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TASTE HOLDINGS LIMITED - Unaudited condensed consolidated results for the six months ended 31 August 2014

Release Date: 09/10/2014 08:00
Code(s): TAS     PDF:  
Wrap Text
Unaudited condensed consolidated results for the six months ended 31 August 2014

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 2014

Highlights
-  Core revenue increased by 15% to R302.2 million
-  Core EBITDA increased by 10% to R23.3 million
-  Core operating profit increased to R16.3 million
-  System-wide sales increased by 4% to R746 million
-  Secured exclusive master franchise rights for Domino’s Pizza
-  R180 million raised from shareholders for future growth by way of a Rights Offer
-  R1 billion Domestic Medium Term Note programme registered
-  Core headline earnings decreased by R1.1 million to R8.8 million
-  Core headline earnings per share decreased by 0.8 cents to 4.3 cents

CONDENSED GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                  Unaudited     Unaudited        Audited
                                                                 six months    six months      12 months
                                                                      ended         ended          ended
                                                                  31 August     31 August    28 February
                                                         %             2014          2013           2014
                                                       change         R'000         R'000          R'000


Revenue                                                  15%        302,257       263,500        582,782
Cost of sales                                                     (189,268)     (160,328)      (351,165)
Gross profit                                             10%        112,989       103,172        231,617
Other income                                                            294           189            956
Operating costs                                          16%       (99,536)      (85,537)      (182,855)
Operating profit                                        -23%         13,747        17,824         49,718
Investment revenue                                                    1,664         1,119          2,496
Finance costs                                                       (5,616)       (3,248)        (7,889)
Profit before taxation                                  -38%          9,795        15,695         44,325
Taxation                                                            (2,804)       (4,432)       (13,945)
Profit for the period                                   -38%          6,991        11,263         30,380
Other comprehensive income                                                -             -              -
Total comprehensive income for the period               -38%          6,991        11,263         30,380
Attributable to:
Equity holders of the company                           -38%          6,991        11,263         30,380
Earnings per share attributable to equity holders of
the company
Basic earnings per share (cents)                        -40%            3.5           5.8           15.6
Diluted earnings per share (cents)                      -38%            3.4           5.6           15.1
Dividends declared per share (cents)                                       -             -           6.2

CONDENSED GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                       Unaudited  Unaudited       Audited
                                                       31 August  31 August   28 February
                                                            2014       2013          2014
                                                           R'000      R'000         R'000

ASSETS
Non-current assets                                       235,266    185,923       201,288
Property, plant and equipment (9)                         35,084     24,439        29,776                 
Intangible assets (10)                                    94,391     81,131        79,545
Goodwill (11)                                             87,216     72,235        78,756
                       
Other financial assets (12)                               17,047      6,941        11,910
Deferred tax                                               1,528      1,177         1,301

Non-current assets held for sale                               -        675             -
Current assets                                           289,910    225,699       229,406
Inventories (13)                                         119,272    102,801       116,856
Trade and other receivables(14)                          106,390     83,852        74,712
Current tax receivables                                    2,125      8,959         2,949
Advertising levies (15)                                    6,749      5,479         1,618
                        
Other financial assets (12)                                4,951     11,079         7,230
Cash and cash equivalents                                 50,423     13,529        26,041

Total assets                                             525,176    412,297       430,694

EQUITY AND LIABILITIES
Equity attributable to holders of parent                 229,211    190,824       224,943
Share capital                                                  2          2             2
Retained earnings                                        123,054    109,507       128,624
Share premium (16)                                       104,033     80,343        94,545
Equity-settled share-based payment reserve                 2,122        972         1,772

Non-current liabilities                                  155,108     72,929        77,924
Borrowings (17)                                          131,815     51,711        57,422
Deferred tax                                              23,293     21,218        20,502

Current liabilities                                      140,857    148,544       127,827
Provisions                                                   250        250           250
Current tax payable                                        4,440      4,612           809
Trade and other payables (14)                            116,520    111,584        88,277
Advertising levies                                           625      1,819         1,198
Balance due to vendors                                     1,000      1,000         1,000
Bank overdrafts                                           14,408     15,858        18,393
Dividends payable                                             87         67            55
Borrowings                                                 3,527     13,354        17,845

