| Thu 14 Oct 2010, 9:48 | | TAS - Taste Holdings Limited - Unaudited condensed financial results for the six |
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TAS
TAS
TAS - Taste Holdings Limited - Unaudited condensed financial results for the six
months ended 31 August 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")
Unaudited condensed financial results
for the six months ended 31 August 2010
Salient results
Revenue up 8% to R92,5 million
EBITDA down 11% to R10,4 million
Operating profit down 18% to R7,4 million
Earnings per share down 12,5% to 2,1 cents
Headline earnings per share unchanged at 2,1 cents
Net tangible asset value per share up 89% to 24,4 cents
Group system-wide sales up 3% to R328 million
Condensed consolidated statement of comprehensive income
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 92 546 85 827 199 607
Gross profit 1 51 762 46 768 105 862
Other income 358 873 720
Operating costs 2 (44 696) (38 609) (79 655)
Operating profit 3 7 424 9 032 26 927
Negative goodwill - - 100
Fair value adjustment
on derivative 4 (195) (260) (263)
Interest income 358 326 699
Finance costs 5 (2 609) (3 564) (6 186)
Profit before taxation 4 978 5 534 21 277
Taxation (1 360) (1 533) (5 303)
Profit for the year 3 618 4 001 15 974
Other comprehensive
income - - -
Total comprehensive
income for the period 3 618 4 001 15 974
Attributable to:
Equity holders of the
parent 3 618 4 001 15 974
Minority interests - - -
Reconciliation of
headline earnings:
Earnings attributable
to ordinary
shareholders adjusted
for: 3 618 4 001 15 974
Impairment losses - - 64
Negative goodwill
arising on acquisition - - (100)
Profit on sale of
property, plant and
equipment (58) (466) (64)
Headline earnings
attributable to
ordinary shareholders 3 560 3 535 15 874
Shares in issue at
period end (`000) 170 161 170 161 170 161
Fully diluted shares
in issue (`000) 6 180 715 170 161 170 161
Earnings per share
(cents) 2,1 2,4 9,4
Fully diluted earnings
per share (cents) 6
2,0 2,4 9,4
Fully diluted headline
earnings per share
(cents) 6 2,0 2,1 9,3
Headline earnings per
share (cents) 2,1 2,1 9,3
Condensed consolidated statement of financial position
31 August 31 August 28 February
2010 2009 2010
Unaudited Unaudited Audited
R`000 R`000 R`000
ASSETS
Non-current assets 92 871 92 096 93 706
Property, plant and equipment 10 552 6 865 11 649
Intangible assets 62 921 67 102 64 366
Goodwill 16 321 16 321 16 321
Other financial assets 7 1 725 - -
Deferred tax 1 352 1 808 1 370
Non-current assets held for
sale 4 941 2 429 5 324
Current assets 94 581 89 152 89 676
Inventories 8 62 955 51 846 55 096
Trade and other receivables 23 594 18 596 19 585
Taxation 4 257 3 605 4 191
Advertising levies 1 970 3 610 3 524
Other financial assets 1 270 2 073 202
Cash and cash equivalents 535 9 422 7 078
Total assets 192 393 183 677 188 706
EQUITY AND LIABILITIES
Capital and reserves 104 053 88 329 100 302
Issued capital 2 2 2
Distributable reserve 60 777 45 186 57 159
Share premium 43 141 43 141 43 141
Share option reserve 9 133 - -
Non-current liabilities 44 732 55 347 47 969
Borrowings 27 669 37 233 30 509
Long-term employee benefits 429 378 606
Deferred tax 16 634 17 072 16 854
Derivative at fair value - 664 -
Current liabilities 43 608 40 001 40 435
Provisions 250 973 70
Current tax payable 1 123 170 120
Trade and other payables 22 705 19 888 19 426
Balances due to vendors 10 1 839 7 000 6 446
Bank overdrafts 7 117 1 315 1 502
Derivative at fair value 783 1 180 1 322
Current portion of borrowings 9 791 9 475 11 549
Total equity and liabilities 192 393 183 677 188 706
Number of shares in issue
(`000) 170 161 170 161 170 161
Net asset value per share
(cents) 61,1 51,9 58,9
Net tangible asset value per
share (cents) 11 24,4 12,9 21,4
Condensed group statement of changes in equity
Share Share Total share
capital premium capital
R`000 R`000 R`000
Balance 1 September 2009 2 43 141 43 143
