as an income on a straight-line basis over the lease term.

Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.

Income for leases is disclosed under other income in profit or loss.

Operating leases – lesseeOperating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as a deferred lease asset or liability. This liability is not discounted.

Any contingent rents are expensed in the period in which they are incurred.

1.8 InventoriesInventories are measured at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is assigned using specific identification of the individual costs.

The cost of inventories is assigned using the weighted average cost formula. The same cost formula is used for all inventories having a similar nature and use to the entity.

When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any writedown of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the writedown or loss occurs. The amount of any reversal of any writedown of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.9 Impairment of assetsThe Group assesses at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the Group also:●● tests intangible assets with an indefinite useful life or

intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period; and

●● tests goodwill acquired in a business combination for impairment annually.

56




If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.

The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value-in-use.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.

Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination.

An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order:●● first, to reduce the carrying amount of any goodwill

allocated to the cash-generating unit; and●● then, to the other assets of the unit, pro rata on the basis

of the carrying amount of each asset in the unit.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.10 Share capital and equityAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

If the company re-acquires its own equity instruments, the consideration paid, including any directly attributable incremental costs (net of income taxes) on those instruments is deducted from equity until the shares are cancelled or re-issued. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the company’s own equity instruments. Consideration paid or received shall be recognised directly in equity.

Shares in the company held by the Steers Share Incentive Trust are classified as treasury shares. The cost of these shares is deducted from equity. The number of shares held is deducted from the number of issued shares and the weighted average number of shares in the determination of earnings per share. Dividends received on treasury shares are eliminated on consolidation.

1.11 Share-based paymentsGoods or services received or acquired in a share-based payment transaction are recognised when the goods or services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash-settled share-based payment transaction.

When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they are recognised as expenses.

For equity-settled share-based payment transactions the goods or services received and the corresponding increase in equity are measured, directly, at the fair value of the goods or services received provided that the fair value can be estimated reliably.


If the fair value of the goods or services received cannot be estimated reliably, their value and the corresponding increase in equity, indirectly, are measured by reference to the fair value of the equity instruments granted.

For cash-settled share-based payment transactions, the goods or services acquired and the liability incurred are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

If the share-based payments granted do not vest until the counterparty completes a specified period of service, the Group accounts for those services as they are rendered by the counterparty during the vesting period, (or on a straight-line basis over the vesting period).

If the share-based payments vest immediately the cost of the services received is recognised in full.

1.12 Employee benefitsShort-term employee benefitsThe cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid annual leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

Defined contribution plansPayments to defined contribution retirement benefit plans are charged as an expense as they fall due.

1.13 Provisions and contingenciesProvisions are recognised when:●● the Group has a present obligation as a result of a past

event;●● it is probable that an outflow of resources embodying

economic benefits will be required to settle the obligation; and

●● a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be re-imbursed by another party, the re-imbursement shall be recognised when, and only when, it is virtually certain that re-imbursement will be received if the entity settles the obligation. The re-imbursement shall be treated as a separate asset. The amount recognised for the re-imbursement shall not exceed the amount of the provision.

Provisions are not recognised for future operating losses.

If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

After their initial recognition, contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of:●● the amount that would be recognised as a provision; and●● the amount initially recognised less cumulative

amortisation.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 23.

58




1.14 RevenueRevenue from the sale of goods is recognised when all the following conditions have been satisfied:●● the Group has transferred to the buyer the significant risks

and rewards of ownership of the goods;●● the Group retains neither continuing managerial

involvement to the degree usually associated with ownership nor effective control over the goods sold;

●● the amount of revenue can be measured reliably;●● it is probable that the economic benefits associated with

the transaction will flow to the Group; and●● the costs incurred or to be incurred in respect of the

transaction can be measured reliably.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:●● the amount of revenue can be measured reliably;●● it is probable that the economic benefits associated

with the transaction will flow to the Group;●● the stage of completion of the transaction at the end

of the reporting period can be measured reliably; and●● the costs incurred for the transaction and the costs to

complete the transaction can be measured reliably.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

Service revenue is recognised by reference to the stage of completion of the transaction at the end of the reporting period. Stage of completion is determined by services performed to date as a percentage of total services to be performed.

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax (VAT).

Interest is recognised, in profit or loss, using the effective interest rate method.

Franchise fees are recognised on the accrual basis in accordance with the substance of the relevant agreements.

Dividends are recognised, in profit or loss, when the company’s right to receive payment has been established.

Franchise joining fees are recognised in the month when the outlet opens for trading.

Design and project management revenue are recognised using the stage of completion method.

1.15 Advertising leviesThe Group receives advertising levies from franchisees which are utilised in the advertising and promotion of the Group’s brands. Advertising expenditure incurred in excess of the levies received is carried forward as a prepaid expense to be set off against future levies. Any amounts not expended are carried forward as liabilities to set off against future advertising expenditure.

1.16 Cost of salesWhen inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any writedown of inventories to net realisable value and all losses of inventories are recognised as an expense in the period in which the writedown or loss occurs. The amount of any reversal of any writedown of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.


The related cost of providing services recognised as revenue in the current period is included in cost of sales.

1.17 Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows:●● actual borrowing costs on funds specifically borrowed for

the purpose of obtaining a qualifying asset less any temporary investment of those borrowings; and

●● weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred.

The capitalisation of borrowing costs commences when:●● expenditures for the asset have occurred;●● borrowing costs have been incurred; and●● activities that are necessary to prepare the asset for its

intended use or sale are in progress.

Capitalisation is suspended during extended periods in which active development is interrupted.

Capitalisation ceases when all the activities necessary to prepare the qualifying asset for its intended use or sale are substantially complete.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

1.18 Translation of foreign currenciesForeign currency transactionsA foreign currency transaction is recorded, on initial recognition in Rand, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

At the end of the reporting period:●● foreign currency monetary items are translated using the

closing rate;●● non-monetary items that are measured in terms of

historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and

●● non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous annual financial statements are recognised in profit or loss in the period in which they arise.

When a gain or loss on a non-monetary item is recognised to other comprehensive income and accumulated in equity, any exchange component of that gain or loss is recognised to other comprehensive income and accumulated in equity. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

Cash flows arising from transactions in a foreign currency are recorded in Rand by applying to the foreign currency amount the exchange rate between the Rand and the foreign currency at the date of the cash flow.

Investments in subsidiariesThe results and financial position of a foreign operation are translated into the functional currency using the following procedures:●● assets and liabilities for each statement of financial

position presented are translated at the closing rate at the date of that statement of financial position;

●● income and expenses for each item of profit or loss are translated at exchange rates at the dates of the transactions; and

●● all resulting exchange differences are recognised to other comprehensive income and accumulated as a separate component of equity.

60




Exchange differences arising on a monetary item that forms part of a net investment in a foreign operation are recognised initially to other comprehensive income and accumulated in the translation reserve. They are recognised in profit or loss as a reclassification adjustment through to other comprehensive income on disposal of net investment.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation.

The cash flows of a foreign subsidiary are translated at the exchange rates between the functional currency and the foreign currency at the average rate of the year or period.

1.19 ConsolidationBasis of consolidationThe consolidated annual financial statements incorporate the annual financial statements of the company and all entities, including special purpose entities, which are controlled by the company.

Control exists when the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries are included in the consolidated annual financial statements from the effective date of acquisition to the effective date of disposal.

Adjustments are made when necessary to the annual financial statements of subsidiaries to bring their accounting policies in line with those of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the Group’s interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interests.

Transactions which result in changes in ownership levels, where the Group has control of the subsidiary both before and after the transaction are regarded as equity transactions and are recognised directly in the statement of changes in equity.

The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent.

Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured at fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest.

Business combinationsThe Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity.

Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liability or equity which arise as a result of the contingent consideration are not affected against goodwill, unless they are valid measurement period adjustments.

The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business Combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal group) that are classified as held-for-sale in accordance with IFRS 5 Non-current Assets Held-for-sale and Discontinued Operations, which are recognised at fair value less costs to sell.

Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.

On acquisition, the Group assesses the classification of the acquiree’s assets and liabilities and reclassifies them where the classification is inappropriate for Group purposes.

Non-controlling interest arising from a business combination is measured either at its share of the fair value of the assets and liabilities of the acquiree or at fair value. The treatment is not an accounting policy choice but is selected for each individual business combination, and disclosed in notes 22.4 and 22.5 for business combinations.


In cases where the Group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured at fair value as at acquisition date. The measurement at fair value is included in profit or loss for the year. Where the existing shareholding was classified as an available-for-sale financial asset, the cumulative fair value adjustments recognised previously to other comprehensive income and accumulated in equity, are recognised in profit or loss as a reclassification adjustment.

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree.

Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed.

Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the functional currency of the Group at the end of each reporting period with the adjustment recognised to other comprehensive income and accumulated as a separate component of equity.

1.20 Shareholders for dividends and dividends declared

Dividends payable are recognised as a liability in the period in which they are declared.

2. New standards and interpretations2.1 Standards and interpretations effective and

adopted in the current yearIn the current year, the Group adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations:

IFRS 7 Financial Instruments: DisclosuresAmended the required disclosures to help users of financial statements evaluate the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position.

The effective date of the amendment is for years beginning on or after 1 July 2011.

The Group has adopted the amendment for the first time in the 2013 annual financial statements.

The impact of the amendment is not material.

2.2 Standards and Interpretations early adoptedThe Group has not chosen to early adopt any new standards and interpretations.

2.3 Standards and interpretations not yet effectiveThe Group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the Group’s accounting periods beginning on or after 1 March 2013 or later periods:

IFRS 9 Financial InstrumentsThe effective date of the standard is for years beginning on or after 1 January 2015.

The Group expects to adopt the standard for the first time in the 2016 annual financial statements.

It is unlikely that the standard will have a material impact on the Group’s annual financial statements.

IFRS 10 Consolidated Financial StatementsThe effective date of the standard is for years beginning on or after 1 January 2013.



IAS 27 Separate Financial StatementsThe effective date of the amendment is for years beginning on or after 1 January 2013.

The company expects to adopt the amendment for the first time in the 2014 annual financial statements.

It is unlikely that the amendment will have a material impact on the company’s annual financial statements.

IFRS 12 Disclosure of Interests in Other EntitiesThe effective date of the standard is for years beginning on or after 1 January 2013.



62




IFRS 13 Fair Value MeasurementThe effective date of the standard is for years beginning on or after 1 January 2013.



IAS 1 Presentation of Financial StatementsThe effective date of the amendment is for years beginning on or after 1 July 2012.

The Group expects to adopt the amendment for the first time in the 2014 annual financial statements.

It is unlikely that the amendment will have a material impact on the Group’s annual financial statements, but will result in additional disclosure.

IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial LiabilitiesThe effective date of the amendment is for years beginning on or after 1 January 2013.



