Max’s eyes debt-free 2015

Restaurant chain operator Max’s Group Inc.—formerly Pancake House Inc.—expects to enter 2015 with a clean balance sheet as it seeks to complete within this year a restructuring program and debt refinancing after the consolidation of the country’s two leading casual dining chains.

In the first nine months of this year, Max’s group incurred a net loss attributable to equity holders of parent of P9.1 million, a turnaround from the P120 million net profit in the same period last year, based on a regulatory filing on Monday.

“The results are in line with management’s deliberate thrust to first improve the brand service platform, uplift quality of product offering and store appearance, control costs and rationalize store network, in terms of location, size and positioning for the brand,” Max’s Group president Robert Trota said in a press statement.

Nine-month revenues went up slightly to P2.7 billion from P2.69 billion year-on-year, while expenses increased to P2.8 billion from P2.57 billion.

For the third quarter alone, the company said net income amounted to P5.29 million. Excluding non-recurring items, core net income for the three-month period amounted to P23.07 million. Core profit for the nine-month period was reported at P70 million compared to P116 million in the same period last year.

“There are still one-time costs [from consolidation] booked for the third quarter, but with the Christmas season, we are expecting sales to ramp up,” Paul Cheah, Max’s deputy compliance officer.

“The clean-up will likely last until the end of the year but our target is to enter 2015 with a very clean balance sheet. Bulk [of the one-time costs] had been booked in the second quarter. We don’t expect the net loss to be bigger by the fourth quarter,” Cheah said.

Based on the regulatory filing, P83.66 million one-time cost had been booked in the second quarter and P17.79 million in the third quarter.

This is also the last reporting period which will reflect only the operations of Pancake House, Cheah said. For the full year results which will come out by April, he said the reporting will be based on the results of the combined entity.

The acquisition of Pancake House by the Max’s group has resulted in the latter’s backdoor listing on the local stock exchange. The group said the consolidated company was now undergoing a comprehensive restructuring program to rationalize its portfolio of brands and streamline operations. This exercise involves strengthening brands, revitalizing, selling or winding down underperformers and retraining staff to improve service levels. A blueprint for extracting synergies with the Max’s Group stable of businesses is also being finalized.

As of today, 15 to 20 of the Pancake House Group’s 301 stores are “underperforming and are being evaluated for either right-sizing, conversion to franchise or closure,” the company said. It is estimated that this exercise alone will save the company about P35 million, allowing the company to redeploy capital and other resources toward other businesses where returns are maximized.

It is envisioned that the pivotal elements of the restructuring program, including the refinancing of debt, would be completed by the end of this year.

As such, the company said “management hopes to enter 2015 with a clean balance sheet, a stronger portfolio of businesses, and an unfettered focus on growth.”

“Management actions on the Pancake House Group are proceeding as planned and fall part of the larger Max’s Group development strategy. We remain on track to address obligations related to the acquisition through a capital raising exercise which will further strengthen the company. Our key partners—banks, suppliers, franchisees, developers and existing shareholders—continue to share our confidence during this very exciting period in the company’s history,” Trota said.