Profit for the period - - -
Balance 1 March 2010 2 43 141 43 143
Share option reserve 9 - - -
Profit for the period - - -
Balance 31 August 2010 2 43 141 43 143
Share option Retained
reserve income Total
R`000 R`000 R`000
Balance 1 September 2009 - 45 186 88 329
Profit for the period - 11 973 11 973
Balance 1 March 2010 - 57 159 100 302
Share option reserve 9 133 - 133
Profit for the period - 3 618 3 618
Balance 31 August 2010 133 60 777 104 053
Condensed consolidated statement of cash flows
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash flow from operating
activities 378 12 351 21 684
Cash generated by operating
activities 12 3 449 18 657 34 429
Interest income 358 326 699
Finance costs 5 (2 804) (3 824) (6 449)
Taxation paid (625) (2 808) (6 995)
Cash flows from investing
activities (2 615) (770) (7 136)
Acquisition of property, plant
and equipment (716) (1 195) (6 384)
Acquisition of non-current assets
held for sale (14) (1 823) (4 727)
Proceeds of disposals of
property, plant and equipment 499 689 710
Proceeds on disposal of non-
current assets held for sale 409 1 145 1 182
Loans (advanced)/repaid 7 (2 793) 872 2 655
Acquisition of goodwill - (219) (219)
Acquisition of intangible assets - (239) (353)
Cash flows from financing
activities (9 921) (7 227) (12 725)
Decrease in long-term employee
benefits (177) (280) (52)
Loans repaid 13 (5 137) (3 947) (9 119)
Loans repaid to vendors 14 (4 607) (3 000) (3 554)
Change in cash and cash
equivalents (12 158) 4 354 1 823
Cash and cash equivalents at
beginning of period 5 576 3 753 3 753
Cash and cash equivalents at end
of period 12 (6 582) 8 107 5 576
Condensed consolidated segmental report
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
Unaudited Unaudited Audited
R`000 R`000 R`000
Segment revenue
Food 15 25 782 19 894 44 339
Franchise 16 506 15 894 33 281
Manufacturing 2 090 - -
Retail 16 7 186 4 000 11 058
Jewellery 17 67 217 66 165 155 952
Franchise and wholesale 43 306 43 607 103 159
Retail 23 204 22 558 52 793
Concession retail 707 - -
Eliminations 18 (453) (232) (684)
Group revenue 92 546 85 827 199 607
Segment operating profit
Food 6 144 7 684 16 111
Franchise 19 7 272 8 051 17 038
Manufacturing 20 (444) - -
Retail 16 (684) (367) (927)
Jewellery 6 414 7 089 21 867
Franchise and wholesale 4 972 3 733 13 376
21
Retail 22 1 836 3 356 8 491
Concession retail (394) - -
Corporate services 23 (5 134) (5 741) (11 051)
Group operating profit 7 424 9 032 26 927
Segment assets
Food 26 394 21 930 23 248
Franchise 18 519 19 230 17 686
Manufacturing 2 098 - -
Retail 5 777 2 700 5 562
Jewellery 89 068 77 344 83 796
Franchise and wholesale 49 687 49 168 47 910
Retail 35 461 28 176 35 886
Concession retail 3 920 - -
Corporate services 76 931 84 403 81 662
Total group assets 192 393 183 677 188 706
Notes to the financial information
1. The gross profit increase of 11% is due to the increase in revenue as well
as an increase in the gross profit margin from 54% to 56% in the 2010 period
mainly due to an increased gross profit margin in the jewellery franchise and
wholesale segment as a result of the change in merchandise mix from gold to
silver as consumers traded down. Gross profit in the food division remained
largely unchanged.
2. Included in operating costs are non-comparable costs as outlined below:
* R0,7 million relating to start-up costs incurred in the concession business
in the jewellery segment;
* R1,0 million relating to costs incurred by the food manufacturing facility,
not incurred in the prior period;
* R2,7 million of costs relating to owning more corporate stores than in the
comparable period;
* R0,3 million relating to increased depreciation as a result of owning more
corporate stores and the establishment of the food manufacturing facility.
Group operating costs excluding these non-comparable and once-off costs
increased 3,6% to R39,9 million. (2009: R38,6 million).
