Wrap Text
Summarised Reviewed Consolidated Results for the year ended 28 February 2019
Taste Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 2000/002239/06)
JSE code: TAS
ISIN: ZAE000081162
(Taste Holdings or Taste or the company or the group)
Summarised reviewed consolidated results
for the year ended 28 February 2019
Highlights
* Starbucks and Domino's have commenced their store expansion plans;
* R132 million Rights Offer was concluded during the year to fund the expansion;
* Concluded a group-wide restructure;
* Concluded the outsourcing of non-core operations;
* Group revenue decreased by 7% to R960 million; and
* Headline Loss per share decreased by 39% to 25.6 cents. The per share
improvement was a function of the increase in the weighted average number
of shares in issue to 910 million shares (2018: 473 million shares) and the
financial performance.
Commentary
Taste Holdings is pleased to report back on new management's first full year in
control - a year of assessment and fundamental change for the group. The Domino's
brand has been repositioned, Starbucks capex has been rationalized, financial
discipline has been restored, the business backend has been restructured, and key
appointments have been made. The business is now positioned to drive top line
growth and realize attractive margins.
Planning and executing Taste's turnaround
The financial year started off with a new CEO (Tyrone Moodley) and COO (Dylan
Pienaar) in place. The new executives were tasked by the board to understand the
root cause of Taste's declining financial performance, develop and implement a
turnaround strategy leading to sustainable positive financial performance.
The executives' approach was to commence a time-intensive and complex task of
identifying, isolating and addressing the myriad of challenges hampering
Taste's profitability, particularly within the Food Division.
Tyrone brought an investor's perspective into the core of the business,
untainted by predetermined opinions on Quick Service Restaurant (QSR)
and retail. Dylan's background in global QSR brands enabled us to build the
needed steps and criteria into the group's revised commercial strategy and
business model.
It quickly became evident that Taste was being held back by a lack of focus,
having taken on too much by introducing two global brands and a centralised
distribution system, while still bedding down its Luxury Goods Division, all
at the same time. In addition, there was a lack of accountability and
responsibility within our brands because of a centralised executive function
sitting above the brands, resulting in slow and in some instances incorrect
decisions.
Focus had to be introduced into the group, which started with looking at how we
defined what we are. Taste needed to pick one discipline which it was confident
it could master. A fundamental shift was made in Taste's definition by moving
away from being an integrated retail operator to simply being an operator and
franchisor of retail operations. As a result, parts of the group, being the
food supply chain and jewellery manufacturing operations did not meet this
definition.
While the Luxury Goods Division and Food Division brands are both retail
operations, their similarities stop there. These brands operate in two very
different segments of the retail markets. They are at different maturities
in their life cycles with the Luxury brands being at a mature phase while
the Food Division brands are in their start-up phase. As a result; each has
vastly different capital requirements and significantly different risk
profiles. Realising there were more differences than similarities between
the brands, it was decided to split the group into two clear and distinctive
business units being the Food Division and Luxury Goods Division. Each
division manages its own functions and operations apart from information
technology (IT), capital raising and strategy determination, which remain
the responsibility of a scaled down Taste Support office. Functional
responsibilities in the two divisions were split further into each
individual brand, so that management focus is now allocated at the right
level for each brand team to execute planning, track performance, evaluate
outcomes and tweak where necessary in a continuous process of refinement
specific to their brand nuances. Capital allocation and operational execution
are clearly defined.
The Luxury Goods Division is a mature business with a well-established
executive team in place. This team has been given the scope to pursue a
swift return to consistent profitability. The board are entirely confident
in the Luxury Goods Division's strategy, which is fundamental to Taste's
turnaround drive.
At the same time, an evaluation of the businesses that did not fit into
Taste's revised definition and those incurring unnecessary costs and
management attention was undertaken. The three businesses identified
were; the Food Division's supply chain operations, the Luxury Goods
Division's jewellery manufacturing operations and the Zebro's chicken
brand. The jewellery manufacturing operations were consequently outsourced
to a leading manufacturer during the year, which has lowered production
costs for jewellery. The process of outsourcing the Food Division's supply
chain operations to a leading supply chain operator commenced during the
year and it is expected that this function will be completely moved across
by the second quarter of 2019. This will result in a lower cost to deliver
products to store and will eliminate the losses that have been incurred by
the supply chain operations. The divestment from the Zebro's brand and assets
was due to their poor performance in the highly competitive chicken QSR
category.