Total equity and liabilities                             525,176    412,297       430,694
Number of shares in issue ('000)                         202,968    194,724       199,304
Net asset value per share (cents)                          112.9       98.0         112.9
Net tangible asset value per share (cents) (18)             35.3       30.3          44.0


CONDENSED GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                                                    Equity-
                                                                                                    settled
                                                                                                     share-
                                                                                                      based
                                                             Share          Share  Total share      payment       Retained
                                                           capital        premium      capital      reserve       earnings          Total
                                                             R’000          R’000        R’000        R’000          R’000          R’000
Balance 1 September 2013                                         2         80,343       80,345          972        109,507        190,824
              
Share issue (16)                                                 -         13,595       13,595            -              -         13,595
Options exercised                                                -            607          607            -              -            607
Share-based payment                                              -              -            -          800              -            800
Comprehensive income for the period                              -              -            -            -         19,117         19,117
Balance 1 March 2014                                             2         94,545       94,547        1,772        128,624        224,943
Share issue (16)                                                 -          8,501        8,501            -              -          8,501
Options exercised                                                -            987          987            -              -            987
Dividends paid                                                   -              -            -            -       (12,561)       (12,561)
Share based payment reserve                                      -              -            -          350              -            350
Comprehensive income for the period                              -              -            -            -          6,991          6,991
Balance                                                          2        104,033      104,035        2,122        123,054        229,211



CONDENSED GROUP CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                       Unaudited      Unaudited         Audited
                                                                      six months     six months       12 months
                                                                           ended          ended           ended
                                                                       31 August      31 August     28 February
                                                                            2014           2013            2014
                                                                           R'000          R'000           R'000

Cash flows from operating activities                                     (3,525)          3,691          13,383
Cash generated by operating activities (19)                               12,162        21,718           42,832
Investment revenue                                                         1,664          1,119           2,496
Finance costs                                                            (5,616)        (3,248)         (7,889)
Dividends paid                                                          (12,529)        (9,898)         (9,910)
Taxation paid (20)                                                           794        (6,000)        (14,146)

Cash flows from investing activities                                    (37,671)       (22,629)        (46,748)
Acquisition of property, plant and equipment                             (8,836)        (9,194)        (16,807)
Proceeds of disposals of property, plant and equipment                        80            141             600                                          
Acquisition of business (21)                                            (21,326)        (5,871)        (20,478)
Loans advanced                                                           (2,858)        (7,705)        (10,973)
Loans repaid                                                                   -              -           2,149
Acquisition of intangible assets                                         (4,731)              -         (1,239)

Cash flows from financing activities                                      69,563          9,441         33,845
Decrease in long-term employee benefits                                        -          (126)           (126)
Proceeds from issue of shares (16)                                         9,488            242         14,444
Loans raised (17)                                                        125,000           9.325         25,300
Loans repaid (17)                                                       (64,925)              -         (5,773)


Change in cash and cash equivalents                                       28,367        (9,497)            480
Cash and cash equivalents at beginning of the period                       7,648          7,168          7,168
Cash and cash equivalents at end of the period                            36,015        (2,329)          7,648


CONDENSED CONSOLIDATED SEGMENTAL REPORT
                                                     Unaudited     Unaudited       Audited
                                                    six months    six months     12 months
                                                         ended         ended         ended
                                                     31 August     31 August   28 February
                                               %          2014          2013          2014
                                          Change         R'000         R'000         R'000
Revenue
      
Food (23)                                    11%       196,019       175,827       364,823
Jewellery (25)                               15%       106,238        92,325       229,289
Corporate Services                            3%         8,378         8,121        16,242
Inter-segment revenues (27)                 -34%       (8,378)      (12,773)      (27,572)
Group revenue                                15%       302,257       263,500       582,782

Operating profit
Food (24)                                   -31%        12,520        18,146        34,229
Jewellery (26)                               11%         9,719         8,724        32,897
Corporate Services (28)                      -6%       (8,492)       (9,046)      (17,408)
Group operating profit                      -23%        13,747        17,824        49,718

Investment revenue
Food                                         -5%           499           526         1,012
Jewellery                                   -25%           166           221           348
Corporate Services                          546%         2,402           372         1,136
Inter-segment                                          (1,403)             -             -
Group investment revenue                     49%         1,664         1,119         2,496

