OTL;DR Like other food holdings, profitability have fallen despite revenue increasing. Growth seems to be supported by investments in other businesses, but ABR probably has to focus on producing good, unique food.
Source: sethLui.com
Business Profile
Source: ABR Holdings Ltd Annual Report
Most of us are familiar with Swensen's, which was started here in 1979 and fully owned by ABR Holdings. Other than 20 other restaurants, other brand names under ABR include Seasonâs, Chili Padi and Yogenfruz. But Swensenâs are definitely their key brand. They are also acquiring property and land in Malaysia to grow their property business.
Key Financials
Revenue and Costs
Source: ABR Holdings Ltd Annual Report
For the past 5 years, revenue seems to be increasing steadily. This seems to be a very healthy sign on the surface. However, the 6% rise in revenue for the last year were due mainly to F&B business acquired in July 2017. Looking back, I do believe that much of their growth has been through opening of new outlets and acquisitions, rather than organic growth.
Source: ABR Holdings Ltd Annual Report
Profits however has fallen over the years. Additionally, profit before tax declined 48% from due to challenging conditions in the food retail and services markets, with keener competition and rising operating costs. Moreover, a write-off and impairment provision of plant and equipment, and one-off expenses incurred in respect of ceased property investment.
Unsurprisingly, much of expenses is related to the Selling, Distribution and Outlet. I suspect that most of such costs are related to marketing, manpower and rent. Unlike other businesses, ABR seems to have higher marketing efforts.
Balance Sheet
With a current ratio of more than 3 times, and a cash ratio of more than 1, ABR seems more than sufficient to deal with short-term financial obligations. As with other F&B companies, a large proportion of current assets belong into both cash and deposits. However, as compared to other subsidiaries, a large part of their assets are intangible assets and investments in other companies, which reflectâs ABRâs move to invest or acquire other companies. Unlike other F&B companies however, the company does hold some debt, though itâs a very small amount.
Cashflows
Overall, cashflow from operating activities are a lot higher than profits due to the non-cash expenses of depreciation. However, the management of working capital such as inventory, and money owed to suppliers have weakened cashflows. As with Katrina Holdings, a lot of cash is burned through the buying of plant, property and equipment as well as for acquisitions of other companies.
Despite such conditions, the company still paid out dividends. The dividend payout ratio was actually astoundingly more than 1. This means that more dividends were paid out than the profits earned from the company. Moreover, with negative cashflows from operating and investing activities, I highly doubt dividends can be sustained in the future, despite managementâs optimism.
Efficiency Metrics
Over time, the business seems to have become less efficient in how they use their assets. Specifically, the business has generated more sales but their efficiency in generating earnings have fallen. This is espeically evident in the Operating Leverage Ratio which was a negative. At least in the near term, this means that whatever the business did to generate sales actually cause them to lose more money. Compared to their peers, the business is also rather inefficient in the use of both assets and capital to generate earnings.
Valuation
New Strategies Moving ForwardâŠ
Source: wordstream.com
After looking through what management had mentioned, I donât think there is anything particularly interesting or new about their strategies. For example, they are trying to rejuvenate their menu, work with delivery partners, improve online marketing and improve service by having electronic tablets. These strategies, though helpful and employed by other F&B companies, arenât very addressing the root cost of the problem.
Ultimately, the root problem is probably due to ABR Holdings not having a defensible and unique selling point to customers. F&B industry as a whole, suffer from intense competition, high employee costs and rent. I do believe that Swensenâs might have done really well back in the 80s and 90s, when Western food was very popular and Swensenâs was a unique brand name in Singapore. But with overseas chains flooding in as well as more home-grown outlets, the competitive advantage that Swensenâs had probably got eroded away.
Source: www.abr.com.sg
Marketing and tweaking your menu helps, but I would argue that ultimately, good food at good prices is what ultimately draw you customers. Based on their menu, Swensenâs probably needs to reinvent more, and come up with new dishes.
