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Results for the Year Ended 28 February 2015, Final Cash Dividend Declaration and Notice of AGM
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 SUMMARISED CONSOLIDATED RESULTS FOR THE YEAR ENDED
28 FEBRUARY 2015, FINAL CASH DIVIDEND DECLARATION AND NOTICE OF ANNUAL
GENERAL MEETING
Salient features & highlights
- Core revenue up 25% to R723.7 million (2014: R580.0 million)
- Core EBITDA up 22% to R73.1 million (2014: R59.9 million)
- Core operating profit up 19% to R58.1 million (2014: R49.0 million)
- Core headline earnings up 17% to R36.1 million (2014: R31.0 million)
- Core headline earnings per share up 3% to 16.1 cents (2014: 15.7 cents)
- System-wide sales up 6.8% to R1.58 billion (2014: R1.48 billion)
- Successfully launched Domino’s Pizza with six corporate owned outlets
- Acquired Arthur Kaplan Jewellers
- Acquired and successfully integrated Zebro’s Chicken
- Acquired eight NWJ stores from franchisees
- Dividend per share up 5% to 6.5 cents
- Total dividend payable up 53% to R19 million
- Net tangible asset value per share up by 105% to 90.2 cents
AUDITED SUMMARISED GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
28 February 28 February
% 2015 2014
change R'000 R'000
Revenue 24% 723,705 582,782
Cost of sales (439,260) (351,165)
Gross profit 23% 284,445 231,617
Other income 796 956
Operating costs 39% (253,604) (182,855)
Operating profit -36% 31,637 49,718
Investment revenue 6,465 2,496
Finance costs (13,140) (7,889)
Profit before taxation -44% 24,962 44,325
Taxation (8,813) (13,945)
Profit for the year -47% 16,149 30,380
Other comprehensive income - -
Non-controlling interest (531) -
Total comprehensive income for the year -49% 15,618 30,380
Attributable to:
Equity holders of the company -49% 15,618 30,380
Earnings per share attributable to equity holders of
the company
Earnings per share (cents) * -55% 6.9 15.4
Diluted earnings per share (cents) * -54% 6.8 14.9
Dividends declared per share (cents) 5% 6.5 6.2
AUDITED SUMMARISED GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION
28 February 28 February
2015 2014
R'000 R'000
ASSETS
Non-current assets 349,596 201,288
Property, plant and equipment (14) 105,369 29,776
Intangible assets (15) 91,924 79,545
Goodwill (16) 112,090 78,756
Other financial assets (17) 26,566 11,910
Deferred tax 13,647 1,301
Non-current assets held for sale (18) 7,178 -
Current assets 407,493 229,406
Inventories (19) 234,355 116,856
Trade and other receivables (20) 97,577 74,712
Current tax receivables 3,024 2,949
Advertising levies 8,255 1,618
Other financial assets (17) 1,399 7,230
Cash and cash equivalents 62,883 26,041
Total assets 764,267 430,694
EQUITY AND LIABILITIES
Equity attributable to holders of company 418,573 224,943
Share capital 3 2
Share premium (21) 282,634 94,545
Retained earnings 132,212 128,624
Equity-settled share-based payment reserve 3,724 1,772
Non-controlling interest (11) (531) -
Non-current liabilities 165,565 77,924
Borrowings (22) 130,757 57,422
Lease equalisation (23) 2,117 -
Deferred tax 32,691 20,502
Current liabilities 180,660 127,827
Current tax payable 751 809
Advertising levies - 1,198
Bank overdrafts 18,142 18,393
Borrowings (22) 3,568 17,845
Balance due to vendors 1,000 1,000
Lease equalisation (23) 1,312 -
Provisions 250 250
Dividends payable 84 55
Other financial liabilities (26) 15,000 -
Trade and other payables (20) 140,553 88,277
Total equity and liabilities 764,267 430,694
Number of shares in issue ('000) (13) 263,464 199,304
Net asset value per share (cents) 158.7 112.9
Net tangible asset value per share (cents) (24) 90.2 44.0
AUDITED SUMMARISED GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity- Total
settled attributable
share- to
Total based equity Non-
Share Share share payment Retained holders of controlling
capital premium capital reserve earnings the company Interest(11) Total
R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Balance as at 28
February 2013 2 80,101 80,103 972 108,171 189,246 - 189,246
Share issue - 13,837 13,837 - - 13,837 - 13,837
Options exercised - 607 607 - - 607 - 607
Dividends paid - - - - (9,927) (9,927) - (9,927)
Share based payment
reserve - 800 - 800 - 800
Total comprehensive
income for the year - - - - 30,380 30,380 - 30,380
Balance at 1 March
2014 2 94,545 94,547 1,772 128,624 224,943 - 224,943
Share issue (21) 1 186,912 186,913 - - 186,913 - 186,913
