| Tue 11 May 2010, 8:30 | | TAS - Taste Holdings Limited - Reviewed provisional condensed financial results |
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TAS
TAS
TAS - Taste Holdings Limited - Reviewed provisional condensed financial results
for the year ended 28 February 2010
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")
Reviewed Provisional Condensed Financial Results for the year ended 28 February
2010
Salient features
Revenue up 46% to R199.6 million
EBITDA up 11% to R32.4 million
Operating profit up 5% to R26.9 million
Headline earnings up 2% to R15.8 million
Normalised earnings per share decreased 3% to 9.3 cents
Headline earnings per share decreased 9% to 9.3 cents
Cash generated from operations up 43% to R34.4 million
System-wide sales up 17% to R676 million
Net tangible asset value per share up 112% to 21.4 cents
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
28 February 28 February
2010 2009
change Reviewed Audited
% R`000 R`000
Revenue 46 199 607 136 345
Gross profit 28 105 862 82 969
Other income 720 935
Operating costs (1) 37 (79 655) (58 319)
Operating profit 5 26 927 25 585
Negative goodwill 100 6 964
Fair value adjustment on derivative (2) (263) (1 923)
Interest income 699 2 051
Finance costs (6 186) (5 174)
Profit before taxation (23) 21 277 27 503
Taxation (5 303) (6 076)
Profit for the year (25) 15 974 21 427
Other comprehensive income - -
Total comprehensive income for the
period (25) 15 974 21 427
Attributable to:
Equity holders of the parent (25) 15 974 21 427
Minority interests - -
Reconciliation of headline earnings:
Earnings attributable to ordinary
shareholders adjusted for: (25) 15 974 21 427
Impairment losses 64 1 658
Negative goodwill arising
on acquisition (100) (6 964)
Profit on sale of property, plant
and equipment (64) (673)
Headline earnings attributable to
ordinary shareholders 2 15 874 15 448
Weighted average shares in issue
(`000) 170 161 151 344
Shares in issue at period end (`000) 170 161 170 161
Earnings per share (cents) (34) 9.4 14.2
Normalised earnings per share
(cents) (3) (3) 9.3 9.6
Headline earnings per share (cents) (9) 9.3 10.2
Fully diluted headline earnings per
share (cents) 2 9.3 9.1
CONDENSED GROUP STATEMENTS OF CHANGES IN EQUITY
Share Share Total share
capital premium capital
R`000 R`000 R`000
Balance 1 March 2008 1 25 077 25 078
Changes in equity: Issue of shares 1 18 064 18 065
Profit for year - - -
Balance 1 March 2009 2 43 141 43 143
Profit for year - - -
Balance 28 February 2010 2 43 141 43 143
Retained Total
income
R`000 R`000
Balance 1 March 2008 19 758 44 836
Changes in equity: Issue of shares - 18 065
Profit for year 21 427 21 427
Balance 1 March 2009 41 185 84 328
Profit for year 15 974 15 974
Balance 28 February 2010 57 159 100 302
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
28 February 28 February
2010 2009
Reviewed Audited
R`000 R`000
ASSETS
Non-current assets 93 706 93 100
Property, plant and equipment 11 649 7 606
Intangible assets 64 366 68 306
Goodwill 16 321 16 102
Deferred tax 1 370 1 086
Non-current assets held for sale 5 324 1 805
Current assets 89 676 91 761
Inventories 55 096 58 601
Trade and other receivables 19 585 16 742
Taxation 4 191 3 272
Advertising levies 3 524 2 987
Other financial assets 202 2 945
Cash and cash equivalents 7 078 7 214
Total assets 188 706 186 666
EQUITY AND LIABILITIES
Capital and reserves 100 302 84 328
Issued capital 2 2
Distributable reserve 57 159 41 185
Share premium 43 141 43 141
Non-current liabilities 47 969 61 278
Borrowings 30 509 39 337
Long-term employee benefits 606 658
Deferred tax 16 854 17 293
Balances due to vendors - 2 941
Derivative at fair value - 1 049
Current liabilities 40 435 41 060
Provisions 70 973
Current tax payable 120 170
Trade and other payables 19 426 17 284
Balances due to vendors 6 446 7 059
Bank overdrafts 1 502 3 461
Derivative at fair value 1 322 874
Current portion of borrowings 11 549 11 239
Total equity and liabilities 188 706 186 666
Number of shares in issue (`000) 170 161 170 161
Net asset value per share (cents) 58.9 49.6
Net tangible asset value per share (cents) (4) 21.4 10.1
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
28 February 28 February
