Creative FY10 Q3 Loss Narrows To US$20.8 million ~ Creative Labs Zen MP3 Players Sound Blaster Card
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Tuesday, May 11, 2010

Creative FY10 Q3 Loss Narrows To US$20.8 million



Creative's revenue was lower due mainly to a 'higher percentage of sales coming from digital audio players which have lower gross profit margin' and their continuing restructuring efforts.

Going forward the Group will continue to invest more in product research and development, particularly for the Zii Platform. As a result, operating expenses may increase in the coming quarters.

The overall market for the Group’s current products remains difficult and the Group expects to report an operating loss in the current quarter.

Net Sales
Net sales for the third quarter of FY2010 decreased by 24% compared to the same quarter in FY2009, and net sales for the cumulative nine months ended 31 March 2010 decreased by 43% compared to the same period in FY2009. The decrease in net sales was mainly due to lower revenues from digital audio players, and following the global economic downturn, 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 was 26% in the third quarter of FY2010 and 25% in the cumulative nine months period of FY2010 compared to 8% in the third quarter of FY2009 and 16% in the cumulative nine months period of FY2009. Gross profit margin in the third quarter and the cumulative nine months period of FY2010 at 26% and 25%, respectively, was consistent with the mix of products sold. Gross profit margin in the third quarter and the cumulative nine months period of FY2009 was lower due mainly to a higher percentage of sales coming from digital audio players which have
lower gross profit margin. Gross profit margin for FY2009 was also negatively impacted by sales and price reductions at the beginning of the economic downturn in early FY2009.

Net Loss
Net loss for the third quarter of FY2010 was US$20.8 million compared to US$47.6 million in the third quarter of FY2009. Net loss for the cumulative nine months ended 31 March 2010 was US$27.1 million compared to US$123.9 million of the same period in 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 third quarter and the cumulative nine months period of FY2010 decreased by 23% and 40%, respectively, compared to the third quarter and cumulative nine months period of FY2009.

Research and development expenses in the third quarter and the cumulative nine months period of FY2010 decreased by 4% and 11%, respectively, compared to the third quarter and the cumulative nine months period of FY2009. There were smaller reductions in research and development expenses as the Group needs to continue to invest in product research and development in areas that are strategic to the Group, cutting back research and development spending only in product areas that are not strategic going forward.

Restructuring charges of US$11.2 million in the third quarter and the cumulative nine months period of FY2009 were related to severance payments and costs associated with headcount reductions, primarily in the Company’s global field organizations and facilities costs from consolidated of certain international offices.

Other losses of US$7.4 million in the third quarter of FY2010 were mainly due to foreign exchange losses of US$7.7 million. Other gains of US$5.7 million for the cumulative nine months period of FY2010 comprised a US$4.9 million gain on disposal of investment in an associated company, US$1.7 million government grant to a subsidiary company (this entity was an associated company in the previous financial year) and foreign exchange losses of US$1.8 million.

Other losses of US$8.6 million in the third quarter of FY2009 were mainly due to foreign exchange losses of US$9.1 million. Other losses of US$48.9 million for the cumulative nine months period of FY2009 comprised mainly of foreign exchange losses of US$37.1 million and US$12.4 million impairment in value of financial assets, available for-sale following the onset of the global financial crisis.

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 equivalents were held mainly in Euro, Singapore dollar, British Pound and Japanese Yen. In the third quarter of FY2010, there was a significant depreciation of Euro and British Pound against US dollar. In the second quarter of FY2010, there were no major exchange differences while in the first quarter of FY2010, these currencies appreciated against US dollar. In the third quarter and cumulative nine months period of FY2009, these currencies declined significantly against the US dollar.

Income tax was a credit of US$1.9 million for the cumulative nine months period of FY2010 due mainly to a US$2.0 million write back of deferred tax liability pertaining to offshore interest income remitted to Singapore in the second quarter of FY2010. The interest income remitted is not taxable now due to a tax concession granted by the Singapore tax authorities.

7 comments:

Anonymous said...

US$1.7 million government grant to a subsidiary company (this entity was an associated company in the previous financial year)

Jimmyboy88 said...

probably for the futurebooks? ;)

Anonymous said...

Other gains of US$2.6 million in the second quarter of FY2010 comprised mainly of US$1.7 million government grant
to a subsidiary company (this entity was an associated company in the previous financial year).

Anonymous said...

"The overall market for the Group’s current products remains difficult......."

Today:
Loss Down because Sales Down

Tomorrow:
NO LOSS because NO SALES

I can't bear to see Creative suffer this way...
grrrrrrrrrrr.. time for Creative's board of directors to fire all at top level including CEO. Let'em take a break and come back after few years with some fresh innovative ideas, product designs and marketing techniques .(Example : http://en.wikipedia.org/wiki/Steve_Jobs)

Anonymous said...

Quarter after christmas is always low on sales...current quarter will be doing better...lessons have to be learnt no doubt...including those punters burnt recently...

Jimmyboy88 said...

i know SGX can force a company to delist from the stock exchange if they are not making profit for a long period of time. let's hope this will not happen to Creative :(

Anonymous said...

3yrs annual loss + market cap less than 40mil. Delist now is good, exit offer S$6+ (based on net assets). sure profit!

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