OTL;DR Like other food holdings, profitability have fallen despite revenue increasing. Growth seems to be supported by investments in other businesses, but ABR probably has to focus on producing good, unique food.
Source: sethLui.com
Business Profile
Source: ABR Holdings Ltd Annual Report
Most of us are familiar with Swensen's, which was started here in 1979 and fully owned by ABR Holdings. Other than 20 other restaurants, other brand names under ABR include Seasonâs, Chili Padi and Yogenfruz. But Swensenâs are definitely their key brand. They are also acquiring property and land in Malaysia to grow their property business.
Key Financials
Revenue and Costs
Source: ABR Holdings Ltd Annual Report
For the past 5 years, revenue seems to be increasing steadily. This seems to be a very healthy sign on the surface. However, the 6% rise in revenue for the last year were due mainly to F&B business acquired in July 2017. Looking back, I do believe that much of their growth has been through opening of new outlets and acquisitions, rather than organic growth.
Source: ABR Holdings Ltd Annual Report
Profits however has fallen over the years. Additionally, profit before tax declined 48% from due to challenging conditions in the food retail and services markets, with keener competition and rising operating costs. Moreover, a write-off and impairment provision of plant and equipment, and one-off expenses incurred in respect of ceased property investment.
Unsurprisingly, much of expenses is related to the Selling, Distribution and Outlet. I suspect that most of such costs are related to marketing, manpower and rent. Unlike other businesses, ABR seems to have higher marketing efforts.
Balance Sheet
With a current ratio of more than 3 times, and a cash ratio of more than 1, ABR seems more than sufficient to deal with short-term financial obligations. As with other F&B companies, a large proportion of current assets belong into both cash and deposits. However, as compared to other subsidiaries, a large part of their assets are intangible assets and investments in other companies, which reflectâs ABRâs move to invest or acquire other companies. Unlike other F&B companies however, the company does hold some debt, though itâs a very small amount.
Cashflows
Overall, cashflow from operating activities are a lot higher than profits due to the non-cash expenses of depreciation. However, the management of working capital such as inventory, and money owed to suppliers have weakened cashflows. As with Katrina Holdings, a lot of cash is burned through the buying of plant, property and equipment as well as for acquisitions of other companies.
Despite such conditions, the company still paid out dividends. The dividend payout ratio was actually astoundingly more than 1. This means that more dividends were paid out than the profits earned from the company. Moreover, with negative cashflows from operating and investing activities, I highly doubt dividends can be sustained in the future, despite managementâs optimism.
Efficiency Metrics
Over time, the business seems to have become less efficient in how they use their assets. Specifically, the business has generated more sales but their efficiency in generating earnings have fallen. This is espeically evident in the Operating Leverage Ratio which was a negative. At least in the near term, this means that whatever the business did to generate sales actually cause them to lose more money. Compared to their peers, the business is also rather inefficient in the use of both assets and capital to generate earnings.
Valuation
New Strategies Moving ForwardâŠ
Source: wordstream.com
After looking through what management had mentioned, I donât think there is anything particularly interesting or new about their strategies. For example, they are trying to rejuvenate their menu, work with delivery partners, improve online marketing and improve service by having electronic tablets. These strategies, though helpful and employed by other F&B companies, arenât very addressing the root cost of the problem.
Ultimately, the root problem is probably due to ABR Holdings not having a defensible and unique selling point to customers. F&B industry as a whole, suffer from intense competition, high employee costs and rent. I do believe that Swensenâs might have done really well back in the 80s and 90s, when Western food was very popular and Swensenâs was a unique brand name in Singapore. But with overseas chains flooding in as well as more home-grown outlets, the competitive advantage that Swensenâs had probably got eroded away.
Source: www.abr.com.sg
Marketing and tweaking your menu helps, but I would argue that ultimately, good food at good prices is what ultimately draw you customers. Based on their menu, Swensenâs probably needs to reinvent more, and come up with new dishes.