IAS 32 Offsetting Financial Assets and Financial LiabilitiesThe effective date of the amendment is for years beginning on or after 1 January 2013.


It is unlikely that the amendment will have a material impact on the Group’s annual financial statements.

IAS 1 Annual Improvements for 2009 – 2011 cycleThe effective date of the amendment is for years beginning on or after 1 January 2013.









2.4 Standards and interpretations not yet effective or relevant

All other standards and interpretations that have been published and are mandatory for the Group’s accounting periods beginning on or after 1 March 2013 or later periods are not relevant to its operations.


Group Company

2013R000

2012R000

2013R000

2012R000

3. RevenueSale of goods 1 984 508 1 685 638 – –Services rendered and franchise revenue 514 988 459 423 986 647Financing element of revenue 16 791 10 554 – –

2 516 287 2 155 615 986 647

4. Profit before taxationProfit before taxation is arrived at after taking into account, among other items, those detailed below:Amortisation of intangible assets 3 083 1 795 – –Auditors’ remuneration 3 635 3 053 – – Audit fee 3 096 2 732 – – Fees for other services 539 321 – –Depreciation of property, plant and equipment 30 472 27 241 – –Directors’ remuneration 711 600 Executive directors 12 211 9 850 Non-executive directors 711 600 Less: Amounts paid by subsidiaries (12 211) (9 850)Employee costs 295 805 259 816 – –Foreign exchange (profit)/loss (270) 298 (303) (101)Impairment of goodwill 2 040 1 242 – –Interest and finance charges paid 9 468 18 705 – –Interest received (5 499) (8 053) (41) (122)Operating lease charges on immovable property 83 930 79 956 16 222 15 252Operating lease charges recovered from sub-lessees (40 972) (37 448) (17 650) (15 252)Operating lease charges on moveable property 2 750 2 102 – –Profit on disposal of company-owned restaurants – (1 442) – –(Profit)/loss on disposal of property, plant, equipment, intangibles and shares (119) 239 (98) –Share-based payments – equity-settled 5 456 9 378 – –

Share-based payments – cash-settled 691 913 – –

5. TaxationNormal taxationCurrent taxation 135 228 119 687 435 274Deferred taxation (1 741) (4 219) 410 235Movement in deferred taxation due to change in taxation rate (1 262) 5 588 – – Overprovision prior years (deferred and current) (1 404) (3 095) – – Secondary taxation on companies – 15 989 – 15 856

130 821 133 950 845 16 365

64




Group Company

2013%

2012%

2013%

2012%

5. Taxation continuedReconciliation of rate of taxation South African normal rate of taxation 28.0 28.0 28.0 28.0 Reduction in rate for year, due to: (0.3) (1.1) (27.6) (27.7) Dividend income – – (27.6) (27.7) Deferred taxation overprovision prior years – (1.1) – – Current taxation overprovision prior years (0.3) – – – Increase in rate for year, due to: 0.6 6.4 – 9.0 Secondary taxation on companies – 4.0 – 9.0 Increase in capital gains taxation rate – 1.3 – – Current taxation underprovision prior years – 0.4 – – Disallowable expenditure 0.6 0.7 – –

Effective rate of taxation 28.3 33.3 0.4 9.3

6. Earnings and diluted earnings per share R000 R000The calculation of basic earnings per ordinary share is based on earnings of R328 805 043 (2012: R266 811 594) and a weighted average number of shares in issue of 97 377 435 (2012: 96 102 435).

The calculation of diluted earnings per ordinary share is based on diluted earnings of R331 515 822 (2012: R271 624 391) and a weighted average number of shares in issue of 99 377 435 (2012: 99 937 435), after taking into account the effect of the possible issue of 2 000 000 (2012: 3 835 000) ordinary shares in the future relating to the share incentive scheme.

Reconciliation between earnings and diluted earningsAttributable profit to equity holders of the company 328 805 266 811Adjustment for:After taxation interest receivable on future share placements 2 711 4 813

Diluted earnings 331 516 271 624

Earnings per share (cents) 338 278

Diluted earnings per share (cents) 334 272


Group Company

2013R000

2012R000

2013R000

2012R000

7. Headline earnings and diluted headline earnings per shareThe calculation of headline earnings per ordinary share is based on headline earnings of R330 187 558 (2012: R267 438 818) and a weighted average number of shares in issue of 97 377 435 (2012: 96 102 435).

The calculation of diluted headline earnings per ordinary share is based on diluted headline earnings of R332 898 337 (2012: R272 251 615) and a weighted average number of shares in issue of 99 377 435 (2012: 99 937 435), after taking into account the effect of the possible issue of 2 000 000 (2012: 3 835 000) ordinary shares in the future relating to the share incentive scheme.

Reconciliation between earnings, headline earnings and diluted headline earningsAttributable profit to equity holders of the company 328 805 266 811Adjustments net of taxation for:Impairment of goodwill 1 469 455 (Profit)/loss on disposal of property, plant, equipment and intangibles (86) 172

Headline earnings 330 188 267 438Adjustment for:After taxation interest receivable on future share placements 2 711 4 813

Diluted headline earnings 332 899 272 251

Headline earnings per share (cents) 339 278

Diluted headline earnings per share (cents) 335 272

8. DividendsNo. 35 of 120 cents, paid 16 July 2012 117 308 81 611 117 308 81 611No. 36 of 108 cents, paid 10 December 2012 105 578 76 954 105 578 76 954

222 886 158 565 222 886 158 565Dividends on treasury shares held through the share incentive scheme (20) – – –

222 866 158 565 222 886 158 565

Dividends in the 2012 financial year were as follows:No. 33 of 85 cents, paid 4 July 2011

No. 34 of 80 cents, paid 19 December 2011

Further information related to dividend No. 37 declared subsequent to year end is available within the report of the directors on page 44.

66




Land and buildings

R000

Leasehold improve-

mentsR000

Plant and equipment

R000

Motor vehicles

R000

Computer equipment

R000

Computer software

R000

Furniture, fittings

and office equipment

R000TotalR000

9. Property, plant and equipment2013GroupCostOpening balance 10 598 10 043 127 708 82 305 24 602 13 875 29 153 298 284Additions 2 431 6 813 43 029 6 659 2 388 4 306 2 415 68 041Acquired in business combination – 76 2 476 232 70 – 127 2 981 Foreign currency translation – 535 – – – – 24 559 Disposals – – (838) (4 123) (131) – (2) (5 094)

Closing balance 13 029 17 467 172 375 85 073 26 929 18 181 31 717 364 771

Accumulated depreciationOpening balance 299 7 012 43 140 40 632 18 000 10 212 23 250 142 545Depreciation for the year 124 1 586 13 569 7 426 3 796 1 119 2 852 30 472Foreign currency translation – 488 – – – – 19 507Disposals – – (338) (2 390) (103) – (2) (2 833)

Closing balance 423 9 086 56 371 45 668 21 693 11 331 26 119 170 691

Net carrying amount 12 606 8 381 116 004 39 405 5 236 6 850 5 598 194 080

Plant and equipment additions include capital work in progress of R32 894 157 related to the construction of the cheese manufacturing plant at Coega Cheese Proprietary Limited. Depreciation on this capital work in progress will commence when the plant is commissioned in June 2013.

Land and buildings comprise Erf 344 Halfway House Ext. 17, Township Registration division I.R. in Gauteng province measuring 7 505 square metres, Erf 219 Sunderland Ridge Ext. 1, Centurion in Gauteng province measuring 1 500 square metres and Erf 218 Sunderland Ridge Ext. 1, Centurion in Gauteng province measuring 1 500 square metres.

The cost and net carrying amount of the land, within land and buildings (see above) is R6 453 750 (2012: R6 453 750).

The fair value of land and buildings is estimated by the directors to be R13 500 000 (2012: R11 225 000). Land and buildings are valued every three years by an independent valuer and the last valuation date was 28 February 2011.


Land and buildings

R000

Leasehold improve-

mentsR000

Plant and equipment

R000

Motor vehicles

R000

Computer equipment

R000

Computer software

R000

Furniture, fittings

and office equipment

R000TotalR000

9. Property, plant and equipment continued2012GroupCostOpening balance 8 140 8 126 103 289 73 273 21 623 10 670 24 156 249 277 Additions 2 461 1 787 26 510 13 140 3 017 3 246 5 408 55 569 Foreign currency translation – 130 – – – – 363 493 Disposals (3) – (2 091) (4 108) (38) (41) (774) (7 055)

Closing balance 10 598 10 043 127 708 82 305 24 602 13 875 29 153 298 284

Accumulated depreciationOpening balance 227 5 343 33 870 33 923 14 298 9 837 20 932 118 430 Depreciation for the year 72 1 602 10 417 8 535 3 716 378 2 521 27 241 Foreign currency translation – 67 – – – – 361 428 Disposals – – (1 147) (1 826) (14) (3) (564) (3 554)

Closing balance 299 7 012 43 140 40 632 18 000 10 212 23 250 142 545


68




2013 2012

Trade-marks

R000Goodwill

R000

Franchise incentives,

lease premiums

and similar

R000TotalR000

Trade-marks

R000Goodwill

R000

Franchise incentives,

lease premiums

and similar

R000TotalR000

10. Intangible assetsGroupCostOpening balance 282 947 402 621 14 329 699 897 249 403 400 421 14 620 664 444 Acquired in business combinations 85 000 5 019 – 90 019 30 896 – – 30 896 Additions – – 4 291 4 291 – – 1 030 1 030 Impairment – (2 040) – (2 040) – (1 242) – (1 242)Foreign currency translation 6 788 8 698 1 147 16 633 2 648 3 442 (1 321) 4 769

Closing balance 374 735 414 298 19 767 808 800 282 947 402 621 14 329 699 897

Accumulated amortisationOpening balance – – 4 920 4 920 – – 4 776 4 776 Amortisation for the year – – 3 083 3 083 – – 1 795 1 795 Foreign currency translation – – 327 327 – – (1 651) (1 651)

Closing balance – – 8 330 8 330 – – 4 920 4 920


TrademarksAll the Group’s trademarks have been assessed as indefinite life intangible assets. The trademarks acquired in 2013 as part of business combinations relate to the acquisition of the businesses of Europa and Fego Caffé. The trademarks acquired in 2012 as part of a business combination relate to the acquisition of the businesses of Milky Lane and Juicy Lucy.

The Group does not amortise its brands by value. In arriving at the conclusion that a brand has an indefinite life, management considers that the Group is a brands business and expects to acquire, hold and support brands for an indefinite period. The Group supports its brands through spending on consumer marketing and through significant investment in promotional support.

Indefinite life trademarks are assessed as such, as management believes there is no foreseeable limit over which the Group will continue to generate revenues from their continued use. Supporting this assumption is the fact that the brands held are established, well known, and can reasonably be expected to generate revenues beyond the Group’s strategic planning horizon. In addition, the Group can continue to renew legal rights attached to such trademarks, without significant costs, and intends to do so beyond the foreseeable future.

