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CEO's Message extracted from the Annual Report 2009

Due to the outbreak of the Financial Tsunami and the credit turmoil (tightened corporate credit and reduced consumer spending) in 2008, FY09 was really the toughest year for most companies in the electronic, semiconductor, information-technology, and heavy industries in Hong Kong, China, Singapore and around the world. Furthermore, unemployment, investment losses and business bankruptcy are also the worries of people and companies all over the world, whether big or small companies, employees or employers, or even the government. Therefore, in order to make a living, survive or continue one's business, most of the companies and employers in Hong Kong, China and Singapore came up with contingency plans in such difficult times - staff retrenchment, layoffs, pay-cuts and no-pay leave - as a means to keep the company's wheel running. Nevertheless at Karin, we have been working and racking our brains together with our management and staff to develop a business plan, and a cost reduction plan without taking the cost-saving through the execution of staff retrenchment or salary cut - as the Group counts our staff as the resource-based and valuable asset of the Company. I would like to thank our hard working staff and our loyal management team, as in FY09 Karin made a profit even though the revenue of the Group and profit attributable to equity holders of the Company slipped 17.3% and 47.3% respectively.

RESPONSE TO THE DEFLATIONARY DEPRESSION FY09 - FINANCE AND RISK MANAGEMENT

Healthy Finance-driven Management has been Karin's business strategy since day one. No matter whether the Group is going through good or bad times, our Finance and Accounting Department makes every effort with prudent policy and procedure to monitor our account receivables, stock levels & inventory turnaround- time, and cash-flow; in particular, during the post Financial Tsunami in FY09.

Indeed, a Group like Karin with healthy-finance is a company that can support its business continuity and balanced portfolio during hard times and experience continued growth during good times. Just like Bernanke said, 'Economic growth and prosperity are created primarily by what economists call "real" factors - the productivity of the work force, the quality and quantity of the capital stock, the availability of land and natural resources, the state of technical knowledge, and the creativity and skills experience highlights the crucial supporting role Healthy financial conditions help a modern economy realize its full potential.' (Bernanke Test, Johan Van Overtveldt, B2 Books, 2007). As the Group is a healthy finance-driven company, we are able to go through the industry 'stress test' on Environmental Threats and Opportunities. Our healthy finance-driven strategy really provides the Group; our strategic alliance; and our aggressive, skillful and hard working staff a platform to grow and develop new products and solutions and value-added services to our customers and as a means to resist the deflationary recession today and support the Group's resilience, competitiveness and growth in the future.

Risk Management Policy is the critical issue to any company who is a healthy finance-driven company like Karin which is looking for long-term growth and operation. Therefore Karin applies strict risk management over our operations.

  • Financial Risk Management ("FRM") - besides closely monitoring our Foreign Exchange ("FX") hedging as arranging payment for vendors, the Group also has the Internal Audit ("IA") policy that is carried out by an IA staff - to draw up plans to monitor and improve Karin's financial risk management, IA issues and corporate governance.
  • Process Risk Management ("PRM") - it is not as simple as 'First-In-First-Out' ("FIFO") practice but rather it looks at the risks coming along the logistics and process flow. The Group has been working closely with HKQAA and constantly improving our PRM through the HKQAA auditors and their advices. Additionally, we have also improved our ISO process.
  • 3rd party or Outsourcing Risk Management ("3ORM") - it focuses on our contract-review, etc with vendors, customers, service providers and strategic alliances. The Group draws up such policies with our solicitors and professional advisors.

GROWTH AMIDST DEFLATION OR STAGFLATION IN 2010 - CORE COMPETENCY AND RESOURCE-BASED BUILDING

If today is Deflationary Depression, then 'What is Depression Economics? Failures on the demand side of the economy - insufficient private spending to make use of the available productive capacity - have become the clear and present limitation on prosperity for a large part of the world in reality prices don't fall quickly in the face of recession ' said Paul Krugman (The return of depression on economics and the crisis of 2008, Paul Krugman, Norton, 09). Whether 2009 is a deflation, stagflation or inflation year, we expect that sooner or later inflation will come, and FY10 may still be a buyers' market (or higher bargaining power of the buyers) as it is driven by the demand side of the depression market after the Financial Tsunami. Nevertheless, Karin feels optimistic about growth in FY10, particularly the continued and high GDP growth in the China market. Therefore Karin has reviewed our FY10 business strategy upon the depression economy by reinforcing our resource-based capability and investment in our Chinese operations and building our core-competency and skillset in the years to come.

  • Core-competency Building through Resource-based Management is one of the strategic management Karin is working on. Karin has four Strategic Business Units: Electronic Component Group ("ECG"), IC Application Design ("ICAD"), IT Solutions and Service ("ITSS") and Industrial Materials and Instruments Group ("IMIG"). In FY09, a new JV company was established named Karga Solutions Limited centering the business around the Oracle EBS (e-Business Suite) as a Certified Partner, a team to implement the FCM, SCM, HCM and CRM solutions for the finance, distribution and property management market. Indeed, Karin has a unique resource-based asset in the IT industry that not many competitors have in Hong Kong, which is supplying hardware of Apple, EMC, HP and Sun Microsystems, software of IBM and Oracle, and services of IBM-based, Sun Microsystems-based and Intel-based systems.
  • Karin bought a 1,500 square meter office as an investment in Shenzhen, China as we expect that the office rental, particularly in China will increase soon, even though today's economy is still undergoing deflationary depression. Hence Karin bought a new office in Shenzhen, China in 2009 and we will move Karin, NST and Karltec's Shenzhen operations into the new office by early 2010. Hereafter, the profit earnings of Karin will have less rental dependency in China. In addition, the management team has confidence in our business growth in China. Hence we are expanding and continuing our investment in Shenzhen, Shanghai, Beijing, Hangzhou, Qingdao and Xiamen in China in order to secure our earnings and reinforce Karin's image and presence in China.
  • Productivity Improvement through Process Re-engineering is another key successful factor that Karin has been working on since day one. In FY10, what we have to do is to keep 'doing better, faster and more with less' ("DBFM w/L"), to improve our efficiency and effectiveness as a way to improve our profit margin through, winning profitable business contracts, improving our cash-flow and working out costsaving programs - all for our continued growth.

LOOKING AHEAD

Today is the extension of yesterday, and tomorrow will be the extension of today. But what is the true relationship between 'yesterday' and 'today' and even 'tomorrow'? Well, yesterday was history but tomorrow indeed will not look like today. Rather, it depends on what we are doing today that makes for tomorrow. I do not know who named the recent global financial crisis as "The Financial Tsunami" that aptly describes this recent global-economic and financial-systemic turmoil which we are confronting. However, our Company philosophy, "Together, we pace for tomorrow" reflects the win-win solution of helping ourselves - the Company, staff and our strategic alliances - surfing along the financial crisis, catching opportunities ahead after the crisis. This is the key to being not only a strong survivor in FY09 but also a winner moving onward into FY10. This is Karin's long term goal for the future.

Raymond NG
CEO, Karin Group