Wrap Text
Audited summary consolidated provisional results for the year ended 28 February 2014
and final dividend declaration
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”)
AUDITED SUMMARY CONSOLIDATED PROVISIONAL RESULTS FOR THE
YEAR ENDED 28 FEBRUARY 2014 AND FINAL DIVIDEND DECLARATION
Salient features
- Revenue up 15% to R582.7 million
- EBITDA up 17% to R60.6 million
- Earnings after tax up 23% to R30.3 million
- Headline earnings per share up 20% to 16.0 cents
- Normalised headline earnings per share up 12% to 16.9 cents
- System-wide sales up 7.2% to R1.48 billion
- Dividend up 22% to 6.2 cents per share
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
28 February 28 February
2014 2013
% Audited Audited
change R'000 R'000
Revenue (2) 15% 582,782 506,431
Cost of sales (351,165) (311,367)
Gross profit (3) 19% 231,617 195,064
Other income 956 496
Operating costs (4) 20% (182,855) (152,668)
Operating profit (5) 16% 49,718 42,892
Investment revenue 2,496 1,956
Finance costs (6) (7,889) (7,162)
Profit before taxation 18% 44,325 37,686
Taxation (7) (13,945) (12,911)
Profit for the period 23% 30,380 24,775
Other comprehensive income - -
Total comprehensive income for the period 23% 30,380 24,775
Attributable to:
Equity holders of the company 23% 30,380 24,775
Earnings per share attributable to equity holders of
the company
Basic earnings per share (cents) 22% 15.6 12.8
Diluted earnings per share (cents) 23% 15.1 12.3
Dividends declared per share (cents) (8) 22% 6.2 5.1
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
28 February 28 February
2014 2013
Audited Audited
R'000 R'000
ASSETS
Non-current assets 201,288 177,744
Property, plant and equipment (9) 29,776 17,063
Intangible assets 79,545 83,508
Goodwill (10) 78,756 69,934
Other financial assets (11) 11,910 5,885
Deferred tax 1,301 1,354
Non-current assets held for sale - 675
Current assets 229,406 191,248
Inventories (12) 116,856 94,029
Trade and other receivables (13) 74,712 67,541
Current tax receivables 2,949 2,978
Advertising levies 1,618 1,939
Other financial assets (11) 7,230 4,430
Cash and cash equivalents 26,041 20,331
Total assets 430,694 369,667
EQUITY AND LIABILITIES
Equity attributable to holders of parent 224,943 189,246
Share capital 2 2
Retained earnings 128,624 108,171
Share premium (14) 94,545 80,101
Equity-settled share-based payment reserve 1,772 972
Non-current liabilities 77,924 66,763
Borrowings (15) 57 422 45,046
Long-term employee benefits - 126
Deferred tax 20,502 21,591
Current liabilities 127,827 113,658
Provisions 250 250
Current tax payable 809 3
Advertising levies 1,198 -
Trade and other payables 88,277 88,510
Balance due to vendors 1,000 1,000
Bank overdrafts 18,393 13,163
Dividends payable 55 38
Borrowings (15) 17,845 10,694
Total equity and liabilities 430,694 369,667
Number of shares in issue ('000) 199,304 194,161
Net asset value per share (cents) 112.9 97.5
Net tangible asset value per share (cents) 44.0 29.7
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity-
settled
share-
based
Share Share payment Retained
capital Premium reserve earnings Total
R’000 R’000 R’000 R’000 R’000
Balance as at 28 February 2012 2 80,101 575 91,162 171,840
Share-based payment reserve - - 397 - 397
Dividends paid - - - (7,766) (7,766)
Comprehensive income for the period - - - 24,775 24,775
Balance as at 28 February 2013 2 80,101 972 108,171 189,246
Share issue (14) - 13,837 - - 13,837
Options exercised - 607 - - 607
Dividends paid - - - (9,927) (9,927)
Share-based payment reserve - - 800 - 800
Comprehensive income for the period - - - 30,380 30,380
Balance as at 28 February 2014 2 94,545 1,772 128,624 224,943
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
28 February 28 February
2014 2013
Audited Audited
R'000 R'000
Cash flows from operating activities 13,383 7,524
Cash generated by operating activities (16) 42,832 36,118
