Avarga Limited 1H2025 Financial Results: Navigating a Transition Year

Avarga Limited, a Singapore-listed investment holding company with core operations in building products distribution (via Taiga Group), has released its unaudited condensed interim financial statements for the six months ended 30 June 2025. The Group is in a period of transition, having exited its paper manufacturing business and focusing on its North American building products segment. Below, we present a structured analysis of the key financials, performance drivers, and notable corporate developments from the report.

Key Financial Metrics and Comparative Table

*EPS for 1H2024 restated for 10-to-1 share consolidation.

Historical Performance Trends

• Revenue: The building products segment remains the sole driver, contributing S\$787.2m in 1H2025, down 3% YoY, driven primarily by foreign exchange headwinds (weaker CAD against SGD), despite stable performance in local currency terms.
• Profitability: Net profit plummeted 86% YoY, mainly due to a one-off S\$18.6m withholding tax on dividends from the Canadian subsidiary, lower interest income, and higher foreign exchange losses. Excluding the withholding tax, adjusted net profit would have been S\$21.9m—just 10% lower YoY, indicating underlying operational stability.
• Gross Margin: Margins were relatively steady (10.3% vs 10.5% YoY), underscoring resilient cost control in the core business.

Exceptional Items and Corporate Actions

• Divestment and Discontinued Operations:
  • The Group completed cessation of its paper mill business (UPP Malaysia) after 31 Dec 2024 and classified results as discontinued operations. The segment recorded a net profit of S\$1.7m in 1H2025, compared to S\$76k in 1H2024.
  • In 2024, Avarga sold its UPP Greentech Group for US\$10m, recognizing a S\$2.4m gain. This disposal is reflected in last year’s numbers and not in the current period.
• Asset Sales:
  • Land and buildings previously used for paper manufacturing (S\$11.8m) reclassified as held-for-sale; sale of industrial land completed in August 2025, with agricultural land pending completion.
• Dividend: A record interim dividend of S\$1.20/share was declared for 1H2025 (none in 1H2024). The payout follows strong cash flows from operations and asset sales.
• Share Consolidation: A 10-to-1 share consolidation took effect in May 2025, standardizing EPS and NAV calculations.

Cash Flow and Balance Sheet

• Cash Flow: Net cash used in operating activities was S\$54.4m, improved from S\$62.5m outflow in 1H2024, driven by working capital movements (inventory build and higher receivables during the North American building season).
• Liquidity: Cash and cash equivalents at period-end stood at S\$161.5m, down from S\$200.6m at end-2024, mainly due to a S\$43.3m dividend paid by Taiga to non-controlling shareholders.
• Financial Position: Total assets grew slightly to S\$738.6m. However, equity fell 13.4% due to dividend outflows and a drop in non-controlling interests.
• Borrowings: The Group tapped its revolving credit facility (S\$76.5m drawn) to support working capital, secured by Taiga’s assets.

Macroeconomic & Industry Outlook

• North American Markets: Taiga’s fortunes are closely tied to the Canadian and US construction sectors. In 2025, Canadian housing starts are forecast to be flat or slightly lower, while US starts are expected to dip marginally. The report notes that interest rate and economic trends remain key risks to demand and margins.
• Currency Risks: Ongoing volatility in CAD/SGD exchange rates will continue to affect reported revenue and profit in SGD terms.

One-Offs, Risks, and Unusual Items

• Exceptional Withholding Tax: The S\$18.6m tax charge on Canadian dividend repatriation was a major drag on profit, and not expected to recur at this magnitude annually.
• No Material Related Party Transactions: No unusual fund flows or related-party transactions were identified.
• No Forecast Provided: The company did not provide forward guidance.

Conclusion: Outlook and Assessment

Avarga’s 1H2025 results reflect a company in the midst of transformation. While headline net profit plunged due to a one-off tax charge, adjusted core profitability is resilient, and the underlying building products business remains stable—albeit exposed to North American housing cycles and FX risk. The cessation and asset sale of the paper business, a significant special dividend, and careful cost management signal a shareholder-friendly stance and strategic focus.

Looking ahead, investors should monitor:

• The pace of North American housing starts and spending.
• Potential volatility in foreign exchange rates.
• Management’s capital allocation post-asset disposal and dividend payout.

Overall, the financial performance appears neutral to slightly positive on a normalized basis, with major restructuring steps completed and a strong balance sheet supporting ongoing operations and shareholder returns.

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