bloomin' brands loan valuation presentation (v. 3 ma)
TRANSCRIPT
Loan ValuationPrepared by:
The Phoenix Group—
Roy Lunsford, Delton Mcbride, Stephenie Wilson, and Dena-Rose Wilson
Bloomin’ Brands, Inc.(Formerly OSI Restaurant Partners, LLC)
• Examine Bloomin’ Brands, Inc.’s (BLMN) financial performance to determine its ability to service its current and future debt.
• Assess Bloomin’ Brands’ long-term viability.
Objectives
Summary
To improve upon its restaurant functions and expand its market share of the industry, Bloomin’ Brands is seeking a working capital revolving credit facility of $313,000,000 (USD).
Synopsis of the Chain Restaurant Industry
• Consists of eateries providing full service restaurant operations to patrons
• Generates approximately $54.6B in revenue annually
• Industry analysts expect revenue to grow by 3.6% annually through 2017
• Weak consumer spending persists and continues to be a major concern
Chain Restaurant Industry Sales (2011 - 2012)
DRI,16%
BLMN,6%
CBRL, 5%
OTHER,73%
DRI BLMN CBRL OTHER
Key External Drivers
• Consumer Spending
• Healthy Eating Index
• Households earning over $100,000
• Consumer Sentiment Index
Characteristics of the Industry—
• Requires a substantial capital investment
• Extremely high levels of competition leading to fragmentation
• Low barriers to entry
• Limited globalization at present
• Revenue and commodity pricing volatility
Threats to Profitability
• Seasonality, costs of labor, changes in consumers’ lifestyles, and fluctuating costs for commodities (DataMonitor, 2012)
• Cyclical changes in the economy
• Ineffective leadership
Bloomin’ Brands, Inc.’s Core Concept
Providing quality food and exceptional service at an affordable price.
Bloomin’ Brands’ Portfolio and Sources of Revenue
Outback,67%
Carrabba's, 16%
Bonefish,11%
Fleming's,4%
Roy's, 2%
Outback Carrabba's Bonefish Fleming's Roy's
Salient Facts
• Prior to 2010, OSI Restaurant Partners was highly overleveraged leading Moody’s Investors Services to conclude that it was likely to default on its debt obligations (DataMonitor, 2012).
• OSI responded to the debt agency’s findings by restructuring the organization, offering equity, and reducing its debt.
Recent Corporate Initiatives
• In August 2012, Bloomin’ raised $176M in a successful initial public offering campaign at $11 per share.
• Bloomin’s senior leadership implemented a new strategic plan aimed at enhancing brand management, encouraging growth, and facilitating innovation.
Effects of Reducing Debt
• In minimizing its exposure to risk, Bloomin’ Brands exhausted most of its cash reserves (DataMonitor, 2012).
• Without securing additional capital, Bloomin’ is unable to expand thereby hindering its ability to grow its market share and compete with Darden Restaurants, Inc.
Proforma Profit and Loss Statement for Bloomin’ Brands, Inc.
Bloomin’ Brands, Inc./OSI Restaurant Partners, LLCYear 2009 2010 2011
Revenue Cost of Goods Sold 2.39B 2.34B 2.47B Operating Income (74.44M) (6.64M) 19.11M Operating Expenses Selling, General, and Administrative Expense 1.10B 1.12B 1.18B
EBIT After Unusual Expense (74.44M) (6.64M) 19.11M Total Expenses 1.03B 1.11B 1.20B EBITDA Income Taxes (Current) 13.58M 16.12M 21.89M Income Taxes (Deferred) (16.04M) 5.19M (175.00K) Interest Expenses 100.31M 89.99M 83.39M Depreciation 186.07M 156.27M 153.69M Net Income (64.84M) 52.97M 100.01M Profit Margin (%) (2)% 2% 2%
Current Financial Position
Bloomin’ Brands’ financial reports for the first two quarters of 2012 reflect an improved financial outlook and reveal that the company is turning a profit despite the sluggish economy (Reuters, 2012).
Overview of Darden Restaurants, Inc.
• Darden Restaurants, Inc.’s (DRI) core concepts are Red Lobster, Olive Garden, The Capital Grille, LongHorn Steakhouse, Seasons 52 Restaurant, and Bahama Breeze.
