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Isetan records net loss after impairment charges made in response to the challenging retail environment - 2018 Annual Report

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Isetan (Singapore) Ltd (Isetan)

Source: Isetan Singapore

Based in Tokyo, Isetan is an operator of department stores with branches throughout Japan, Southeast Asia, Taiwan and China. In 2008, Isetan merged with Japanese departmental store Mitsukoshi. The company also has a property segment which is involved in the leasing of properties.

FY 2018 Financial Highlights:

Source: Isetan FY 2018 Annual Report

  • Isetan’s FY 2018 revenue decreased by 5.2% year-on-year to SGD 122.2 million.
  • The company incurred a net loss after tax of SGD 13.715 million in FY 2018, as compared to a net profit after tax of SGD 2.127 million in the previous financial year.
  • This decline was mainly due to the impairment of property, plant and equipment (SGD 11.9 million), impairment of financial assets (SGD 1.3 million), as well as the provision for onerous contracts (SGD 2.4 million).

Performance Drivers:

Source: Isetan FY 2018 Annual Report

Performance Drivers (Positive Factors)

  • Associated Company – Chengdu Isetan

Isetan’s associated company – Chengdu Isetan, in the People’s Republic of China – recorded a year-on-year increase of 12.9% in revenues for FY 2018. The increase was mainly due to the opening of a new food specialty store in a new district, as well as higher sales at the existing flagship store. Chengdu Isetan’s FY 2018 net profit also rose by 17.5% year-on-year. Consequently, Isetan share of profit from the associated company improved by 14.7% year-on-year to reach SGD 258,000 in FY2018.

  • E-commerce

Isetan embarked on an enhancement of the company’s e-commerce site in FY 2018, which greatly expanded the online store’s range of supermarket items, as well as introduced cosmetics items. Although still accounting for a modest percentage of its total sale of goods – sales via Isetan’s e-commerce site increased by 217% in FY 2018 as compared to FY 2017.

Performance Drivers (Negative Factors)

  • Retail Segment

Isetan’s Retail segment is involved in the business of retailing and operating department stores. The company’s retail segment experienced a 4.3% year-on-year decline in revenue to SGD 112.266 million in FY 2018. The decline came on the back of the ceasing of retail activities at level 1 of the Jurong East store which was sublet to a tenant. Further, there were disruptions to sales activities due to store renovations. Meanwhile, retail sector in Singapore remains highly competitive.

In line with Isetan’s strategic objective in managing its Retail segment, the company performed an impairment assessment, and recorded an impairment charge of SGD 11.9 million to reduce the carrying values of property, plant and equipment in each loss-making retail store to their estimated recoverable amounts.

  • Rental Segment

Isetan’s Property segment is mainly involved in the leasing of properties owned by the company and its subsidiaries. Despite their properties being at near full-occupancy rates, rental income from Isetan’s investment property was SGD 9.9 million in FY 2018, a 13.9% drop from the SGD 11.5 million in FY 2017. This was because of the necessary rental adjustments made in response to the challenging retail and food and beverage markets, as well as keen competition for tenants among mall owners.

Source: Isetan FY 2018 Annual Report