Options exercised - 1,177 1,177 - - 1,177 - 1,177
Dividends paid - - - - (12,561) (12,561) - (12,561)
Share based payment
reserve - - - 1,952 - 1,952 - 1,952
Total comprehensive
income for the year - - - - 16,149 16,149 (531) 15,618
Balance at 28 February
2015 3 282,634 282,637 3,724 132,212 418,573 (531) 418,042
AUDITED SUMMARISED GROUP CONSOLIDATED STATEMENT OF CASH FLOWS
28 February 28 February
2015 2014
R'000 R'000
Cash flows from operating activities (25) 26,216 13,383
Cash generated by operating activities 58,553 42,832
Investment revenue (8) 6,465 2,496
Finance costs (9) (13,140) (7,889)
Dividends paid (12,532) (9,910)
Taxation paid (13,130) (14,146)
Cash flows from investing activities (14) (211,175) (46,748)
Acquisition of property, plant and equipment (75,036) (16,807)
Proceeds of disposals of property, plant and equipment 270 600
Acquisition of non-current asset held for sale (18) (7,178) -
Acquisition of business (26) (115,512) (20,478)
Loans advanced (15,253) (10,973)
Loans repaid 6,429 2,149
Acquisition of intangible assets (15) (4,895) (1,239)
Cash flows from financing activities 236,223 33,845
Decrease in long-term employee benefits - (126)
Proceeds from issue of shares (21) 179,590 14,444
Loans raised (22) 125,000 25,300
Loans paid (22) (68,367) (5,773)
Change in cash and cash equivalents 51,264 480
Cash acquired from business acquisition (14,171) -
Cash and cash equivalents at beginning of the year 7,648 7,168
Cash and cash equivalents at end of the year 44,741 7,648
AUDITED SUMMARISED GROUP CONSOLIDATED SEGMENTAL REPORT
Inter-
Luxury segment
Food Goods Corporate division
division division services revenues Total
Year ended 28 February 2015 R’000 R’000 R’000 R’000 R’000
Revenue 398,782 324,923 10,353 (10,353) 723,705
Operating profit/(loss) 6,499 41,618 (16,480) - 31,637
Investment revenue 2,596 403 12,317 (8,851) 6,465
Finance costs (7,924) (5,900) (8,167) 8,851 (13,140)
Profit before taxation 1,171 36,121 (12,330) - 24,962
Segment depreciation and amortisation (8,923) (4,473) (1,672) - (15,068)
Segment assets 334,332 360,353 69,582 - 764,267
Segment liabilities 142,278 180,748 23,199 - 346,225
Segment capital expenditure 72,441 12,791 300 - 85,532
Year ended 28 February 2014
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 43,649 - 205,751
Segment capital expenditure 12,002 4,356 449 - 16,807
Notes to the financial information
1. Reconciliation of headline earnings
28 February 28 February
% 2015 2014
change R'000 R'000
Reconciliation of headline earnings:
Earnings attributable to ordinary shareholders -49% 15,618 30,380
Adjusted for:
Impairment losses - 1,223
Profit on sale of property, plant and equipment and non-current
assets available for sale (246) (310)
Tax effect on headline earnings adjustments 46 (66)
Headline earnings attributable to ordinary shareholders -51% 15,418 31,227
Adjusted for:
Legal fees 676 1,159
Once-off costs of the distribution business - 903
Transaction costs and other once-off costs 5,168 -
Once-off and upfront Domino's Pizza costs and prior year
revenue adjustment 21,955 (2,770)
Tax effect on core earnings adjustments (7,036) 523
Core headline earnings 17% 36,181 31,042
Weighted average shares in issue ('000) * 225,225 197,245
Weighted average diluted shares in issue ('000) * 230,879 203,389
Earnings per share (cents) * -55% 6.9 15.4
Diluted earnings per share (cents) * -54% 6.8 14.9
Headline earnings per share (cents) * -57% 6.8 15.8
Diluted headline earnings per share (cents) * -56% 6.7 15.3
Core headline earnings per share (cents) * 3% 16.1 15.7
* In terms of IAS33 the per share calculations for the comparative period have been adjusted downwards by 0.2
cents. This is due to the retrospective adjustment for the rights offer undertaken during the 2015 financial year.
The adjustment to the weighted average number of shares in issue increased by 2.4 million shares to reflect the
discount given to shareholders in the rights offer.
2. Core earnings
As with previous years the group discloses core/normalised earnings. The company uses this
core earnings measure to internally evaluate operating performance, to evaluate itself against its
peers, and to determine future performance targets and long-range planning. Additionally, the
company believes that stakeholders covering the company’s performance also utilise a similar
measure. Taste will disclose this financial measure for as long as it is relevant to stakeholders.
