This article first appeared in The Edge Financial Daily on February 7, 2020

KUALA LUMPUR: Berjaya Food Bhd (BFood), which runs the Kenny Rogers Roasters (KRR) and Starbucks chains in Malaysia, reported a net profit of RM8.01 million for the second quarter ended Dec 31, 2019 (2QFY20), on a revenue of RM184.12 million.

There were no comparison numbers for the previous year’s corresponding period due to the change in its financial year end from April 30 to June 30.

Nevertheless, BFood repeated in a stock exchange filing yesterday what it previously said when it reported its 1QFY20 earnings, which was that it has been “adversely impacted by the adoption of the Malaysian Financial Reporting Standard 16 (MFRS 16): Leases”.

It explained that MFRS 16 requires depreciation be charged on the right-of-use assets and interest expenses be incurred on lease liability instead of lease rental expenses, which was required by the previous accounting standard for leases, MFRS 117, to be charged out in profit and loss.

“In the current quarter under review and on the aggregate, the depreciation charge of right-of-use assets and the lease liability interest expense are higher than the total lease rental expenses. These resulted in a lower profit before tax upon the adoption of MFRS 16.

“The profit before tax would have been RM15.01 million, if the total lease rentals of all the leased outlets were accounted for under the previous accounting standard for leases,” BFood said.

Its board of directors recommended a second interim dividend of one sen per share in respect of FY20, with the entitlement date fixed on March 12, and payment on March 26.

For the cumulative six-month period, BFood posted a net profit of RM12.62 million on a revenue of RM364.56 million.

Pre-tax profit came in at RM21.71 million, it said. “The profit before tax would have been RM25.79 million, if the total lease rentals of all the leased outlets were accounted for under the previous accounting standard for leases,” it noted.

On prospects, BFood said the group’s overall results for the remaining quarters of FY20, will be adversely impacted by the adoption of MFRS 16 as almost all the group’s operating outlets are on lease.

Still, it expects to mitigate this adverse impact with Berjaya Starbucks Coffee Company Sdn Bhd maintaining its revenue growth momentum, and the group expanding both its income streams from new franchise business and its existing business.

“Based on the foregoing, it is anticipated that the operating results of the group will remain satisfactory in the remaining quarters,” it added.

BFood’s share price closed one sen or 0.78% lower at RM1.27 yesterday, bringing it a market capitalisation of RM451.66 million. The counter saw some 121,100 shares done.