Investment revenue 2,496 1,956
Finance costs (7,889) (7,162)
Dividends paid (9,910) (7,745)
Taxation paid (14,146) (15,643)
Cash flows from investing activities (46,748) (15,907)
Acquisition of property, plant and equipment (9) (16,807) (8,600)
Proceeds of disposals of property, plant and equipment 600 322
Acquisition of business (17) (20,478) (2,133)
Loans advanced (11) (10,973) (5,049)
Loans repaid (11) 2,149 1,392
Acquisition of intangible assets (1,239) (1,839)
Cash flows from financing activities 33,845 (9,987)
Decrease in long-term employee benefits (126) (126)
Proceeds from issue of shares (14) 14,444 -
Loans raised (15) 25,300 921
Loans repaid (5,773) (10,782)
Change in cash and cash equivalents 480 (18,370)
Cash and cash equivalents at beginning of the period 7,168 25,538
Cash and cash equivalents at end of the period 7,648 7,168
SUMMARY CONSOLIDATED SEGMENT REPORT
28 February 28 February
2014 2013
% Audited Audited
Change R'000 R'000
Segment revenue
Food (19) 16% 364 823 315 329
Jewellery (21) 15% 229 289 198 665
Corporate services 16 242 12 360
Inter-segment revenues (23) (27 572) (19 923)
Group revenue 15% 582 782 506 431
Segment operating profit
Food 11% 34 229 30 944
Jewellery 15% 32 897 28 655
Corporate services (24) 4% (17 408) (16 707)
Group operating profit 16% 49 718 42 892
SUMMARY CONSOLIDATED SEGMENTAL REPORT - continued
Inter-
Food Jewellery Corporate segment
Division Division services revenues Total
Year ended 28 February 2014 R’000 R’000 R’000 R’000 R’000
Revenue 364,823 229,289 16,242 (27,572) 582,782
Operating profit/(loss) 34,229 32,897 (17,408) - 49,718
Investment revenue 1,012 348 1,136 - 2,496
Finance costs (3,999) (3,098) (792) - (7,889)
Profit before taxation 31,242 30,147 (17,064) - 44,325
Segment depreciation and amortisation (6,104) (3,052) (1,750) - (10,906)
Segment assets 191,717 167,545 71,432 - 430,694
Segment liabilities 113,490 48,612 43,679 - 205,751
Segment capital expenditure 12,002 4,356 449 - 16,807
Year ended 28 February 2013
Revenue 315,329 198,665 12,360 (19,923) 506,431
Operating profit/(loss) 30,944 28,655 (16,707) - 42,892
Investment revenue 745 458 753 - 1,956
Finance costs (3,922) (2,887) (353) - (7,162)
Profit before taxation 27,767 26,226 (16,307) - 37,686
Segment depreciation and amortisation (4,628) (2,561) (1,747) - (8,936)
Segment assets 179,690 116,241 73,736 - 369,667
Segment liabilities 115,165 45,321 19,935 - 180,421
Segment capital expenditure 8,425 153 22 - 8,600
Notes to the financial information
1. Reconciliation of headline earnings
28 February 29 February
2014 2013
% Audited Audited
Change R'000 R'000
Earnings attributable to ordinary shareholders 23% 30 380 24 775
Adjusted for:
Impairment of assets 1 223 1 226
Profit on sale of property, plant and equipment and non-
current assets available for sale (310) (120)
Tax effect on headline earnings adjustments (66) 18
Headline earnings attributable to ordinary shareholders 21% 31 227 25 899
Adjusted for:
Legal fees 1 159 1 644
Once-off costs of the distribution business (after tax) 619 1 801
Normalised headline earnings 12% 33 005 29 344
Weighted average shares in issue ('000) 194 791 194 161
Weighted average diluted shares in issue ('000) 200 935 201 911
Earnings per share (cents) 22% 15.6 12.8
Diluted earnings per share (cents) 23% 15.1 12.3
Headline earnings per share (cents) 20% 16.0 13.3
Diluted headline earnings per share (cents) 21% 15.5 12.8
Normalised headline earnings per share (cents) 12% 16.9 15.1
Dividend declared per share (cents) 22% 6.2 5.1
Dividend cover (dividends declared based on earnings per
share) 2.5 2.5
As with previous years the group discloses normalised headline earnings as a consistent
measure of performance for evaluation purposes. Normalised headline earnings exclude the
exceptional once-off costs as detailed above, which are comparable in nature to the prior period.
