Half Year Financial Statements And Dividend Announcement for the Six Months Ended 31 December 2009

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Half Year Financial Statements And Dividend Announcement for the Six Months Ended 31 December 2009

Income statement for the six months ended 31 December 2009

Profit & Loss

Statement of comprehensive income for the six months ended 31 December 2009


Review of Performance

Profit and Loss

Revenue

As businesses of our customers have not fully recovered from the global financial crisis, consolidated revenue of the Group for the period under review decreased by HK$145.9 million or 16.2% to HK$756.9 million from HK$902.8 million for the corresponding period last year.

Revenue from our Components Distribution segment decreased by HK$23.3 million or 8.0%, from HK$289.9 million for the six months ended 31 December 2008 to HK$266.6 million for the six months ended 31 December 2009. The decrease was mainly due to reduction in demand for electronic components in mobile phones and computers.

Revenue from our Integrated Circuit Application Design ("ICAD") segment decreased by HK$77.9 million or 51.3%, from HK$152.0 million for the six months ended 31 December 2008 to HK$74.1 million for the six months ended 31 December 2009. The outbreak of financial tsunami in the second half of 2008 badly hit the retail market in the continents of Northern America and Western Europe resulting in a substantial reduction in demand for toys over there in 2009. As a majority of the toys which are embedded with our application design solution are being exported to those continents, revenue from our ICAD segment decreased significantly in the period under review.

Revenue from our Information Technology Infrastructure ("IT Infrastructure") segment decreased by HK$44.7 million or 9.7%, from HK$460.9 million for the six months ended 31 December 2008 to HK$416.2 million for the six months ended 31 December 2009. The reduction was mainly due to (i) decline in demand for various computer products and peripherals which fall under this segment; and (ii) decline in demand for our products from our customers in the financial services industry.

Gross profit

Gross profit decreased by HK$17.5 million or 20.2%, from HK$86.5 million for the six months ended 31 December 2008 to HK$69.0 million for the six months ended 31 December 2009 largely due to the decrease in revenue. In addition, due to persistent competition, gross profit margin decreased marginally by 0.5% from 9.6% for the six months ended 31 December 2008 to 9.1% for the six months ended 31 December 2009.

Other income and gains

Other income and gains decreased by approximately HK$0.4 million or 20.0%, from HK$2.0 million for the six months ended 31 December 2008 to HK$1.6 million for the six months ended 31 December 2009. The decrease was due to the absence in this period under review of a fair value gain relating to a derivative financial instrument (which occurred during the six months ended 31 December 2008).

Selling and distribution costs

Selling and distribution costs decreased by approximately HK$0.7 million or 2.6% from HK$27.3 million for the six months ended 31 December 2008 to HK$26.6 million for the six months ended 31 December 2009. The decrease was mainly attributed to the decrease in bonus and commission paid to sales staff which was in turn due to the decrease in revenue.

Administrative expenses

Administrative expenses decreased by approximately HK$1.2 million or 4.1%, from HK$29.1 million for the six months ended 31 December 2008 to HK$27.9 million for the six months ended 31 December 2009. The decrease was mainly due to the decrease in net profit linked staff bonus for supporting staff. There was neither staff retrenchment nor salary cut during the period.

Other expenses, net

Other expenses, net increased by approximately HK$0.8 million or 34.8%, from HK$2.3 million for the six months ended 31 December 2008 to HK$3.1 million for the six months ended 31 December 2009. The increase was mainly due to (i) no more reversal of impairment of receivables totaling HK$1.4 million as in the last corresponding period; (ii) HK$0.2 million impairment of receivables incurred during the period under review; and (iii) fair value loss on derivative financial instruments of HK$0.4 million. These increase were offset by (i) decrease in loss on foreign exchange differences of HK$0.7 million compared with the previous corresponding period; and (ii) decrease in employee share option expenses of HK$0.6 million upon the expiration of vesting period of certain share options during the last financial year.

Finance costs

Finance costs decreased by approximately HK$1.2 million or 92.3%, from HK$1.3 million for the six months ended 31 December 2008 to HK$0.1 million for the six months ended 31 December 2009. The decrease was due to a reduction in bank borrowings during most of the time in this period until December 2009 when bank borrowings increase in line with increase in sale.

