Chairman's Statement

Extracted from Annual Report 2017

Dear Shareholders,

FY2017 has been another productive year for Katrina Group despite it being a volatile year filled with many uncertainties brought about by the challenging economic environment across the Food & Beverage industry. We have made significant progress towards our strategic aims and objectives, along with further improvements to ensure resilience and long-term sustainable growth.

In the face of a lacklustre economic environment, consumer spending in the restaurant sector for the 12 months in 2017 saw an average decline of 5% month-onmonth at constant prices, leading to a decrease in profitability to $1 million.

However, the Group remains steadfast in our commitment to all our stakeholders and in achieving our 2017 objectives. Our expansion initiatives this year has broadened our consumer reach, with revenue increasing 2% to $58 million, reflecting the increase of online sales and overall increase in revenue from our three main brands, namely Bali Thai, Streats and So Pho.

INVESTING FOR THE FUTURE

We set out FY2017 with a three-pronged strategy. Our first objective was to broaden our reach in Singapore by taking advantage of the softer demand to expand in strategic locations which would have been otherwise unavailable. As such, in addition to the following new outlets we now have 39 operating restaurants in shopping malls across Singapore, including the following new restaurants:-

So Pho Brand
  • Causeway Point
  • Clementi Mall
  • Marina One
  • Northpoint City
  • VivoCity
Streats Brand
  • Bedok Mall
  • Suntec City
  • West Mall

Simultaneously, we established the foundation for our regional expansion plans by entering into a strategic partnership with Ajisen China, setting up So Pho International Limited (the “JV Company”) to introduce the So Pho brand into the China and Hong Kong markets. The JV Company opened its first So Pho restaurant in January 2018, in BaiLian Chuansha Shopping Mall in Chuansha New Town, Shanghai and is expected to open the second in Tianhe Cheng Shopping Mall, the busiest district in Guangzhou in May 2018. We are optimistic that this partnership will extend our regional reach and bring the Group’s brand equity to greater heights in the new financial year.

The online food delivery trend continues to grow in Singapore, with the Singapore market estimated to be worth $250 million in 2017 and $600 million by 2021. We saw this change in consumer trends as an opportunity to diversify service offerings to our customers and expand sales beyond the capacity of our restaurants. In addition to our existing proprietary delivery service, we have partnered up with more food delivery service providers. We are proud to announce that all of the Group’s nine brands are now available on every leading food delivery platform. Coupled with efforts in online marketing, we saw a boost in revenue in this key segment, from $2.5 million in FY2016 to $6.3 million in FY2017.

As we continue to invest our resources for further growth, it is important to ensure that our staff and systems evolve together with the changes in company and market trends. We introduced the integration of technology into our business processes and operating system with the aim of increasing effectiveness and efficiency. The implementation of the Enterprise Resource Planning (ERP) and integration of Points Of Sale (POS) systems to the SAP system will allow the automation of back-office functions to reduce manpower in restaurants while maintaining food quality and lowering long term operating costs. In addition, we sent staff for training to ensure that they are well-equipped to adapt to changing environments and support the Group in its expansion goals.

OUTLOOK

As the F&B industry continues to face headwinds with shortages in the labour market, cautious consumer spending and tough competition, the year ahead is expected to remain fraught with challenges. Nevertheless, we are confident that our strategic direction, diverse portfolio and dedication will see Katrina Group ride through these difficulties as we take on opportunities in the midst of adversity.

We will continue to improve our efficiency and productivity across our businesses to prepare ourselves for an eventual turnaround in the industry. While we remain focused on delivering high quality and reliable services, we also look forward to a more aggressive approach for our expansion plans in the coming year.

FUTURE

While we continue to focus on building sustainable growth in our existing operations and stay competitive, we will build on working with strategic partners to create greater awareness for our brands across the region. China and Hong Kong present a multitude of possibilities for expansion and we look forward to assessing the viability of these markets as economic indicators improve. To support our growth, we are also increasing operating efficiency across the Group. We will explore a spectrum of dedicated solutions to counteract manpower constraints and delve further into managing costs through automation and information technology to achieve higher levels of productivity.

DIVIDENDS

The Group’s achievements would not have been possible without the support of our valued shareholders. To express our gratitude, the Board proposes a final dividend of 0.26 cents per share for FY2017, which represent a payout ratio of approximately 60% of the Group’s net profit for FY2017.

IN APPRECIATION

Katrina Group is a company that has been built on the experiences, hard work and commitment of its people.

I would like to express my sincere appreciation to our Board, for their invaluable guidance and contribution that has helped steer the Group through challenges faced during the year. I would like to express my deepest gratitude to our management team and our employees for their hard work, commitment and tenacity during challenging times. Their dedication drives our company day to day.

Last but not least, I would like to thank all our customers, suppliers and shareholders for their tremendous support.

Katrina Group will continue to grow and strengthen our position as the preferred choice for good quality casual dining. I look forward to updating you on our progress in 2018.

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