Management Discussion and Analysis


Operating against a backdrop of an uncertain economy in FY2017/18, the Group focused on its core strengths to deliver increased revenue during the year under review with satisfactory performance in Mainland China in terms of same store sales and profit growth. Overall profit declined, however, as the Group continued to invest for future growth.

The Group maintained its emphasis on improving the Customer Journey in its core quick service restaurant (QSR) business, investing in our people to enhance the public face of our business, as well as making improvements in technology to increase efficiency and add value for our customers. We are confident that these investments will soon translate into profitability and will bolster the long-term competitiveness of our operations.

In line with the Group’s multi-brand strategy, our casual dining business continued to fine tune its brand portfolio with a view to building our capabilities and achieving sustainable growth and positive performance across this business segment.

Following a period of consolidation to sharpen our focus on the Greater Bay Area in Southern China, the Mainland China business delivered satisfactory growth in profit and same store sales during FY2017/18. Led by a team of seasoned local professionals, this business segment has leveraged its solid operational team and sensitivity to local market preferences to achieve steady growth.

Although profits were lower than expected during the year under review, the Group’s investments in people, technology and systems are now beginning to show promising results. We remain confident in the Group’s business prospects for both the near and long term.


For the year ended 31 March 2018, the Group increased revenue by 6.7% to reach HK$8,427 million (FY2016/17: HK$7,895 million). Revenue by business division is set out below:

  FY2017/18 FY2016/17 Change
HK$'m HK$'m %
Hong Kong
       QSR and Institutional Catering  6,301.9  5,967.8  5.6
       Casual Dining 882.0 794.2  11.1
       Others*        167.3        154.6         8.3
       Subtotal     7,351.2     6,916.6          6.3
Mainland China     1,076.2        978.7        10.0
Group     8,427.4     7,895.3          6.7

* Represents mainly income from food processing and distribution and rental income

Gross Profit Margin
Gross profit margin decreased to 12.4% (FY2016/17: 13.4%), primarily due to manpower expenses arising from our enhancement of compensation packages. Although this investment in our workforce had a short-term impact on margins, we believe it will enhance the long-term growth of our business.

Administrative Expenses
Administrative expenses increased by 6.6% to HK$458.8 million (FY2016/17: HK$430.6 million).

Profit Attributable to Equity Holders
The Group’s profit attributable to equity holders decreased 9.1% to HK$458.1 million (FY2016/17: HK$503.8 million), primarily due to the increased investment in our workforce.

Segment Results
Hong Kong segment results decreased 2.1% to HK$792.2 million (FY2016/17: HK$808.8 million), mainly due to increased manpower expenses. Mainland China results increased 3.6% to HK$136.0 million (FY2016/17: HK$131.3 million), mainly due to same store sales growth.

Basic Earnings Per Share
The Group’s basic earnings per share decreased 9.2% to HK$0.79 (FY2016/17: HK$0.87).

The Board is pleased to recommend the payment of a final dividend of HK63 cents per share (FY2016/17: HK63 cents) and a special dividend of HK35 cents per share (FY2016/17: Nil) to shareholders for the financial year ended 31 March 2018 in celebration of the Group’s 50th anniversary. The proposed dividends represent a total dividend payout ratio of 148.3% for the year.


QSR and Institutional Catering
In FY2017/18, the Group’s QSR and institutional catering brands maintained their respective leadership positions in the Hong Kong market, contributing 74.8% of the Group’s total revenue for the year. During the year under review, revenue from this division increased to HK$6,301.9 million, representing an increase of 5.6% compared to the previous year (FY2016/17: HK$5,967.8 million). The Group’s QSR and institutional catering business had a total of 298 outlets as at the end of FY2017/18, compared with 295 outlets at the end of the previous financial year.

Overall, Hong Kong’s market for fast food remains positive, although consumers have become more price sensitive and are increasingly attracted by lower prices and value promotions. On the other hand, rents have remained high despite the relatively soft economy – which continued to exert pressure on margins.

