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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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    Financial Analysis of two companies in the F&B industry Financial Analysis of two companies in the F&B industry Presentation Transcript

    • Interpretation of Financial Statements
    • 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
    • 2008 Key Indicators (F&B Industry)
    • Background Information&SWOT Analysis
    • BreadTalk Group LtdIntroduction
      • 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
    • 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
    • SWOT Analysis
    • BreadTalk Group LtdInternal Strengths
      • Well-known brand with strong brand equity
      • Sleek transparent glass concept kitchen
    • BreadTalk Group LtdInternal Strengths
      • Wide range of innovative products
    • BreadTalk Group LtdInternal Strengths
      • Strategic locations
      • Experienced management
    • BreadTalk Group Ltd Internal Weaknesses
      Higher rents and failure to renew existing leases
      Dependence on senior management
    • BreadTalk Group Ltd Internal Weaknesses
      Dependence on major suppliers
      Individual kitchen in every outlet
    • Background Information &SWOT Analysis
    • Old Chang Kee LtdIntroduction
      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
    • Old Chang Kee LtdIntroduction (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
    • Old Chang Kee Ltd Internal Strengths
      • Corporate social responsibility
      • Extensive network of retail outlets
      • Diversified customer base
    • Old Chang Kee Ltd Internal Strengths
      • Experienced management team
      • High quality standards
      • Promotions
    • Old Chang Kee LtdInternal Weaknesses
      • No risk management committee
      • Labour-intensive business
    • Old Chang Kee LtdInternal Weaknesses
      • Fluctuations in foreign exchange rates
      • Expansion decisions
    • BreadTalk Group Ltd &Old Chang Kee LtdOpportunities
      Expansion opportunities
      Working capital increment
      Increase outlets
    • BreadTalk Group Ltd &Old Chang Kee LtdThreats
      Outbreak of food-related diseases
      Strong presence of competitors
    • BreadTalk Group Ltd &Old Chang Kee LtdThreats
      Changes in consumer response and preferences
      Changes in governmental regulations
    • 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
    • Interpretation of Ratios
    • What makes up revenue?
    • RevenueGross Profit MarginNet Profit Margin
    • Extract from BreadTalk’s Financial Statements
    • Extract from Old Chang Kee’s Financial Statements
    • Revenue
    • Revenue
    • Gross Profit Margin
      Gross Profit Margin
      = Gross Profit / Sales
    • Gross Profit Margin
    • Net Profit Margin
      Net Income After Tax / Revenue
      http://beginnersinvest.about.com/od/incomestatementanalysis/a/net-profit-margin.htm
    • Extract from BreadTalk’s Financial Statements
    • Extract from Old Chang Kee’s Financial Statements
    • Net Profit Margin
    • Cross-Sectional Analysis
      BreadTalk
      Old Chang Kee
      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
    • Cross-Sectional Analysis
      BreadTalk
      Old Chang Kee
      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
    • 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
    • Fixed Asset Turnover
      = Sales / Net Fixed Asset Balance
    • Extract from BreadTalk’s Financial Statements
    • Extract from Old Chang Kee’s Financial Statements
    • Fixed Asset Turnover
    • Cross-Sectional Analysis
      BreadTalk
      Old Chang Kee
      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
    • Cross-Sectional Analysis
      BreadTalk
      Old Chang Kee
      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
    • 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.
    • Debt-Equity Ratios
      = Total Liabilities / Shareholder’s Equity
    • Extract from BreadTalk’s Financial Statements
    • Extract from Old Chang Kee’s Financial Statements
    • Debt-Equity Ratios
    • Interest Coverage
      = (Earnings before interest and tax) / Interest expense
    • Extract from BreadTalk’s Financial Statements
    • Extract from Old Chang Kee’s Financial Statements
    • Interest Coverage
    • Cross-Sectional Analysis
      BreadTalk and OCK
      Debt-equity ratio
      Interest coverage
    • Cross-Sectional Analysis
      BreadTalk and OCK
      Debt-equity ratio
      Interest coverage
    • Analysis - Are the finances of the company sensibly and effectively structured?
