Wrap Text
Unaudited condensed consolidated results for the six months ended 31 August 2013
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 consolidated results for the six months ended
31 August 2013
Highlights
Revenue increased 24% to R263.5 million
EBITDA increased 13% to R22.9 million
Operating profit increased 11% to R17.8 million
System-wide sales increased 12% to R716 million
Headline earnings increased 26% to R11.1 million
Headline earnings per share increased 27% to 5.7 cents
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
% 2013 2012 2013
change R'000 R'000 R'000
Revenue(2) 24% 263 500 212 921 506 431
Cost of sales (160 328) (127 208) (311 367)
Gross profit(3) 20% 103 172 85 713 195 064
Other income 189 529 496
Operating costs(4) 22% (85 537) (70 164) (152 668)
Operating profit(5) 11% 17 824 16 078 42 892
Investment revenue 1 119 1 114 1 956
Finance costs (3 248) (3 752) (7 162)
Profit before taxation 17% 15 695 13 440 37 686
Taxation(6) (4 432) (4 412) (12 911)
Profit for the period 25% 11 263 9 028 24 775
Other comprehensive income - - -
Total comprehensive income
for the period 25% 11 263 9 028 24 775
Attributable to:
Equity holders of the company 25% 11 263 9 028 24 775
Earnings per share
attributable to equity holders
of the company Basic earnings
per share (cents) 23% 5.8 4.7 12.8
Diluted earnings per share
(cents) 27% 5.6 4.4 12.3
Dividends declared per share
(cents) - - 5.1
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31 August 31 August 28 February
2013 2012 2013
R'000 R'000 R'000
Assets
Non-current assets 185 923 174 518 177 744
Property, plant and equipment(7) 24 439 16 420 17 063
Intangible assets 81 131 86 366 83 508
Goodwill*(8) 72 235 68 669 69 934
Other financial assets(9) 6 941 2 308 5 885
Deferred tax 1 177 755 1 354
Non-current assets held for sale(10) 675 1 258 675
Current assets 223 880 185 833 191 248
Inventories(11) 102 801 91 027 94 029
Trade and other receivables(12) 83 852 71 880 67 541
Current tax receivables 8 959 6 408 2 978
Advertising levies 3 660 3 927 1 939
Other financial assets(9) 11 079 5 222 4 430
Cash and cash equivalents 13 529 7 369 20 331
Total assets 410 478 361 609 369 667
Equity and liabilities
Equity attributable to holders of the
parent 190 824 173 469 189 246
Share capital 2 2 2
Retained earnings 109 507 92 424 108 171
Share premium 80 343 80 101 80 101
Equity-settled share-based payment
reserve 972 942 972
Non-current liabilities 72 929 70 941 66 763
Borrowings(13) 51 711 49 316 45 046
Long-term employee benefits - 126 126
Deferred tax 21 218 21 499 21 591
Current liabilities 146 725 117 199 113 658
Provisions 250 250 250
Current tax payable 4 612 4 215 3
Trade and other payables*(12) 111 584 84 842 88 510
Balance due to vendors 1 000 1 000 1 000
Bank overdrafts 15 858 15 699 13 163
Dividends payable 67 41 38
Borrowings(13) 13 354 11 152 10 694
Total equity and liabilities 410 478 361 609 369 667
Number of shares in issue ('000) 194 724 194 161 194 161
Net asset value per share (cents) 98.0 89.3 97.5
Net tangible asset value per share
(cents) (14) 30.3 22.6 29.7
* Prior year balances have changed due to the finalisation of the
provisional purchase price allocation for the acquisition of The Fish &
Chip Co. in 2012. There has been no effect on income as a result of these
changes.
