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Japan Foods: FY2025 Corporate Presentation · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  You've given us this set of documents about Japan Foods holding LTD,
• 0:11
  focusing specifically on their financial year ending March 31st,
• 0:15
  2025. That's their FY 2025.
• 0:18
  Yeah. And our mission for this deep dive using only the material you've provided
• 0:21
  is to really understand how they performed financially, get into the reasons
• 0:25
  behind those results, and see what they're saying about the future.
• 0:28
  Sounds good. Let's jump right in. So when you look at the main numbers for FY2025
• 0:32
  in these documents, one figure really stands out immediately.
• 0:36
  And probably not in the way they'd hope. We're talking about the bottom line, the net result.
• 0:40
  It looks like a pretty substantial net loss. That's putting it mildly.
• 0:43
  The documents show a net loss of $7.9 million for FY2025.
• 0:48
  $7.9 million.
• 0:50
  Wow. And just for context, the previous year, FY2024, they also had a loss,
• 0:55
  but it was, what, half a million? Steady point $5 million? Exactly.
• 0:59
  So going from a $0.5 million loss to a $7.9 million loss. That's a huge jump.
• 1:05
  The documents actually calculate it's an increase in the loss of nearly 1500%, 1490.7% to be precise.
• 1:11
  15 times bigger. Okay, so that massive swing is clearly the main story we need
• 1:15
  to unpack here. Definitely. But first, let's look at the top line. Revenue.
• 1:19
  How did sales do? Revenue actually went down a bit.
• 1:22
  S, $83.6 million in FY 2025, which is down 3.2% from $86.4 million the year before.
• 1:30
  Okay, so sales dipped slightly, 3.2%, but the net loss exploded by almost 1,500%.
• 1:34
  That tells you straight away the problem isn't just about selling a bit less product.
• 1:38
  Right. Something else must be going on further down the line.
• 1:40
  What about gross profit?
• 1:41
  Did the cost of actually making the food go way up? Well, gross profit itself
• 1:44
  also fell naturally since revenue fell. It was S$70.7 million down 3.4% from S$73.1 million.
• 1:51
  But here's the interesting part, the gross profit margin. Ah,
• 1:54
  the percentage. How did that hold up? It was remarkably stable.
• 1:57
  84.5% in FY2025 compared to 84.7% in FY2024. Almost identical.
• 2:03
  Okay, that is interesting. So the core profitability of selling their food at
• 2:07
  the price versus the direct cost of ingredients and maybe direct kitchen labor
• 2:12
  that didn't really change much. Exactly.
• 2:14
  It suggests the massive increase in the net loss isn't coming from their fundamental
• 2:18
  food costs or pricing strategy, you know, the point of sale.
• 2:22
  So the issue must be coming from expenses after that gross profit is calculated.
• 2:26
  Things like rent, marketing, admin costs, maybe other charges.
• 2:31
  Oh, precisely. The headline numbers tell us revenue down a little,
• 2:34
  gross margin stable, but the bottom line fell off a cliff. Yeah.
• 2:37
  The story is definitely in the operating expenses and other items below that gross profit line.
• 2:43
  All right. So let's use the documents, the profit warning, the financial review
• 2:46
  bits to really unpack why they ended up with that $7.9 million loss.
• 2:50
  What are the main drivers?
• 2:52
  The sources point to several key factors, and they seem pretty interconnected.
• 2:55
  First and foremost, the market environment. They explicitly mention weak sales
• 2:59
  amid market saturation and challenging macroeconomic conditions.
• 3:03
  And they get specific about those conditions, don't they? I remember reading
• 3:06
  about increasing cautiousness among consumers because of the economy.
• 3:11
  Yep, that and rising inflation resulted in higher living costs.
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  Plus, a lot of competition from an influx of foreign brands.
• 3:19
  So, a tough environment for restaurants. Makes sense. People getting cautious
• 3:23
  about spending, higher living costs, hitting wallets.
• 3:26
  Dining out is often one of the first things people cut back on. Exactly.
• 3:30
  The documents say this led to less discretionary spending on non-essentials, including dining out.
• 3:35
  Plus, that fierce competition meant fighting harder for customers,
• 3:39
  and they also faced generally higher costs of operations.
• 3:43
  It's interesting how they break down the revenue impact by brand.
• 3:45
  It wasn't an across-the-board drop. Some brands really took a hit.
• 3:48
  Yeah, quite significant declines for some.
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  Tenjiki Hodotogsu down S1.4 million dollars.
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  Menio Musashi dropped by 2.6 million dollars. And Shidamachi Tendenakamitsu,
• 3:59
  that one was down S1.9 million dollars.
