Hoa Sen (HSG) wallowing in debts
Hoa Sen (HSG) wallowing in debts
The revenue and profit of Hoa Sen Group (code: HSG) continues reducing sharply despite the closing of a lot of branches.
The financial statement of the second quarter of the company's fiscal year reported VND6.9 trillion ($300 million) in revenue and VND54 billion ($2.35 million) in pre-tax profit, down 10 and 53 per cent on-year, respectively.
The revenue and pre-tax profit accumulated during the first six months of the fiscal year were estimated at VND14.48 trillion ($629.56 million) and VND156 billion ($6.8 million), down 7.5 and 70 per cent on-year.
In the documents sent to shareholders, HSG’s leaders explained the bad business results that the price of steel in the world and in the country is in constant flux. In fact, the gross profit margin in the first three months was 11.3 per cent, lower than the 13.5 per cent of the same period last year, so gross profit declined by 44 per cent, while revenue reduced by 10 per cent.
Hoa Sen has been facing so many difficulties due to its rapid expansion over the last years. During 2015-2017, HSG has extended its distribution network to numerous provinces, and raised its network to 491 branches by the end of 2018 from 150 at the end of 2015.
However, along with the expansion, HSG’s debts have been increasing with every financial statement to end up at VND16 trillion ($695 million) at the end of 2018, from VND6.5 trillion ($282.6 million) at the end of 2015, with the majority (nearly 90 per cent) being bank loans.
HSG’s revenue has also been rising in line with the scale-up. In 2014-2016, the group’s annual revenue was only VND15-18 trillion ($652.2-782.6 million), and sharply jumped to VND23.6 trillion ($1.026 billion) in 2017 and VND34.6 trillion ($1.5 billion) in 2018. However, its profit decreased each year.
HSG has spent a lot of money on a bulky distribution network and corporate management, while financial costs have been increasing because of loans. Thereby, HSG’s profit could not offset its expenses.
To overcome the difficulties, Hoa Sen has been restructuring its business activities. It has already stopped the operations of more than 100 branches for the first three months of the year.
Hoa Sen Group’s board of managers has approved to take over 60 branches of Hoa Sen Investment Co., Ltd. across the southern provinces of Ninh Thuan, Lam Dong, Long An, Binh Duong, and Dong Nai. Thereby, the group will take over around 161 branches in total (including 101 ones handed over last year).
As of the end of March, the liabilities of HSG were VND3 trillion ($130.4 million) less than in last September, thanks to reducing inventory and changing distribution network, to VND13 trillion ($565.2 million), capturing 71 per cent of the group’s charter capital. Despite these positive changes to overcome its debts, Hoa Sen seems a long way off from retaking its throne as the "king of steel."