Finance costs
Food                                         45%       (2,849)       (1,967)       (3,999)
Jewellery                                    77%       (2,111)       (1,192)       (3,098)
Corporate Services                         2127%       (1,982)          (89)         (792)
Inter-segment                                            1,326             -             -
Group finance costs                          73%       (5,616)       (3,248)       (7,889)

Profit before taxation
Food                                        -40%        10,094        16,703        31,242
Jewellery                                   -10%         6,990         7,753        30,147
Corporate Services                          -17%       (7,289)       (8,761)      (17,064)
Group profit before taxation                -38%         9,795        15,695        44,325

Depreciation and amortisation
Food                                         52%       (4,255)       (2,803)       (6,104)
Jewellery                                    28%       (1,832)       (1,430)       (3,052)
Corporate Services                            8%         (937)         (867)       (1,750)
Group depreciation and amortisation          38%       (7,024)       (5,100)      (10,906)


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
                                                                 %           2014           2013          2014
                                                             Change         R'000          R'000         R'000

Earnings attributable to ordinary shareholders                  -38%        6,991         11,263        30,380
Adjusted for:
Impairment losses                                                               -              -         1,223
Profit on sale of property, plant and equipment and non-
current assets available for sale                                            (12)          (141)         (310)
Tax effect on headline earnings adjustments                                     2             21          (66)
Headline earnings attributable to ordinary shareholders         -37%        6,981         11,143        31,227
Adjusted for:
Legal fees                                                                      -              -         1,159
Once-off costs of the distribution business (after tax)                         -              -           619
Once-off and upfront Domino's Pizza costs and prior period
revenue comparison adjustment (after tax)                                   1,829        (1,246)             -
Core headline earnings                                          -11%        8,810          9,897        33,005
Weighted average shares in issue ('000)                                   202,583        194,279       194,791
Weighted average diluted shares in issue ('000)                           206,339        202,028       200,935
Basic earnings per share (cents)                                -40%          3.5            5.8          15.6
Diluted earnings per share (cents)                              -39%          3.4            5.6          15.1
Headline earnings per share (cents)                             -40%          3.4            5.7          16.0
Core headline earnings per share (cents)                        -16%          4.3            5.1          16.9
Diluted headline earnings per share (cents)                     -38%          3.4            5.5          15.5


2. Core earnings
   - Shareholders are referred to the announcement released on SENS on 10 April 2014 wherein
      the group announced that it had signed a 30-year exclusive Master Franchise Agreement
      (“MFA”) to develop the global Domino’s Pizza (“Domino’s”) brand in South Africa and six other
      countries (see note 29 below). The Domino’s Pizza brand will become the group’s leading
      pizza franchise offering as existing Scooters Pizza and St Elmo’s franchisees will be given the
      opportunity and assistance to convert their stores to Domino’s Pizza stores. Store
      conversions and new Domino’s Pizza store openings are planned to start towards the end of
      this calendar year and consequently, the decision was made not to open new Scooters Pizza
      or St Elmo’s stores during this financial year. As announced, there are expected once-off
      costs relating to the initial store conversions, establishment of a centralised dough production
      facility and initial training and marketing that will be incurred at least until the conversion of
      Scooters Pizza & St Elmo’s stores to Domino’s is complete.

   - A large portion of these investment costs associated with launching Domino’s cannot be
      treated as capital investment and therefore make comparable analysis of the core Taste
      business more difficult. Therefore, the group has disclosed Core earnings and has provided a
      detailed reconciliation thereof in the note below. Core earnings excludes initial once-off and
      up-front investment costs related to the Domino’s roll-out and store conversions as explained
      above and in the 10 April 2014 SENS announcement. It more accurately reflects the
      comparable performance of the core Taste business and Taste will disclose this financial
      measure for as long as it is relevant to stakeholders, but at least until the conversion of
      Scooters Pizza & St Elmo’s stores to Domino’s is complete. The effect of the core earnings
      adjustments to the statements of financial position and the cash flows are not currently
      material and thus no adjustments have been made to these two financial statements.