• In 2011, Darden realized $7.50 billion in revenue representing a 5.4% increase over FY2010 (DataMonitor, 2012).
Summary of Bloomin’s and Darden’s Financial Position
2010 2011
(In millions) BLMN DRI BLMN DRI
Net revenues 3.63B 7.11B 3.84B 7.50B
Net income 52.97 407.00 100.01 478.70
Earnings per share 0.44 2.90 0.84 3.48
Return on net revenues 1.46% 5.72% 2.60% 6.38%
Cash and short-term investments 373.68 248.80 502.72 70.50
Total assets 3.24B 5.28B 3.35B 5.47B
Shareholder equity (69.23) 1.89B 220.24 1.94B
EBITDA 324.89 944.30 344.22 1.06B
Comparative Balance Sheet2010 2011
(In millions) BLMN DRI BLMN DRI
Assets
• Cash and short-term investments 373.68 248.80 502.72 70.50• Accounts receivable 29.68 59.40 62.83 65.40• Inventories 58.97 220.80 69.22 300.10• Other 2.78B 4.75B 2.64B 5.03BTotal Assets 3.24B 5.28B 3.35B 5.47BLiabilities
• Accounts payable 78.25 246.40 97.39 251.30• Accrued compensation 109.44 352.80 117.01 401.00• Income taxes payable 0.00 1.00 0.00 9.30• Other 3.12B 2.78B 2.92B 2.87BTotal Liabilities 3.30B 3.38B 3.13B 3.53BShareholder Equity (69.23) 1.89B 220.24 1.94B
Comparative Ratio Analysis
2009 2010 2011
BLMN DRI BLMN DRI BLMN DRI
Current Ratio 1.98x 8.9x .82x (.14)x .74x .54x
Debt Ratio 94% 6% 102% 5% 99% 4%
Debt to Equity Ratio (49)% 3% (59)% (1)% 52% 4%
Debt to Total Assets Ratio 94% 64% 102% 64% 99% 65%
Net Profit Margin (2)% 5% 2% 6% 2% 6%
Gross Profit Margin Ratio 14% 8% 15% 8% 15% 9%
Profit Margin Comparative Trend Analysis
OSI Restaurant Partners Darden Restaurants
Debt to Assets Comparative Trend Analysis
OSI Restaurant Partners Darden Restaurants
Darden’s Revenue Projections
2009 2010 2011 2017
$7.22 $7.11 $7.50
$12.0
($ in Billions)
Darden’s Cash Flow Projections
2009
2010
2011
2017
$784
$903
$895
$1,600
(in millions)
Industry Analysts’ Forecasts for Earnings Growth
2012 2013 2014 2015 5 Year
0.50%
14.03%
22.74%
0.50%
18.00%
8.35%
12.99% 13.28%12.59% 12.55%
Bloomin' Brands, Inc. Darden Restaurants, Inc.
Using Loan Proceeds to Finance Growth
If approved, Bloomin’ Brands plans to use the proceeds from the working capital revolving credit facility to improve upon its restaurant functions employing a three-step approach to growth.
Strategic Approach to Growth
Step One Step Two Step Three
Criteria for Ensuring Success
• Employ price and non-price barriers to entry to grow Bloomin’s position (e.g., advertising, etc.). • Achieve economies of scale by
attaining productive and allocative efficiency.• Capitalize on brand equity as a tool for
differentiating its products.
Recommendation
In contrast to industry analysts’ optimism, the Phoenix Group recommends rejecting Bloomin’ Brands’ application for a working capital revolving credit facility.
Rationale for Decision
• The proceeds from the loan would cause Bloomin’s liabilities to increase to $3.44B constituting cause for concern (as its total assets are only $3.35B).
• Bloomin’s profits will decrease as a result of slow GDP growth, volatile commodity prices, high unemployment, and less disposable income.
Alternatives to Borrowing Capital
• Bloomin’ Brands may offer additional equity in the company.• Or, Bloomin’ can adopt a less
aggressive strategy for expansion and focus on building its cash reserves and strengthening its financial position.
Conclusion
Although Bloomin’s branding revitalization initiatives and its renewed commitment to realizing productive efficiency resulted in cost savings and improved sales performance in 2012, economic indicators suggest that an annual increase in revenue of approximately 3 to 5% is not sustainable.