FY2010 Q1 Loss Narrows Down To US$1 Million ~ Creative Labs Zen MP3 Players Sound Blaster Card
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Thursday, October 29, 2009

FY2010 Q1 Loss Narrows Down To US$1 Million



Well, to look on the bright side, this quarter's loss is only US$1 million. As compared to previous quarters, its considerably smaller. This is already an improvement from previous results. The decrease in net sales was primarily a result of lower revenues from digital audio players due to global economic downturn and the group's consolidating efforts, the company said in a statement.

Another factor which helps to narrow down the loss is the disposal of its entire interest in an associated company, Qala Singapore Pte Ltd, an internet service provider, for a cash consideration of US$6.2 million.

Net sales
Net sales for the first quarter of FY2010 decreased by 49% compared to the same quarter in FY2009. The decrease in net sales was primarily a result of lower revenues from digital audio players. The lower sales were primarily due to
the impact of the global economic downturn and the Group’s decision to consolidate certain businesses in order to focus on specific markets that provide best opportunities to improve business going forward.

Gross Profit
Gross profit margin was 25% in the first quarter of FY2010 compared to 22% in the first quarter of FY2009. Gross profit margin in the first quarter of FY2010 at 25% was consistent with the mix of products sold during the quarter.

Gross profit margin in the first quarter of FY2009 was lower at 22% due to a higher percentage of sales coming from digital audio players which have lower gross profit margin.

Net Loss
Net loss for the first quarter of FY2010 was US$1.0 million compared to US$40.8 million in the first quarter of FY2009.

Following the restructuring efforts in the previous year to reduce operating costs, and in line with the decrease in sales, selling, general and administrative expenses in the first quarter of FY2010 decreased by 50% compared to the first quarter of FY2009.

Research and development expenses in the first quarter of FY2010 decreased by 17% compared to the first quarter of FY2009. There were smaller reductions in research and development expenses as the Group needs to continue to invest in product development in areas that are strategic to the Group, cutting back development spending only in product areas that are not strategic going forward.

Other gains of US$10.5 million in the first quarter of FY2010 comprised mainly of a US$4.9 million gain on disposal of investment in an associated company and foreign exchange gains of US$5.8 million. In the first quarter of FY2010, the Group has disposed its entire interest in an associated company, Qala Singapore Pte Ltd, an internet service provider, for a cash consideration of US$6.2 million.

Other losses of US$24.4 million in the first quarter of FY2009 comprised mainly of US$8.9 million impairment loss of financial assets, available-for-sale following the onset of the global financial crisis during that quarter, and foreign exchange losses of US$15.4 million.

The functional currency of the Company and its subsidiaries is predominantly the US dollar and accordingly, gains and losses resulting from the translation of monetary assets and liabilities denominated in currencies other than the US dollar are reflected in the determination of net income (loss). The exchange differences were mainly due to the cash and cash equivalent balances held by the Group. Besides US dollar, cash and cash equivalent were held mainly in Euro, Singapore dollar, British Pound and Japanese Yen. In the first quarter of FY2010, these currencies appreciated against US dollar while they declined significantly against the US dollar in the first quarter of FY2009.

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