CONDENSED GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
RECONCILIATION TO CORE EARNINGS
                                                                             Unaudited         Unaudited       Unaudited       Unaudited
                                                                            six months        six months      six months      six months
                                                                                 ended             ended           ended           ended
                                                                 Core        31 August     Core earnings       31 August       31 August
                                                             earnings           Actual        Adjustment   Core earnings   Core earnings
                                                                    %             2014              2014            2014            2013
                                                               change            R'000             R'000           R'000           R'000

         
Revenue (3) (4)                                                   15%          302,257                 -         302,257         261,770
Cost of sales                                                                (189,268)                 -       (189,268)       (160,328)
Gross profit (5)                                                  11%          112,989                 -         112,989         101,442
Other income                                                                       294                 -             294             189
Operating costs (6)                                               13%         (99,536)             2,562        (96,974)        (85,537)
Operating profit (7)                                               1%           13,747             2,562          16,309          16,094
Investment revenue                                                49%            1,664                 -           1,664           1,119
Finance costs (8)                                                 73%          (5,616)                 -         (5,616)         (3,248)
Profit before taxation                                           -12%            9,795             2,562          12,357          13,965
Taxation (3)                                                                   (2,804)             (733)         (3,537)         (3,948)
Profit for the period                                            -12%            6,991             1,829           8,820          10,017
Other comprehensive income                                                           -                 -               -               -
Total comprehensive income for the period                        -12%            6,991             1,829           8,820          10,017

Attributable to:
Equity holders of the company                                    -12%            6,991             1,829           8,820          10,017
Earnings per share attributable to equity holders of
the company adjusted for:
Profit on sale of property, plant and equipment and
non-current assets available for sale                                             (12)                -             (12)           (141)
Tax effect on headline earnings adjustments                                          2                -                2              21
Headline earnings attributable to ordinary shareholders          -11%            6,981             1,829           8,810           9,897

Weighted average shares in issue (’000)                                        202,583           202,583         202,583         194,279
Weighted average diluted shares in issue (‘000)                                206,339           206,339         206,339         202,028
Basic earnings per share (cents)                                 -15%              3.5               0.9             4.4             5.2
Diluted earnings per share (cents)                               -14%              3.4               0.9             4.3             5.0
Headline earnings per share (cents)                              -16%              3.4               0.9             4.3             5.1
Diluted headline earnings per share (cents)                      -12%              3.4               0.9             4.3             4.9
 



3. The group revenue for the six months ended 31 August 2013 (“the prior period” or “2013”), has
   been decreased by an adjustment of R1.7 million. This adjustment represents the prior period
   revenue derived from store openings in the pizza division (Scooters Pizza and St. Elmo’s). This
   revenue has been excluded from core revenue as a decision was made that no new Scooters
   Pizza or St Elmo’s stores will be opened after the signature of the Domino’s Pizza MFA. The
   taxation in the prior period has also been adjusted accordingly for the tax on the R1.7 million.

4. Both the jewellery and food segments contributed positively to the 15% increase in group core
   revenue from the prior period. Jewellery segment revenue increased by 15% driven by system-
   wide sales growth of 5% and by the additional revenue from additional retail outlets owned in the
   current period when compared to the prior period. Food segment revenue increased 11% as a
   result of growth in the food services division and a 4% increase in system-wide sales. Despite this
   increase, revenue from new store openings in The Fish & Chip Co. brand declined when
   compared to the prior period due to a combination of lower demand from the low income
   consumer segment in the current period, as well as the prior period including an unusually high
   number of new store openings.

5. The core gross profit increase of 11% is lower than the core revenue increase due to:
   - an expected decline in the core gross profit margin as the contribution from the food services
     division increases; and
   - the fewer The Fish & Chip Co. new store openings as outlined in note 4 above.
   Consequently, gross profit margin declined from 39% to 37% in the current period.

