Koufu expects 'significantly lower' y-o-y operating profit in H2, though up from H1

KOUFU Group expects operating profits for the second half of 2020 to be "significantly lower" than the year-ago period due to Covid-19's impact, as well as new outlets that are still in the stabilisation phase and have yet to contribute positively, the food and beverage group said on Thursday night.

The group will also record a higher impairment loss on property, plant and equipment as well as right-of-use assets for FY 2020, compared to FY 2019, due to Covid-19.

The negative impact will be mitigated to an extent by government grants and rental rebates. Compared to the first half of the year, H2's operating profits are still expected to see a "significant improvement".

The full extent of the pandemic's financial impact is hard to ascertain as the situation is evolving, but revenue and operating profits are expected to be hit, said Koufu. This is due largely to low footfall at food courts near offices and tourist hotspots.

Revenue in Q3 "has shown significant improvement" from the preceding quarter, though it has not returned to pre-Covid levels.

On a same-store basis, excluding new outlets, total revenue was down 20 per cent year on year from July 1 to Oct 31. This is an improvement from Q2, where same-store sales were down 40 per cent year on year.

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Koufu said it will "continue to preserve liquidity and manage its balance sheet prudently", adding: "The group has a strong and healthy cash flow, and is confident of meeting its operating requirements during this period."

It said it "expects to remain competitive with cautious growth and expansion plans" and will look to capitalise on opportunities where they arise, with its strong cash position.

Koufu also gave an update on the Covid-19 impact and new developments. It has put in place mitigation measures as required by authorities, and activated its business continuity plans.

In Singapore, all outlets have resumed operations, with footfall and revenue seeing improvements especially in the heartlands.

While the group's outlet and mall management revenue largely comprises fixed rental income from stall tenants, a portion is also directly linked to stallholder performance in certain outlets. As stallholders have also been hit by the pandemic, this variable fee income is being affected.

"The group has been monitoring its stall occupancy closely, and actively sourcing for new tenants to replace any outgoing stallholders," said Koufu.

New openings since H1 include an R&B Tea kiosk at Change Alley Mall in October and a food court at Le Quest, Bukit Batok in November.

In Q4, Koufu expects to open a quick-service restaurant co-branded by Grove and Dough Culture at Canberra Plaza, and two R&B Tea kiosks at Fusionopolis and Le Quest.

In Q3, Koufu also opened its third food court in Macau, with continued full occupancy for food stalls in Macau.

In other markets, the group's second and third R&B Tea kiosks opened in Indonesia in August and October, and the group entered a master franchise agreement with Shakey's Pizza Asia Ventures for R&B Tea expansion in the Philippines, in August.

On July 30, the acquisition of Deli Asia Group of companies was completed, and the group is actively looking for new locations for its retail brand Dough Culture.

Its upcoming integrated facility saw construction delayed due to Covid-19 measures, but the temporary occupation permit is expected to be obtained in Q1 2021, with operations to start by Q2.

The group will be occupying 75 per cent of the total gross floor area, with the rest to be let out. Of the total area allocated for tenancy, the group has finalised and secured 75 per cent of tenancy, and will continue to actively source for tenants.

Koufu said it will keep shareholders updated on any further material impact of Covid-19 on the group's business activities.

Koufu shares closed unchanged at 66.5 Singapore cents on Thursday before the news.