The financial year ended 31 March 2019 (“FY2019”) was an interesting one for Japan Foods. We achieved new milestones and breakthroughs that I am optimistic would deliver positive future growth for the Group.
In December 2018, we announced a 50-50 joint venture with Minor Food Group (Singapore) Pte. Ltd. (“Minor Singapore”), for the purpose of expanding the geographical reach of our respective brands. Together, we incorporated a joint venture company, Dining Collective Pte Ltd (“Dining Collective”), to conduct the business of franchising and operating existing restaurant brands owned by Japan Foods and Minor Singapore in Japan, Thailand and the People’s Republic of China.
Japan Foods will oversee, develop and manage Dining Collective’s Thai cuisine restaurant operations in Japan and provide technical support and expertise in the preparation of Japanese cuisine, while Minor Singapore will do likewise for Dining Collective’s Japanese cuisine restaurant operations in Thailand and China and provide technical support and expertise in the preparation of Thai cuisine.
This partnership is a great leap forward in our overseas ambitions and fulfils a long-time vision of the Group to have a presence in the Japanese market. Having brought Japanese cuisine brands to Singapore for more than two decades, we have been longing to introduce some regional flavours to Japan in a cultural exchange of tastes. Minor Singapore has been a key player in Singapore’s F&B scene since 2000 and their brands include “Thai Express”, “Xin Wang Hong Kong Café”, “Poulet”, “Buffet Town” and “Kiseki Japanese Buffet Restaurant”. In addition, the partnership opens the doors for Japan Foods to launch some of our brands in China and Thailand.
Dining Collective is currently actively making preparations to launch its restaurant operations in Japan. We will make the necessary announcements in due course.
A STAR IS BORN
In June 2018, we secured and launched a new franchised ramen brand, “Konjiki Hototogisu”, which was known for is clam-flavoured broth. We have since opened four restaurants under this brand in Singapore with the latest one opening in Jewel Changi Airport in April 2019.
The original “Konjiki Hototogisu” restaurant in Tokyo had already been featured several times in Michelin Tokyo’s Bib Gourmand list but December 2018 brought an unexpected and pleasant surprise when the chef-owner was awarded his first Michelin Star for his restaurant there.
By association, this means that Japan Foods now has four restaurants by a One-Michelin star chef. We are very pleased at this development because it represents our maiden move into the higher-end ramen market. This also means that we now have brands that cater to different budgets and different tastes for a wide spectrum of customers from students to families to working professionals and gourmands. I believe this entrenches us as one of the leading players in the highly competitive ramen space.
OTHER BRAND DEVELOPMENTS
In the previous financial year ended 31 March 2018 (“FY2018”), we had launched a brand extension of our flagship “Ajisen Ramen” brand called “Den by Ajisen Ramen”, which offered wider menu options and soup bases. In March 2019, we launched yet another brand extension called “Kara-Men” by Ajisen Ramen. These two new brand extensions represent our continuous efforts to rejuvenate our oldest and most established brand so that it remains relevant and can continue to compete among the increasing number of ramen brands in Singapore. To-date, the response to the two brand variations has been encouraging with an increase in same-store sales following the rebranding.
During FY2019, we also launched “Kagurazaka Saryo”, a franchised brand from Japan known for its range of premium Uji Matcha desserts and drinks. The response to this brand has been quite good and we opened two stores during the financial year.
In June 2019, we launched yet another new franchised ramen brand from Tokyo. The new “Afuri Ramen” brand will feature a yuzuflavoured broth that is refreshing and healthier, which will appeal to more health conscious diners.
Japan Foods launched its “JFH Rewards” customer loyalty programme with approximately 12,000 members. Under the programme, members get a 10% rebate on what they spend at our restaurants in the form of $J, which can be accumulated to offset the cost of their next meal at our restaurants.
As at 31 March 2019, we have over 116,000 members and we believe the programme has been successful in helping us to secure repeat customers because our records show that more than 50% of $J earned by customers has been utilised in subsequent visits and every $J utilised went on to generate additional revenue.
In addition, we are able to inform members, who opted to receive notification, of upcoming offers and seasonal promotions, which has enabled us to market our brands and let customers know of new store openings. We will continue to review the performance of this programme to generate new customers and retain loyalty among existing customers.
