Taste saved by US cash injection
An injection of funds from the US has once again pulled fast-food specialist Taste Holdings back from the brink of bankruptcy as shareholders voted on Friday to approve a R132m rights offer.
This is the latest in a series of rights offers that the cash-strapped company, which operates US-based Domino's Pizza and Starbucks Coffee in Africa (but with Starbucks shops only in SA at present), has used since 2014 to raise about R936m.
New York investment outfit Riskowitz Value Fund (RVF), which holds 66% of Taste's stock, demonstrated its faith in Taste by recapitalising it once more.
In November Taste said it had concluded a separate R50m loan facility with RVF, which could be increased to R200m in terms of the agreement. In theory, this means Taste has R332m on hand.
Even with this latest round of funding, Taste is likely to survive only for another 12 to 14 months if nothing changes in its business model and the operating environment, said independent analyst Anthony Clark.
Taste was not available for comment.
In its announcement of the rights offer in December, Taste said it was raising funds "needed to support its operations".
Clark said the money is likely to be used as working capital, given the losses incurred in recent years because of problems in the supply chain, a loss-making luxury goods division and licensing fees for the right to operate Domino's and Starbucks. He said the company needs to focus on fewer brands.
With coffee culture on the rise in SA and pizza remaining popular, increased competition from established local offerings and mounting operating costs have kept the well-known pizza and coffee brands from reaching their full potential here.
The Domino's brand contributed most significantly to the company's negative earnings before interest, tax, depreciation and amortisation of R66m for the half-year to August 31. At the close of 2018, Taste told shareholders it had halted plans to open new Starbucks and Domino's outlets because of capital constraints.
Domino's Pizza Inc said this week: "We support our relationship with Taste Holdings as they continue to focus on the business."