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Unaudited Financial Statements And Dividend Announcement For The Financial Year Ended 30 September 2020
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A Statement of Financial Position
REVIEW OF THE GROUP'S PERFORMANCE
Revenue decreased by 36.5% or $56.1 million, from $153.6 million for the financial year ended 30 September 2019 (“FY2019”) to $97.6 million for the financial year ended 30 September 2020 (“FY2020”), mainly attributed to the impact from the COVID-19 pandemic.
Since the onset of the COVID-19 pandemic, the food and beverage (“F&B”) sector has taken an adverse hit. In order to curb the spread of COVID-19, the government of the People’s Republic of China (the “PRC”) began to impose various measures in January 2020 which has significantly impacted our operations in the PRC. With heightened fear on the spread of COVID-19, and uncertainties surrounding the development of the pandemic, consumer sentiment was largely dampened, which resulted in lower footfall in malls, leading to a decline in sales at our outlets. As such, revenues from the Chinese New Year season was significantly lower as compared to prior years. Further, we closed an under-performing JUMBO Kitchen outlet at Raffles City, Shanghai, prior to the expiry of its lease.
Similarly, our operations in Singapore were also affected. In order to minimise the spread of COVID-19, the Singapore government implemented the circuit breaker (“CB”) in April 2020. During the CB, dining-in was prohibited, and we operated six out of our 16 outlets in Singapore to cater for deliveries and takeaways only.
Due to the closed borders, our outlets in the tourist areas, namely our NG AH SIO Bak Kut Teh outlets in Marina Bay Sands and Resort World Sentosa remained closed until July 2020. Two of our highest revenue-generating JUMBO seafood outlets, Riverside Point and The Riverwalk, also observed visibly lower footfall, as they were popular amongst tourists due to their strategic locations.
Post-CB, the work-from-home mandate continued to be imposed by the Singapore government, lowering demand from working crowd and business gatherings. Further, social distancing measures such as limiting five persons to a table and reduced operating capacity have led to a decline in our sales.
As a result, revenue from our PRC operations declined by 22.2% or $6.0 million to $21.2 million in FY2020, while revenue from our Singapore operations decreased 44.9% or $56.8 million to $69.7 million in FY2020. This was partially offset by the revenue from our Taiwan operations of $6.7 million, due to the acquisition of a majority stake in Taiwan JUMBO Seafood in October 2019.
Cost of sales
Cost of sales, which comprised raw materials and consumables, decreased by 33.8% or $18.9 million, from $55.7 million in FY2019 to $36.8 million in FY2020, in-line with the decrease in revenue.
With a less than proportionate decline in cost of sales, gross profit fell to $60.7 million in FY2020, a decrease of 38.0% or $37.2 million compared to FY2019. Gross profit margin was also lower at 62.2% in FY2020 versus 63.8% in FY2019, as we engaged in more promotion campaigns and offered greater discounts to attract customers.
Other income increased by $8.2 million, from $2.4 million in FY2019 to $10.6 million in FY2020. This was primarily contributed by the Jobs Support Scheme granted by the Singapore government in view of the COVID-19 pandemic, which amounted to $6.3 million, for the periods from October to December 2019; and from February to September 2020. In addition, the Group received property tax rebates and rental rebates which amounted to $2.5 million. The Group also recognised lower impairment on investments at fair value through profit or loss in FY2020 compared to FY2019.
Employee benefits expense
Employee benefits expense decreased by 18.4% or $8.7 million, from $47.2 million in FY2019 to $38.5 million in FY2020, mainly due to the reduction in headcount of approximately 83 on the back of natural attrition without replacement, and cost saving measures taken by the Group due to the COVID-19 pandemic, including elimination of bonus, unpaid leave, temporary pay reduction and lower overtime pay due to shorter operating hours.
Operating lease expenses
Operating lease expenses decreased by 75.3% or $10.6 million, from $14.1 million in FY2019 to $3.5 million in FY2020, mainly as a result of the adoption of SFRS(I) 16 with effect from 1 October 2019. The Group capitalised leases with remaining term of more than 12 months as of 1 October 2019, and these capitalised leases are amortised across the remaining lease term.
Utilities expenses decreased by 20.1% or $0.8 million, from $3.9 million in FY2019 to $3.1 million in FY2020, mainly due to the temporary closure of outlets during the CB, as well as the shorter operating hours.
