Bad news, another loss for Creative this quarter. Lower sales due to Creative's has been reducing their consumer market and focus on OEM business. Good news is that, they manage to reduce the net loss to US$11.3 million compared to US$14.0 million in the fourth quarter of FY2009.
What really interest the investors is a tax exempted S$0.10 dividend announced. Good for those who owned Creative shares :)
For the past year, despite the difficult market conditions, the Group has continued to invest in product research and development, particularly for the Zii Platform. For the current financial year, the Group expects to start seeing results from these investments with the introduction of more new products and services under the Zii Platform, mainly in the second half of the financial year.
The Group is also expected to incur more capital expenditures in the current financial year, mainly by its subsidiary, QMax Communications Pte Ltd, as it starts to invest in a new island-wide next generation WiMAX Wireless Broadband network in Singapore. The new WiMAX network is expected to provide opportunities to introduce service offerings that can be synergistic with some of the new products and services under the Zii Platform.
For the current quarter, the overall market for the Group’s current products remain difficult and the Group expects to report an operating loss.
Net sales for the fourth quarter of FY2010 decreased by 31% compared to the same quarter in FY2009, and net sales for FY2010 decreased by 41% 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 in FY2009, the Group’s decision to consolidate certain businesses in order to focus on specific markets that provide best opportunities to improve business going forward. By geographical regions, the decrease in net sales was mainly the Americas and
Europe regions which were more severely affected by the global economic downturn.
Gross profit margin was 24% in the fourth quarter of FY2010 and FY2009 and 25% in FY2010 compared to 17% in FY2009. Gross profit margin in the fourth quarter of FY2010 and FY2010 at 24% and 25%, respectively, was consistent with the mix of products sold. Gross profit margin in FY2009 was lower mainly due to a higher percentage of sales coming from digital audio players which had lower gross profit margin and it was also negatively impacted by sales and price reductions due to the economic downturn in FY2009.
Net loss for the fourth quarter of FY2010 was US$11.3 million compared to US$14.0 million in the fourth quarter of FY2009. Net loss for FY2010 was US$38.4 million compared to US$137.9 million 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 fourth quarter and FY2010 decreased by 30% and 38%, respectively, compared to the fourth quarter of FY2009 and FY2009.
Research and development expenses in the fourth quarter of FY2010 increased by 15% compared to the fourth quarter of FY2009. There was an increase 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. For the full year ended 30 June 2010, research and development expenses decreased by 5% compared to FY2009.
Restructuring charges of US$11.2 million in FY2009 were related to severance payments and costs associated with headcount reductions, primarily in the Group’s global field organizations and facilities costs from consolidation of certain international offices.
Other losses of US$2.3 million in the fourth quarter of FY2010 were mainly due to US$6.4 million of foreign exchange losses offset by a US$4.8 million gain on disposal of investment in an associated company. Other gains of US$3.4 million in FY2010 comprised a US$9.7 million gain on disposal of investments in associated companies, a US$1.9 million government grant to a subsidiary company offset by foreign exchange losses of US$8.2 million.
Other losses of US$2.1 million in the fourth quarter of FY2009 were mainly due to allowance for impairment of loan to non-related party US$12.8 million, impairment loss of financial assets, available-for-sale of US$1.0 million offset by foreign exchange gains of US$12.2 million. Other losses of US$51.0 million in FY2009 comprised mainly allowance for impairment of loan to non-related party of US$12.8 million, foreign exchange losses of US$24.9 million and US$13.4 million impairment loss of financial assets, available-for-sale following the onset of the global financial crisis.
Allowance for impairment of loan to non-related party relates to loans made to an ex-subsidiary for the purchase of properties, construction of factory and working capital purposes. Under the terms of the divestment agreement, the loans would be repaid in various installments up to 1 June 2011. The ex-subsidiary had failed to repay the installment due on 1 June 2009 and the Company has considered it appropriate to provide for the outstanding loan balance in the fourth quarter of FY2009. In FY2010, there were no repayments of the installments due.
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 and fourth 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 cumulative first nine months period of FY2009, these currencies declined significantly against the US dollar while in the fourth quarter of FY2009, these currencies appreciated against US dollar. Income tax credit of US$8.3 million in FY2010 was due mainly to a US$8.3 million write back of deferred tax liability.
Deferred tax liability of US$6.3 million was written back in the fourth quarter of FY2010 due to the expiration of the Company’s pioneer status in March 2010 where pioneer losses brought forward from the previous financial years can be used to offset certain tax liabilities. Deferred tax liability of US$2.0 million was written back in the second quarter of FY2010 pertaining to offshore interest income remitted to Singapore which was not taxable due to a tax concession granted by the Singapore tax authorities. Income tax was a credit of US$0.5 million in FY2009.
The increase in financial assets, available-for-sale as at 30 June 2010 was due to the fair value gain on revaluation of the investments. The decrease in other non-current assets was mainly due to the utilization of security deposit for the payment of the Group’s headquarters office building rental. The increase in inventories was due to additional inventories for certain new speaker and headphone products which were in line with the production plan. The decreases in trade receivables and trade payables balances were in line with the significant reduction in sales.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net cash used in operating activities in FY2010 of US$28.3 million (FY2009: US$12.8 million) was mainly due to net operating loss for the year.
Net cash provided or used in investing and financing activities in FY2010 was not material. In FY2009, net cash used in financing activities of US$122.7 million was mainly due to the repayment of US$100 million syndicated term loan and purchase of treasury shares of US$22.7 million.
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