6. As indicated in note 2, operating costs have been adjusted by the initial once-off and up-front
   investment costs related to Domino’s in order to disclose core operating costs for the current
   period that are comparable to the prior period. A more appropriate measure of cost control is the
   cost margin (core costs as a percentage of core revenue). When compared to the prior period this
   has improved by 0.6 percentage points to 32.1%. The nominal increase in core operating costs
   comprises of:
   - R7.5 million as a result of owning ten additional corporate jewellery outlets during the current
     period when compared to the prior period. These new outlets were not owned for the full six
     months in the current period (see note 21 below for a detailed impact of these new stores);
     and
   - R1.9 million increase in depreciation and amortisation due to capital expenditure incurred in
     the second half of the 2014 financial year for:
     i.  the acquisition of stores in the jewellery segment, benefits of which are expected
         only in the second half of the current financial year due to the seasonal nature of
         the jewellery business; and
     ii. capacity expansion and continued integration of the distribution division within the
         food segment (see note 9); and
   - R2.0 million associated with organisational changes made to the human resource structure of
     the food segment in the second half of the 2014 financial year in order to create scalable
     capacity for future growth plans; to capitalise on international brand opportunities; and
     acquisition potential in the local market. These additional costs are therefore not in the prior
     period. The benefits of the restructure of resources in the food segment have been realised
     to some degree through the conclusion of a MFA with Domino’s and through the seamless
     efficient integration and operation of the Zebro’s Chicken brand that was acquired in March
     2014.

7.  A key measure for the group, core Earnings before interest, taxation, depreciation and
    amortisation (“EBITDA”) increased by 10% to R23.3 million (2013: R21.2 million). Core operating
    profit increased marginally by 1% with the increase in core operating profit in the jewellery
    segment being offset by a decrease in core operating profit in the food segment.
    - The increase in the jewellery segment is attributable to continued positive same-store
      sales; the profits from the additional corporate owned stores when compared to the prior
      period; and an increase in the overall gross profit margins of the segment.
    - The decline in the core operating profit of the food segment is due to fewer new store
      openings in The Fish and Chip Co. brand and the increase in costs due to the
      organisational changes and depreciation and amortisation as outlined in note 6.

8.  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 within the food segment. As per the group’s stated intention this capital
    expenditure was funded through debt. During the current period, Taste registered a R1 billion
    Domestic Medium Term Note (“DMTN”) programme. On 30 July 2014, in its inaugural issue under
    this programme, notes were issued in aggregate of R125 million, R61 million of which was used
    to settle existing term debt, with the remaining amount being earmarked for future acquisitions.
    This bond program is more closely aligned with the groups future growth plans and is more
    predictable and flexible than traditional term loans. This capital raised is complimentary to the
    capital raised through the rights offer to existing shareholders as announced on 28 August 2014.

9.  The majority of the increase in property, plant and equipment over the prior period relates to
    capital expenditure incurred to:
    - Acquire an additional net ten NWJ stores; and
    - continue our vehicle purchase programme in the food distribution business, where we
      historically rented vehicles. This programme has now proved its return in operational
      efficiencies and will continue, albeit at a slower pace.
    In line with the group’s stated intention this capital expenditure was funded from external funding.

10. The increase in intangibles over the prior period relates to acquisition of Zebro’s Chicken (see
    note 21) as well as the securing of the 30-year exclusive MFA to develop the global Domino’s
    Pizza brand in South Africa and six other countries. (see note 29 below).

11. The increase in goodwill over the prior period is attributable to the acquisition of NWJ corporate
    stores as well as for the acquisition of the Zebro’s Chicken brand (see note 21).
12. 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 and / or financing provided to certain franchisees within the
      group.

13. The increase of R16.4 million in inventories consists of:
    - R13.6 million increase in NWJ inventory associated with owning ten more corporate
      stores than in the prior period. A more appropriate measure of inventory efficiency and
      management is stock days. When compared to the prior period stock days have reduced
      by 6%; and
    - an increase of R2.8 million in inventory in the food services division in line with this
      division’s increased contribution to the food segment.

14. The increase in both trade and other receivables and payables from the 2014 financial year end
    results is mainly as a result of the growth of both the food services and jewellery segments.

15. Included in the current period is an amount of R2.6 million of marketing spend for Domino’s Pizza.

16. 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;
    - 2,442,792 shares at R3.48 per share to the Zebro’s Chicken vendors as part payment of
      the purchase price; and
    - shares to the Taste Holdings Share Trust in terms of the Taste Holdings Limited share
      option scheme.

17. The increase in borrowings from 28 February 2014 and from the prior period is due to the
    inaugural issue of R125 million under the DMTN programme (see note 8).

18. 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.

