COURTS Asia posted a 3.6% year-on-year (yoy) revenue decline to SG$179.8 million for the first quarter ended 30 June 2018 (Q1 2018). This is mainly attributed to a 24.4% dip in revenue for Malaysia. Meanwhile, distribution and marketing expenses decreased 8.1% to SG$14.5 million in Q1 2018, mainly due to lower expenses in Malaysia.
According to the financial statement, the group's profitability was affected by the introduction of the Consumer Protection (Credit Sale) Regulations 2017 (CPAA), which came into operation on 1 January 2018 in Malaysia. The interest rate cap of 15% per annum along with new compliance processes, which took effect from 1 January, was largely the key change that impacted the Malaysian business.
The dip in revenue for the Malaysian business in Q1 2018 was also a result of a lower credit yield, which correspondingly led to lower gross margins. This was further exacerbated by merchandise margins taking a hit from the absorption of GST in Malaysia since 18 May 2018, ahead of the zero-rating of GST on 1 June 2018, to maintain the festive sales momentum.
As part of the group’s ongoing store optimisation efforts in a post-CPAA environment, five underperforming stores have been closed from April to July 2018, bringing the total number of stores in Malaysia to 58. COURTS Asia is redefining its store strategy in Malaysia and will be downsizing its current Megastore at Sri Damansara to make way for an incoming tenant. Marketing spend has also been correspondingly reduced in alignment with a smaller store footprint.
COURTS Asia’s executive director and group CEO Terence Donald O’Connor said the team recognises the urgency and is in overdrive mode to deliver the transformation work in Malaysia.
"It is a significant undertaking that will take time to execute and finetune. That said, we have reason to believe that the results are trending in the right direction," he said. O'Connor added that quarterly store sales improved from RM136,000 to RM159,000 per sq ft compared to the same period last year.
Meanwhile across the border, Singapore continued on its growth trajectory and increased 3.9% yoy, contributing to 70.1% of the group's revenue. This followed the transformation of its flagship Tampines Megastore into an experiential retail hub and the online store relaunch, which both saw a double-digit yoy growth.
According to O'Connor, the positive performance it sees from offline and online channels is a sign that the group's investment into introducing a strong omni-channel approach is bearing fruit. He said:
We will continue to use Singapore to set the benchmark for omni-channel best practices that can be implemented across other markets over time.
In the meantime, revenue in Indonesia increased 15.8% yoy, boosted mainly by higher earned service charge income. Currently, the group has decided to consolidate its position in the Indonesia market, focusing management’s efforts to bring impairment costs down, and to establish a firm footing for sustained growth moving ahead.
Furthermore, with the business impacted by the adoption of Singapore Financial Reporting Standards (International) 9 and an increasingly challenging collections environment, COURTS Asia has taken "immediate steps" to tighten credit sanctioning and is exploring fintech solutions to give an added dimension to credit scoring and improve the credit approval decision-making process.
O'Connor said that tenacity and persistence are required in the group's transformation effort given the current state of play in its operating markets. Singapore, which contributes to over 70% of the group’s revenue will lead the way and maintain the growth trajectory whilst the group works on the business challenges in Malaysia and Indonesia, he added.
While its Malaysia business will continue to face pressure in the short term, O'Connor said the group expects it to reap the results of the transformation work only in the medium to long term. That said, COURTS Asia remains confident in its long term prospects, investing in key strategic pillars as well as a solid omni-channel proposition for sustainable business growth.
"Our focus remains on delivering and optimising value for all our stakeholders," he said.