Continued investment in our people is paving the way for continuous, sustainable growth. Although this investment caused the cost base to increase faster than sales growth, manpower costs are now firmly under control, the division’s retention rate has improved – paving the way for enhanced future profitability.

Café de Coral fast food maintained its steady performance and achieved same store sales growth of 3% for FY2017/18.

During the year under review, Café de Coral fast food deployed significant resources to improve the customer experience at our stores, creating greater value for consumers. The new 6th generation (6G) interior design was rolled out to 11 shops during FY2017/18, and has been warmly received by customers.

Upgrading the Customer Journey through the application of technology, Café de Coral fast food also advanced its point of sale system, launched new smart ordering kiosks, and introduced a kitchen video system to improve overall efficiency and reduce customer waiting time. Subsequent to the end of the financial year, we revamped our customer loyalty programme in April 2018 by offering more benefits and enhancing our online membership platform.

Refining and improving the accessibility of its locations, Café de Coral fast food opened a total of 12 new stores during the year, finishing the 12 months ended 31 March 2018 with a total of 167 stores (31 March 2017: 166 stores).

The Group’s Super Super Congee & Noodles QSR brand recorded same store sales growth of 1% during the year under review. The Group deliberately slowed store network growth to re-engineer the menu for consumer tastes and focus on the quality of its hero products. 4 new shops were opened during the year, and the brand operated 50 outlets at year end (31 March 2017: 50 stores).

The Group’s institutional catering brands, Asia Pacific Catering and Luncheon Star, continued to hold their market leadership positions in Hong Kong. Despite keen market competition, Asia Pacific Catering successfully renewed most of its large, major and profitable contracts, while also signing a number of new contracts. The business grew to 81 operating units at year end (31 March 2017: 79 units). Luncheon Star provides healthy and nutritious lunches to over 150 schools, and has been Hong Kong’s largest student lunch provider for the past 13 years. With daily production of over 80,000 lunch boxes, Luncheon Star continues to expand its market share and streamline production flow in order to further reduce costs and maintain stable profit growth.

Casual Dining
Along with adjustments to the brand portfolio during the year under review, the casual dining business has been working on the fundamentals to fuel business growth. The business achieved revenue of HK$882.0 million during FY2017/18, increasing by 11.1% compared to the previous year (FY2016/17: HK$794.2 million). This division operated 68 shops as at 31 March 2018 (31 March 2017: 64 shops).

The Spaghetti House performed solidly after a measured consolidation and rationalisation of outlets. Re-engineering the menu and improving the quality of ingredients, together with the launch of a more compelling VIP programme, fuelled the brand’s same store sales growth for the year under review. During FY2017/18, Oliver’s Super Sandwiches reinforced its branding through seasonal product campaigns and enhancement of ingredients. As of 31 March 2018, The Spaghetti House and Oliver’s Super Sandwiches operated 9 outlets and 15 outlets, respectively (31 March 2017: 12 shops and 19 shops, respectively).

The Group’s home grown casual dining brands, Shanghai Lao Lao and Mixian Sense, achieved promising growth with increasing brand awareness and reputation. Shanghai Lao Lao grew by 4 shops to become a chain of 14 shops by year end (31 March 2017: 10 outlets). Mixian Sense – which caters to customers seeking healthy and delicious food – experienced high demand and expanded to a chain of 15 shops as at 31 March 2018 (31 March 2017: 6 shops) with the addition of 11 shops during the reporting year.

The Group’s franchised brands, THE CUP and Don Don Tei, underwent menu improvement by offering more seasonal varieties to cater to local tastes. We continue to fine-tune the brands’ business models to explore their scalability.

Mainland China
Robust economic conditions and increased domestic demand drove solid performance of the Group’s operations in Mainland China, which have been consolidated to focus on the Greater Bay Area in Southern China. Satisfactory results were driven by a focus on product improvement and catering to local market needs.