19. Cash generated from operating activities for the current period includes R2.6 million of Domino’s
    Pizza related once off costs as in the core earnings reconciliation in note 2 above. It also includes
    a further R2.6 million in Domino’s marketing pre-spend (see note 15). For the six NWJ corporate
    stores acquired and opened in the current period, an additional investment in inventory of R4.1
    million is accounted for in cash generated from operating activities. This investment relates to the
    additional inventory necessary to ensure that the ideal stock holdings are achieved in the new
    stores and is essentially an investment, although reflected in working capital. Excluding the
    above investment accounted for in cash generated from operations, as well as the R5.2 million
    pertaining to Domino’s costs and Domino’s marketing pre-spend, the group’s operating cash
    conversion is 92% of core EBITDA (R23.3 million).

20. The difference in taxation paid when compared to the prior period arises as a result of the
    utilisation in the current period of assessed losses that were incurred during the start-up phase of
    the food services business.

21. Acquisition of Zebro’s Chicken
    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 4-7 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:
      I.   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;
      II.  its focused menu results in easy to manage operations which promotes multiple
           and company store ownership; and
      III. 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. During the period Zebro’s Chicken contributed R16.7
million to revenue and R1.4 million to operating profit. The revenue and operating profit as if this
brand was owned for the full year cannot be disclosed, as complete and compliant financial
records prior to the date of acquisition could not be obtained. None of the goodwill recognised is
expected to be deductible for income tax purposes.

Acquisition of NWJ stores
Between March 2014 and July 2014, NWJ acquired the assets of three 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:

Provisional                                                                                   R'000
Property, plant and equipment                                                                   848
Inventory                                                                                     2 638
Fair value of assets acquired                                                                 3 486
Consideration paid                                                                          (4 327)
In cash                                                                                     (2 358)
Balance owed by vendors                                                                     (1 969)
Goodwill acquired                                                                               841

The purchase consideration was discharged in cash. 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. During the period that these three stores were owned by NWJ, they
contributed R3 million to revenue and R0.8 million to operating profit. In total these three stores
contributed 12 trading months during the current six-month period. In aggregate these stores
were owned for four months during the current period. Due to the seasonal nature of the jewellery
segment, historically approximately 70% of operating profit is produced in the second half of the
year. 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.

22. 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 segments, which consolidation does not impact
    any comparable financial results. This segmental reporting format is representative of the internal
    reporting structure used for management reporting.

23. Food segment revenue includes royalty, new store and distribution revenue from sales to
    franchisees. Including the revenue adjustment as explained in note 2 above, food segment
    revenue has increased 13%. This increase is due to the combined effect of the increase in
    system-wide sales of 4% and the expected growth in the food services division.

24. Including the core earnings adjustments explained in note 2, core operating profit declined by
    R1.4 million to R15 million (2013: R16.4 million). This decline is due to fewer new store openings
    in The Fish and Chip Co. brand as well as the non-comparable costs due to the organisational
    changes and depreciation and amortisation in the segment as described in note 6. Core EBITDA
    in the food segment remained unchanged at R19.3 million (2013: R19.2 million) and core EBITDA
    margin declined slightly to 9.9% (2013: 11%). Excluding the additional depreciation and
    amortisation, core operating profit remained unchanged.

25. Jewellery segment 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 ten more corporate stores than at the end of the prior
    period. Consequently, the increase in revenue of 15% is due to a combination of system-wide
    sales increase of 5% driven largely by positive same-store sales and the additional revenue from
    the additional corporate-owned stores.

26. EBITDA in the jewellery segment increased 14% to R11.5 million (2013: R10.1 million) and the
    EBITDA margin remained unchanged at 11%.

27. This refers to interdivisional revenues in the food and corporate services segments that are
    eliminated on consolidation.

28. This amount reflects the actual expenses incurred in corporate services and reflects a decrease
    of 6% from the prior period.