Condensed consolidated statement of changes in equity
Share Share Total share
capital premium capital
R000 R000 R000
Balance 1 September 2012 2 80 101 80 103
Share-based payment - - -
Dividends paid - - -
Comprehensive income for the period - - -
Balance 1 March 2013 2 80 101 80 103
Share issue - 242 242
Dividends paid - - -
Comprehensive income for the period - - -
Balance 31 August 2013 2 80 343 80 345
Equity-
settled
share-
based
payment Retained
reserve earnings Total
R000 R000 R000
Balance 1 September 2012 942 92 424 173 469
Share-based payment 30 - 30
Dividends paid - - -
Comprehensive income for the period - 15 747 15 747
Balance 1 March 2013 972 108 171 189 246
Share issue - - 242
Dividends paid - (9 927) (9 927)
Comprehensive income for the period - 11 263 11 263
Balance 31 August 2013 972 109 507 190 824
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2013 2012 2013
R'000 R'000 R'000
Cash flows from operating activities 3 691 (20 055) 7 524
Cash generated by/(utilised in)
operating activities 21 718 (3 779) 36 118
Investment revenue 1 119 1 114 1 956
Finance costs (3 248) (3 752) (7 162)
Dividends paid (9 898) (7 742) (7 745)
Taxation paid (6 000) (5 896) (15 643)
Cash flows from investing activities (22 629) (8 554) (15 907)
Acquisition of property, plant and
equipment(7) (9 194) (6 446) (8 600)
Proceeds of disposals of property,
plant and equipment 141 351 322
Acquisition of business(15) (5 871) - (2 133)
Net loans advanced (7 705) (806) (3 657)
Acquisition of intangible assets - (1 653) (1 839)
Cash flows from financing activities 9 441 (5 259) (9 987)
Decrease in long-term employee
benefits (126) (126) (126)
Proceeds from issue of shares 242 - -
Net loans raised/(repaid) 9 325 (5 133) (9 861)
Change in cash and cash equivalents (9 497) (33 868) (18 370)
Cash and cash equivalents at
beginning of the period 7 168 25 538 25 538
Cash and cash equivalents at end of
the period (2 329) (8 330) 7 168
Condensed consolidated segmental report
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
% 2013 2012 2013
change R'000 R'000 R'000
Segment revenue
Food(16) 29% 175 827 136 596 315 329
Franchise(17) 62 294 63 556 131 388
Food services 113 533 72 780 183 681
Retail - 260 260
Jewellery(18)(19) 16% 92 325 79 742 198 665
Franchise and wholesale 50 282 50 466 121 484
Retail 42 043 29 276 77 181
Corporate Services 8 121 5 935 12 360
Inter-segment revenues (20) (12 773) (9 352) (19 923)
Group revenue 24% 263 500 212 921 506 431
Segment operating profit
Food 10% 18 146 16 534 30 944
Franchise (17) 14 891 12 822 30 735
Food services (21) 3 267 3 995 893
Retail (12) (283) (684)
Jewellery (22) 24% 8 724 7 033 28 655
Franchise and wholesale 652 2 027 10 404
Retail 8 072 5 006 18 251
Corporate services (23) 21% (9 046) (7 489) (16 707)
Group operating profit 11% 17 824 16 078 42 892
Segment profit before taxation
Food 12% 16 703 14 926 27 767
Franchise 14 788 12 244 29 752
Food services 1 980 3 014 (1 301)
Retail (65) (332) (684)
Jewellery 30% 7 753 5 962 26 226
Franchise and wholesale (319) 956 7 975
Retail 8 072 5 006 18 251
Corporate services 18% (8 761) (7 448) (16 307)
Group profit before taxation 17% 15 695 13 440 37 686
Notes to the financial information
1. Reconciliation of headline earnings
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
% 2013 2012 2013
change R'000 R'000 R'000
Earnings attributable to
ordinary shareholders
adjusted for: 25% 11 263 9 028 24 775
Impairment losses - - 1 226
Profit on sale of property,
plant and equipment and non-
current assets available for
sale (141) (295) (120)
Tax effect on headline
earnings adjustments 21 83 18
Headline earnings attributable
to ordinary shareholders 26% 11 143 8 816 25 899
Weighted average shares in
issue ('000) 194 279 194 161 194 161
Diluted weighted average
shares in issue ('000) 202 028 205 245 201 911
Basic earnings per share
(cents) 23% 5.8 4.7 12.8
Diluted earnings per share
(cents) 27% 5.6 4.4 12.3
Headline earnings per share
(cents) 27% 5.7 4.5 13.3
Diluted headline earnings per
share (cents) 28% 5.5 4.3 12.8
2. Both the food and jewellery segments contributed positively to the 24%
increase in group revenue from 31 August 2012 (the prior period or
2012). The jewellery segment increase was driven by outstanding same-
store sales growth in excess of 12%; while the food segment increase was
driven by the larger contribution of the food services division.