3. Excluding the revenue and operating costs of both the aforementioned
concession business and food manufacturing facility, operating profit declined
8,5% to R8,3 million (2009: R9,0 million) and operating margin declined from
10,5% to 9,2% in the 2010 period.
4. 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") 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 and any fair valued adjustment thereon was charged to the income
statement in 2008. The marginal increase in the current period is as a result
of the recent reduction in the interest rates.
5. As the interest rate is fixed as per note 4 above the decrease in finance
costs is due to a reduction on the loan amount, rather than the recent
reduction in interest rates.
6. Fully diluted shares in issue include 10 554 000 shares that may be
issued and vest between 27 May 2010 and 27 May 2018 in terms of the share
options granted to selected individuals, as announced on 27 May 2010. Vesting
of tranche 1 will be triggered by the first achievement, tranche 2 by the
second achievement and tranche 3 by the third achievement by Taste of a 25%
increase in headline earnings per share in any three financial years from
2011 to 2015. Once vesting of a tranche has been triggered, a third of the
options within the tranche will vest one year after vesting was triggered, a
third two years after vesting was triggered and a third three years after
vesting was triggered. The options must be exercised within five years of
vesting having been triggered and any unvested shares will be forfeited if
the employee is no longer employed by Taste.
7. Other financial assets consist of a loan to the Scooters Pizza marketing
fund by Taste, repayable in monthly instalments with the last instalment payable
on 28 February 2012.
8. The increase in group inventory from 31 August 2009 is due mainly to
inventory increases in the jewellery division as follows:
* R4,0 million used in starting the concession business opportunity;
* R1,6 million located in one additional company store than at the end of
the comparable period;
* R4,2 million of inventory is due to earlier production of Christmas stock
versus the comparable period combined with earlier purchases to take advantage
of the favorable exchange rate.
9. This is the IFRS 2 charge relating to the share incentive scheme detailed
in note 6 above.
10. The amount due to vendors represents the final amount to be paid in terms
of the stock warranty for slow-moving stock given by the NWJ vendors on the
acquisition of NWJ by Taste.
11. Net tangible asset value is calculated by excluding goodwill, intangible
assets, and the deferred taxation liability relating to intangible assets from
net asset value.
12. Inventory changes were the largest contributor to the difference between
the 2009 and 2010 periods and relate to increased inventory of R9,8 million in
the 2010 year as per note 8. The increase in inventory should be viewed in the
light of a decrease in inventory of R6,8 million in the 2009 year as inventories
were optimised with the introduction of the integrated stock management system
at NWJ. Debtor and creditor balance changes were immaterial from period to
period.
13. These payments are in respect of the RMB loan pursuant to the acquisition
of NWJ.
14. This amount consists of a cash payment to the vendors in March 2010
of R2,6 million, the balance being slow-moving stock returned to the vendors
in terms of the stock warranty agreement.
15. The food division consists of the core franchising division into which
new store and annuity income is generated; a retail division in which
corporate-owned stores are accounted for; and a newly formed manufacturing
division which manufactures food products for the food division. The
ownership of corporate-owned stores is not a core strategy in this division.
16. The increase in revenue and losses in the retail division is due to the
division owning more corporate stores than in the comparable period. As it
is not a core strategy the division holds these stores for sale. The food
division had up to nine corporate stores during the 2010 period. As at 1
September 2010 the group had three corporate-owned stores, having closed
one and sold the remainder.
17. The jewellery division consists of two core divisions: 21 c
orporate-owned stores ("Retail"); and franchise and wholesale. The latter
division manufactures, sources, and distributes stock to franchisees, as
well as earning new-store and annuity revenue. Concession retail relates to
a newly developed business unit wherein two pilot projects are being conducted
until February 2011.
18. This amount is interdivisional revenues eliminated on consolidation. In
prior years these were not reflected separately.
19. The operating profits, and consequently operating profit margins, are not
comparable to the prior period due to the reallocation of operating costs
previously reflected in corporate services in the 2009 period, directly to
the food division in the current period. This change was due to restructuring
of the group at the beginning of the period to better reflect its divisional
nature. These costs totalled R0,92 million in the food franchising division.
On a comparable basis the financial results are as follows for the core food
franchising division:
* operating profit increased 2% to R8,2 million (2009: R8,0 million), despite
two fewer store openings than in the same period last year.