IT has been prioritised as a key enabler of Taste's revised business model,
which is why it remains a support centre shared service. The group has barely
scratched the surface of the intellectual property (IP) inherent in our
Domino's Pizza and Starbucks licence partnerships. Leveraging this IP can
potentially enhance the group's online offerings to levels unheard-of in
southern Africa.
The world of commerce everywhere is being challenged by fast incoming
technologies that are transforming how business is done. By embracing IT
as a key business enabler through every level of the group, we can leverage
Domino's and Starbucks IP to build our businesses through data driven
decision-making and compelling service offerings to our customers. Our
role will never encompass innovation but rather laser focused execution.
The restructure will result in a lower overall cost structure, but once-off
costs impacted on this year's results. Although the restructure was largely
concluded during the financial year, the effects of the cost reduction
will only be seen at the end of the new financial year (FY 2020). Strong
evidence of this operational turnaround has already emerged in the group's
2018/19 year-end financials, but a journey of a year or more remains for
restoring Taste to sustainable profitability.
Rollout of stores, particularly Domino's and Starbucks
During this period, it was decided to identify the challenges hampering the
profitability of the current store network before expanding the network
further.
Identifying the problem areas and implementing solutions stipulated by the
revised operating model was an arduous six-month exercise, but a new rollout
plan based on substantially reduced setup costs and the reality of South
Africa's current economic environment has been finalised. The mission is to
execute these strategies and continuously track performance, evaluate
outcomes and refine as necessary. This is a continuous and virtuous
process of implementation and improvement.
The group receives a constant flow of enquiries from landlords wanting to
launch a Domino's or Starbucks outlet on their properties and look forward
to finally turning those requests into reality.
Collaboration with global partners
Since the introduction of the new executives, the group has played open cards
with its global partners on its financial position and were humbled by their
overwhelmingly helpful responses and support. Teams from Domino's and
Starbucks pointed out solutions already available in their corporate IP
offerings, enabling us to concentrate on implementation rather than systems
innovation. Taste also collaborated with licensees across the globe who shared
their responses to similar situations they overcame in their respective
histories.
These high-quality collaborations have informed much of our forward planning,
as well as confirming our confidence in the future viability of Taste as a
profitable custodian of global brands. Most importantly, Domino's and
Starbucks fully support Taste's revised business and operating model.
Review of the group performance
* Group revenue decreased by 7% to R960 million (2018: R1.03 billion), driven
by a 12% reduction in luxury goods sales and a 1% reduction in food sales;
* Gross profit decreased by 5% to R405 million (2018: R425 million) primarily
due to lower luxury goods margins resulting from lower selling prices which
was partially offset by improved food margins;
* Impairments and once-off restructuring costs totalled R102 million (2018:
R24 million);
- Excluding the impairments and once-off costs, group operating costs
decreased by 4% or R23 million to R575 million (2018: R599 million);
- Including the impairments and once-off costs, group operating costs
increased by 9% or R54 million to R677 million (2018: R623 million);
- Excluding the impairments and once-off costs, the group recorded an EBITDA
loss of R116 million (2018: R130 million loss) representing a R14 million
improvement;
- Including the impairments and once-off costs, the group recorded and EBITDA
loss of R217 million (2018: R153 million loss) representing an increase of
R64 million.
* The group has no long-term debt. Our current finance costs are for working
capital and overdraft facilities, which totalled R19 million at 28 February
2019 (of which R11 million was repaid subsequent to year end). Net finance
costs accordingly decreased to R5 million (2018: R44 million);
* A depreciation and amortisation charge of R45 million (2018: R43 million)
was largely unchanged from prior years as the existing store network were
rationalised during the year;
* Headline loss per share decreased by 16.2 cents to 25.6 cents (2018:
41.8 cents loss). The per share improvement was a function of the increase
in the weighted average number of shares in issue to 910 million shares
(2018: 473 million shares) and the financial performance.
