Latest / Investor Exchange / F J Benjamin Holdings Sees Net Loss Widen Drastically In FY2025

Transcript

F J Benjamin Holdings Sees Net Loss Widen Drastically In FY2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the Deep Dive. Today, we are jumping straight into,
• 0:11
  well, a pretty tough set of numbers.
• 0:13
  We're looking at the condensed financials for FJ Benjamin Holdings LTD for the
• 0:17
  full year ending June 30, 2025. That's their FY 2025.
• 0:22
  And look, our mission here isn't to get bogged down in every single line item.
• 0:25
  What we want to do for you is cut through it, quickly figure out the group's
• 0:29
  actual financial health, understand why things look the way they do,
• 0:33
  especially these latest results, and then look ahead because there's been a
• 0:36
  huge announcement that really changes things.
• 0:38
  Yeah, that announcement is definitely looming large. But first,
• 0:42
  you've got to grasp the damage from FY 2025 itself.
• 0:45
  I mean, the headline figures are, frankly, quite stark. FJ Benjamin saw a major
• 0:49
  drop in revenue and their net loss didn't just grow, it widened significantly.
• 0:53
  We're talking a net loss attributable to shareholders of $16.6 million for FY2025.
• 0:59
  Now compare that to the $6.1 million loss they posted the year before in FY2024. That's a huge jump.
• 1:05
  And so the loss per share also widened quite dramatically from 0.52 cents to 1.40 cents per share.
• 1:10
  Okay, $16.6 million loss. Let's unpack that.
• 1:14
  Starting at the top line, the turnover. This wasn't just a small dip, was it?
• 1:19
  Group turnover fell, what, nearly 23%? Yeah, 22.9% to be precise.
• 1:24
  It dropped from $78.4 million down to $60.5 million.
• 1:28
  That's a really significant chunk of their business just gone in a year.
• 1:33
  And naturally, the gross profit went down too.
• 1:35
  It did. It followed suit. Gross profit fell 21.0% landing at $29.8 million.
• 1:40
  But, you know, if you dig just a little deeper, there's actually something interesting
• 1:43
  happening with the margin.
• 1:45
  Ah, yeah, I saw that. This is the slightly weird part.
• 1:48
  Despite that massive sales drop, Their actual gross profit margin went up by 1.2 percentage points.
• 1:54
  It hit 49.2%. So how does that work? How do you sell like a fifth less stuff
• 1:58
  but make more margin on what you do sell?
• 2:00
  It does seem counterintuitive at first glance. Yeah. But the notes explain it.
• 2:03
  It was mainly down to very targeted promotional activities and clearance sales.
• 2:07
  They were really pushing to shift stock.
• 2:09
  Right. So not necessarily selling better products at higher prices,
• 2:12
  but maybe clearing out older inventory more efficiently.
• 2:16
  Getting rid of it through sales, but managing to protect the percentage margin
• 2:20
  on those specific discounted sales.
• 2:23
  Pretty much. It suggests they were trying hard to manage the quality of the
• 2:27
  sales they could make, even as the overall volume was falling apart.
• 2:30
  Basically stimulating demand where they could find it, likely on older stock.
• 2:35
  Which kind of points to weak underlying demand for their regular priced goods, doesn't it?
• 2:40
  If you have to rely so heavily on promotions and clearance just to keep the
• 2:44
  margin percentage stable while volume tanks. Absolutely.
• 2:47
  It flags real weakness in organic demand. They were fighting a rearguard action
• 2:52
  on efficiency, you could say, but definitely losing the bigger battle on overall
• 2:55
  sales volume. So let's talk about why that volume collapsed.
• 2:58
  The report mentions a few key things. store closures, which makes sense.
• 3:03
  Yeah. Closing non-profitable stores.
• 3:05
  And just persistently weak consumer sentiment across their main markets.
• 3:09
  Plus that ongoing issue with the strong Singapore dollar, right?
• 3:12
  Making it more attractive for Singaporeans to shop overseas.
• 3:16
  Exactly. That strong Singh dollar dampens local retail because people travel
• 3:20
  and spend their money elsewhere.
• 3:22
  And you see that effect starkly in the regional numbers.
• 3:26
  Sales in Singapore, and this is excluding the exports they do to their Indonesian
• 3:30
  partner, dropped by almost a third.