2010 2009
Reviewed Audited
R`000 R`000
Cash flow from operating activities 21 684 7 614
Cash generated by operating activities 34 429 24 053
Interest income 699 2 051
Finance costs (6 449) (5 174)
Taxation paid (6 995) (13 316)
Cash flows from investing activities (7 136) (106 417)
Acquisition of property, plant and equipment (6 384) (2 943)
Acquisition of Non-current assets held for sale (4 727) (2 355)
Proceeds on disposals of property, plant and
equipment 710 1 392
Proceeds on disposal of non-current assets held
for sale 1 182 -
Acquisition of subsidiary - (95 122)
Loans repaid/(advanced) 2 655 (2 232)
Acquisition of goodwill (219) -
Proceeds on disposal of goodwill - 1 362
Acquisition of intangible assets (353) (6 519)
Cash flows from financing activities (12 725) 74 139
Proceeds from issue of shares - 18 065
(Decrease)/increase in long-term employee
benefits (52) 382
Loans (repaid)/raised (9 119) 45 692
Loans (repaid)/raised to/from vendors (3 554) 10 000
Change in cash and cash equivalents 1 823 (24 664)
Cash and cash equivalents at beginning of period 3 753 27 960
Add cash acquired on acquisition of subsidiary - 457
Cash and cash equivalents at end of period 5 576 3 753
CONDENSED CONSOLIDATED SEGMENTAL REPORT
28 February 28 February
2010 2009
Reviewed Audited
R`000 R`000
Segment revenue
Food 13% 43 655 38 766
Franchise 32 597 35 426
Retail 11 058 3 340
Jewellery 60% 155 952 97 579
Franchise and wholesale 103 159 69 842
Retail 52 793 27 737
Group revenue 46% 199 607 136 345
Segment operating profit
Food (13%) 16 111 18 510
Franchise 16 354 19 453
Retail (243) (943)
Jewellery 31% 21 867 16 749
Franchise and wholesale 13 376 8 774
Retail 8 491 7 975
Corporate services 14% (11 051) (9 674)
Group operating profit 5% 26 927 25 585
Segment assets
Food 23 248 21 072
Franchise 17 686 19 071
Retail 5 562 2 001
Jewellery 83 796 82 998
Franchise and wholesale 47 910 48 565
Retail 35 886 34 433
Corporate services 81 662 82 596
Total group assets 188 706 186 666
Notes to the financial information:
1: Operating costs include amortisation and depreciation of R5.5 million for
the year ended 28 February 2010 (2009: R3.5 million).
2: The 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") on 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: Normalised earnings are calculated by subtracting the negative goodwill
arising on the acquisition of NWJ, from profit after tax.
4: Net tangible asset value is calculated by excluding goodwill and intangible
assets as well as the deferred taxation liability relating to intangible
assets, from net asset value.
5: The comparable 2009 period includes seven months of results of NWJ as the
acquisition was effective from 1 August 2008.
6: Diluted earnings per share have not been calculated as there are no
dilutive instruments in issue at 28 February 2010.
GROUP OVERVIEW
The directors of Taste present the reviewed condensed provisional results for
the year ended 28 February 2010 ("the 2010 year"). Taste is a South
African-based management group, invested in a portfolio of mostly franchised,
category specialist restaurant and retail brands, represented in over 270
locations throughout South Africa.
Although the 2010 year was among the most challenging in the last decade,
system-wide sales increased 17% to R676 million, with revenue increasing 46% to
R199.6 million. EBITDA increased 11% to R32.4 million. These increases were
mainly as a result of the acquisition of NWJ which was included for only seven
months of the comparable period. Headline earnings increased 3% to R15.9
million, and headline earnings per share ("HEPS"), after adjusting for the
weighted average number of shares in issue, decreased 9% to 9.3 cents. Earnings
continue to be underpinned by strong cash flows with cash generated from
operations increasing 43% to R34.4 million.
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 strong value offerings. Scooters
Pizza 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.
The main challenges facing the division during the year were:
- repositioning the Scooters Pizza brand;
- managing store-level profitability in a consumer down-cycle; and
- matching high store growths in the prior year.