Review of the divisional performance
28-Feb-19 28-Feb-18 Variance Variance
R'000 R'000 R'000 %
Food 469 530 475 476 (5 946) (1%)
Jewellery 489 980 558 845 (68 865) (12%)
Group Revenue 959 510 1 034 321 (74 811) (7%)
Food 218 923 47% 209 742 44% 9 181 4%
Jewellery 186 484 38% 215 593 39% (29 109) (14%)
Group Gross Profit 405 407 42% 425 335 41% (19 928) (5%)
Food (428 213) (387 775) (40 438) (10%)
Jewellery (231 395) (202 678) (28 717) (14%)
Corporate (17 363) (32 182) 14 819 46%
Group Operating
Cost (676 971) (622 635) (54 336) (9%)
Food (166 423) (141 083) (25 340) (18%)
Jewellery (32 653) 23 074 (55 727) (241%)
Corporate (17 319) (32 182) 15 263 47%
Group EBITDA (216 395) (150 591) (65 804) (44%)
Food (199 233) (172 751) (26 482) (15%)
Jewellery (42 963) 13 240 (56 203) (424%)
Corporate (18 930) (34 198) 15 268 45%
Group Operating
loss (261 126) (193 709) (67 417) (35%)
Food division
The Food Division revenue decreased by R6 million or 1% (after intersegment
eliminations) to R470 million (2018: R475 million). This decrease emanated
primarily from the closures of underperforming stores; specifically,
Domino's (4 stores); Maxi's (8 stores) and The Fish & Chip Co (net reduction
of 2 stores).
The Food Division's overall gross profit margin improved to 47% (2018: 44%)
as result of the drive to reduce food costs and efficiencies. This initiative
required paying close attention to supply chain operations, specifically
procurement.
Operating costs increased by 1% to R370 million (2018: R367 million)
excluding the impairments and once-off costs of R58 million (2018:
R21 million). The impairments and once-off restructuring costs totalled
R45 million (2018: R16 million) and R13 million (2018: R5 million)
respectively. Operating costs increased by R40 million to R428 million
(2018: R388 million) when including the impairments and once-off costs.
Excluding the impairments and once-off costs, the Food Division's EBITDA
loss decreased by R13 million to R110 million (2018: R123 million). Including
the impairments and once-off costs, the Food Division's EBITDA loss increased
by R25 million to R166 million (2018: R141 million) primarily due to these
costs and lower aggregate sales as a result of the smaller store network.
Excluding the impairments and once-off costs, the operating loss decreased
to R141 million (2018: R152 million), representing a R11 million improvement.
Including the impairments and once-off costs the operating loss increased to
R199 million (2018: R173 million) representing an increase of R26 million.
The derecognition of deferred tax assets, another once-off non-cash item,
being an additional contributor to the increase with depreciation and
amortisation being largely unchanged at R35 million (2018: R34 million).
Luxury goods division
System-wide sales in the Luxury Goods Division reduced by 14% to R506 million
(2018: R589 million) as a result of store closures in both NWJ (8 corporate
stores and 3 franchise stores) and Arthur Kaplan (1 store), the World's Finest
Watches being closed for a month due to refurbishment and pressure on the
retail sector given the economic conditions. Consumer disposable income is
declining, and average selling prices are lower as consumers look for the
best deals.
Against this backdrop, revenue decreased by R69 million or 12% to R490
million (2018: R559 million) as revenue in both brands, Arthur Kaplan and
NWJ, were down.
Tough trading conditions that continuously exerted downward pressure on
sales and margins required a rigorous drive to take costs out of the
business. The divisional review concluded that we should restructure the
Support office to reduce fixed costs and better manage variable costs, and
outsource our manufacturing operations in order to ensure focus on retail
operations and margin improvements.
Operating costs reduced by 6% to total R188 million (2018: R200 million),
excluding once-off costs of R44 million (2018: R3 million), which include
R40 million impairments (2018: R3 million) and once-off restructuring costs
of R4 million for NWJ. Operating costs increased to R231 million (2018:
R203 million) including the impairments and once-off costs.
Operating costs include the following noteworthy items:
* Impairments of R40 million (2018: R3 million). This amount includes
R1 million for the restructuring and R39 million allocated to Arthur
Kaplan goodwill.
* Depreciation and Amortisation of R10 million (2018: R10 million).
* Employee cost of R75 million (2018: R80 million). This includes
R3.2 million for the human capital restructure and evidences the cost
reductions attained.
Excluding the impairments and once-off cost, the Luxury Goods Division
would have made an EBITDA profit of R11 million (2018: R26 million).
Including the impairments and once-off costs, the division achieved an
EBITDA loss of R33 million (2018: R23 million profit) largely attributable
to a R14 million swing in profitability in NWJ and the R39 million Arthur
Kaplan goodwill impairment.
