FASTFOOD giant Jollibee Foods Corp. (JFC) is raising its stake in US hamburger chain Smashburger to a majority, exercising a purchase option in a bid to further gain a foothold in the American market.
Jollibee, which on Tuesday also disclosed a 10.9% increase in 2017 net income to P6.7 billion, said it would be paying $100 million in cash to increase its Smashburger stake — held by subsidiary Bee Good! Inc. — to 85 percent from 40 percent.
The transaction, which remains subject to US regulatory approvals and “certain closing conditions”, is expected to be completed in one to two months.
“With this acquisition of more shares, JFC will have a more significant business in the United States. The US will increase its contribution to our worldwide system wide sales from 5 percent to 15 percent,” the company told the stock exchange.
“JFC believes that it will be able to profitably provide the mainstream American consumer with superior tasting products with excellent services at very good value for money as it has demonstrated in the Philippines, China, Vietnam, Singapore, Hong Kong, Brunei and the Middle East,” it added.
The share of Jollibee’s foreign businesses to total worldwide sales is also expected to rise to 30 percent from 20 percent.
The company said it eventually expects to achieve a 50/50 revenue split target as foreign operations were growing faster than in the Philippines.
“The consolidation of Smashburger into JFC will increase its worldwide store network by 365 stores or 9.6 percent to 4,162. This will also expand JFC’s geographical presence from 16 countries to 21 adding Costa Rica, Egypt, El Salvador, United Kingdom (England and Scotland), and Panama,” it said.
It will increase the number of Jollibee’s US stores to 417 from 83. It will also lead to an expansion of the company’s US presence to 39 states from the existing 10 and from two to eight in Canada.
Jollibee paid $99 million in 2015 for the 40 percent stake in Smashburger. The deal included an option to take full control of the company, which was revised last year to allow for the 45-percent acquisition and a complete takeover by 2019 at the earliest of 2026 at the latest.
In a separate disclosure, meanwhile, Jollibee reported net income of P6.7 billion for 2017, up from P6.05 billion a year earlier, on the back of strong sales and the acceleration of a store network expansion.
For the fourth quarter alone, net income grew by 8.3 percent to P1.8 billion from the comparable 2016 period.
Full-year revenues increased 15.6 percent to P131.57 billion while system wide sales grew by 15.2 percent to P171.77 billion.
Jollibee said it opened 465 new stores last year, the highest in its 39-year history.
Sales from restaurant chains in the Philippines subsequently rose by 13.2 percent while businesses overseas grew 23.4 percent.
Jollibee Chief Finance Officer Ysmael Baysa, in the disclosure, said 2017’s gross profit margins “were below year ago level as our rate of price adjustments was behind cost increases, following Jollibee’s practice of implementing gradual price adjustments in order to help consumers adapt to rising inflation.”
“The gradual price adjustments help to continuously drive volume growth of consumer visits per store despite rising inflation rate in the country. We expect to eventually recover our profit margins in 2018,” he added.
Jollibee shares ended the day down 2.12 percent or P6 to P277 per share.