| Wed 13 May 2009, 8:48 | | TAS - Taste Holdings - Reviewed Condensed Financial Results for the year |
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TAS
TAS
TAS - Taste Holdings - Reviewed Condensed Financial Results for the year
ended 28 February 2009
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
- Revenue up 303% to R136.3 million
- EBITDA up 140% to R29.0 million
- Operating profit up 118% to R25.6 million
- Headline earnings up 55% to R15.4 million
- Earnings per share up 78% to 14.2 cents
- Normalised earnings per share up 20% to 9.6 cents
- Headline earnings per share up 29% to 10.2 cents
- Cash earnings per share up 56% to 12.8 cents
- System-wide sales up 52% to R567 million
- Successful acquisition and integration of NWJ
REVIEWED CONDENSED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2009
CONDENSED GROUP INCOME STATEMENTS
Reviewed Audited
28 February 29 February
2009 2008
R`000 R`000
Revenue 136 345 33 793
Gross profit 82 969 32 327
Other income 935 58
Operating costs (1) (58 319) (20 670)
Operating profit 25 585 11 715
Negative goodwill arising on acquisition 6 964 -
Fair value adjustment on derivative (2) (1 923) -
Interest income 2 051 2 421
Finance costs (5 174) -
Profit before taxation 27 503 14 136
Taxation (6 076) (4 166)
Profit for the period 21 427 9 970
Attributable to:
Equity holders of the parent 21 427 10 001
Minority interests - 31
Reconciliation of headline earnings:
Earnings attributable to ordinary 21 427 10 001
shareholders
Adjusted for:
Impairment losses 1 658 -
Negative goodwill arising on acquisition (6 964) -
Profit on sale of property, plant and (673) (28)
equipment
Headline earnings attributable to 15 448 9 973
ordinary shareholders
Weighted average shares in issue (`000) 151 344 125 677
Shares in issue at year-end (`000) 170 161 126 720
Earnings per share (cents) (3) 14.2 8.0
Headline earnings per share (cents) 10.2 7.9
CONDENSED GROUP BALANCE SHEETS
Reviewed Audited
28 February 29 February
2009 2008
R`000 R`000
ASSETS
Non-current assets 93 100 18 606
Property, plant and equipment 7 606 1 028
Intangible assets (5) 68 306 1 004
Goodwill 16 102 16 122
Deferred taxation 1 086 452
Current assets 93 566 44 799
Inventories 58 601 67
Trade and other receivables 16 742 13 702
Advertising levies 2 987 1 982
Taxation 3 272 -
Other financial assets 2 945 1 088
Non-current assets held for sale 1 805 -
Bank balances 7 214 27 960
Total assets 186 666 63 405
EQUITY AND LIABILITIES
Capital and reserves 84 328 44 836
Issued capital 2 1
Share premium 43 141 25 077
Distributable reserves 41 185 19 758
Non-current liabilities 61 278 276
Borrowings (6) 39 337 -
Other financial liabilities 658 276
Derivative at fair value 1 049 -
Deferred taxation 17 293 -
Balances due to vendors 2 941 -
Current liabilities 41 060 18 293
Taxation 170 1 141
Trade and other payables 17 284 16 557
Provisions 973 -
Bank overdrafts 3 461 -
Derivative at fair value 874 -
Balances due to vendors 7 059 -
Current portion of borrowings (6) 11 239 595
Total equity and liabilities 186 666 63 405
Shares in issue (`000) 170 161 126 720
Net asset value per share (cents) 49.6 35.4
Net tangible asset value per share 10.1 22.7
(cents) (7)
CONDENSED GROUP 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 9 757 34 835 31 34 866
March 2007
Changes in
equity:
Profit for 10 001 10 001 (31) 9 970
year
Balance 1 1 25 077 25 078 19 758 44 836 - 44 836
March 2008
Changes in 1 18 064 18 065 18 065 18 065
equity:
Issue of
shares
Profit for 21 427 21 427 - 21 427
year
Balance 28 2 43 141 43 143 41 185 84 328 - 84 328
February
2009
CONDENSED GROUP CASH FLOW STATEMENTS
Reviewed Audited
28 February 29 February
2009 2008
R`000 R`000
Cash flow from operating activities 7 614 7 252
Cash generated by operating activities 24 053 10 839
Interest income 2 051 2 421
Finance costs (5 174) -
Taxation paid (13 316) (6 008)
Cash flow from investing activities (106 417) (4 120)
Acquisition of property, plant and (2 943) (1 162)
equipment
Acquisition of non-current assets held (2 355) -
for sale
Acquisition of subsidiary (95 122) -
Acquisition of intangible assets (6 519) (1 312)
Proceeds on disposal of property, 1 392 54
plant and equipment
Proceeds on disposal of goodwill 1 362 (1 362)
