We show how costly it is to set up outlets in the UK and believe the recent debt raised by FBR for expansion purposes may be sufficient to fund GBK outlet growth for the next two years. We find that structurally, staff costs in the UK are significantly higher compared to SA and believe that could mean limited opportunity for FBR to drive efficiencies through cost cutting. GBK operates at a much lower operating margin, which will dilute FBR’s margins going forward.
FBR’s high dividend pay-out ratio could also be at risk going forward, given the move to open corporate outlets in the UK which are capital-intensive to set up and operate.