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2009-09-30 11:34
PAQ International - Interim Results |
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RNS Number : 9533Z PAQ International Holdings Limited 30 September 2009
PAQ INTERNATIONAL HOLDINGS LIMITED
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2009 Chairman's Statement I report on the financial results for PAQ International Holdings Limited (the "Company" or "PAQ") and its subsidiaries (collectively referred to as the "Group") for the six months ended 30 June 2009. PAQ is an AIM listed designer and manufacturer of branded and Original Equipment Manufacturer ("OEM") "softwear" for electronic products and accessories. Operational Review This has been a challenging six months with business around the world suffering as a consequence of the banking collapse over the last quarter of 2008. Our operating performance was adversely affected and the Group experienced an operating loss for the six months ended 30 June 2009. The decrease in trade is mainly attributable to a reduction in orders from the Group's overseas customers who were likewise adversely affected and who consequentially adopted a more cautious, approach in their purchase orders. A major customer, Circuit City Stores Inc, filed for bankruptcy this year and they were previously one of our largest customers in the US market. Therefore, without their continuing custom the Group's revenues in the US has been significantly reduced. Also, the Group was subject to litigation concerning intellectual property which has now been dismissed although it has taken some time to resume normal client relationships in Europe given the uncertainty that the litigation created. More generally, trading has been weak across all markets and products. The Board has decided to defer any substantial capital outlay required to expand the Group's entry into the People's Republic of China (PRC) market as anticipated until market conditions justify such a move. The Group did spend HK$3.2m for additional PPM (Property, Plant and Machinery) to fabricate new moulds as required by customers. The Group's current focus is to reduce costs and defer or terminate expansion plans until the turnover and profits of the Group allow such actions to become feasible as the Board is confident that the market will improve in the second half of 2009. Meanwhile, the Board has explored ways of expanding the Group's operations by entering into licensing arrangements which will bring benefits to the Group with relatively low costs incurred. This strategy is coming close to fruition and we have entered into and are in the process of concluding a series of joint venture agreements with Fobazo.com A/S (Denmark) ("Fobazo"). Fobazo owns exclusive rights to the promotion of some of the world's most famous names in football. Also, the Group is negotiating sub - licensing and franchise agreements that should begin to make a financial contribution to the Group in the coming year. Financial Review PAQ's revenue during the first half of the year 2009 was HK$13.54m as opposed to HK$44.43 m for the first half of 2008. This is a significant reduction of approximately 70% Whilst Gross Profit margins fell noticeably to 8% during this period in comparison to 18% in 2008 following increases in both production and operating costs in the PRC. As a result, the Company recorded a loss after tax of approximately HK$3.7m in the first half of 2009 against a profit of HK$3.4m for the same period in 2008. Working Capital Review The Group's capital expenditure during the first half of 2009 was HK$3.2m on additional Plant, Property and Machinery for new moulds as many customers were not prepared to pay for the mould fees for the development of new models for production. However, the Group does believe that incurring such costs nevertheless does provide a competitive advantage against our competitors. Management expects to continue incurring capital expenditure at a similar level for the remainder of 2009. The Group finances its capital expenditure requirements primarily with cash generated from its operations. The Group has internal budgeting systems in place to ensure that if and when cash is committed to fund major expenditures there is sufficient cash flow to maintain the Group's daily operations and meet all of its contractual obligations. Although the Group has consistently maintained a very liquid position, banking facilities have nevertheless been put in place for contingency purposes. As at 30 June 2009, the Group had trade financing facilities amounting to HK$10.5m, a term loan facility amounting to HK$1m and a revolving credit line for working capital purposes amounting to HK$1.8m. The total undrawn portion of these facilities is HK$1.8m. The interest rates for the trade financing line range from 5.75% to 6.25% and this facility is denominated in Hong Kong Dollars. The term loan facility carries interest at a rate of 5.75% and is also denominated in Hong Kong Dollars. The revolving credit line has an interest rate of 1% plus HIBOR and is denominated in Hong Kong Dollars. It is rolled-over monthly for working capital financing. The Group's accounting policy regarding bad debts is to provision at year end any payments which have not been settled by the customer within 360 days. Due to the global financial crisis a number of our customers have