| Wed 31 Oct 2007, 8:42 | | TAS - Taste Holdings Limited - Unaudited Financial |
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TAS
TAS
TAS - Taste Holdings Limited - Unaudited Financial Results six months ended 31
August 2007
Taste Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/002239/06)
(JSE code: TAS & ISIN: ZAE000081162)
("Taste" or "the company" or "the group")
Highlights
- Headline earnings up 16%
- Revenue up 8%
- Cash earnings per share up 9%
- Headline earnings per share up 10%
- Net tangible asset value per share up 45%
- System-wide sales increased 23%
UNAUDITED ABRIDGED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2007
CONSOLIDATED INCOME STATEMENTS
6 months 6 months 12 months
31 August 31 August 28
February
2007 2006 2007
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 16 261 15 001 29 507
Gross profit 15 547 13 858 28 105
Other income 35 814 927
Operating costs (10 559) (8 846) (18 152)
Earnings before interest, taxation, 5 023 5 826 10 880
depreciation and amortisation
("EBITDA")
Depreciation (176) (198) (231)
Profit before interest and taxation 4 847 5 628 10 649
Net interest received 1 138 276 1 146
Profit before taxation 5 985 5 904 11 795
Taxation (1 779) (1 712) (3 381)
Profit after taxation 4 206 4 192 8 414
Minority interests - - 3
Earnings attributable to ordinary 4 206 4 192 8 417
shareholders
Reconciliation of headline
earnings:
Earnings attributable to ordinary 4 206 4 192 8 417
shareholders
Adjusted for:
Profit on sale of property, plant (4) (578) (633)
and equipment
Headline earnings attributable to 4 202 3 614 7 784
ordinary shareholders
Weighted average shares in issue on 125 000 117 260 117 260
which earnings per share are based
(`000)
Shares in issue at period end 125 000 125 000 125 000
(`000)
Earnings per share (cents) 3.4 3.6 7.2
Headline earnings per share (cents) 3.4 3.1 6.6
CONSOLIDATED BALANCE SHEETS
31 August 31 August 28
February
2007 2006 2007
Unaudited Unaudited Audited
R`000 R`000 R`000
ASSETS
Non-current assets 18 283 16 560 16 350
Property, plant and equipment 1 129 771 296
Intangible assets 16 122 14 760 14 760
Deferred lease charges 439 - 315
Deferred taxation 593 732 516
Loans receivable - 297 463
Current assets 39 492 38 304 32 693
Inventories 53 67 -
Trade and other receivables 8 095 8 349 5 174
Shareholder`s loan 89 79 89
Loans receivable 1 402 - 198
Bank balances 29 853 29 809 27 232
Total assets 57 775 54 864 49 043
EQUITY AND LIABILITIES
Capital and reserves 39 072 30 644 34 866
Issued capital 1 1 1
Distributable reserves 13 963 5 533 9 757
Share premium 25 077 25 077 25 077
Minority interest in subsidiaries 31 33 31
Non-current liabilities
Borrowings and other payables 300 2 075 895
Current liabilities 18 403 22 145 13 282
Taxation 4 822 2 443 3 047
Trade and other payables 11 796 17 434 7 855
Current portion of borrowings 1 785 2 268 2 380
Total equity and liabilities 57 775 54 864 49 043
Shares in issue (`000) 125 000 125 000 125 000
Net asset value per share (cents) 31.3 24.5 27.9
Net tangible asset value per share 18.4 12.7 16.1
(cents)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share Share Total Retained Total Minority Total
capital premium share income R`000 interests equity
R`000 R`000 capital R`000 R`000 R`000
R`000
Balance 1 1 25 077 25 078 5 532 30 610 34 30 644
September
2006
Changes in - - - - - - -
equity
Profit for - - - 4 225 4 225 (3) 4 222
period
Balance 1 1 25 077 25 078 9 757 34 835 31 34 866
March 2007
Changes in - - - - - - -
equity:
Share
premium
Profit for - - - 4 206 4 206 - 4 206
period
Balance at 1 25 077 25 078 13 963 39 041 31 39 072
31 August
2007
CONSOLIDATED CASH FLOW STATEMENTS
6 months 6 months 12 months
31 August 31 August 28 February
2007 2006 2007
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash flow from operating activities 6 916 8 946 7 239
Cash generated by operating 5 860 8 670 6 995
activities
Net interest received 1 138 276 1 146
Taxation paid (82) - (902)
Cash flows from investing (3 105) 980 1 244
activities
Property, plant and equipment (1 025) (93) (151)
acquired
Proceeds on disposals of property, 23 1 073 1 815
plant and equipment
Loans advanced (741) - (420)
Intangible assets acquired (1 362) - -
Cash flows from financing (1 190) 13 586 12 452
activities
Share premium - 25 077 25 077
Loans repaid (1 190) (11 491) (12 625)
Change in cash and cash equivalents 2 621 23 512 20 935
Cash and cash equivalents at 27 232 6 297 6 297
beginning of year
Cash and cash equivalents at end of 29 853 29 809 27 232
year
OVERVIEW
The directors of Taste have pleasure in presenting the unaudited interim
financial results for the six months ended 31 August 2007 ("interim period").
