(A) Statement of Comprehensive Income
Group revenue for 1Q FY2018 rose 0.5% Y/Y from $147.7 million to $148.5 million, in line with our plan to cautiously restart our outlet expansion following two years of business consolidation. For the same period, Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) for the Group declined 38% Y/Y to $16.3 million with EBITDA margin at 11.0% (1Q FY2017: 17.8%).
Profit After Tax and Minority Interests (“PATMI”) for 1Q FY2018 declined 89.1% from $10.8 million to $1.2 million, as 1Q FY2017 saw the recognition of $9.3 million in capital gain from the divestment of the Group’s investment in TripleOne Somerset. During the quarter, the Group brought forward the early closure of 8 Bakery outlets in China and 1 Food Atrium outlet in Hangzhou.
Excluding effects of the capital gain and the assets write off, core Food & Beverage (F&B) business net profit for 1Q FY2018 saw an increase of 89.4% from $1.6 million to $2.9 million, despite weaker profitability at the Bakery Division and initial start-up losses at the 4orth Division.
Bakery Division revenue declined 4.5% Y/Y to $70.4 million during 1Q FY2018, attributed to lower revenue from direct operated stores at Shanghai, Beijing and Hong Kong, as well as lower franchise revenue from China. As at the end of 1Q FY2018, there were 254 China franchise outlets across 28 cities compared with 278 outlets across 36 cities as at the end of 1Q FY2017. EBITDA for the Division declined 31.0% Y/Y to $3.8 million, with EBITDA margin at 5.4% (1Q FY2017: 7.4%).
Food Atrium Division revenue grew 3.3% Y/Y to $37.5 million, despite having 4 less outlets than a year ago, driven by strong same store sales growth momentum across the entire portfolio. EBITDA declined 3.7% to $5.3 million with EBITDA margin slightly lower at 14.1% (1Q FY2017: 15.1%), dragged down by the Hangzhou outlet closure but mitigated by higher revenue.
Restaurant Division revenue rose 6.2% Y/Y to $36.9 million with the addition of 3 more outlets – 1 in Singapore and 2 in Thailand, compared to 1Q FY2017. EBITDA improved 24.4% to $8.7 million despite higher staff cost as well as administrative expenses in the lead up to the opening of our first Din Tai Fung outlet in the United Kingdom in the fourth quarter of this year. EBITDA margin improved from 20.1% to 23.5%.
4orth Division turned in a revenue of $2.7 million for 1Q FY2018. The business division currently comprises 5 outlets of So Ramen in Singapore and 1 outlet of Song Fa Bak Kut Teh (“Song Fa”) in Shanghai, China. The Y/Y comparison is therefore not meaningful as the results for 1Q FY2017 were related to the now defunct RamenPlay brand. The Division reports an EBITDA loss of $0.1 million primarily attributed to pre-opening expenses at Song Fa.
Overall interest expense for the Group increased 81.6% Y/Y to $2.5 million, with interest income rising 99.3% to 0.8 million. We have commenced the accrual of interest expense related to the $100 million of 5-year, 4.00% Medium Term Note issued in January 2018, which will be primarily deployed to the capital expenditure that we have planned for the financial year.
Earnings per share (EPS) on a fully diluted basis for 1Q FY2018 was 0.42 cent compared to 3.84 cents for 1Q FY2017.
Net asset value (NAV) per share was 74.4 cents as at 31 March 2018 compared to 57.0 cents as at 31 December 2017.
Number of outlets including franchise under the Group:
(B) Balance Sheet
As at 31 March 2018,
Non-current assets increased by $48.7 million or 14.9% from $327.1 million to $375.8 million mainly due to increase in investment securities by $51.9 million and offset by a decrease in property, plant and equipment by $3.9 million due to depreciation. The large increase in investment securities arose due to the restatement effect upon adoption of the SFRS(I) 9 on 1 January 2018.
Current assets increased by $73.4 million or 32.7% from $224.5 million to $297.9 million mainly due to increase in:
offset by a decrease in prepayments by $0.5 million.
Current liabilities decreased by $13.4 million or 5.2% from $256.7 million to $243.3 million mainly due to increase in:
Non-current liabilities increased by $80.9 million or 57.8% from $140.0 million to $220.9 million mainly due to increase in notes payable by $100.0 million and offset by a decrease in long term loans $18.4 million.
(C) Cash Flow Statement
The Group generated net cash flow from operating activities of $6.2 million in 1Q FY2018, demonstrating the underlying strength of the core business to generate positive cash flow.
Net cash flow used in investing activities was $11.9 million in 1Q FY2018. Net cash flow was used primarily in the purchase of property, plant and equipment amounting to $6.4 million and purchase of investment securities amounting to $6.0 million.
In 1Q FY2018, aside from the proceeds of $100.0 million from the issuance of the Medium Term Note, there was a net repayment of loans amounting to $22.6 million compared to the net repayment of $15.4 million in 1Q FY2017. The Group continues its effort to pare down borrowings. As a result, net cash flow generated in financing activities in 1Q FY2018 was $74.9 million.
Overall, the Group generated a net increase in cash and cash equivalents of $69.2 million in 1Q FY2018, ending the period with a cash and cash equivalents of $210.6 million.
Commentary On Current Year Prospects
The Group had a busy 1Q FY2018. In January 2018, we announced the award of our BreadTalk franchise right in Delhi and National Capital Region, India, to Bakekneads LLP, a member of the Som Datt Group. The same month also saw the official opening of our first Song Fa Bak Ku Teh outlet in Shanghai Jing An Kerry Centre, following 6 full months of intensive preparations since the signing of the joint venture (JV) agreement with Song Fa Holdings Pte Ltd in July 2017.
In March 2018, we entered into a JV agreement with renowned Taiwanese bakery brand, Wu Pao Chun Bakery to bring their products into 4 major China cities – Beijing, Shanghai, Shenzhen and Guangzhou, with future plans to extend the JV into Singapore and Hong Kong. During the same month, we also marked the entry of our Toast Box brand into Indonesia following our JV agreement with PT. Pura Indah Berkat.
The Group will stay focused on deepening the penetration of our existing markets and leverage our regional platform to bring more new food concepts and brands into our portfolio to drive our growth. We also expect to see better procurement cost outcomes as our BTG-Shinmei Venture commences its procurement operations soon.
The management team continues to reiterate our commitment to build a strong foundation for the next leg of growth for the Company so that it will be sustainable in the long term. We expect short term earnings volatility as certain capital and operating expenditures will need to be incurred and invested to realise our medium to long term goals.