Creative Suffers Q4 FY10 Loss; Dividend Announced :) ~ Creative Labs Zen MP3 Players Sound Blaster Card
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Friday, August 6, 2010

Creative Suffers Q4 FY10 Loss; Dividend Announced :)



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
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
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
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.

BALANCE SHEETS
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.

Please feel free to let us know in the comments section below.

25 comments:

Anonymous said...

First thing, find out more on qmax and m1 and a malaysian co. also doing wimax.

Anonymous said...

Believe it or Not, CREATIVE is all about mismanagement. Never gonna make any profit ever again.

tacitium said...

Creative isn't about mismanagement. Its about going where others do not go. They just need to come out at the right time, or repeat history like how they did for their old but amazing products.

Creative's going in the right direction. They just need some buzz before they get their products out.

"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."

Anonymous said...

Doomsday in 2012.

Anonymous said...

2012 pretty good chance trading at triple digits, harvest time. Most companies diluted shares with right issues during their difficult times. Creative on the other hand bought and cancel off shares. Once turnaround, upside is explosive.

Anonymous said...

Jimmy, are you aware that most singapore schools still using Creative chinese dictionary (with voice)? Besta is a competitor.

Anonymous said...

Before soundblaster got adlib and 4bit pc speaker.

Anonymous said...

Please post something on wimax/qmax/m1/etc. Don't get advert revenue or free creative products with min. effort.

Anonymous said...

Previous govt grant might not be for mediabook, maybe is wimax. Mediabook grant might be more.

Jimmyboy88 said...

i know a lot of students using han vision tool looks like a calculator

what about qmax? creative already sold it to m1

Anonymous said...

http://www.straitstimes.com/Breaking+News/Singapore/Story/STIStory_425477.html
That was qala sold. If certain targets met, Creative may get a couple of million more.
Creative still owns significant qmax, rest should be m1:
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.

Jimmyboy88 said...

with m1 being the main shareholder, qmax will just be a small venture project for creative. they should still concentrate on zii instead

Anonymous said...

Previous govt grant could be for qmax (subsidiary). It shouldn't be for mediabook since ziilabs is fully owned. Mediabook should get more grant later on since the award was finalized around mar 2010. Zii platform includes the chip, other hardware, OS that allow apps to tap the array, applications and enhancements and now infrastruture (wimax). Creative to reboot from Singapore soon.

Anonymous said...

Did you check out this?
http://www.qmaxcom.com/

Anonymous said...

Subsidiary means at least 50% voting rights. Creative owns more than 50% of qmax. Not small venture. For Singapore, first in tech almost always funded by govt. Wanted to buy more at 4.01 but someone snatch first.

Anonymous said...

Govt grant, not full funding

Jimmyboy88 said...

so its not mediabook play anymore? :)

Anonymous said...

Wimax should launch together with some "devices"...

Jimmyboy88 said...

how about zii trinity 4g phone? :)

Anonymous said...

When creative was declaring war on apple, I hoped they develop pocket pc phone. Unfortunately they took wrong strategy. It's never too late. With wimax, they will be able to lead again. Mediabook must tie up with NLB. At current prices, 2.5% div yield. Turnaround as early as 4Q this year, or 1st half next year. Jimmy should consider some investments if got deep pockets.

Anonymous said...

It is not possible to launch wimax without "devices". At current tech, mobile phone form factor too small to tap wimax full adv.
http://www.zdnetasia.com/s-pore-wimax-beckons-foreign-operators-62058879.htm

Anonymous said...

Short term indications heading up, good entry point. S$4 holding quite well, hoping of lower but fail to. But only for those with deep pockets and don't mind holding till 2012. You can buy via limtan mtrade and get commission rebate up to S$75 (virtually commission free). "Mediabook" right on track (after some delay), likely lauch with qmax wimax but full consumer availability likely end of year or 1st half next year. They are super secretive about things that they don't update anything on their websites. Nowadays lesser FCC leaks before launch. Likely preparing "big" things.

Anonymous said...

JB88 is happy when more posts here. More revenue, cash register ringing. Anyway, over the past year, Creative always says "continue to invest Zii platform". At least some info given now and they sound more optimistic, but we may have to wait up to next year this time to see results in financial statements. But market may react 6-12months earlier.

Anonymous said...

Yet another day $4 holding....

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