Taste’s losses hit a bitter R241m

• Starbucks owner may have to raise more capital as revenues plunge 5%

Taste Holdings, the owner of Starbucks and Domino’s Pizza in SA, says its losses more than doubled in the year to February as revenue fell and operating costs grew by a quarter.

Taste Holdings, owner of Starbucks and Domino’s Pizza in SA, says its losses more than doubled in the year to February as revenues fell and operating costs grew by a quarter.

The company recorded a loss of R241m, with revenue down 5% at R1bn due to weaker sales in the luxury goods business. Operating costs grew 24% to R622m as the group took on more corporate stores and included impairments, it said.

Vunani Securities analyst Anthony Clark said the results were “horrific” and the six months to August 2018 were likely to be poor too, since trading over winter months tended to be weak and consumers remained under pressure.

Clark said Taste was in a precarious cash position and would probably have to go back to the market to raise more funds relatively soon. Despite raising R398m in a rights offer in January, Taste had just R96m cash left on its books at the end of February, partly because the company had to pay down some of its debts.

After trying and failing to sell its luxury goods division to shore up cash in 2017, Taste said on Thursday it had entered into an agreement to dispose of the franchise part of its Zebro’s business, effective Friday.

Despite that effort to generate much-needed funding, Clark said another rights issue was likely. “Arthur Kaplan [the company’s luxury jewellery and watches unit] obviously isn’t doing that well, and there’s probably little chance that company can be sold,” said Clark.

“What concerns me even more is the cash position. Taste has burnt through all its rights issue [funds] and now only sits on R96m of cash, which certainly is not enough to keep it going in its first half if losses in fast food continue.”

Clark said he was “utterly convinced” that Taste would have to undertake another capital raise, and expected Taste investor Riskowitz Value Fund (RVF) to support the next rights offer, as it did in the previous funding round.

“The company is literally teetering on the brink of business rescue, and if it wasn’t for RVF I would imagine it would have gone under some time ago. The risk of a significant future capital raise, given the level of cash and the weak balance sheet, must be very high and as such I maintain my avoid recommendation,” Clark said.

RVF, a New York-based hedge fund, subscribed for the bulk of Taste’s January rights offer, giving it and its JSE-listed affiliate, Conduit Capital, a combined stake in Taste of 66%.

In announcing its disposal of the franchise part of Zebro’s, Taste said it was looking at “how best to enhance value to the group whilst ensuring sustainability of the brands”.

The sale was “in the best interest of all parties including our group and the brand/ franchisees”, it said.

The company, headed by new CEO Tyrone Moodley, refused Business Day’s requests for an interview.

Taste has undergone a number of senior management changes. In February, Carlo Gonzaga resigned as CEO, while Evan Tsatsarolakis stepped down as chief financial officer effective Thursday. Dylan Pienaar has taken over as acting chief financial officer.

The company’s finance costs have escalated owing to increased borrowings. It would not pay a dividend for the year to February, it said. Taste’s shares have declined from nearly R5 in mid-2015 to 50c on Thursday.