The detail of the reconciliation to core earnings is disclosed with reference to notes 2 and 23, and
the table below.
Core earnings exclude once-off costs and revenues; as well as Domino’s Pizza upfront costs
relating to the launching of the Domino’s Pizza brand; the establishment of dough production and
distribution facilities; and the conversion of the Scooters Pizza and St Elmo’s stores to Domino’s
Pizza stores which includes opening corporate owned training stores required for the conversion,
and the interest thereon. The significant categories of this expenditure are: [1] international and
local costs associated with establishing specialised national training teams for the conversion of
the stores (R9.9 million); [2] pre-opening expenses and non-recurring up-front freight (R5.7
million); and [3] ongoing project management fees and other non-recurring costs (R5.0 million).
The group anticipates that the once-off and up-front costs relating to the Domino’s project will
continue to be excluded from core earnings until the conversion of Scooters Pizza and St Elmo’s
stores to Domino’s Pizza is complete, anticipated in February 2016. During the current period
R2.4 million of non-recurring costs were incurred relating to transaction and legal fees related to
capital projects.
The group’s core revenue for the year ended 28 February 2014 (“the prior period” or “2014”), has
been decreased by an adjustment of R2.8 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 in the prior period as no new Scooters Pizza or St
Elmo’s stores could be opened in the current year after the signature of the Domino’s Pizza
Master Franchise Agreement (“MFA”) in April 2014. The taxation in the prior period has also been
adjusted accordingly.
SUMMARISED GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME RECONCILIATION TO CORE EARNINGS
Core 28 February Core earnings 28 February 28 February
earnings Actual Adjustment Core earnings Core earnings
% 2015 2015 2015 2014
change R'000 R'000 R'000 R'000
Revenue (3) (4) 25% 723,705 - 723,705 580,012
Cost of sales (439,260) - (439,260) (351,165)
Gross profit (5) 24% 284,445 - 284,445 228,847
Other income 796 - 796 956
Operating costs (6) 26% (253,604) 26,453 (227,151) (180,793)
Operating profit 19% 31,637 26,453 58,090 49,010
Investment revenue (8) 159% 6,465 - 6,465 2,496
Finance costs (9) 49% (13,140) 1,346 (11,794) (7,889)
Profit before taxation 21% 24,962 27,799 52,761 43,617
Taxation (10) (8,813) (7,036) (15,849) (13,422)
Profit for the year 22% 16,149 20,763 36,912 30,195
Other comprehensive income - - - -
Non-controlling interest (11) (531) - (531) -
Total comprehensive income for the year 20% 15,618 20,763 36,381 30,195
Attributable to:
Equity holders of the company 20% 15,618 20,763 36,381 30,195
Earnings per share attributable to equity holders of
the company
Earnings per share (cents) * 6% 6.9 9.2 16.2 15.3
Diluted earnings per share (cents) * 7% 6.8 9.0 15.8 14.8
Dividends declared per share (cents) (12) 5% 6.5 - 6.5 6.2
Reconciliation of headline earnings:
Earnings attributable to ordinary shareholders 20% 15,618 20,763 36,381 30,195
Adjusted for:
Impairment losses - - - 1,223
Profit on sale of property, plant and equipment and non-
current assets available for sale (246) - (246) (310)
Tax effect on headline earnings adjustments 46 - 46 (66)
Headline earnings attributable to ordinary shareholders 17% 15,418 20,763 36,181 31,042
Weighted average shares in issue ('000) * (13) 225,225 225,225 225,225 197,245
Weighted average diluted shares in issue ('000) * 230,879 230,879 230,879 203,389
Basic earnings per share (cents) * 6% 6.9 9.2 16.2 15.3
Diluted earnings per share (cents) * 7% 6.8 9.0 15.8 14.8
Headline earnings per share (cents) * 3% 6.8 9.2 16.1 15.7
Diluted headline earnings per share (cents) * 3% 6.7 9.0 15.7 15.3
SUMMARISED GROUP CONSOLIDATED SEGMENTAL REPORT OF CORE EARNINGS
28 February 28 February
% 2015 2014
change R'000 R'000
Core revenue
Food (27) 10% 398,782 362,053
Luxury Goods (28) 42% 324,923 229,289
Corporate Services (29) -36% 10,353 16,242
Inter-segment revenues (30) -62% (10,353) (27,572)
Group core revenue (4) 25% 723,705 580,012
Core EBITDA (7)
Food (7) (27) -6% 36,076 38,466
Luxury Goods (7) (28) 36% 49,055 35,949
Corporate Services -17% (11,972) (14,499)
Group core EBITDA (7) 22% 73,159 59,916
Core operating profit/(loss)
Food -16% 27,153 32,362
Luxury Goods 36% 44,582 32,897
Corporate Services -16% (13,644) (16,249)
Group core operating profit/(loss) 19% 58,091 49,010
3. 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.
