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Financial Analysis of two companies in the F&B industry

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This is a presentation regarding BreadTalk and Old Chang Kee\'s financial position. The purpose was to compare the two company\'s financial position and recommend which company\'s stocks would be …

This is a presentation regarding BreadTalk and Old Chang Kee\'s financial position. The purpose was to compare the two company\'s financial position and recommend which company\'s stocks would be better for investment.


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  • 1. Interpretation of Financial Statements
  • 2. Food and Beverage (F&B) Industry • Food & beverage services comprise establishments engaged in the sale of prepared food and drinks for immediate consumption. • Integral part of Singapore’s economy • Caters to local consumption and tourism industry
  • 3. 2008 Key Indicators (F&B Industry)
  • 4. Background Information & SWOT Analysis
  • 5. BreadTalk Group Ltd Introduction • Incorporated in 2000 • 26 retail outlets island wide • Listed in 2003 • IPO shares offered at S$0.24 • 32 million shares bought at S$0.30 • 189 times subscribed • Signature food items are chicken and pork floss buns
  • 6. BreadTalk Group Ltd Introduction (cont’d) • Bakery: BreadTalk, The Icing Room, Toast Box • Food Atrium: Food Republic • Restaurant: Din Tai Fung, The Station Kitchen and Cosmopolitan Cafe • Overseas: China, Malaysia, Indonesia, Philippines, Korea, Bahrain, Saudi Arabia, Vietnam, Hong Kong, Kuwait, Oman, United Arab Emirates and India
  • 7. SWOT Analysis
  • 8. BreadTalk Group Ltd Internal Strengths • Well-known brand with strong brand equity • Sleek transparent glass concept kitchen
  • 9. BreadTalk Group Ltd Internal Strengths • Wide range of innovative products
  • 10. BreadTalk Group Ltd Internal Strengths • Strategic locations • Experienced management
  • 11. BreadTalk Group Ltd Internal Weaknesses • Higher rents and failure to renew existing leases • Dependence on senior management
  • 12. BreadTalk Group Ltd Internal Weaknesses • Dependence on major suppliers • Individual kitchen in every outlet
  • 13. Background Information & SWOT Analysis
  • 14. Old Chang Kee Ltd Introduction • Incorporated in 2004 • Listed in 2008 • IPO shares offered at S$0.20 • 25 million shares bought at S$0.18 • 5.4 times subscribed • 70 retail outlets island wide • Signature food item is Curry ’O
  • 15. Old Chang Kee Ltd Introduction (cont’d) • Retail outlets locally: Old Chang Kee, Take 5 and The Pie Kia Shop • Retail outlets overseas: Chengdu Eatery • Other services: delivery, catering and O’ My Darling • Overseas: China, Malaysia, Indonesia and Philippines
  • 16. Old Chang Kee Ltd Internal Strengths  Corporate social responsibility  Extensive network of retail outlets  Diversified customer base
  • 17. Old Chang Kee Ltd Internal Strengths  Experienced management team  High quality standards  Promotions
  • 18. Old Chang Kee Ltd Internal Weaknesses  No risk management committee  Labour-intensive business
  • 19. Old Chang Kee Ltd Internal Weaknesses  Fluctuations in foreign exchange rates  Expansion decisions
  • 20. BreadTalk Group Ltd & Old Chang Kee Ltd Opportunities • Expansion opportunities • Working capital increment • Increase outlets
  • 21. BreadTalk Group Ltd & Old Chang Kee Ltd Threats • Outbreak of food-related diseases • Strong presence of competitors
  • 22. BreadTalk Group Ltd & Old Chang Kee Ltd Threats • Changes in consumer response and preferences • Changes in governmental regulations
  • 23. Competitors • Four Leaves • Prima Deli • Polar Puffs & Cakes Pte Ltd • Jollibean • Mr Bean • Any bakeries and food retail outlets within the vicinity of their retail outlets