Prior period revenue has been adjusted to include marketing contributions
(R18.8 million) as well as development revenue (R17.8 million). Marketing
contributions were previously accounted for as a reimbursement of
expenditure included in operating costs. Development revenue was
previously shown net of contributions from franchisees. Both these
adjustments which have been made in terms of IFRS, are included in the
2013 Integrated Annual Report, and have no effect on 2012 earnings but
have resulted in comparatively lower group margins.
3. The gross profit increase of 20% is lower than the revenue increase due
to an expected decline in the gross profit margin as the contribution from
the food services division increases. Despite this expected decline when
compared to the prior period, the gross profit margin has increased since
28 February 2013 as efficiencies continue to improve in the food services
division.
4. The increase in operating costs is due to a combination of:
owning/operating eight additional corporate jewellery outlets during the
six months ended 31 August 2013 (the current period) when compared to
the prior period; and
costs associated with the food distribution business which was established
during August 2012.
A more effective measure of cost control is costs reflected as a
percentage of revenue. When compared to the prior period this improved by
0.5 percentage points to 32.5%.
5. Included in operating costs is additional depreciation of approximately
R0.7 million related to capital expenditure incurred in the second half of
the 2013 financial year to acquire NWJ outlets and to establish the food
distribution business. Excluding this additional depreciation, operating
profit would have increased by 15.2%. The expected decline in operating
margin from the prior period is due to the larger contribution of the food
services division which operates at lower margins when compared to the
rest of the group. Additionally, the group historically generates
substantially larger revenues and profits in the second half of the year
lifting operating profit margin from the current period.
6. The prior period taxation charge included secondary tax on companies
(STC) of R0.8 million.
7. The vast majority of the increase in property, plant and equipment is
due to:
capital expenditure incurred in re-locating the sauce and spice
manufacturing facility from Cape Town to Gauteng, thereby centralising
manufacturing into one facility and providing savings on transportation
and other efficiencies;
re-locating the Cape Town distribution depot to a new facility with
increased capacity; and
the purchase of two vehicles used in the food distribution business. This
capital expenditure was funded from external funding, in line with the
groups stated intention.
8. Goodwill increased over the prior period as a result of the jewellery
division acquiring additional corporate jewellery outlets since 31 August
2012.
9. Other financial assets consist of:
loans made to marketing funds of brands within the group. These loans
attract interest, and are repayable in monthly installments; and
extended payment terms and/or financing provided to certain franchisees.
10. The decline in non-current assets held for sale is as a result of the
impairment of one company-owned food outlet.
11. The increase of R11.8 million in inventories is due to:
an increase in NWJ inventories of R14.4 million, R7.2 million of which
relates to owning/operating eight more corporate stores than in the prior
period; and
a reduction of R2.6 million in inventory in the food services division, as
inventory efficiencies continue to improve.
12. The increase in both trade and other receivables and payables is
mainly as a result of the growth of both the food services and jewellery
divisions.
13. The increase in borrowings from 28 February 2013 is as a result of
external funding obtained for the capital expenditure and acquisitions as
detailed in notes 7 and 15 respectively.
14. Net tangible asset value per share is calculated by excluding
goodwill, intangible assets, and the deferred taxation liability relating
to intangible assets, from net asset value.
15. Between April 2013 and July 2013, the jewellery division acquired the
assets of four franchised NWJ stores as these stores were located in key
strategic sites. The acquisition consisted of inventory and property,
plant and equipment.
The fair value of the assets and liabilities acquired is set out below:
R'000
Property, plant and equipment 901
Inventory 2 669
Fair value of assets acquired 3 570
Consideration paid (5 871)
In cash (3 897)
Balance owed by vendors (1 974)
Goodwill acquired 2 301
The purchase consideration was discharged in cash. During the period that
these four stores were owned/operated by the jewellery division, they
contributed R2.4 million to revenue and R0.4 million to operating profit.
The revenue and operating profit as if these stores were owned for the
full year cannot be disclosed, as complete and compliant financial records
of these stores prior to the dates that the jewellery division acquired
control of these stores could not be obtained. None of the goodwill
recognised is expected to be deductible for income tax purposes.
16. The food segment consists of the core franchising division from which
new-store and annuity income is generated; a retail division in which
corporate-owned stores are accounted for; and a food services division
which manufactures and distributes food products for the food division.
The revenue increase is attributable to the food distribution business
which revenue is not comparable to the prior period as this business was
established in August 2012.
17. Despite revenue in the food franchise division being marginally lower
when compared to the prior period, operating profit increased 16% and
operating profit margin improved from 20% to 24%.