4. The 25% increase in group core revenue for the year ended 28 February 2015 (“the current
period” or “2015”) is attributable mainly to the increase in corporate store ownership across both
divisions. In total they contributed to 85% of the increase. The majority of the balance of the
increase is attributable to an increase in revenue from the food services business.
5. The core gross profit margin remained unchanged at 39% when compared to the prior period.
Compared to the six months ended 31 August 2014 the gross margin improved from 37%.
6. Included in core operating costs is R15 million of depreciation and amortisation, an increase of
R4.1 million from the prior period (2014: R10.9 million). An effective measure of cost control
excludes depreciation and amortisation and reflects those costs as a percentage of revenue. In
the current period those costs were 29.3% of revenue, unchanged from the prior period and
marginally improved from 31 August 2014.
7. The company uses core earnings before interest, taxation, depreciation and amortisation
(“EBITDA”) as a key internal measure to evaluate performance; for peer group comparisons; for
performance targets and to determine long-range planning. For the current period core EBITDA
increased 22% to R73.2 million (2014: R59.9 million). Core EBITDA margin for the current
period remained at 10%, unchanged from both the prior period and from the year ended
28 February 2013.
- The 36% increase in the luxury goods division core EBITDA is attributable to a
combination of the Arthur Kaplan acquisition and an increase in the existing NWJ
business.
- The decline in the core EBITDA of the food division is due almost exclusively to the fewer
new store openings in The Fish and Chip Co. brand and its continued soft sales
performance.
8. The increase in investment revenue is consequent to the R180 million raised through a rights
offer to shareholders in September 2014, as detailed in the circular posted 9 September 2014.
9. 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. 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 complementary to the capital raised
through the rights offer to existing shareholders as detailed in note 13.
10. The group’s effective tax rate for the current period is 35% due to the non-deductible expenses
related to the various capital projects during the current period. The tax on the core earnings
adjustment is calculated only on expenses that are deductible for taxation purposes.
11. This relates to an acquisition made by the luxury goods division of 58% in a company that owns
three NWJ stores more fully detailed in note 26.
12. Historically the group has maintained a dividend cover of 2.5 times earnings per share. In
consideration of the group’s optimistic outlook in the medium term (12-36 months);
counterbalanced by the opportunities for value accretive investments that continue to present
themselves to the group and the short-term (12 month) cash requirements for the foreseeable
Domino’s investment, the board has maintained its historical dividend cover of 2.5 times core
earnings per share. While this represents a modest (5%) increase on a per share basis it
represents an increase of 53% in the total dividend paid, when compared to the prior period.
13. The change in the weighted average number of shares in issue is as a result of:
- 6,172,483 shares issued to fund the Zebro’s Chicken acquisition, effective 1 March 2014,
2,442,792 of which were issued to the Zebro’s Chicken vendors (see note 26 below)
- 60,052,514 shares issued in terms of the rights offer to shareholders effective
29 September 2014.
14. The increase of R75.6 million in property, plant and equipment relates to the following capital
expenditures:
- acquisition and construction of corporate stores opened in the food and luxury goods
divisions;
- acquisition of equipment required for corporate stores to be opened in the food division
after year-end;
- establishing the new distribution and dough manufacturing facility in Midrand and Cape
Town; and
- continuing our vehicle purchase programme in the food distribution business. This
programme continues to prove its return in operational efficiencies and savings,
exceeding our internal rate of return (“IRR”) hurdle, and will continue, albeit at a slower
pace.
- acquisition of Arthur Kaplan
15. The increase in intangible assets over the prior period relates to the acquisition of Zebro’s
Chicken (see note 26) as well as the securing of the 30-year exclusive Master Franchise
Agreement (“MFA”) to develop the global Domino’s Pizza brand in South Africa and six other
African countries. (see note 31 below).
16. The increase in goodwill over the prior period is attributable to the acquisition of NWJ corporate
stores; the acquisition of Zebro’s Chicken and the acquisition of Arthur Kaplan (see note 26).
17. Other financial assets consist of:
- loans made to marketing funds of brands within the group, including pre-funding the
Domino’s Pizza marketing fund through a loan. These loans attract interest, and are
repayable.
- extended payment terms given to franchisees of the group.
18. Periodically the group will operate outlets where the short term intention is to sell them to
franchisees. Currently the group operates six such outlets.
