Creative Q2FY11 Financial Result Reports Net Loss of US$10.9 ~ Creative Labs Zen MP3 Players Sound Blaster Card
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Sunday, January 30, 2011

Creative Q2FY11 Financial Result Reports Net Loss of US$10.9




Net Sales
Net sales for the second quarter of FY2011 decreased by 14% compared to the same quarter in FY2010, and net sales for the first half year of FY2011 decreased by 17% compared to the same period in FY2010. Revenue was lower in the second quarter and first half year of FY2011 as the Group continues to be affected by the difficult market for its products, particularly for the personal digital entertainment products.

Gross Profit
Gross profit margin at 26% in the second quarter of FY2011 and 25% in the first half year of FY2011 was consistent with the mix of products sold and comparable to the gross profit margin of 25% in the second quarter and first half year of FY2010.

Net Loss
Net loss for the second quarter of FY2011 was US$10.9 million compared to US$5.3 million in the second quarter of FY2010. Net loss for the first half year of FY2011 was US$14.5 million compared to US$6.3 million in the first half year of FY2010.

Research and development expenses in the second quarter and first half year of FY2011 increased by 12% and 13%, respectively, compared to the second quarter and first half year of FY2010. 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 to the Group.

Other gains of US$2.6 million in the second quarter of FY2011 and US$15.7 million in the first half year of FY2011 were mainly due to foreign exchange gains of US$2.6 million and US$15.8 million in the second quarter and first half year of FY2011. Other gains of US$2.6 million in the second quarter of FY2010 comprised mainly of a US$1.7 million government grant to a subsidiary company. Other gains of US$13.1 million in the first half year of FY2010 comprised mainly of a US$4.9 million gain on disposal of investment in an associated company, foreign exchange gains of US$5.9 million and a US$1.7 million government grant to a subsidiary company.

The government grant was given previously in respect of certain fixed assets used for a project and was recorded as a deferred revenue. In the second quarter of FY2010, following the completion of the project which the grant was given, the subsidiary company accelerated the depreciation of the related fixed assets that are no longer in use and recorded an additional depreciation charge of US$1.7 million. Correspondingly, the balance of US$1.7 million in the deferred revenue account was recognized as other gains in the income statement.

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 Singapore dollar, Euro, British Pound and Japanese Yen. The exchange gain in the first quarter of FY2011 was mainly due to the significant appreciation of these currencies against the US dollar during the quarter. In the first quarter of FY2010, these currencies had also appreciated, but the appreciation was not as significant compared to the first quarter of FY2011. In the second quarter of FY2011, the exchange gain was due mainly to the appreciation of Singapore dollar.

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