Jollibee gobbling up more China food firms

MANILA, Philippines — Jollibee Foods Corp. (JFC) will not slow down on its buying binge and is even eyeing to gobble up more food and beverage companies in China, its chairman said on Friday.

“We will not stop... We want to acquire more companies in China if there is a right fit. It really depends on how much work is needed,” JFC chairman Tony Tan Caktiong said.

JFC’s latest acquisition, California-based The Coffee Bean & Tea Leaf (CBTL) has left a bitter taste in the mouth of analysts who see JFC’s latest move as a drag on earnings growth for the next three years.

“In our view, the acquisition would be earnings dilutive in the next three years given the competitive nature of the coffee industry,” Unicapital said.

First Metro Securities Corp. also said that  the coffee company incurred a $21.4 million and $25.5 million loss in 2018 and 2017, respectively. “We think that this acquisition will drag JFC’s earnings performance upon consolidation,” it said.

However, Tan Caktiong believes that JFC has been able to acquire the right brands and has successfully turned around the companies.

He said Smashburger’s finances have already turned around and the improvement would likely be reflected in JFC’s second half earnings.

The company fully acquired Smashburger in December 2018 and has been a drag on company’s finances.

In the second quarter, JFC’s net income dropped by 50.2 percent to P1.1 billion from P2.2 billion, while first half income was down 34 percent to P4 billion from P2.7 billion.

JFC chief financial officer Ysmael Baysa said the losses due to Smashburger are temporary and are expected to be at a much lower level starting in 2020 because of changes in leadership and enhancement in operations.

Tan Caktiong said Red Ribbon’s production problems will also stabilize starting this month with the successful transition to a new plant.

Last July, JFC gobbled up CBTL, marking JFC’s biggest acquisition so far and moving the company a step closer to its goal of becoming one of the top five largest restaurant companies in the world.

The acquisition costs $350 million including an initial investment of $100 million.

Through its wholly owned subsidiary Jollibee Worldwide Pte Ltd (JWPL, Singapore), it has entered into an agreement to invest $100 million in a new Singapore-based holding company to acquire 100 percent of CBTL.

The acquiring entity will be JWPL’s wholly owned subsidiary Java Ventures LLC, which would eventually be a wholly owned subsidiary of the new Singapore-based holding company.

Tan Caktiong said JFC may welcome strategic investors such as global funds to fund the $350 million acquisition which may be closed this month.

Another option is to issue preferred shares to raise funds, he said.

“Initially, we were looking at issuing preferred shares. We are not sure yet because there are some parties willing to join,” he said.