18. The jewellery segment consists of two core divisions: 29 corporate-
owned/operated stores (retail); and franchise and wholesale. The
latter division manufactures, sources, and distributes stock to
franchisees as well as corporate stores, and earns new-store and annuity
royalty revenue. At the end of the current period the retail division
owned/operated eight more corporate stores than at the end of the prior
period. As these stores are accounted for under the retail division (and
no longer under the franchise and warehouse division), the revenue and
operating profit should be compared at the jewellery segment level.
19. Despite the total number of stores having declined from 79 at
31 August 2012 to 74 at the end of the current period, revenue increased as a
result of system-wide sales increase of 11%, driven by a same-store sales
increase of 12.4% for the current period.
20. This refers to interdivisional revenues in the food and corporate
services segments that are eliminated on consolidation.
21. The operating profit and operating profit margin in the food services
division is not comparable to the prior period due to the significant
change in the business activity of the division as a result of
establishing the food distribution business in the latter half of the 2013
financial year. The significant improvement in operating profit from
28 February 2013 is as a result of the continued improvement in efficiencies
and substantially less once-off costs associated with the distribution
business. These efficiencies continue to improve as the business
establishes itself.
22. The increase in operating profit in the jewellery segment as a whole
is due to the sustained same-store sales increases and owning/operating
eight more corporate stores than during the prior period. Historically,
the jewellery segment has produced between 70% and 75% of its full-year
operating profit in the second half of the financial year.
23. The change in corporate services from the prior period is due to
additional legal fees and costs related to personnel.
Commentary
Group overview
The board of directors (the board) of Taste have pleasure in presenting
the unaudited condensed consolidated financial results for the six months
ended 31 August 2013 (the current period). Taste is a South African-
based management group, invested in a portfolio of mostly franchised,
category specialist, restaurant and retail brands, currently represented
in more than 600 locations throughout Southern Africa.
When compared to the six months ended 31 August 2012 (the prior period
or 2012) the group:
continued to grow its store footprint;
increased the number of NWJ corporate-owned/operated outlets; and
made substantial strides against its vertical integration strategy of its
food segment through the establishment of two food distribution depots in
August 2012; centralised food manufacturing in Gauteng in August 2013; and
commenced the relocation to an increased capacity food distribution depot
in Cape Town.
The fruits of these initiatives are reflected in the group system-wide
sales increase of 12% to R716 million (2012: R641 million) which
translated into the revenue increase of 24% to R264 million (2012: R212
million) and a consequent rise in headline earnings per share of 27% to
5.7 cents (2012: 4.5 cents). The jewellery segment continued its stellar
performance, and while profit was boosted by the addition of eight new
corporate-owned/operated outlets, same store sales jumped 12.4% from the
prior period, reflective of the strong value proposition of the NWJ brand.
Of particular significance in these results is the relatively short period
of time it has taken for the newly established food distribution business
to reverse its start-up losses and become profitable. Completing the all-
round strong performance was an increase in operating profit in the food
franchise division of 16%, driven by an increase in system-wide sales of
11.8% to R597 million (2012: R534 million).
Segmental overview
Food
The food segment consists of the Maxis, Scooters Pizza, St Elmos
Woodfired Pizza and The Fish & Chip Co. brands, as well as Buon Gusto food
services. The latter manufactures sauces, spices, dough premixes and added
value meat products for the groups food brands and distributes the
majority of products used by its food brands. All four consumer brands are
underpinned by strong value-for-money propositions within their target
consumer market, which are appropriately diversified across the income
ranges, catering for the lower as well as upper LSMs (Living Standards
Measures).
System-wide sales in this division increased 11.8% to R597 million (2012:
R534 million), due, in the main, to new store developments, as same-store
sales were flat for the period. In an industry first Taste signed a
tripartite funding arrangement with Nedbank and Brimstone Investment
Corporation Ltd giving preferential funding to 50 new and existing
franchisees of the The Fish & Chip Co. This funding will contribute to the
divisions objective of opening 100 new outlets in the year. The food
distribution business reversed the start-up losses and reported a profit
for the period as delivery efficiencies continue to improve. During the
current period the food manufacturing facility in Cape Town was closed and
relocated to Gauteng, centralising manufacturing in one facility and
creating further opportunities for improvement in efficiencies. The move
included increasing sauce and pre-mix production capacity anticipating
future growth in the division. As a consequence of this centralisation,
the Cape Town distribution facility has moved to larger premises also
accommodating future anticipated growth in that region.
