Johannesburg – Franchise group Taste Holdings [JSE:TAS]
on Thursday posted flat interim diluted headline earnings per share of 2.1 cents despite an 8% rise in revenue, sending its shares down 7.6% following the announcement.
In the six months to end-August, Taste said revenue grew from R85m to R92m but earnings before interest, taxes, depreciation and amortisation (Ebitda) slid by 11.2% to R10.4m during the period.
Taste is the parent company of jewellery chain NWJ and restaurants Maxi's, Scooters Pizza and recently-acquired St Elmo's.
The group said the drop in Ebitda despite the increase in revenue is due mainly to the inclusion of start-up losses of R400 000 for new concession business in the jewellery division, and operating losses of R400 000 in the food manufacturing division.
The concession business in the jewellery division includes a pilot project at Makro outlets Taste has since abandoned, while the food manufacturing business is a central kitchen Taste started for the Scooters and Maxi's brands.
Taste CEO Carlo Gonzaga said while net new store growth (four stores) was below previous years' levels in the food division, both Scooters and Maxi's showed positive same-store sales growth for the period.
He said the performance by Scooters was "particularly pleasing", as the brand had a price decrease in March 2010 in line with its pricing strategy implemented in 2009.
Gonzaga said the food manufacturing facility commissioned at the end of 2009 continued to increase its volumes as it produced more of the basket of goods for the brands.
"Although producing a net operating loss for the period, it has since surpassed its break-even point and is producing operating profits," he said. Strong rand fillip
He added that the manufacturing segment will contribute a larger portion to revenue as the St Elmo's sauce facility will soon commence producing sauces for the entire food group, although this is not expected to be material in the next four months.
The addition of the 19 new stores planned for the second half of the year will improve the operating margin and increase the footprint of both brands.
Gonzaga said the decline in cash generated by operating activities from R18.6m to R3.4m was mainly due to inventory changes in the jewellery division. In the 2009 interim period, Taste had a R6.8m inventory drop. This year the group had a R9.8m increase in inventory.
He added the division wanted to take advantage of the strong rand, buying gold at a dollar price for early production of Christmas stock.
The fourth-largest jewellery chain in South Africa, NWJ manufactures about 45% of the jewellery it sells in its manufacturing facility in Durban; 30% is imported and the remaining 25% sourced locally.
Gonzaga said consumers have maintained the lower spend experienced during late 2009 which translated into challenging trading, especially during the first two months of the period in the group's corporate-owned stores.
"The focus on value offerings, combined with the group's ability to innovate, has however resulted in substantial transactional gains over the comparable period of over 20%, indicative of substantial market share gains," he said.