Extracted from Annual Report 2018
On behalf of the Board of Directors (the “Board”), we would like to present to you the Annual Report of Tung Lok Restaurants (2000) Ltd (“Tung Lok” or the “Group”) for the financial year ended 31 March 2018 (“FY18”).
Singapore’s overall economy fared reasonably well in 2017 with growth of 3.6%, compared to 2.4% for the previous year, spurred by an improvement in global economic growth. In particular, consumer sentiment turned to be more positive towards the last quarter of 2017. The upswing continued in the first quarter of 2018 showing growth of 4.4%, compared to 2.5% during first quarter of 2017.
Notwithstanding the improvement in the economy, macroeconomic uncertainties remain and the food and beverage (“F&B”) industry in Singapore – Tung Lok’s main market – remains challenging. F&B operators, including Tung Lok, continue to grapple with an acute shortage of manpower, stiff competition, rising operating costs and ever-changing consumer preferences.
Against this backdrop, our Group’s revenue for the first six months ended 30 September 2017 (“1H FY18”) decreased S$2.4 million (6.1%) to S$37.3 million from S$39.7 million for the same period ended 30 September 2016 (“1H FY17”) due to the soft economic environment. The Group registered stronger performance in the second half of FY18 (“2H FY18”), especially during the Chinese New Year period in February/March 2018, amid improving market sentiments. Revenue in 2H FY18 improved by S$3.1 million (6.8%) to S$48.4 million compared to S$45.3 million for the corresponding period ended 31 March 2017 (“2H FY17”).
Overall, the Group’s revenue grew by a modest 0.8% or S$0.7 million to S$85.7 million in FY18 from S$85.0 million in the previous year ended 31 March 2017 (“FY17”). The increase came mainly from higher restaurant and catering sales, especially in 2H FY18. This helped to offset the loss of revenue arising from the cessation of a contract to provide food service to a hotel and the closure of two non-performing outlets in FY18.
Along with the higher revenue, gross profit increased to S$61.8 million in FY18 from S$61.2 million in FY17. Gross profit margin improved 0.2 percentage points to 72.1% in FY18 from 71.9% in FY17.
Other operating income decreased by S$0.8 million (28.9%) to S$1.8 million in FY18 from S$2.6 million in FY17, mainly due to lower grants/credits of S$0.3 million received from various government schemes and lower marketing and promotional funds of S$0.5 million.
Administrative expenses, mainly manpower-related expenses, increased by S$1.2 million (4.0%) to S$31.5 million in FY18 from S$30.3 million in FY17, mainly due to salary adjustments and payment of staff incentives in FY18.
During FY18, the Group conducted a business and operation review to rationalise and streamline its non-performing outlets with the objective of building sustainable growth in revenue and profits. This resulted in the following exceptional items (“Exceptional Items”) amounting to S$1.1 million being undertaken as part of other operating expenses in FY18:
- S$1.0 million impairment and write-off of property, plant and equipment as well as closure costs relating to nonperforming outlets; and
- S$0.1 million of allowance for doubtful debt relating to a loan for an associate which closed an outlet.
As a consequence, other operating expenses increased by S$0.9 million (2.7%) to S$34.5 million in FY18 from S$33.6 million in FY17 mainly due to the Exceptional Items as well as higher rental and utility expenses of S$0.9 million. The increase of operating expenses was partially offset by lower depreciation expenses of S$1.0 million.
Total share of profits from our joint venture and associates rose to S$0.7 million in FY18 from S$0.6 million in FY17.
Income tax expenses decreased S$174,000 to S$4,000 in FY18 from tax benefits of S$170,000 in FY17 mainly due to lower tax benefits received from Productivity and Innovation Credit (PIC) scheme, which ceased in FY18.
The Group recorded a higher loss in 1H FY18 as a result of lower revenue due to stiff competition and the challenging economic environment. Excluding the Exceptional Items of S$1.1 million, the Group recorded a higher profit attributable to owners of the Company of S$1.9 million for 2H FY18, an improvement of S$0.5 million from S$1.4 million for 2H FY17, mainly due to higher revenue achieved during 2H FY18.
In spite of the stronger performance and higher revenue in 2H FY18, the Group reported a loss attributable to owners of the Company of S$1.4 million in FY18 compared to a profit attributable to owners of the Company of S$0.4 million in FY17 largely due to the Exceptional Items mentioned above. Lower marketing and promotional funds, as well as a decline in government grants, also weighed on the Group’s bottom line in FY18.
Total assets of the Group decreased by S$1.1 million (3.3%) to S$32.4 million as at 31 March 2018 from S$33.5 million as at 31 March 2017 mainly due to a decrease in plant and equipment of S$2.9 million but partially offset by an increase in trade and other receivable of S$0.9 million, an increase in cash and bank balances of S$0.4 million, an increase in investment of associates of S$0.3 million and an increase in investment of joint venture of S$0.2 million.
Total liabilities of the Group increased by S$0.9 million (5.1%) to S$18.5 million as at 31 March 2018 from S$17.6 million as at 31 March 2017 mainly due to an increase in trade and other payables amounting to S$1.6 million but partially offset by a reduction in bank borrowings and finance leases amounting to S$0.7 million.
Despite the net loss, the Group managed to strengthen its balance sheet in FY18. Its gearing ratio improved to 0.19 times as at 31 March 2018 from 0.21 times as at 31 March 2017. Net working capital was S$8.7 million as at 31 March 2018 compared to S$8.6 million as at 31 March 2017 as the Group continued to generate positive cash flow from operations. Cash and bank balances increased to S$15.5 million from S$15.0 million. Net asset value per share as at 31 March 2018 was 5.76 Singapore cents compared to 6.30 cents as at 31 March 2017.