      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.
    • Interpretation of Ratios (cont’d)
    • BreadTalk
    • BreadTalk
    • Old Chang Kee
    • Old Chang Kee
    • Net Working Capital
      Current Ratio
    • Net working capital & current ratio
      BreadTalk
      • Current liabilities > current assets
      • May seem that they are not able to pay debts when due
      • Intercompany loans for financing
      Old Chang Kee
      • Ideal balance between assets and liabilities
      • Able to pay liabilities when they fall due
    • Quick Ratio
      BreadTalk
      • Did not invest too much on stocks and prepayments
      Old Chang Kee
      • Ideal balance between assets and liabilities
      • Able to pay liabilities when they fall due in the short term
    • Accounts Receivable Turnover
      BreadTalk
      • Relaxed credit standards
      Old Chang Kee
      Tightened credit policies
    • Inventory Turnover
      BreadTalk
      • Might be due to stock obsolescence
      • Food wastage
      Old Chang Kee
      Similar to BreadTalk
    • Is the company managing its liquidity position well, will it be able to sustain its operations in the short and medium term?
      Yes!
      • Using intercompany loans to finance liabilities in short term.
      • Majority of current assets are receivables and cash
      • More expansion plans overseas and locally
    • Earnings Per Share
    • Earnings Per Share
      BreadTalk
      • Favourableand attractive
      • Advantage over constant expansion plans
      Old Chang Kee
      • Significant decrease
      • 25m shares issued by the Group
    • Price Earning (P/E) Ratio
      BreadTalk
      • Investors are paying 20 times more
      • Different investors have their own opinions
      Old Chang Kee
      • Bigger change compared to BreadTalk
      • Still lower than BreadTalk and less attractive
    • Dividend Yield
      BreadTalk
      • Share prices decreased though dividend per ordinary share constant
      Old Chang Kee
      • No dividends paid in year 2008
      • Reserve cash for funding of future overseas expansions
    • Net Asset Backing Per Share
      Old Chang Kee
      BreadTalk
    • Net Asset Backing Per Share
      BreadTalk
      • Increase in value of shares
      Old Chang Kee
      • Worth of share higher due to increase in cash and bank balances
    • Price-book (P/B) Ratio
      Old Chang Kee
      • Not a significant change when compared to BreadTalk and ratio still close to 1
      BreadTalk
      • Larger decrease than OCK
      • Ratio still maintained at >1
    • Is the current stock price attractive for investors?
      Yes!
      • Ability to bounce back during financial crisis
      • Current and potential investors are confident in BreadTalk’s good prospects
      • Attractive returns
    • Limitations
      • 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 Keedoes 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
    • Assumptions
      • For share prices, we took the share price at current day (20 January 2010) for a more realistic calculation
      • Ending trade debtors were used instead of average debtors
      • Components such as discounts allowed and discount received was not disclosed so it was not included in the computation of inventory and accounts receivable turnover.
    • Conclusion
      • Sustainability
      • Potential collaboration with other companies in the industry
      • Secured 2 franchise agreements
      • Enough investments to safeguard future profitability
      • Effective utilisation of fixed assets
      • Refurbishment of outlets
      B
      R
      E
      A
      D
      T
      A
      L
      K
    • Conclusion
      B
      R
      E
      A
      D
      T
      A
      L
      K
      • Finance of company
      • Borrowings are significant but Directors’ have assured that the company will be able to pay
      • Liquidity position management
      • Cash not tied up in stocks and prepayments
      • Attractive stock prices
      • Steady increase in share prices
    • Citations
      • http://beginnersinvest.about.com/od/incomestatementanalysis/a/net-profit-margin.htm
      • http://breadtalk.listedcompany.com/shareholders.html
      • http://www.oldchangkee.com/
      • http://oldchangkee.listedcompany.com/financial_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/