2. The 15% increase in revenue for the year ended 28 February 2014 (“the current period” or
“2014”) when compared to the year ended 28 February 2013 (“the prior period” or “2013”) is
consequent to a 15.4% increase in the jewellery division revenue, and a similar increase of 15.6%
in the food division. The growth in the jewellery division is attributable to the combination of a
same-store sales increase of 10% in corporate-owned stores and the addition of a net eight
corporate stores during the year. The food division revenue increase is attributable to system-
wide sales growth of 7.1% and the increase in the revenue of the food services part of that
division, the latter not being directly comparable to the prior year as the food distribution capability
was established during August 2012.
3. The improved gross margin from 38.5% in the prior period to 39.7% in the 2014 year is the net
result of higher gross margins in the jewellery division due to owning more corporate stores which
trade at higher gross margins; and reduced gross margins in the food division due to the larger
contribution of the food distribution business, which trades at a lower gross margin than the
remainder of the group.
4. The cost increase percentage above the revenue percentage increase is due in the main to an
increase in depreciation and amortisation. An effective measure of cost control is to exclude
depreciation and amortisation and reflect those costs as a percentage of revenue. In the 2014
year those costs were 29.5% of revenue, compared to 28.4% in the prior period and 30.3% in the
year ended 28 February 2012. Depreciation and amortisation increased 22.5% over the prior
period due to a combination of the acquisition of fixed assets in our food services business related
to capacity expansion and continued integration of our distribution network; and the acquisition of
corporate stores in our jewellery division. These capital expenditures are discussed below in note
9.
5. Operating profit increased 16% from the prior period while operating profit margin remained
unchanged from the prior period at 8.5%. Earnings before interest, taxation, depreciation and
amortisation (“EBITDA”) increased 17% to R60.6 million (2013: R51.8 million) and EBITDA
margin increased marginally to 10.4%.
As Taste includes franchisee marketing funds received in its revenue, with matching cost of sales,
its margins may not be directly comparable to other franchise companies that do not account for
franchisee marketing funds in the same manner.
6. The increase in finance costs is attributable to the capital expenditure incurred to acquire NWJ
corporate stores and capital expenditure incurred for the expansion and integration of the food
services business. As per the group’s stated intention this capital expenditure was funded
through debt.
7. The effective taxation percentage is 31.5% and is lower than the prior year due to the prior year
including R0.8 million of secondary tax on companies (“STC”) as well as higher non-deductible
expenditure.
8. In line with the group’s stated dividend policy a dividend cover of 2.5 times (based on basic
earnings per share) has been maintained, comparable to the prior year, resulting in a 22%
increase in the declared dividend.
9. The increase is property, plant and equipment relates to the capital expenditure referred to in note
4 and 6 above and is attributable to:
- moving the sauce manufacturing facility from Cape Town to Gauteng, thereby centralising
manufacturing into one facility and providing savings on transportation and labour, and
increasing capacity;
- moving the Cape Town distribution depot to a new facility with increased capacity;
- the purchase of additional vehicles used in the food distribution business improving
operating efficiencies from the prior period; and
- acquiring eleven NWJ stores from franchisees.
In line with the groups’ stated intention this capital expenditure was funded with external funding,
including portions of the jewellery inventory investment.
10. The increase in goodwill is attributable to the acquisition of the NWJ corporate stores.
11. Other financial assets consist of:
- loans made to marketing funds of brands within the group. These loans attract interest,
and are repayable in monthly instalments; and
- extended payment terms given to franchisees of the group.