19. R112 million of the R117 million increase relates to an increase in luxury goods inventory, the
majority of which was acquired with the Arthur Kaplan acquisition. See note 26.
20. The reason for the larger percentage increase in payables, when compared to the percentage
increase in receivables, is due to a combination of [1] Arthur Kaplan being a cash business with
no franchisees and therefore no material debtors; and [2] an increase in equipment creditors
related to the Domino’s Pizza roll-out.
21. The increase in share premium from the prior period is consequent to the shares issued per
note 13.
22. The increase in borrowings from the prior period is due to the inaugural issue of R125 million
under the DMTN programme (see note 9).
23. With the substantial increase in additional corporate store ownership across both divisions,
lease rentals are now a material expense to the group and the lease smoothing charge in terms
of IAS17 is disclosed for the first time. This is a non-cash item and is excluded from core
earnings.
24. 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.
25. Cash generated from operating activities for the current period includes the costs and working
capital associated thereto in terms of the core adjustment (see note 2). It also includes an
additional investment in inventory over and above the acquired inventory amounting to R6.5
million (2014: R10 million) for the NWJ corporate stores acquired and opened during the year.
This investment relates to 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 effect of the two factors discussed above, the group cash conversion ratio
is 79% of core EBITDA. (2014: 87%).
26. During the year the following acquisitions were made:
Acquisition of Zebro’s Chicken
On 1 March 2014, the group’s food division 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.
Goodwill arose on the acquisition 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
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. During
the period Zebro’s Chicken contributed R38.6 million to revenue and R3.6 million to operating
profit. None of the goodwill recognised is expected to be deductible for income tax purposes.
Acquisition of NWJ stores
During the current period, NWJ acquired the business of five franchised NWJ stores as these
stores were located in key strategic sites. The rationale for this acquisition is consistent with the
brands strategy of:
- expanding its corporate store ownership; and
- retaining key strategic sites.
Goodwill arose 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:
R'000
Property, plant and equipment 1,140
Inventory 5,799
Fair value of assets acquired 6,939
Consideration paid (8,934)
In cash (3,705)
Balance owed by vendors (5,229)
Goodwill acquired (1,995)
During the period that these five stores were owned by NWJ, they contributed R12.7 million to
revenue and R2.7 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 they were acquired could not be obtained.
Acquisition of Arthur Kaplan
On 27 November 2014, the group’s luxury goods division acquired ten Arthur Kaplan branded
outlets and one World’s Finest Watches outlet. Arthur Kaplan is the leading retailer of Swiss
watches in South Africa and has in the last 40 years established a reputation in the retail watch
market as a stockist of premium luxury brands including Rolex, Breitling, Omega, Tag Heuer
and Longines and is one of the few retailers in the marketplace to stock these leading brands in
multiple outlets. Arthur Kaplan retails a number of other leading luxury watch brands as well as a
selection of fashion watch brands. Arthur Kaplan also retails luxury fine jewellery in 18ct and 9ct
gold, platinum and silver that appeals to aspirational affluent consumers. It does so within
collections under the Arthur Kaplan brand name with a focus on bridal and engagement pieces.
Since opening in 2002, World's Finest Watches has, as the only specialist prestige watch
boutique in Sandton, become an established destination for watch enthusiasts and collectors.
World’s Finest Watches specialises in prestige brands like Rolex, Hublot, Omega and Tag
Heuer.
The rationale for the acquisition is as follows:
- Arthur Kaplan’s “affluent aspirational” target market is complementary to Taste’s view
that, to compete in the upper income consumer market, it should be done with the
best brands in their categories.
- Arthur Kaplan is the leader in the luxury Swiss watch segment in South Africa. Taste
currently manages over 25 watch brands in its existing business and retails these in
over 79 locations in Southern Africa.
- Arthur Kaplan’s jewellery offering, while not its current dominant revenue category,
represents approximately 40% of the revenue in its mid-tier stores. The range of
jewellery is aligned with Taste’s current manufacturing capability and Taste believes
there is upside potential to grow Arthur Kaplan’s jewellery offering and its revenue
contribution.
- There is scope for growth in store numbers within the South African market as well as
scope to satisfy demand for luxury Swiss watches in sub-equatorial Africa. This
market is currently underserved by dedicated retail offerings and this African focus
and opportunity is aligned with that of the broader Taste group.