Excluding the impairments and once-off costs of R44 million (2018:
R3 million), the Luxury Goods Division achieved an operating profit of
R1 million (2018: R16 million). Including the impairments and once-off
costs, the division finished the year with an operating loss of R43 million
(2018: R13 million operating profit).
Looking ahead
The executive team have a board-approved business plan that envisages a
turnaround and resumed growth aligned to realistic milestones set for this
year-end and through the next decade. This plan will focus on the following
key areas over the upcoming year with the focal point being retail
operations:
* Starbucks - will focus on expanding the corporate store network on a
revised capex model and achieving the required return on investment for
each new store;
* Domino's Pizza - will focus on getting its existing store network to
EBITDA break-even. Domino's will then expand its corporate store network
within a CAPEX model calculated to achieve the required investment
returns;
* Maxi's - will continue to consolidate its franchise network and roll out
its new brand image. The brand's key focus is to grow same-store sales
and improve the overall network profitability;
* The Fish & Chip Co - will focus on expanding its franchise network while
concurrently growing same-store sales;
* NWJ - Launching and rolling out a refreshed brand and store design, with
the key focus on improving sales and returning to profitability. The first
store has been refreshed and is open for trade in Canal Walk, Cape Town;
* Arthur Kaplan - a refreshed World's Finest Watches in the heart of Sandton
City will be followed by the launching and rolling out of a refreshed brand,
store design and new online store for Arthur Kaplan. The key focus is on
improving watch sales and increasing jewellery's share of the sales mix; and
* Taste Holdings - will focus on ensuring that its retail store operations
generate an EBITDA profit for the year. It will be resolute on capital
allocation decisions to ensure that the required investment returns are
achieved and where it does not make sense, walk away from subpar
opportunities. Taste will continue to engage with various capital markets
in order to secure further funding.
Appreciation
Taste wholeheartedly thank our shareholders for affording us this opportunity
to steer Taste Holdings back onto the right track. We thank the board for their
guidance and our global brand partners for their enthusiastic support and
sharing of insights.
Most of all, we applaud the resilience of our managers, employees and partners
for taking on this exciting challenge, restructuring and the host of changes
implicit in a turnaround of this extent and complexity. You remain the heart
of this business and none of this would be possible without your buy-in and
determination to make it all work.
Directorate
The following changes were made to the board:
Resignations:
Mr. NG Brimacombe resigned as independent non-executive director effective
25 March 2019
Appointments:
Mr. D Pienaar, change of duties to Chief Operating Officer on 14 January 2019,
and change of duties to Chief Executive Officer on 25 March 2019.
Change of duties:
Mr. TC Moodley changed from Chief Executive Officer to non-executive director.
Mr. Hannes van Eeden was appointed as the Chief Financial Officer effective
14 January 2019.
Events subsequent to year-end
No significant events subsequent to year-end to which shareholders need to
be informed of.
Dividend to shareholders
No dividend has been declared for the year ended 28 February 2019.
On behalf of the board
D Pienaar
Chief Executive Officer
H van Eeden
Chief Financial Officer
31 May 2019
Condensed reviewed consolidated results for the year ended 28 February
2019
Review conclusion
The condensed consolidated financial information for the year ended
28 February 2019 has been reviewed by BDO South Africa Incorporated, who
expressed an unmodified review conclusion. The auditor's review report
does not necessarily report on all the information contained in this
announcement of the financial results. Shareholders are therefore advised
that, in order to obtain a full understanding of the engagement, they
should obtain a copy of the auditor's review report together with the
accompanying financial information from the issuer's registered office.
A copy of the auditor's review report is available for inspection at the
company's registered office together with the financial information
identified in the auditor's review report.
Condensed reviewed consolidated group statement of comprehensive income
Restated*
Reviewed Audited
12 months 12 months
ended ended
28 February 28 February
% 2019 2018
change R'000 R'000
Revenue -7% 959 510 1 034 321
Cost of sales (554 103) (608 986)
Gross profit -5% 405 407 425 335
Other income 10 438 3 591
Operating costs -10% (632 240) (579 517)
EBITDA -44% (216 395) (150 591)
Amortisation and depreciation (44 731) (43 118)
Operating loss (261 126) (193 709)
Investment revenue 10 192 17 159
Finance costs (4 668) (43 857)
Loss before taxation -16% (255 602) (220 407)
Taxation (62 032) 12 122
Loss from continuing operations (317 634) (208 285)
Loss from discontinued
operations, net of tax (804) (32 707)
Total comprehensive loss for the
year (318 438) (240 992)
Attributable to:
Equity holders of the company -32% (318 227) (241 202)
Non-controlling interest (211) 210
(318 438) (240 992)
Loss per share (cents) -31% (35.0) (51.0)
Diluted loss per share (cents) -31% (35.0) (51.0)
* Restated due to Zebro's chicken being classified as a discontinued
operation.