12. R19 million of the R22.8 million increase is attributable to inventories in the jewellery division,
more specifically:
- the acquisition of eleven NWJ corporate stores which included R9.2 million of acquired
inventory;
- opening three new NWJ corporate stores and the associated investment in inventory of
R4.3 million; and
- expected increases in inventory due to system-wide sales growth of 8%.
The balance of the increase in inventory relates to increased inventories in the food distribution
business as a consequence of distributing a larger basket of goods to more franchisees when
compared to the prior period.
13. The increase in trade and other receivables is mainly as a result of the growth of both the food
services and jewellery divisions, and is below the revenue growth of 15%
14. The increase in share premium from the prior period is as a consequence of issuing 3 729 691
shares at R3.71 per share to partly fund the Zebro’s Chicken acquisition, which was effective 1
March 2014.
15. The increase in borrowings relates to the capital expenditures detailed in note 9.
16. In respect of the net eight new NWJ corporate stores, an additional investment in inventory of R10
million is accounted for in cash generated from operations. This investment relates to the
additional inventory necessary to ensure that the ideal stock holdings are achieved in the new
stores. Excluding the above investment, accounted for in cash generated from operations, the
group’s operating cash conversion is 87% of EBITDA. As per note 17 below, these stores, none
of which traded for the full period under review, generated R4.8 million in operating profit.
17. During the year, the jewellery division acquired the business of 11 franchised NWJ stores. These
stores were located in key strategic sites. The rationale for this acquisition is consistent with the
division’s strategy of:
- expanding its corporate store footprint; and
- retaining key strategic sites.
This acquisition consisted of inventory and property, plant and equipment. The stores acquired
and the respective month of each store’s acquisition is listed below:
- NWJ Key West – April 2013
- NWJ Cresta – June 2013
- NWJ King Shaka Airport – May 2013
- NWJ Empangeni – May 2013
- NWJ Northgate – July 2013
- NWJ Woodmead – August 2013
- NWJ Greenacres – October 2013
- NWJ East Rand Mall – January 2014
- NWJ Alberton City – January 2014
- NWJ Clearwater Mall – January 2014
- NWJ The Glen – January 2014
Four of the eleven stores were acquired in a single transaction from a franchisee. This transaction
has been separately aggregated below as it is classified as a material transaction.
The fair value of assets and liabilities for the stores acquired, is set out below:
Non-
material Individually
stores in material
aggregate transaction Total
R'000 R'000 R'000
Property, plant and equipment 1 745 704 2 449
Inventory 3 314 5 893 9 207
Fair value of assets acquired 5 059 6 597 11 656
Consideration paid (9 457) (11 021) (20 478)
In cash (9 457) (11 021) (20 478)
Balance owed by vendors - - -
Goodwill acquired 4 398 4 424 8 822
Contribution to revenue 18 825 2 875 20 700
Contribution to operating profit 3 970 830 4 800
The purchase consideration was discharged in cash. During the period that these eleven stores
were owned / operated by the jewellery division, they contributed R20.7 million to revenue and
R4.8 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.
18. As indicated in prior announcements Taste management reports on the jewellery division as one
segment. Furthermore, the new divisional structure of the food division has resulted in a
consolidation of the previous sub-divisions into one segmental view of the division. Consequent
to these changes the group now discloses two divisions, which consolidation does not impact any
comparable financial results. This segmental reporting format is representative of the internal
reporting structure used for management reporting.
19. Food division revenue includes royalty, new store and distribution revenue from sales to
franchisees. The 15.6% increase in revenue in the food division is due the combined effect of the
increase in system-wide sales of 7.1% and the distribution division having five more trading
months compared to the prior period.
20. EBITDA in the food division increased 13.5% to R40.3 million (2013: R35.5 million) and the
EBITDA margin remained largely unchanged at 11.1%. (2013: 11.3%)
21. Jewellery division revenue includes sales from corporate-owned outlets; royalty revenue and
revenue from sales to franchisees. The 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 division owned / operated eight more corporate stores than at the
end of the prior period. Consequently, the increase in revenue of 15.4% is due to a system-wide
sales increase of 8% and the additional revenue from the net eight additional corporate-owned
stores.