CORPORATE GOVERNANCE AWARDS
As a listed company, Japan Foods takes its responsibility towards good corporate governance very seriously. In July 2018, we clinched two awards at the annual Singapore Corporate Awards 2018, namely Best Managed Board (Gold) 2018 for companies with less than S$300 million in market capitalisation and our Chief Financial Officer, Mr Kenneth Liew, was named Best CFO 2018 for companies with less than S$300 million in market capitalisation.
In September 2018, we secured our third consecutive award from SIAS when we were named “Runner-Up” at the 19th SIAS Investors’ Choice Awards 2018 under the category of “Most Transparent Company – Hotel / Restaurant”.
More than anything, these awards serve to affirm our efforts in imposing strict corporate governance standards within the organisation and we are pleased to have been recognised for our efforts.
FY2019 PERFORMANCE REVIEW
The Group achieved a modest 0.3% year-on-year (“YOY”) increase in sales to S$68.1 million in FY2019 attributable mainly to encouraging sales from restaurants operating under the newly launched brands. Net profit attributable to equity holders of the company came in at S$3.3 million in FY2019, as compared to S$5.8 million in FY2018 was mainly due to higher selling and distribution expenses as well as administrative expenses in relation to the Group’s expanded restaurant network which grew from 50 restaurants as at 31 March 2018 to 55 restaurants as at 31 March 2019.
In FY2019, revenue from restaurants operating under Japan Foods’ flagship brands, namely “Ajisen Ramen”, “Osaka Osho” and “Menya Musashi”, decreased by a total of S$4.4 million YOY due to various reasons including permanent and temporary store closures, restaurant conversions to other brands within the Group’s portfolio and lower same-store sales achieved by some existing restaurants. However, the weaker performance of the flagship brands was compensated by a S$4.6 million increase in sales from restaurants operating under the Group’s other brands, driven mainly by new brands, namely “Konjiki Hototogisu”, “Shitamachi Tendon Akimitsu”, “Menzo Butao”, “Kagurazaka Saryo” and “Curry is Drink”.
“The partnership (with Minor singapore) is a great leap forward in our overseas ambitions and fulfils a long-time vision of the Group to have a presence in the Japanese market.”
During FY2019, Japan Foods’ gross profit margin declined 0.5% points to 84.5% due to rebates offered to members of “JFH Rewards”. The impact of this was partially offset by the Group’s ongoing cost control efforts for raw material purchases.
The Group’s overseas network remained at 21 restaurants as at 31 March 2019, including one “Menya Musashi” brand restaurant operated by an associated company in Jakarta, which is a new market for the Group. In FY2019, share of profit of associated companies declined 72.2% YOY to S$0.1 million mainly due to lower profit from the associated company in China as a result of intense competition, weak economic conditions, high initial set-up costs of three new restaurants in December 2018 and January 2019 and the closure of a restaurant in November 2018. The Group’s associated company in Hong Kong also experienced keen competition, while the Group’s associated company in Indonesia experienced a small initial start-up loss.
Japan Foods will continue to focus its efforts in controlling raw material costs, improving operational efficiency via streamlining of work processes and technology and practising good restaurant portfolio management taking into account market demand and individual restaurant’s profitability. We believe that it is imperative to continuously innovate and introduce new food concepts and brands to compete effectively in the competitive F&B industry.
The Board of Directors of Japan Foods is pleased to propose a final dividend of 1.10 Singapore cents per share to be paid on 16 August 2019 if approved at the upcoming annual general meeting, which together with the interim dividend of 0.80 Singapore cents per share which was paid in December 2018, brings total dividend declared in FY2019 to a total of 1.90 Singapore cents a share. This represents a dividend payout ratio of approximately 98.9% for FY2019. This is the highest proportion of our earnings we have paid out and it reflects our confidence in the sustainability of our business.
We are including as part of this annual report, our third sustainability report, which is guided by the Global Reporting Initiative (“GRI”) Standards: Core option. In this report, we provide insights into the way we do business, while highlighting our environmental, social, governance (“ESG”) and economic performance.
As a leading Japanese restaurant chain, we are committed to maintain a sound sustainability reporting framework to fulfil our social responsibility and safeguard the interest of the Group’s stakeholders.
In closing, I would like to thank all stakeholders including our business partners and suppliers, our staff and loyal customers, and to our shareholders for your support in FY2019. We hope to continue working together with you and engaging you so that we can look forward to many more years to come.
I also want to thank my fellow directors for their combined wisdom, experience and guidance, which has enabled us to maintain a wellrun Board and improving year-by-year in our corporate governance standards.