As disclosed in notes 18.2 and 23, the Group has hypothecated certain trademarks in favour of Investec Bank Limited.

GoodwillGoodwill acquired during the year ended 28 February 2013 as part of business combinations related to the acquisition of Java Lava Beverage Manufacturers Proprietary Limited (renamed Famous Brands Coffee Company Proprietary Limited), a state-of-the-art coffee roasting and packaging business.

Franchise incentives, lease premiums and similarFranchise incentives and similar represent financial assistance given to franchisees in respect of fit-out costs. Together with lease premiums, these are initially measured at cost and amortised over the period of the agreements.


10. Intangible assets continuedImpairment reviews of goodwill and indefinite life intangible assetsFor the purposes of impairment testing, goodwill is allocated to the smallest cash-generating unit. Significant goodwill and indefinite life intangible asset carrying amounts and the cash-generating units to which they relate are detailed below.

Unit(s) allocated

2013 Carrying amount

R000

2012 Carrying amount

R000

TrademarksFranchise division – DomesticWimpy, Debonairs Pizza, FishAways, Milky Lane, Juicy Lucy, Steers, tashas, Blacksteer, Vovo Telo, KEG, McGinty’s, Mugg & Bean, Europa and Fego Caffé Local franchise revenue stream 311 253 226 253

Franchise division – InternationalWimpy UK Famous Brands UK franchise revenue stream 63 482 56 694

GoodwillFranchise division – DomesticWimpy, Debonairs Pizza, FishAways, Steers, O’Hagan’s, Famous Brands Coffee Company Local franchise revenue stream 302 442 297 423

Franchise division – InternationalWimpy UK Famous Brands UK franchise revenue stream 79 376 72 718

South African-based intangiblesThe recoverable amounts of trademarks and goodwill have been determined on the basis of value-in-use calculations. Value-in-use calculations use cash flow projections based on 2014 financial year budgets, approved by management, extrapolated by a combination of volume growth rates and long-term growth rates of between 6% and 20% for four years. These five-year cumulative cash flows are discounted using a pre-tax weighted average cost of capital of 14.6% (2012: 15.8%).

UK-based intangiblesThe recoverable amounts of trademarks and goodwill and other intangibles have been determined on the basis of value- in-use calculations. Value-in-use calculations use cash flow projections based on 2014 financial year budgets, approved by management, extrapolated over the following four years with an annuity calculation thereafter to represent a terminal value at an average growth rate of 3% (2012: 3%). The five-year cumulative cash flow was discounted using a pre-tax weighted average cost of capital of 9.9% (2012: 9.9%). For the period to February 2013 an impairment of R2 039 639 or GBP153 000 (2012: GBP105 000) was recognised.

Key assumptions used in value-in-use calculations include budgeted manufacturing margins and budgeted franchise revenue streams. Such assumptions are based on historical results adjusted for anticipated future growth. These assumptions are a reflection of management’s past experience in the market in which these units operate.

Based on the above assumptions, after the impairment of GBP153 000, management’s calculations of recoverable amounts were greater than the carrying amounts.

Sensitivity analysisIf the revised estimated pre-tax discount rate applied to the discounted cash flows had been 10% less favourable than management’s estimates, the Group would need to reduce the carrying value of the trademarks by Rnil (2012: Rnil) and goodwill by R12 015 534 (2012: R14 873 572). If the actual gross margin and the pre-tax discounted rate had been more favourable than management’s estimates, the Group would not be able to reverse any impairment losses that arose on trademarks, if this resulted from the disposal of the relevant business in the cash-generating unit, as no previous trademark impairment has been recognised. IAS 36 does not permit reversing an impairment loss for goodwill.

70




Group Company

2013R000

2012R000

2013R000

2012R000

11. Investment in subsidiariesUnlisted shares at cost less amounts written off 332 656 326 997 Net amount owing to subsidiaries (50 409) (74 062)

282 247 252 935

A schedule of subsidiaries of the company is set out in Annexure A.

12. Deferred taxationMovementBalance at beginning of year 40 162 43 355 (2 276) (2 511)Acquired in business combinations 183 – – –Adjustment in respect of prior year – (4 562) – –Foreign currency effect 1 670 (543)Movement through profit and loss (1 741) (3 676) 410 235 Movement due to change in taxation rate (1 262) 5 588 – –

39 012 40 162 (1 866) (2 276)

AnalysisExcess capital allowances over depreciation 21 804 20 583 – –Effect of taxation losses (261) (359) – –Prepayments 1 037 1 118 – –Provisions (6 139) (6 661) – –Other temporary differences (11 715) (10 067) (1 866) (2 276)

4 726 4 614 (1 866) (2 276)Trademark valuation upon business combinations 34 286 35 548 – –

39 012 40 162 (1 866) (2 276)

The deferred tax liability of R34 286 317 (2012: R35 548 369) is associated with the valuation of the trademarks under IFRS 3 Business Combinations. This will only reverse on a change in tax rate, an impairment of the trademark asset or on disposal of the businesses.

The balance comprisesAggregate of deferred tax assets (11 587) (8 588) (1 866) (2 276)Aggregate of deferred tax liabilities 50 599 48 750 – –

39 012 40 162 (1 866) (2 276)

13. InventoriesRaw materials 92 776 49 110 – –Finished goods 70 098 69 000 – –Consumables 4 403 1 877 – –

167 277 119 987 – –

Cost of goods sold during the period amounted to R1 463 721 547 (2012: R1 232 647 744).

Writedowns of inventories to their net realisable value and obsolete stock provisions, mainly relating to finished goods, amounted to R662 304 (2012: R2 626 110), and have reduced gross inventories to the carrying amounts above.

There are no inventories pledged as security for liabilities.


Group Company

2013R000

2012R000

2013R000

2012R000

14. Trade and other receivablesGross trade receivables 234 064 199 796 – –Provisions for impairments (4 133) (6 252) – –

Net trade receivables 229 931 193 544 – –Prepayments 10 176 976 – –VAT receivable 4 569 – 14 –Other 4 861 5 392 294 –

249 537 199 912 308 –

As disclosed in note 18.2, the Group has ceded certain trade receivables in favour of Investec Bank Limited.

GroupCredit quality of trade and other receivablesThe Group has a wide customer base. No credit rating has been obtained from banks. One debtor has a current balance in excess of 5% of the trade receivables balance amounting to R18 227 427 (2012: R16 865 133).

The table below illustrates the trade receivables ageing analysis:Less than 30 days 193 381 174 134 31 to 60 days 23 970 14 777 61 to 90 days 6 641 8 020 91 to 120 days 2 113 180 Over 120 days 7 959 2 685

234 064 199 796

It is the policy of the company to allow seven to 90-day payment terms.

Fair value of trade and other receivablesThere is no material difference between the fair value of trade and other receivables and their book value.

Trade and other receivables past due and not impairedTrade and other receivables which are less than three months past due are not considered to be impaired. At 28 February 2013, amounts further past due but not impaired were R5 938 494 (2012: Rnil). The ageing of these amounts further past due but not impaired was as follows:Over 120 days 5 939 –

72




Group Company

2013R000

2012R000

2013R000

2012R000

14. Trade and other receivables continuedTrade and other receivables impairedAt 28 February 2013, trade and other receivables were impaired and provided for.

The amount of the provision at 28 February 2013 was R4 133 127 (2012: R6 251 951).

The ageing of these receivables is as follows:91 to 120 days – 3 387 Over 120 days 4 133 2 865

4 133 6 252

Reconciliation of provisions for impairment of trade and other receivablesOpening balance 6 252 7 604 Provision for impairment (1 618) 613 Amounts written off as uncollectible (501) (1 965)

4 133 6 252

The maximum exposure to credit risk at the reporting date is the fair value of trade and other receivables above.

The Group does not hold any collateral as security.

15. Share capitalAuthorised200 000 000 (2012: 200 000 000) ordinary par value shares of 1 cent each 2 000 2 000 2 000 2 000

Issued97 827 435 (2012: 96 192 435) ordinary par value shares of 1 cent each 978 962 978 962

Unissued102 172 565 (2012: 103 807 565) ordinary par value shares of 1 cent each. 1 022 1 038 1 022 1 038

4% of the unissued shares are under the control of the directors until the next AGM.

8 687 538 (2012: 5 199 916) of the unissued ordinary shares are specifically reserved for the share incentive scheme, of which 2 000 000 (2012: 3 835 000) options have already been offered to and accepted by directors and employees.


Group Company

2013R000

2012R000

2013R000

2012R000

16. Share premiumBalance at the beginning of the year 36 075 30 422 37 445 31 794 Premium on shares issued 26 203 5 651 26 203 5 651 Sale of treasury shares – 2

62 278 36 075 63 648 37 445

17. Non-distributable reservesCapital profit on sale of the company’s business to a subsidiary 10 775 10 775 Foreign currency translation reserve 5 492 (13 845)Share-based payments 33 472 28 016 33 472 28 016

38 964 14 171 44 247 38 791

18. Interest-bearing borrowings18.1 Instalment sale liabilities

Secured in terms of instalment sale agreements held with Nedbank over property, plant and equipment. These instalment sale agreements were settled during the course of the current financial year. – 114 – –

18.2 Secured loansSecured loan from Absa Bank Limited bearing interest at 1.25% above the three-month JIBAR rate. The final quarterly repricing JIBAR rate was 5.083%. The loan is repayable in quarterly instalments which commence on 31 May 2013 with a final instalment on 28 February 2015. The first instalment payable is R18 325 142. The loan arose to fund the acquisition of the Europa and Fego Caffé businesses and is secured by an irrevocable and unconditional guarantee issued by the company. 130 000 – – –

Secured loan from Investec Bank Limited bearing interest at 2.25% above the three-month JIBAR rate. The final quarterly repricing JIBAR rate was 5.075% (2012: 5.60%). The loan is repayable in quarterly instalments which commenced on 15 August 2008 with a final instalment on 16 May 2013. The current instalment is R8 342 566 (2012: R8 363 809). The loan arose to fund the acquisition of the Cape Franchising business and related assets. 8 214 39 589 – –

74




Group Company

2013R000

2012R000

2013R000

2012R000

18. Interest-bearing borrowings continued18.2 Secured loans continued

Secured loan from Investec Bank Limited bearing interest at 4.0% above the three-month JIBAR rate. The final quarterly repricing JIBAR rate was 5.075% (2012: 5.60%). The loan is repayable in quarterly instalments which commenced on 11 February 2010 with a final instalment on 11 November 2014. The current instalment is R4 289 723 (2012: R6 644 235). The loan arose to fund the acquisition of the Mugg & Bean business. 27 613 63 905 – –

Secured loan from Investec Bank Limited bearing interest at 2.25% above the three-month JIBAR rate. The final quarterly instalment was paid on 30 November 2012. – 1 997 – –

Secured loan from Investec Bank Limited bearing interest at 2.25% above the three-month JIBAR rate. The final quarterly instalment was paid on 26 February 2013. – 8 502 – –

Secured loan from Investec Bank Limited bearing interest at 2.25% above the three-month JIBAR rate. The final quarterly instalment was paid on 28 February 2013. – 8 045 – –

The above loans from Investec Bank Limited are secured by irrevocable, unconditional, joint and severable guarantees issued by the company and certain of its subsidiaries. As further security for the obligations arising in terms of the guarantees issued above, certain subsidiaries have hypothecated their rights to their trademarks with a carrying amount of R158 724 604 (2012: R158 724 604) and ceded their trade receivables in favour of the bank.