22. EBITDA in the jewellery division increased 20.2% to R37.5 million (2013: R31.2 million) and the
EBITDA margin improved from 15.7% to 16.4% due to corporate stores trading at higher margins
than the division.
23. This refers to interdivisional revenues in the food and corporate services segments that are
eliminated on consolidation.
24. This amount reflects the actual expenses incurred in corporate services and reflects an increase
of 4% from the prior period.
Group Overview
The board of directors of Taste (“the Board”) present the audited summary consolidated provisional
results for the year ended 28 February 2014 (“2014” or “the current period”). Taste is a South
African-based management group, that licenses and owns a portfolio of mostly franchised, category
specialist, restaurant and retail brands, currently represented in over 630 locations throughout
Southern Africa.
During the year under review the group continued with initiatives in line with its vertical integration
strategy in the food division; acquired 11 NWJ outlets from franchisees thereby increasing its total
store ownership to 34 outlets; and made substantial changes to the leadership structure of its food
division in order to create capacity for future growth in both brands and store numbers, and to align
the food services business more closely with the brands its serves.
As anticipated, the food distribution business, which was established in August 2012, returned a
profit during the year, from a loss in the year ended 28 February 2013 (“2013” or “the prior period”).
Group system-wide sales increased 7.2% from the prior period to R1.48 billion, which combined with
the increased revenue from the food division, and additional NWJ corporate stores, contributed to a
revenue increase at group level of 15% to R583 million (2013: R506 million). Earnings before
interest, taxation, depreciation and amortisation (“EBITDA”) increased 17% to R60.6 million (2013:
R51.8 million). Relatively lower finance and taxation margins combined to produce an earnings
increase of 23% over the prior period.
The Board is pleased to announce that a gross dividend of 6.2 cents per share has been declared,
an increase of 23% over the prior period.
Zebro’s Chicken
On 29 January 2014 the group announced it would acquire Zebro’s Chicken, a unique 15 year-old
franchise chain that targets lower income consumers through a proprietary BBQ flavour chicken
recipe prepared on open coals. On 1 March 2014 the group acquired control and commenced with
the integration of Zebro’s Chicken into the existing Taste supply chain and operations. This
acquisition is in line with the group’s stated intent to grow its representation among lower income
consumers and is complementary to its existing The Fish & Chip Co. brand.
Domino’s Pizza
On 10 April 2014 the group announced that it had signed a 30-year exclusive Master Franchise
Agreement (“MFA”) to develop the global Domino’s Pizza brand in South Africa and six other
countries. Domino’s Pizza is the worlds’ leading pizza delivery brand with over 11’000 units in 74
countries. Through the conversion and consolidation of the Scooters Pizza and St Elmo's stores to
Domino's Pizza stores ("Store Conversions"); the opening of new Domino’s Pizza outlets; and the
investment by both Taste and Domino's Pizza; Taste plans to, in the next five years, establish
Domino's Pizza as the leading pizza delivery brand in Southern Africa. It is anticipated that there will
be once-off costs relating to the initial Store Conversions, establishment of a centralised dough
production facility and initial training and marketing. However, the benefits of being part of a global
brand with an entirely re-imaged store network; increased marketing spend and the consumer
interest typically shown in new global brands, will contribute positively to store sales and overall
market share in the growing pizza segment.
SEGMENTAL OVERVIEW
FOOD
At 28 February 2014, the food division consisted of the Maxi’s, Scooters Pizza, St Elmo’s 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 group’s food
brands and distributes the majority of products used by its food outlets. All four consumer brands
are underpinned by strong value-for-money propositions within their target consumer market. The
acquisition of Zebro’s Chicken has extended the group’s reach into the lower income consumer
market, thereby balancing its portfolio across a broader segment of the South African consumer.
While system-wide sales for the year increased 7.1% to R1.2 billion, the group saw a noticeable
slow-down in same-store sales in the latter half of the year as consumers, especially in the lower
income groups, scaled back their frequency of purchases. Although this lower demand has
continued into the new year among low income consumers, brands targeting higher income
consumers have shown positive same-store sales growth since, in particular Scooters Pizza and St
Elmo’s.