* operating profit margin declined marginally to 50% (2009: 51%);
* operating costs on a comparable basis increased 7% in the division and
costs as a percentage of revenue increased from 45% to 46%.
20. Operating losses in the manufacturing division were expected in the current
period as the division increased its penetration into the supply chain of
Maxi`s and Scooters Pizza. In August and subsequent months the division
exceeded breakeven and generated operating profits.
21. The substantial increase in operating profit in this division was driven
by an improved gross profit margin and a reduction in operating costs of 1%
from the previous period.
22. The substantial decline in operating profit in the retail division is
largely isolated to two flagship outlets. In one instance the shopping centre
was under construction during the 2010 period, severely altering customer
flow; and in the second instance a competing centre was opened during the
period. Combined, these two outlets accounted for a decline in operating
losses from the prior period of R1,7 million.
23. The decline in corporate services is due to the reallocation of costs as
described in note 19. On a comparable basis these costs increased 6,9% from the
previous period.
Commentary
Group summary
Taste is a South African-based management group invested in a portfolio of
mostly franchised, category specialist retail brands that are represented in
over 270 locations within southern Africa. The group operates two divisions, a
jewellery division under the NWJ brand, and a food division under the Scooters
Pizza and Maxi`s brands. Each division has elements of vertical integration,
each has a majority of outlets owned by franchisees and each division targets
consumers in the broad middle market with strong value propositions.
Group revenue for the 2010 period increased 8% to R92,5 million, while
EBITDA decreased 11,2% to R10,4 million. Headline earnings per share
("HEPS") remained unchanged at 2,1 cents for the period. The decrease in
EBITDA despite the increase in revenue is due mainly to the inclusion of
start-up losses for new concession business in the jewellery division of
R0,4 million and operating losses of R0,4 million in the newly established
food manufacturing facility. With these non-comparable costs excluded EBITDA
declined 4% from the 2009 period.
Subsequent to 31 August 2010, (effective 1 November 2010), the food division
acquired St Elmo`s Woodfired Pizza, a 23-year-old brand, located mainly in
the Western Cape and a pioneer in the South African pizza market. The
acquisition consists of 40 franchise outlets as well as a world-class HACCP-
certified sauce and spice manufacturing facility. Alongside the current food
manufacturing facility this acquisition will be earnings-enhancing in the first
year as the division will have an accelerated sauce production capability and
larger volumes of high-volume core products such as cheese and packaging.
As the brand will be managed within the food division, shared resources will
allow for greater operating leverage and the St Elmo`s brand gives the division
a second growth avenue in the pizza segment. The St Elmo`s brand trades three
distinct formats: a take-away and delivery format, a successful slice-away
format for high foot-traffic sites; and the founding format - sit-down casual
dining restaurants with a focus on children and value-for-money. The synergies
are therefore not only between Scooters Pizza and St Elmo`s but also between
Maxi`s and St Elmo`s due to its sit-down menu and table service heritage.
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 their strong
value-for-money propositions, contemporary store designs, and limited-time
value offerings. Scooters trades in the fast-food segment, while Maxi`s falls
into the casual dining segment catering for breakfast, lunch and early-evening
consumers. Scooters Pizza is the second largest pizza brand by units and
Maxi`s the third largest in its category in South Africa.
During the period the division continued its focus on leveraging its
base through vertical integration initiatives and on acquiring other
synergistic brands. Internally, its focus was on re-imaging stores;
implementing electricity-saving measures; and launching innovative
products through new menu designs. While net new store growth continued
to be below the levels of previous years, both brands showed positive
same-store sales growth for the period. In the case of Scooters Pizza
this is particularly pleasing as the brand had a price decrease in
March 2010, in line with its pricing strategy implemented in 2009.
The division ended the period with 192 outlets
(2009: 188) and plans to add 19 by the end of February 2011.
Despite the modest new-store growth, system-wide sales grew 5% to
R226 million (2009: R216 million).
The food manufacturing facility commissioned at the end of 2009 continued to
increase its volumes as it produced more of the basket of goods for the brands.
Although producing a net operating loss for the period, it has since surpassed
its break-even point and is producing operating profits.
Operating margin and revenue for the franchising segment is expected to increase
as St Elmo`s is integrated into the division. Revenue and operating losses are
expected to decline in the retail segment as five outlets have been sold and one
outlet closed during the period. The manufacturing segment will contribute a
larger portion to revenue as the St Elmo`s sauce facility commences producing
sauces for the entire food group, although this is not expected to be material
in the next four months. The addition of the 19 new stores planned for the
second half of the year will improve the operating margin and increase the
footprint of both brands.