Loans advanced (2 232) (338)
Cash flow from financing activities 74 139 (2 404)
Proceeds from issue of shares 18 065 -
Loans raised/(repaid) 46 074 (2 404)
Loans raised from vendors 10 000 -
Change in cash and cash equivalents (24 664) 728
Cash and cash equivalents at beginning 27 960 27 232
of year
Cash acquired on acquisition of 467 -
subsidiary
Cash and cash equivalents at end of 3 753 27 960
year
SEGMENTAL REPORT
28 29
February February
% 2009 % 2008
Contribution R`000 Contribution R`000
Segment revenue
Food 28 38 766 100 33 793
Franchise 26 35 426 89 29 913
Retail 2 3 340 11 3 880
Jewellery 72 97 579 -
Franchise and wholesale 52 69 842 -
Retail 20 27 737 -
Group revenue 100 136 345 100 33 793
Segment profit
Food 72 18 510 150 17 521
Franchise 76 19 453 148 17 314
Retail (4) (943) 2 207
Jewellery 66 16 749 -
Franchise and wholesale 41 10 459 -
Retail 25 6 290 -
Corporate services (38) (9 674) (50) (5 806)
Group operating profit 100 25 585 100 11 715
Segment assets 28
February 2009
Eliminations
R`000 R`000 R`000
Food 43 620 (22 548) 21 072
Franchise 41 230 (22 159) 19 071
Retail 2 390 (389) 2 001
Jewellery 127 692 (44 694) 82 998
Franchise and wholesale 93 259 (44 694) 48 565
Retail 34 433 - 34 433
Corporate services 132 228 (49 632) 82 596
Total group assets 303 540 (116 874) 186 666
Segment assets 29 February 2008
Eliminations
R`000 R`000 R`000
Food 41 905 (19 714) 22 191
Franchise 39 215 (19 074) 20 141
Retail 2 690 (640) 2 050
Jewellery - - -
Franchise and wholesale - - -
Retail - - -
Corporate services 48 262 (7 048) 41 214
Total group assets 90 167 (26 63 405
762)
Notes to the financial information:
1: Operating costs include depreciation and otalingion of R3.5 million for
the year ended 28 February 2009. (2008: R0.4 million)
2: The R1.9 million fair value adjustment on derivative relates to the fair
value charge arising out of an agreement to fix the interest rate on the
loan with Rand Merchant Bank ("RMB") for the acquisition of the NWJ
business ("NWJ"), for a 24-month period ending 30 November 2010. As the
interest rate swap did not qualify as a cash-flow hedge in terms of IAS
39 the full amount of the derivative for the 24 months has been charged
to the income statement.
3: The after-tax interest charge of R3.4million on the borrowings for the
NWJ acquisition diluted earnings per share by 2.2 cents.
4: Normalised earnings are calculated by subtracting the negative goodwill
arising on the acquisition of NWJ, from profit after tax.
5: Intangible assets include deferred lease charges which were disclosed as
a separate item in the 2008 balance sheet.
6: The increase in total borrowings over the previous year related to the
RMB loan raised on the acquisition of NWJ.
7: Net tangible asset value is calculated by excluding the intangible
assets as well as the deferred taxation liability relating to the
intangible assets, from net asset value.
8: These results include seven months of results of NWJ as the acquisition
was effective from 1 August 2008.
9: Diluted earnings per share have not been calculated as there are no
dilutive instruments in issue.
GROUP OVERVIEW
The directors of Taste have pleasure in presenting the reviewed
year-end results for the 12 months ended 28 February 2009 ("the
2009 year"). Taste is a South African-based management group,
invested in a portfolio of mostly franchised, category
specialist restaurant and retail brands, represented in 260
locations throughout South Africa.
As part of its strategy to become a vertically-integrated
diversified franchisor, Taste acquired NWJ during the period
under review. NWJ is a 25-year old vertically integrated
jewellery franchise with 76 outlets nationally. As the NWJ
transaction became unconditional on 1 August 2008, the period
under review includes results of the NWJ group for seven
months. The 2009 year also includes the acquisition of
strategic BJs sites located in Caltex forecourts on the
national highways. BJs was a sit-down restaurant format,
similar in seating capacity, kitchen layout, and menu offering
to Maxi`s. The acquisition included an agreement with Caltex to
convert these BJs sites to the Maxi`s brand as well as granted
exclusivity to Maxi`s to operate within the Caltex sites on the
national highways.