During the year the food services division consolidated manufacturing into one premises, improving
economies of scale and reducing the transport associated with having sauce manufacturing
previously in Cape Town. The food division also underwent a material organisational re-structure to
accommodate the growth of the last two years, in anticipation of the integration of Zebro’s Chicken
and the Domino’s Pizza MFA. This structure has created scalable capacity aligned with future
growth aspirations. Consequently, accountability for manufacturing, distribution and the consumer-
facing food brands has been combined under one divisional CEO; appropriate and strategically
aligned executive leaders for each of the food brands have been recruited; and a highly leveraged
shared services platform has started to take shape. In addition to creating capacity and up-skilling
our executive leadership, a credible succession pipeline is being developed. Lastly, the increased
capacity in the food division has resulted in corporate functions in the group being able to pursue
growth opportunities, the first of which to bear fruit was the Domino’s Pizza MFA.
The forthcoming year will see this division focus its efforts on:
- continuing the good progress it has made in the food service part of its business through
increasing the basket size and improving margins through efficiencies;
- establishing the centralised dough production facility for the Domino’s Pizza business;
- integrating Zebro’s Chicken and building a new store pipeline;
- building on the The Fish & Chip Co. market leader position through improving the menu
offering and improving average store sales; and
- preparing to open the first Domino’s Pizza stores locally;
JEWELLERY
NWJ is the third-largest jewellery brand in South Africa. As the only vertically-integrated franchise
jewellery chain in South Africa, it owns and operates approximately 45% of the total outlets. The
franchise services are comparable to the Taste food franchise division 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 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 division ended the period with 77 outlets (2013: 77 outlets), a marginal increase from the 74
outlets at 31 August 2013. System-wide sales increased 8% to R284 million (2013: R263 million),
driven exclusively by same-store sales. The 34 corporate stores achieved same-store sales growth
in excess of 10% for the third consecutive year, underpinning the group’s competence at operating
corporate stores. Notwithstanding this continued stellar performance it should be noted that, in line
with the food division performance, sales in the latter part of the year slowed, although remained
positive in this division. We anticipate this trend continuing in the current period.
During June 2012 NWJ launched an NWJ-branded credit offering. As NWJ has historically not had a
robust credit offering, the brand has experienced new customer attraction and substantially higher
spend per transaction than in its existing cash business. As the credit is underwritten by a third
party, NWJ does not have any exposure to default or to the administration thereof. Furthermore,
credit sales currently make up less than 10% of total sales.
During the period the group acquired or took operational control of a net eight franchised outlets.
Four of these outlets were acquired in January and therefore did not contribute materially to the
group’s profits in the year under review. The group will continue to assess acquiring outlets from
franchisees in order to retain key sites and anticipates that it could own up to 60% of its store base
over time. Franchisee same-store sales now more closely mimic corporate store sales, a key
objective during the last year. This division is focused on growing its corporate owned store base in
the next two years as well as growing its market share through new store growth.
BASIS OF PREPARATION OF THE AUDITED RESULTS
Statement of compliance
The summary consolidated financial results are prepared in accordance with the requirements of the
JSE Limited Listings Requirements for provisional reports, and the requirements of the Companies
Act of South Africa applicable to summary financial statements. The Listings Requirements require
provisional reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS)
and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by the Financial Reporting Standards Council and to
also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the preparation of the consolidated financial statements from
which the summary financial statements were derived are in terms of International Financial
Reporting Standards and are consistent with those accounting policies applied in the preparation
of the previous consolidated annual financial statements, except for the adoption of new, improved
and revised standards and interpretations, which had no material effect on the financial results. This
report was compiled under the supervision of Mr. E Tsatsarolakis, Chief Financial Officer.
The audited summary consolidated provisional financial statements do not include all of the
information required for full annual financial statements and should be read in conjunction with the
consolidated annual financial statements for the year ended 28 February 2014. The directors of
Taste take full responsibility for the preparation of the provisional report and that the financial
information has been correctly extracted from the underlying group financial statements.
AUDITOR’S REPORT
These summary consolidated provisional financial results for the year ended 28 February 2014
have been audited by BDO South Africa Inc., who expressed an unmodified opinion thereon.