Condensed reviewed consolidated group statement of financial position
Reviewed Audited
28 February 28 February
2019 2018
R'000 R'000
Assets
Non-current assets 328 747 513 399
Property, plant and equipment 168 454 186 920
Intangible assets 82 501 86 027
Goodwill 40 165 121 348
Net investment in Finance lease 849 4 919
Other financial assets 6 484 25 345
Deferred tax 30 294 88 840
Current assets 456 167 479 053
Inventories 233 276 296 017
Net investment in Finance lease 849 450
Trade and other receivables 67 278 56 059
Current tax receivables 1 590 1 911
Advertising levies 2 507 2 914
Other financial assets 1 775 5 281
Cash and cash equivalents 148 892 116 421
Total assets 784 914 992 452
Equity and liabilities
Equity attributable to holders of company 621 000 813 942
Share capital 8 8
Retained earnings (627 033) (308 806)
Share premium 1 238 757 1 112 154
Equity-settled share-based payment reserve 9 268 10 586
Non-controlling interest 1 292 1 503
Non-current liabilities 27 358 26 031
Borrowings - 1 109
Lease equalisation 11 833 11 270
Deferred tax 15 525 13 652
Current liabilities 135 264 150 976
Current tax payable 1 277 -
Bank overdrafts 6 978 20 179
Borrowings 12 353 2 662
Lease equalisation 2 607 2 755
Trade and other payables 112 049 125 380
Total equity and liabilities 784 914 992 452
Number of shares in issue ('000) 2 218 970 898 970
Net asset value per share (cents) 28.0 90.7
Net tangible asset value per share (cents) 23.1 69.6
Condensed reviewed consolidated group statement of changes in equity
Equity-
settled
share-
Total based
Share Share share payment
capital premium capital reserve
R'000 R'000 R'000 R'000
Balance 1 March 2017 4 611 606 611 610 11 055
Share issue 4 500 065 500 069 -
Options exercised - 483 483 -
Share based payment reserve - - - (469)
Minority interest acquired
Comprehensive income for
the period - - - -
Balance at 1 March 2018 8 1 112 154 1 112 162 10 586
Share issue - 126 603 126 603 -
Share based payment reserve - - - (1 318)
Comprehensive loss for the
period - - - -
Balance at 28 February 2019 8 1 238 757 1 238 765 9 268
Total
attributable
Accumu- to equity Non-
lated holders of controlling Total
loss the company interest equity
R'000 R'000 R'000 R'000
Balance 1 March 2017 (63 579) 559 086 (2 732) 556 354
Share issue - 500 069 - 500 069
Options exercised - 483 - 483
Share based payment
reserve - (469) - (469)
Minority interest
acquired (4 025) (4 025) 4 025 -
Comprehensive income
for the period (241 202) (241 202) 210 (240 992)
Balance at 1 March
2018 (308 806) 813 942 1 503 815 445
Share issue - 126 603 - 126 603
Share based payment
reserve - (1 318) - (1 318)
Comprehensive loss
for the period (318 227) (318 227) (211) (318 438)
Balance at
28 February 2019 (627 033) 621 000 1 292 622 292
Condensed reviewed consolidated group statement of cash flows
Restated*
Reviewed Audited
12 months 12 months
ended ended
28 February 28 February
2019 2018
R'000 R'000
Cash flows from operating activities (65 060) (101 074)
Cash utilised by operating activities (70 915) (73 580)
Investment revenue 10 192 17 159
Finance costs (4 668) (43 857)
Taxation (paid) refund 331 (796)
Cash flows from investing activities (24 453) (31 080)
Acquisition of property, plant and
equipment (24 722) (53 879)
Proceeds of disposals of property,
plant and equipment 2 953 28 875
Disposal of intangible asset - 5 042
Acquisition of business - (24 173)
Disposal of discontinued operations,
net of cash 66 (54)
Investment in finance lease 3 671 4 058
Loans paid/(advanced) 1 772 15 501
Net acquisition of Intangibles (8 193) (6 450)
Cash flows from financing activities 135 185 243 864
Proceeds from issue of shares 126 603 500 552
Disposal of discontinued operations,
net of cash (2 012) 24 510
Loans raised/(paid) 10 594 (281 198)
Change in cash and cash equivalents 45 672 111 710
Cash and cash equivalents at beginning
of the period 96 242 (15 468)
Cash and cash equivalents at end of
the period 141 914 96 242
* Restated due to Zebro's chicken being classified as a discontinued
operation.
