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Despite stagnant revenues, Challenger achieves 21.7% surge in net profits due to higher gross profits and lower operating expenses - 2018 Annual Report

2020/02/04

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Challenger Technologies Limited (Challenger)

Source: Challenger

Established in 1984 as an IT products retailer, Challenger now owns 39 stores across Singapore offering over 50 product categories. Challenger also holds subsidiaries in the fields of electronic signage (CBD eVision) and end-to-end integrated marketing solutions (inCall Systems).

FY 2018 Financial Highlights:

Source: Challenger FY 2018 Annual Report

  • Challenger’s FY 2018 revenue declined by 0.5% year-on-year to SGD 320.2 million, on the back of lower retail sales. This decline was partially offset by higher trade show and corporate sales revenue.
  • Nevertheless, FY 2018 net profit after tax surged by 21.7% to SGD 19.6 million, on the back of higher gross profits and lower operating expenses.
  • Further, Challenger’s profit margin improved from 5.0% in FY 2017, to 6.1% in FY 2018.

Performance Drivers:

Source: Challenger FY 2018 Annual Report

Performance Drivers (Positive Factors)

  • Telephonic Call Centre and Data Management Services segment

Challenger’s Telephonic Call Centre and Data Management Services segment carries on the business of telephonic call centre, data management services and direct marketing services. Revenue for this segment increased by 16% year-on-year to SGD 5.6 million in FY 2018.

  • Interest income and Rental income

The company’s interest income increased from SGD 517,000 in FY 2017 to SGD 802,000 in FY 2018 mainly due to higher receipt of interest income from fixed deposits placed with banks. Rental income also rose from SGD 1.5 million last year to SGD 1.9 million in FY 2018.

Performance Drivers (Negative Factors)

  • IT Products and Services segment

Challenger’s IT Products and Services segment is involved in retailing a large selection of IT products including personal computers, notebooks, printers, scanners, digital imaging solutions, personal digital assistants, mobile and wireless connectivity solutions, audio-visual and projection equipment, and related peripherals. Revenue for this segment declined slightly by 0.5% from SGD 313.1 million the previous year to SGD 311.7 million in FY 2018.

  • Electronic Signage Services segment

Challenger’s Electronic Signage Services segment is involved in the supply and installation of electronic signage and provision of electronic signage services. This segment experienced a 58.9% drop in revenue from SGD 2.4 million in FY 2017 to SGD 0.99 million in FY 2018.

  • Other Gains

The company received a lower amount of government grants in FY 2018 (SGD 0.29 million) when compared to FY 2017 (SGD 0.32 million) – resulting in a drop in Other Gains.

  • Weaker performance in Q4 2018

Challenger produced good results during the first three quarters of FY 2018, but this was followed by a slowdown in Q4 2018. Revenue for the final quarter of the year declined by approximately 6% quarter-on-quarter to SGD 83.9 million – on the back of lower retail and trade show sales. This slowdown was largely caused by weaker retail sentiments stemming from global economic uncertainties such as trade wars and Brexit. Challenger has predicted that this weak retail sentiment will carry over into FY 2019, and will continue its current measures to control and manage its expenses.

Source: Challenger FY 2018 Annual Report

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