JFC holders take a twofold blow from CBTL and Smashburger acquisitions

Jollibee Foods Corporation (JFC) in the hunt for growth acquired two loss-making businesses: Smashburger and Coffee Bean & Tea Leaf.

These acquisitions gave JFC shareholders a double whammy. First, the operating losses of Smashburger and Coffee Bean & Tea Leaf offsets the operating income of the established franchises of JFC like Jollibee and Chowking.

JFC disclosed in its 2020 Annual Report that the parts of the business not yet generating positive operating income were Smashburger, Coffee Bean & Tea Leaf (US) and parts of SuperFoods Group.

In these pandemic times, JFC would have been hugely profitable were it not for the operating losses of the loss-making Smashburger and Coffee Bean & Tea Leaf.

The second blow to the JFC shareholders came from the financing costs of these acquisitions. JFC acquired 100% of Smashburger an American fast-casual hamburger restaurant chain a for a total of around US$210 Million (around 11 Billion Pesos). JFC acquired another loss maker Coffee Bean & Tea Leaf for US$350 Million (roughly 18.3 Billion Pesos).  The financing costs of these acquisitions made a material impact on the bottom line and did dilute returns to shareholders.

In its 2020 Annual Report JFC said that the total operating income of all business units in September were already breakeven while the losses were accounted for mainly by financing costs and global headquarter cost.

But despite the double whammy impact to the shareholders for the two loss-making acquisitions, JFC’s share price one year return is at 63.85%.

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