PACE hampered by other expenses

The start of the new financial year hasn exactly been auspicious for the Lahore-based, renowned commercial real estate developer. After a run of three successive loss-making years till June 2013, Pace (Pakistan) Limited has recorded a net loss for the first quarter ending September, as well.
PACE now has business interests in commercial, residential and multi-use real estate projects. But, despite the ongoing growth in real estate prices in major cities, the company has been taking in net losses which were far greater than the revenue it generated during FY11-FY13.
That took toll on shareholders equity, which was Rs2.42 billion in June 2013, down 63 percent since June 2010. The company also faces liquidity shortages as its current liabilities significantly exceeded its current assets as of June 30 this year.
The woeful quarterly performance still had some silver lining for the financially troubled entity, given two major improvements in its financials. First, it recorded a stellar 165 percent top line increase over the same period of last year. The top line is still way behind the levels last seen in FY10, yet any signs of amelioration are encouraging.
Secondly, the cost of sales remained under check. Though these costs grew by nearly 30 percent, they consumed only 71.9 percent of sales, compared to 146.7 percent in 1Q FY13. Administrative and selling expenses also declined by 3.5 percent during the period under review. Resultantly, a healthy gross margin of 28 percent was secured in the quarter.
But beyond that, it was the companys other operating expenses--which comprise of exchange losses, loss on propertys sale or classification and provisions--that grew by nearly 900 percent to leave those important gains high and dry. Eventually, PACE closed its first quarter with a net loss of Rs166.7 million. If it weren for a 43.3 percent drop in finance costs, this loss would have further crept up.

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PACE PAKISTAN

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Rs (mn)                       1QFY14    1QFY13        chg

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Sales                            151        57       165%

Cost of sales                   (108)      (83)       30%

Gross margin                      28%       24%         -

Other operating expenses        (119)      (12)      892%

Finance costs                    (62)     (109)      -43%

Loss for the period             (167)     (164)        2%

Net margin                      -111%     -288%         -

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KSE notice

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