In terms of the memorandum of incorporation of the company, the borrowing powers of the directors shall be unlimited.

Repayments within one year will be funded by existing cash balances and future cash inflows.

Total liabilities 165 827 122 152 – –Repayable within one year transferred to current liabilities 88 514 69 936 – –

Non-current liabilities 77 313 52 216 – –

Repayable within two to five years 77 313 52 216 – –


Group Company

2013R000

2012R000

2013R000

2012R000

19. Deferred lease liabilitiesOpening balance 8 823 9 896 8 128 8 967 Movement during the year (1 008) (1 073) (1 464) (839)

Closing balance 7 815 8 823 6 664 8 128

Analysed as followsCurrent liabilities 5 271 3 165 4 120 2 470 Non-current liabilities 2 544 5 658 2 544 5 658

7 815 8 823 6 664 8 128

Details of the lease rentals are disclosed in note 24.1.

20. Trade and other payablesTrade payables 116 574 90 856 40 115 Accruals and deferred income 128 142 82 396 – –Advertising levy surplus 6 488 2 758 – –VAT payable 9 341 10 761 – 125 Other 803 3 – –

261 348 186 774 40 240

Accruals and deferred income represent miscellaneous contractual liabilities that relate to expenses that were incurred, but not paid for at the year end and income received during the year, for which the Group had not supplied the goods or services at the end of the year.

The book value of trade payables, accruals and deferred income is considered to be in line with their fair values.

Other payables comprise miscellaneous minor items.

21. Non-controlling shareholder loanCoega Dairy Holdings Proprietary Limited 12 283 – – –

The loan is unsecured, interest free and has no fixed terms of repayment.

The book value of the loan is considered to be in line with its fair value.

76




Group Company

2013R000

2012R000

2013R000

2012R000

22. Cash flow information22.1 Reconciliation of profit before taxation to

cash generated by operationsProfit before taxation 461 873 402 004 223 605 175 709 Adjustments for:

Amortisation of intangible assets 3 083 1 795 – –Depreciation of property, plant and equipment 30 472 27 241 – –Dividends received (222 000) (175 000)Equity loans foreign currency effect (942) 597 – –Impairment of goodwill 2 040 1 242 – –Movement in share-based payment liability 691 913 – –Movement in deferred lease liabilities (1 008) (1 073) (1 464) (838)Movement in doubtful debts provision (2 119) (1 352) – –Net interest paid/(received) 3 969 10 652 (41) (122)(Profit)/loss on disposal of property, plant, equipment, intangibles and shares (119) 239 (98) –Share-based payments reserve 5 456 9 378 – –

Cash generated before changes in working capital 503 396 451 636 2 (251)Working capital changes (21 117) (52 926) (212) 34 Increase in inventories (47 281) (44 430) – – Increase in receivables (46 911) (15 690) (12) – Increase/(decrease) in payables 73 075 7 194 (200) 34

Cash generated by operations 482 279 398 710 (210) (217)

22.2 Reconciliation of taxation paid during the yearAmounts owing at the beginning of the year (11 330) (5 812) (1 510) (2 248)Amounts charged to profit and loss (130 821) (133 950) (845) (16 365)Adjustment for deferred taxation (1 150) (3 193) 410 235 Foreign currency effect (83) (94)Amounts owing at the end of the year 6 877 11 330 959 1 510

(136 507) (131 719) (986) (16 868)

22.3 Reconciliation of dividends paid during the yearAmounts owing at the beginning of the year (671) (686) (671) (686)Amounts charged to retained earnings (223 748) (159 150) (222 886) (158 565)Amounts owing at the end of the year 1 246 671 1 202 671

(223 173) (159 165) (222 355) (158 580)


Group Company

2013R000

2012R000

2013R000

2012R000

22. Cash flow information continued22.4 Investment in subsidiaries

Effective 1 July 2012, a 60% interest was acquired in Java Lava Beverage Manufacturers Proprietary Limited (renamed Famous Brands Coffee Company Proprietary Limited), a state-of-the-art coffee roasting and packaging business, for a consideration of R7.3 million. R5.0 million was allocated to goodwill because of anticipated scale and merger benefits related to manufacturing capability. Fair value of assets and liabilities acquiredProperty, plant and equipment 2 981 –Trade and other receivables 4 178 –Inventories 3 103 –Cash and cash equivalents 3 –Other liabilities (6 347) –Deferred tax liability (183) –

Net assets acquired 3 735 –Non-controlling interests measured at their share of the fair value of net assets (1 494) –

Amount capitalised 2 241 –

Goodwill 5 019 –

Purchase price 7 260 Less: Cash and cash equivalents (3)

Cash flow on investment in subsidiary 7 257 –

Total cash flow on investment in subsidiaries 7 257 –

22.5 Acquisition of businessEffective 1 December 2012, the Group acquired the business of Europa and Fego Caffé for a purchase consideration of R85.0 million. The purchase consideration was allocated to trademarks 85 000 –

Net assets acquired 85 000 –

Cash flow on acquisition of businesses 85 000 –

Effective 1 March 2011, the Group acquired the business of Juicy Lucy and Milky Lane for a purchase consideration of R30.9 million. The purchase consideration was allocated to trademarks – 30 896

Net assets acquired – 30 896

Cash flow on acquisition of business – 30 896

Total cash flow on acquisition of businesses – 30 896

Revenues and operating profits of these acquisitions have been incorporated into the Group’s reporting structures and additional synergies are not measured separately.

The acquisition of these brands aligns with our strategic intent to grow and develop franchised leisure brands supported by the Group’s vertically integrated business model.

78




Group Company

2013R000

2012R000

2013R000

2012R000

22. Cash flow information continued22.6 Cash and cash equivalents

Cash and cash equivalents included in the cash flow statement comprise the following statement of financial position items:Cash and cash equivalents 84 736 40 580 1 740 1 085 As described in the accounting policies certain bank overdrafts payable on demand fluctuate from being positive to overdrawn and are considered an integral part of the Group’s cash management for cash flow statement purposes.

There is no material difference between the fair value and the book value of cash and cash equivalents.

23. Contingent liabilities23.1 The company and its South African subsidiaries have issued an irrevocable, unconditional, joint and severable guarantee

in favour of Investec Bank Limited to secure the Group’s obligations. The total Group obligation at year end amounts to R35 827 272 (2012: R122 038 146). As a further security, certain companies within the Group have hypothecated rights to trademarks in favour of Investec Bank Limited.

23.2 The company and its South African subsidiaries have issued an unlimited suretyship in favour of FirstRand Bank Limited to secure the banking facilities entered into by certain subsidiary companies.

23.3 Guarantees issued by banks in favour of trade creditors totalled R18 520 763 (2012: R6 898 914).

23.4 The company has issued an irrevocable and unconditional guarantee in favour of Absa Bank Limited to secure the Group’s obligations. The total Group obligation at year end amounts to R130 000 000.

24. Commitments24.1 Operating leases – leasehold premises and equipment

The company and the Group have commitments arising from property leases for its own business operations and leases entered into to secure key sites for franchised outlets. With regard to leases entered into to secure key sites, it is the Group’s policy to enter into sub-lease agreements with the franchisees on the same terms and conditions as those in the main lease. Lease rentals are negotiated on an average term of six years and escalated at an average rate of 8% per annum. No contingent rent is payable.

In circumstances where the amounts recoverable are lower than the amounts payable, the Group immediately recognises provisions for onerous contracts.

Certain operating commitments relating to computer equipment exist.

The net future minimum rentals due under operating leases are as follows:

Group Company

2013R000

2012R000

2013R000

2012R000

Gross amounts due 161 140 159 122 31 432 48 263 Amounts recoverable from sub-lessees (87 048) (72 085) (31 432) (48 263)

74 092 87 037 – –

The gross future minimum rentals due are repayable as follows:Payable within the next 12 months 59 078 49 612 19 362 17 722 Payable within two to five years 94 804 108 742 12 070 30 541 Thereafter 7 258 768 – –

161 140 159 122 31 432 48 263


Group Company

2013R000

2012R000

2013R000

2012R000

24. Commitments continued24.2 Capital expenditure

Approved by the directors but not contracted for 46 942 35 328 – –

This capital expenditure relates to additions and improvements to production facilities, motor vehicles, franchise incentives, computer equipment and furniture and fittings.

It is anticipated that this expenditure will be financed by existing borrowing facilities and internally generated funds.

25. Retirement benefit plansEmployees within the Group are members of four provident funds. Three funds are administered by Liberty Life and one fund by Borwa Financial Services. Each fund provides benefits on a defined contribution basis. The funds are subject to the Pensions Fund Act of 1956, as amended. All employees of the Group are eligible to be members of the funds. As at 28 February 2013, the membership of the funds was 1 232 (2012: 1 187) employees. The Group’s contribution to the provident funds for the year was R18 052 065 (2012: R14 250 268). The market value of the investments of the various funds as at 28 February 2013 was R69.1 million (2012: R57.3 million).

26. Directors’ interest in shares

Beneficial Total

Name of directorDirect

000Indirect

0002013

0002012 000

ExecutiveMr T Halamandaris 10 000 – 10 000 10 000 Mr KA Hedderwick 1 156 – 1 156 996 Mr SJ Aldridge 35 – 35 –Mr DP Hele 72 – 72 –

Non-executiveMr HR Levin 1 000 – 1 000 1 000 Mr P Halamandaris 1 796 9 070 10 866 11 266 Mr P Halamandaris (Jnr) 7 722 155 7 877 7 877 Mr JL Halamandres 5 369 – 5 369 6 066

27 150 9 225 36 375 37 205

No director has any non-beneficial interest in the ordinary shares of the company.

The company has not been advised of any changes in the above interests of the directors during the period up to the date of this report.

