Extracted from Annual Report 2017
On behalf of the Board of Directors (the "Board"), I am pleased to present the Annual Report for Tung Lok Restaurants (2000) Ltd ("TungLok" or the "Group") for the financial year ended 31 March 2017 ("FY17").
The current financial year in review has been a volatile year with subdued global growth and unexpected outcomes from major economic and political events which have affected the Group's business. Notwithstanding the challenging environment, the Group remained profitable and delivered modest results in FY17.
Our lower revenue of S$85.1 million in FY17 represented a 1.2% decline from S$86.1 million in the previous financial year ended 31 March 2016 ("FY16"). This was primarily due to lower revenue contribution from restaurant sales caused by the unfavourable economic conditions as well as loss of revenue due to the closure of two outlets during FY16. Revenue contributed by a new outlet that opened during FY17 and higher revenue from catering sales partially offset the lower sales from our other restaurants.
In tandem with the lower revenue, our gross profit declined 1.5% to S$61.2 million in FY17 from S$62.1 million in FY16. Gross profit margin was marginally lower at 71.9% in FY17 as compared to 72.2% in FY16 due to higher raw material costs.
The Group reported a profit attributable to owners of the Company of S$422,000 in FY17 compared to S$611,000 in FY16 (a decrease of 30.9%) mainly due to lower revenue and reduced income tax credits. However, this was mitigated by lower administrative expenses and higher share of profits from joint venture and associates. Fully diluted earnings per share for FY17 amounted to 0.15 cents, compared to 0.22 cents for FY16.
Other operating income decreased by S$0.5 million (15.2%) to S$2.6 million in FY17 from S$3.1 million in FY16 mainly due to lower grants and credits of S$0.5 million from various Singapore government schemes.
Administrative expenses, mainly manpower-related expenses, decreased by S$1.2 million (3.8%) to S$30.3 million in FY17 from S$31.5 million in FY16 mainly due to a reduction in headcounts and related staff costs and lower staff incentives in tandem with the lower revenue in FY17.
Other operating expenses rose marginally by S$0.2 million (0.4%) to S$33.6 million in FY17 from S$33.4 million in FY16 as a result of higher rental, repair and maintenance costs. The increase was mitigated by declines in credit card commission expenses and utility costs.
Total share of profits from our joint venture and associates increased to S$601,000 in FY17 from S$286,000 in FY16 due to higher profitability.
During FY17, we adopted a cautious stance and successfully built a strong balance sheet to counter against unexpected headwinds. Backed by the resilience of positive cash flow generated from operational activities, net working capital rose by S$2.6 million to S$8.6 million as at 31 March 2017 from S$6.0 million as at 31 March 2016.
The Group's total assets decreased by S$2.5 million (6.9%) to S$33.5 million as at 31 March 2017 from S$36.0 million as at 31 March 2016 mainly due to decrease in plant and equipment of S$2.0 million, decrease in trade and other receivables of S$0.8 million, decrease in inventories of S$0.4 million and decrease in net assets of joint ventures of S$0.4 million. The decrease in total assets was partially offset by an increase in cash and bank balances of S$1.0 million, increase in long-term security deposits of S$0.1 million and increase in investment of associates of S$0.1 million.
Total liabilities of the Group decreased by S$3.0 million (14.6%) to S$17.6 million as at 31 March 2017 from S$20.6 million as at 31 March 2016 mainly due to the repayment of bank borrowings amounting to S$0.5 million and lower trade and other payables amounting to S$2.5 million.
The Group's balance sheet as at 31 March 2017 was also strengthened by a S$1.0 million increase in cash and bank balances to S$15.0 million as at 31 March 2017 from S$14.0 million as at 31 March 2016, while total bank borrowings decreased S$0.5 million to S$3.4 million as at 31 March 2017 from S$3.9 million as at 31 March 2016. Our gearing ratio improved to 0.21 times as at 31 March 2017 from 0.26 times as at 31 March 2016. Net asset value per share as at 31 March 2017 increased to 6.30 cents compared to 6.11 cents as at 31 March 2016.