The company`s primary business is the franchising of trademarks in the Quick
Service Restaurant ("QSR") and fast-food sectors, currently through its MAXI`S
and Scooters Pizza brands.
The board is pleased to announce that headline earnings increased 16% for the
interim period, with headline earnings per share ("HEPS") increasing 10% to 3.4
cents per share; despite a decrease in new store openings compared to the
corresponding six month period last year. Half year earnings growth over last
year is lower than full year expectations due to a move in store openings from
the first to the second half of the year, relative to the same period last year.
The group anticipates a substantially better performance for the second half of
the year due to the increased number of store openings and historically better
trading conditions. The group opened nine new outlets during the interim period
under review compared with twenty new outlets for the same period last year.
The group forecasts opening 17 new outlets during the remainder of the year.
New store revenue, currently a significant contributor to total revenue, may
fluctuate significantly in six monthly reporting periods depending on the
availability of sites that meet the group`s site selection criteria. The board
is furthermore pleased to report that despite this reduced number of comparable
store openings, annuity franchise revenue, the core revenue stream, increased
29% to R12.6 million (2006: R9.8 million). EBITDA margin within the franchising
division increased from 42% in August 2006 to 46% for the interim period under
review. The profitability of the core business, annuity franchise revenue,
continued improving and is reflected in part by the cash earnings per share
("CEPS") increasing 9% to 3.5 cents.
System-wide sales, which includes new stores, increased 23% for the comparable
interim period, driven largely by like-on-like store sales growth, particularly
within the Scooters Pizza brand. Although fewer stores were opened compared to
the same period last year, this was anticipated due to a focus on opening only
A-
grade sites within the MAXI`S brand, as well as the adherence to stringent site
selection guidelines within Scooters Pizza, despite an oversupply of sites in
many areas.
MAXI`S continues gaining momentum under the leadership of Christo Calitz with
the re-imaged outlet currently exceeding sales expectations. Scooters Pizza
continues to entrench its position as the leading pizza delivery chain in South
Africa, having most recently won the coveted Franchising Association of Southern
Africa`s ("FASA") "Brand Builder of the Year" Award for the third time in six
years, a first in the franchise industry.
The group has conducted numerous high level reviews with various brands with the
intention to acquire them. Although there has been a strategic fit the pricing
expectations have, in the group`s opinion, been unrealistic and the group
anticipates an adjustment to more realistic pricing expectations in the near
future. The group will continue to pursue the acquisition of brands that have
high growth opportunities and a healthy core franchise network.