Goodwill arose on the acquisition of Arthur Kaplan 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:
R’000
Property, plant and equipment 4,346
Trade and other receivables 1,201
Inventory 111,971
Trade and other payables (21,223)
Bank overdraft (14,171)
Borrowings (2,425)
Fair value of assets acquired 79,699
Consideration paid (100,000)
In cash (85,000)
Contingent consideration (15,000)
Goodwill acquired (20,301)
According to the purchase and sale agreement an additional purchase consideration is payable
if the profit after tax of Arthur Kaplan for the period from 1 July 2014 to 30 June 2015 exceeds
R12.386 million. This additional consideration is calculated by multiplying R4.21 for every R1.00
with which the profit after tax exceeds R12.386 million, up to a total additional amount of
R35 million. Any savings made or additional expenses incurred as a result of the transfer of
ownership to Taste will be excluded from this calculation. The purchase price allocation has
been disclosed as provisional, as permitted by IFRS3 Business Combinations and will be
finalised within the next 12 months of the sale.
During the three month period that Arthur Kaplan was owned, it contributed R70.7 million to
revenue and R9.5 million to operating profit. The revenue and operating profit if Arthur Kaplan
was owned for the full year is R249 million and R19.8 million respectively.
Acquisition of NWJ Retail (Pty) Limited
On 1 September 2014, NWJ purchased a 58% share in a company that owns and operates
three NWJ stores. The rationale for this acquisition is consistent with the brands strategy of:
- expanding its corporate store ownership; and
- retaining key strategic sites.
Goodwill arose 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:
R'000
Property, plant and equipment 941
Inventory 7,280
Trade and other receivables 358
Trade and other payables (2,827)
Fair value of assets acquired 5,752
Consideration paid (7,487)
In cash (7,487)
Goodwill acquired (1,735)
During the period that these three stores were owned by NWJ, they contributed R12.9 million to
revenue and R1.7 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 they were acquired could not be obtained. The purchase
price allocation has been disclosed as provisional, as permitted by IFRS3 Business
Combinations and will be finalised within the next 12 months of the sale.
Acquisition of food stores
During the current period, the food division acquired the business of six franchised food outlets.
These stores were acquired a part of the food division strategy to expand its corporate store
footprint.
Goodwill arose 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:
R'000
Property, plant and equipment 3,993
Fair value of assets acquired 3,993
Consideration paid (5,591)
In cash (1,453)
Balance owed by vendors (4,138)
Goodwill acquired (1,598)
During the period that these six stores were owned, they contributed R4.4 million to revenue
and a loss of R0.3 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 they were acquired could not be obtained.
Summary of acquisition of business
2015
In cash R’000
Zebro's Chicken 8,500
NWJ jewellery stores from franchisees 8,934
Arthur Kaplan 85,000
58% share in three NWJ stores 7,487
Food stores from franchisees 5,591
Total cash paid 115,512
27. Although food division revenue increased 10%, core EBITDA decreased 6% to R36.1 million
(2014: R38.5 million). This decline is attributable to the performance of The Fish & Chip Co.
brand as outlined in note 4. The core EBITDA impact of the fewer store openings is
approximately R6 million when compared to the prior period. Same-store sales in this brand
declined 14% from the prior period, whereas same store sales across the remainder of the food
division increased 5%.
28. Luxury goods revenue increased 42%, and core EBITDA 36%. This increase was mainly a
result of the Arthur Kaplan acquisition. Excluding Arthur Kaplan, revenue would have increased
11% and EBITDA 9%. As expected, the core EBITDA margin declined from 15.7% to 15.1% due
to the lower margin at which Arthur Kaplan trades. Excluding Arthur Kaplan, the core EBITDA
margin remained largely unchanged at 15.4%.
29. This amount reflects the actual expenses incurred in corporate services and reflects a decrease
of 17% from the prior period.
30. This refers to interdivisional revenues in the food and corporate services divisions that are
eliminated on consolidation.
31. 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.
GROUP OVERVIEW
The board of directors of Taste (“the Board”) present the audited summarised financial results for the
year ended 28 February 2015 (“the current period”). Taste is a South African based management
group that owns and licenses a portfolio of franchised and owned, category specialist, Quick Service
Restaurants (“QSR”) and retail brands represented in over 600 outlets in Southern Africa.
In the current period the group began implementation of an ambitious five-year growth plan. This plan
is broadly focused on leveraging existing capabilities across both divisions to: [1] license leading
global brands in consumer segments where the brand is an important part of how customers make
their purchasing decision; [2] improve scale among our ‘low cost’ food brands, through acquisition; [3]
increase ownership of corporate owned stores across both divisions; and [4] support this growth
through a leveraged shared resources platform and accessing selected vertical integration
opportunities.
During the current year the group made significant inroads against this strategy: [1] Through the
acquisition of Arthur Kaplan and Worlds’ Finest Watches the group is now the leading retailer (by
number of outlets) of luxury Swiss watches in the region, with brands like Breitling, Hublot, Longines,
Omega, Rado, Rolex, and TAG Heuer among its custodian brands. [2] Additional to Arthur Kaplan,
the group acquired further NWJ outlets during the year to the extent that the group now owns 54 of
the 90 jewellery and watch outlets (2014: 34 outlets were corporate owned). [3] The group now holds
the exclusive master license to Domino’s Pizza for South Africa and six other African countries.
