RE& S Holdings Limited reported $9.5 million in earnings for FY2022 ended June, unchanged from FY2021, bringing earnings per share to 2.7 cents.

 

Revenue for FY2022 was $154.8 million up 21.1% from $127.8 million in FY2021, largely due to higher revenue contribution as social distancing restrictions were removed, resulting in more seats available for dine-in customers.

 

The growth in Quick-Service Restaurants, Convenience & Others (QSR) segment continued to gain traction with a revenue registered of $73.6 million in FY2022, marking an increase of 44.2%. This was largely attributable to the opening of new Yakiniku-GO, Kuriya Japanese Market and Gokoku Japanese Bakery outlets in 1HFY2022. Additionally, there was also an increase in food delivery sales with customers becoming more accustomed to food delivery service and its convenience amid the pandemic.

 

The group has also made a reclassification adjustment relating to commission expenses paid to delivery platforms of $3.9 million from revenue to other operating expenses for the comparative figures as the group has determined that this is more comparable with market practice.

 

The cost of raw materials and consumables net of changes in inventories increased by 26.6% to $43.5 million. The cost of raw materials and consumables taking into consideration changes in inventories were 28.1% and 26.9% of total revenue for FY2022 and FY2021 respectively. This was mainly due to a general increase in the average prices of raw materials and consumables, arising from the disruption in global supply and higher inflation.

 

As at end June, cash and cash equivalents stood at $24.4 million.

 

The group also proposes a final cash dividend of 0.85 cents per share, bringing the total dividend for FY2022 to 1.7 cents per share. This represents about 63.7% payout of profit after tax with a dividend yield of 9.0% based on the closing share price of 18.8 cents as at June 30.

 

The group had noted that the Covid-19 pandemic had caused several disruptions that affected its business operations, including its relationships with existing and future customers, suppliers and employees, which will continue to have an effect on its financial position, financial performance of operations, cash flows and future prospects.

 

Nonetheless, the reopening of Singapore&rsquo s economy and the relaxation of Covid-19 safety measures have helped the overall F& B industry, as customer traffic has improved. However, the operating environment of F& B industry is increasingly challenging. Besides facing challenges from supply chain disruptions, F& B players have to deal with surging raw material and operating costs due to rising inflation. Manpower shortages and high labour costs will continue to persist which are expected to plague the F& B sector.

 

&ldquo With Singapore taking steps towards normalcy and the further easing of social restrictions, we are delighted to welcome back more customers,&rdquo says RE& S executive director and CEO Fenton Foo, adding that the group has re-invented its existing cluster of restaurant and retail outlets, which have been met with good responses from the public.

 

&ldquo We will continue to upgrade our outlets to further enhance customers&rsquo dining experience and strive to serve them better. We remain mindful of the rising cost of labour, raw materials and operations, and will stay vigilant in a rapidly evolving landscape while continuing to look for new business opportunities,&rdquo he adds.

THE board of directors of RE& S Holdings refers to The Business Times' article published on Mar 2, 2022, titled " Soup Restaurant, Jumbo, ABR show financial strength in weathering pandemic" and wishes to provide clarification with respect to the article.

 

The article indicated that the financial statements of the group have shown current liabilities exceeding current assets. The company would like to highlight the following.

 

With reference to the unaudited condensed interim financial statement for the half year ended Dec 31, 2021, announced on Feb 9, 2022, an explanation was provided on page 24 of the H1 FY2022 results in relation to the negative working capital as follows:

 

" As at Dec 31, 2021, the group had a negative working capital of approximately S$2.2 million due to accounting for lease liabilities. Excluding lease liabilities of approximately S$20.3 million, the group had a positive working capital of S$18.1 million as of Dec 31, 2021. The board believes that the group is able to meet its short-term debt obligations as and when they fall due, as it continues to generate positive cash flows from operations."

 

The company wishes to clarify that:

 

1) A significant change in lessee accounting became effective for financial periods beginning Jan 1, 2019 whereby SFRS(I) 16/FRS 116 Leases no longer makes a distinction between operating and finance lease for a lessee. Under this accounting standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. At commencement date of the lease, a lessee will recognise an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset) and a liability to make a lease payment (i.e. the lease liability). Despite there being no fundamental change to underlying business activities or cash flows, the new lease accounting requirements would impact many commonly used financial metrics/measures such as the current ratio - as current liabilities would increase due to an increase in recognition in the current portion of lease liability.

 

2) The company further elaborated that its board believes that the group is able to meet its short-term debt obligations as and when they fall due, as it continues to generate positive cash flows from operations. The group generated S$18.1 million of net cash from operating activities for H1 FY2022 and, notably, it declared an interim dividend of 0.85 Singapore cent per share to reward its shareholders during the same period.

 

3) As at Dec 31, 2021, the group' s cash and cash equivalents was at a healthy level of S$21.5 million with current and non-current bank borrowings of only S$0.9 million and S$7.0 million, respectively.

 

4) As working capital is one of the components to derive the Altman Z-score, and a negative working capital will inevitably result in a lower score, this computation does not provide a fair representation of the company' s fundamentals.

 

The board would like to take this opportunity to assure its stakeholders that it will continue to exercise prudent financial management together with high fiscal discipline to ensure that the company' s financial position remains strong and robust.