• 4:02
  And the documents say it actually stopped operating completely.
• 4:05
  Osaka Osha was also down S1.2 million dollars. But interestingly,
• 4:10
  not everything went down.
• 4:11
  Ajax & Ramen actually edged up slightly by $0.1 million.
• 4:15
  And the category labeled Other
• 4:17
  Brands saw a pretty significant collective increase, up $5.4 million.
• 4:22
  So it's a mixed bag. Some core brands struggled badly, but others,
• 4:26
  perhaps newer or differently positioned ones, actually grew and helped offset some of those declines.
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  They also mention a small technical thing about JFH rewards points affecting
• 4:36
  the revenue number slightly. Right, so factor one.
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  A tough market hitting sales, but hitting different brands unevenly.
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  Factor two, driving the loss.
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  Higher operating costs. Yeah, selling and distribution expenses,
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  that's the main bucket for running the restaurants, right? Those went up.
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  They did, up 5.5% to $70.9 million.
• 4:54
  And what was pushing those costs up? The documents list the usual suspects, really.
• 4:59
  Higher manpower costs, utilities expenses, rental charges, and also depreciation
• 5:04
  charges related to the restaurants themselves. the equipment and the right-of-use
• 5:07
  assets, which are basically the leases.
• 5:09
  Okay, so the basic costs of running the places went up.
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  And there was another category, other operating expenses, that jumped massively,
• 5:17
  up over 80%. That's right, up 82.9% to $2.3 million.
• 5:22
  And the key reason given for that big jump was the write-off of renovation costs
• 5:28
  upon rebranding and closure of outlets. Ah, okay.
• 5:31
  So that expense is directly tied to them making changes, closing stores,
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  maybe changing some brands.
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  If you spend money renovating a place and then close it, you have to write off that cost.
• 5:41
  Exactly. It reflects those strategic shifts hitting the income statement. Yeah.
• 5:45
  And that connects directly to the third major factor influencing the net loss, impairment losses.
• 5:51
  Right. These aren't necessarily cash going out the door right now,
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  but they reduce the profit number.
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  And these went up a lot too. Hugely, up 93.4% to S3.6 million dollars compared
• 6:00
  to S1.9 million dollars the year before.
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  And what kinds of things were being impaired? The documents specify three main types.
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  An impairment loss on the loan provided to a joint venture company,
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  suggesting that JV might be struggling.
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  An impairment loss for certain non-performing stores under the group that's
• 6:15
  clearly linked to the closures and weak sales. Makes sense.
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  And an impairment loss of franchise right. So maybe a specific brand right they
• 6:23
  hold isn't seen as valuable anymore.
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  So just to be clear on impairment, it's like the company saying,
• 6:28
  okay, this store or this loan or this brand rate we have on our books.
• 6:33
  It's not actually worth what we thought it was anymore, probably because it's
• 6:36
  not making enough money.
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  So they reduce its value on the balance sheet and that reduction flows through
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  as a loss on the income statement.
• 6:44
  That's a perfect way to put it. It's an accounting recognition that future economic
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  benefits expected from that asset are lower than previously thought.
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  It directly reflects the underperformance of those specific parts of the business.
• 6:57
  So a big chunk of that $7.9 million loss isn't just from selling less and paying
• 7:02
  more for rent and staff day to day.
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  It also includes these big, less frequent hits, writing off old renovations
• 7:08
  for closed stores and formally recognizing that some stores,
• 7:11
  a JV loan and a franchise right, are worth less now. Precisely.
• 7:16
  It's like the cost of the cleanup or the cost of acknowledging the problems
• 7:19
  financially is baked into that loss number.
• 7:22
  These are consequences of the strategic decisions they're making in response
• 7:25
  to the tough market. Got it.
• 7:27
  The documents also mention a couple of smaller things like other gains.
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  Losses, swinging from a small gain to a loss, and finance costs actually decreasing
• 7:37
  a bit because they paid down some lease liabilities.
• 7:39
  Yeah, minor factors compared to the big ones. Yeah. But it is worth noting one
• 7:43
  positive item, their share of profit from associated companies.
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  Basically, they're overseas ventures that actually increased significantly,
• 7:51
  almost doubled to $0.5 million.
• 7:53
  So some good news from their international operations helping a little bit. Helping a little, yes.
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  But clearly nowhere near enough to offset the big hits from weak domestic sales,
• 8:03
  higher operating costs, and those substantial write-offs and impairments.
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  Okay, so summing up the why.
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  Tough market, rising costs, and significant charges related to restructuring
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  and writing down underperforming assets. A really challenging combination.
