SINGAPORE (Feb 24): BreadTalk Group, one of the more high-profile consumer brand names in Singapore, might soon join the growing list of companies privatised from the Singapore Exchange.

On Feb 24, the company announced that a consortium led by BreadTalk founder and chairman George Quek is offering to buy over the remaining 29.47% of the company they do not already own.

The offer price, at 77 cents per share, is a premium of 19.4% over BreadTalk’s last traded price of 64.5 cents earlier on Feb 24, before a trading halt was called. The offer price is more than double the net asset value of 32.5 cents as at Dec 31 2019.

Besides Quek, the consortium includes his wife Katherine Lee, who is the deputy chairman and an executive director of BreadTalk, as well as other investors with smaller stakes, such as Thailand-based Minor International. 

In a stock market filing at 11.38 pm, the offerors note that the company has not raised funds from the stock market in the past decade, and that the company is now facing tougher operating conditions across the region.

The offerors claim they are giving “an attractive cash exit opportunity for shareholders to liquidate and realise their entire investment at a premium to the prevailing market prices.”

This announcement comes some five weeks after BreadTalk had sounded a profit warning for FY2019, saying that it was likely to report a loss for the financial year ended December 31, 2019. 

The group had cited contributing factors such as wider losses at its bakery business in China and Thailand, losses at its 4orth division due to a challenging operating environment, as well as the impact of the Hong Kong protests on the financial performance of its bakery and food atrium divisions in the former British colony.

See: BreadTalk Group to sink into the red for FY2019

The group also hit the headlines due to the spate of resignations by key executive figures including CEO Henry Chu, as well as CFO and CIO Chan Ying Jian. 

See: BreadTalk's finance and investment chief quits just weeks after group warns of FY2019 net loss

Just half hour before Quek's takeover was announced, the group reported losses of $8.1 million for 4QFY2019 ended December, a reversal from earnings of $8.9 million in the corresponding period last year. 

This translated into a loss per share of 1.44 cent for the quarter, compared to earnings per share of 1.58 cents in 4QFY2018. 

As a result, the group booked a loss of $5.2 million for FY2019 in contrast to earnings of $15.2 million in FY2018. 

Revenue for the quarter increased 10.1% to $170.4 million from $154.8 million last year, which in turn saw revenue for FY2019 increase 9.0% to $664.9 million.

Cost of sales for the quarter doubled to $132.2 million from $67.1 million a year ago. 

Correspondingly, gross profit for the quarter slumped 56.4% to $38.2 million from $87.6 million last year. 

A breakdown of the group’s revenue figures for FY2019 revealed that the bakery division booked a y-o-y increase of 2.0% to $287.7 million due to the consolidation of revenue from its Thailand Bakery business following the acquisition of a 50% stake in BTM (Thailand) from Minor Food Group.

The group says that excluding this, revenue would have been lowered by 6.3% y-o-y, due primarily to lower revenue from both the direct operated stores and the franchise business in China, partly offset by stronger revenue by its direct operated stores in Singapore, as well as its international franchise business.

BreadTalk’s food atrium division saw its revenue grow 5.3% y-o-y to $165.3 million following the consolidation of the Food Junction financials from November 1 2019 after the group successfully acquired Food Junction Management. 

Revenue from the restaurant division rose 15.0% from the previous year due to the addition of six more outlets - four in Singapore and two in Thailand, as well as the closure of one outlet in Singapore. The group adds that its UK operations have yet to turn profitable. 

Revenue from the group’s 4orth division surged 129% to $32.5 million in FY2019 as the group commenced Song Fa Bak Kut Teh operations in Beijing, Guangzhou and Bangkok, as well as deepened its presence in Shanghai. However, BreadTalk says that the division had not only incurred start-up costs for new outlets, but had also experienced below expectation performance in certain outlets. 

As at end-December, cash and cash equivalents stood at $157.6 million. 

The group has also not recommended a dividend for the quarter as it is in a net loss position. In 4QFY2018, the group had recommended a dividend of one cent per ordinary share. 

In its outlook statement, the group says that while its key markets such as Singapore, China and Hong Kong continue to be plagued by challenging operating environments, its management team has been working actively to turnaround the group’s loss-making businesses. 

“The outbreak of Covid-19 has added further challenges to the Group’s operations. The uncertainty in Hong Kong will continue to have a negative impact to our Food Atrium and Bakery businesses in the territory,” says BreadTalk. 

As a well-known brand, BreadTalk was an easy target for criticism over social media when its marketing and promotional activities went wrong. 

The company has been aggressively expanding over the years. Its most recent venture saw it take over food court operator Food Junction for $80 million in September last year.

Year to date, BreadTalk shares have dropped more than a quarter. Even at the last traded price of 64.5 cents on Feb 24, the company is valued at 41.5 times historical earnings.