Condensed reviewed consolidated group segmental report
Food Jewellery Corporate
Reviewed Twelve months division division services
ended 28 February R'000 R'000 R'000
Revenue 601 295 489 980 16 755
EBITDA (166 423) (32 653) (17 319)
Segment depreciation
and amortisation (32 809) (10 310) (1 612)
Operating loss (199 233) (42 963) (18 930)
Investment revenue 6 128 1 756 2 308
Finance costs (386) (2 618) (1 664)
Loss before taxation (193 491) (43 825) (18 286)
Loss from discontinued
operation, net of tax (804) - -
Segment assets 327 102 345 266 112 546
Segment liabilities 83 751 61 050 17 821
Segment capital
expenditure 14 486 10 204 32
Restated* Audited
year ended
28 February 2018
Revenue 595 446 558 845 26 000
EBITDA (141 083) 23 074 (32 582)
Segment depreciation
and amortisation (31 668) (9 834) (1 616)
Operating profit/(loss) (172 751) 13 240 (34 198)
Investment revenue 8 278 3 752 40 136
Finance costs (24 471) (18 883) (35 510)
Loss before taxation (188 944) (1 891) (29 572)
Loss from discontinued
operation, net of tax (32 707) - -
Segment assets 463 432 424 748 104 272
Segment liabilities 100 364 66 913 9 730
Segment capital
expenditure 48 377 5 386 116
Condensed reviewed consolidated group segmental report
Inter-
segment
division
Reviewed Twelve months revenues Total
ended 28 February R'000 R'000
Revenue (148 520) 959 510
EBITDA - (216 395)
Segment depreciation
and amortisation - (44 732)
Operating loss - (261 126)
Investment revenue - 10 192
Finance costs - (4 668)
Loss before taxation - (255 602)
Loss from discontinued
operation, net of tax - (804)
Segment assets - 784 914
Segment liabilities - 162 622
Segment capital
expenditure - 24 722
Restated * Audited
year ended
28 February 2018
Revenue (145 970) 1 034 321
EBITDA - (150 591)
Segment depreciation
and amortisation - (43 118)
Operating profit/(loss) - (193 709)
Investment revenue (35 007) 17 159
Finance costs 35 007 (43 857)
Loss) before taxation - (220 407)
Loss from discontinued
operation, net of tax - (32 707)
Segment assets - 992 452
Segment liabilities - 177 007
Segment capital
expenditure - 53 879
Restated*
Reviewed Audited
12 months 12 months
ended ended
28 February 28 February
% 2019 2018
change R'000 R'000
Reconciliation of headline loss:
Loss attributable to ordinary
shareholders -32% (318 227) (241 203)
Adjusted for:
Impairment losses 85 380 42 053
Loss on sale of property,
plant and equipment (610) 4 839
Tax effect on headline
loss adjustments 137 (3 274)
Headline loss attributable to
ordinary shareholders -18% (233 320) (197 585)
Weighted average shares in issue
('000) 909 819 473 060
Weighted average diluted shares in
issue ('000) 927 195 489 130
Loss per share (cents) -31% (35.0) (51.0)
Diluted loss per share (cents) -31% (35.0) (51.0)
Headline loss per share (cents) -39% (25.6) (41.8)
Diluted headline loss per share
(cents) -39% (25.6) (41.8)
* Restated due to Zebro's chicken being classified as a discontinued
operation.
Notes to the condensed reviewed consolidated financial statements
for the year ended 28 February 2019
Taste Holdings Limited (the company) is a South African registered
company. The summarised consolidated financial statements of the
company comprise the company and its subsidiaries (together
referred to as the group).