Jewellery
NWJ is the third-largest jewellery brand in South Africa, with 74 outlets
nationally. As the only vertically-integrated franchise jewellery chain in
South Africa, it owns and operates 29 outlets. The franchise services are
comparable to the Taste food franchise division in that they offer
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 NWJ outlets. Of these, approximately 40% is
manufactured by the manufacturing facility in Durban, 22% is imported, and
the remaining 38% sourced locally. This model provides in-house innovation
capacity, fast routes to market, and reduces input costs 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 segment ended the period with 74 outlets (2012: 79 outlets). Despite
ending the period with five fewer outlets than the prior period, system-
wide sales increased 11% to R119 million (2012: R107 million). Same-store
sales continued their outstanding performance and increased 12.4% over the
prior period. Since 31 August 2012 the group acquired or took operational
control of eight more corporate outlets. The group will continue to assess
acquiring outlets from franchisees in order to retain key sites. It is
however not the intention to deviate materially from its hybrid ownership
model. As these stores are accounted for under retail (and no longer
under franchise and wholesale) the performance of the segment must be
reviewed as a whole. Segment operating profit increased 24% to R8.7
million (2012: R7.0 million). It should be noted that historically the
jewellery division produces 70% to 75% of its annual operating profit in
the second half of the financial year.
Basis of preparation
Statement of compliance
Basis of preparation and accounting policies
The unaudited condensed consolidated results have been prepared in
accordance with the recognition and measurement requirements of
International Financial Reporting Standards (IFRS), the presentation and
disclosure requirements of IAS 34 - Interim Financial Reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Reporting Pronouncements as issued by Financial Reporting
Standards Council, the Listings Requirements of the JSE Limited and in the
manner required by the South African Companies Act 71 of 2008, as amended.
Accounting policies, which comply with IFRS, have been applied
consistently by all entities in the group and are consistent with those
applied in the previous financial year except for the accounting treatment
of the marketing royalties which are now reported as part of revenue and
cost of sales, as well as the statements, amendments and interpretations
that came in to effect during the current financial year that have no
impact to the group.
The condensed consolidated results have not been reviewed or audited by
the groups auditors and were prepared under the supervision of Mr E
Tsatsarolakis, the Chief Financial Officer of the group.
Prospects
Due to the multiple sources of profit in a vertically integrated business
model and through the group's exposure to a diversified consumer base and
mix of product categories through its portfolio of brands and formats, the
board is confident that Taste is relatively well balanced in its exposure
to both upward and downward periods in the business cycle. The board has
historically been cautious in its future outlook, and such sentiment
remains unchanged for the next six months of trading. Notwithstanding
this, the new business pipeline is on track to achieve the 100 new store
openings forecast at the start of the year and the food distribution
business improves in its service levels and efficiencies with each passing
month. The jewellery segment has turned in yet another unparalleled
performance in all respects, and while the board is confident in its
strong value proposition, anniversarying such strong a sales performance
will continue to be a challenge.
Taste remains committed to being a diversified franchisor invested in
retail and restaurant brands within Southern Africa. The group will
continue to assess opportunities in line with its strategy and is focused
in the short-term on improving same-store sales in the food franchise
division; assessing acquisition opportunities across the group; and
unlocking value to both shareholders and franchisees through its vertical
integration in the food segment.
Dividend to shareholders
In line with previous years the group has only paid a final dividend. As
such no interim dividend is declared for the current period.
On behalf of the board
C F Gonzaga E Tsatsarolakis
Chief Executive Officer Chief Financial Officer
15 October 2013
Corporate information
Non-executive directors: R L Daly (Chairperson), K Utian, A Berman,
H Rabinowitz, S Patel, W P van der Merwe
Executive directors: C F Gonzaga (CEO), D J Crosson, L Gonzaga,
E Tsatsarolakis (CFO), J B Currie
Registration number: 2000/002239/06
Registered address: 12 Gemini Street, Linbro Business Park, Sandton 2065
Postal address: PO Box 1125, Ferndale, Randburg 2160
Company secretary: M Pretorius
Telephone: (011) 608 1999
Facsimile: 086 696 1270
Transfer secretaries: Computershare Investor Services Proprietary Limited
Sponsor: Merchantec Capital
These results and an overview of Taste are available at
www.tasteholdings.co.za
Date: 15/10/2013 09:51:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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