extended their payment period, therefore, our receivables collection period has increased from 152 days to 448 days. The Group has extended payment terms to those customers with whom they have maintained long working relationships. The group has received HK$5m from the outstanding receivables as at 30 June 2009 during July and August. We are confident that the outstanding receivable amounts will continue to decrease as a result of payments from our customers in the fourth quarter of year 2009. Finally, The Group is continuing its efforts to recover HK$9.6m bad debt that was reported in our year ended 31 December 2008. The Group currently has no other material external debt financing in place. If and when the Group decides to raise any finance in the future, it expects to be able to utilise a variety of options, including debt financing and access to the capital markets, where necessary and available. The Group has an overdraft facility of HK$11m as of 30 June 2009 compared with a HK$7.5m overdraft as of 30 June 2008. The increase was due to the purchase of plant and machinery of HK$3.2m. Going forward, the Directors believe that the Group's liquidity requirements for the foreseeable future can be satisfied; however, the Board is monitoring this situation very closely. Contingent Liabilities As at 30 June 2009, the Group had no contingent liabilities and also the Group has no bad debts. Net Current Liabilities The net current liabilities reported of $9.1M shows a marked deterioration from the net current assets of $6.4m reported on 30 June 2008. The net current liabilities position is being managed according to the ability of the Group to service its working capital as set out above. The Group does expect the second half of 2009 to improve the working capital position. Related Transactions In comparison with 2008, amounts due from related companies increased by HK10,000 which was in relation to PAQ Concept Ltd. This represents the incorporation fee and is temporary recorded in the books as an amount due from a related company and will be recognized as investment to subsidiary and eliminated in consolidated accounts by the year end. Dividend The Directors are not recommending payment of an interim dividend. Outlook and Future Prospects The Board is now prioritizing the strategy of licensing and joint venture arrangements and we are looking to enhance the PAQ brand by leveraging on our historical manufacturing strengths in cases and bags for electronics products and accessories. We will continue to develop our expertise in producing high quality, reliable and innovative products. The Group will also strengthen its design and development capabilities to further raise its brand profile to distinguish itself from other product suppliers. The Board believes that the joint venture and licensing strategies referred to above have the potential to generate significant publicity, brand recognition and revenue in the lead up to the World Cup in South Africa in 2010. Despite signs of a global recovery, we remain prudent in the current market condition and we are currently working with our customers towards developing strategies that reflect the deteriorating conditions in some markets such as reducing stock inventories and producing cheaper range of bags while deferring the implementation of any contracts that may incur a substantial financial outlay. Notwithstanding the current poor market conditions, the Board is confident of the long term prospects of the Group. Issue of Equity During the period the Group has attracted further investment from a strategic investor, Noah Concept Limited. The investor subscribed to 3.15% or HK$1.5m of new ordinary shares in the Company. Appreciation Finally, on behalf of the Board, I would like to thank our customers, suppliers and shareholders for their continued support of the Group and I would also like to recognize the hard work from the management team and our highly dedicated team of employees for their respective contributions to the Group. Kelvin Kwong Chi Yau Chairman and Chief Executive Officer 30 September 2009 Note: A copy of the interim accounts for the six months ended 30 June 2009 will be available on www.paq-intl.com Contact
PAQ International Holdings
www.paq-intl.com
Zimmerman Adams International Ltd PAQ International Holdings Limited Unaudited consolidated income statement For the six months ended 30 June 2009
(Loss) / Profit and total comprehensive income
-3,737 3,493 -9,478.00
PAQ International Holdings Limited Unaudited consolidated statement of financial position As at 30 June 2009
Non-current assets
Current assets
Current liabilities
Non-current liabilities
348 0 385
Capital and reserve
PAQ International Holdings Limited Unaudited condensed consolidated statement of changes in equity For the six months ended 30 June 2009
shares (Note (ii))
(Note (iii))
Note:
PAQ International Holdings Limited Unaudited condensed consolidated cash flow statement For the six months ended 30 June 2009
2009 2008 2008
Net cash used in investing activities
Net cash from financing activities
balances and cash
Notes to the condensed consolidated interim financial information For the six months ended 30 June 2009
The condensed consolidated interim financial information have been prepared in accordance with International Accounting Standard 34 ("IAS 34"), Interim Financial Reporting.