• 3:32
  32.8%. Wow. 32.8% in Singapore. In Malaysia. Malaysia was also down, but less dramatically.
• 3:39
  A 10.0% decline there. So yeah, both core markets were feeling the squeeze,
• 3:43
  but Singapore was hit particularly hard.
• 3:45
  Okay. So faced with that kind of revenue pressure, they must have been trying
• 3:48
  to cut costs elsewhere. Oh, definitely. And they actually had some success there.
• 3:51
  Group operating expenses were cut by $3.8 million.
• 3:54
  That's a 9.2% reduction, bringing expenses down to $37.4 million for the year.
• 4:00
  And how did they manage that $3.8 million saving?
• 4:03
  It was a combination of things, driven by those store closures mostly.
• 4:06
  Lower staff costs, lower commissions, obviously.
• 4:09
  They also relocated their back-in-office functions from Singapore,
• 4:12
  which is expensive, to Malaysia.
• 4:14
  Reduced professional fees helped too. And interestingly, lowered depreciation
• 4:19
  on their right-of-use assets.
• 4:21
  Right-of-use assets. That's basically the accounting value of their store leases, isn't it?
• 4:25
  Essentially, yes. As some expensive long-term leases expired and weren't renewed
• 4:30
  or were replaced by cheaper ones,
• 4:32
  The depreciation charge on those assets naturally decreased. Okay, so let's recap.
• 4:36
  Sales down massively. Gross margin percentage surprisingly up a bit due to clearance.
• 4:41
  Operating costs down by a respectable $3.8 million.
• 4:44
  But the final net loss still exploded from $6 million to over $16 million.
• 4:49
  So the cost savings clearly weren't enough. What bridges that gap?
• 4:52
  Ah, this is where the story takes a darker turn. Those operational savings,
• 4:56
  that $3.8 million, They were just completely swamped by some really significant
• 5:00
  one-off charges hitting the books in FY 2025.
• 5:03
  We're talking about a combined hit of $6.9 million from expected credit losses
• 5:08
  and asset impairments. Right. $6.9 million.
• 5:11
  That's the killer blow then. That basically wiped out the savings and then some.
• 5:15
  Can you break that number down for us?
• 5:17
  Expected credit losses and asset impairments sound pretty serious.
• 5:21
  They are. So the first chunk is $3.9 million for allowance for expected credit losses.
• 5:27
  That's basically the company saying, we have about $3 million in receivables,
• 5:32
  money owed to us, that we now think we're probably never going to collect.
• 5:35
  So they have to write it down as a loss.
• 5:37
  Okay, $3 million unlikely to be collected. What else?
• 5:40
  Then there's the $3.2 million impairment loss, specifically on their investment
• 5:45
  in that Indonesian associate company we mentioned earlier. This is a big one.
• 5:49
  Management is essentially admitting the Indonesian operation is performing so
• 5:52
  badly, their stake in it isn't worth what they previously thought.
• 5:55
  They have to write down its value on their own books.
• 5:58
  Another $3.2 million hit from Indonesia. Ouch.
• 6:02
  And finally, a smaller but still significant several $0.7 million impairment
• 6:06
  loss on furniture, fixtures, and equipment.
• 6:09
  That's likely linked to those store closures or maybe some outlets just performing
• 6:13
  really poorly, making their physical assets worth less.
• 6:16
  That Indonesian associate keeps popping up as a problem area.
• 6:19
  You mentioned the $3.2 million impairment, but what were the underlying issues
• 6:24
  causing such poor performance there?
• 6:26
  Well, their share of the actual loss from that associate widened to $2.6 million
• 6:30
  in FY2025. So it was losing more money operationally, too.
• 6:34
  They faced the same weak consumer demand we saw elsewhere, plus their own gross
• 6:39
  margins got squeezed by about 2.8 percentage points.
• 6:42
  Why the margins squeezed there specifically?
• 6:44
  A key factor was the currency exchange.
• 6:47
  Many of the goods they sell are likely priced or sourced in U.S. dollars.
• 6:50
  With the U.S. dollar strengthening significantly against the Indonesian rupiah,
• 6:54
  their cost of goods went up, hitting margins.
• 6:57
  Plus, because things were so tough, the parent company in Singapore actually
• 7:01
  cut back its export sales to the Indonesian associate by $6 million.