Group revenue for the 2009 year increased 303% to R136.3
million, while EBITDA increased to R29.0 million, an
increase of 140% over last year. Headline earnings increased
55% to R15.4 million and headline earnings per share ("HEPS")
increased 29% to 10.2 cents. Earnings continue to be
underpinned by strong cash flows with cash earnings per share
increasing 56% to 12.8 cents per share.
SEGMENT OVERVIEW
FOOD
The Food division consists of the Maxi`s and Scooters Pizza
brands. Both brands target consumers in the broad middle market
with strong value-for-money propositions, contemporary store
designs and limited-time value offerings. Scooters trades in
the fast-food sub-segment while Maxi`s falls into the casual
dining sub-segment catering for breakfast, lunch and early
evening consumers.
System-wide sales for this division grew 13% to R422 million
(2008: R373 million) during the 2009 year. Despite the second
half of the year experiencing tougher trading conditions than
the first half of the year, system-wide sales for the six-month
period ended 28 February 2009 increased 18% over the comparable
six-month period of the previous year. This growth was driven
largely by the turnover increases experienced by re-imaged and
converted Maxi`s sites. The division ended the 2009 year with
184 stores. The renovation programme within both brands
continued during the year with a total of 13 stores being re-
imaged. On average these re-imaged stores experienced turnover
increases of over 15% upon re-opening with the new image.
These system-wide sales increases translated into an 18%
increase in revenue of the core franchising division to R35.4
million (2008: R29.9 million) and an increase in profit of
12.4% to R19.4 million (2008: R17.3 million). The decline in
margin to 55% (2008: 58%) in the franchising division is mainly
as a result of otalingion charges for the BJs conversions
otaling R1.9 million more than similar charges in the previous
year, and impairment losses during the 2009 year. The retail
loss of R0.9 million for the year relates to trading losses in
the company-owned outlets and an impairment of assets of R0.5
million relating to these outlets. These outlets have been
sold since the 2009 year-end.
Although franchisee operating expenses have risen faster than
sales, mainly as a result of electricity and wage increases in
excess of inflation, the combined purchasing leverage from the
Food division has seen gross margins protected across both
brands despite sub-inflationary selling price increases to
consumers during the 2009 year.
Scooters Pizza aggressively introduced incremental sales layers
from the fourth quarter of the 2008 calendar year - the most
recent being the "Bellissimo" range of pastas and pasta salads.
The positive uptake of both the "Value Pizza" range as well as
the "Single" size pizza introduced in December 2008 confirms
consumers are seeking value.
Maxi`s continues to benefit from its repositioning with
positive same-store sales and new A-grade sites being offered
to the brand as a result of the successful repositioning and
contemporary store design. New store growth is being driven by
the increasing opportunities that are arising within the Caltex
network beyond the national highway sites, as well as in
KwaZulu-Natal ("KZN"), where the brand is represented by only
three outlets. Maxi`s converted all seven of the BJs sites
within the Caltex forecourts by 1 December 2008, and these
sites have experienced year-on-year turnover growth of over
20%.
Both brands have marketing funds that benefit from the group
media-buying power. As such, their share of voice is second in
its segment in the case of Scooters Pizza and third in the case
of Maxi`s. This ensures continued advertising spending and top-
of-mind awareness for the brands as other smaller competitors
cut their marketing budgets. It is a well documented fact that
trusted brands that continue to market ahead of their
competitors in tough trading environments gain market share.
JEWELLERY
NWJ is a fully integrated franchise jewellery chain. As an
integrated franchise chain it owns and operates approximately
25% of the total outlets; provides franchising services to its
franchise network; manufactures and distributes certain
products sold by the NWJ outlets and sources and distributes
the items not manufactured by its manufacturing facility. The
franchise services are comparable to the food franchise
division of Taste in that it offers its franchisees operational
and marketing support, project management, new site growth and
development, and national brand building strategies, in return
for a royalty. The distribution function distributes 100% of
the goods sold through the NWJ outlets. Of these goods sold
approximately 45% is manufactured by the manufacturing
facility, located in Durban; 30% is imported; and the remaining
25% sourced locally. This model provides in-house innovation
capacity, fast routes to market, and maintains input costs to
franchisees through purchasing economies of scale. A further
benefit of owning the manufacturing facility is that slow-
moving or returned stock can either be re-worked with
negligible yield loss or transferred to another location where
there is known demand for the item.
