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Topline [TOP 0.36, up 2.9%; 302% avgVol] [link] said that its board of directors approved a reallocation of its IPO proceeds, cutting the P180 million for the acquisition of a fuel tanker, and applying P100 million of that amount to the expansion of its service station network (+33%), and P80 million of that amount to increase TOP’s working capital (+59%). TOP said the moves were made to “redirect funds towards more flexible strategies for expansion.” The original prospectus said that TOP would spend P300 million for the “construction of service stations”, but now it’s added P100 million to that amount, and renamed the line item as “expansion of service station network.” TOP said that the change “supports faster market entry and operational scalability while maintaining alignment with the Company’s long-term growth objectives.”
MB bottom-line: I think TOP missed an opportunity to communicate its thoughts clearly. Most people would probably look at “construction of service stations” and “expansion of service station network” as being the exact same thing, and get confused as to how this would support “faster market entry” or be worth talking about at all. On the surface, that’s a completely reasonable takeaway. But there’s a subtle distinction that is really what this disclosure is all about. The original prospectus called for TOP to construct the new service stations. To acquire the land, get the permits, build the facilities, and do all the things that a company would need to do in order to get a service station ready to sell gas and other things to the public. Each constructed service station adds one service station to the network, but each one takes a long time and a lot of money to build from the ground up. Another way of adding service stations to TOP’s portfolio is to lease or buy existing service stations and rebrand them. There are other ways to add service stations to the network without building them (joint ventures, franchise models, etc), but this rebrand approach is (probably?) what TOP’s talking about here. This approach dramatically reduces the long lag between project start and commercial benefit to TOP shareholders. Now, they just have to do some basic renovation to update the service station’s appearance to match TOP’s branding, do the internal work to stock the location with TOP’s products and services, and then they’re just a quick “Grand Re-Opening!” away from being back in business and having that “new” service station contributing to TOP’s revenue.
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