• 8:16
  Definitely. So that covers the income statement, how they got to that $7.9 million loss.
• 8:22
  Now let's shift gears and look at the balance sheet and cash flow.
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  How does the company look in terms of overall financial health?
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  And how did cash actually move?
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  Because that can sometimes paint a different picture than the net loss suggests.
• 8:34
  Good point. Let's start with the balance sheet.
• 8:37
  What are the key changes there? Total assets went down, right? They did.
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  Down by $13.8 million, ending the year at $74.4 million, compared to S$93.1 million previously.
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  What drove that decrease? A few things mentioned in the sources.
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  A big one is the lower book value of their planned equipment and those right-of-use assets for leases.
• 8:58
  Partly normal depreciation, but also reflects getting rid of assets from the stores they closed.
• 9:02
  Okay. Selling or retiring equipment from closed outlets.
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  Right. Also, the loan to that joint venture was reduced, other investments decreased,
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  security deposits went down, and the value of their investments in associated companies also fell.
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  On the flip side, intangible assets like those franchise rights increased slightly
• 9:19
  because they acquired some new ones.
• 9:21
  But overall, assets shrank. And what about the liability side? Did they pay down debt?
• 9:26
  Total liabilities also decreased, quite significantly actually,
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  by $7.4 million, down to $62.9 million from $63.4 million. What was the main reason for that drop?
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  The biggest driver was a reduction in lease liabilities, both the short-term,
• 9:43
  current, and long-term, non-current portions.
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  This tells us they made substantial principal payments on their leases during the year.
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  So paying down those lease obligations was a major use of funds. Absolutely.
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  Trade payables, other payables, and income tax liabilities also decreased.
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  Interestingly, provisions for reinstatement, the cost of restoring leased premises
• 10:04
  at the end of a lease actually went up. Okay.
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  And with assets down and liabilities down, what happened to shareholders' equity?
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  Equity took a hit, decreasing by $8.3 million.
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  It went from $29.8 million down to $21.5 million. And that makes sense, right?
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  The $7.9 million net loss directly reduces equity, and then things like buying
• 10:23
  back shares or paying dividends would reduce it further.
• 10:26
  Precisely. That's exactly what happened according to the documents.
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  The loss, share buybacks, and dividends paid all contributed to the reduction in equity.
• 10:36
  Now, the documents mention something about a net current liabilities position of $13.2 million.
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  That sounds potentially concerning having more liabilities due within a year
• 10:47
  than current assets. It can sound that way, yes.
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  But the documents provide important context here. They explain this position
• 10:54
  is largely driven by the accounting standard for leases, SFRS I-16.
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  Ah, the lease accounting thing again. How does that cause net current liabilities?
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  Because that standard requires companies to put almost all their leases on the
• 11:07
  balance sheet as a liability.
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  And a significant chunk of the total lease liability has to be classified as
• 11:13
  current, meaning the payments due in the next 12 months.
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  For a restaurant company with lots of leases, this can easily make current liabilities
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  look very high compared to typical current assets like cash or inventory.
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  So it's partly an accounting presentation issue, not necessarily a sign they
• 11:28
  can't pay their bills tomorrow. That's what the company argues.
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  Crucially, the board states in the documents that they believe they have sufficient
• 11:35
  funds from internal cash reserves and projected cash flows from operations to
• 11:40
  meet all their obligations as they fall due, despite this accounting position.
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  Okay, that context from the board is really important. It shows the difference
• 11:48
  between an accounting figure and the underlying operational reality,
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  or at least the company's view of it, which leads us perfectly to the cash flow statement.
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  How much actual cash did the business generate from its day-to-day operations?
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  This is probably the most striking positive takeaway from the financials.
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  Despite that $7.9 million net loss reported, Japan Foods Holding actually generated
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  S29.0 million dollars in positive cash flow from its operating activities in FY 2025.
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  Wow. S29 million dollars in cash generated from operations, even with that big
• 12:20
  loss on paper. That's quite a difference.
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  It really is. It's down a bit from the S30.7 million dollars generated in FY
• 12:27
  2024, but still a very substantial positive cash flow from the core business.
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  How does that work? How can you have a big loss but still generate lots of cash?
• 12:35
  It comes back to those non-cash expenses we talked about earlier,
• 12:38
  the ones that reduced the net profit number but didn't actually involve cash
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  leaving the business during the year.
• 12:44
  When you calculate operating cash flow, you start with the net loss and then
• 12:48
  add back those non-cash items. I think depreciation.
