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A whole new ball game for Neo Group
INVESTORS could get an extra bite out of DoDo fish balls if the brand goes public, as the chief executive of parent Neo Group suggested in a recent chat with The Business Times.
The Catalist-listed group is known for catering, which makes up about 37 per cent of the business. But founder, chairman and CEO Neo Kah Kiat envisions that share falling to 25 per cent as he grows and rejigs the three other units: food manufacturing, retail and supplies and trading.
Revenue has been falling in the supplies and trading business, which is undergoing an overhaul, as Neo Group pares subsidiary U-Market Place Enterprise's trading operations.
U-Market imports frozen food and makes rice dumplings under the Joo Chiat Kim Choo brand. But recent group financial statements have highlighted "an intentional reduction in low-margin trading transactions".
"We want to do more services where we cut or process for clients, rather than trade," said Mr Neo, who wants to focus on business-to-business (B2B) supply and a move into business-to-consumer (B2C) offerings.
"With trading, we are also going to e-commerce," he added. "We want to move in within one to two years. We're looking at how we want to capture it because we have data from how we're doing a lot of B2C in catering."
If a new business underperforms, as U-Market did, he is not averse to slowing down to re-assess things.
"When I bought this company, I wanted to grow it, but it was not that ready," he said. "I found that we should move it to a break-even point and from there, start to grow again. That's the way I run a business: When I find this company not doing very well, make it lean and then slowly take off."
Merger ... and merdeka?
Mr Neo also floated the idea of a listing for the 80.7 per cent-owned Thong Siek unit, which makes DoDo-branded fish paste products. It could go public depending on how it does in the next few years, he said, but declined to give more details.
Neo Group had bought a 55 per cent stake for S$7.35 million in 2015 and raised its interest last month.
And there just seems to be no stopping the shopping. The group announced in April that it would take a 51 per cent stake in Lavish Dine Catering, followed by a similar buy-in with How's Catering in September.
The spate of purchases came even though Neo Group posted losses again in its latest half year. Its net loss shrank to S$236,000 for the six months to Sept 30, down from S$1.2 million in same period the year prior.
Mr Neo attributes the fall into the red to his zeal for new purchases. "If I did not have all these new businesses, I would be profitable. We have one arm that is the most profitable," he said, referring to the catering core.
"So this is the muscle that I have. Then why do I say that I need to continue to acquire? It's because I have one arm that is very profitable and can continue to generate profits. That allows me to continue to acquire. And when we bought Thong Siek, there were significant losses. Now, we have made it profitable. We might also think of spinning it off for a listing."
The food manufacturing arm pulled in S$49.4 million in the year to March 31 and sells to 25 global markets. Neo Group is eyeing revenue growth of between 5 per cent and 10 per cent this year in this division, and also plans to open one or two overseas sales offices in the coming year.
The group is eyeing additions to its manufacturing portfolio, and "you see that we are also very aggressive in M&A of caterers", said Mr Neo, as mergers and acquisitions (M&As) "are oxygen to me and to the company".
"A company that is stagnant and not growing is a challenge . . . It's a good company if the revenue continues to grow and you've increased the segments and brands," he said.
"With M&As, you are not only buying a company. You're also buying the management and their skill. We can leverage on one another."
Mr Neo added: "It's like when I bought Lavish (Dine), because they were doing the high-end market. It's not that Neo Group couldn't do it; but we'd take time to do it."
His strategy is to take a majority interest - but not cough up for full ownership without compelling reasons.
Asked if he would buy out other caterers, he clarified: "I'd say a certain percentage - a majority stake - because I still want them to run it. I want everyone to win when I'm buying a company. I don't want to buy 100 per cent, unless they were going to retire and it's an arm that I don't have . . . In the catering business, you need to have some ownership. When we buy them and they run it, we will help them to grow; I'm interested in that."
Lavish Dine and How's are still managed by the original owners, Mr Neo noted, while institutional catering brand Gourmetz, which serves the childcare and eldercare segments, was 51 per cent-owned from the get-go.
"We can help them bring down the food costs or support them during peak periods, as well as with strategic planning," he added. "To fully acquire - not now. If a brand were strong enough, then I might consider it."
Mr Neo values making acquisitions across the entire supply chain: "Recently, we bought Hi-Q Plastic Industries because they were able to customise for us the plastic items," he said.
"They can do packaging specially for us, which you cannot find in the market. Or we bought Thong Siek because we can ask them to manufacture not only our fishballs but now sotong balls, scallops, spring rolls, samosas and even fritters as well, so the consistency is there."
He also plans to grow the food retail segment, where the group has an advantage over other players, thanks to synergies with the manufacturing business. Turnover from food retail fell by 10.9 per cent year on year to S$16.8 million in FY2018, which the group attributed to the closure of outlets that were not performing.
But Mr Neo held that "there is still a lot of room" to enter the market, especially with fast food concepts. "Competition is definitely fierce, but you can still find a way to get that profitability. For our kiosks, 50 per cent to 60 per cent are supplied by our central kitchen," he said. "We don't need any chefs at these kiosks . . . We went into retail because we were using central kitchens."
Mr Neo said that he was also looking at bringing in a food retail brand to Singapore - "a very strong franchise from overseas, one very solid one". This is the very opposite of his strategy for taking the group overseas. There, he wants to buy a lucrative business - lock, stock and barrel.
"I'm not going to set up store by store," Mr Neo declared. "We want to acquire a big business of around S$200 million to S$300 million, equivalent to or bigger than our size. Then it would be worthwhile for the management to be stationed there . . . If I were to go overseas, organic growth would be too much effort."
Asked how Neo Group would fund acquisitions on that scale, he said that it depends on how confident both banks and shareholders are, and how big the target company is: "Maybe I could buy one for, say, S$10 million, because it already has debt."
As for whether the group will deliver profits in the first half of 2019, he exclaimed loudly: "Have to, lah."
He also pushed back on the notion that the group is growing too quickly. "Now, when we acquire companies, we will acquire more strategically, because we have already acquired so many," he said. "Two to three M&As a year, I don't find it too fast. Bite-sized, profitable, small ones in Singapore."
Mr Neo, who aims for Neo Group's annual turnover to hit S$1 billion by 2025, promised: "Next year, the companies will start to be even better. There's no need to worry about a small little loss, because we set up new companies, new identities . . . The cost is there, and you need time - six months, a year - before you can recover."