On behalf of the Board of Directors, I am pleased to present to you Koufu Group Limited's Annual Report for the financial year ended 31 December 2020 ("FY 2020").
The COVID-19 pandemic is unprecedented on many fronts and has caused a severe disruption to global economic activity, affecting different sectors to varying degrees. Even with a vaccine being distributed, the effects of the pandemic are expected to linger on for years.
During the year under review, the Group has focused our efforts on ensuring that our essential products and services that support the community carried on with minimal or no disruption. We focused on implementing necessary COVID-19 safety and precautionary measures as required by the respective governments and regulators in our countries of operations, mainly Singapore and Macau; and supporting our stakeholders and strategic partners in Malaysia, the Philippines and Indonesia to mitigate the effect of the pandemic.
The F&B industry has been impacted due to the Circuit Breaker measures as well as more conscious spending habits due to a general downtrend in the economy. These measures significantly affected our revenue as we saw lower footfalls at our food courts, especially those located in commercial malls, educational institutions and near offices.
In FY 2020, revenue decreased 19.0% to S$192.4 million from S$237.5 million in the same comparative period a year ago ("FY 2019"), largely due to the impact of the COVID-19 outbreak. The lower topline was due to lower contributions from both the Outlet & Mall Management segment and F&B Retail segment.
Despite the extremely challenging operating environment, Koufu has remained profitable with a net profit after tax attributable to Owners of the Company of S$9.9 million for FY 2020, a decline of 64.3% from S$27.7 million in FY 2019.
We have built up a defensive and resilient business model that has been tried-and-tested through time, and our business model has enabled us to remain cash-generative and robust through economic cycles. We maintained a strong balance sheet with cash and cash equivalents of S$76.4 million and net cash of S$62.6 million as at 31 December 2020, giving us financial flexibility for the funding of future growth initiatives.
The foundation that we have built through the years – from our steadfast philosophy of integrating modern management discipline, to prudence in financial management — have helped us to weather the vast challenges brought on by the global pandemic.
Thus, we have to continually adapt to the “new normal” in F&B, embrace it and aim to excel in all our business practices.
To us, this would mean the relentless pursuit in creating new revenue streams – through a prudent enhancement of our multi-brand portfolio, raising our operational efficiencies, adopting new technologies and initiatives, and finding new ways to deliver F&B options.
Our multi-brand platform of 15 brands and strong network have continued to serve us well, offering some resilience, as the Group’s differentiated F&B concepts are generally within the ambit of “essential services” during the Circuit Breaker period.
During the year, we have added two new brands Delisnacks and Dough Culture with our landmark and accretive acquisition of Deli Asia. This highly complementary acquisition effectively fast-tracks the Group’s revenue diversification and network expansion in complementary dim sum, snacks and dough products and strengthens our supply chain with the expansion of our production and manufacturing capabilities.
Another notable development in fostering our concept brands in target markets includes our first entry into the Philippines. This was through a master franchise agreement with Shakey’s Pizza Asia Ventures Inc., one of the largest F&B players in the country, to expand our high growth tea beverage brands. With this latest addition, we are tapping on the strong demand for bubble tea regionally, and have established good market presence of our highly popular R&B Tea beverage concepts in five markets, namely Singapore, Macau, Malaysia, Indonesia and the Philippines. In Indonesia, we have recently made a strategic move by extending our presence in this growth market through a licensing arrangement with PT Super Tea Indonesia instead, following the sale of our stake to this partner. This licensing arrangement will similarly enable us to align our overseas R&B Tea business as a franchise model, much like in the Philippines, which we view as a more cost effective and beneficial arrangement in this current business climate, amidst the COVID-19 outbreak and travel restrictions.
Our Elemen full-service restaurant serving natural meatless cuisine has gained good market acceptance, and we will tap on its popularity and the trend towards healthy living and dining, to bring this brand into overseas markets when the opportunity arises.
We will continually build up our concept brands and strategic partnerships in the coming years to broaden our revenue streams and distribution network for sustainable growth.
The completion of our integrated facility at Woodlands Avenue 12 is on track for 1H 2021. We look forward to greater efficiencies and economies of scale with the expansion of our procurement, preparation, processing and distribution functions “under one roof”. We intend to further improve our productivity through increased automation of our operations and researching food preparation processes that will boost productivity and allow Koufu to attain higher cost efficiencies.
This larger central kitchen will also better support all of Koufu’s F&B Retail business and cater to future business growth through the creation of new and recurring revenue streams for the Group.
Looking back, whilst the footfall of our food court and coffee shop operations was impacted during the Circuit Breaker period when dining-in was disallowed, the increase in delivery services was a key and positive mitigating factor.
Recognising a growing demand for online food ordering and delivery services, we have forged partnerships with third-party food delivery service providers at our outlets to tap on this growing market trend, providing us with a new channel to reach out to a wider customer base and capture additional sales revenue. We have also launched a delivery service option on the Koufu Eat app to certain areas of Singapore by partnering with these delivery vendors, and are looking to gradually increase the delivery coverage to include more parts of the island. Apart from the focus on delivery services, our Koufu Eat app has gained traction during this period by catering to customers who prefer to use the “click and collect” option, which offers increased convenience.
In closing, notwithstanding the ongoing challenges amidst the COVID-19 outbreak, we expect to remain competitive with our productivity efforts and strategic expansion plans in place. We will continue to prudently leverage our network, both locally and regionally, to establish joint ventures, strategic alliances, or make accretive acquisitions in complementary business segments and markets. At the same time, we will continue to bring forth new food options and varieties to customers, enhanced by technology and innovation, for sustainable growth.
Over the years, we have taken a conservative approach in our finances with a primary focus on preserving cash by reducing operating expenses where applicable, and deferring all non-essential capital expenditures. We will continue to preserve liquidity and manage our balance sheet prudently to navigate through the challenges and preserve shareholder value.
To share the fruits of our labour and reward our loyal shareholders for their continuous support, the Board has proposed a final cash dividend (one-tier tax-exempt) of 0.7 Singapore cent. Coupled with the interim dividend (one-tier tax-exempt) of 0.5 Singapore cent, this brings the total distributions for the year to 1.2 Singapore cents per ordinary share, representing a dividend payout ratio of 67.4%.
It has been a very challenging year and we have stayed resilient thanks to the wise counsel and direction from our Board of Directors and the hard work of a team of dedicated management and staff. I would like to thank our Board of Directors for their guidance and significant contributions in the last financial year. To our management team and staff, a big thank you for staying the course and your dedication to Koufu.
On behalf of the Board, I would also like to extend our deep appreciation to our valued customers, shareholders, and business associates for their strong support as we stay focused on driving sustainable growth ahead.
Executive Chairman & Chief Executive Officer
8 April 2021