80




27. Directors’ remuneration

Name of director

For services as directors

R000

Remune-rationR000

BonusesR000

Provident fund

contri-butions

R000

Allowances and

benefitsR000

TotalR000

28 February 2013ExecutiveMr T Halamandaris 1 094 – – 395 1 489 Mr KA Hedderwick 3 928 2 016 – 108 6 052Mr SJ Aldridge 1 533 612 – – 2 145Mr DP Hele (appointed: 1 June 2012)

1 399 876 164 86 2 525

Non-executiveMs SL Botha (appointed: 1 June 2012)

84 84

Mr HR Levin – –Mr P Halamandaris 124 124 Mr P Halamandaris (Jnr) 84 84 Mr T Halamandaris 42 42 Mr JL Halamandres 154 154 Mr BL Sibiya 84 84 Mr CH Boulle 139 139

711 7 954 3 504 164 589 12 922Less: Paid by subsidiaries – (7 954) (3 504) (164) (589) (12 211)

711 – – – – 711

Directors’ remuneration is only reflected from the date upon which an appointment commences.

Performance bonuses reflect the amounts accrued in respect of the year to which the performance relates.

IFRS 2 Share-based Payments amounts of R1 645 241 (2012: R2 043 301), R943 996 (2012: R1 475 639), R508 363 and R535 966 (2012: R626 212) were recognised in respect of options granted to Mr KA Hedderwick, Mr T Halamandaris, Mr DP Hele and Mr SJ Aldridge respectively.

The directors’ share-based payment amounts are not included in the remuneration above.


27. Directors’ remuneration continued

Name of director

For services as directors

R000

Remune-rationR000

BonusesR000

Provident fund

contri-butions

R000

Allowances and benefits

R000TotalR000

29 February 2012ExecutiveMr T Halamandaris 1 621 531 – 712 2 864 Mr KA Hedderwick 3 673 1 279 – 168 5 120 Mr SJ Aldridge 1 458 408 – – 1 866

Non-executiveMr HR Levin 110 110 Mr P Halamandaris 120 120 Mr P Halamandaris (Jnr) 80 80 Mr JL Halamandres 130 130 Mr BL Sibiya 120 120 Mr CH Boulle 40 40

600 6 752 2 218 – 880 10 450 Less: Paid by subsidiaries – (6 752) (2 218) – (880) (9 850)

600 – – – – 600

82




28. Share-based payments28.1 Equity-settled share-based payments

Famous Brands Limited operates The Steers Share Incentive Trust (Famous Brands Share Incentive Scheme). This enables directors, executive management and specified directors of subsidiaries to benefit from the Famous Brands Limited share price performance.

This scheme confers the right to participants to acquire ordinary shares at the value of the Famous Brands Limited share at the date that the option is granted. On acceptance of the option, the participant has the right to exercise the option at any time, after vesting, during the option life, in as many tranches as the participant may elect. To receive shares, participants must be either employed or retirees of the company when the rights to the shares vest. The directors of the company may amend the vesting period of the options by board resolution.

The scheme has a single type of vesting category as illustrated below.

Vesting categoryVests at

end of year%

vestingExpiry after grant (years)

Type A 3 100 7

A reconciliation of the movement of all share options is detailed below.

Option exercise price range (Rand)

Number of options

Share Incentive Scheme 2013 2012 2013 2012

Opening balance 15.00 – 28.00 15.00 – 28.00 3 835 000 3 660 000 Options granted and accepted – management n/a 43.40 – 470 000

Options granted and accepted – directors n/a 43.40 – 200 000 Lapses 28.00 – 43.40 16.10 – 43.40 (200 000) (120 000) Allotted and issued 15.00 – 18.25 15.00 – 18.25 (1 635 000) (375 000)

Options granted, shares not issued up to end of period 2 000 000 3 835 000

The last options were granted on 30 May 2011.

The following options have been granted and accepted, but delivery of shares will only take place in the future.

Number of ordinary shares Option exercise price (Rand) Last vesting date

5 000 15.00 Year to February 2012 165 000 16.10 Year to February 2013 1 260 000 28.00 Year to February 2014 570 000 43.40 Year to February 2015

2 000 000


28. Share-based payments continued28.1 Equity-settled share-based payments continued

An analysis of share options granted to executive directors is detailed below.

Option vesting date

Subscription price

R

Outstanding as at

29 February 2012

Granted during the

period

Exercised during the

period

Outstanding as at

28 February 2013

Mr T Halamandaris 22 May 2012 16.10 400 000 400 000 –19 May 2013 28.00 250 000 250 000

Mr KA Hedderwick 22 May 2012 16.10 400 000 400 000 –19 May 2013 28.00 300 000 300 000 30 May 2014 43.40 150 000 150 000

Mr SJ Aldridge 22 May 2012 16.10 100 000 100 000 –19 May 2013 28.00 100 000 100 000 30 May 2014 43.40 50 000 50 000

Mr DP Hele 14 May 2011 15.00 100 000 100 000 –22 May 2012 16.10 100 000 – 100 000 19 May 2013 28.00 100 000 100 000 30 May 2014 43.40 100 000 100 000

2 150 000 – 1 000 000 1 150 000

The share options granted have been valued, at grant date, using the Black-Scholes-Merton model which takes account of the vesting period (European style option).

Expected volatility of the share price was determined by giving consideration to the historical volatility of the Famous Brands Limited share price.

The weighted fair value of the options granted and the related assumptions utilised are detailed below.

2013 2012

Number of options granted and accepted – 670 000 Weighted average fair value at grant date (Rand) n/a 10.88The principal inputs are as follows:Weighted average share price (Rand) 44.11Exercise price (Rand) 43.40Expected life (years) 4.0Expected volatility (%) 27.0Risk-free interest rate (%) 7.47Average expected dividend yield (%) 3.0

84




28. Share-based payments continued28.2 Cash-settled share-based payments

For cash-settled share-based payments, the liability of the fair value of unexercised share appreciation rights which are expected to vest, is determined initially at grant date and then revalued at each reporting date and amortised over the applicable period.

During 2011, the Group introduced a share appreciation bonus scheme which allows certain senior managers to earn a bonus based upon the increase in the Famous Brands Limited share price between the grant date and the vesting date. Executive directors have not been granted rights under this scheme. Participants are allocated a notional number of shares (rights) and will be paid a cash bonus equal to the share price appreciation at the expiry of the three-year period. No further rights were granted in the 12-month period to 28 February 2013.

The scheme has a single type of vesting category, namely that rights vest and expire three years after the grant date. Payment of the bonuses must occur within 10 business days of the vesting date.

Rights granted on 30 May 2011 amounted to 93 500 at a notional grant price of R43.40. After 5 000 rights lapsed, there were 88 500 rights outstanding at 29 February 2012. A further 20 000 rights lapsed in the period to 28 February 2013, leaving 68 500 rights outstanding as at 28 February 2013.

The share options granted have been valued, at grant date, using the Black-Scholes-Merton model. The principal inputs for the valuations of the cash-settled share-based payments granted in May 2011 were the same as for the valuations of the equity-settled share-based payments granted on the same date.

During 2013, the cash-settled share-based payment charge to profit or loss amounted to R690 856 (2012: R913 144). Based upon the closing share price at 28 February 2013 of 8 350 cents (2012: 4 405 cents), the potential liability amounted to R1 604 000 (2012: R913 144) and has been provided for.

29. Related party transactionsThe Group, in the ordinary course of business, entered into various transactions with related parties. These transactions occurred under terms and conditions no more favourable to those entered into with third parties.

29.1 Franchise agreementsDirectors have interests in 11 franchised outlets. Franchise fees and product sales have been charged under terms and conditions no more favourable than those entered into with third parties.

29.2 Lease agreementsThe Group has entered into lease agreements with an entity controlled by certain directors. The transactions were concluded at market-related rates prevailing at the time of entering into the transactions.

29.3 Supply agreementsThe Group has entered into a supply agreement with an entity controlled by certain directors. All products purchased were concluded at market-related prices.

29.4 Professional feesProfessional fees have been paid to a firm of which two non-executive directors are partners. The transactions were conducted at market-related rates prevailing at the time of entering into the transactions.


29. Related party transactions continued29.5 Management fees

Management fees have been paid to the non-controlling shareholders of certain subsidiary companies for providing operational management services to the franchising business. The transactions were conducted at market-related rates prevailing at the time of entering into the transactions.

The aggregate of the above transactions is as follows:

2013R000

2012R000

Sale of product and franchise fee revenue 25 071 31 253 Lease payments 17 685 16 090 Purchases of product 38 744 84 359 Professional fees paid 441 118 Management fees paid 4 122 2 894 Loans payable to related parties 13 573 390 Trade payables to related parties 508 – Trade receivables from related parties 1 397 1 544

29.6 Transactions between the holding company and subsidiariesRent received 17 650 16 194 Dividends received 222 000 175 000 Management fees received by the company from the operating subsidiary for statutory costs incurred 986 647

29.7 Directors’ remunerationThe remuneration for directors of the holding company paid during the year by subsidiaries within the Group has been disclosed in note 27.

29.8 Employees’ remunerationThe remuneration to all employees amounted to R295 804 577 (2012: R259 815 591).

86




30. Risk managementThe board of directors has approved strategies for the management of financial risks, which are in line with corporate objectives. These guidelines set up the short-term and long-term objectives and actions to be taken in order to manage the financial risks that the Group faces.

The major guidelines of this policy are the following:●● Minimise interest rate, currency and market risk for all kinds of transactions.●● All financial risk management activities are carried out and monitored at central level.●● All financial risk management activities are carried out on a prudent and consistent basis and follow the best market

practices.

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and capital risk.

The following table summarises the carrying amount of financial assets and liabilities recorded at 28 February 2013 by IAS 39 category.

Group Company

2013R000

2012R000

2013R000

2012R000

Financial assetsLoans and receivables: cash and cash equivalents 84 736 40 580 1 740 1 085 Loans and receivables: trade and other receivables 244 968 199 912 294 – Fair value through profit or loss: loans to Group companies 2 422 5 246

329 704 240 492 4 456 6 331

Financial liabilitiesMeasured at amortised cost: trade and other payables 252 007 176 010 40 115 Measured at amortised cost: borrowings 165 827 122 152 – – Fair value through profit or loss: loans from Group companies 52 831 79 308 Measured at amortised cost: shareholders for dividends 1 246 671 1 202 671 Fair value through profit or loss: non-controlling shareholder loan 12 283 – – –

431 363 298 833 54 073 80 094

For financial instruments measured at fair value through profit or loss, in terms of the hierarchy, these are classified as level 3 as the valuation techniques used are not based on observable market data.


30. Risk management continued30.1 Liquidity risk

The Group manages liquidity risk on the basis of expected maturity dates, through an ongoing review of future commitments and credit facilities. Cash flow forecasts are prepared, adequate borrowing facilities are secured and utilisation monitored.

The following table analyses financial liabilities by remaining contractual maturity (contractual and undiscounted cash flows).