Depreciation expense of property, plant and equipment increased by 23.3% or $1.3 million, from $5.4 million in FY2019 to $6.7 million in FY2020, due to the addition of new restaurant outlets in Singapore, namely JUMBO Seafood ION outlet in December 2018 and JUMBO Seafood Jewel outlet in April 2019 as well as taking over two JUMBO Seafood outlets in Taipei and Taichung from 1 October 2019.
With the adoption of SFRS(I) 16 from 1 October 2019, depreciation cost for right-of-use assets amounted to $10.4 million.
Other operating expenses
Other operating expenses decreased by 4.3% or $0.6 million, from $14.9 million in FY2019 to $14.3 million in FY2020, mainly due to the temporary closure of some outlets during the CB.
Impairment loss recognised on financial assets
Impairment loss recognised on financial assets of $2.3 million relates to impairment loss on the write-off of loans to our associated company in Korea.
Impairment loss recognised on property, plant and equipment
With the much reduced footfall at certain outlets due to the COVID-19 pandemic, out of prudency, the Group recognised impairment loss of $1.4 million on property, plant and equipment for those non-performing outlets, namely NG AH SIO Bak Kut Teh outlet at Resort World Sentosa in Singapore, and JUMBO Seafood outlets in Xi’an and Taichung.
Share of results of associates
The share of loss in associates in FY2020 of $0.3 million was largely due to the under-performance of JUMBO Seafood outlets in Korea. The two JUMBO Seafood outlets commenced operations in July and October 2019, respectively, and shortly after, the business was affected by the COVID-19 pandemic. The volatile pandemic situation in Korea coupled with waves of subsequent outbreaks have negatively impacted consumer sentiments and dine-in propensity.
The share of loss in associates in FY2019 was largely attributed to JUMBO Seafood outlets in Taiwan, which we have acquired majority stake in, and took over the management of the operations on 1 October 2019.
Income tax expense
We recorded a $0.1 million income tax credit in FY2020 compared to an income tax expense of $3.1 million in FY2019, on the back of the losses incurred during FY2020.
(Loss)/Profit attributable to owners of the Company
As a result of the above, loss attributable to owners of the Company stood at $8.2 million for FY2020 as compared to a profit of $11.7 million in FY2019.
Review of the group's Financial Position
The Group’s current assets decreased by $21.2 million to $41.6 million as at 30 September 2020, largely due to:
(i) a decrease in cash and cash equivalents of $18.8 million as a result of lower revenue and the purchase of a property for the expansion of our central kitchen in Singapore; and
(ii) a decrease in trade and other receivables of $3.0 million, mainly due to the write-off of the loans to our associate in Korea.
The Group’s non-current assets increased by $26.9 million, from $27.5 million as at 30 September 2019 to $54.4 million
as at 30 September 2020, largely due to:
(i) the adoption of SFRS(I) 16 from 1 October 2019, leading to the capitalisation of right-of-use assets of $23.3 million;
(ii) an increase in intangible assets and goodwill of $1.1 million mainly due to the business acquisition in Taiwan; and
(iii) an increase in property, plant and equipment of $1.8 million due to the acquisition of new property, plant and equipment of $7.8 million during the year, offset by depreciation of $6.7 million recognised in FY2020.
The Group’s current liabilities increased by $6.9 million to $24.9 million as at 30 September 2020 mainly due to (i) the adoption of SFRS(I) 16 which required the recognition of lease liabilities of $11.8 million in relation to the capitalised right-of-use of assets (i.e. long-term leases); and (ii) an increase in bank borrowings of $1.6 million in relation to our acquired Taiwan operations. This was partially offset by (i) a decrease of $4.3 million in trade and other payables, largely due to payment of year-end bonuses; and (ii) lower income tax payable of $2.1 million.
The Group’s non-current liabilities increased by $13.4 million to $13.8 million as at 30 September 2020, attributed to increase in lease liabilities and bank borrowings, as explained above.
