TRIS Rating has affirmed the company and senior debenture ratings of Minor International PLC (MINT) at “A” with “stable” outlook. The ratings reflect MINT’s solid operating performance, strong market positions, and capable management team. Its diverse lines of business and wide geographic coverage are other two factors supporting MINT’s competitive position. However, these strengths are partially offset by the company’s aggressive growth and investment strategy and the characteristics of the hotel industry which is seasonal and sensitive to event risks. The strengths are also counter balanced by the intense competition and low margins in the quick service restaurant (QSR) and retail trading segments. The “stable” outlook is based on the expectation that MINT will continue to deliver solid operating performance and generate cash. The company is expected to employ a cautious financial policy by balancing its investments and funding sources, and manage its capital structure to avoid becoming over leveraged.
MINT was founded in 1978 by Mr. William Ellwood Heinecke. The company engages in three main lines of business: hospitality and residential property, QSR, and retail trading, which includes contract manufacturing. In 2012, the QSR and hotel segments were the largest revenue contributors, comprising 37.8% and 37.0% of total sales, respectively. The retail trading and property segments generated 10.5% and 9.3% of total sales, respectively.
As of March 2013, MINT’s hotel portfolio comprised 17 hotels it owns directly (2,571 keys), 13 hotels owned through joint ventures (733 keys), 38 hotels under management letting rights (MLR; 5,176 keys), and 16 managed hotels (2,126 keys). MINT’s hotels are located in top-ranked tourist destinations in nine countries spanning over the Asia Pacific region, South Africa, and the Middle East. The hotels are managed and operated under well-recognized international brands such as Four Seasons, Marriott, and St. Regis, and its own brands such as Anantara, Oaks, Elewana, Naladhu, and Avani. The Minor Food Group PLC (MFG), a wholly-owned subsidiary, runs the food segment. MFG, which was established in 1980, is the largest QSR operator in Thailand. MFG operates four international QSR franchise brands, Swensen’s, Sizzler, Dairy Queen, and Burger King, and four of its own brands, The Pizza Company, The Coffee Club, and Thai Express, and the newly acquired Beijing Riverside and Courtyard (Riverside). As of March 2013, MFG had 759 equity-owned outlets and 647 franchises and sub-franchises located in over 15 countries. Minor Corporation PLC (MINOR) is responsible for the retail trading segment and contracted manufacturing under the MINT umbrella. Within MINOR, the key brands are Esprit, Gap, Bossini, Charles & Keith, and Red Earth.
In 2012, MINT reported total sales of Bt31,310 million, up by 20% from 2011. The rise in sales came from both organic growth in all of its business segments and growth through acquisition. Revenue in the hospitality segment, including revenue from spa business and hotel management fee, jumped by 40% in 2012 to Bt12,261 million, compared with Bt8,763 million a year earlier. Thanks to the strong hospitality industry in Thailand, the number of foreign tourist arrivals recovered vigorously after series of events over the past few years. MINT acquired Oaks in mid-2011. The 2012 financial statements reflect a full year’s worth of revenue from Oaks. This also propelled revenue higher in 2012.
MINT’s QSR segment continues to deliver solid performance. In 2012, the QSR segment posted revenue of Bt12,266 million, an 11% increase year-on-year (y-o-y). The retail trading segment also grew, rising by 13% to Bt3,294 million in 2012. Revenue rose in this segment despite the discontinuance of three cosmetics brands and a flood-induced shutdown of the contract manufacturing plant. The plant did not resume full operation until June 2012.
MINT’s earnings before interest, tax, depreciation, and amortization (EBITDA) grew impressively along with sales. EBITDA climbed by 35% y-o-y to Bt7,132 million in 2012. The operating margin improved from 15.5% in 2011 to 17.3% in 2012.
In the first quarter of 2013, the growth momentum has continued across all lines of MINT’s business. Total revenue increased by 6% y-o-y to Bt8,926 million, while the EBITDA rose by 14% to Bt2,585 million. The growth was attributable to the peak season demand in the hotel segment, the continued success of MINT’s “asset-light” business model, and the turnaround of the QSR business in China after acquiring the Riverside chain.
MINT’s total debt has increased significantly over the past two year, rising from Bt14,368 million in 2010 to Bt23,801 million at the end of March 2013. The rise was due mainly to MINT’s growth-oriented investment strategy which turned in strong operating performance in 2011 and 2012. In addition, MINT now has a strengthened equity base, following the exercise of warrants during the first quarter of 2013. As a result, MINT’s capital structure has remained acceptable. The adjusted debt to capitalization ratio improved from 59.1 in 2011 to 51.9 at the end of March 2013. MINT’s liquidity profile, as measured by the adjusted EBITDA interest coverage ratio, improved from 5.4 times in 2011 to 8.9 times in the first quarter of 2013. The funds from operations (FFO) to debt ratio was approximately 20.9% in 2012, slightly improving from the prior year. The ratio stood at 7.3% (non-annualized) for the first three months of 2013.
In order to pursue its target growth, MINT expects to invest approximately Bt28,000 million over the next three years. TRIS Rating expects that MINT will utilize its operating cash flow to fund in part the new investments. However, MINT will still need a considerable amount of cash, which will be funded by new debt. As a result, the amount of the outstanding debt will continue to rise during the next three years.