Full Year Financial Statement and Dividend Announcement for the Year Ended 31 March 2018
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Review of the performance
Revenue generated during the first six months period 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 corresponding six months period ended 30
September 2016 ("1H FY17") due to the soft economic environment.
The Group registered stronger performance during the second half of FY18 ("2H FY18") especially during the Chinese New Year period in February/March 2018 amid improving market sentiments. Revenue generated during 2H FY18 improved by S$3.1 million (6.8%) to S$48.4 million as compared to S$45.3 million for the corresponding period ended 31 March 2017 ("2H FY17").
Overall, revenue for FY18 improved by S$0.6 million (0.8%) to S$85.7 million from S$85.1 million for the financial year ended 31 March 2017 (“FY17”) mainly due to higher catering sales of S$1.2 million and stronger sales from existing outlets of S$1.2 million, but partially offset by the following:
(a) loss of contract to provide food service to a hotel amounting to S$1.0 million;
(b) loss of revenue from 2 outlets closed during FY18 amounting to S$0.6 million; and
(c) lower mooncake revenue amounting to S$0.2 million
Gross profit margins
Gross profit increased by S$0.6 million (1.1%) to S$61.8 million in FY18 from S$61.2 million in FY17, in line with the higher revenue. Gross profit margin increased marginally by 0.2 percentage points to 72.1% in FY18 from 71.9% in FY17.
Other operating income
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 staff incentives in FY18.
Other operating expenses
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.
During FY18, the Group conducted a business and operation review exercise to rationalise and streamline its non-performing outlets with the objective of building sustainable growth in revenue and profits. This has resulted in the following exceptional charges amounting to S$1.1 million being undertaken as part of other operating expenses in FY18:
(i) S$1.0 million impairments and write-off of property, plant and equipment as well as closure costs relating to non-performing outlets; and
(ii) S$0.1 million of allowance for doubtful debt relating to a loan for an associate which has closed an outlet.
In addition, the increase of other operating expenses was affected by the following:
(i) S$0.7 million higher rental expenses; and
(ii) S$0.2 million higher utility expenses;
The increase was partially offset by lower depreciation expenses of S$1.0 million
Share of profit of joint venture
Share of profit of joint venture decreased by S$133,000 (38.6%) to S$212,000 in FY18 from S$345,000 in FY17 due to lower profitability
Share of profit of associates
Share of profit of associates increased by S$224,000 (87.5%) to S$480,000 in FY18 from S$256,000 in FY17 due to higher net profit contributions from associates.
Income tax (expenses) benefits
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 has ceased in FY18.
(Loss)/profit attributable to owners of the Company
The Group recorded a higher loss during 1H FY18 arising from lower revenue due to stiff competition and the challenging economic environment. Excluding other operating expenses relating to closure of outlets and impairment of non-performing outlets of S$1.1 million, the Group managed to report 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 generated during 2H FY18, the Group registered a loss attributable to owners of the Company of S$1.4 million for FY18 compared to a profit attributable to owners of the Company of S$0.4 million for FY17. The decrease was largely due to other operating expenses aggregating S$1.1 million undertaken by the Group in FY18 and lower other operating income of S$0.8 million.
The Group’s cash and cash equivalents increased by S$0.4 million to S$15.4 million as at 31 March 2018 from S$15.0 million as at 31 March 2017. The net cash increase was mainly due to positive cash generated from operating activities but offset by acquisition of plant and equipment and repayment of bank borrowings and finance leases.
With consumers becoming ever more health conscious, the Group is stepping up efforts to better meet their dietary needs while ensuring they still get top-quality fare. Tung Lok takes pride in ensuring our customers are served the freshest and healthiest ingredients from sustainable sources. Among other things, we make frequent farm visits to source for wholesome and reliable food supplies.
Earlier this year, Tung Lok became the first company to join the Singapore Health Promotion Board’s drive to get food and beverage (“F&B”) firms to replace sugar with healthier alternatives as part of the national antidiabetes campaign. In addition, as part of the ongoing efforts to build a sustainable business, the Group joined the Southeast Asia Alliance for Sustainable Palm Oil earlier this year, committing itself to sourcing for sustainable palm oil for use across its outlets.
The F&B industry in Singapore, the Group’s main market, is expected to remain challenging for the next 12 months as it continues to grapple with an acute shortage of manpower, escalating operating costs and stiff competition. In seeking to weather these challenges, 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. The recent rationalisation exercise to close three non-performing outlets (two in FY18 and one in May 2018) will better position the Group to pursue sustainable growth in revenue and profits.
Notwithstanding its net loss in FY18, the Group has worked hard to improve cash flows from operations. This has enabled it to further strengthen its balance sheet by bolstering its cash and bank balances and net working capital position. The Group will continue to adopt a prudent stance when expanding its brands locally and overseas.