• 7:05
  The associate just couldn't afford to buy as much stock. Wow.
• 7:08
  Okay, so it's a whole mess of falling demand, rising costs due to currency,
• 7:12
  and reduced support from the parent.
• 7:14
  All that damage must have really
• 7:16
  impacted the group's overall financial structure, the balance sheet.
• 7:19
  Absolutely. You see it clearly in the net assets figure for the group.
• 7:22
  It fell sharply from $34.7 million at the end of FY 2024, down to just $19.16
• 7:29
  million by the end of FY 2025.
• 7:31
  That's a huge erosion of the company's equity base. And what about other key
• 7:35
  balance sheet items? Did we see impacts there, too? We did.
• 7:38
  Those right-of-use assets, the leases continued to decline, down $3.5 million,
• 7:44
  mainly because depreciation charges were bigger than any new leases they took on.
• 7:48
  Inventories also dropped by $3.2 million, which fits with the store closures
• 7:52
  and lower purchasing, especially from the Indonesian associate.
• 7:54
  And I noticed one metric that really jumped out the gearing ratio.
• 7:57
  It went way up, didn't it? It really did. It increased dramatically.
• 8:01
  The group's gearing ratio went from 30.1% in FY 2024 to 54.5% in FY 2025.
• 8:07
  So for someone listening, what does that big jump in gearing actually mean in simple terms?
• 8:12
  What does it tell us about their risk? Gearing basically compares a company's
• 8:16
  debt to its equity, its financial cushion.
• 8:19
  So that massive jump means their equity cushion has shrunk dramatically because
• 8:23
  of all these losses, while their debt levels haven't fallen nearly as much.
• 8:27
  It means the company is much more reliant on debt now. They're more leveraged,
• 8:31
  which makes them inherently riskier.
• 8:33
  Any future shocks will be harder to absorb. Okay, riskier balance sheet.
• 8:37
  But looking at cash flows, I actually spotted a small, maybe positive sign.
• 8:41
  They did generate positive cash flow from their core operations,
• 8:45
  right? That's true. And it's an important point.
• 8:47
  Despite everything, the group generated net cash inflows of $9.3 million,
• 8:52
  purely from its operating activities during the year.
• 8:56
  That suggests the day-to-day business of buying and selling goods,
• 8:59
  managing inventory and receivables, that core engine is still managing to generate
• 9:04
  cash, probably helped by liquidating that inventory we talked about.
• 9:07
  But that positive operational cash didn't translate into more cash in the bank
• 9:11
  overall. No, unfortunately not.
• 9:14
  Because while they generated $9.3 million from operations, they had other unavoidable cash outflows.
• 9:21
  They spent $1.1 million on capital expenditure, things like store fit-outs or essential equipment.
• 9:27
  And the really big drain was $8.1 million in payments for lease liabilities
• 9:32
  and interest on their borrowings.
• 9:34
  Ah, so those loose and interest payments ate up almost all the operating cash flow. Exactly.
• 9:39
  So when you net it all out, despite the positive operating cash,
• 9:42
  the group ended up with a net cash outflow of $0.6 million for the entire year.
• 9:48
  Their cash position actually decreased slightly.
• 9:51
  On the plus side, their working capital position, current assets minus current
• 9:54
  liabilities, did remain positive at $3.3 million.
• 9:58
  So they weren't immediately facing a working capital crisis,
• 10:01
  but cash was still tight overall.
• 10:03
  Okay, so we have a picture of a company that fought hard on costs and margins
• 10:06
  internally, but got slammed by these big write-offs and impairments,
• 10:10
  leaving it in a weaker, riskier position.
• 10:12
  What's the outlook then? What does management say about the year ahead, FY2026?
• 10:16
  Well, even before the big news, their own commentary was pretty downbeat.
• 10:20
  They talk about persistent headwinds, weak consumer demand isn't going away,
• 10:24
  operating costs are still rising, and competition, particularly in Singapore
• 10:29
  and Malaysia, is intensifying.
• 10:31
  So the general operating environment sounds like it's going to remain really tough.
• 10:35
  And then came the bombshell. The announcement after the financial year had already closed.
• 10:41
  The subsequent event from September 5th, 2025.