NWJ is the fourth largest jewellery chain in South Africa by
units, with 76 outlets located nationally, having opened 10
outlets during the current financial year. As the company has
a demonstrated ability to operate company-owned outlets, new
store growth is not solely dependent on franchisee
availability.
System-wide sales increased 9.9% to R227 million (2008: R206
million). The system-wide sales increase of 9.8% in the second
half of the year, and 11.4% in the last quarter of the 2009
year, highlights NWJ`s value positioning within the segment.
System-wide sales excluding new stores remained positive in
every quarter of the 2009 year, averaging 2.4% for the year.
Fourth quarter same-store sales increased 2.1%. These positive
sales, combined with unchanged unit-level gross profits on a
year-on-year basis, re-enforce NWJ`s brand positioning of being
at the value end of the luxury goods segment. The segment is
occasion-driven and NWJ has been able, mainly as a result of
owning the manufacturing and distribution division, to quickly
adapt to changing consumer demand which has seen a shift to
purchasing silver, lighter-weight gold and stainless steel
jewellery. NWJ has recently partnered with RCS Group ("RCS")
whereby RCS customers can use their RCS credit cards at NWJ.
This provides approximately 400,000 active card holders the
opportunity to purchase goods at NWJ on credit. NWJ has no
exposure to the credit risk.
Operating margin in this division was expected at 17%. The
lower franchising margin of the Jewellery division when
compared to the franchising margin in the Food division is due
the inclusion in the division of manufacturing and distribution
profits, which carry lower margins than franchising services.
Through Taste, NWJ has access to greater human resources and
capital than it would otherwise have had. Since Taste
negotiates with media owners as one entity, the acquisition of
NWJ has benefited the marketing funds of all three brands to
achieve improved costs of advertising, a key success factor in
both the food and jewellery segments. Regional offices of NWJ,
Maxi`s and Scooters Pizza have been integrated and duplicate
functions within the group will be eliminated over time.
The performance of NWJ has been in line with management`s
expectations upon acquisition in August 2008, despite the
negative pressures on disposable income since September 2008.
FINANCIAL RESULTS
The revenue increase of 303% to R136.3 million (2008: R33.8
million) was largely due to the NWJ acquisition, which is a
vertically integrated franchise model that owns both retail
stores and a manufacturing and distribution division. EBIDTA
increased 140% to R29.0 million (2008: R12.1 million) and the
group EBITDA margin decreased to 21% (2008: 36%). This margin
decline is expected as the lower overall margin of the
Jewellery division, compared to the Food division, is
consolidated. The lower margin is due to the Jewellery
division being vertically integrated - owning retail outlets
and manufacturing - whereas the Food division does not have a
manufacturing division.
The increase of R3.1 million in depreciation and mortization
over the 2008 year is due mainly to the write-down of the
intangible assets raised on the acquisition of NWJ of R0.9
million, and R0.9 million mortization charges that relate to
the investment in the acquisition and conversion of the BJs
sites. These mortization charges will continue in the
forthcoming year.
Profit before tax includes finance costs of R5.2 million, of
which R4.7 million relates to the borrowings for the NWJ
transaction since 1 August 2008, compared to no finance costs
the previous year. Headline earnings increased 55% to R15.4
million (2008: R10 million) and normalised earnings per share
increased 20% to 9.6 cents (2008: 8.0 cents). The increase in
total shares in issue was due the issue of shares to the NWJ
vendors as part payment of the purchase price. No further
shares are due to be issued in this respect.
Group operating margin reduced to 19% (2008: 35%) due to the
inclusion of the results from NWJ from 1 August 2008. The
consolidated margin in the Jewellery segment was 17%.
Franchising, manufacturing, and distribution margin in this
segment was 15% and the margin from the company-owned retail
outlets was 23%. The operating margin in the food segment
declined to 48% (2008: 52%), mainly due to the retail losses
and impairments. The operating margin in the core franchising
division was 55% (2008: 58%).
The group continued to generate strong cash flows from core
operations, although these were impacted by a net interest
payment of R3.1 million (2008: R2.4 million net interest
earned). The taxation paid of R13.3 million includes an
overpayment for the 2009 year of R3.1 million in respect of
provisional tax. The group also utilised R5.7 million to
acquire and convert the BJs outlets and other strategic sites
to the Maxi`s brand. Cash earnings per share increased 56% to
12.8 cents per share (2008: 8.2 cents).
BASIS OF PREPARATION OF THE REVIEWED RESULTS
Statement of compliance
The condensed financial statements comprise a consolidated
balance sheet at 28 February 2009, a consolidated income
statement, consolidated statement of changes in equity and
consolidated cash flow statement for the year ended
28 February 2009. The condensed 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, JSE Listings Requirements
and the South African Companies Act.