Basis of preparation of the condensed reviewed results
Statement of compliance
The reviewed condensed consolidated financial results are prepared
in accordance with the Listings Requirements of the JSE Limited
(the JSE Listings Requirements) for provisional reports, and
the requirements of the Companies Act, 2008 (Act 71 of 2008),
as amended (the Companies Act). The JSE Listings Requirements
require provisional reports to be prepared in accordance with the
framework concepts and the measurement and recognition requirements
of International Financial Reporting Standards (IFRS) and Financial
Reporting Pronouncements as issued by the Financial Reporting
Standards Council and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting. The accounting
policies applied in the preparation of the reviewed condensed
consolidated financial statements are consistent with those
accounting policies applied in the preparation of the previous
consolidated annual financial statements, except for the adoption
of IFRS9 Financial Instruments and IFRS15 Revenue from Contracts
with Customers. Required by the JSE Listing Requirements, the group
reposts headline earnings in accordance with Circular 4/2018:
Headline Earnings as issued by SAICA. This report was compiled
under the supervision of Mr. H van Eeden CA(SA), Chief
Financial Officer.
Operating performance commentary
Group revenue decreased by 7% to R960 million (2018: R1.03
billion), driven mainly by:
* The Food Division's revenue decreased by R6 million or 1% (after
intersegment eliminations) to R470 million (2018: R476 million).
Sales were under pressure, as evident from the system-wide sales,
and there were a number of store closures across the brands.
* The Luxury Goods Division's revenue decreased by R69 million or
12% to R490 million (2018: R559 million). Luxury goods are
cyclical and negatively influenced by macro-economic uncertainty
in the country, relative rand strength and disposable income which
all impact on revenue. Network consolidation resulted in both NWJ
and Arthur Kaplan closing stores, while our World's Finest Watches
store was closed for a month for refurbishment.
Group gross profit decreased by 5% to R405 million (2018: R425
million) as result of the reduced revenue.
Margin improvement initiatives helped to improve the gross profit
margin % to 42% (2018: 41%).
* The Food Division overall gross profit margin improved by 3% to
47% (2018:44%) as a result of our drive to reduce food costs and
efficiencies. This initiative included paying significant attention
to supply chain operations such as procurement, warehousing and
logistics areas.
* The reduction in the Luxury Goods Division's gross profit percentage
was due to lower average selling prices caused by consumers seeking
out deals and discounts.
Total group operating costs increased by R54 million (9%) to R677
million (2018: R623 million). This increase resulted primarily from
a deep dive into the business model and operating costs, which
resulted in a restructure of the Food Division and Corporate Head
Office to position the group and its various brands for the future.
Included in operating costs are impairments and once-off costs
totalling R102 million (2018: R24 million) of which R58 million
is attributable to the Food Division and R44 million to the Luxury
Goods Division. The costs consisted mainly of impairments of R85
million (2018: R19 million) and once-off restructuring and
retrenchment costs of R17 million (2018: R5 million).
Excluding the impairments and once-off costs, operating costs
decreased by R23 million (4%) to total R575 million (2018: R599
million) which is mainly due to store closures and the
restructuring in both the Food and Luxury Goods Divisions.
As a consequence of the decrease in sales, increased impairments
and once-off costs incurred, the group recorded an EBITDA loss of
R216 million (2018: R151 million), representing an increase in the
EBITDA loss of R65 million.
The operating loss increased to R261 million (2018: R194 million)
representing an increase in the operating loss of R67 million with
depreciation and amortisation being largely unchanged at R45 million
(2018: R43 million).
Investment revenue relates primarily to the Food Division and
comprises interest charged to franchisees on conversion loans of
R4 million and interest received on positive cash balances of
R6 million, totalling R10 million (2018: R17 million).
Net finance costs decreased to R4.6 million (2018: R43.8 million)
as the long-term debt was paid down in February 2018, the prior
financial year, from the rights issue proceeds. Our current finance
costs are for the trade facilities we have with our bankers and
for utilisation of overdraft facilities.
The group's tax charge movements are due to deferred tax movements
resulting from several group companies being in assessed loss
positions. The deferred tax assets consist of temporary differences,
that are mainly assessed losses recognised in prior periods based
on the future outlook, specifically the generation of future taxable
income. Although we believe in our brands and its rebound into
profitability, we prudently decided to derecognise certain deferred
tax assets relating to the Food Division as the required profitability
and taxable income to support these assets will likely not be generated
in the short term. We assess this status frequently and will
recognise the assessed losses in the future as more certainty regarding
the timing of taxable income becomes apparent.
