(A) Statement of Comprehensive Income
Group revenue for 1H FY2018 rose 0.7% Y/Y from $295.4 million to $297.4 million, led by growth from the Food Atrium and Restaurant Divisions as well as contribution by the 4orth Division, offset by decline at the Bakery Division. Profit After Tax and Minority Interests ("PATMI") for 1H FY2018 declined 72.2% from $13.0 million to $3.6 million, as 1Q FY2017 saw the recognition of $9.3 million in net capital gain from the divestment of the Group's investment in TripleOne Somerset.
Bakery Division revenue declined 4.9% Y/Y to $139.0 million during 1H FY2018, attributed to lower revenue from direct operated stores in Shanghai, Beijing and Hong Kong, as well as lower franchise revenue from China. This was mitigated by stronger revenue from direct operated stores in Singapore and higher international franchise revenue. Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA") for the Division declined 36.0% Y/Y to $7.9 million, with EBITDA margin at 5.7% (1H FY2017: 8.5%), primarily attributed to weaknesses in profitability at the Shanghai operations.
Food Atrium Division revenue grew 3.6% Y/Y to $76.3 million, despite having 3 less outlets than a year ago, driven by strong same store sales growth momentum across the entire portfolio, especially in China. EBITDA improved 20.0% to $13.0 million with EBITDA margin better at 17.0% (1H FY2017: 14.7%), helped mainly by higher revenue.
Restaurant Division revenue rose 6.7% Y/Y to $74.1 million with the addition of 3 more outlets - 1 in Singapore and 2 in Thailand, compared to 1H FY2017. EBITDA rose 10.8% to $15.8 million primarily due to higher revenue offset by higher administrative expenses incurred for the upcoming United Kingdom operations 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 increased slightly from 20.4% to 21.2%.
4orth Division turned in a revenue of $5.7 million for 1H FY2018. The business division currently comprises 5 outlets of So Ramen in Singapore, 2 outlets of Song Fa Bak Kut Teh ("Song Fa") and 1 outlet of Una-Yu in Shanghai, China. The Division reported an EBITDA loss of $0.2 million primarily attributed to pre-opening expenses at the new outlets. Profit margin at the outlet level for Song Fa has surpassed our expectations so far.
Overall interest expense for 1H FY2018 increased 95.3% Y/Y to $4.9 million, against a rising interest rate environment and the interest expense attributed to the $100 million of 5-year, 4.00% Medium Term Note issued in January 2018, whose proceeds will be primarily deployed to the capital expenditure that we have planned for the financial year. However, through prudent treasury management, interest income also rose 181.5% to $2.0 million which partially helped to mitigate the impact of higher interest cost.
Share of results of associates and joint ventures were weaker in 1H FY2018, contributing a combined loss of $0.5 million compared to a profit of $0.2 million in 1H FY2017, with the bulk of the drag arising in 2Q FY2018. These came from weaker performance attributed to Jumbo China, Carl's Jr Shanghai and BreadTalk-Minor Thailand associates and joint ventures.
Earnings per share (EPS) on a fully diluted basis for 1H FY2018 was 0.86 cent compared to 3.08 cents for 1H FY2017.
Net asset value (NAV) per share was 36.7 cents as at 30 June 2018 compared to 27.5 cents as at 31 December 2017.
Number of outlets including franchise under the Group:
(B) Balance Sheet
As at 30 June 2018,
Non-current assets increased by $47.8 million or 14.6% from $327.1 million to $374.9 million mainly due to increase in investment securities by $54.2 million and offset by a decrease in property, plant and equipment by $6.0 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 $66.5 million or 29.6% from $224.5 million to $291.0 million mainly due to increase in:
Current liabilities increased by $59.1 million or 23.0% from $256.7 million to $315.8 million mainly due to notes payable of $75.0 million which is due on 1 April 2019;
offset by decrease in:
Non-current liabilities increased by $3.6 million or 2.6% from $140.0 million to $143.6 million mainly due to addition of notes payable of $100.0 million;
offset by a decrease in:
(C) Cash Flow Statement
The Group generated net cash flow from operating activities of $16.3 million in 1H FY2018, demonstrating the underlying strength of the core business to generate positive cash flow.
Net cash flow used in investing activities was $11.8 million in 1H FY2018: largely attributed to the purchase of property, plant and equipment as part of capital expenditure, as well as the subscription of shares in Perennial HC Holdings Pte. Ltd.
In 1H FY2018, following the successful issuance of the $100 million Medium Term Note, the Group repaid $53.1 million of long and short term loans. During the period, the Group also paid out $8.4 million in dividends. As a result, net cash flow generated in financing activities in 1H FY2018 was $60.4 million.
Overall, the Group generated a net increase in cash and cash equivalents of $64.9 million in 1H FY2018, ending the period with a cash and cash equivalents of $206.6 million.
Commentary On Current Year Prospects
Year-to-date, the Group saw strong momentum in adding new growth frontiers to our core food and beverage (F&B) businesses, with a series of joint ventures and partnerships summarized as follows.
18 January: Award of BreadTalk franchise right in Delhi and National Capital Region, India, to Bakekneads LLP, a member of the Som Datt Group.
26 January: Official opening of our first Song Fa Bak Kut Teh outlet in Shanghai Jing An Kerry Centre.
12 March: 80-20 joint venture 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
23 March: 70-30 joint venture with PT. Pura Indah Berkat to bringToast Box brand into Indonesia
25 April: Launch of Una-Yu, an unagi don brand under 4orth Division as an outlet within our Shanghai Tower Food Atrium
21 May: 90-10 joint venture with Shenzhen Pindao ("Pindao") Food & Beverage Management Co Ltd to bring their popular Nayuki and Tai Gai brands into Singapore and Thailand, with first right of refusal to operate in Malaysia, Indonesia and the Philippines
8 June: Opening of our second Song Fa Bak Kut The outlet in Shanghai iAPM mall
27 June: 30-70 joint venture with our current Tibet Autonomous Region BreadTalk franchisee, Ge Ying, to re-enter the Chongqing market
2 July: Added Pindao as a partner to our pre-existing joint venture with Song Fa Bak Kut Teh for Shenzhen and Guangzhou via a 90-10 joint venture between BTG-Pindao Venture Pte. Ltd. and Song Fa Holdings Pte. Ltd. to accelerate outlet expansion for Song Fa in South China
These new joint ventures and partnerships reiterate the Group's focus and commitment to growing our core F&B businesses and adding new profit drivers to the portfolio that are expected to be margin accretive in the medium to long term. Our BTG-Shinmei procurement JV which has already commenced operations will serve as an important engine in ensuring the competitiveness of our cost of sales.
The management team continues to reiterate our commitment to build a strong foundation for the next leg of growth for the Group so that it will be sustainable in the long term. We may 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. We are also mindful of the potential impact that volatility in some key currencies may add to our financial performance.