FBR delivered a solid performance in 1H26, albeit off a low base. Although Leading Brands SA benefited from good local tourism, it continues to lag behind take-away and fast food market growth in terms of system-wide sales, signalling that it may have lost market share. Signature Brands performed well from a revenue standpoint, but both system-wide and like-for-like sales growth contracted in an industry in which SA restaurant sales are recovering. The softness in Signature Brands may be attributed to the PAUL’s chain in particular, where the company-owned model continues to impact operating margins due to its capital-intensive format.
The combined supply chain showed a marked improvement, driven by a recovery in Manufacturing and Logistics. Both divisions continue to face volume declines, but growth primarily came from strong price inflation and a positive mix change. We believe that the implementation of the new cold storage facility could help improve efficiencies in the Logistics division, resulting in some operating margin recovery. However, the Retail side of the supply chain continues to underperform, mainly due to weaker volumes in key categories such as sauces & spices, coffee, and especially potato chips, which is a highly competitive product. Recovery in Retail will rely on increased product listings to regain shelf space and improve volumes.
The SADC segment grew revenue despite key regions like Botswana and Zambia coming under strain due to macroeconomic challenges. We believe that revenue growth in these regions is likely due to FBR not having made significant adjustments to franchise fees. In AME, the declining topline is a consequence of store closures and the non-collection of revenue from the UAE. The resolution of the legal case in the UAE could occur in 2H26, which may provide some respite to margins due to the high legal costs incurred. We also note that FBR is positioning key markets in AME towards a low-cost and less capital-intensive franchise model, having sold its company-owned stores in Kenya and following the buyout of its minority shareholder in Mauritius. This could be margin-accretive for AME, in our view.