29. Domino’s Pizza
    As announced on SENS on 10 April 2014, Taste Food Franchising Proprietary Limited (“TFF”), a
    wholly owned subsidiary of Taste, has signed an exclusive 30-year Master Franchise Agreement
    (“MFA”) with Domino’s Pizza International Franchising Inc. In terms of the MFA, TFF holds the
    exclusive rights to develop the international Domino’s Pizza brand, initially in seven Southern
    African countries, namely South Africa, Lesotho, Swaziland, Namibia, Botswana, Zimbabwe and
    Mozambique. Zambia and Malawi will follow on the fulfilment of certain conditions. The group will
    assist franchisees of its Scooters Pizza and St Elmo’s Pizza brands to convert their stores to
    Domino’s Pizza outlets by the end of December 2015.


GROUP OVERVIEW

The board of directors of Taste (“the Board”) present the unaudited condensed consolidated financial
results for the six months ended 31 August 2014 (“the current period”). Taste is a South African
based management group that is invested in a portfolio of mostly franchised, owned and licensed,
category specialist and formula driven, quick service restaurant and retail brands.

The last six months saw the group embark on its ambitious five-year growth plan. This was kick-
started with the acquisition of Zebro’s Chicken on 1 March 2014; and securing the exclusive Master
Franchise rights for Domino’s Pizza for 30 years in seven African countries in April 2014. Aligned to
this growth plan was a restructure of the groups’ access to capital: In July 2014, Taste registered a
R1 billion Domestic Medium Term Note (“DMTN”) program with an initial successful issuance of R125
million. In September 2014, the group successfully raised R180 million from shareholders through a
rights offer that was fully subscribed for by existing shareholders with no need for an underwriter.
This capital structure will allow the group access to capital in a more predictable manner in the future
and is more closely aligned with the acquisitive opportunities in the local market; the roll-out of the
Domino’s Pizza conversion; and expansion opportunities in the Jewellery segment of the group.
When compared to the six months ended 31 August 2013 (“the prior period” or “2013”) group system-
wide sales increased 4% to R746 million (2013: R716 million). At core operating profit level the only
business unit that did not perform satisfactorily over the prior period was The Fish & Chip Co.
Inflationary same-store sales in the group’s pizza, chicken and jewellery businesses were offset by
negative same-store sales in The Fish & Chip Co. business as consumer demand in this segment
slowed. Due to the relatively high weighting of this business unit same-store sales across the group
decreased by 2.7%. At the end of the current period, the group had over 620 outlets trading in
Southern Africa. Core revenue increased 15% to R302.2 million (2013: R261.7 million) while core
EBITDA increased 10% to R23.3 million. As expected core headline earnings decreased from the
prior period by R1.1 million as a result of non-comparable costs associated with restructuring the food
division to create capacity to capitalise on international brands and local opportunities implemented in
the second half of 2013, the fruits of which are already evident through the Domino’s Pizza licence
and roll-out and the Zebro’s Chicken acquisition.

SEGMENTAL OVERVIEW

FOOD

The food division consists of the Domino’s Pizza, Maxi’s, Scooters Pizza, St Elmo’s Woodfired Pizza;
Zebro’s Chicken 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 five trading 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 and
spread its exposure to multiple protein categories. The launch of the first Domino’s Pizza outlets is
moving ahead as planned with the first stores still scheduled to open before the end of the calendar
year.

The comparable financial performance of The Fish & Chip Co. was lower than the prior period due in
the main to approximately R4 million less gross profit associated with new store openings. This gross
profit has little associated costs and therefore impacts profitability directly. From a consumer
perspective, the widespread inflation shock of wild-caught hake in November 2013 has resulted in
other protein categories providing more value to consumers and this has contributed to the sales
decline in the fish category. The Zebro’s Chicken business, which serves the same consumer, has
experienced double digit same-store sales growth in the last six months.

The consolidation of the food services business during the prior year has yielded expected efficiencies
and consequently, savings in transport, a reduction in stock days and a lower per-kilogram cost of
delivery. These continue to improve and will carry through into the next reporting period.         The
seamless integration of Zebro’s Chicken in March 2014 has proved particularly instrumental in testing
the scalability of both the newly consolidated food services business as well as the newly established
shared franchise services structure established in September 2013, as detailed above. Based on this
integration experience the group is confident the current structure is scalable and has future capacity
to integrate other businesses in a similarly value accretive manner.

