Unaudited Financial Statements Announcement For The Financial Year Ended 31 December 2018
Combined Statements of Comprehensive Income
Combined Statements of Financial Position
REVIEW OF FINANCIAL PERFORMANCE
Revenue has increased by S$6.8 million or 11.7% from S$58.0 million for the year ended 31 December 2017 ("FY2017") to S$64.8 million for the year ended 31 December 2018 ("FY2018") due to the contribution of revenue of S$0.4 million from the hospitality business acquired in December 2018 and a net increase in the number of outlets opened and newly acquired outlets in October 2018. The dine-in revenue of the newly opened and newly acquired outlets contributed S$5.1 million to the increase in revenue. Despite 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, the online revenue has increased by S$1.2 million as well as the dine-in revenue of the existing outlets has increased by S$0.8 million from FY2017 to FY2018.
In addition, there was also a decrease in revenue of S$0.7 million from Beijing due to the closure of two outlets in March and June 2017.
Cost of sales
Cost of sales, which comprised mainly food and beverage, employee benefits, utilities, leases of restaurants, online commissions and depreciation of property, plant and equipment, increased by S$6.4 million or 12.2% from S$52.3 million in FY2017 to S$58.6 million in FY2018. The increase was contributed by an increase in the utilities, rental and employee benefits as a result of the opening of new outlets and two newly acquired outlets, as well as the increase in online sales commission due to the increase in online revenue.
Gross profit increased by S$0.4 million or 7.5% from S$5.7 million in FY2017 to S$6.1 million in FY2018 due to increase in revenue.
The decrease in other income by 28.3% or S$192,000 was due mainly to lower government grants and bonus from the productivity and innovation credit scheme.
Selling and distribution costs
The selling and distribution costs increased only marginally by S$0.1 million or 9.4% from S$1.0 million in FY2017 to S$1.1 million in FY2018 as marketing efforts were only engaged for outlets where there were less customer traffic.
Administrative expenses increased by S$0.9 million or 23.3% from S$3.9 million in FY2017 to S$4.9 million in FY2018 due to higher value of fixed assets written off, higher recruitment costs, consultancy fees incurred for the acquisition of two subsidiaries, higher professional fees and salaries, contributed by the hospitality business.
Finance costsThese were adjustments arising from discounting refundable rental deposits and provision for restoration costs to present value made in FY2018.
Other expensesOther expense decreased by S$0.3 million or 73.1% from S$0.4 million in FY2017 to S$0.1 million in FY2018. This related to impairment of fixed assets and provision for lease liability of loss-making outlets not expected to turnaround.
Profit before taxThe three non-performing outlets which were closed in FY2018 recorded losses of S$0.8 million in FY2018. Our newly acquired subsidiary in the hospitality business also contributed net loss of approximately S$0.1 million in FY2018. Accordingly, profit before tax decreased significantly by 51.6% or S$0.6 million from S$1.1 million in FY2017 to S$0.5 million in FY2018.
REVIEW OF FINANCIAL POSITION
The Group's non-current assets increased by S$1.4 million from S$12.2 million as at 31 December 2017 to S$13.6 million as at 31 December 2018 due to intangible asset arising from the acquisition of Tomo Izakaya Pte. Ltd. ("Tomo") with 2 outlets serving Japanese cuisine, an increase in property, plant and equipment as well as refundable deposits for new and Tomo's outlets. The increase was partially offset by depreciation of S$2.7 million and write-off of plant and equipment for outlets closed during the year of S$0.2 million. Investment property with carrying amount of S$1.0 million as at 31 December 2018 was reclassified from property, plant and equipment as the property is now held for rental income.
The Group's current assets increased by S$1.4 million from S$10.6 million as at 31 December 2017 to S$12.0 million as at 31 December 2018 due mainly to the increase in refundable deposits for the new outlets and serviced apartments for the hospitality business acquired in December 2018, increase in inventories and trade receivables from the new and two newly acquired outlets.
The increase in FY2018 was also attributed to an amount of approximately S$0.3 million due from our Director, Mr Alan Goh Keng Chian, as Vendor in relation to the sale of the shares of Straits Organisation Pte. Ltd. ("SOPL") according to the provisions of sale and purchase agreement dated 13 November 2018 entered with the Company ("SPA"). This arose from the adjustment for the difference between the estimated net tangible assets of SOPL as at 30 November 2018 ("Estimated NTA") and its unaudited net tangible assets as ascertained from SOPL's management accounts for the period ending 30 November 2018 ("Unaudited NTA") (Please refer to paragraph 3.2 of the announcement dated 13 November 2018 in relation to the SPA regarding the adjustment provision). This difference between the Estimated NTA and Unaudited NTA was mainly due to the expansion in SOPL's portfolio of apartments and condominiums to capture rising trends in the region, where the portfolio increased from 121 units in mid-November 2018 to 141 units across Singapore as at the end of December 2018. Due to the expansion, increase in rental and other running expenses resulted in losses for SOPL for the month of November and December 2018. The Unaudited NTA, which formed the basis of the Purchase Price, was consequently reduced.