System-wide sales grew 5.1% to R443 million (2009: R422 million), on the back
of 13 net new outlets and modest same-store sales growth. Although we actively
relocate or close outlets if markets change, we anticipate a similar net store
growth in the coming year. The division ended the year with 196 outlets.
Revamped outlets continued to show positive sales growth in excess of 15%
year-on-year. The division revamped 19 outlets (Scooters Pizza: 15; Maxi`s 4)
during the period. The decline in franchise revenue of 8% to R32.6 million
(2009: R35.4 million) was due mainly to two factors:
- there were fewer new store openings during the 2010 year compared with the
prior year. The once-off income from store openings amounts to R2.4 million
less than the prior year and as it has few associated costs, it has an
appreciable impact on margins and operating profit; and
- the division had more company stores in the 2010 year than the 2009 year,
whose royalties are eliminated from the revenue of the franchise division in
the segment reporting.
The Taste Holdings central kitchen was commissioned in December 2009 and its
financial results are included in franchise operations. It had a marginal loss
during the initial three-month period due to once-off set-up costs.
Franchising operating profit and margin in the division were negatively
impacted by:
- lower revenue from fewer new stores as detailed above;
- the trading loss in the central kitchen; and
- higher comparable deferred lease charges in Maxi`s of R0.3 million arising
from the conversion of BJ`s outlets to Maxi`s.
Operating expenses in the franchise division, excluding amortisation and
depreciation, were well managed with Maxi`s showing a marginal decrease and
Scooters Pizza reducing expenses by 6% over the previous year.
In the latter half of the year Scooters Pizza showed a marked improvement over
the first six months of 2009, with the revamped image gaining traction and
same-store sales improving. The reduction in menu pricing in March 2009 saw the
brand experience transactional growth in the latter part of the year,
continuing into the current year. In line with the strategy to offer value and
quality, the brand has further streamlined its menu allowing further price cuts
to consumers in March this year. The Western Cape has responded well to
specific marketing introduced last year and the re-imaging of outlets in this
market is a specific area of opportunity for the brand.
Maxi`s continues to leverage its alliance partnerships with petroleum
companies, having opened a further five outlets in forecourts during the 2010
year. The smaller format Maxi`s is also gaining momentum with six outlets in
operation at year-end, and a further four planned for the coming year.
The brand was a finalist in the Franchise Association of Southern Africa`s
("FASA") Franchisor of the Year, and Brand Builder of the Year Awards in 2009
and 2010, winning the Franchisor of the year Award in 2010. As with Scooters
Pizza, the re-imaging of outlets in Maxi`s is a continued area of opportunity
with over 70% of the brand currently revamped. The increase in energy costs has
improved our focus on energy consumption and we believe we can reduce
consumption by 20% over the next two years across our stores, improving
profitability of the group.
In line with the strategy to vertically integrate the division, a central
kitchen was commissioned to supply selected food items to both food brands.
Still in its start-up stage, it is anticipated this will only be a material
contributor in the following year, but nevertheless presents substantial
opportunity to unlock value within the franchise system.
JEWELLERY
NWJ is the fourth-largest jewellery chain in South Africa by units, with 79
outlets located nationally. As the only vertically integrated franchise
jewellery chain in South Africa, 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 NW J 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 they offer their franchisees operational and marketing
support, project management, new site growth and development, and national
brand-building strategies in return for a royalty. The distribution division
distributes all of the goods sold through the NWJ outlets. Of these goods
sold, approximately 45% is manufactured by the manufacturing facility in
Durban, 30% is imported and the remaining 25% sourced locally. This model
provides in-house innovation capacity, fast routes to market, and reduces 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 be either re-worked with negligible yield loss or transferred to another
location where there is known demand for the item.
The division`s main challenges during the period related to:
- growing the brand in the Western Cape region, which consists mostly of
corporate stores;
- anticipating changes in consumer demand as they bought down;
- matching strong sales growth in prior years within the retail division.
Despite an exceptionally tough trading period, the NWJ brand added five new
stores during the year, with two closures. (Both were company owned and the
leases were not renewed due to a changing demographic in the trade area).