Net Profit

Net profit attributable to equity holders of the Company decreased by HK$14.2 million or 60.9%, from HK$23.3 million for the six months ended 31 December 2008 to HK$9.1 million for the six months ended 31 December 2009. The decrease was mainly attributable to drop in gross profit of HK$17.5 million as explained above.

Balance Sheet

Non-current assets

Non-current assets comprised goodwill of HK$2.4 million; investment properties, office equipment, leasehold land and buildings and motor vehicles totaling HK$87.6 million; and deferred tax assets of HK$1.1 million. Following the final payment, funded from our internal resources, for the purchase of our office premises in Shenzhen ("Acquisition"), and together with the prepayment for the Acquisition as at 30 June 2009 which has been transferred to the property, plant and equipment account, property, plant and equipment increased by HK$28.6 million to HK$81.6 million. Details of the Acquisition were set out in the Company's announcement dated 15 June 2009. As at 31 December 2009, non-current assets of HK$91.1 million representing approximately 18.7% of our total assets.

Current assets

As at 31 December 2009, current assets amounted to approximately HK$397.2 million, an increase of HK$29.0 million compared to the immediately preceding financial year end as at 30 June 2009. The increase was mainly due to the increase in trade and bills receivables by HK$32.0 million which in turn due to the increase in sales towards the end of the current period. The increase in inventories level by HK$16.0 million was in anticipation of increase in sales in January 2010 which was subsequently realized. Prepayments, deposits and other receivables amounted to HK$16.5 million, representing approximately 4.1% of our current assets, comprised mainly advance deposits paid to suppliers for the purchase of inventories.

Current liabilities

As at 31 December 2009, current liabilities amounted to approximately HK$224.1 million, an increase of HK$30.0 million compared to the immediately preceding financial year end as at 30 June 2009. The increase was mainly due to the increase in interest-bearing bank and other borrowings by HK$19.8 million which was mainly due to taking the benefit of prompt payment discounts through early settlement to certain vendors. Increase in trade and bills payables by HK$13.2 million was due to the increase in purchasing activities towards the end of the period which was in line with the increase in trade and bills receivables and inventories as at the period end date.

Non-current liabilities

Non-current liabilities amounted to HK$14.7 million, representing 6.2% of our total liabilities as at 31 December 2009. It mainly comprised interest-bear bank borrowings of HK$9.0 million, finance lease payable of HK$0.6 million to finance purchase of office equipment and deferred tax liabilities of HK$5.1 million. Deferred tax liabilities are recognized as a result of temporary difference between the carrying amount and tax base of our land and building and investment properties.

Liquidity and cash flow

As at 31 December 2009, cash and cash equivalents amounted to approximately HK$44.7 million. Total interest bearing loans and borrowings as at 31 December 2009 were HK$33.6 million and the gearing ratio which is defined as total borrowings and finance leases to shareholders' funds excluding minority interests, is 0.13 times (30 June 2009: 0.02 times).

Commentary

Coinciding with China's realised target of eight-percent economic growth for the full year of 2009, both Revenue and Net Profit of the Group for the six months ended 31 December 2009 performed better compared to the immediately preceding six-month period from 1 January 2009 to 30 June 2009. The Group's gross profit margin has also stabilized since the economic turmoil. As China's economic growth is expected to continue in 2010, the board expects the success rate for our new projects in the pipeline to increase. Accordingly, bearing in any unforeseen circumstance the board is confident that our financial performance has bottomed out and expects improvement in our financial performance for the next 12 months. Nevertheless, the Group is vulnerable to slow down in the economic recovery which may appear as a result of gradually removal of economic stimulus packages in various jurisdictions around the world. As such, the Group is constantly on the lookout for higher margin products and projects.

Following lengthy negotiation process with one of our major vendors in Japan, trading currency with that vendor has been changed from Japanese Yen to United States Dollar effective from January 2010. As a result, foreign currency risk arising from changes in the currency translation rate of Japanese Yen against Hong Kong Dollar will reduce substantially. Although foreign currency risk associating with United States Dollar and EURO remains, the overall foreign currency risk exposure reduced.

Any change in Labour Contract Law in the mainland China which increase our cost of operation in the PRC may also erode the Group's margin as, for example any increment in levy cannot be passed onto the customer on a timely basis. Taking into consideration all these factors and persistent competition, the Group is cautiously optimistic of its financial results for the next 12 months.

Balance Sheet