Non-Controlling interest relates to a shareholding by the Luxury Goods
Division of 58% in a company that owns three NWJ stores.
Financial position commentary
Property, plant and equipment decreased as there was a pause on the
opening of new stores whilst uneconomical stores were closed. This
resulted in an overall net decrease in the corporate-store count and
lower capital expenditure with the remaining stores being depreciated
over the expected useful lives.
Impairments of R85 million (2018: R42 million) of which R45 million
(2018: R39 million) relates to the Food Division and R40 million
(2018: R3 million) to the Luxury Goods Division.
* Food Division impairment details (R45 million):
- Maxis - R15 million. Goodwill was fully impaired due to changing
market conditions, but the brand is growing and showing promise
for the future.
- The Fish & Chip Co - R21 million. Goodwill related to the supply
chain was impaired due to the outsourcing of our group supply chain
activities.
- Domino's Pizza company owned stores - R5 million. Goodwill was
impaired due to the lower profitability of the acquired stores.
- Domino's Pizza franchise contribution - R3.8 million. Goodwill
impaired due to the lower profitability of the stores acquired.
- Domino's Pizza joining fee - R0.4 million. Goodwill impaired due
to the lower profitability of the stores acquired.
* Luxury Goods Division impairment details (R40 million):
- Arthur Kaplan - R39 million. Impaired due to the re-baselining of
profitability and growth expectation for current market conditions.
- NWJ - R1 million. Impaired due to closure of stores.
The intangible assets decrease is mainly for additional impairments in
Domino's, specifically the franchisee conversion loans.
The deferred tax assets consist of temporary differences, that are
mainly assessed losses recognised in prior periods based on the future
outlook, specifically the generation of future taxable income. Although
we believe in our brands and its rebound into profitability, we prudently
decided to derecognise certain deferred tax assets relating to the Food
Division as the required profitability and taxable income to support
these assets will likely not be generated in the short term. We assess
this status frequently and will recognise the assessed losses in the
future as more certainty regarding the timing of taxable income becomes
apparent.
Group current assets, excluding cash and cash equivalents, decreased
R56 million due to improved working capital management.
Group inventories reduced by R63 million, which is largely attributable
to the Luxury Goods Division's inventory being decreased by R57 million
due to continued efforts to manage stockholding optimally.
Discontinued Operations
The Zebro's chicken business was disposed of, effective 1 June 2018 due
to it being evaluated as non-core to the future direction and
sustainability of our Food Division. The transaction is disclosed as
discontinued operations with the loss from discontinued operations
being R0.8 million (2018: R32.7 million loss).
Equity commentary
Changes in authorised and stated capital from 2018 is as follows:
* Authorised ordinary share capital increased by 2 000 000 000 to
4 000 000 000 - approved on 18 January 2019; and
* Rights issue of 1 320 000 000 shares at R0.10 - effective
25 February 2019.
Borrowings
The group has no long-term debt. Increases in borrowings were derived
mainly from the bridging facility received from RVF, our major
shareholder, whilst the rights offer process was in progress. The
Borrowings were repaid after year-end.
Cash flow commentary
Cash and cash equivalents at the end of the financial year totalled
R142 million (2018: R96 million).
* During the year the drain on cash utilised to fund operational
activities was reduced by R36 million. Cash required to fund
operating activities totalled R65 million (2018: R101 million).
* Cash utilised in investment activities reduced to R24 million
(2018: R31 million), mainly attributable to our re-evaluation of
the Food Division business model. Only two new Starbucks stores
were opened in this period while we halted further expansion to
focus on maintaining the existing network.
* A successful Rights Offer during the year raised R132 million which
was primarily allocated to the Food Division's operation and
expansion plans.
Corporate information
Non-executive directors:
GM Pattison* (Chairperson), LCH Chou*, N Siyotula*, AJ Maizey,
TC Moodley
*Independent
Executive directors: D Pienaar (CEO), DJ Crosson, H van Eeden (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: Fluidrock CoSec (Pty) Ltd
Telephone: (011) 608 1999
Facsimile: 086 696 1270
Transfer secretaries: Computershare Investor Services Proprietary
Limited
Sponsor: PSG Capital
These results and an overview of Taste are available at
www.tasteholdings.co.za
Johannesburg
31 May 2019
Sponsor
PSG Capital
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