The auditor also expressed an unmodified opinion on the consolidated annual financial
statements from which these summary consolidated provisional financial results were derived.
A copy of the auditor’s report on the summary consolidated provisional financial results and of
the auditor’s report on the consolidated annual financial statements are available for inspection at
the company’s registered office, together with the financial statements identified in the
respective auditor’s reports.
The auditor’s report does not necessarily report on all of the information contained in this
announcement. Shareholders are therefore advised than in order to obtain a full understanding of
the nature of the auditor’s engagement they should obtain a copy of the auditor’s report together with
the accompanying financial information from the company’s registered office. Any reference to future
financial performance included in this announcement has not been reviewed or reported on by the
company’s auditor.
EVENTS SUBSEQUENT TO YEAR END
Acquisition of Zebro’s Chicken business
On 1 March 2014 the group acquired the business operated under the brand name Zebro’s Chicken.
The acquisition follows Taste’s stated strategy of acquiring:
- businesses that have significant overlap with the group’s existing vertical integration capacity
in both manufacturing and distribution; and
- additional brands targeting consumers in the LSM 4-6 category, thereby complementing the
over 300 store The Fish & Chip Co. business.
As such the rationale for the acquisition is as follows:
- Zebro’s Chicken targets lower LSM consumers, a market that is currently underserved by
formalised quick service restaurant (“QSR”) brands;
- its trading format is similar to other existing Taste food brands in that:
- it has the lowest set-up costs in the chicken segment, which targets similar
franchisees to those of the existing The Fish & Chip Co. business;
- its focused menu results in easy to manage operations which promotes multiple and
company store ownership; and
- its site criteria are similar to those of The Fish & Chip Co. brand, allowing leverage
into the existing national property infrastructure of the Taste group;
- As the current Zebro’s Chicken business is not vertically integrated there is substantial value
to be unlocked by adding its volume to existing Taste capabilities;
- There is significant opportunity for expansion of the brand within South Africa. The current
footprint does not include any meaningful penetration outside of the Western and Eastern
Cape. Taste envisages accelerated store growth due to Zebro’s Chicken similarity to its
existing The Fish & Chip Co. business;
- The ability to leverage the existing Taste franchisee base and by utilising the national
property network; and
- The acquisition is expected to be earnings enhancing to Taste from the first year of
consolidation.
The acquisition consisted of:
- franchise agreements of 40 outlets, associated trademarks, goodwill and intellectual
property; and
- certain tangible assets and liabilities relating to the business including inter alia, inventory
and property, plant and equipment.
Goodwill arose on the acquisitions of Zebro's Chicken as a result of the excess of the cost of
acquisition over the group’s interest in the net fair value of the identifiable assets recognised at the
date of acquisition. None of the goodwill is expected to qualify for a tax deduction. The fair value of
assets and liabilities acquired is set out below:
Total
Provisional R'000
Property, plant and equipment 76
Intangible assets 12 702
Inventory 74
Deferred tax (3 557)
Fair value of assets acquired 9 295
Consideration paid (17 000)
In cash (8 500)
In shares (8 500)
Goodwill acquired 7 705
2,442,792 Taste shares were issued to the vendors on 3 March 2014 at a price R3.48 per share, a
5% discount to the 30 day volume weighted average price on 28 January 2014. The purchase price
allocation has been disclosed as provisional, as permitted by IFRS3 Business Combinations and will
be finalised within the next 12 months. Any resulting material fair value adjustments to goodwill will
be accounted for accordingly.
Domino’s Pizza
As mentioned above, the group announced on 10 April 2014, that it had signed a 30-year exclusive
(“MFA”) to develop the global Domino’s Pizza brand in South Africa and six other countries.