As at 31 March 2018, the Group operates a total of 43 outlets. These comprise 24 outlets we directly own, 8 held by our associates and 11 others under management. These restaurants are spread across Singapore, Indonesia, Japan, China and Vietnam.
With consumers becoming ever more health conscious, Tung Lok has stepped up efforts to better meet their dietary preferences while ensuring they still get top-quality fare. In early 2018, Tung Lok became the first company in Singapore to join the Health Promotion Board’s drive to get F&B firms to replace sugar with healthier alternatives as part of the national war against diabetes campaign. To this end, it has started using allulose – a low-calorie cane sugar substitute found in certain fruits including figs and jackfruit – in some of our desserts and cakes.
The Group takes pride in ensuring customers are served the freshest and healthiest ingredients from sustainable sources. Among other things, Tung Lok makes frequent farm visits to source for wholesome and reliable food supplies.
As part of ongoing efforts to build a sustainable business, the Group joined the Southeast Asia Alliance for Sustainable Palm Oil (SASPO) in early 2018. SASPO is an initiative led by the World Wide Fund for Nature (WWF) Singapore which champions the use of sustainable palm oil in business supply chains. Palm oil is the world’s most flexible oil and is widely used in the F&B industry. Tung Lok has pledged its commitment to have all its restaurants switch to using sustainable palm oil as part of collective efforts by companies in the region to help stop the slash-and-burn method of deforestation.
Subsequent to the year under review, the Group closed a non-performing China outlet in May 2018. With this, the Group has closed three non-performing outlets within 12 months. We believe this rationalisation exercise will better position the Group to pursue and achieve sustainable growth in revenue and profits.
The ongoing challenges facing the F&B industry will persist. The Group will continue to streamline operational efficiencies and optimise existing resources with a view to boost productivity further and better manage expenses without compromising on quality.
As announced in a corporate and business update on 31 July 2017, the Group will at the appropriate time launch promising brands in new geographical markets to reduce over-reliance on Singapore, expand services and capabilities as well as focus on quick-service restaurants and casual dining concepts to offer greater convenience and choice to consumers. Any rollout will be carried out prudently and at a sustainable pace to ensure the Group achieves the desired return on investment.
CORPORATE SOCIAL RESPONSIBILITY
Tung Lok strongly believes in being a responsible corporate citizen.
As part of our ongoing public outreach programmes, we took part in the annual Kampong Assisi Charity Fun Day 2017 which was held on 18 June 2017 at St. Joseph’s Institution International. The event raised funds for Assisi Hospice, which provides subsidised care for the poor and critically ill. Together with our counterparts in the F&B industry, Tung Lok’s management and staff had a rewarding time creating awareness about terminal illness while selling food at the charity drive.
Our Group is involved in grooming the next generation of F&B talents in Singapore. We have been the sponsor of the Gold and Silver Course Medal Awards for graduating students of Temasek Polytechnic’s Diploma in the Baking & Culinary Science programme.
Our brand Lingzhi Vegetarian was the official F&B sponsor for the third instalment of Earthfest, which took place on 14 January 2018 at Marina Barrage. The one-day festival, which aims to create greater awareness of environmental conservation and sustainable living, drew a strong crowd of 7,000 environmental enthusiasts. A fully volunteer-driven and non-profit community festival, Earthfest gathers and supports local organisations that are committed to sustainable business practices.
The Group collaborated with Project Chulia Street (“PCS”) to celebrate International Migrant’s Day and Christmas at Westlite Dormitory (Toh Guan) on 17 December 2017 with over 4,000 migrant workers from India, Bangladesh, China, Myanmar and the Philippines. PCS is a privately funded initiative that brings together entities and individuals for projects that enhance the health and well-being of migrant workers in Singapore. Highlights of this event included a farmers market, a flea market, medical check-ups and game booths. To pay tributes to these migrant workers and to celebrate their contributions to Singapore, the Group sponsored bento boxes with our staff volunteering at the event.
In spite of the ever-changing consumer tastes and preferences, Tung Lok remains a highly esteemed F&B brand. The string of awards won by the Group in FY18 attest to its commitment to quality.
In November 2017, the Group won the following accolades at the Restaurant Association of Singapore’s Epicurean Star Award 2017:
5S Excellent Award – Slappy Cakes
Star Chef Competition, Chinese Professional, 2nd Runner Up – Lokkee
Best Chinese Chain Restaurant – TungLok Signatures
Best Chinese Casual Dining – TungLok Seafood
In July 2017, our Tung Lok First Programme won Best Loyalty Program (F&B) at the Loyalty Engagement Awards 2017.
In March 2018, our outlet Tóng Lè Private Dining won Bronze Award for Best Asian Restaurants Award organised by The Straits Times and Lianhe Zaobao.
ACKNOWLEDGEMENTS AND APPRECIATION
On behalf of the Board, we would like to thank our management and staff for their commitment and dedication, and all our shareholders, customers and business associates for their loyalty, continuing support and understanding.
Last but not least, we would also like to express our appreciation to our fellow directors on the Board for their wise counsel.
We look forward to growing the Group’s business together with all of you.
Dr Foo Say Mui (Bill)
Independent Non-Executive Chairman
President/Chief Executive Officer
Date: 18 June 2018