The Group's current liabilities increased by S$3.0 million from S$7.3 million as at 31 December 2017 to S$10.3 million as at 31 December 2018 mainly due to (i) increase in trade and other payables of S$1.3 million that resulted from higher purchases and renovation cost payables, (ii) increase in provision of restoration cost of S$0.2 million as a result of reclassification from non-current portion for outlets with lease expiring in 2019, (iii) refundable tenants deposits of S$0.7 million from the hospitality business acquired in December 2018 and (iv) a loan of S$0.5 million from the director to fund the working capital of the hospitality business and (v) increase in deferred revenue of S$0.4 million being advances received by the hospitality business.
The Group's non-current liabilities increased by S$0.1 million as at 31 December 2018, mainly due to additional provision for deferred tax liabilities and restoration costs for new outlets, which was offset by the reclassification of provision for restoration costs from non-current liabilities to current liabilities.
Positive working capital
As at 31 December 2018, the Group was in a net current assets position of S$1.6 million as compared with S$3.3 million as at 31 December 2017.
The decrease in Group's shareholders' equity of S$352,000 as at 31 December 2018 was mainly attributed to the final dividend payment of S$0.6 million to its shareholders in respect of the financial year ended 31 December 2017 partially offset by the profit for the year of S$0.3 million.
REVIEW OF CASH FLOWS
The Group generated net cash of S$3.5 million from operating activities before changes in working capital. Net cash generated from working capital amounted to S$0.4 million mainly due to an increase in trade and other payables of S$0.9 million and decrease in trade and other receivables of S$0.3 million. This was offset by increase in refundable deposits of S$0.6 million and prepayments for the setup of new outlets of S$0.2 million. As a result, net cash generated from operating activities was approximately S$3.9 million.
Net cash used in investing activities amounted to S$4.2 million due to purchase of property, plant and equipment for new outlets of S$3.3 million, cash paid for restoration of S$0.1 million and purchase consideration for acquisition of subsidiaries of S$0.8 million.
Net cash used in financing activities of S$0.6 million was 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 year was S$0.9 million.
Commentary On Current Year Prospects
Singapore's F&B industry, and the restaurant sector in particular, continues to face pressure owing to slowing economic growth, rising operating costs, and labour shortage. Consumer trends continue to lean towards greater convenience and flexibility of choice, and growing demand for options such as online deliveries and sustainable practices. Focus for the Group remains on growth and effective cost management, and it will progress in tandem with the changing consumer trends to broaden its reach in the local market.
As at 31 December 2018, the total number of outlets for the Group stood at 3 overseas and 43 in Singapore. In Singapore, there were seven new outlets opened, two outlets acquired, one outlet closed due to mall refurbishment and 3 non-performing outlets closed in FY2018. The Group has 2 new outlets in the pipeline and 3 outlets to be closed in the next 12 months.
The Group will continue exploring untapped overseas opportunities to export its homegrown brands. The Group and Hong Kong-listed Ajisen Group have opened three outlets under the "So-Pho" brand in the PRC as at end December 2018, two in Shanghai and one in Guangzhou. In January 2019, Ajisen opened a new outlet in Shanghai Huanmao IAPM Shopping Mall. Separately, the Group's maiden outlet in Indonesia, in Plaza Senayan, Central Jakarta under the "So Pho" brand was opened in February 2019. Depending on the success of this venture, the Group will look to open more outlets in Indonesia over the next two years.
Alongside the initiatives for its F&B business, the Group is building up its hospitality business to provide a secondary revenue base and cross-sector collaboration opportunities. As at 31 December 2018, SOPL's serviced apartments arm, ST Residences had 141 serviced apartments across Singapore. It continues to grow with 60 additional serviced apartments across Singapore and 15 serviced apartments in Hong Kong and two additional apartment buildings comprising about 106 apartments in the pipeline, as well as three co-living hotels which could add an estimated 180 rooms to its portfolio by the last quarter of 2019
Sustainable growth remains a priority for the Group and it will explore suitable brands and businesses whether internally, through collaborations or acquisitions to add value to its operations both locally and overseas.
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