Taste to raise more capital

• Jewellery operations to be sold and rights offer set down for end of May

Taste Holdings, which holds the local rights to Starbucks and Domino’s, will restructure operations and initiate another capital raise to add a stronger profit flavour to its food business. It plans to sell its Arthur Kaplan Jewellers and NWJ units.

Taste Holdings, which holds the local rights to iconic global brands Starbucks and Domino’s, will restructure operations and initiate another capital raise in a bid to add a stronger profit flavour to its food business.

On Wednesday, Taste announced that it would put its luxury brands division — comprising Arthur Kaplan Jewellers and NWJ — up for sale.

The market has long questioned the mix of fast foods and jewellery retail, but there was some surprise at the sale announcement, considering the economic climate might not be conducive to selling specialist retail assets.

FRESH CAPITAL

The sale announcement coincided with proposals for Taste to raise R120m in fresh capital in a rights offer.

Taste CEO Carlo Gonzaga said proceeds from the rights offer and jewellery sale would be used to settle debt of about R300m and to roll out more Domino’s Pizza and Starbucks outlets.

The latest rights issue will mean that Taste — which has a market capitalisation of R760m — has raised more than R620m in rights issues and share-forcash placements in less than three years.

Given the expected capital needed to fund expansion in the food business, Vunani Securities analyst Anthony Clark estimated that the rights issue cash would last Taste a year.

“It needs to raise additional funds to repay debt and fund working capital — hence the sale of the only [current] saleable asset, the jewellery division.”

Clark also queried the fate of Taste’s domestic brands — The Fish & Chip Co, Maxi’s and Zebro’s. “These lower LSM brands have been hard-hit in the recent weak consumer environment. Political and economic events of the past week, surely don’t engender confidence in low-end food brands and their consumer spending patterns. So will Taste also exit or sell these brands to focus on the higher LSM international brands?”

JEWELLERY OPERATIONS

No buyer has yet been identified for the jewellery businesses. Market watchers estimated that they could fetch between R450m and R650m based on the recent profit showing, which reflected earnings before interest, tax, depreciation and amortisation at R69m.

Gonzaga said the capital needs of the company had changed since bringing Starbucks and Domino’s on board.

The food business resembled a start-up entity and selling off the more mature jewellery businesses would allow Taste to focus on the food business, where opportunities abounded. “Unbundling the luxury goods division unlocks its intrinsic value to grow the food brands.”

Gonzaga said the jewellery sale and rights offer proposals would provide the cash on hand needed to accelerate the roll-out of Starbucks and Domino’s.

“We now have a far clearer picture of the long-term potential for the food business … it is now the time to double down on our food business.”

Gonzaga said the singular focus could result in Taste pursuing opportunities to acquire more international food brand licences. Taste, however, will have plenty on its plate in rolling out more outlets. Gonzaga said it would open another eight to 10 Starbucks outlets and 15 to 20 Domino’s outlets in 2017.

RIGHTS OFFER

Taste will pitch 80-million new shares at 150c per share. Gonzaga said the rights offer would be launched at the end of May, after the release of the company’s results for the year to endFebruary. He said the results would have more disclosure, allowing shareholders to better understand the food businesses.

EVENTS OF THE PAST WEEK SURELY DON’T ENGENDER CONFIDENCE IN LOW-END FOOD BRANDS

R650m the top end of estimates for how much the jewellery business sale will raise

R120m the amount Taste aims to raise in fresh capital in its rights offer