As at 31 March 2017, the Group operates a total of 45 outlets. These comprise 26 outlets that we directly own, 8 outlets held by our associates and 11 others under management.
Our business continues to face challenges in terms of volatile food costs, escalating operation costs, tight labour market and increasing competition. Against the backdrop of the current economic uncertainty, consumers are also tightening their spending. To manage these challenges, we improved internal efficiencies by adopting automation and continued to develop and refine dining concepts that meet the demands and changing trends of consumers in FY17.
The use of social media and e-commerce has become more prevalent in the current market place. In FY17, we consciously engaged our various targeted consumer groups through key social media and digital platforms such as Facebook, Instagram, WeChat (微信) and Dianping (大众点评). We are also collaborating with social media influencers to leverage on their followers. By working with leading e-commerce platforms such as Qoo10, Food Panda and Deliveroo, we are tapping into new sales channels and extending our reach to a wider pool of consumers.
OUTLOOK AND FORWARD STRATEGY
Given the prevailing weak market sentiments, we expect the food & beverage sector to remain challenging. Profit margin is expected to remain under pressure amidst rising operating costs (in particular manpower and rental) and stiff competition. Amid these challenges, the Group will remain focused on growing revenue strategically, managing operating costs prudently and improving operational efficiencies. With our unwavering commitment to improve customers' overall dining experience and quality, we will continue to invest in staff training to equip our employees with better knowledge and skills.
CORPORATE SOCIAL RESPONSIBILITY
Tung Lok believes firmly in being a responsible corporate citizen.
As part of our ongoing public outreach programmes, we took part again in the annual Kampong Assisi Charity Fun Day 2016 held on 19 June 2016 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, TungLok's management and staff had a rewarding time selling food at the charity drive.
Our Group also participated in the inaugural Singapore Cancer Society Relay for Life ("RFL") 2017 held on 18 February 2017 at Bukit Gombak Stadium. RFL is a global movement which raises awareness and funds to fight cancer. Taking place for the first time in Singapore, our staff joined other corporations to demonstrate support for the cancer community by participating in this event.
Our Group participates in grooming the next generation of talents by sponsoring Gold and Silver Course Medal Awards for graduating students of Temasek Polytechnic's Diploma in Baking & Culinary Science.
Our commitment to offering only the best in global Chinese cuisine continues to put us in the limelight. In September 2016, we won three awards at the 8th World Championship of Chinese Cuisine 2016 organised by the World Federation of Chinese Catering Industry (世界中餐业联合会):
Most Tasty Cold Dish Award, Most Creative Main Course Award
Gold Award for Pastry and Dessert
Silver Award for Main Course and for the 4 contesting TungLok Chefs
In November 2016, we won the following accolades at the Restaurant Association of Singapore's Epicurean Star Award 2016:
Best Chinese Fine Dining - Tóng Lè Private Dining
Best Chinese Casual Dining - TungLok Signatures
5S Excellence Award - Slappy Cakes at Resorts World Sentosa
Star Chef Competition, Chinese Professional, Champion - TungLok Signatures
Star Chef Competition, Chinese Professional, 2nd Runner Up - TungLok Heen
In February 2017, our Tóng Lè Private Dining outlet won the Hall of Fame Award given out by Singapore's Best Restaurants 2016/2017.
The Board welcomes Dr Bill Foo Say Mui (Independent Director) and Mdm Juliana Julianti Samudro (Non- Independent and Non-Executive Director) who were both appointed to the Board on 1 November 2016.
Mdm Tjioe Ka In resigned as Executive Director on 1 November 2016 and was re-designated as the Group’s Chief Operating Officer.
With the changes, there are now eight board members at TungLok.
ACKNOWLEDGEMENTS AND APPRECIATION
On behalf of the Board, I would like to thank the management and staff for their commitment, dedication and contribution to the Group’s performance. My appreciation also goes out to all shareholders, customers and business partners for their loyalty and support.
I would also like to extend my heartfelt thanks to our Board for their continued counsel and support.
16 June 2017