System-wide sales (including all 12 months of NWJ sales in the comparative
period) increased 2.7% to R233 million (2009: R227 million). Although
system-wide sales excluding new stores declined 1.5% for the full year, the
second half-year showed positive same-store growth of 1.3%, compared with a
decline of 3.6% at half-year. The year has proved challenging as consumers
bought down from gold into silver jewellery, therefore reducing the average
spend per transaction. The achieved growth was therefore the result of real
customer gains, which was reflected in transactional increases. Consumer
spending in this category has however been unpredictable and we anticipate this
to continue during 2010. NWJ commenced with the repositioning of the brand in
the second half of the year and revamped four outlets and opened five new
outlets. A total of five new outlets is planned for the year, three of which
have opened subsequent to year-end.
During the year the NWJ brand won, for the fifth time, the Daily News Readers`
Choice "Best place to buy Jewellery" award, and was a finalist in the FASA
Franchisor of the Year award in 2009 and Brand Builder of the Year in 2010. Its
strong focus on brand building was reflected in an increase in advertising
spend of 24% over the previous year against a reduction in advertising spend in
the category, positioning the brand strongly when consumer spending improves.
Revenue in the segment increased 60% to R156 million (2009: R97 million). The
2009 period included only seven months of NWJ results. Operating profit
increased 31% to R21.9 million (2009: R16.7 million). Gross profit margin
remained unchanged from the first half of the year in this division and
operating costs as a percentage of revenue declined marginally from 29% to 28%,
a pleasing result given the high proportion of occupancy costs within this
division. The decline in operating profit margin to 14% (2009: 17%) should be
seen against the fact that the 2010 period includes 12 months of NWJ, and
therefore includes the low-margin months at the beginning of the year, whereas
the comparable seven-month period excludes these months. By way of comparison
the operating profit margin for the first half of the year was 11%.
During the year the jewellery division entered into an agreement with Makro to
pilot a concept jewellery brand - Davidowns. The brand and outlet is owned by
the Taste jewellery division and, although focusing on premium higher-ticket
items, is able to offer them at substantial savings to consumers.
This is possible due to the lower overheads associated with retailing through
Makro and the elimination of a `middle man` due to the division having its own
manufacturing facility. If the pilot proves successful it will be rolled out to
selected Makro outlets. The division has also actively engaged with retailers
to explore potential concession opportunities.
FINANCIAL RESULTS
Group revenue for the period increased 46% to R199.6 million (2009: R136.3
million), while EBITDA increased 11% to R32.4 million (2009: R29.0 million).
Despite the increase of R2.0 million in non-cash amortisation and depreciation
over the previous year, group operating profit increased 5% to R26.9 million
(2009: R25.6 million).
Gross profit increased 28% to R105.9 million (2009: R83.0 million) while the
gross profit margin declined from 61% in 2009 to 53% in the 2010 period. This
decline was expected and is due to:
- the inclusion of 12 months of NWJ results versus seven months for the
comparable period. This margin decline is expected as the lower overall margin
of the jewellery segment, compared to the food segment, is consolidated. The
lower margin is due to the jewellery segment being vertically integrated -
owning retail outlets and manufacturing, whereas the food segment`s
manufacturing division was only commissioned at the end of the period under
review and its results are therefore not material; and
- the inclusion of the results for eight company-owned food outlets in the
current year versus two in the 2009 period. As retail outlets trade at lower
gross profit margins than the franchising division, this reduces the overall
gross profit percentage. It is not the strategy of the food segment to own
corporate stores but, in certain circumstances, it does buy viable stores from
franchisees with the aim of selling them at a later date. Subsequent to
year-end two of these outlets have been sold and no further outlets have been
acquired.
Operating costs, excluding amortisation and depreciation, increased 35% to
R74.2 million (2009: R54.9 million) mainly due to the inclusion of NWJ for an
extra five months over the 2009 period. Through a tight focus on costs
operating costs as a percentage of revenue declined from 43% for the 2009
period to 40% for the 2010 period.
As a result of the changes in the gross profit margins outlined above, the
EBITDA margin for the full year decreased from 21.3% in the comparable period
to 16.2%. The increase in EBITDA margin from half year (13.6%) to full year
(16.2%) is largely due to the seasonal nature of the NWJ business, where
historically the majority of the revenue is generated in the second half-year.
This trend is expected to continue in the coming year.