Domino’s Pizza is the leader globally in pizza delivery. [4] The acquisition of Zebro’s Chicken
complements The Fish and Chip Co. brand in its consumer offering, and has the additional benefit of
diversifying the groups exposure to a single protein (fish) in that consumer category. [5] Significant
investment has been made to capitalise on the pizza dough production opportunity for Domino’s Pizza
outlets and to date two facilities are operational. [6] The food division underwent a restructuring in the
last 18 months to meet the needs of international license partners, which platform is scalable for
future licenses.
Aligned to this growth plan was a restructure of the group’s access to capital: In July 2014, Taste
registered a R1 billion Domestic Medium Term Note (“DMTN”) programme with an initial successful
issuance of R125 million. A further successful issuance of R75 million in April 2015 matched a private
share placement of R70 million in the same month. 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 nature of the
opportunities that will, and have, arisen through the strategic objectives outlined above.
System wide-sales increased 6.8% despite continued downward pressure from sales from The Fish
and Chip Co. business. Excluding The Fish & Chip Co., same store sales the food and luxury goods
divisions increased 5% and 5.9% respectively.
As outlined in the notes above, but specifically note 2, the group references core earnings as the
measure by which to evaluate operating performance. The core revenue increase of 25% to R723
million represents a CAGR in revenue over the last nine years of 48%. This revenue produced a core
EBITDA increase of 22%, which translated into an increase in cash generated from operations of 37%
and a cash generation ratio of 79% (2014: 87%). Core headline earnings per share increased 3% on
the back of a 17% increase in core headline earnings.
SEGMENTAL OVERVIEW
FOOD
The food division consists of 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 (“BGFS”).
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. From April 2015
BGFS also manufacturers fresh pizza dough for Domino’s Pizza from a specialised facility in Midrand
and will also manufacture burger patties from July 2015 from its now-expanded manufacturing
campus in Cullinan. All six 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 comparable financial performance of The Fish & Chip Co. was lower than the prior period due in
the main to approximately R6 million less core EBITDA associated with few new store openings.
From a consumer perspective, the multiple-above-inflation increase in the price of wild-caught hake
since 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 continued to experience double-inflation same-store sales growth in
the last year.
The first six Domino’s Pizza outlets were launched at the end of 2014. As of 10 May 2015 there were
23 Domino’s branded outlets, all of which are corporate owned. The group anticipates having
approximately 62 Dominos’ outlets by 31 August 2015, an increase from the guidance of 55 expected
outlets given in April 2015. The first converted franchisee stores will trade under the Domino’s Pizza
brand by the end of May 2015. Sales continue to exceed original expectations with converted stores,
(of which there are three currently) achieving sales more than 50% higher than they were achieving
prior to conversion. Per-store average Domino’s pizza sales are currently more than 60% higher than
average Scooters Pizza sales. As further validation of Domino’s success and the performance of the
leadership re-structure in the food division, Domino’s Pizza South Africa was recognised at an
international awards function in Versailles, France, on 20 May when they won three awards: Best
New Market Opening in 2014; Best Opening Sales Week in 2014; and the award for Quality
Assurance Excellence was received by our food supply chain organisation.
LUXURY GOODS
The acquisition of Arthur Kaplan has diversified the group’s customer base through increasing the
group’s representation in watches, a significant product category; as well as allowing the group to
access upper income consumers across watches and jewellery. The luxury goods division is the only
vertically-integrated and partly franchised jewellery business in South Africa. It owns and operates
approximately 60% 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 all the outlets. Approximately
40% of NWJ jewellery is manufactured by the group, with the remainder sourced through a
combination of local and global supply chains. 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.
Including annual Arthur Kaplan same-store sales the division’s same-store sales increased 5.9% over
the prior year. Notwithstanding this annual performance recent monthly sales trends have been
volatile and the group is cautious in its outlook in this regard. As the run-way for acquiring franchisee
stores from within the NWJ brand shortens, the group will once again focus on applying capital to new
store growth in both the Arthur Kaplan and NWJ brands.
BASIS OF PREPARATION OF THE AUDITED RESULTS
Statement of compliance
The audited summarised consolidated financial results are prepared in accordance with the
requirements of the JSE Limited Listings Requirements for abridged reports, and the requirements of
the Companies Act of South Africa applicable to summarised financial statements. The Listings
Requirements require summary 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. This
announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. The
accounting policies applied in the preparation of the consolidated financial statements from which the
audited summarised 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.