Less than 1 year

R000

1 – 5 years R000

Total R000

Group2013Trade and other payables 252 007 – 252 007 Interest-bearing borrowings 97 183 80 437 177 620 Shareholders for dividends 1 246 – 1 246 Non-controlling shareholder loan 12 283 – 12 283

362 719 80 437 443 156

2012Trade and other payables 176 010 – 176 010 Interest-bearing borrowings 86 166 56 545 142 711 Shareholders for dividends 671 – 671

262 847 56 545 319 392

Company2013Trade and other payables 40 – 40 Loans from Group companies 52 831 – 52 831 Shareholders for dividends 1 202 – 1 202

54 073 – 54 073

2012Trade and other payables 115 – 115 Loans from Group companies 79 308 – 79 308 Shareholders for dividends 671 – 671

80 094 – 80 094

The carrying amount of the financial liabilities is considered to be in line with the fair value at the reporting date.

At present the Group expects to pay all liabilities at their contractual maturity. In order to meet such cash commitments the Group expects operating activities to generate sufficient cash inflows. In addition, the Group holds financial assets for which there is a liquid market and that are readily available to meet liquidity needs.

88




30. Risk management continued30.2 Interest rate risk

The Group’s exposure to interest rate risk mainly concerns financial liabilities. Liabilities are both floating rate and non interest-bearing.

At present the Group does not hold loans and receivables that are long term in nature. The following table analyses the breakdown of liabilities by type of interest rate.

Group Company

2013R000

2012R000

2013R000

2012R000

Floating rate 165 827 122 152 – – Non interest-bearing 265 536 176 681 54 073 80 094

431 363 298 833 54 073 80 094

Sensitivity analysisA hypothetical increase/decrease in interest rates of 50 basis points, with all other variables remaining constant, would increase/decrease profit after taxation by R596 978 (2012: R283 328).

A hypothetical increase/decrease in interest rates by 100 basis points, with all other variables remaining constant, would increase/decrease profit after taxation by R1 193 956 (2012: R566 656).

The analysis has been performed for floating interest rate financial liabilities.

The impact of a change in interest rates on floating interest rate financial liabilities has been assessed in terms of the changing of their cash flows and therefore in terms of the impact on net expenses.

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

30.3 Foreign currency riskSince the Group operates internationally, it is exposed to foreign currency risk as part of its normal industrial and commercial business.

The Group has certain investments in foreign operations which net assets are exposed to foreign currency translation risk.

The Group, on occasion, hedges transactional foreign exchange exposures.


Group

2013 CU000*

2012 CU000*

30. Risk management continued30.3 Foreign currency risk continued

Financial assets are analysed by currency as follows:GB PoundTrade and other receivables 352 316 Cash and cash equivalents 2 611 2 717

EuroTrade and other receivables 6 6 Cash and cash equivalents 160 289

US DollarTrade and other receivables 41 52 Cash and cash equivalents 1 192 1 062

Zambian KwachaTrade and other receivables 1 244 – Cash and cash equivalents 1 130 –

Financial liabilities are analysed by currency as follows:GB PoundTrade and other payables 846 894

EuroTrade and other payables 11 5

Exchange rates used for conversion of foreign amounts were:Euro to GB Pound 1.16 1.18 Rand to Euro 11.58 10.14 Rand to GB Pound 13.39 11.96 Rand to US Dollar 8.85 7.55 Rand to Zambian Kwacha 0.60 –

*CU000: Currency unit thousands.

Sensitivity analysisAt 28 February 2013, if the Rand had weakened/strengthened by 10% against any currency above, with all other variables held constant, profit after taxation for the year would not have changed significantly.

90




30. Risk management continued30.4 Credit risk

Credit risk is managed on a Group-wide basis.

Credit risk consists mainly of cash deposits, cash equivalents and trade debtors. The Group only deposits cash with major banks with high-quality credit standing and limits exposure to any one counterparty to R105 million.

Trade receivables comprise a widespread customer base. Management evaluates credit risk relating to customers on an ongoing basis. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is monitored regularly. Sales to retail customers are settled in cash or using major credit cards. Refer to note 14 for details on the quality and provision for impairment of trade receivables.

Financial assets exposed to credit risk (maximum exposure) at year end were as follows.

Group Company

2013R000

2012R000

2013R000

2012R000

Trade and other receivables 244 968 199 912 294 – Cash and cash equivalents 84 736 40 580 1 740 1 085

329 704 240 492 2 034 1 085

The Group is exposed to a number of guarantees for the overdraft facilities of Group companies and for guarantees issued in favour of Investec Bank Limited and Absa Bank Limited. Refer to note 18.2 for additional details.

30.5 Capital riskThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide sustainable returns for shareholders, benefits for other stakeholders and to maintain, over time, an optimal structure to reduce the cost of capital.

The capital structure of the Group consists of interest-bearing borrowings (note 18), cash and cash equivalents (note 22.6) and equity as disclosed in the statement of financial position.

There have been no material changes to the Group’s management of capital, the strategy for capital maintenance or externally imposed capital requirements from the previous years.


31. Primary (business units) and secondary (geographical) segment reportFor management purposes the Group is organised into three major operating divisions: Franchising, Manufacturing and Logistics. The Manufacturing and Logistics divisions are grouped together within a total Supply Chain business. Such structural organisation is determined by the nature of risks and returns associated with each business segment and defines the management structure as well as the internal reporting system. It represents the basis on which the Group reports its primary segment information.

The global operations of the Group are divided into two principal geographical areas. In the South African segment, housing operations throughout Africa, the Group has all three business segments reflected below whereas in the United Kingdom only a Franchising segment exists.

2013R000 %

2012R000 %

Segment revenue*Franchising 494 850 20 439 946 20Supply Chain 1 919 400 76 1 613 907 75 Manufacturing 715 418 28 573 436 27 Logistics 1 812 358 72 1 516 375 70 Eliminations (608 376) (24) (475 904) (22)Corporate 19 007 1 19 829 1

South Africa 2 433 257 97 2 073 682 96Franchising (UK) 83 030 3 81 933 4

Group revenue 2 516 287 100 2 155 615 100

Segment profitFranchising 299 886 64 264 685 64Supply Chain 160 694 35 140 508 34 Manufacturing 97 618 21 87 784 21 Logistics 63 076 14 52 724 13

Corporate (129) (0) (40) (0)

South Africa 460 451 99 405 153 98Franchising (UK) 5 391 1 7 503 2

Group profit 465 842 100 412 656 100

* The revenue from warehousing activities previously reported on under the Manufacturing division’s results has been transferred to the Logistics division’s results. Accordingly the prior year comparative figures have also been adjusted.

92




31. Primary (business units) and secondary (geographical) segment report continued

2013R000 %

2012R000 %

Segment assetsFranchising 716 339 51 617 469 53Supply Chain 502 736 36 390 328 33 Manufacturing 252 913 18 175 138 15 Logistics 249 823 18 215 190 18

Corporate 29 382 2 15 995 1

South Africa 1 248 457 89 1 023 792 87Franchising (UK) 162 907 11 146 823 13

Group assets 1 411 364 100 1 170 615 100

Segment liabilitiesFranchising 98 620 31 70 764 30Supply Chain 125 873 39 91 117 39 Manufacturing 60 311 19 45 179 19 Logistics 65 562 20 45 938 20

Corporate 64 528 20 41 308 18

South Africa 289 021 90 203 189 87Franchising (UK) 30 364 10 29 248 13

Group liabilities 319 385 100 232 437 100

Capital expenditureFranchising 3 840 6 7 370 13Supply Chain 53 554 78 40 033 72 Manufacturing 48 651 72 29 189 53 Logistics 4 903 6 10 844 19

Corporate 10 601 16 8 094 15

South Africa 67 995 100 55 497 100Franchising (UK) 46 0 72 0

Group capital expenditure 68 041 100 55 569 100


31. Primary (business units) and secondary (geographical) segment report continued

2013R000 %

2012R000 %

DepreciationFranchising 3 556 12 4 345 16Supply Chain 21 148 69 16 885 62 Manufacturing 12 611 41 9 641 35 Logistics 8 537 28 7 244 27

Corporate 5 537 18 4 753 17

South Africa 30 241 99 25 983 95Franchising (UK) 231 1 1 258 5

Group depreciation 30 472 100 27 241 100

The following table provides details of assets and liabilities not allocated to business segments

AssetsDeferred taxation 11 587 8 588Taxation 2 780 1 386Cash and cash equivalents 84 736 40 580

99 103 50 554

LiabilitiesBorrowings 165 827 122 152Deferred taxation 14 264 12 823Shareholders for dividend 1 246 671Taxation 9 657 12 716

190 994 148 362


Annexure A: Schedule of investments in subsidiaries

Sharecapital Interest Shares

Amounts owing by/(to) subsidiaries Profit/(loss)

2013

%2012

% 2013 R000

2012 R000

2013 R000

2012 R000

2013 R000

2012 R000

DirectDebonairs Pizza Proprietary Limited3 100 100 100 110 110 – 97 6 168 5 866 Famous Brands Cyprus Limited2 70 657 847 100 100 70 471 70 471 2 422 2 120 2 096 1 033 Famous Brands Food Services Proprietary Limited4 100 100 100 – – – – 1 –Famous Brands Management Company Proprietary Limited1 100 100 100 45 859 40 405 (52 831) (74 252) 280 074 229 998 FishAways Proprietary Limited3 2 000 100 100 2 269 2 269 – – 936 806 Mugg & Bean Franchising Proprietary Limited3 101 100 100 100 000 100 000 – 2 872 3 662 16 458 Pleasure Foods Proprietary Limited4 800 100 100 – – – (1) – –Pleasure Foods Intellectual Property Company Proprietary Limited3 800 100 100 107 499 107 499 – (5 055) 26 222 24 488 Pleasure Foods Property Holdings 1 Proprietary Limited1 100 100 100 – – – – 24 (80)Stedewish Foods Proprietary Limited1 100 51 100 205 – – – (563) – The Steers Share Incentive Trust 100 100 – – – – 22 95 Steers Proprietary Limited3 200 100 100 6 243 6 243 – 157 6 474 5 717 IndirectCatermeat Proprietary Limited4 100 100 100 – (14)Creative Coffee Franchise Systems Proprietary Limited1 100 61 61 1 108 939 Coega Cheese Proprietary Limited1 100 51 – (72) –Famous Brands Coffee Company Proprietary Limited1 100 60 – 2 835 –Famous Brands UK Limited2 5 434 185 100 95 2 622 4 829 Hawk Like Trade and Invest Proprietary Limited4 1 100 – – –Mountain Rush Trading 4 Proprietary Limited1 100 51 51 2 681 1 713 Quantum International Franchising Proprietary Limited4 1 000 100 100 – –Quickstep Investment 10 Proprietary Limited4 1 000 100 100 240 (196)Souldance Holdings 11 Proprietary Limited1 100 51 51 120 (905)Steers Holdings (Jersey) Limited2 19 100 100 1 867 1 529 Vovo Telo Bakery and Café Proprietary Limited1 1 000 51 51 452 1 Venus Solutions Limited2 9 584 100 100 1 424 1 367 Wimpy Marketing Fund Proprietary Limited1 2 100 100 – –

332 656 326 997 (50 409) (74 062) 338 393 293 644

Total losses (635) (1 195)Total profits 339 028 294 839

All the above subsidiaries are incorporated in South Africa, except for Famous Brands UK Limited and Venus Solutions Limited, incorporated in the United Kingdom, Famous Brands Cyprus Limited, incorporated in Cyprus and Steers Holdings (Jersey) Limited, incorporated in Jersey.