• 12:51
  Exactly. Depreciation is a big one. And those write-offs of renovation costs
• 12:57
  for closed stores and especially those S3.6 million dollars in impairment losses.
• 13:02
  None of those involved actual cash payments in FY 2025, but they heavily impacted
• 13:07
  the net loss figure. I see.
• 13:09
  So the underlying business of selling food, collecting money from customers,
• 13:14
  paying suppliers and staff that core activity after adjusting for work and capital
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  changes still generated S-29 million dollars in cash.
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  The loss was heavily influenced by accounting charges related to past investments
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  and strategic changes. You got it.
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  It shows the core operations are still cash generative, which is a crucial sign
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  of resilience, even when the accounting profit looks bad due to restructuring.
• 13:36
  Okay, so they generated S-29 million dollars in cash from operations.
• 13:39
  Where did that cash go? What did they send it on?
• 13:41
  Well, looking at investing activities, they used 4.8 million dollars.
• 13:46
  This was less than the S-9.6 million dollars they spent the previous year.
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  And what was that S-4.8 million dollars for? Primarily for buying new plant
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  and equipment, probably fitting out ongoing or new restaurants and acquiring
• 13:57
  intangible assets, like those new franchise rights we mentioned.
• 14:00
  They did get some cash in from selling old assets, getting that JV loan repaid
• 14:04
  partially, and receiving dividends from their associates, which offsets some of the outflow.
• 14:09
  OK, relatively modest investment spending. What about financing activities,
• 14:13
  paying back loans, paying dividends, etc.? That's where a huge chunk of the cash went.
• 14:18
  They used S-26.4 million dollars in financing activities, which was similar
• 14:22
  to the S-28.4 million dollars used in FY 2024.
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  And the overwhelmingly largest piece of this, principal payments for lease liabilities.
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  How much was that? $25.7 million.
• 14:33
  Wow. So out of the S-29 million dollars generated from operations,
• 14:37
  almost test $26 million went straight back out just to pay the principal on their property leases.
• 14:42
  Pretty much. It really highlights the massive cash commitment involved in maintaining
• 14:47
  the restaurant network footprint.
• 14:49
  Through leases. On top of that S25.7 million dollar principle,
• 14:54
  they also paid lease interest, bought back some shares, and paid dividends,
• 14:58
  all financed primarily by that operating cash flow.
• 15:01
  So putting the cash flow story together, strong operating cash generation despite
• 15:05
  the net loss, but that cash was almost entirely consumed by paying down lease obligations,
• 15:11
  with smaller amounts going to reinvestment in assets and other financing activities
• 15:16
  like buybacks and dividends. That's the picture.
• 15:18
  And the net result of all that cash movement, a decrease in their overall cash
• 15:22
  and cash equivalents balanced by S2.3 million dollars over the year.
• 15:26
  They ended FY 2025 with 5.6 million dollars in cash, down from 7.9 million dollars at the start.
• 15:33
  OK, so the cash cushion decreased. It paints a picture of a company generating
• 15:36
  operational cash, but having very significant demands on that cash,
• 15:40
  especially from leases. Exactly.
• 15:42
  Now, having understood the performance and the financial position,
• 15:45
  what do the documents say about the road ahead? What's the outlook and what's the plan?
• 15:49
  Right, the future. The documents seem pretty cautious about the outlook, don't they? They do.
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  The general statement is that the challenging conditions they faced in FY 2025
• 15:59
  are expected to persist.
• 16:01
  They don't see things getting dramatically easier anytime soon.
• 16:04
  And they list those ongoing headwinds again.
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  Global trade tensions, economic uncertainty, manpower shortages.
• 16:11
  Inflation driving up costs, changing consumer tastes.
• 16:14
  And they add that specific local factor again, the strong Singapore dollar,
• 16:18
  encouraging people to travel and spend overseas, specifically mentioning Japan.
• 16:23
  Yeah, if your theme is Japanese food and your potential customers are going
• 16:27
  to Japan itself more often, that's direct competition for their discretionary spending.
• 16:32
  Okay, so given this tough outlook, what's the company's strategy?
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  How do they plan to turn things around or at least navigate this?
• 16:38
  They outline a clear turnaround strategy in the documents.
• 16:41
  The first pillar is to rationalize brand portfolio to focus on more established and proven brands.
• 16:47
  That ties directly back to what we saw with the uneven brand performance and the store closures.
• 16:52
  They're actively cutting back on weaker performers. The documents noted the
• 16:56
  network shrank from 84 to 78 outlets, just between September 2024 and March 2025.
• 17:02
  Exactly. This rationalization is happening.
