As we round up the financial year ended 31 March 2017 (“FY2017”) with this annual report, I would first like to commend our staff and management team for their excellent work and team spirit, which had enabled Japan Foods to hit a new high in sales during a very challenging financial year.

Although there has been much talk about the slow retail scene in Singapore, most of our stores are located in malls that continue to draw good foot traffic and we continue to manage our restaurant portfolio carefully to maximise sales per store.

CORPORATE UPDATES

In October 2016, we were named “Most Transparent Company (Catalist)” at the 17th SIAS Investors’ Choice Awards 2017. It was indeed an affirmation of the efforts that our board of directors of the Company (the “Board”) had put in to increase the corporate governance standards of the Company but having won the award, we will not rest on our laurels but continue to review and improve on our processes to make them even better.

During the financial year, a few of our stores started collaborating with food delivery companies including Deliveroo and Honest Bee. The quality of our food is of utmost importance to us and we do have some concerns about ramen dishes not being up to our standards by the time they arrive at our customers’ doorsteps. To mitigate this, we have chosen to deliver only to limited nearby locations and have also adjusted cooking times so that the ramen will be of the right consistency when it arrives.

So far, we have not had any adverse feedback from customers. As such, we may cautiously extend delivery to more locations and work with more food delivery companies only when we can ensure that quality is at its optimum when our customers receive their meals. Although we do not foresee food delivery to contribute materially to our sales, we recognise that this as a rising trend we should be a part of and will continue to monitor the effectiveness of this channel.

Performance review

In FY2017, Japan Foods achieved record revenue of S$65.5 million while net profit attributable to equity holders of the Company surged 23.3% year-on-year (“YOY”) to S$4.7 million.

As at 31 March 2017, we have 49 restaurants operating under various brands and one food court outlet. Our stellar performance was driven mainly by our three newest brands, namely “New ManLee Bak Kut Teh”, “Dutch Baby Cafe” and “Ginza Kushi-Katsu”, which together contributed an increase in revenue of S$4.9 million in FY2017 as compared to the preceding financial year ended 31 March 2016 (“FY2016”).

Throughout FY2017, the Group’s marketing activities to drive sales combined with its restaurant portfolio management, product pricing strategy as well as its operational efficiency and prudence enabled it to maintain its healthy gross profit margin, which rose 0.7 percentage points from 84.2% in FY2016 to 84.9% in FY2017.

Our financial position remains healthy with no borrowings. Cash and cash equivalents rose from S$16.9 million as at 31 March 2016 to S$20.2 million as at 31 March 2017. We will continue to grow the Company prudently while working hard to maintain the financial health of the Company so that the business remains sustainable even during tough times.

REVENUE S$65.5 million

PROPOSED DIVIDEND 1.25cents

PROPOSED DIVIDEND

Subject to the proposed dividends being approved by shareholders at the forthcoming Annual General Meeting on 24 July 2017, the Board of Directors is pleased to propose a tax-exempt, one-tier final dividend of 1.25 Singapore cents per ordinary share to be paid on 18 August 2017, which including the interim dividend of 0.75 Singapore cents per share paid on 29 November 2016, will bring the total dividend for the financial year to 2.00 Singapore cents per share. This represents a total dividend payout ratio of 74.6% of net profit attributable to equity holders of the Company in FY2017.

"WWE WILL KEEP UP OUR EFFORTS TO CONTAIN OUR OPERATIONAL EXPENSES AND TO OPTIMISE THE USE OF OUR RESOURCES. WE WILL ALSO CONTINUE TO REVIEW OUR MENUS AND INTRODUCE SEASONAL ITEMS AND MARKETING PROMOTIONS TO MAXIMISE REVENUE PER RESTAURANT."

Moving forward, and subject to the Group’s business requirements and other relevant considerations and barring unforeseen circumstances, the Board has recommended raising the Group’s target dividend payout ratio to at least 50% of the Group’s audited consolidated net profits attributable to shareholders annually.

Shareholders should note that this is the second time we have raised our target dividend payout ratio since our listing in 2009 as it demonstrates the Group’s confidence in its prospects and future growth. The last increase was announced three years ago in May 2014 when it was raised from 35% to 40%.

Outlook

There appears to be a general air of uncertainty and cautiousness among consumers as most expect slow economic growth to continue. We expect such sentiment to influence general spending behavior including the frequency of eating out.

In addition, we expect the operating environment in the local food & beverage scene to remain challenging over the next 12 months due to ongoing factors including a tight labour supply, stiff competition and rising business costs.

We will keep up our efforts to contain our operational expenses and to optimise the use of our resources. We will also continue to review our menus and introduce seasonal items and marketing promotions to maximise revenue per restaurant.

The Group is exploring opportunities to expand its presence in the ASEAN region by way of joint-ventures, acquisitions and/or sub-franchising of its brands. As at 31 March 2017, our overseas network include “Ajisen Ramen” brand stores in Malaysia (3 restaurants) and Vietnam (2 restaurants), which are operated by sub-franchisees, and also “Menya Musashi” brand stores in Hong Kong (7 restaurants) and China (6 restaurants), which are operated by associated companies through our joint venture with Ajisen (China) Holding Limited (“Ajisen China”).

In comparing our returns from the two models, we have a preference for the arrangement we have with Ajisen China and are exploring opportunities to replicate it in other overseas markets with strong and established local food & beverage operators.

The encouraging performance of our first non-Japanese brand “New ManLee Bak Kut Teh” has also given us the confidence to consider offering other non-Japanese cuisine.

SUSTAINABILITY MATTERS

Last year, SGX-ST made it mandatory for all primary- listed companies to publish an annual sustainability report with the reporting to take effect for any financial year ending on or after 31 December 2017. At Japan Foods, we are reaffirming this commitment by publishing our maiden sustainability report guided by the Global Reporting Initiative (“GRI”) Standards: Core Option. In preparing this maiden sustainability report, we are guided by Practice Note 7F of the SGX-ST Listing Manual Section B: Rules of Catalist. We seek to 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.

ACKNOWLEDGEMENT

I started this message acknowledging the staff of Japan Foods and in closing I want to once again thank them for their dedication and hard work and to urge them to continue this spirit of excellence which has enabled us to achieve stable performance over the years.

I also want to thank the Board for their combined wisdom, experience and guidance, which have kept us growing in the right direction operationally and enabled us to improve in the area of corporate governance and our responsibilities to shareholders as a listed company.

Lastly, I want to thank all shareholders for keeping the faith. Food & beverage is an exciting industry with food trends that are ever changing. As long as people are still into eating out, there will always be opportunities in Singapore and around the region for us to explore. We look forward to having you on the journey with us!

Takahashi Kenichi Executive Chairman and CEO