TASTE`S BRANDS
As indicated above, the MAXI`S brand has been gaining momentum under the
leadership of Christo Calitz. The innovative new store design has been
unequivocally accepted by landlords and developers, thereby opening up growth
opportunities for the brand. The success of the revamped image has resulted in
demand from existing franchisees and their landlords to revamp current sites in
prime locations, six of which will be completed by the end of the year. Initial
indications from revamped outlets have exceeded expectations, with an increase
in year-on-year sales of between 15% and 20%. The menu offering has been
streamlined to further improve food preparation times, resulting in a higher
table-turn and improved customer service. The brand has actively sought to exit
or relocate under-performing locations to more favorable trading environments
and this has resulted in an improvement in the quality of the royalty stream,
and in turn, earnings. The MAXI`S expansion strategy during the next 12 months
will continue focusing on high traffic shopping malls in the three main
metropolitan areas.
Scooters Pizza continued entrenching its position as the leading pizza delivery
chain in the interim period. Winning the prestigious FASA "Brand Builder of the
Year" award is well deserved recognition of a robust strategy that has seen
like-
on-like sales growth of 18.8% over the comparable period. The next-generation
Scooters Pizza outlet was launched in March 2007 with all subsequent outlets
have been opened in this format. Like the brand it is innovative, sets new
benchmarks in the sector and ensures the brand remains relevant to consumers.
Revamps of older outlets will commence in 2008. Scooters Pizza has also
undergone a significant revamp to its store level profitability model which will
be in full effect from December 2007. This will elevate Scooters Pizza to the
leading pizza franchise in terms of return on investment and profitability.
The group continues to have access to wholesale funding from the Industrial
Development Corporation ("IDC") to encourage and assist black entrepreneurs to
purchase its brands. The group has utilised this facility over the last three
years with the result that currently 26% of the group`s franchisees are of
colour, and 23% are woman. The group has attained pre-approved franchisor
status with three of the leading commercial banks, as well as the IDC. This
further enhances its ability to secure funding for franchisees at preferential
rates, thereby contributing to franchisee profitability and making the groups
brands preferred in their sectors. The number of multiple store owners has also
increased within the group, an indication that franchisees are willing to re-
invest in the brands and the management teams. Multiple franchisees currently
account for 39% of the franchise system.
FINANCIAL RESULTS
For the interim period ended August 2007, headline earnings increased 16% to
R4.2 million (2006: R3.6 million). Revenues increased by 8% to R16.2 million
(2006: R15.0 million), while annuity franchise revenue during the same period
increased a pleasing 29%. EBITDA declined 14% to R5 million (2006: R5.8
million, of which R814k was from the profit on the sale of assets). The effect
of opening fewer stores compared to the first six months of last year, combined
with owning a retail outlet, reduced the EBITDA margin to 31% (2006: 39%).
EBITDA margin for the group`s core franchising division increased to 46%
(2006: 42%). The EBITDA margin is affected by changes in the timing of store
openings due to the once off revenue from store openings having insignificant
associated expenses. It is further influenced by company store ownership as
these trade at lower margins than the annuity franchising division. Earnings
continue to be underpinned by strong cash flows, with CEPS increasing 9% to 3.5
cents (2006: 3.2 cents).
New store revenue, currently a significant contributor to total revenue, may
fluctuate significantly in 6 monthly reporting periods depending on site
availability that meet the groups site selection criteria. As the store base
continues to grow the effect of once off revenue from new store openings will
diminish relative to comparable revenue and EBITDA year-on-year changes. New
store openings may be difficult to anniversary and both brands are mindful of
adhering to their specific site selection criteria. The MAXI`S brand
strengthened its site selection criteria, and declined 14 sites during the
interim month period that were previously within its site selection criteria.
The nature of the company`s business model is such that trade and other
payables, including advertising and new store development creditors, may
fluctuate significantly in the short to medium term, depending on the number and
timing of new stores opened, and the company`s monthly commitments to
advertising spend.
BASIS OF PREPARATION
Statement of compliance
The abridged financial statements comprise a consolidated balance sheet at 31
August 2007, a consolidated income statement, consolidated statement of changes
in equity and summarised consolidated cash flow statement for the period ended
31 August 2007. The abridged financial statements have been prepared in
accordance with the recognition and measurement criteria of International
Financial Reporting Standards ("IFRS") and the presentation and disclosure
requirements of IAS 34, Interim Financial Reporting.