Main business1. Franchisor, product manufacture, distribution, management and/or administration.2. Offshore holding company.3. Trademark owner.4. Dormant.


Shareholder analysis

Shareholders’ diary

Number of shareholders %

Number of shares %

Analysis of shareholdersHoldings1 – 10 000 5 287 93.07 7 675 554 7.8510 001 – 50 000 278 4.89 5 819 579 5.9550 001 – 100 000 41 0.72 2 954 395 3.02100 001 – 1 000 000 63 1.11 22 842 887 23.351 000 001 and more 12 0.21 58 535 020 59.83

5 681 100.00 97 827 435 100.00

Analysis of holdingIndividuals 4 430 77.98 40 535 554 41.43Insurance companies 11 0.19 831 751 0.85Investment trusts 675 11.88 12 645 486 12.93Other companies and corporate bodies 565 9.95 43 814 644 44.79

5 681 100.00 97 827 435 100.00

Major shareholders (holding close to 5% or more of the shares in issue) excluding directorsCoronation Life Managers Limited 19 758 932 20.20Arisaig Africa Consumer Fund 9 458 554 9.67Enderle S.A. Proprietary Limited 4 854 689 4.96

34 072 175

Shareholder spreadPublic 5 673 99.86 61 452 230 62.82Non-public – directors 8 0.14 36 375 205 37.18

5 681 100.00 97 827 435 100.00

Financial year end Thursday, 28 February 2013Reports and profit announcements●● Profit and dividend announcement Monday, 27 May 2013●● Integrated Annual Report Friday, 28 June 2013●● Interim report October 2013●● Annual general meeting Thursday, 25 July 2013

Dividend No. 37 information●● Last day to trade cum-dividend Friday, 5 July 2013●● Shares commence trading ex-dividend Monday, 8 July 2013●● Record date Friday, 12 July 2013●● Payment of dividend Monday, 15 July 2013

Share certificates may not be dematerialised or rematerialised between Monday, 8 July 2013 and Friday, 12 July 2013, both dates inclusive.


our brand

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98 Famous Brands Integrated Annual Report 2013 / Notice of annual general meeting

Notice of annual general meeting

Famous Brands Limited(Registration number 1969/004875/06)(Incorporated in the Republic of South Africa)(Famous Brands or the company)JSE share code: FBR ISIN code: ZAE000053328

Notice is hereby given that the nineteenth annual general meeting (AGM) of shareholders of the company will be held at the offices of the company, 478 James Crescent, Halfway House, Midrand on Thursday, 25 July 2013 at 14:00 for the purpose of: (i) dealing with such business as may lawfully be dealt with at the meeting and (ii) considering and, if deemed fit, passing, with or without modification, the ordinary and special resolutions set out hereunder in the manner required by the Companies Act, No. 71 of 2008, as amended (the Companies Act), as read with the Listings Requirements of the JSE Limited (JSE Listings Requirements) which meeting is to be participated in and voted at by shareholders recorded in the company’s securities register as at the record date of 12 July 2013.

Kindly note that meeting participants (including proxies) will be required to provide reasonably satisfactory identification before being entitled to attend or participate in the meeting. Forms of identification, include valid identity documents, drivers’ licences and passports.

Ordinary resolutionsThe percentage of voting rights required for an ordinary resolution to be adopted is more than 50% (fifty percent) of the voting rights exercised on the resolution at a quorate meeting.

1. Ordinary resolution No. 1: Adoption of the annual financial statements

‘RESOLVED THAT the annual financial statements of the company for the year ended 28 February 2013, together with the directors’ report and the report of the independent auditors be and are hereby received and adopted.’

Explanatory note The reason for and effect of ordinary resolution No. 1 is

to give Famous Brands shareholders the opportunity to formally consider and accept the Famous Brands Integrated Annual Report including the consolidated audited financial statements of the company as required by section 30(3)(d) of the Companies Act.

2. Ordinary resolution No. 2: Re-appointment and remuneration of auditors

‘RESOLVED THAT RSM Betty & Dickson (Johannesburg), be re-appointed as the independent auditors of the company, it being noted that J Kitching is the registered individual auditor who will undertake the audit. The directors are authorised to determine the auditor’s remuneration for the past year.’

Explanatory note The reason for ordinary resolution No. 2 is that the

Companies Act requires the appointment or re-appointment of the company’s auditors each year at the AGM of the company.

3. Ordinary resolution No. 3: Re-election and appointment of directors

‘RESOLVED to individually re-elect the following directors (ordinary resolutions 3.1 to 3.3). The board recommends the election of these directors, who retire by rotation in terms of the memorandum of incorporation (MOI) and being eligible, thereto make themselves available for re-election.’

3.1 Ordinary resolution No. 3.1 – Re-election of Hymie Reuvin Levin

3.2 Ordinary resolution No. 3.2 – Re-election of Theofanis Halamandaris

3.3 Ordinary resolution No. 3.3 – Re-election of John Lee Halamandres

Explanatory note The reason for and effect of ordinary resolutions 3.1 to

3.3 is to re-elect the directors that retire by rotation in terms of the MOI of the company.

3.4 ‘RESOLVED to appoint Norman Stanley Richards as an executive director, in the position of Group Financial Director. He replaces Stanley Aldridge who retired from his executive role on 30 June 2013 and has decided not to make himself available for re-election.’

Brief curricula vitae of directors who have offered themselves for appointment or re-election are included on pages 9, 10 and 13 of the Integrated Annual Report.

99Famous Brands Integrated Annual Report 2013 / Notice of annual general meeting

4. Ordinary resolution No. 4: Appointment of and re-election of the members of the Famous Brands audit committee

‘RESOLVED to individually re-elect the following directors (ordinary resolutions 4.1 to 4.2) of the company as the members of the Famous Brands audit committee until the conclusion of the next AGM of the company. The board recommends the appointment and re-election of these members.’

4.1 Ordinary resolution No. 4.1 – Re-election of Hymie Reuvin Levin as a member and chairman;

4.2 Ordinary resolution No. 4.2 – Re-election of Christopher Hardy Boulle as a member; and

4.3 Ordinary resolution No. 4.2 – Appointment of Bheki Lindinkosi Sibiya as a member of the audit committee. He replaces John Lee Halamandres who has resigned from the committee.

Explanatory note The reason for and effect of ordinary resolutions 4.1 to

4.3 is to appoint and re-elect the members of the audit committee of the company as required in terms of section 94(2) of the Companies Act.

Brief curricula vitae of directors who have offered themselves for appointment and re-election are included on pages 10 and 11 of the report.

5. Ordinary resolution No. 5: To place 3% (three percent) of the unissued shares under directors’ control

‘RESOLVED THAT 3% (three percent) of the authorised but unissued share capital of the company, from time to time, be placed under the control of the directors of the company until the next AGM with the authority to allot and issue all or part thereof for the purposes of issuing shares which have vested in terms of share scheme grants, subject to section 38 of the Companies Act, and the JSE Listings Requirements and the company’s MOI.’

Explanatory note The reason for and effect of ordinary resolution No. 5 is

to place a limited number of shares under the control of the directors, which may be required to be issued in terms of share scheme grants.

6. Ordinary resolution No. 6: Authority for directors or Company Secretary to implement resolutions

‘RESOLVED to authorise and empower any two directors or the Company Secretary and any director signing together, to do all such things and sign all such documents and take all such actions as they consider necessary, to implement the ordinary and special resolutions set out in the notice convening the nineteenth AGM of the company.’

Non-binding resolution7. Non-binding resolution No. 1: Endorsement

of remuneration policy ‘RESOLVED THAT shareholders endorse, through a

non-binding advisory vote to ascertain the shareholders’ view, Famous Brands’ remuneration policy and its implementation. The remuneration report is set out on page 33 of this Integrated Annual Report.

Explanatory note In terms of the King Code of Governance Principles,

an advisory vote should be obtained from shareholders on the company’s annual remuneration policy. The vote allows shareholders to express their view on the remuneration policies adopted and their implementation, but will not be binding on the company.

Special resolutionsThe percentage of voting rights required for a special resolution to be adopted is more than 75% (seventy five percent) of the voting rights exercised on the resolution at a quorate meeting.

To consider and, if approved, to pass, with or without modification, the following two special resolutions:

8. Special resolution No. 1: Approval of non-executive directors’ remuneration for their services as directors

‘RESOLVED THAT in terms of section 66(9) of the Companies Act, payment of the remuneration for the services as non-executive directors of Famous Brands is approved for the period from 1 June 2013 as set out in the following table.


Notice of annual general meeting continued

Proposed non-executive directors’ fees (alternate director inclusive)Payment per attendance at meetings only

Per meetingFrom June 2013

Rand

Chairman of the board 10 000Board attendee 50 000Additional fee as attendee at each audit, remuneration or social and ethics committee 20 000

The non-executive directors’ fees paid from the last AGM to June 2013 are recorded below

Per meetingTo June 2013

Rand

Chairman of the board or other committee 5 000Board attendee 42 000Attendee at each audit, remuneration or social and ethics committee (only payable if not receiving a fee for board attendance) 15 000

Explanatory noteThis resolution is proposed in order to comply with the requirements of the Companies Act. In terms of section 65(11)(h) of the Companies Act, read with sections 66(8) and 66(9), remuneration may only be paid to directors for their services as directors in accordance with a special resolution approved by the shareholders within the previous two years.

9. Special resolution No. 2: General authority to repurchase shares‘RESOLVED THAT the company approves, as a general approval contemplated in section 48 of the Companies Act, the acquisition by the company (or by a subsidiary of the company) of ordinary shares issued of the company on such terms and conditions and in such amounts as the directors of the company may decide, but subject always to the provisions of the Companies Act and the JSE Listings Requirements, which general approval shall endure until the next AGM of the company (when this approval shall lapse unless it is renewed at that AGM, provided that it shall not extend beyond 15 months from the date of registration of this special resolution), subject to the following limitations:

a) the repurchase of securities is implemented through the order book of the JSE trading system, without any prior understanding or arrangement between the company and the counterparty;

b) the company is so authorised by its MOI;c) the general purchase is limited to a maximum of

20% in aggregate of the company’s issued share capital in any one financial year;

d) the general purchase by the subsidiaries of the company is limited to a maximum of 10% in aggregate of the company’s issued share capital;

e) the general purchase is not made at a price greater than 10% above the weighted average of the market value for the securities for the five business days immediately preceding the date on which the transaction was effected;

f) the repurchase does not take place during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements unless there is a repurchase programme in place and the dates and quantities of shares to be repurchased during the prohibited period are fixed and full details thereof have been disclosed in an announcement over SENS prior to commencement of the prohibited period;

g) the company publishes an announcement after it or its subsidiaries has cumulatively acquired 3% (three percent) of the number of ordinary shares in issue at the time that the shareholders’ authority for the purchase is granted and for each 3% (three percent) in aggregate of the initial number acquired thereafter; and

h) the company appoints only one agent at any point in time to effect any repurchases on its behalf.