  • 24. Interpretation of Ratios
  • 25. We will be covering analysis on: Sales / Turnover / Revenue Gross Profit Margin Net Profit Margin Fixed Assets Turnover Debt-Equity Ratio Interest Coverage
  • 26. What makes up revenue? BreadTalk Bakery Sales Restaurant Sales Sales to Franchisee Franchisee Income Food Court Income Old Chang Kee Outlet Income Franchise and Royalties Income Interest Income Rental Income
  • 27. Revenue Gross Profit Margin Net Profit Margin
  • 28. Extract from BreadTalk’s Financial Statements
  • 29. Extract from Old Chang Kee’s Financial Statements
  • 30. Revenue 2008 2007 Change BreadTalk 212,249,000 156,610,000 35.53% Old Chang Kee 48,437,000 40,548,000 19.46% Revenue
  • 31. Revenue 2008 2007 Change BreadTalk 212,249,000 156,610,000 35.53% Old Chang Kee 48,437,000 40,548,000 19.46% Revenue
  • 32. Gross Profit Margin Gross Profit Margin = Gross Profit / Sales
  • 33. Gross Profit Margin Gross Profit Margin 2008 2007 Change BreadTalk 54.39% 55.39% -1 percentage point Old Chang Kee 59.61% 58.55% 1.06 percentage point
  • 34. Net Profit Margin Net Income After Tax / Revenue http://beginnersinvest.about.com/od/incomestatementanalysis/a/net-profit-margin.htm
  • 35. Extract from BreadTalk’s Financial Statements
  • 36. Extract from Old Chang Kee’s Financial Statements
  • 37. Year / Company 2008 2007 Change BreadTalk 3.94% 5.39% -1.45 percentage point Old Chang Kee 4.61% 6.52% -1.91 percentage point Net Profit Margin
  • 38. Cross-Sectional Analysis • Increase of 35.53% of revenue • Sales & market diversification strategies • Grown substantially • Tight rein on expenses due to economic crisis • Increase of 19.46% of revenue • Launched 1st mobile kitchen, O’ My Darling • Investments have yet to contribute materially • Future revenue from investments are expected BreadTalk Old Chang Kee
  • 39. Cross-Sectional Analysis • Increase of 35.53% of revenue • Sales & market diversification strategies • Grown substantially • Tight rein on expenses due to economic crisis • Increase of 19.46% of revenue • Launched 1st mobile kitchen, O’ My Darling • Investments have yet to contribute materially • Future revenue from investments are expected BreadTalk Old Chang Kee
  • 40. Analysis - Are the Profits of BreadTalk adequate and sustainable? • Yes, profits are adequate and sustainable well into future • Well-prepared to face challenges in then future economy • Secured 2 franchise agreements • Likely to attract more F&B collaborations • Able to generate more revenues in the near future
  • 41. Fixed Asset Turnover = Sales / Net Fixed Asset Balance
  • 42. Extract from BreadTalk’s Financial Statements
  • 43. Extract from Old Chang Kee’s Financial Statements
  • 44. Year/Company 2008 2007 BreadTalk 3.65 3.49 Old Chang Kee 4.32 4.33 Fixed Asset Turnover
  • 45. Cross-Sectional Analysis • Analysis of ratio • Expansion opportunity with increasing popularity of bread product of Asia • Note 10 to financial statement • More sales will be generated in the future • Analysis of ratio • Increase and refurbished local outlets, like Take 5! • Note 11 to financial statement • Perform better than BreadTalk BreadTalk Old Chang Kee
  • 46. Cross-Sectional Analysis • Analysis of ratio • Expansion opportunity with increasing popularity of bread product of Asia • Note 10 to financial statement • More sales will be generated in the future • Analysis of ratio • Increase and refurbished local outlets, like Take 5! • Note 11 to financial statement • Perform better than BreadTalk BreadTalk Old Chang Kee
  • 47. Is BreadTalk investing enough to safeguard future profitability? • Yes • The company has put much money in investing fixed assets • The fixed assets were effectively utilized to generate more income.
