Yeo Hiap Seng Ltd Case Study

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Executive Summary


Founded as a small Soya sauce maker by Yeo Keng Lian in China and reinvented by his sons following the nd world war, in Singapore, YHS is a global leader in Asian food and beverages and a leader in the manufacturing and distribution of some of the world best know brands across Asia.


YHS has a proud a successful history and has emerged as a powerful and highly diversified manufacture of food and beverages. Despite this, YHS has encountered a number of difficulties during its long transition from local manufacture to Multinational Corporation.


The past four years have seen dramatic changes at a shareholder, board and operational level; most significantly this can be seen in the takeover by Mr Ng Teng Fong’s Orchard Parade Holdings (OPH). The result of this takeover has removed the company’s traditional powerbase, the now defunct YHS Holdings, the Yeo family company.





With the demise of the Yeo family interest, a significantly changed board and management team, YHS has emerged for the first time with a company vision, mission and a set of beliefs. These statements which have been included in the 15 Annual report have quickly been reinforced by new investment in product development, new plants across South East Asia, considerable investment in China and the realization of vast property assets.


The YHS share price has fluctuated dramatically during the 10’s, which can be attributed to the takeover battle that occurred between OPH and Camerlin Ltd. Shareholder value increased by over 100% from 1 to 14, this is however not a true reflection of the company performance. Despite a dramatic turnaround in profitability from a loss in 14 to a S$17,078,000 profit in 15, total company sales have been gradually declining since the peak in 11. This decrease can in part be attributed to underperforming divisions which have recently been annexed but also acts as a warning to the new management team that a fresh direction is required to reinvigorate sales.


New CEO Alex Chan has already taken steps to curb declining sales and seize upon opportunities in emerging markets, particularly in China. Plans are underway to introduce up to six new Asian beverages and five new Asian sauces. These new products will be introduced under the Yeo’s brand which will become an important focus of sales and marketing in the medium term.


Continued growth is expected with YHS stable of licensed international brands, and YHS global partner’s confidence in its capacity to deliver first class manufacturing distribution and marketing of their brands has been reinforced with the signing of an unprecedented 10 year deal with PepsiCo.


With a clearly set vision for the future, the discarding of underperforming divisions and the recent internal management disruptions behind, YHS is in a strong position to capitalize on its vast experience in the manufacture and distribution of food and beverage products throughout Asia, and achieve its target of S$1 Billion in sales by 000.





Company History


100- Company founded as a small Soya sauce maker by Yeo Keng Lian in China.


15- Yeo Keng Lian’s three sons founded the Yeo Hiap Seng Sauce Factory in Outram Road Singapore.


140’s � Following the war a new factory is built by the brothers on what was then the outskirts of the city, Bukit Timah


155- The company is incorporated as the Yeo Hiap Seng Sauce factory


155- Incorporation of Yeo Hiap Seng (Malaysia) Berhad


160’s- Overseas operations commenced with the establishment of a branch office in Hong Kong


16- Company is listed on the Singapore stock exchange as Yeo Hiap Seng Ltd (‘YHS’)


175- YHS (Malaysia) listed on Kuala Lumpur stock market, of which YHS had a 4% stake.


181- Acquisition of Melowise Ltd (Hong Kong)


18- Acquisition of Chun King (USA) US$5 million � partnered by Singapore Govt investment arm- Temasek


11- Company grows to turnover $41 million and operates in Europe, Asia and the US


1- Bukit Timah rezoned residential, YHS required to move, book value of land revalued to $17.5 million �amounting 60% of YHS net tangible assets


1- Aggregate result of associated companies jumps by 80% from $4. million to $8.5 million


1- North American losses almost %6 million- 50-60% of this attributable to Chun King


March 14- Charles Yeo and uncle Ben Yeo and a lawyer are successful in their bid to join the board, amid rumours of a family feud


14- Y.Y. Wong becomes new Chairman of YHS


14- YHS posts a $4.7 million after tax loss


15- Chun King disposed of for US$10.5 million





Background to Organisation Structure


Company Structure Prior to OPH takeover


Prior to the OPH takeover YHS operated under the following broad structure





Brief history of OPH takeover


April 14- Wing Tai (property and textile group) announce plan to acquire 5.5 to 40% controlling stake of YHS at $. a share- the plan being to purchase from YHS holdings


April 14- Wing Tai offer rejected by majority of Yeo family members


Late April 14 - 4.5 million YHS shares purchased on the open market by Ng Teng Fong of the Far East Organisation


May 14- Ng Teng Fong (OPH) holds 14.4% of the stock


June 14- YHS holding wound up under court order and Yeo families free to trade individual holdings on the open market


September 14- Chng Hee Kok appointed CEO to replace Alan Yeo


October 14- Alan Yeo retires from YHS amid concern over his salary package


February 15- Y.Y. Wong appointed chairman, Alex Chan Meng appointed CEO to replace Chng Hee Kok and Michael Yeo appointed executive director and deputy chairman.