The basis of preparation is consistent with the prior comparative year.
The abridged financial statements were approved by the board of directors on 30
October 2007.
Basis of measurement
The abridged financial statements have been prepared on the historic cost basis
except for certain financial instruments measured at fair value.
PROSPECTS
The group forecasts opening 17 new sites during the remainder of the year.
Subsequent to 31 August 2007, three new outlets were opened, and another five
are in the process of being built. Development will commence on six more stores
in November for opening in December 2007, with another three sites scheduled to
open in February 2008.
The group has continued its strategy of investing in capacity ahead of growth
expectations and hence does not anticipate increasing its expenses during the
remainder of the year. This factor, along with the anticipated store openings,
will improve the overall EBIDTA margin, and further increase margins in the
franchise division.
The revamped MAXI`S image has created new opportunities for the group in
existing shopping centres and with initial year-on-year sales growth exceeding
expectations, the brand is well positioned for organic growth. The brands
strong value proposition is well suited to capitalise on current trading
conditions.
Despite the interest rate increases and consequent squeeze on consumer spending,
convenience food purchases are still driven by dual income families with
diminishing time to prepare meals. Home meal replacement meals have become a
way of life for many, rather than a luxury purchase. The group has implemented
various strategies in response to an anticipated slow-down in consumer spending
in the coming year. The group does not own its supply chain and hence is well
positioned to manage input food inflation by being able to source multiple
suppliers and explore alternate products. To this end the group appointed
dedicated resources in the last period tasked with extracting synergies and
lowering costs within the supply chain. A change in the expense model at store
level will also improve franchisee profitability, which combined with the supply
chain initiatives, will place the brands in a strong position to offer value to
consumers in the coming year.
The significantly improved profitability model within Scooters Pizza will
continue retaining existing franchisees and encourage growth from within the
system, as well as create a competitive advantage when being evaluated by
potential new franchisees. Site growth in existing areas by existing
franchisees continues to grow as stores become constrained by capacity. The
strong growth in like-on- like sales for the brand has resulted in a substantial
increase in the marketing fund for the 2007/8 period, that will ensure an
increase in its share of voice in the market. The improved profitability of the
model will allow the brand to remain competitively priced which, combined with
the increased marketing fund, will see the brand grow market share and increase
its national footprint.
The group is assessing acquisition opportunities that have a strategic fit and
offer value creation opportunities. Although there has been a slow-down in
consumer spending in the last quarter, both brands have strong value
propositions and significant marketing budgets relative to competitors within
their categories, thereby ensuring they will be at the forefront of consumers`
minds.
SHARE CAPITAL AND SUBSEQUENT EVENTS
In terms of the detailed prospectus of Taste, dated 7 June 2006, the trustees of
the Share Incentive Trust have the power to grant 2 500 000 shares at 90 cents
per share, to certain executives and key management on the achievement of
headline earnings per share for the financial year ended 28 February 2007.
Employees have accepted 1 720 000 ordinary shares that were offered by the Taste
Share Incentive Trust.
DIVIDEND POLICY
In line with the company`s growth strategy, no dividend was declared for the six
month period.
On behalf of the Board
C F Gonzaga
D J Crosson
Chief Executive Officer
Chief Financial Officer
31 October 2007
CORPORATE INFORMATION
Non executive directors: R L Daly (Chairperson), K Utian, J B Currie
Executive directors: C F Gonzaga (CEO), D J Crosson (CFO), L Gonzaga,
Registration number: 2000/002239/06
Registered address: 2nd Floor, The Wanderers, The Campus, 57 Sloane Street,
Bryanston
Postal address: PO Box 7833, Sandton City, 2146
Company secretary: D J Crosson
Telephone: (011) 575 1400
Facsimile: (011) 576 1465
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited
Designated Adviser: Exchange Sponsors (Pty) Limited
Date: 31/10/2007 08:42:00 Produced by the JSE SENS Department.
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