• 10:44
  That's the one. The mutual agreement with Guess Europe Saggle to end their relationship.
• 10:49
  F.J. Benjamin will stop being the retailer and distributor for guests in Malaysia
• 10:53
  and Indonesia, effective from December 31st, 2025.
• 10:56
  So, halfway through the next financial year. And we need to stress how big a deal this is.
• 11:00
  The company's own report calls guests a significant brand and a major contributor to revenue.
• 11:06
  This isn't just losing some minor label. This sounds like losing a cornerstone,
• 11:10
  especially for Malaysia and that already struggling Indonesian business.
• 11:14
  Absolutely. The language they use significant, major contributor,
• 11:18
  tells you this is serious.
• 11:21
  And the board explicitly states they anticipate this will have a material financial
• 11:25
  impact on the results for the next financial year, FY2026.
• 11:29
  Material financial impact. Given
• 11:31
  they just lost $16.6 million with guests contributing for the full year,
• 11:36
  losing a major contributor halfway through FY2026 sounds potentially catastrophic
• 11:42
  for the bottom line. It's extremely concerning.
• 11:44
  It raises massive questions about how they can possibly fill that revenue hole, especially so quickly.
• 11:49
  So what is their plan? They must have outlined some kind of strategy to deal
• 11:52
  with losing guests. They have.
• 11:54
  The plan involves continuing with disciplined cost management,
• 11:57
  which, to be fair, they showed they can do in FY 2025.
• 12:00
  They also talk about further right-sizing operations, which probably means more
• 12:04
  streamlining or closures.
• 12:06
  And then the focus shifts to pursuing new growth. New growth?
• 12:10
  In what areas? They mentioned two specific avenues.
• 12:13
  Expanding in their existing retail segment, presumably with other brands or concepts.
• 12:18
  And this is the interesting bit moving into the food and beverage F&B segment.
• 12:23
  Alongside that, they're looking at strategic collaborations,
• 12:26
  potentially to help them expand
• 12:27
  into markets that are more cost-efficient than Singapore or Malaysia.
• 12:31
  Hold on. They lose a major global fashion brand, and part of the plan is to
• 12:36
  pivot into F&B and look for cheaper markets. That sounds like a really drastic
• 12:41
  shift, almost like starting over in some ways, doesn't it?
• 12:44
  Especially when you're already financially stressed.
• 12:46
  It is a very significant pivot, you're right.
• 12:48
  Moving into F&B is a completely different ballgame.
• 12:51
  Different supply chains, operations, customer base, capital needs,
• 12:55
  it's not an easy transition.
• 12:57
  And while looking for cost-efficient markets makes sense on paper,
• 13:00
  replacing the kind of revenue and brand recognition the guest provided,
• 13:03
  likely in less than six months before the contract ends with a combination of
• 13:07
  other retail F&B and new markets.
• 13:09
  Well, that's a huge ask. It feels like a very challenging path,
• 13:13
  particularly given the general retail headwinds they already face.
• 13:16
  Extremely challenging. So if you pull back and look at the whole story.
• 13:20
  FY 2025 was defined by this conflict.
• 13:23
  They made real progress on operational efficiency, improving gross margin percentage
• 13:27
  and cutting operating costs significantly.
• 13:30
  But those efforts were just completely overshadowed and negated by the massive
• 13:34
  $6.9 million in impairments and the deepening losses from Indonesia.
• 13:38
  And that sets up FY2026 to be even tougher. You've got the difficult operating
• 13:42
  environment continuing, the company's already in a weaker financial position
• 13:46
  with higher gearing, and now you have this confirmed material hit coming from
• 13:50
  losing Kinzegas halfway through the year.
• 13:51
  Precisely. Which leads us to the critical question for you, the listener, to keep an eye on.
• 13:56
  Given how important Guess was stated to be, especially in key markets.
• 14:00
  How realistically and how quickly can F.J. Benjamin's new strategy,
• 14:04
  this mix of retail and new F&B venture, and maybe expansion elsewhere actually
• 14:08
  replace that lost revenue and contribution?
• 14:10
  In this already tough retail climate, the speed and success of that strategic
• 14:15
  pivot is absolutely crucial.
• 14:17
  Their ability to navigate the next year really seems to hinge on whether these
• 14:20
  new ventures can gain traction before the financial pressure has become too overwhelming.