REVIEW OF THE GROUP'S CASH FLOW STATEMENT
The Group generated net cash from operating activities before movements in working capital of $12.7 million for FY2020. The lower cashflow was predominantly due to lower revenue generated for the year, partially offset by an accounting change leading to adjustment on non-cash depreciation for right-of-use assets, and impairment loss adjustments on writing off of property, plant and equipment and loans to associate. Net cash used in working capital amounted to $4.8 million due to an increase in inventories of $0.6 million, a decrease in trade and other receivables of $0.5 million and a decrease in trade and other payables of $4.7 million. Including the $2.0 million paid in income tax and $0.8 million paid in interest, net cash generated from operating activities was $5.2 million for FY2020.
Net cash used in investing activities amounted to $9.6 million mainly due to acquisition of property, plant and equipment of $7.5 million, of which $2.8 million was for the purchase of a property for expansion of our central kitchen and $5.1 million on renovation of new and existing outlets, namely the JUMBO Seafood outlet at The Riverwalk and Chui Huay Lim Teochew Cuisine outlet in Singapore and the JUMBO Seafood outlet at iAPM in PRC. Cash outlay for the acquisition of JUMBO Seafood in Taiwan amounted to $0.8 million while purchase of treasury shares amounted to $0.2 million.
Net cash used in financing activities for FY2020 of $14.5 million was mainly for the payment of the FY2019 final dividends of $4.5 million and repayment of lease obligations of $10.3 million.
As a result, cash and cash equivalents decreased by $18.9 million to $27.7 million as at 30 September 2020.
Commentary on current year prospects
COVID-19 has a significantly pronounced and prolonged impact on the F&B sector. Though we have seen a gradual improvement in consumer sentiments and F&B dine-in post-CB in Singapore, footfall and revenue have yet to recover to pre-COVID-19 levels.
Border controls and safe distancing measures continue to pose challenges to the Group. Pipeline of both business and leisure travellers, who traditionally form a loyal customer base for JUMBO Seafood restaurants, remains weak due to the restrictive travel regulations. Dine-in crowds on weekdays, particularly in the central business district area, stay muted on the back of general guidelines encouraging work-from-home arrangements. Safe distancing arrangements and seating restrictions also limit restaurants’ ability to generate optimal revenue, particularly during peak periods.
Though the pandemic situation in Singapore has shown signs of stabilisation, the above measures are likely to remain inplace for the near future.
The Group has reviewed and pivoted our growth strategy to leverage on our strong brand presence to enlarge our wallet share in the local market via a multiple pronged approach such as introducing new concepts, which target new segments (for example, younger crowds, smaller families, takeaways and delivery market), and offering new products including rolling out of high-tea concepts to lengthen revenue generating hours. Our new virtual brand, HACK IT, scheduled to make its debut in December 2020, is an outcome of our innovation efforts; an initiative to expand our pool of customers with a different profile, by leveraging on the same amount of resources we currently have.
While we make the best out of the situation in our home market, our overseas operations are showing signs of resilience. The PRC has picked itself up from the pandemic, and the economy and consumer behaviour have recovered almost back to pre-COVID-19 levels. For Taiwan, since we have taken over the operations in October 2019, excluding the impact from the COVID-19 pandemic, we have seen encouraging trend in revenue levels compared to same period last year.
Our franchisees, particularly in Ho Chi Minh City, Bangkok and Fuzhou, are holding up well amidst the challenging macro backdrop, which is a reflection that our cuisines are well received by our fans around the region. The franchisees in Ho Chi Minh City, Bangkok and Fuzhou are on track for further expansion of their outlets network in FY2021.
In FY2020, we are grateful for the various supports received from the Singapore Government and our stakeholders including the Jobs Support Scheme, foreign worker levy rebate, foreign worker levy waiver and rent concessions, which have cushioned the impact of COVID-19. However, it is important to note that these support measures are likely to taper off in FY2021. During the year, we have implemented various cost containment measures such as optimising manpower requirements, firm-wide temporary salary adjustments and no-pay leave arrangements to help preserve liquidity.
Looking ahead, the prospect of intermittent lockdowns and rising unemployment may likely persist, which will continue to have a negative impact to the Group in terms of lower footfall at restaurants, weaker sales revenue and further drain on cashflows. Against this backdrop, the Group is looking to intensify its efforts to control costs, including negotiate lease terms and accelerate digitalisation efforts to improve operational efficiency.
With our relatively healthy balance sheet, we are confident of riding through this period of uncertainty. The Group will also opportunistically and cautiously pursue areas of growth which will help enhance our earnings or diversify our revenue streams.