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Old Chang Kee posts increase in net profit on the back of higher revenues and improved operational efficiencies - 2018/19 Annual Report

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Old Chang Kee Ltd (OCK)

Source: OCK

Incorporated in 2004, OCK manufactures affordable food products which are sold mainly via takeaway kiosks. The company also holds a number of dine-in retail outlets and offers catering services to selected areas in Singapore. OCK was listed on SGX’s Catalist in 2008.

FY 2018/19 Financial Highlights:

Source: OCK FY 2018/19 Annual Report

  • OCK’s revenue grew by 5% year-on-year to SGD 89.8 million for the financial year from 1 April 2018 to 31 March 2019 (FY 2018/19)
  • Cost of sales dropped by 3.0% year-on-year for FY 2018/19, primarily due to improved food cost management.
  • As a result, OCK’s FY 2018/19 gross profit increased by 10.1% year-on-year. Meanwhile, the company’s gross profit margin rose from the 61.1% in FY 2017/18 to 64.1% in FY 2018/19, mainly as a result of improved manpower efficiencies and food cost management.
  • Overall, OCK’s net profit improved by 14.6% year-on-year to SGD 4.3 million in FY 2018/19.

Performance Drivers:

Source: SATS FY 2018/19 Annual Report

Revenue for OCK’s main operations increased for FY 2018/19, while overall profits also improved despite the rise in expenses. On the other hand, OCK’s other income and share of results of joint venture showed a decline.

Performance Drivers (Positive Factors)

  • Revenue from Retail Outlets

FY 2018/19 revenue from OCK’s retail outlets grew by 4.2% year-on-year on the back of increased revenue contribution from new outlets and improved revenue from existing outlets. This growth was partially offset by absence of revenue from closed outlets and outlets temporarily suspended for renovations. Further, the total number of outlets operated by OCK dropped slightly from the 90 as of 31 March 2018, to 86 as at 31 March 2019.

  • Revenue from Other Services

Revenue from other services (such as export sales, events, delivery and catering services) surged by 60.7% year-on-year to SGD 2.1 million in FY 2018/19, mainly due to an increase in events, delivery and export sales.

Performance Drivers (Negative Factors)

  • Other income

Other income fell by SGD 535,000 mainly due to a decrease in government grant income; a drop in special employment credit, temporary employment credit scheme and wage credit schemes income; as well as lower gains on disposal of motor vehicles.

  • Selling and Distribution Expenses

FY 2018/19 selling and distribution expenses rose by 7.8% year-on-year. It also increased as a percentage of revenue (42.4% of FY 2018/19 revenue compared to 41.3% of FY 2017/18 revenue). This increase was mainly due to higher staff costs and rental rates, as well as increases in subcontract fees, advertising and promotion expenses and outlets utility expenses.

Going forward, OCK expects rental, labor and raw material costs to remain high. In particular, the outlook for the food retail market continues to be challenging in view of the tight labor market.

  • Share of Results of Joint Venture

For OCK’s share of results of joint venture, the company recorded an increase in the losses (from the SGD 76,000 loss recorded in FY 2017/18 to the SGD 301,000 loss for FY 2018/19). This was attributed to initial operating losses for the new joint venture in London, UK.

The company reported that while the initial customer response and press reviews for OCK’s first flagship outlet in London have been positive, fixed costs remain high. Meanwhile, the company is looking to open more retail outlets in Central London, which will heighten brand visibility and promote economies of scale.

Source: OCK FY 2018/19 Annual Report