March 15- Fears of hostile takeover from Quek Leng Chan- who purchases YHS shares through Camerlin � awholly owned subisidlary of his property company First Capital Corporation


March 15- Ng Teng Fong approaches shareholders of his listed vehicle Orchard Parade Holdings about a 51% purchase of YHS shares


March 15th 15- Queks interest increases to 15%


End of March 15- Ng Teng Fong holds 4.77%


Start of April 15 � Quek increases his holding to 4.77%


6th June 15- Quek makes takeover offer of $4.70 per share- a priced considered by some analysts as high in comparison to net asset value.


1st July 15- Counter bid by Ng of $5 per share


1th August 15- Ng ups bid to $5.5 a share


th September- Mr Quek’s Camerlin Group concedes defeat


18th December- OPH controls 87% of the YHS stock


Company Structure following OPH takeover


Following the takeover by OPH, YHS added a fifth operational division, property








Financial profile and analysis of the business


Financial Data


Following the annexing of Chun King from the organisation in March 15 the company has successfully recorded a pre-tax profit of S$17,078,000, which represents a significant turn around from the previous year’s loss of S$1.8 million.


The increased profit can also be contributed to the continuing strong performance of YHS associated companies whose aggregate contribution has increased by 80% to S$8.5 million as well as continued cost cutting across all divisions.


Despite this positive news, Sales have continued to decline since 1 (see table below). The most recent data reveals sales figures have dipped to S$07,00,000 down from the high of S$04,404,000 in 1. Whilst some of this decline can attributed to underperforming operations that have been closed such as Chun King, it does point to some troubling signs for YHS’s more traditional core businesses.


Sales and Pretax profit 18- 15


Key Purple Sales


Blue Pretax Profit





Several key indicators suggest that the company is not in a strong cash position with liquid funds at just S$11,81,000 and working capital below S$6 million. Debtors remain at an acceptable $7,6,000 wjile efforts to reduce stock held a free up cash has resulted in stock being reduced by over 50% since 10.





Other key data from 15 S$


Liquid Funds $11,81,000


Debtors $7,6,000


Stocks $8,54,000


Working Capital $5,41,000


Investments $75,45,000


Net Fixed Assets $81,144,000


Long-term debt $1,54,000


Net tangible assets $4,78,000


Total Tangible Assets $56,,000


Share capital $14,104,000


Shareholders Equity $44,1,000


Following the takeover, the share price is likely to settle back down around S$ mark as buyers begin evaluate the OPH strategy for YHS. What can be seen on the graph below is the market reflecting YHS poor performance and lack of direction during the last part of the 180’s and into the early 0’s.


The next 1 months will be an important time for YHS as the share price stabilizes following the take over it will be important that the company’s new leadership provides strong direction and positive results in order to turn around the pre-takeover decline in shareholder value.


Share Price Book Value








Divisions and subsidiaries


With the securing of the unprecedented 10 year manufacturing and distribution agreement with Pepsi Co YHS franchise products represent a highly visible and important part of YHS’s diversification strategy. In addition to the Pepsi deal, YHS continues to distribute brands including 7-Up, Schweppes, Gatorade, Ribena and Budweiser beer among others.


Despite strategic and managerial changes, YHS’s existing operational structure will continue to serve the company well. Following the recent increases in value of the former manufacturing site in Bukit Timah and the realization of other valuable real-estate assets a property division has been established to manage and develop these assets going forward. YHS’s other main operational divisions are Beverages, Food & Sauces, Sales & Distribution, and Export.


Beverages


The beverage division manufactures and packages all YHS carbonated and Still drinks in cans, tetra briks and bottles under both the Yeo’s and licensed brand names. Key products produced by the beverage division include


• PepsiCo licensed brands (Malaysia and Singapore)


• Evian (exclusive license Singapore)


• Yeo’s still drinks


• Budweiser beer (Malaysia and Singapore)


Food and Sauces


The food and Sauces division manufactures and packages products mostly under the Yeo’s brand, some popular products include


• Condiments (chilli and tomato sauces)


• Canned food (beef, chicken curries etc)


• Dried Goods (prawn crackers, noodles)


The manufacture of the Beverages, Food and Sauces products are carried out in key locations throughout Asia including Singapore, China, Malaysia and Indonesia.


Sales & Distribution


The Sales & Distribution division has the responsibility for the marketing, selling and distribution of beverages, food and Sauces produced by YHS.


Export


It is the responsibility of the export division to sell Yeo’s branded products to the world market. In addition this division sells licensed and agency products into other key market (predominantly Asian)





Options


In January 16, CEO Alex Chan outlines the boards plans for the re-launching of YHS This plan took into account the companies strengths and its past failings. The key element of the plan was to focus the company towards the Asian region. This represents a significant directional shift from former Chairman Charles Yeo’s desire to create a truly global food and beverage manufacturer.


This shift in direction can in part be attributed to the disastrous Chun King experience in the US market. But it is also an acknowledgement of the clear opportunities YHS has to exploit its experience in the Asian consumer market place. The strategy calls for a target $1 Billion in sales by 00.


