10 Questions for Envictus International Holdings

Company Overview

Listed on SGX Catalist in 2004 and upgraded to the Mainboard in 2009, Envictus International Holdings is a Food & Beverage Group with an established portfolio of businesses and brands operating under its key business divisions – Food Services, Trading and Frozen Food, and Dairies. Envictus has exclusive rights to the Texas Chicken Franchise Agreement and owns Malaysian homegrown specialty coffee chain business San Francisco Coffee (SFCoffee). The Group also owns Malaysia’s frozen food and premium food wholesaler Pok Brothers Sdn Bhd, and manufactures condensed milk under the SuJOHAN brand. Link to Stock Screener company page.

1. Envictus is a diversified Food & Beverage (F&B) company, what is the Group’s product shelf today?

• As an established F&B Group, we offer a wide portfolio of businesses and brands operating under three key business divisions – Food Services, Trading and Frozen Food and Dairies.
  • Food Services Division – We have held exclusive rights to the Texas Chicken Franchise Agreement since 2012, and renewed the franchise for a second 10-year period starting May 2022, to develop and operate the Texas Chicken fast food restaurant chain in Malaysia and Brunei. The Group plans to develop another 125 Texas Chicken restaurants to reach 200 outlets in Malaysia and 10 outlets in Brunei by 2030. We also own Malaysian homegrown specialty coffee chain business, San Francisco Coffee (SFCoffee) which serves houseroasted coffee in Malaysia. Presently, the Group operates 93 Texas Chicken restaurants and 50 SFCoffee cafes.
     
  • Trading and Frozen Food Division – Our wholly-owned subsidiary, Pok Brothers Sdn Bhd, is one of Malaysia’s leading frozen food and premium food wholesaler and a supplier to several major restaurant chains, hotels and supermarkets in Malaysia.
     
  • Dairies Division – We manufacture condensed milk under the SuJOHAN brand, held by our wholly-owned Motivage Sdn Bhd. The Group has attained the HALAL and VHM certifications in 2021 and 2023 respectively, to capture emerging opportunities with plans to export globally.

2. What are Envictus’ key growth opportunities over the next few years?

▪ Our focus is to enhance sales and grow Envictus, coupled with financial prudence and proactive cash management, to deliver sustainable growth and value to our shareholders. For Food Services, the Group will leverage on robust demand to grow our presence, with a further expansion of 8 new Texas Chicken outlets and 5 new SFCoffee cafes in FY2024, to enhance revenue and earnings streams.

▪ For Dairies, we continue to provide competitive pricing, alongside market penetration of the SuJOHAN brand into major hypermarket chains. Through active marketing, our products have entered major hypermarket chains including AEON Big, Lotus ,Giant and Econsave, which significantly enhanced brand awareness. We continue to penetrate more chains and in East Malaysia to enhance brand awareness for our dairy products.

▪ For Trading and Frozen Food, we continue to increase e-commerce sales by tapping on digital marketing and price reviews, to navigate challenges and drive sustainable growth. Regarding Food Processing, we have concluded the divestment of the loss-making bakery and butchery businesses, and will be directing resources to other group companies as part of our streamlining efforts. The first tranche of proceeds received has been used to pare down bank borrowings, with the balance proceeds of RM34 million expected to be received in April 2025.

▪ Overall, to stay competitive, we will continue our active pursuit in various business strategies, and enhance efficiency through implementation of cost control measures to achieve revenue growth. 2

3. Describe Envictus’ recent financial performance?

▪ We are pleased to have achieved profitability turnaround of RM16.4 million for the six months ended March 2024 (1HFY2024), from a net loss of RM12.5 million in the previous corresponding period (1HFY2023).

▪ This was mainly driven by strong revenue growth, increasing 12.2% to RM314.1 million in 1HFY2024, from RM280.1 million in 1HFY2023, attributed to the increased contributions from both the Food Services and Dairies Divisions. Of note, our best-performing Food Services Division saw a 22.7% uplift in revenue to RM185.2 million, contributing close to 60% of 1HFY2024 revenue. As for our Dairies Division, it contributed close to 20% of our revenue for 1H2024, surging 34.1% to RM62.4 million year-on-year (y-o-y), driven by volume growth and growing market penetration.

4. How does Envictus manage rising costs and improve the Group’s operational efficiency?

▪ We continually monitor and manage costs to improve operational efficiency across our core business segments, and are committed to expanding the businesses prudently. To combat margin compressions for our Food Services Division, we take proactive measures to identify suitable areas for store openings and closures of nonperforming Texas Chicken stores for cost reduction and optimisations. Performance of SFCoffee remains challenging amidst rising operational costs due to inflation and stronger price competition posed by larger chains. To mitigate these rising costs, SFCoffee has implemented various strategies including price increases on selected products, engaging multiple suppliers, and hedging supplies to reduce costs and operate with efficiency.

▪ During the year, the Dairies Division continues to face margin pressures from rising input costs and operational expenses. To mitigate the price volatility, we plan to achieve competitive pricing by sourcing for alternative suppliers and will adjust selling prices as required to align with the market. Meanwhile, our SuJOHAN brand entrance into major hypermarket chains has significantly enhanced brand awareness.

▪ For Trading and Frozen Food, continual efforts are underway to increase e-commerce sales to address the reduction in margins caused by inflationary pressure and unfavourable foreign exchange. For Food Processing, with the divestment of the butchery business, from the sale of Gourmessa shares, the Group will direct resources to other group companies to improve the Group’s operational efficiency.

