SALUTICA BERHAD Q3 2025 Latest Quarterly Report Analysis

A Deep Dive into the Numbers: Revenue & Profitability

Salutica’s financial performance for the period under review reflects the current market headwinds, primarily driven by low order volumes for existing models and the developmental stage of new projects. Here’s how the key figures stack up:

Revenue Performance

For the third quarter, Salutica’s revenue saw a slight decline. However, the nine-month cumulative revenue experienced a more significant drop.

This represents a decrease of approximately RM0.6 million for the quarter. Looking at the broader picture, the nine-month period tells a similar story:

The cumulative revenue for the nine months decreased by approximately 37.7% or RM6.6 million, primarily due to the aforementioned low order volumes and projects still in development.

Loss Before Taxation (LBT)

Despite the revenue decline, the company managed to reduce its loss in the current quarter compared to the same period last year, though the cumulative loss for the nine months has widened.

This is a welcome reduction in quarterly loss of approximately RM1.5 million. However, the cumulative nine-month performance shows an increased loss:

The cumulative loss for the nine months increased by approximately RM1.3 million. Factors contributing to these losses include the low order volumes, higher costs incurred from holding excess resources while awaiting mass production approval for new projects, the impact of the minimum wage increase (from RM1,500 to RM1,700 per month effective 1 February 2025), and spending on factory re-layout and new line setup for a server for data processing center product. Additionally, the Group recognized a significant RM1.2 million provision for a court award related to a legal suit against Apple Malaysia Sdn Bhd.

Loss Per Share (Basic)

Reflecting the overall profitability trend, the basic loss per share for the quarter improved, but worsened for the nine-month period:

Geographical Performance: Shifting Sands

Salutica operates as a single segment focused on Consumer Electronics. However, its revenue streams are globally diversified. For the nine months ended 31 March 2025, the Americas region continued to be the largest contributor, accounting for 62.8% of total revenue, with the United States of America contributing approximately 98.0% within this region. Europe followed with 19.1%, largely driven by the Netherlands. While geographic diversification is present, the overall revenue decline indicates challenges across markets.

Financial Health Check: Balance Sheet & Cash Flow

Salutica’s balance sheet as of 31 March 2025 shows a contraction compared to 30 June 2024, reflecting the ongoing operational losses. Total assets decreased from RM74.90 million to RM52.18 million, while total equity also declined from RM74.85 million to RM52.15 million. This has naturally impacted the net assets per ordinary share, which fell from 17.67 sen to 12.31 sen.

A closer look at the cash flow statement reveals increased cash outflows from operations. Net cash used in operating activities for the nine-month period stood at RM(12.36) million, a significant increase from RM(7.81) million in the corresponding period last year. This indicates a higher cash burn from its core business. Consequently, cash and cash equivalents at the end of the period saw a substantial reduction, from RM40.45 million last year to RM20.41 million this year.

Charting the Future: Strategies Amidst Challenges

The Board of Directors is keenly aware of the challenges and is taking proactive steps to manage the Group’s financial resilience and pursue a turnaround. Salutica’s strategy hinges on several key initiatives:

• Product Diversification: The Group is actively developing new products and processes through its research and development capabilities. This includes securing a new customer for the manufacturing of servers for data processing centers, and ongoing projects in coffee machine pod openers and automotive tools for diagnostic businesses. They have also started the first shipment for handheld video game consoles in December 2024. This diversification aims to reduce dependency on lifestyle electronic products, which typically have shorter product lifecycles.
• Nurturing FOBO Brand: Salutica remains committed to nurturing its proprietary FOBO brand and exploring opportunities for further expansion.
• Financial Prudence: The Board emphasizes exercising caution and implementing proactive measures to ensure the Group’s financial resilience amidst the challenging environment.

However, it’s crucial to acknowledge the significant risks that could impact these prospects:

• Continued Losses: Despite efforts, the Group continues to incur operational losses, which puts pressure on its financial resources.
• Operational Costs: The increase in minimum wage and costs associated with holding excess resources for new projects could further impact profitability in the short term.
• Material Litigations: Salutica is involved in several material legal suits, including a case against Apple Malaysia Sdn Bhd where a RM1.2 million cost award has been made against Salutica (which they are appealing). Other ongoing suits include those against Paradigm Metal Industries Sdn Bhd, Apple South Asia Pte Ltd, and Nuheara Ltd (where Salutica has obtained a judgment in default for a claim of approximately RM8.09 million). These litigations pose financial and reputational risks.
• Private Placement: While a proposed private placement of up to 10% of new ordinary shares could provide much-needed capital, it also implies potential dilution for existing shareholders.