In executing this strategy YHS has the following options


Product development


In addition to the broad strategies outlined by Alex Chan, the Annual report also set out a for the first time the company’s Vision, Mission and Beliefs. The statements would then be reinforced by visible action, which can be seen in YHS decision to place significant emphasis on new product development.


This firs steps taken would be the introduction of six new Asian Beverages and five new Asian sauces. This would have the affect of significantly increasing the overall range of Yeo’s products by almost one third.


Brand Building


While overall company revenue now comes from a diverse range of interest including licensed manufacturing, property and sales and marketing the value of the Yeo’s brand and the long term opportunities that this represents is an important part of YHS future as global company.


The Yeo’s brand is already well known in a number of key markets including Malaysia, Singapore and Indonesia, there a a number of medium term opportunities to expand the brands appeal into the largest emerging market for YHS, China. As noted above, the board plans to introduce a number of new products under the Yeo’s brand which represents a clear short term commitment to its expansion.


In the long term, the extension of the product range while increase opportunities in the export market, and as the board begins to realize its goals in local markets, YHS will be in a strong position to be a major producer of Asian style food and beverage in Western markets.


China


YHS has clearly demonstrated its skill and experience in managing the manufacturing, packaging, sales and distribution of products throughout Asia. This has been reinforced by PepsiCo’s decision to commit to a temn year agreement with YHS for the manufacture and distribution of its products in the region.


China represents the world’s most important emerging market and is expected to overtake the US as the world’s largest consumer economy within the next 0 years. YHS has made a clear long-term commitment to the Chinese market with a number of strategic moves


• A 1 5050 joint venture with Guangzhou Nangou Food and Beverage General Company � to make and distribute Soya bean drinks


• Also in 1-two JV’s 51% stake in YHS (Guangzhou) Ltd and 60% stake in a factory to be built in Neihai, Guangxi, both ventures to manufacture and distribute Yeo’s beverages


• May 15- YHS was part of China trade delegation with Prime Minister of Singapore. YHS and OPH sign memorandum of understanding to develop a food processing and distribution park in the inland city of Chendu.


• Also in that year a Joint venture manufacturing project was signed in Guangzhoua and a majority owned joint Venture in Shanghai


Other aspects of YHS focus on the South East Asian region include


• Expand Food and Beverage into China, Indochina, and Indonesia and Thailand.


• Proposed new plants in Indonesia, Thailand, and additional ones in Malaysia


• Move to new operating plants in Singapore with new $40 million plant.


Niche global export Market


One of the reasons identified for the failure of Chun Kings was that its products did not have a strong appeal to the average American consumer and that the products may have been considered ‘exotic’.


With the renewed focus on the South East Asia and China markets, YHS is in a strong position to gradually build a stronger export market to western economies as tastes change and demand increases. Whilst this strategy would not deliver Charles Yeo’s vision of a global company, it will provide YHS a first mover advantage as new markets emerge.


Property


Following the Singapore Governments decision to rezone Bukit Timah, the YHS board has realized the significant value of YHS property holdings.


In addition to the land holding in Bukit Timah, YHS has also obtained three substantial parcels of land also in Singapore for the purposes of redevelopment.





Conclusions/ recommendations


YHS has proud a successful history and has emerged as a powerful and highly diversified manufacture of food and beverages. Despite this, YHS has encountered a number of difficulties during its long transition from local manufacture to Multinational Corporation, and important lessons can be learned from YHS mistakes during this time.


Strains first started to appear in YHS organizational structure with the infighting that in part led to the opportunity for OPH to become a major shareholder. The Yeo family strong-hold on the company at a shareholder, board and operational level created lack versatility in the direction of the company.


It is interesting to note that the first time the company has set out its vision, missions and beliefs came almost 100 years after the first factory was opened. This lack of clear direction has led to some less than intelligent decision about how to expand YHS global diversification. This can be seen in the joint venture farming operation, Flowell Industries. It is clear that shrimp farming is not part of YHS core skills and strengths, and it maybe considered that the board of the time was too hasty in their desire to expand the company to do proper due diligence on the opportunities presented.


The lack of clear vision about YHS direction was further demonstrated on a far more risky endeavor with Chun king. With so many opportunities available to YHS in the SE Asian region, the US expansion plans lacked solid financial foundations.


Despite this, YHS is now in a strong position, with a strong board, highly experienced management led by CEO Alex Chan- and first time has a clearly stated vision and mission.


The expansion of the Yeo’s brand will leave YHS with enormous potential to again focus on truly global ambitions, this time however it will be when the consumer are ready for it.


In the mean time YHS is well positioned to exploit emerging opportunities in China and other new markets across Asia. The company’s core operations of manufacturing and packaging will be supported by a strong sales and distribution arm and the export division will continue to seek out new opportunities in Western markets.


The newly established property division will not only more effectively manage YHS’s substantial holding but will also work to redevelop key investment properties including the original Singapore manufacturing site at Bukit Timah.


With continued focus on brand building, product development and expansion of key emerging markets YHS is well placed to reach its ambitious target of $1 Billion in sales by 000. However this should not be achieved with the sacrifice of core values or long term profitability.





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