Latest / Investor Exchange / Katrina Group Limited Q1 FY2025 Results Announcement

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Katrina Group Limited Q1 FY2025 Results Announcement · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Okay, let's unpack this. We're taking a deep dive today into KGL,
• 0:11
  the company operating in Singapore's F&B and hospitality scene.
• 0:15
  And looking at their latest numbers, there's been a pretty dramatic swing. Yeah, quite a swing.
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  They reported a profit just a year ago, Q1 2024, but that's flipped to a significant loss in Q1 2025.
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  So what happened there? Right. And the source we're really digging into here
• 0:31
  is the company's own unaudited financial statements.
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  This is for the first quarter ending March 31st, 2025. It gives us the raw data
• 0:39
  and the company side of the story. Okay.
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  So our mission for this dive is pretty straightforward. We want to quickly zero
• 0:47
  in on what those numbers look like for the first three months of this year.
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  Understand the core reasons KGL is giving for this big shift to loss and hear
• 0:56
  directly from them what they're saying about the road ahead.
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  It's about pulling out the most important nuggets for you from this report.
• 1:01
  Precisely. We'll hit the performance, the drivers, the outlook,
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  all through the lens of their own reporting. All right, let's jump straight
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  into the financials then.
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  Starting at the top, the revenue. It took a real hit. It certainly did.
• 1:13
  Total revenue dropped by $3.1 million.
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  Now, percentage-wise, that's pretty chunky, 21.4%. Wow. Yeah,
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  it fell from $14.3 million in Q1 last year down to just $11.2 million for these
• 1:26
  first three months of 2025.
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  Over 20%. Yeah. That's substantial.
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  Where did that loss primarily come from? Was it F&B or hospitality or both?
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  It was actually a decrease across both segments, though the percentages varied
• 1:38
  a bit. The F&B business revenue, that went down by $1.9 million.
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  That's a 19.4% drop, bringing it down to $7.9 million.
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  But the hospitality side saw an even steeper percentage fall,
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  down $1.2 million, which is 25.9%, landing at $3.3 million.
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  So yeah, both key areas saw pretty significant declines. Okay,
• 1:59
  so less money coming in the door overall. What about gross profit?
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  You know, sometimes if costs fall enough, you can kind of protect that margin. Did that happen?
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  Unfortunately, no, not really. While cost of sales did go down by about 15.6%,
• 2:13
  it just wasn't nearly enough to make up for that revenue drop.
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  So gross profit just plummeted. It fell by $1.1 million, which is a staggering 57.9% decrease.
• 2:24
  Wow, nearly 60%. Yeah, it went from $2.1 million down to just $0.8 million.
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  That tells you the cost cuts just didn't keep pace. squeezing those margins really hard.
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  And that squeeze on the gross profit, that's really what drives the big swing
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  we see at the bottom line. Absolutely.
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  If you look right at the line for a lost profit before taxation,
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  the change is just stark.
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  Q1 2024, they had a small profit, $89,000 this year. That flipped completely
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  to a loss of $1.055 million.
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  A million dollar swing. Exactly. And the loss attributable to the owners,
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  it mirrored that precisely from an $88,000 profit to that $1.055 million loss.
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  And for shareholders, how does that look on a per share basis?
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  Well, it went from positive to negative. Basic earnings per share were positive 0.04 cents last year.
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  This Q1, it's a negative 0.42 cents, a very clear reflection of that profit
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  to loss story. Okay, so that's the picture.
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  Revenue down significantly, gross profit down even more, leading to over a million
• 3:21
  dollar loss compared to a small profit last year.
• 3:25
  Let's dig into the why. What reasons does the company actually give for the sharp decline?
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  They point to some pretty specific things in each segment. For the F&B revenue
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  drop, two main things stand out.
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  First, they cut back their footprint, closed five outlets, went from 25 down to 20.
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  Okay, fewer outlets. Right. Fewer locations means less potential revenue, naturally.
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  Second, they mention increased competition out there, and they also add a specific timing factor.
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  The Ramadan period fell within these three months in 2025. which they note dampened revenue.
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  That makes sense. Consolidation, tougher competition, plus specific calendar impacts.
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  What about the hospitality side? Why the drop there? Similar story on competition.
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  They point to increased competition leading to weaker average room rates and occupancy.
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  They also had fewer service departments operating.
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  But here's a really interesting point they make. Yeah. They specifically contrast
• 4:16
  it with Q1 2024, which got that big boost from the Taylor Swift era's tour being in Singapore.
• 4:22
  Ah, the Swifty bump. Exactly. That massive one-off event last year set a really
• 4:26
  high bar that just wasn't there this year.
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  So that comparison really hit the hospitality revenue year on year.
• 4:32
  OK, so the lack of that massive event explains a lot of the difference compared to Q1 2024.
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  Now, you mentioned cost of sales went down, but not enough.
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  Where did they manage to cut? Well, that 15.6 percent overall decrease was definitely
• 4:46
  helped by having fewer outlets.
