Is KLE Group about to turn a profit?

KLE Group raised $94.6 million from the IPO share issue when 27 million shares were sold at $3.70 per each, but the company has melted through these funds in a relatively quickly having turned a $9 million surplus at the end of 2011 into an accumulated loss of $81 million, as of June this year, leaving equity of only $42 million.
KLE operates Usain Bolts’ Tracks and Records and Friction Lounge night club in Kingston and Nightclub, in Portmore starting in the middle of 2013.
In 2013 the group lost $56 million and for 2014 to June, $21 million of losses were added to reduce the level of equity further. But things may well be looking up for them if information for the second quarter holds. Although there was a loss of $8 million in the quarter, this was a bit better than the $13 million in the first quarter, this year, even as revenues were less than in the first quarter as well as against the 2013 quarter. The first task at the company has at hand, is the curtailment of cash, this could be just around the corner. In fact there was a positive $6 million cash flow inflow from operations in the June quarter, a big improvement to the half a million in the first quarter.
Revenues| fell sharply in the June quarter from that in 2013 with $59 million in 2014 versus $89 million in 2013. The June income is also down on that of the first quarter at $68 million. For the six months to June, revenues fell to $127 million compared with $152 million in 2013, all the reduction occurred in the second quarter.
Administrative and other expenses fell to $40 million in the latest quarter, from $71 million in 2013 and $87 million in the six months versus $120 million last year. The cut in administrative cost in the quarter, helped to produce a small loss of $2 million, before depreciation and finance expenses and an overall loss of $8 million for the quarter, versus $19 million in 2013. “The company has further reduced operating cost including overheads eliminated as a result of corporate office consolidation at the beginning of May.” Gary Matalon CEO of the company stated in his report to shareholders. He went on to indicate, that the cost rationalisation has brought expenses much more in line with revenues. Expenses included a charge against fixed asset, amounting to $8 million in the June quarter. Unfortunately for the company, a 193 percent gross profit margin enjoyed in the 2013 second quarter, melted down to a still respectable 160 percent.
Making allowances for the one off charge against fixed assets and the cost reduction which only applied for two months out of the June quarter, KLE could be looking at a profit in the next quarter, assuming that revenues and margins are kept up.
Matalon spoke to the franchising arrangements reaching a matured stage where selling can commence, if successful it would bring in added revenues. But that is a promise, although reference is made about two potential candidates being courted.
Finances| As can be expected, with the burning through of capital, the group’s finances have deteriorated. Borrowing stands a $52 million, current assets stands at only $50 million including cash of $7 million and current liabilities of $143 million.
KLE stock last traded at $1 and now has a bid to buy 100,000 units at $1 and an offer at $1.90, the stock traded as low as 90 cents.