• 17:05
  And the second pillar supports this, streamlining operations and managing costs,
• 17:11
  not renewing or pre-terminating leases of non-performing outlets.
• 17:15
  Which explains the lease liability reduction we saw and why they incurred those
• 17:19
  write-off and impairment costs.
• 17:21
  They're making the tough calls to exit unprofitable locations to save money long term.
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  The third part is trying to get more out of the stores they do keep.
• 17:29
  Improve outlet performance by stepping up marketing and promotional efforts.
• 17:32
  Makes sense. Focus the resources on the stronger locations.
• 17:35
  And then, alongside cutting back, there's also an element of growth or renewal.
• 17:40
  They talk about continuous brand rejuvenation by exploring new concepts.
• 17:44
  And they gave specific examples right.
• 17:46
  Yamaya Kitchen, which opened in late 2024.
• 17:49
  Yep, a franchise focused on mentaiko, a popular ingredient, and kiyokamachi,
• 17:54
  which opened just after the year-end in April 2025.
• 17:59
  That one's a self-developed concept with unique flat udon noodles. So it's a mix.
• 18:03
  Cut the weak links, support the strong ones, and carefully plant some new seeds
• 18:08
  with potentially trendy or unique concepts.
• 18:10
  That seems to be the core strategy.
• 18:13
  Prune, strengthen, and consciously innovate. The documents also briefly mention
• 18:17
  that their overseas network, run through associates, generally performed okay
• 18:22
  and contributed positively, offering some diversification.
• 18:25
  So the strategy seems like a logical response to the problems identified,
• 18:29
  address the underperformers head-on, control costs, try to boost the remaining
• 18:33
  stores and dip their toes into new things, all while bracing for continued tough times.
• 18:38
  That's the plan, as laid out in these sources.
• 18:40
  Okay, great. We've really covered
• 18:41
  a lot of ground based on these documents about Japan Foods holding.
• 18:44
  Let's try to wrap this deep dive up. Sure.
• 18:47
  So to summarize the story these documents tell, FY 2025 was undeniably tough,
• 18:52
  resulting in that large $7.9 million net loss.
• 18:55
  This was caused by a mix of factors, a challenging market-hurting sales,
• 18:59
  especially for some brands,
• 19:01
  rising operating costs, and significantly those large non-cash charges like
• 19:06
  write-offs and impairments stemming from strategic decisions to close or restructure
• 19:10
  underperforming stores.
• 19:12
  But, crucially, the underlying business operations still generated a healthy
• 19:16
  S-29 million dollars in cash.
• 19:18
  This really highlights the difference between accounting profit and actual cash
• 19:22
  flow, showing the core restaurant activity was still bringing cash in the door. Right.
• 19:27
  Though most of that cash was immediately channeled into paying down their significant
• 19:30
  lease liabilities, with smaller amounts for reinvestment and shareholder returns.
• 19:34
  The strategy going forward, facing a persistently difficult outlook,
• 19:37
  involves rationalizing their brands and locations, managing costs tightly,
• 19:41
  boosting marketing for the core portfolio, and selectively introducing new concepts
• 19:46
  like Yamaya Kitchen and Kiyokamachi.
• 19:48
  So thinking about what you, our listener, can take away from this specific company's
• 19:52
  experience as detailed in these sources.
• 19:55
  Well, it's a very clear case study of how macroeconomic pressures and fierce
• 19:59
  competition can really squeeze businesses that rely on people's discretionary spending.
• 20:04
  You see the challenge of rising cost inflation, manpower hitting operations
• 20:08
  directly, and it shows how companies respond with strategic restructuring,
• 20:12
  which itself incurs significant upfront costs, even if some are non-cash-like impairments.
• 20:17
  And maybe most importantly, it really drives home the need to look at cash flow
• 20:21
  alongside net income to get a fuller picture of financial health,
• 20:25
  especially during turnaround periods. Definitely.
• 20:27
  And that leaves us with a final thought, something for you to ponder based on
• 20:31
  what we've discussed from the sources.
• 20:32
  The company states its strategy is to rationalize, focusing on established and
• 20:38
  proven brands while simultaneously pursuing continuous brand rejuvenation by
• 20:43
  launching new, untested concepts.
• 20:46
  In a market they expect to remain challenging, how does a company effectively balance that?
• 20:50
  How do you weigh the stability of focusing on what works against the risk and
• 20:54
  potential reward of trying something completely new to capture changing tastes?
• 20:58
  It's a classic strategic tension, especially in the F&B world.
• 21:01
  Definitely something to think about.
• 21:03
  A great point to end on. That concludes this deep dive.
• 21:07
  Music.