This abridged report is extracted from audited information but is itself not audited. The annual
consolidated financial statements were audited by BDO South Africa Inc., who expressed an
unmodified opinion thereon. The audited annual consolidated financial statements and the auditor’s
report thereon are available for inspection on the company’s website or at the company’s registered
office. The directors of Taste take full responsibility for the preparation of this abridged report and that
the financial information has been correctly extracted from the underlying audited consolidated
financial statements.
EVENTS SUBSEQUENT TO YEAR END
Issue of shares
On 21 April 2015, the group announced that it has successfully raised R94.7 million through the issue
of 31,073,773 Taste shares at an issue price of R3.05 per share partially by way of a general issue of
shares for cash and partially by way of a specific issue of shares for cash. The specific issue is to
Brimstone Investment Corporation Limited, amounts to R25 million and will be concluded once
shareholder approval is obtained. Shareholders are referred to the SENS announcement released on
21 April 2015 for further details.
Issue of notes
In terms of the DMTN programme explained in note 7 above, Taste has issued further notes to the
value of R75 million. These notes were issued on 23 April 2015.
Purchase of property
During the year, Buon Gusto Cuisine (Pty) Ltd, a wholly owned subsidiary of Taste purchased a
property in Midrand for R19 million for the establishment of a pizza dough manufacturing facility as
well as for expanding its current food distribution facilities. As at year-end, the transfer of this property
had not taken place. Transfer of this property is expected to take place in the new financial year.
The directors are not aware of any other material matter or circumstance arising since the current
period up to the date of this report.
DOMINO’S PIZZA MASTER FRANCHISE AGREEMENT UPDATE
Shareholders are referred to the SENS announcement dated 9 October 2014 in which shareholders
were advised that Taste Food Franchising Proprietary Limited ("TFF"), a wholly owned subsidiary of
Taste Holdings Limited had been joined as a third party to the interim application between Taste and
Domino's Pizza International (on the one hand) and certain aggrieved parties (on the other) in relation
to the rights secured by TFF as announced by Taste and Domino's on 10 April 2014. The interim
application was heard in March 2015. The parties are still awaiting judgment.
The other parties instituted an action for final relief against, inter alia, Taste and TFF on 25 November
2014. Pleadings have closed in the action and the plaintiffs have applied for a trial date, which date
has not yet been allocated. Shareholders will be updated in due course.
PROSPECTS
The group expects the soft sales performance of the fish category to continue while the anniversary
effect of new store openings will be minimised in the coming year. The better than expected sales in
Domino’s Pizza and the accelerating rate of franchisee interest for both new openings and
conversions will mitigate the expected slow-down in sales across the group’s other pizza brands until
they convert fully. The impact of load-shedding is among the groups top concerns due to our (or our
franchisees’) inability to mitigate in all stores. The group has identified further opportunities in line
with its strategic intent and is confident that the current year will see certain of these materialise.
DIRECTORATE
During the year, 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
Notice is hereby given that a final gross cash dividend of 6.5 cents per ordinary share, resulting in a
net dividend of 5.525 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 2015, has been
declared by the directors.
In compliance with the requirements of Strate, the electronic and custody system used by the JSE,
the following dates are applicable:
Declaration date Tuesday, 26 May 2015
Last day to trade cum-dividend Friday, 3 July 2015
Shares commence trading ex-dividend Monday, 6 July 2015
Record date Friday, 10 July 2015
Payment of dividend Monday, 13 July 2015
Share certificates may not be dematerialised or rematerialised between Monday, 6 July 2015 and
Friday, 10 July 2015, 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 288 588 895 ordinary shares in issue.
- The company’s income tax reference number is 9493089149P.
On Monday, 13 July 2015, 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 13 July 2015 will be posted on that date. Dematerialised
shareholders’ accounts with their CSDP or broker will be credited on Monday, 13 July 2015.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of shareholders of Taste will be held at 12:00
on Tuesday, 30 June 2015 at Summer Place, 69 Mellville road, Hyde Park, Johannesburg, to conduct
the business stated in the notice of annual general meeting, which is contained in the annual report.
The board of directors of the Company determined that, in terms of section 62(3)(a), as read with
section 59 of the Companies Act, 2008 (Act 71 of 2008), as amended, the record date for the
purposes of determining which shareholders of the Company are entitled to participate in and vote at
the annual general meeting is Friday, 19 June 2015. Accordingly, the last day to trade Taste shares in
order to be recorded in the Register to be entitled to vote will be Thursday, 11 June 2015.
On behalf of the Board
C F Gonzaga E Tsatsarolakis
Chief Executive Officer Chief Financial Officer
26 May 2015
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: 26/05/2015 08:15:00 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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