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  For F&B specifically, costs dropped 17.2 percent.
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  And they say, yeah, largely due to that reduction in the number of outlets.
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  They point specifically to lower payroll costs down half a million,
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  food costs down 0.4 million dollars and depreciation of right of use assets
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  down 0.2 million dollars. Right. The right of use assets.
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  That's basically the value of their leases on the books and depreciation is
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  using them up. Fewer leases, less depreciation charge. Yeah.
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  Makes sense. What about hospitality costs?
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  Hospitality costs decreased by 10.3%.
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  The main things they mention there are lower commissions paid to online travel
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  agencies, down $0.1 million, and also a decrease in depreciation of those right-of-use
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  assets, again, probably linked to changes in their service department portfolio.
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  So costs did fall, but just not
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  steeply enough, especially relative to the revenue drop in hospitality.
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  Exactly, which led to that big hit on gross profit.
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  Okay, moving further down the P&L, were there any other significant shifts in
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  expenses or income we should note?
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  Admin expenses barely moved, up just 2.9%. Finance costs actually decreased
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  by 12.1%, mainly because they paid less interest on their finance lease liabilities.
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  One new thing that popped up in Q1 2025 was a share of loss from an investment in a joint venture.
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  That added a $50,000 loss to the bottom line. They named the venture.
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  Daily Beer Singapore Pete LTD. Okay, so lower revenue, costs not falling fast
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  enough, plus a small loss from a new JV contributing to the overall picture.
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  How does all this operational change show up on the balance sheet,
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  the snapshot of their assets and liabilities?
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  Yeah, the balance sheet definitely reflects what's happening operationally.
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  Overall, assets are down.
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  Non-current assets like property, plant, equipment, and those right-of-use assets,
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  they decreased mainly due to depreciation, just the normal wearing down of value over time.
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  Though they did have some additions and lease changes too.
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  And current assets. Things like cash. Current assets also decreased.
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  The big ones were cash and cash equivalents, which fell by $1.1 million,
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  and other receivables down half a million dollars.
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  They link that receivables dropped partly to collecting security deposits back
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  from those outlets they closed. Okay. And on the other side, liabilities.
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  Liabilities decreased too, both current and non-current. Things like lease liabilities
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  and loans went down simply because they were making payments.
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  Trade payables, what they owe suppliers, also decreased, which kind of makes
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  sense when your revenue and general activity level are lower. Right.
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  However, and this is important, despite liabilities going down,
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  the company's overall net assets position, or equity, actually got worse.
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  It moved further into negative territory. Why is that?
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  Mainly because of that $1.055 million loss they made during the quarter.
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  That directly reduces equity. Now, this was slightly offset by an increase in
• 7:32
  share capital because some warrants were exercised.
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  Warrants being exercised. Remind us what that means. That's where people holding
• 7:39
  these specific options, warrants, decide to turn them into actual shares in the company.
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  So it brings in a little bit of capital and increases the share count.
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  Got it. So a small boost from warrants, but swamped by the operating loss...
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  Driving equity further negative. Exactly. And the report specifically calls
• 7:57
  out the working capital position, which is pretty critical here.
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  Yes, negative working capital. What does it actually mean and how did it change?
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  Negative working capital just means their short-term liabilities bills they
• 8:07
  need to pay soon are greater than their short-term assets like cash or things
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  they can quickly turn into cash.
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  Okay, so a shortfall and immediate liquidity.
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  Pretty much. And at the end of March 2025, that deficit was $19.3 million.
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  What's notable is that this deficit actually widens slightly from the end of
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  2024 when it was $19.0 million.
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  It really highlights a pressure point in managing their day-to-day cash needs.
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  And that cash management challenge shows up in the cash flow statement, right?
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  How did that look? Well, interestingly, operationally, they actually generated cash.
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  Cash flow from operating activities was positive $3.3 million.
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  Okay, so the core business still brought in cash. Yes, which is a positive sign,
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  although it was lower than the cash generated in Q1 last year.
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  The issue was more on the financing side.
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  They used a lot of cash in financing activities, $4.4 million.
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  And that was heavily driven by making lease payments, presumably for the remaining
• 9:01
  properties and other leased assets.
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  So operating cash flow positive, but financing cash flow negative,
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  mainly due to lease payments. Right.
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  And the net result of all that was a decrease in their overall cash balance
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  during the quarter. Okay, that gives us a really clear picture of a challenging
• 9:17
  Q1 and the resulting financial position.
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  Let's pivot now to the future. What is the company saying about what happens next?
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  What's the outlook they're presenting? Their commentary kind of tackles both
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  segments and the broader picture.
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  For F&B, the strategy sounds like continued consolidation, focusing resources
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  on the outlets that are doing better and getting rid of the ones that aren't performing.
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  They're quite upfront about the challenges, too. They expect persistent inflation.
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  Hurting consumer spending and squeezing margins because operating costs are rising.