The increase of R2.0 million in amortisation and depreciation over the 2009
period is due to:
- the amortisation of the intangible asset raised on the acquisition of NWJ of
R0.7 million more for the 2010 period than the 2009 period;
- an increase of R0.3 million in deferred lease charges relating to the
acquisition and conversion of BJ`s sites to Maxi`s outlets; and
- the inclusion of seven months of NWJ depreciation in the 2009 period,
compared with 12 months in the 2009 period, being R1 million.
Group operating profit increased 5% to R26.9 million (2009: R25.6 million). The
decline in operating profit margin to 13.5% from 18.8% was expected due to the
inclusion of the NWJ results for the full reporting period versus seven months
in the comparable period.
Profit before tax, after adding back the non-cash, negative goodwill raised on
the acquisition of NWJ increased 3% to R21.1 million (2009: R20.5 million).
The profit before tax for the period includes:
- an increase in finance costs of R1.0 million over the comparable period; and
- a decrease in interest income of R1.4 million over the 2009 period due to the
decrease in cash-on-hand as a result of paying for the NWJ acquisition on 1
August 2008.
Headline earnings increased 3% to R15.9 million (2009: R15.4 million). Headline
earnings per share ("HEPS") decreased 8.6% for the period to 9.3 cents (2009:
10.2 cents). The difference in headline earnings and HEPS relates to the
increase in the weighted average number of shares in issue from 151 million
for the 2009 period, to 170 million in the 2010 period as a result of the
share issue to NWJ vendors in August 2008.
The group continued to generate strong cash flows from core operations,
increasing 43% to R34.4 million. These cash flows were mainly impacted by:
- loan repayments of R15.5 million in respect of the loan to acquire NW J and
R3.6 million to the vendors of NWJ in respect of meeting certain stock
warranties; and
- net capital expenditure of R7.1 million.
Net borrowings decreased by 20%, with gearing improving from 70% in 2009 to 45%
in the 2010 year. Interest cover remained at 5.7 times. Net working capital
improved marginally, while inventory at NWJ reduced 17% over the previous
year. It is the nature of the franchising business model that trade receivables
and payables may fluctuate significantly from prior years depending on the
timing of new store openings and advertising spend.
BASIS OF PREPARATION OF THE REVIEWED RESULTS
Statement of compliance
The provisional 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, the AC500 standards, as issued by the Accounting Practices Board or
its successor, the JSE Listings Requirements and the South African Companies
Act.
The accounting policies applied in the preparation of the condensed financial
statements have been prepared in accordance with accounting policies of the
company that comply with IFRS and are consistent with the prior comparative
year except for statements, amendments and interpretations that came into
effect this year, and which have had no impact on the group.
AUDITORS` REPORT
BDO South Africa Inc., the group`s independent auditor, has reviewed the
provisional 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.
PROSPECTS
There is no doubt consumers have spent more freely in the last six months, but
this has not happened to the extent that many expected. Consequently, the brand
strategies and short-term tactics assume a slow recovery in disposable income,
and a consumer mindset that is more value-conscious than ever before.
The Food division will continue to expand its brands, capitalising on the
recent sales growth being experienced in Scooters Pizza particularly, as well
as driving new store growth through alliance partners and revamped outlets. The
vertical integration of the food supply chain has commenced and the central
kitchen will this year focus on creating a solid foundation for growth in the
future.
While discretionary consumer spend continues to be unpredictable in the
Jewellery segment, the increased marketing, share-of-voice and store growth in
the last year should position the brand well to have gained market share from
competitors. The pilot store within Makro could prove a material future revenue
stream, but unlikely during the current 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 through organic growth opportunities such as
Davidowns; the concession opportunities in the jewellery division; and cost
containment through extracting synergies between the brands, particularly the
head office support costs of the franchise divisions.
DIVIDEND POLICY
In line with the group`s prevailing policy, no dividend was declared for the
2010 period. It is, however, Taste`s intention to pay dividends in the medium
term, and the existing policy will be reconsidered during the year in light of
market conditions and the anticipated cash requirements of the business.
On behalf of the board
C F Gonzaga E Tsatsarolakis
Chief Executive Officer Financial Director
11 May 2010
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, L Gonzaga, H Rabinowitz,
E Tsatsarolakis (FD)
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: E Tsatsarolakis
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: 11/05/2010 08:30:01 Produced by the JSE SENS Department.
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