  • 48. Debt-Equity Ratios = Total Liabilities / Shareholder’s Equity
  • 49. Extract from BreadTalk’s Financial Statements
  • 50. Extract from Old Chang Kee’s Financial Statements
  • 51. Year/Company 2008 2007 BreadTalk 1.62 1.45 Old Chang Kee 0.55 0.88 Debt-Equity Ratios
  • 52. Interest Coverage = (Earnings before interest and tax) / Interest expense
  • 53. Extract from BreadTalk’s Financial Statements
  • 54. Extract from Old Chang Kee’s Financial Statements
  • 55. Year/Company 2008 2007 BreadTalk 15.10 13.39 Old Chang Kee 17.90 53.04 Interest Coverage
  • 56. Cross-Sectional Analysis • Debt-equity ratio • Interest coverage BreadTalk and OCK
  • 57. Cross-Sectional Analysis BreadTalk and OCK • Debt-equity ratio • Interest coverage
  • 58. • Yes. • Increase in debt-equity ratio -> more aggressive financing and more probability resulting in volatile earnings. • Increase in interest coverage -> investors will be more confident that they would be able to meet interest obligations. Analysis - Are the finances of the company sensibly and effectively structured?
  • 59. 2008 2007 BreadTalk -5,518 -3,907 Old Chang Kee 5,319 1,298 2008 2007 Change BreadTalk 0.93 0.94 - 0.1 Old Chang Kee 1.79 1.21 0.58
  • 60. • Current liabilities > current assets • May seem that they are not able to pay debts when due • Intercompany loans for financing • Ideal balance between assets and liabilities • Able to pay liabilities when they fall due
  • 61. • Did not invest too much on stocks and prepayments • Ideal balance between assets and liabilities • Able to pay liabilities when they fall due in the short term 2008 2007 Change BreadTalk 0.86 0.87 - 0.1 Old Chang Kee 1.61 1.03 0.58
  • 62. 2008 2007 Change BreadTalk 44.58 51.74 -7.16 Old Chang Kee 96.11 67.36 28.75 • Relaxed credit standards • Tightened credit policies
  • 63. 2008 2007 Change BreadTalk 24.66 27.88 - 3.22 Old Chang Kee 26.12 31.47 - 5.35 • Might be due to stock obsolescence • Food wastage • Similar to BreadTalk
  • 64. Is the company managing its liquidity position well, will it be able to sustain its operations in the short and medium term?
  • 65. Earnings Per Share
  • 66. • Favourable and attractive • Advantage over constant expansion plans 2008 2007 Change BreadTalk 3.31 3.23 0.08 Old Chang Kee 2.42 3.87 -1.45
  • 67. • Investors are paying 20 times more • Different investors have their own opinions • Bigger change compared to BreadTalk • Still lower than BreadTalk and less attractive 2008 2007 Change BreadTalk 22.19 21.98 0.21 Old Chang Kee 9.71 6.07 3.64
  • 68. • Share prices decreased though dividend per ordinary share constant • No dividends paid in year 2008 • Reserve cash for funding of future overseas expansions 2008 2007 Change BreadTalk 9.86 8.45 13.31 Old Chang Kee 0.00 77.77 -77.77
  • 69. • Increase in value of shares • Worth of share higher due to increase in cash and bank balances 2008 2007 Change BreadTalk 17.14 13.84 3.30 Old Chang Kee 22.35 18.77 3.58
  • 70. • Larger decrease than OCK • Ratio still maintained at >1 • Not a significant change when compared to BreadTalk and ratio still close to 1 2008 2007 Change BreadTalk 4.12 5.00 -0.88 Old Chang Kee 1.07 1.23 -0.16
  • 71. • Comparison for both BreadTalk and Old Chang Kee may be different in terms of size of enterprise as BreadTalk has other investments such as restaurants and food courts while Old Chang Kee does not. • Non-quantifiable items, which could have aided in a comprehensive analysis, not reflected in financial statements such as efficiency and effectiveness of the company’s management. • 31st December year end for both companies may not represent the position of both companies for whole year from January to December
  • 72. Citations • http://beginnersinvest.about.com/od/incom estatementanalysis/a/net-profit-margin.htm • http://breadtalk.listedcompany.com/shareh olders.html • http://www.oldchangkee.com/ • http://oldchangkee.listedcompany.com/fina ncial_ratios.html • http://uk.reuters.com/business/quotes/chart? symbol=BRET.SI • http://uk.reuters.com/business/quotes/chart? symbol=OCKL.SI • http://liberta.co.za/blog/what-is-net-worth/

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