After considering the aggregate effect of the maximum repurchase, the directors of the company are of the opinion that for a period of 12 months after the date of this notice of the AGM:●● the company and the company’s subsidiaries (the Group)

shall satisfy the solvency and liquidity test in the manner contemplated by the Companies Act and the JSE Listings Requirements;

●● the company and the Group will be able, in the ordinary course of business to repay their debts;

●● the assets of the company and the Group, fairly valued in accordance with IFRS, will be in excess of the liabilities of the company and the Group;

●● the share capital and reserves of the company and the Group will be adequate for ordinary business purposes;

●● the working capital of the company and the Group will be adequate for ordinary business purposes; and


●● the company’s sponsor will confirm the adequacy of the company’s working capital for the purposes of undertaking the repurchase of shares in writing to the JSE prior to the company (or any subsidiary) entering the market to proceed with the repurchase.’

Explanatory noteThe reason for and effect of special resolution No. 2 is to authorise the company and its subsidiaries, by way of general approval, to acquire the company’s issued ordinary shares on terms and conditions and in amounts to be determined by the directors of the company, subject to certain statutory provisions and the JSE Listings Requirements.

Directors’ statement regarding the utilisation of the authority soughtThe directors of the company have no specific intention to effect the provisions of this special resolution, but will, however, continually review the company’s position, having regard to the prevailing circumstances and market conditions, in considering whether to effect the provisions of this special resolution.

Other disclosures in terms of section 11.26 of the JSE Listings Requirements The following additional information, some of which may appear elsewhere in the Integrated Annual Report of which this notice forms part, is provided in terms of the JSE Listings Requirements for purposes of this general authority:Directors and management – pages 8 to 13;Major beneficial shareholders – page 95;Directors’ interests in ordinary shares – page 79;Share capital of the company – page 72.

Litigation statementThe directors of the company whose names appear on pages 8 to 11 of the Integrated Annual Report of which this notice forms part, are not aware of any legal or arbitration proceedings including proceedings that are pending or threatened, that may have or had in the recent past (being at least the previous 12 months) a material effect on the Group’s financial position.

Directors’ responsibility statementThe directors whose names appear on pages 8 to 11 of the Integrated Annual Report, collectively and individually accept full responsibility for the accuracy of the information pertaining to special resolution No. 2 and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, all reasonable enquiries to ascertain such facts have been made and the special resolution contains all information required by the Companies Act and the JSE Listings Requirements.

Material changesOther than the facts and developments reported on in the Integrated Annual Report, there have been no material changes in the affairs or financial position of the company and its subsidiaries since the date of signature of the audit report and up to the date of this notice.

102


Famous Brands Integrated Annual Report 2013 / Notice of annual general meeting

Notice of annual general meeting continued

Voting and proxiesA shareholder of the company entitled to attend, speak and vote at the AGM is entitled to appoint a proxy or proxies to attend, speak and on a poll to vote, in his stead. The proxy need not be a shareholder of the company. A form of proxy is attached for the convenience of any certificated shareholder and own name registered dematerialised shareholder who cannot attend the AGM, but who wishes to be represented.

Additional forms of proxy may also be obtained on request from the company’s registered office. The completed forms of proxy must be deposited at, posted or faxed to the transfer secretaries at the address set out on the inside back cover to be received by no later than 14:00 on Tuesday, 23 July 2013. Any member who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the AGM should the member subsequently decide to do so.

On a show of hands, every shareholder of the company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the company present in person or represented by proxy shall have one vote for every share held in the company by such shareholder.

Shareholders who have dematerialised their ordinary shares through a Central Securities Depository Participant (CSDP) or broker, other than “own name” registered dematerialised shareholders, and who wish to attend the AGM must request their CSDP or broker to issue them with a letter of representation. Alternatively, dematerialised shareholders other than “own name” registered dematerialised shareholders, who wish to be represented, must provide their CSDP or broker with their voting instructions in terms of the custody agreement between them and their CSDP or broker in the manner and timeframe stipulated.

By order of the board

JG PyleCompany Secretary22 May 2013


Form of proxy

Famous Brands Limited (Registration number 1969/004875/06) (Incorporated in the Republic of South Africa) (Famous Brands or the company) JSE share code: FBR ISIN: ZAE000053328

For use by the holders of the company’s certificated ordinary shares (certified shareholder) and/or dematerialised ordinary shares held through a Central Securities Depository Participant (CSDP) or broker who have selected “own name” registration (own name dematerialised shareholders) at the nineteenth annual general meeting (AGM) of the company to be held at 478 James Crescent, Halfway House on Thursday, 25 July 2013 at 14:00 and at any adjournment thereof.

Not for the use by holders of the company’s dematerialised ordinary shares who are not “own name” dematerialised shareholders. Such shareholders must contact their CSDP or broker timeously if they wish to attend and vote at the AGM and request that they be issued with the necessary authorisation to do so, or provide the CSDP or broker timeously with their voting instructions should they not wish to attend the AGM in order for the CSDP or broker to vote thereat in accordance with their instructions.

I/We

of (address)

being the registered owner/s of ordinary shares in

the company hereby appoint

or failing him/her

or failing him/her, the chairperson of the AGM, as my/our proxy to act for me/us and on my/our behalf at the AGM which will be held for the purpose of considering and, if deemed fit, passing, with or without modification, the special and ordinary resolutions to be proposed thereat and at any adjournment thereof; and to vote for and/or against the special and ordinary resolutions and/or abstain from voting in respect of the ordinary shares registered in my/our name(s), in accordance with the following instructions:

*Please indicate with an “X” in the appropriate spaces below how you wish your votes to be cast. Unless otherwise instructed, my/our proxy may vote as he/she thinks fit.

Number of votes

For* Against* Abstain*

1. Ordinary resolution No. 1:Adoption of the annual financial statements

2. Ordinary resolution No. 2:Re-appointment and remuneration of auditors

3. Ordinary resolution No. 3:Re-election and appointment of directors

3.1 Re-election of Mr Hymie Reuvin Levin

3.2 Re-election of Mr Theofanis Halamandaris

3.3 Re-election of Mr John Lee Halamandres

3.4 Appointment of Mr Norman Stanley Richards

4. Ordinary resolution No. 4:Appointment and re-election of the members of Famous Brands audit committee

4.1 Re-election of Mr Hymie Reuvin Levin

4.2 Re-election of Mr Christopher Hardy Boulle

4.3 Appointment of Mr Bheki Lindinkosi Sibiya

5. Ordinary resolution No. 5:To place 3% of the unissued shares under directors’ control

6. Ordinary resolution No. 6:Authority for directors or Company Secretary to implement resolutions

7. Non-binding resolution No. 1:Endorsement of remuneration policy

8. Special resolution No. 1: Approval of non-executive directors’ remuneration for their services as directors

9. Special resolution No. 2:General authority to repurchase shares

Signed this day of 2013

Signature

Assisted by (if applicable)

Please read the notes on the reverse.


Form of proxy continued

Notes to the form of proxy1. This form of proxy is to be completed only by those

shareholders who are: a) holding shares in a certificated form; or b) recorded in the sub-register in electronic form in

their “own name”.

2. Shareholders who have dematerialised their shares and wish to attend the AGM must contact their CSDP or broker who will furnish them with the necessary authority to attend the AGM, or they must instruct their CSDP or broker as to how they wish to vote in this regard. This must be done in terms of the agreement entered into between the shareholders and their CSDP or broker.

3. Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder(s) of the company) to attend, speak and, on a poll, vote in place of that shareholder at the AGM.

4. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space provided, with or without deleting “the chairperson of the AGM”. The person whose name stands first on the form and who is present at the AGM will be entitled to act as proxy to the exclusion of those whose names follow.

5. A shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that shareholder in the appropriate box(es) provided. Failure to comply with the above will be deemed to authorise the chairperson of the AGM, if the chairperson is the authorised proxy, to vote in favour of the special and ordinary resolutions at the AGM, or any other proxy to vote or to abstain from voting at the AGM as he/she deems fit, in respect of all the shareholder’s votes exercisable thereat.

6. A shareholder or his/her proxy is entitled but not obliged to vote in respect of all the ordinary shares held by such shareholder. The total number of votes for or against the special and ordinary resolutions and in respect of which any abstention is recorded may not exceed the total number of shares held by such shareholder.

7. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy, unless previously recorded by the company’s transfer secretaries or waived by the chairperson of the AGM.

8. The chairperson of the AGM may accept or reject any form of proxy which is completed and/or received other than in accordance with these instructions, provided that he shall not accept a proxy unless he is satisfied as to the manner in which a shareholders wishes to vote.

9. Any alterations or corrections to this form of proxy must be initialled by the relevant signatory(ies).

10. The completion and lodging of this form of proxy does not preclude the relevant shareholder from attending the AGM and speaking and voting in person to the exclusion of any proxy appointed by the shareholder.

11. A minor must be assisted by his/her parent/guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the company’s transfer secretaries.

12. Where there are joint holders of any shares, only that holder whose name appears first in the register in respect of such shares need sign this form of proxy.

13. Forms of proxy must be lodged at, posted to or faxed to Link Market Services South Africa, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001 (PO Box 4844, Johannesburg, 2000), to reach the company by no later than 14:00 on Tuesday, 23 July 2013.

Administration

Famous Brands LimitedRegistration Number 1969/004875/06

Company SecretaryMr JG Pyle

Registered office478 James CrescentHalfway House1685Tel: +27 11 315 [email protected]

Postal addressPO Box 2884Halfway House1685

AuditorsRSM Betty & Dickson (Johannesburg)

BankersFirstRand Bank LimitedInvestec Bank LimitedAbsa Bank Limited

Transfer secretariesLink Market Services Proprietary Limited (Registration number 2000/007239/07)13th Floor, Rennie House19 Ameshoff StreetBraamfontein2001

SponsorThe Standard Bank of South Africa Limited(Registration number 1969/017128/06)3 Simmonds StreetJohannesburg2001

Website addresswww.famousbrands.co.za

BASTION GRAPHICS

Famous Brands Integrated Annual Report 2013 / About Famous Brands

Contact information

Tel: +27 11 315 3000Fax: +27 11 315 [email protected]

478 James CrescentHalfway House, South Africa, 1685

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Documents

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