The basis of preparation is consistent with the prior
comparative year except for statements, amendments and
interpretations that came into effect applicable to this year,
which have had no impact on the group.
Basis of measurement
The condensed financial statements have been prepared on the
historical cost basis except for certain financial instruments
measured at fair value.
AUDITORS` REPORT
BDO Spencer Steward (Jhb) Inc., the group`s independent
auditor, has reviewed the condensed financial results contained
in this provisional report, and has expressed an unmodified
report on the provisional financial statements. Their review
report is available for inspection at the company`s registered
office.
BUSINESS COMBINATIONS
On 1 August 2008 the group acquired 100% of NWJ. The fair values of the
assets and liabilities of the subsidiaries acquired are set out below:
R`000
Tangible assets 82 723
Intangible assets 45 125
Liabilities (25 762)
Net identifiable assets and liabilities 102 086
Negative goodwill on acquisition (6 964)
Total consideration 95 122
Consideration paid in shares 18 065
Consideration paid in cash 67 057
Deferred consideration 10 000
--------------
95 122
--------------
The purchase consideration (including transaction costs) was discharged by
the issue of 45 161 291 Taste shares, a cash payment of R67.05 million and a
deferred amount of R10.0 million which will be potentially released to the
NWJ vendors over a two-year period based on certain inventory warranties
being met. The fair value of the Taste shares issued was determined to be
R0.40 per share, based on the market price at the time of issue.
During the seven months for which NWJ`s results were included in these
results, NWJ contributed R97.6 million to revenue and R16.7 million to
operating profit. The revenue for NWJ for the 12 months ended 28 February
2009 was R156.3 million and operating profit for the same period was R25.3
million.
PROSPECTS
The Taste Food division continues to grow top-line sales, and
the strong value offerings of both Maxi`s and Scooters Pizza
place the brands at the forefront of consumer choice in the
areas in which they operate. Scooters Pizza has approved a new
mall concept, and Maxi`s penetration into the Caltex network
will offer the Food division new growth opportunities during
2009. Taste will continue to explore the vertical integration
opportunities within this division. The division is containing
costs within its revenue growth prospects and both brands plan
to increase their marketing spend over the previous year. The
majority of planned new outlets currently from existing
franchisees within the networks, indicating a willingness to re-
invest in the brands.
The Jewellery division, although not as defensive as the Food
division by industry, is fortunate to be at the value end of
the segment with arguably the strongest value proposition among
the top four chains. NWJ has three new stores planned for the
first half of the year and will realise margin improvement by
the end of the year as a new manufacturing and stock control
system is implemented. The sale of selected company stores as
part of the retail strategy will release cash and enhance the
cash flow of the division. New sites are increasingly becoming
available as independent jewellers feel the brunt of buying
down in this sector. Through its manufacturing division NWJ is
able to respond quickly to changing consumer needs and thereby
maintain its strong value offering to end consumers. Its
relatively stronger advertising spend and franchise ownership
model positions it favourably to gain market share from the
other chains during the coming year.
Taste remains committed to becoming a diversified franchisor
invested in retail and restaurant brands within Southern
Africa. While the group will continue to assess opportunities
in line with its strategy, Taste is focused on growing its
current divisions profitably by aggressively containing costs;
driving top-line system-wide sales; and extracting synergies
between the brands, particularly the head office support costs
of the franchise divisions.
STATEMENT ON GOING CONCERN
The condensed financial statements have been prepared on the
going-concern basis since the directors have every reason to
believe that the company has adequate resources in place to
continue in operation for the foreseeable future.
DIVIDEND POLICY
In line with its policy, the group will not pay a dividend for
the 2009 year. It is Taste`s long-term intention to pay
dividends and the existing policy will be reconsidered in light
of market conditions and anticipated cash requirements for the
business.
On behalf of the board
C F Gonzaga D J Crosson
Chief Executive Officer Chief Financial
Officer
13 May 2009
CORPORATE INFORMATION
Non-executive directors: R L Daly (Chairperson), K
Utian, J B Currie, A Berman
Executive directors: C F Gonzaga (CEO), D J Crosson (CFO), L
Gonzaga, H Rabinowitz, D Buxton (alternate director)
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
(Pty) Limited
Designated Adviser: Vunani Corporate Finance
These results and an overview of Taste are available at
www.tasteholdings.co.za
Date: 13/05/2009 08:48:13 Produced by the JSE SENS Department.
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