Building on a customer-focused strategy and skilful implementation, the Mainland China market achieved revenue of HK$1,076.2 million during FY2017/18, representing an increase of 10% over the previous year (FY2016/17: HK$978.7 million). Southern China fast food recorded 12% same store sales growth during the year under review. Coupled with effective price and cost management, gross profit contribution from the Mainland China market improved during the year.

The Group operated 97 outlets in Mainland China as at the financial year end (31 March 2017: 99 outlets). 7 new outlets were opened during the year under review. The Group has also accelerated store renovation to enhance the ambience of the dining environment for our customers.

Whilst consumers are becoming more selective in product quality and placing greater value on the total customer experience, consumer consumption patterns have also been changing in the Mainland China market. The Group was successful in capturing market opportunities in online-to-offline (O2O) sales, which were a key contributor to revenue growth during the year under review. Extension of the O2O sales platform to more outlets will be a key operating target for development of the business in the year ahead.

The Group remains optimistic about development prospects for the Mainland China business in the coming year, with a renewed focus on the Greater Bay Area – and in particular the Tier 1 cities of Guangzhou and Shenzhen. Our holistic growth strategy incorporates technology enhancements to improve the customer experience, which will play a critical role in maintaining and building overall consumer satisfaction. Intense competition with an increasing number of market entrants has led to increased labour shortages, however the Group is confident in mitigating the issue through enhanced staff training.

With an accelerating focus on brand building, enhancement of customer service as well as network expansion, the Group is confident in the Mainland China business for the year ahead.


The Group recognises that its people, brand, network and supply chain are the keys to business success.

People Development
As of 31 March 2018, the Group had a workforce of 18,940 employees (31 March 2017: 18,771 employees).

The Group has always emphasised the importance of investing in our people, whose interactions with our customers create the essence of our brand and are critical to the Group’s business success. The recent costs related to investment in our people have now been stabilised, and the Group is beginning to see payback in terms of improved employee satisfaction and retention as well as productivity, facilitating the long-term success of the business across all sectors and geographies.

In the Mainland China market, where competition for labour is becoming increasingly intense, we are working to develop our local talent while improving our employer branding, which will help to increase the Group’s reputation in the market as an employer of choice.

Development of our staff and maintaining good working relationships with our employees have always been major areas of concentration. With a well-established training structure and ample promotion opportunities for staff, the Group continues to emphasise our people and their growth within the Café de Coral family. Further details about these initiatives are presented in the Group’s Sustainability Report 2018.

Remuneration at all staff levels is based on market benchmarks, as well as individual experience, qualifications, duties and responsibilities. Qualified employees are also entitled to participate in share award and share options schemes, profit sharing programme and other performance incentives.

Brand Building
One of the major factors behind the long-term success of our brand is our commitment to constantly providing quality food and service to our customers, while consistently meeting our customers’ needs and delivering beyond their expectations. Our Customer Journey approach aims to provide total customer satisfaction in a comprehensive and systemic manner through in-depth analysis and constant improvement of our interactions with customers across three stages – brand awareness, in-store experience and patronage engagement.

During the year under review, the Group leveraged our brand synergy by offering diners and landlords a combination of our brands in a single location at JP Plaza in Causeway Bay, attracting consumers and catering to a wider variety of tastes and preferences. This initiative was successfully implemented at other locations, and we are fine-tuning the concept to maximise effectiveness.

The strong brand reputation of Café de Coral fast food is also proliferating in Mainland China. In FY2017/18, Café de Coral fast food was recognised as a Guangzhou Famous Trademark by Guangzhou’s Administration of Industry and Commerce and named one of China’s Excellent Fast Food Brands and China’s Top 100 Fast Food Enterprises by the China Cuisine Association, reflecting the positive reception of our brand in the region.

Network Expansion
As at 31 March 2018, the Group had a network of 366 stores in Hong Kong and 97 stores in Mainland China. Although retail space has become more readily available, increasing competition has made rental of prime locations more expensive.

