Financial Performance

In 2010, the Group opened 94 new outlets, of which 38 are owned and 56 are franchised. This brings our total number of outlets to 395.

Bakery contributed 52.2% to overall Group revenue, recording sales of S$158.1 million (including S$21.1 million from franchise income), an increase of 22.2% from 2009. This was largely driven by outlet expansion and partly contributed by higher same store sales in Singapore and Hong Kong. Growth in franchise revenue was mainly attributable to continued growth in royalty fee income in tandem with expanding franchise network.

Operating profit rose by 15.3% to S$9.1 million. The S$4.2m gain on disposal of a property in Shanghai more than offset the lower profit contribution from the China and Singapore bakery units.

The China bakery unit was affected by higher food costs and wage inflation to a larger extent compared to other markets. The Singapore bakery unit was better able to contain the raw material cost inflation but incurred higher staff costs with lower job credits.

Strategies and Initiatives

The hallmark of BreadTalk is our spirit of innovation and this applies not just to our offerings but also our business approach. During the year, we introduced a new bakery model called BreadTalk Transit, positioned as a quick stop for customers on the go. By keeping some of the backend processes at the central kitchen, BreadTalk Transit outlets require only an average of 400 sq ft or about half the space of the usual BreadTalk outlet model. At the same time, its open baking area on-site maintains the quality, freshness and variety of the products.

BreadTalk Transit requires a leaner staff strength on-site, increases productivity and allows for more versatility when sourcing for retail space. It is therefore an efficient model for rapid expansion of the BreadTalk brand.

In another novel concept introduced during the year, we launched our first 4-in-1 retail space at Serangoon Nex, Singapore. Self-contained within a 4,400 sq ft space are a RamenPlay, BreadTalk, Toast Box and The Icing Room. Presented as a family, this concept showcases our brands in a very distinct and prominent light, strengthening their brand presence. In addition, we reap significant financial benefits in the form of cost savings due to shared expenditure, such as setup costs.

Outside of Singapore, BreadTalk continued to make waves. Press events organised by BreadTalk Indonesia channeled the Group's trademark innovative style, such as Flosss Wonderland at a children's wing in Plaza Indonesia and a World Cup press gathering held at the rooftop of a building complete with a mini football field. These unique events aim to maximise brand awareness for BreadTalk, which topped the Bakery Category for Top Brand 2010 in Indonesia.

In Hong Kong, we opened five new Toast Box outlets in FY2010. Tapping on our extensive network and reputation, we were able to negotiate for retail space in prime locations, including the International Financial Centre (IFC Mall) as well as Langham Place in the commercial district of Mongkok. We saw the opening of 50 new BreadTalk outlets in China. We've also added four new cities, such as Haerbin, Fuzhou, Shaoxing and Yangzhou, bringing the total number of cities to 32.

Over the years, BreadTalk has enjoyed whole-hearted support from the community. To commemorate our 10th birthday, we made a deliberate effort to give back to the community by pledging 5cts from the sale of each Flosss bun to The Straits Times School Pocket Money Fund, raising a total of $50,000 for needy school children.

Targeting the discerning customer who enjoys her daily bread, Bread Society was a new bread boutique conceptualised with its range of premium dough creations. Its Euro-inspired recipes boasts of a team of Japanese Masterchefs behind more than 100 unique recipes.

Looking Ahead

We are on track, with exponential growth planned for the China and regional markets. We will continue to surge ahead by negotiating for choice locations with high human traffic. A Head of Business Development has been appointed in China to spearhead our real estate strategy in support of outlet expansion for all brands.

The largest challenge facing the Bakery business in the near year ahead is rising food costs. To address this, we will look at bolstering our procurement system such as shortening the supply chain and buying in bulk globally for economies of scale.

In Shanghai, we have successfully piloted using frozen dough to arrest rising labour and rental costs while maintaining the quality of our products. We will explore the possibility of extending this initiative beyond Shanghai. The BreadTalk Transit model has also proven to be an efficient model for swift expansion and its potential we will be harnessed to expedite growth.

Financial Performance

Over the year, the Group opened three food atria and closed four. As of end 2010, the Group is operating six food atria in Singapore and 26 outlets in the rest of Asia, of which 20 are located in China.

Food Atrium turned in respectable results for the year, recording an increase of 13.2% to reach S$88.5 million in sales. This represented 29.2% of the Group's total revenue. This was mainly attributable to revenue contribution from food atria in Singapore. Hong Kong food atria operations recorded healthy revenue growth but this was mitigated by the strengthening of the Singapore dollar against the Hong Kong dollar.