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  So acknowledging it's a tough market out there, how are they planning to actually tackle that in F&B?
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  They mention things like trying to rejuvenate their existing brands,
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  make them more appealing, you know, also exploring new franchise opportunities,
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  perhaps for growth, and just generally keeping a really tight lid on costs across the board.
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  OK, consolidation, brand work, cost control for F&B. What about hospitality?
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  Is the tone different there? Yes, definitely more optimistic for hospitality.
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  They directly link their positive outlook to the expected tourism recovery in Singapore.
• 10:22
  Ah, OK. They even cite the Singapore Tourism Board's bullish forecasts for 2025,
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  predicting 17 to 18.5 million international visitors and really high tourism receipts.
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  They say the strong occupancy rates they're already seeing at their ST Signature
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  and ST Residences brand support this optimism. So what's the plan there? Just...
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  Ride the wave. Well, they say they're strategically planning for potential expansion
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  and looking to capitalize on these expected opportunities.
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  So sounds like they see growth potential if the tourism recovery pans out as forecast. OK.
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  Are there any other significant external factors or updates mentioned in their outlook?
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  They do give an update on that URA investigation that was previously disclosed.
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  They state it's still ongoing.
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  Importantly, no charges have been filed against the company or individuals,
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  and they say the group is cooperating fully. So it's still out there,
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  a known factor they're dealing with.
• 11:15
  Right. And what's the overall message for management there, kind of concluding sentiment?
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  They basically reiterate their commitment to trying to grow the business,
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  but they pair that strongly with being prudent on costs, explicitly acknowledging
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  the challenging macro environment.
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  Now, something really critical that's highlighted in the notes to the accounts
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  is the mention of a material uncertainty related to the company's ability to
• 11:37
  continue as a going concern. Okay, that phrase going concern always stands out in financial reports.
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  What exactly does that mean here and why the uncertainty? Right.
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  So going concern is the basic assumption that a company will be able to stay
• 11:52
  in business and pay its bills for the foreseeable future, usually looking out at least 12 months.
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  The uncertainty arises here because, as we discussed, their total liabilities
• 12:02
  are actually higher than their total assets.
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  That negative net asset position, which got worse this quarter,
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  that situation combined with the negative working capital raises a flag.
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  It casts doubt on whether they can definitely meet all their financial obligations
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  as they come due. Okay, so liabilities exceeding assets, especially short-term
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  ones, creates that question mark.
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  But they are still preparing the accounts on a going concern basis.
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  What reasons did the directors give for doing that? They lay out a few points.
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  They expect to generate enough cash from operations, though.
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  As we saw, Q1 was positive but lower than last year.
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  They plan to manage cash carefully at the group level. They intend to stick
• 12:42
  to the payment terms their suppliers give them.
• 12:44
  Okay. But, and this seems absolutely crucial, they're relying heavily on a letter
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  of undertaking they received from the controlling shareholder. Ah, the main owner. Yes.
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  This shareholder has formally committed to provide the necessary financial support
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  to the group to keep it running for a period of 15 months, starting from May 14th, 2025.
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  This backing from the major shareholder is fundamental to the director's feeling
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  they can prepare the accounts on a going-concern basis.
• 13:09
  Okay, so let's try and wrap this deep dive up.
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  KGL clearly had a rough Q1 2025.
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  A big swing from a small profit last year to a significant loss this year.
• 13:19
  Yeah, definitely rough. Driven by revenue falling in both F&B due to fewer outlets, competition,
• 13:26
  the Ramadan timing and hospitality, hit by competition, fewer apartments,
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  and crucially, not having that Taylor Swift boost from last year.
• 13:34
  Right. That comparison effect was huge.
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  This crushed the gross profit. Their response seems to be consolidating F&B,
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  focusing hard on costs, while pinning hopes on Singapore's tourism recovery
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  to potentially expand hospitality.
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  Financially, they're juggling negative working capital and negative net assets.
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  And their ability to continue operating, as stated in the report,
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  really hinges on generating cash.
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  And critically, that financial backstop promised by their controlling shareholder.
• 14:01
  It really does put a spotlight on the intense pressures operators face in FNB
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  and hospitality, doesn't it?
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  How sensitive they are to market competition, consumer spending shifts,
• 14:10
  even specific events like concerts or holidays. And it hammers home the absolute
• 14:15
  need for tight cost control, especially when that top line revenue shrinks.
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  It also just shows the stark reality when a company's balance sheet gets stressed
• 14:23
  like this, how vital financing and in this case specific shareholder support
• 14:27
  becomes for sheer survival.
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  So here's maybe a final thought for you to chew on after hearing all this.
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  Given how much the company's going concern status seems to hang on that promise
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  of financial support from the controlling shareholder and with that URA investigation
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  still simmering in the background,
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  how might those two big non-operational factors potentially influence or maybe
• 14:48
  even complicate KGL's ability to execute their plans for consolidation,
• 14:52
  cost management and expansion in the coming year?
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  Music.