Zebro’s Chicken
On 29 January 2014 the group announced on SENS that it would acquire Zebro’s Chicken, a unique
15 year-old franchise chain that targets lower income consumers through a proprietary BBQ flavoured
chicken recipe prepared on open coals. On 1 March 2014 the group commenced with the integration
of Zebro’s Chicken into the existing Taste supply chain and operations. This acquisition is in line with
the groups 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 on SENS that it had signed a 30-year exclusive 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 already large and growing pizza
segment.

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 continued its three-year positive same-store sales trend, albeit at a slower pace than in
prior periods, reflective of the current consumer environment. The number of corporate owned stores
increased to 39 (2013: 26) of the 77 total outlets at 31 August 2014 (2013: 74). The successful
growth in corporate owned outlets over the last three years from 17 to the current 39 has developed
the group’s corporate store ownership skill substantially and the groups’ intention is to leverage this
strength in the future with further growth in corporate store ownership. 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 OF THE INTERIM RESULTS

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 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 group’s auditors and
were prepared under the supervision of Mr. E. Tsatsarolakis, the Chief Financial Officer of the group.


EVENTS SUBSEQUENT TO PERIOD END

Acquisition of NWJ stores
On 1 September 2014, NWJ acquired a 58% share in a company that owns and operates three
franchised NWJ stores as these stores were located in key strategic sites. The acquisition consisted
of inventory, property, plant and equipment and trade and other payables. The fair value of the assets
and liabilities acquired is set out below:

                                                                                               R'000
Property, plant and equipment                                                                    941
Inventory                                                                                      7 280
Trade and other payables                                                                     (2 181)
Fair value of assets and liabilities                                                           6 040
58% share of fair value of assets and liabilities acquired                                     3 503
Consideration paid in cash                                                                   (9 065)
Goodwill acquired                                                                              5 562


The purchase consideration was discharged in cash. 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. 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.

Change in Company secretary
As announced on SENS on 17 September 2014, and in compliance with section 3.59 of the JSE
Limited Listings Requirements, the board of directors of the Company wish to inform shareholders
that iThemba Corporate Governance and Statutory Solutions Proprietary Limited was appointed as
Company secretary with effect from 17 September 2014, replacing Ms Monika Pretorius who resigned
as Company Secretary with effect from 17 September 2014.

The directors are not aware of any other matter or circumstance arising since the current period up to
the date of this report.

CAUTIONARY

Shareholders are referred to the cautionary announcement issued on SENS on 26 September 2014
stating that Taste has entered into negotiations in respect of a possible acquisition which, if
successfully concluded, may have a material effect on the price of the company’s securities.
Accordingly, shareholders are reminded to exercise caution when dealing in the company’s securities,
until a further announcement is made.

DOMINO’S PIZZA MASTER FRANCHISE AGREEMENT UPDATE

Shareholders are referred to the SENS announcement dated 20 May 2014 in which shareholders
were advised of litigation that had arisen between Taste and Domino's Pizza International
("Domino's") (on the one hand) and certain aggrieved parties (on the other) in relation to the rights
secured by Taste Food Franchising Proprietary Limited ("TFF") as announced by Taste and Domino's
on 10 April 2014.

Save that TFF has been joined as a third party to the proceedings, there have been no material
changes to the status of that litigation. Further affidavits in relation to the litigation have been
exchanged and once all affidavits and other necessary documents have been finally exchanged,
application for a hearing date will be made. Shareholders will be updated in due course.

PROSPECTS

The group expects the weaker than expected sales performance of the fish category to continue while
the anniversary effect of new store openings will be minimised in the future. The group is of the
opinion that it is well resourced to not only offer consumers much desired value during this period, but
also to grow in line with its stated strategy. The opening of new Domino’s Pizza outlets this year and
the conversion of Scooters Pizza & St Elmo’s outlets next year to this leading global brand will drive
incremental sales in the growing pizza market. The judicious value accretive application of over R200
million of the capital that has been raised in the last six months holds similarly large opportunity for
future growth for the group.

DIRECTORATE

During the period under review, the following changes to the Board occurred:

-   Mr Grant Pattison was appointed as independent non-executive director with effect from 1 March
    2014.

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
9 October 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*
*Independent
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 1125, Ferndale, Randburg, 2160
Company secretary: iThemba Corporate Governance and Statutory Solutions Proprietary Limited
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: 09/10/2014 08:00:00 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
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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