In FY2021, the Skylark Group achieved an operating profit of 18.2 billion yen and paid a dividend of 12 yen, resuming dividend payments
As in the previous year, FY2021 was a very difficult year for the Group due to the impact of COVID-19. Although there was a 23.9 billion yen drop in revenues compared to the previous year due to factors such as reduced operating hours and refraining from serving alcohol, we were able to secure operating profit of 18.2 billion yen by lowering the break-even point by 2.4 billion yen in gross profit margin improvement and 4.1 billion yen in cost reductions, in addition to 42.7 billion yen in government subsidy received for shortening of operating hours. While the revenues for in-store dining declined significantly, we strengthened delivery and take-out operations, resulting in increases in revenues of 4.3 billion yen and 5.6 billion yen, respectively.
Net Sales and Gross Profit Margin
In terms of gross profit margin, the Group continues to maintain one of the highest levels in the industry. Efforts to aggressively switch from outsourcing to producing foods at our in-house production factories and to reduce the frequency of deliveries to stores from seven days a week to six days a week improved our gross profit margin by 0.8% in FY2021. Through stable procurement utilizing our advantages of scale and our network of suppliers, investments in the automation of our production lines, the optimization of delivery routes and various other efforts, we have managed to secure a gross profit margin of around 70%, making for a robust profit base.
In terms of cost reduction, in addition to reducing headquarters labor costs and improving store productivity by introducing digital menu books (self-service ordering terminals), we reduced labor and utilities costs by shortening late-night business hours, curbed advertising expenses, and with the cooperation of owners, reduced rents and switched to sales-based rents. Through these ongoing self-help efforts, we have lowered our break-even point and are building an earnings structure that can withstand severe business conditions.
Raising Funds through the Issuance of New Shares
As a financial strategy to establish a stronger management base in response to changes in business conditions surrounding the restaurant industry during the COVID-19 pandemic, the issuance of new shares in June raised approximately 43.0 billion yen. The funds raised will be used to make DX investments to improve customer convenience and employee productivity, make capital investments related to new store openings, brand conversions, remodeling of stores, etc., and make capital investments in factories and equipment.。
Since this fund-raising also strengthened our financial position, the net debt-to-equity ratio improved significantly from 1.23 at the end of the previous fiscal year to 0.55, and the equity ratio improved from 25.8% to 36.3%. Through investment in growth using the funds raised this time, we will enhance our corporate value as a social infrastructure and make further contributions to society through food.
Net Debt-to-Equity Ratio
Aggressive Growth Investment for the Next Stage
Focusing on business conditions in the "Living with COVID-19" era, we will strengthen our management base and ensure maximum utilization of business resources, with the medium to long-term aim of achieving a three-phase transformation into a facet of the social infrastructure that provides services covering every part of customer lifestyles, including eating out, ready to eat, and cooking at home.
In the first phase, we enhanced the functions of the Skylark app and take-out site, adding functions for preordering and prepayment for take-out and integrating the membership information of the Skylark app and take-out site. In October 2021, we resumed remodeling of stores that had been temporarily suspended during the COVID-19 pandemic in addition to expanding sales through brand conversion investment in order to respond quickly to shifting consumer demand. We are creating comfortable store spaces for customers and increasing the frequency of visits to our stores by improving the interior and exterior appearance of existing stores that has deteriorated over the years and adding counter seating.
In the second and subsequent phases, we will accelerate investment in DX to improve customer convenience and company-wide productivity. We will introduce approximately 3,000 floor service robots by the end of December 2022 and revamp POS cash registers to simplify and speed up cash register operations. In addition, we will accelerate investment in IT and digital technologies, such as changing the digital menu book to more customer-friendly specifications and introducing a cashless self-service system with the aim of establishing an even more highly profitable structure.
State of Goodwill and Borrowings
The Company has 146.0 billion yen of goodwill, which had previously exceeded its net assets. However, due to a capital increase through a public offering in June 2021 and a return to profitability in the current fiscal year, net assets amounted to 166.2 billion yen, exceeding the book value of the goodwill.
Goodwill is allocated to our major brands such as Gusto, Bamiyan, and Syabu-Yo and is tested for recoverability based on estimated future cash flows of each brand. There were no indications of impairment during an impairment indicator test conducted at the end of 2021.
At the end of the previous period, the balance of loans outstanding was ¥122.4 billion, a decrease of ¥23.4 billion from the previous year, as a portion of the funds raised through the June public offering was used to repay loans. In addition, a long-term commitment line agreement was concluded on February 12, 2021, which provides for stable financing even during the COVID-19 Pandemic.
Shareholder Return
Our basic policy is to continue to pay dividends to our shareholders while securing internal reserves in preparation for future business development and capital investment to improve corporate value. We target a consolidated dividend payout ratio of 30% based on adjusted net income. In the previous fiscal year, we paid a dividend of 12 yen per share based on this basic policy.