5. Are there any plans to venture into new markets to generate more revenue?

• Malaysia remains our Group’s biggest market, contributing RM309.1 million or 98.4% of the total revenue in 1H2024. This is followed by Africa, ASEAN (excluding Malaysia) and America.
   
• We will continue to explore expanding into overseas markets for our Dairies Division, given its increasing market acceptance and branding profile both locally and abroad.

6. What Are Some Key Strategies for Envictus’ Business Segments?

• To stay competitive, we’ve implemented key strategies across our business segments. In Food Services, we focus on menu innovations to cater to evolving consumer preferences. Texas Chicken continues to introduce profitable limited time offer menu innovations while SFCoffee upholds its distinctive value proposition by enhancing the operations team’s customer service, including addressing aspects like customer feedback and response time. 
   
• Continual efforts are also underway to increase e-commerce sales by leveraging digital marketing to drive traffic flow to Pok Brothers’ Easy Store platform, coupled with the implementation of loyalty programme to stimulate consumer spending. We are also working to offer competitive pricing for our dairy products by sourcing alternative suppliers. These strategies align with the market demands that Envictus operates in and ensure our continued growth and competitiveness in the industry.

7. What are some challenges and risks for the business and how do you deal with it?

• While the Group operates in a fairly defensive F&B industry, there are challenges that the industry faces such as regulatory changes, escalating raw materials and operational costs, and evolving consumer preferences.
   
• Our products are manufactured under stringent control and processes with a strong emphasis on quality and hygiene. Any incidence of contamination or food poisoning in our subsidiaries could lead to criminal prosecution under Malaysia’s Food Act 1983 (Act 281) & Regulations or other relevant regulations in jurisdictions to which our products are exported to, a loss in customer confidence and a negative impact on our reputation. To mitigate this risk, we are compliant to International Organization for Standardization (ISO), Department of Veterinary Services Malaysia (DVS) and Hazard Analysis Critical Control Points (HACCP) and are subscribed to Good Manufacturing Practice (GMP). We also meet Malaysia’s Halal Certification Procedure Manual (MPPHM) Domestic, Halal Management System 2020 and Malaysian Standard on Halal Food (MS 1500:2009) and hold the Halal certification from JAKIM (Department of Islamic Development Malaysia) and JAIS (Selangor Islamic Religious Department).
   
• To counter the escalating operational costs, the Group has implemented sales strategies and proactive cost reduction measures, including improving operational efficiencies. As for raw materials such as whey protein concentrate, milk powder, salt, sugar, vitamins, raw meat, palm olein and packaging material – we enter into forward supply contracts to ensure supply at acceptable prices in a timely manner so as to efficiently deliver quality products to our customers at competitive prices. Through these proactive measures, we strive to navigate challenges effectively and sustain our growth in the competitive landscape.

8. How does Envictus navigate the challenges and opportunities presented by changing consumer preferences?

• The Group plans to address this through four ways:
  
  a) Menu innovation – to include healthier options, such as reducing sugar levels in our recipes and offering lower calorie alternatives.
  
  b) Menu customisation – by offering customisable menu options to cater to consumers’ dietary needs and preferences. This flexibility helps us attract and retain a broad customer base.
  
  c) Sustainable sourcing – to source ingredients from sustainable and ethical suppliers which supports environmental sustainability and ensures the quality of our products.
  
  d) Incorporating customer feedback and engagement – this allowed us to stay ahead of trends and adapt our offerings accordingly.

9. Sustainability and Environmental, Social and Governance (ESG) have increasingly been a key focus, how is Envictus committed towards sustainability?

▪ The Group is committed to sustainability and incorporates the key principles of ESG in our corporate strategies. Each year we look for ways to further strengthen our ESG efforts and achievements – these include:

a) Energy conservation practices such as equipping restaurants of Texas Chicken (Malaysia) and SFCoffee with LED lighting to reduce power consumption. We also seek green technologies and methods to better manage energy consumption and implement energy efficiency initiatives.

b) Ensuring proper waste management by engaging responsible and ethical waste management contractors for the collection and disposal of the waste in accordance with the Department of Energy guidelines, as well as recycle management contractor for all recyclable items.

c) Using Forest Stewardship Council (FSC) certified packaging and replacing regular plastic with biodegradable materials. The Group is exploring further sustainable packaging options to reduce our environmental footprint.

d) Sourcing ethical ingredients and participating in environmental protection activities, such as “Earth Day” and tree planting. The Group is also exploring partnerships with non-governmental and government agencies as part of our corporate social responsibility programmes.

10. Why should investors take a closer look at Envictus?

▪ Founded in 1997, we are a well-established F&B group, with an extensive strong track record featuring a diversified portfolio and strong distribution network in Malaysia. We collaborate with domestic dealers, wholesalers, retailers and on-site customers – including hypermarkets such as AEON Big, Lotus as well as Giant and Econsave, and are serviced by sales offices cum warehouses in major cities across Malaysia. This is supported by an extensive export network where our SuJOHAN brand is gaining acceptance in overseas markets.

▪ We possess strong marketing expertise, having successfully built-up market acceptance of brand names including Texas Chicken and SFCoffee throughout Malaysia. Presently, the Group operates 93 Texas Chicken restaurants and 50 SFCoffee cafes. This includes effective marketing campaigns ranging from price and menu optimisation, an implementation of digital initiatives to enhance sales, as well as targeted promotions to optimise sales.

▪ Envictus is helmed by a management team of industry veterans who possess a wide range and in-depth expertise in strategic planning, business development, operational and production skills. With strong expertise, the Group is well-positioned to tap on our solid foundation in the F&B industry to further enhance our established brand names.