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Jollibee now in the Apps Store, a step in the right direction but pains to persist

Jollibee Foods Corporation announced in August 2020 that it is embarking on a Business Transformation program.  Although JFC didn’t elaborate what the business transformation program entails, it can be easily surmised that it would involve information technology. The businesses that thrived and able to cope with the challenges of operating under the pandemic deployed or are engaged in information technology.

 In the first half of 2020 (1H20), JFC suffered a net loss of 12.6 Billion Pesos. Included in the net loss is the 7 Billion Pesos charged for Business Transformation.

The launch of the Jollibee app is business transformation taking shape. It is now employing information technology to bring further customer convenience, but this is what Jollibee should have been doing a long-time ago. The way forward a long time ago was to employ or deploy information technology to enhance customer service. But it is better late than never.

Marrying Jollibee’s prominence with technology to enhance customer service should have been the growth strategy of JFC but it was never thought of by the executives at JFC until the pandemic. JFC stuck with old technology like the old hotline system. This is what usually happens when you replace a senior chief executive with another senior executive and surround him with executives around their age.  According to Wallmine there are 8 older executives than the CEO Ernesto Tanmationg in JFC.

Instead of developing the information technology capabilities of JFC, it went instead to a shopping spree of loss-making businesses overseas.  It acquired Smashburger for around US$210 Million and Coffee Bean & Tea Leaf for US$350 Million.  Those businesses were already suffering heavy losses before the pandemic and the pandemic may have decimated those businesses.  JFC has yet to make an impairment charge on those businesses.  While an impairment charge is non-cash, the cash used to acquire those businesses may have gone to waste if those businesses are non-performing or not contributing to bottom line and cash generation.

The costs of the business transformation program may have already been felt in the income statement with the 7 Billion charge in the 1H20, the cash burn associated with it has yet to be felt in the financials.

JFC’s financial competence allowed it to proactively raise 72 Billion Pesos through the issuance of debt and debt-like securities in the first half of 2020. Despite JFC burning cash in its operation in the first half of 2020, it still ended 1H20 with a 57.9 Billion cash balance.

The launch of Jollibee in the apps store marks a business transformation taking shape.  But pains will persist.  JFC might still be burning cash while it is mastering capabilities behind the Jollibee app and there is still no admission of mistakes in the loss-making acquisitions. Charges associated with the loss-making acquisitions are still looming large.

JFC might be expensive, but it is now in the right step towards growth. It is interesting to follow JFC’s upcoming 3Q20 results.

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Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent viewpoint.  Accuretti Systems Inc. in day to day trading may have owned, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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