The alliance with the petroleum companies continues and the first combination
Scooters Pizza and Maxi`s outlet will be opened in November 2010. The St Elmo`s
acquisition adds a brand that is close to the division`s core area of competency
and the sauce facility will accelerate the vertical integration objectives of
the division.
Jewellery
NWJ is the fourth-largest jewellery chain in South Africa by units, with 81
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 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 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.
As expected during the year, trading patterns of consumers continued to be
unpredictable. Consumers have maintained the lower spend experienced during late
2009 translating onto challenging trading, especially during the first two
months of the period in the group`s corporate-owned stores. The focus on value
offerings combined with the group`s ability to innovate, has however resulted in
substantial transactional gains over the comparable period of over 20%,
indicative of substantial market share gains.
Three new franchise stores were opened during this period, with one
corporate-owned store closure. A further three stores are planned for the year.
During the period the group commenced the pilot phase of its concession
opportunity within selected retailers. The pilot in Makro has been suspended
while the second pilot continues until February 2011, when it will be evaluated.
The operating losses therefore relate to the Makro losses, and the set-up
costs of the second concession pilot, which is producing operating profits
subsequent to 31 August 2010.
Operating profit in the retail segment was severely affected in March and
April, and in two flagship outlets. Fortunately these trends have not continued.
Operating profit in the franchising and wholesale division benefited from a
strong focus on costs during the year, and higher volumes as a result of the
higher transactions over last year. Same-store sales in corporate outlets
averaged a 7,8% increase on the previous year for the four months from May to
August.
The division was a net consumer of cash during the period due to the stocking of
the concession opportunities which was facilitated through current facilities.
Furthermore, the strengthening rand has presented opportunities to purchase
stock at favourable exchange rates, which combined with earlier production for
Christmas stock, has resulted in an early build-up of inventory, more fully
detailed in note 12. The division is encouraged by the substantial
transactional gains it is experiencing in the NWJ brand and with the recent
positive same-store sales growth. Orders for Christmas stock have been placed
by franchisees and it is envisaged that the inventory level will normalise to
previous levels by year-end.
Basis of preparation of the interim results
Statement of compliance
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, the JSE Listings Requirements and the South African
Companies Act.
The accounting policies and standards applied in the preparation of these
interim results comply with IFRS and are consistent with those applied in the
prior comparative period, except for statements, amendments and interpretations
that came into effect this year which have 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.
Prospects
The directors of Taste believe that consumer spending will continue to be
value-focused and muted in some segments. Despite this, the jewellery division
has experienced unprecedented transactional increases offset somewhat by the
decline in spend per transaction - both strong indicators that consumers are
seeking value and that they are finding it at NWJ. The pilot of the concession
opportunity continues until February 2011 when a decision will be made to
expand it to other locations. The division will have added six new stores by
year-end.The food division has made substantial advances on its vertical
integration strategy, as well as adding a third brand to its portfolio with
the acquisition of St Elmo`s subsequent to the period under review. The sauce
and spice manufacturing facility acquired complements the existing food
processing facility that the division commissioned in 2009, and will accelerate
the production of products for franchisees of the now larger food division.
The St Elmo`s brand will be developed after a period of review and repositioned.
After a slow start to the year in terms of new store development, the division
plans to develop 19 new outlets in the second half of the year, which, added to
the 40 St Elmo`s outlets, will see the division exceed 250 outlets by February
2011, setting a strong base for the vertical integration strategy and future
acquisitive growth.
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 the group`s prevailing policy, no dividend was declared for the
2010 period. It is Taste`s medium-term intention to pay dividends, and the
existing policy will be reconsidered during 2011 in light of market conditions
and the anticipated cash requirements of the business.
On behalf of the board,
CF Gonzaga E Tsatsarolakis
Chief Executive Officer Financial Director
14 October 2010
Corporate information
Non-executive directors: RL Daly (Chairperson), K Utian, JB Currie, A Berman
Executive directors: CF Gonzaga (CEO), E Tsatsarolakis (Financial Director), DJ
Crosson, L Gonzaga, H Rabinowitz 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: 14/10/2010 09:48:01 Produced by the JSE SENS Department.
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