At their peak in 2008, Tantalizers was one of the foremost fast food company in Nigeria known for rapid branch expansion all over Lagos. They were a perfect competition for Mr Biggs who back then (and till now) had a larger share of the market. Things were so good back then, Tantalizers launched an IPO and went on to declare a profit after tax of about N305.4million at the end of its financial year in 2008. What will ensue afterwards was a stock market crash that coincided with a drop in profits for the company from its peak in 2008.
Tantalizers released its 2012 audited account with Revenue dropping slightly by 8.8% to N4.19billion. The drop in cost of sale was not able to provide improved efficiency as Gross Profit fell 11.5% year on year to N1.9billion. The company for the first time in its operation as a publicly quoted one will go on to post a loss after tax of N303million.
Why are they loosing money?
Tantalizers ironically have consistently maintained a steady stream of revenue over the last five years averaging N4.7billion per year. But as revenue has remained pretty much flat (at a CAGR of -2%) earnings have gone south and Net Assets have hit a bumpy ride. In the current year under review Tantalizers spiraling cost that over the years finally caught up with the revenues as SG&A was 12% higher than gross profits and other income. So despite being able to post revenues in excess of N4billion, the 8% drop in revenue this year to N4.19billion was weak enough to throw the company into a loss. By the way total cost and operational expenses was N4.5billion in 2012 less than N4.6billion in 2011. The result is a loss in operational profit and by the time interest takes its share of cost a loss of N303million was posted.
I always wondered why fast food restaurants find it hard to deal with rising operational expenses. A look at their expense profile probably throws more light into this. After deducting cost of sale and amount paid to suppliers the resultant value added, a sum of N1.1billion was left in 2011. Out of that amount salaries and wages chalked off 47% and depreciation and asset replacement sliced another 43.66%. These figures will rise to 61.56% and 63% for salaries and depreciation respectively in 2012 as value added declined to N918million from N1.1billion in 2011. In a previous blogpost about fast food companies I noted that Tantalizers had over 2300 staff on their payroll taking staff cost per head to about N282,000 per annum. Sure this has dropped from prior years (assuming the staff count is the same), these are still high expense numbers for a company this size.
Tantalizers also has long term debts of about N1.1billion or 33% its equity. Whilst that is not too much debt my surprise however is how low their interest payments have been over the last two years, N16million in 2011 and N35million in 2012 (averaging 3% interest rate in 2012). This seem unrealistic in this economic environment so I am hoping a breakdown will explain why.
Take the risk and buy or just scamper?
In 2011, Tantalizers forfeited N330.8billion of its revenue reserves earned between 2004-2009 to the Federal Inland Revenue following the outcome of back duty investigation (back dated tax investigations). This reduced their Revenue reserve to N91million in 2011 and with the current loss of N303million, dividend payments and additional tax adjustments, revenue reserves are now a negative N328million. Dividend payment for this company is years away from occurring. The market recognizes this and so the company’s share price has been sitting at a rock bottom price of 50kobo with no inkling that it will rise. The 30day average trade volume is 2,510 an inconsequential amount for intending buyers or sellers.
I must add though that its Net Assets Per share of N1.04 makes the company a candidate for a take over someday. The company has consistently increased its investments on property plants and equipments (PP&E), Investing about N1.4billon between 2011 and 2012 alone. A change of business model, drastic cut down in expenses is what a revamped management could bring to the table if they are to stall the rise and expansion of the likes of KFC. For now, this is wishful thinking, so I might as well just keep my money in pocket.
Tantalizers 2012 Audited Accounts is posted on the website of the NSE. Download
Corrected the FS Table to reflect the correct period under review (30/4/2013)