Employing a multi-brand strategy that offers consumers multiple high quality dining options within a single property has allowed the Group to secure prime locations. This strategy has enabled the Group to create clusters of its brands at prime shopping malls, including JP Plaza in Causeway Bay and Star House in Tsimshatsui. As securing favourable locations is critical to the Group’s success, we will continue to leverage our established brand portfolio to expand our network in Hong Kong and Mainland China.

Supply Chain
Placing the highest priority on food safety and quality, the Group constantly upgrades its systems to enhance procurement efficiency. In line with this goal, we rolled out phase 2 of our Electronic Data Interchange System in Hong Kong, and we are preparing for the launch of our supply chain Branch Management System in Mainland China. During the year under review, the Group was crowned a Gold Enterprise Winner by GS1 Hong Kong under their Quality Food Traceability Scheme – a testament to our efforts in the critical area of food traceability.

In FY2017/18, the Group was included in the Hang Seng Corporate Sustainability Benchmark Index for the third consecutive year, recognising our efforts to grow our business in a sustainable manner. Full details of our sustainability programmes can be found in the Group’s Sustainability Report 2018.


Financial Position
During the year under review, the Group’s financial position remained healthy. As of 31 March 2018, the Group recorded net cash of approximately HK$801 million, with HK$295 million in available banking facilities. The Group’s current ratio as of the same date was 1.4 (31 March 2017: 1.5), and the cash ratio was 0.9 (31 March 2017: 1.0). The Group had no external borrowing (31 March 2017: Nil) and a nil gearing ratio (ratio of total borrowing less cash and cash equivalents to total equity) (31 March 2017: Nil). There has been no material change in contingent liabilities or charge on assets since 31 March 2018.

The Group’s return on equity for FY2017/18 was 13% (FY2016/17: 14%), and return on assets was 10% (FY2016/17: 11%).

Capital Expenditure and Commitment
During the year under review, the Group’s capital expenditure was HK$462 million (FY2016/17: HK$595 million). As at 31 March 2018, the Group’s outstanding capital commitments were HK$480 million (31 March 2017: HK$613 million).

Contingent Liabilities
As of 31 March 2018, the Company provided guarantees of approximately HK$415 million (31 March 2017: HK$415 million) to financial institutions in connection with banking facilities granted to its subsidiaries.

Financial Risk Management
With regard to foreign exchange fluctuations, the Group earned revenue and incurred costs and expenses mainly denominated in Hong Kong dollars, while those of our Mainland China businesses were in Renminbi. Foreign currency exposure did not pose a significant risk for the Group, but we will remain vigilant and closely monitor our exposure to movements in relevant currencies.


As the Group celebrates its milestone 50th anniversary, we are building on our past to create our future – focusing on our core strengths to create a sustainable business that is well equipped for long term growth. As a Group, we have been growing together with Hong Kong for the past 50 years – and we are leveraging this long-standing relationship with the community to constantly evolve our business by catering to the changing needs of Hong Kong’s people.

Today, we are focusing on the end-to-end Customer Journey, integrating our brands, people and professional knowledge to create a unique experience for customers from all walks of life.

  • Continual improvement of our service and food quality as well as operational efficiency will remain the focal points of our Hong Kong QSR business. The Group is confident that the business will be able to reinvent and evolve for long-term success.

  • Casual dining will continue to learn and fine tune our operations through consolidation and rationalisation of our network in order to increase contributions to the Group’s profitability.

  • We have built a solid foundation for our business in Mainland China, and are optimistic about its continuing success in the future.

As we look towards the future, technology has an important role to play in keeping our services and brands relevant to our increasingly sophisticated and selective customers. Not content to merely follow the latest trends, the Group is taking a long term view towards sustainable success, examining how technology can improve and transform our business – and taking carefully measured steps towards real enhancement of our business and operations.

Although business cycles will come and go the Group is confident in our ability to adapt and evolve to meet business challenges, just as we have done for the past 50 years – and plan to continue for the next half century, and beyond.

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