Unaudited Financial Statements Announcement For The Financial Year Ended 30 June 2017
Combined Statements of Comprehensive Income
Combined Statements of Financial Position
Review of the Group's Performance
Revenue decreased slightly from S$28.1 million in half year ended 30 June 2016 ("HY2016") to S$27.7 million in half-year ended 30 Jun 2017 ("HY2017") despite an increase in number of outlets. The shortfall on the revenue contribution was mainly attributed to the slow sales from existing outlets across the 2 financial periods. To boost sales, the management is converting the concept of one outlet from Streats to Hongguo after reviewing the profile of the target customers. In view of the change of demographics such as the eating trend and convenience of mobile ordering system, customers are exploring into online delivery as opposed to dine in. As a result, the decrease in dine-in revenue was offset by an increase in online delivery revenue, which contributed 10.1% (HY2016: 1.5%) of the total revenue.
In addition, there was also a decrease in revenue from Beijing of S$0.3 million due to the closure of Gemdale Beijing outlet in April 2017.
Cost of sales
Cost of sales, which mainly comprised food and beverage, payroll costs, utilities, leases of restaurants and online commissions, increased by S$1.4 million or 5.7% from S$23.7 million in HY2016 to S$25.1 million in HY2017. The increase was contributed by an increase in the utilities, rental leases and staff costs as a result of the opening of new outlets namely Bali Thai Ngee Ann, Streats Raffles City and Streats Bedok Mall.
In addition, online sales commission increased significantly by S$0.5 million in HY2017 from S$0.07 million in HY2016 as a result of engagement of new online platform vendors during the current financial period.
Gross profit decreased by S$1.8 million or 41.3% from S$4.4 million in HY2016 to S$2.6 million in HY2017.
Selling and distribution costs
The decrease in selling and distribution costs was due to higher advertising costs incurred in HY2016 to promote new online delivery services.
Administrative expenses increased by 12.9% from S$1.7 million in HY2016 to S$1.9 million in HY2017 mainly attributed to the additional recurring statutory filing requirements and maintenance of new ERP system.
Total comprehensive income attributable to equity holders
Total comprehensive income attributable to equity holders decreased by S$1.1 million or 76.3% from S$1.4 million in HY2016 to S$0.3 million in HY2017.
Review Of Financial Position
The Group's non-current assets increased by S$0.5 million from S$11.0 million as at 31 December 2016 to S$11.5 million as at 30 June 2017 due to an increase in refundable deposits for new outlets, offset by a decrease in property, plant and equipment, as a result of depreciation expenses.
The Group's current assets decreased by S$4.1 million from S$13.5 million as at 31 December 2016 to S$9.4 million as at 30 June 2017 due to the decrease in cash and cash equivalents utilised for the setup of new outlets, dividend payments, reclassification of refundable deposits to non-current assets and decrease in other receivables as a result of the receipt of government grants during the financial period. The decrease was offset by an increase in prepayment for the Point of Sales (POS) system setup and franchise development project.
The Group's current liabilities decreased S$2.6 million from S$8.9 million as at 31 December 2016 to S$6.3 million as at 30 June 2017 mainly due to the payment of dividends of S$1.5 million to the then existing shareholders of a subsidiary, decrease in trade and other payables comprising payroll and CPF payable and decrease in provision of bonus (6 months provision for period ended 30 June 2017 as opposed to full year provision as at 31 December 2016).
The Group's non-current liabilities remained at around S$1.1 million as at 30 June 2017.
Positive working capital
As at 30 June 2017, the Group was in a positive working capital of S$3.1 million as compared with S$4.6 million as at 31 December 2016.
The Group's shareholders equity decreased by S$1.1 million as at 30 June 2017 mainly attributed to the final dividend payment to Group's shareholders of S$1.4 million in respect of the financial year ended 31 December 2016.
Review Of Cash Flows
The Group generated net cash from operating activities before changes in working capital of S$1.6 million. Net cash used in working capital amounted to S$1.1 million mainly due to increase in refundable deposits of S$0.4 million, prepayments for the setup of new outlets, franchise development project and implementation of POS of S$0.4 million, decrease in trade and other payables of S$0.4 million and decrease in other liabilities of S$0.3 million. This was offset by a decrease in trade and other receivables of S$0.4 million. The Group also paid income tax of S$0.4 million. As a result, net cash generated from operating activities was approximately S$6,000.
Net cash used in investing activities amounted to S$0.6 million due to acquisition of property, plant and equipment for new outlets.
Net cash used in financing activities of S$2.9 million was mainly due to the payment of dividend to the shareholders of the Company.
As a result of the above, the net decrease in cash and cash equivalents for the period was S$3.5 million.
Commentary On Current Year Prospects
The Food and Beverage ("F&B") industry in Singapore continued to face headwinds coming into 2017. Despite the pick-up in economic performance in 1Q20171, the services sector, which includes the F&B industry, diverged from this recovery, likely due to weak labour market conditions2 weighing on consumer spending.
As a result, the Food & Beverage Services Index ("FSI") in Singapore declined an average of 4.2% a month for the first five months of 2017 when compared at constant prices to the corresponding months in 2016, with the restaurant sector contributing a decline of an average 10.3% a month.3
In view of this, the Group will continue to execute its restrategised growth plans. This encompasses moving forward with expansion during this downtime to secure prime locations in high footfall shopping malls, maximizing sales from its online food ordering and delivery services and, seeking opportunities to collaborate with strategic partners to expand its operations overseas.
By the end of July 2017, the Group opened three new restaurants in Singapore bringing the total number of restaurants for the Group to 37 restaurants. Additionally, the Group has four more stores in the pipeline for FY2017.
The Group also made headway in its overseas expansion, signing an agreement with Hong Kong-listed Ajisen Group to grow "So Pho" brand in the PRC and Hong Kong. The Group is optimistic that it may further its regional presence through more restaurant openings in the PRC or Hong Kong in the next 12 to 18 months.
Online food ordering and delivery services continued to show promising results with revenue growing to approximately S$2.8 million for 1H2017 surpassing revenue achieved of S$2.5 million for FY2016. As the Group has expanded the number of online platform vendors it uses in mid-1H2017, it expects this segment to come into full swing in 2H2017.
The Group also commenced the upgrading of its Enterprise Resource Planning ("ERP") and Point-Of-Sales ("POS") systems to improve customer experience and increase staff proficiency and productivity while lowering costs in the long run.
Overall, the Group will continue to focus on improving long term shareholder value and customer experience.
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