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QuestionsCategory: Investor PsychologyBreadtalk – Resignation of Group CEO
Tan Roland asked 2 years ago

Hi Rusmin, 
Just like to check if the fundamentals of the company has changed? ie the business and management. 
According to the latest annual report both George Quek and Henry Chu were paid in excess of S$1m each. This is in addition to the dividends received as controlling shareholders. This is grossly misaligned with profits.
Just like to check if the investment thesis for this company has changed. They talk about efforts to increase margins but with 990 leased outlets, they maybe working hard to pay their landlords.

Tan Roland replied 2 years ago

Typo error. Header shld read as group CEO

4 Answers
Tan Roland answered 2 years ago

Further to what I mentioned earlier, George Quek and his wife collected more than $6m in FY18 (dividends included). This is a very significant portion of net profit attributable to shareholders of  about $15m. Not sure if you guys consider this important when you seek out companies to invest in. Like to hear your views. Thanks.

Rusmin Ang answered 2 years ago

Hi Roland
You can compare their salary with net profit, but I won’t include the dividend in the calculation. For BreadTalk’s case, it isn’t that straightforward to look at the profit as they are pretty aggressive with their depreciation method. But yea, I agree with you that their top management is generally quite well compensated.
On the departure of CEO, I guess the question you should be asking is ‘would people stop visiting their outlets when CEO resigned?’ I think it is unlikely but it may affect the future development of the company. At this stage, we only know George Quek took over and I hope he comes back and resume running the company. 

Karan Malhotra answered 2 years ago

I’d ask more questions about the Food Junction acquisition :)
80 million seems to be a LOT for a smaller competitor with a limited footprint and questionable profitability.
There was also this piece which was quite harsh:

Why It Makes Zero Sense For BreadTalk To Buy Food Junction At $80 Million

Some valid points herein especially regarding the amount of debt they’re taking on.
Would welcome alternative views to this as well

Rusmin Ang answered 2 years ago

Hi Karan,

I think the article missed some information not reveal inside the announcement. It would be difficult to justify the acquisition based on the numbers given from the announcement. Analyst briefing has been held to explain the rationale of the acquisition and you can find the insights here. In essence, The losses in 1H2019 includes the one-off write off of non-performing stores as BreadTalk doesn’t want to buy them. So the acquisition is based on adjusted EV/EBITDA of 7.6x which I find it quite reasonable and the acquisition will allow them to reach out to mass market (slightly cheaper option than FR). Having said that, the debt level has gone up significantly and it is something we should monitor closely :)

Karan Malhotra replied 2 years ago

Thanks Rusmin, more due diligence required I guess, but they do seem to be quite aggressive in expanding, not sure what the rush is