Operating profit, however, dipped by 9.4% to S$4.4 million mainly due to assets write-off at the China food atrium unit and start-up costs for the food atrium business in Shenzhen. This was cushioned by higher profit from the Singapore and Hong Kong food atrium operations.

Strategies and Initiatives

Food Republic continued to attract customers with its unique dining experience and creative concept. Having established a reputation as a premier food atrium, Food Republic now holds sufficient weight with local malls to be considered a mini anchor tenant. This lends us extensive leverage when we negotiate for retail space.

With a presence in prime area malls like ION Orchard and 313 Somerset, Food Republic ventured into the suburbs for the first time with the opening of a food atrium at Nex in 2010. This outlet characterises BreadTalk's innovative culture once again. At only 7,000 sq ft, it is about four times smaller than other Food Republic outlets. Strategically located next to the main entrance of Nex, the launch of a smaller sized Food Republic opens up new avenues for growth where retail space may be limited.

As a Group, BreadTalk has forged strong relationships with property developers in Asia. As a result, we enjoy significant pull and negotiating muscle when sourcing for premier space in strategic locations. This competitive advantage came into play when we opened two new food courts in Shenzhen and Hangzhou. The former is a 24,000-sqft open box concept at KK Mall with the novel theme of an Open Box, where different spaces typical of a home are showcased as pockets of surprises. In Shanghai, we enhanced the existing food atrium at Raffles City and moved the Metro City outlet to a more strategic location within the mall.

The management in the China team underwent some changes during the year, allowing us to plan for the China market in a more focused manner. Older and unproductive outlets were replaced by new prospects.

Looking Ahead

The outlook for the Food Atrium business in the coming year is expected to improve. The target is to have 80 food atria in the next three to four years.

In Singapore, our boutique food atrium at Nex signals our expansionary plans into the suburbs, while in China, the business will be revitalised following the restructuring and entry of Food Republic into Hangzhou and Shenzhen. Plans are underway to expand into Guangzhou and Taiwan as well.

We will continue to review our existing retail portfolio to achieve better margins, even as we source for more locations to expand our operations.

Financial Performance

The Group added 12 restaurants during the year. As of end 2010, the Group is operating 10 Din Tai Fung, eight RamenPlay and three Carl's Jr. restaurants.

During the year, the Restaurant business registered a robust 44.4% increase in revenue from S$39.0 million in 2009 to S$56.3 million in 2010, representing 18.6% of Group revenue. The growth was mainly attributable to revenue contribution from new Din Tai Fung, RamenPlay and Carl's Jr. outlets added.

However, operating profit for FY2010 fell by 8.8% from the previous year to S$2.8 million. Despite higher profit contribution from Din Tai Fung operations in Singapore, this was offset by start-up costs for the first Din Tai Fung restaurant in Bangkok, lower job credits, and losses from Carl's Jr. and newly setup RamenPlay.

Strategies and Initiatives

We continued to grow the Restaurant business steadily. Din Tai Fung is internationally acclaimed for its culinary excellence, having won numerous accolades such as the coveted Michelin Star and been named one of the world's top 10 restaurants by The New York Times. In Singapore, we opened another three Din Tai Fung restaurants and true to our spirit of innovation, we introduced the truffle xiao long bao - a delicacy that was previously only available to dignitaries and special guests in Taiwan.

Our plans to open our first Din Tai Fung restaurant in Thailand were stalled following the political crisis and uncertainty in the country. The opening has been postponed to the 2Q 2011.

Having secured the rights to Carl's Jr. in the China market, we proceeded to open another two outlets in Shanghai during the year, including one at the popular Metro City at Xujiahui. The positioning of Carl's Jr. as a premium fast food joint has been well received by young patrons who view the brand as a trendy fashion statement. The warm response has been supported by steady growth in sales.

Our other brand in the Restaurant business, RamenPlay continued to expand, with three outlets opened in Shanghai and four in Singapore during the year. The entry of RamenPlay into Shanghai was celebrated with a grand opening party graced by key landlords and stakeholders. This brings out total number of RamenPlay restaurants to eight.

Looking Ahead

Having established the foundation for Din Tai Fung, we are now ready to expand the brand exponentially and systematically, leveraging our in-house management expertise. We are optimistic about our foray into Thailand, with the maiden Din Tai Fung outlet set to open at Central World in 2Q 2011.