Shareholders are advised that certain local aggrieved parties, who were unsuccessful in previous
negotiations with Domino’s Pizza International, are objecting to the validity of Taste’s recently
secured rights to Domino’s Pizza as announced by both Domino’s Pizza International and Taste on
10 April 2014. The application has cited Domino’s Pizza International as the Main Respondent and
Taste as Second Respondent. Taste received notification of the objection on the afternoon of 19
May 2014, and the legal merits of the objection are currently being investigated by both Domino’s
Pizza International and Taste. It has however, been confirmed that none of the aforementioned
parties have, or had, a written agreement with Domino’s Pizza International. Notwithstanding this,
the Board of Directors of Taste feel it prudent to inform shareholders timeously of the objection and
will update shareholders in due course of further developments in this regard.
The directors are not aware of any other matter or circumstance arising since the end of the year up
to the date of this report.
PROSPECTS
The group’s exposure to a diversified customer base, combined with multiple sources of revenue
and profit due to its extensive vertical integration, provides a balanced portfolio that is resilient to
localised consumer contractions such as that currently being experienced among lower income
consumers.
Taste has historically been cautious in its future outlook, especially with regard to forecasting factors
beyond its direct control. While sales in our two pizza brands have shown positive sales growth in
the most recent six months, demand among lower income consumers remains weak and we
anticipate that this will continue through the first half of the current financial year, potentially
offsetting gains made in our pizza division. With regard to those factors within its control: the group
is encouraged by the medium and long-term benefits the Domino’s Pizza roll-out and conversion will
bring. As communicated in prior announcements, this will however require initial once-off costs
relating to the store conversions, establishment of a centralised dough production facility and initial
training and marketing.
It is anticipated that the food services business will continue its improvement and that the jewellery
division will increase its corporate-owned store base.
Taste remains committed to being a diversified franchisor invested in retail and restaurant brands
within Southern Africa. The increased human resource capacity as a result of the re-structure in the
food division will see the group continuing to assess opportunities in line with its strategic intent,
particularly within the food division.
DIRECTORATE
During the period under review, the following changes to the Board occurred:
- Mr Luigi Gonzaga retired as executive director with effect from 28 February 2014.
- Mr Grant Pattison was appointed as independent non-executive director with effect from 1
March 2014.
DIVIDEND TO SHAREHOLDERS
Notice is hereby given that a final gross cash dividend of 6.2 cents per ordinary share, resulting in a
net dividend of 5.27 cents per ordinary share for those shareholders who are subject to a 15%
Dividends Tax, payable out of income in respect of the year ended 28 February 2014, has been
declared by the directors. No credits in terms of Secondary Tax on Companies are available.
In compliance with the requirements of Strate, the electronic and custody system used by the JSE,
the following dates are applicable:
Declaration date Wednesday, 21 May 2014
Last day to trade cum-dividend Friday, 4 July 2014
Shares commence trading ex-dividend Monday, 7 July 2014
Record date Friday, 11 July 2014
Payment of dividend Monday, 14 July 2014
Share certificates may not be dematerialised or rematerialised between Monday, 7 July 2014 and
Friday, 11 July 2014, both dates inclusive.
Dividends declared after 31 March 2012 are, in terms of the South African Income Tax Act subject to
Dividends Tax, where applicable. The following information is accordingly provided:
- The local Dividends Tax rate is 15%.
- At the date of this declaration, the company had 204 980 052 ordinary shares in issue.
- The company’s income tax reference number is 9493089149P.
On Monday, 14 July 2014, the cash dividend will be electronically transferred to the bank accounts of
all certificated shareholders where this facility is available. Where electronic fund transfer is not
available or desired, cheques dated 14 July 2014 will be posted on that date. Dematerialised
shareholders’ accounts with their CSDP or broker will be credited on Monday, 14 July 2014.
On behalf of the Board
C F Gonzaga E Tsatsarolakis
Chief Executive Officer Chief Financial Officer
21 May 2014
CORPORATE INFORMATION
Non-executive directors: R L Daly (Chairperson), K Utian, A Berman, H R Rabinowitz, S Patel, W
P van der Merwe, G M Pattison
Executive directors: C F Gonzaga (CEO), D J Crosson, J B Currie, E Tsatsarolakis (CFO)
Registration number: 2000/002239/06
Registered address: 12 Gemini Street, Linbro Business Park, Sandton 2065
Postal address: PO Box 782244, Sandton City, 2146
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: 21/05/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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