TRIS Rating has affirmed the company and current senior unsecured debenture ratings of Minor International PLC (MINT) at “A+”. At the same time, TRIS Rating has assigned a rating of “A+” to MINT’s proposed issue of up to Bt8,000 million in senior unsecured debentures. The outlook remains “stable”. The proceeds from the new debenture will be used primarily to finance MINT’s recent acquisition of the Tivoli hotel group. The ratings reflect the company’s ability to deliver solid operating performance, plus its increasingly diversified portfolios of hotel properties and chain restaurants. The ratings also take into consideration the future growth opportunities of MINT’s asset-light business. However, these strengths are partially offset by the volatile nature of the hotel industry and the high competition in the restaurant and retail trading segments. TRIS Rating expects that MINT's growth-oriented strategy, which will strengthen its business profile in long term, will not significantly weaken its financial strength.
The “stable” outlook is based on MINT's solid operations supported by its diversification in terms of business and geography. Its future investment needs must be carefully balanced against its funding sources in order to maintain the credit quality.
MINT's credit upside will be material if the company’s expanded portfolio is well established in Europe and South America while keeping its operating performance strong. The downside risk could occur if MINT's balance sheet and liquidity continue to soften, especially during the heavy investment period. The ratio of debt to EBITDA is targeted not to be over 3.5 times on a sustained basis.
MINT was founded in 1978 by Mr. William Ellwood Heinecke. At the end of 2014, Mr. Heinecke and group is the major shareholder, holding 34% of MINT’s total shares. The company has three main lines of business: hospitality and mixed-use, restaurant, and retail trading, which includes contract manufacturing. In 2014, the restaurant and hotel segments were the key revenue contributors, comprising 41% and 35% of total sales, respectively. The retail trading and real estate segments generated 10% and 7% of total sales, respectively.
At the end of 2014, MINT’s hotel portfolio comprised 120 properties, with 14,721 keys, in 18 countries spanning the Asia Pacific region, Africa, and the Middle East. The portfolio comprises 21 hotels it owns directly (3,122 keys), 25 hotels owned through joint ventures (1,923 keys), 48 hotels under Oaks Hotels and Resorts Limited (6,223 keys), and 26 hotels that MINT oversees under management contracts (3,453 keys). The hotels are managed and operated under well-recognized international brands, such as Four Seasons, Marriott, and St. Regis, Radisson, and its own brands, including Anantara, Oaks, Avani, Elewana, and Per AQUUM. In January 2015, MINT made a strategic move by acquiring the Tivoli hotel group, adding four hotels in Portugal and two hotels in Brazil, with a total of 1,685 keys, to MINT's owned hotel portfolio. MINT aims to leverage the Tivoli brand beyond Europe and South America.
The Minor Food Group PLC (MFG) is MINT’s wholly-owned subsidiary, operating the restaurant business. MFG, established in 1980, is the largest restaurant operator in Thailand. MFG operates four international franchise restaurant brands: Swensen’s, Sizzler, Dairy Queen, and Burger King. MFG has its own brands, including The Pizza Company, The Coffee Club, Ribs and Rumps, Thai Express, Beijing Riverside and Courtyard (Riverside) in China, and BreadTalk in Thailand. The company is able to leverage its own brands and some of the franchise brands to franchise business in Thailand and international markets. At the end of 2014, the total outlet was 1,708 located in 21 countries, of which 848 were equity-owned outlets and 860 were franchised and sub-franchised outlets. MINT also invested in S&P Syndicated PLC and BreadTalk Group Ltd. in Singapore.
Minor Corporation PLC (MINOR) is responsible for the retail trading segment and contract manufacturing under the MINT umbrella. Within MINOR, the key brands are Esprit, Gap, Bossini, Charles & Keith, Tumi, and Red Earth.
In 2014, MINT reported sales of Bt36,989 million, up by 7% from 2013. The restaurant segment showed resilient operation despite a sluggish consumption in Thailand and Singapore. Revenue from the restaurant segment, including franchise fee, grew by 11% year-on-year (y-o-y) to Bt15,874 million in 2014. The hotel segment, including spas and hotel management fees, reported a 10% growth in revenue to Bt14,209 million. Thanks to MINT's geographically diversified hotel portfolio, the stable operation of
Oaks and the strong performance of MINT's hotel in the Maldives offset the weaker performance of its hotels in Thailand which was affected by the political situation in 2014. In addition, the growth was supported by hotel management fee of Bt1,265 million, a double from Bt568 million in 2013. The solid growth in hotel management fees reflects MINT's effort to expand its hotel management services during the past few years. The operating margin, or operating profit before depreciation and amortization as a percentage of sales, is considered stable, despite weakening slightly to 16.8% in 2014, compared with 17.8% in 2013. The liquidity profile is fair. The earnings before interest, tax, depreciation, and amortization (EBITDA) was Bt8,878 million in 2014, up by 6% y-o-y. The adjusted EBITDA interest coverage ratio was 7 times in 2014. The fund from operation (FFO) to adjusted debt ratio was 16.3% in 2014, down from 24.3% in 2013.
MINT's capital structure weakened in 2014 due mainly to its investment in hotel and mixed-use projects in Africa and the Tivoli acquisition. Total debt increased from Bt23,385 million in 2013 to Bt34,082 million in 2014. The adjusted debt to capitalization ratio rose from 50.4% in 2013 to 56% at the end of 2014, while the adjusted debt to EBITDA ratio weakened from 3.2 times in 2013 to 4.2 times in 2014. Leverage will increase further, following MINT's planned capital expenditures although the investment will be funded in part with its internal cash flow. MINT plans to spend around Bt22,000 million on investment this year, including the acquisition of the Tivoli hotels of Bt6,560 million made earlier this year. The investment is projected to be Bt11,000-Bt16,000 million per annum during 2016-2017. The majority of the budget will be used to expand its hotel and mixed-use portfolio. MINT's acquisition is mostly made in the brown field project, as a result, a project can immediately generate positive operating cash flow.
With the well-diversified strategy, MINT is expected to withstand the challenges in a particular country or region and sustain earnings growth. Under TRIS Rating’s base case scenario, MINT will generate around Bt10,000-Bt15,000 million in EBITDA during 2015-2017. The amount of cash flow is sufficient to service its financial obligations of Bt5,500-Bt7,000 million per annum during 2015-2017. The remaining amount will be used to fund its investment. The new borrowings are needed to serve its growth strategy. Nonetheless, the growing net operating earnings and the exercise of warrants expected during the next three years could partly support its capital structure. The adjusted debt to capitalization ratio is forecasted to stay below 60% during 2015-2017. MINT is also expected to maintain its well liquidity management. The FFO to adjusted debt ratio is expected to stay around 20%. The adjusted debt to EBITDA ratio is estimated to be around 4 times in 2015 and gradually decrease to stay below 3.5 times during 2016-2017.
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