2. PRINCIPAL ACCOUNTING POLICIES The condensed consolidated interim financial information have been prepared on the historical cost basis. The accounting policies used in the condensed consolidated interim financial information are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008 except as described below. In the current interim preiod, the Group has applied, for the first time, the following new and revised standards, amendments and interpretations ("new and revised IFRSs") which are effective for the Group's financial year beginning on 1 January 2009.
IFRIC 9 & IAS 39 (Amendments) Embedded Derivatives
2009
IAS 39 IAS 1 (Revised 2007) Presentation of Financial Statements IAS 1 (Revised 2007) has introduced a number of terminology changes, including revised titles for the condensed consoldiated interim financial information, and has resulted in a number of changes in presentation and disclosure. However, IAS 1 (Revised 2007) had no impact on the reported results or financial position the Group.
In previous years, the Group expensed all borrowing costs that were directly attributable to the acquisition, construction or production of an qualifying asset when they were incurred. IAS 23 (Revised 2007) removes the option available under the previous version of the Standard to recognize all borrowing costs as expenses immediately and requires all such borrowing costs to be capitalized as part of the cost of the qualifying asset. The Group has applied the revised accounting policy prospectively. The application of IAS 23 (Revised 2007) had no impact on the reported results or financial position of the Group. IFRS 7 (Amendment) Improving Disclosures about Financial Instruments IFRS 7 (Amendment) increases the disclosure requirements about fair value measurement and amends the disclosure about liquidity risk. The amendment introduces a three-level hierarchy for fair value measurement disclosures about financial instruments and requires some specific quantitative disclosures for those instruments classified in the lowest level in the hierarchy. These disclosures will help to improve comparability between entities about the effects of fair value measurements. In addition, the amendment clarifies and enhances the existing requirements for the disclosure of liquidity risk primarily requiring a separate liquidity risk analysis for derivative and non-derivative financial liabilities. It also requires a maturity analysis for financial assets where the information is needed to understand the nature and context of liquidity risk. The Group will make additional relevant disclosures in its financial statements ending 31 December 2009. IFRS 8 Operating Segments IFRS 8 requires segment disclosure to be based on the way that the Group's chief operating decision maker regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Group's chief operating decision maker for the purposes of assessing segment performance and making decisions about operating matters. This contrasts with the presentation of segment information in prior years which was based on a disaggregation of the Group's financial statements into segments based on related products and services and on geographical areas. The adoption of IFRS 8 has resulted in the presentation of segment information in a manner that is more consistent with internal reporting provided to the Group's most senior executive management, and has resulted in additional reportable segments being identified and presented (See note 3). As this is the first period in which the Group has presented segment information in accordance with IFRS 8, additional explanation has been included in the condensed consolidated interim financial information which explains the basis of preparation of the information. Corresponding amounts have also been provided on a basis consistent with the revised segment information. The adoption of the other new and revised IFRSs has had no material effect on the reported results and financial position of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognized. The Group has not early applied the following new or revised standards, amendments or interpretations that have been issued but are not yet effective:
2)
IAS 27 (Revised 2008) Consolidated and Separate Financial Statements
IFRS 3 (Revised 2008) Business Combinations (note 1)
1)
Note: 1. Effective for annual periods beginning on or after 1 July 2009. 2. Amendments that are effective for annual periods beginning on or after 1 July 2009 or 1 January 2010, as appropriate. 3. Effective for transfers on or after 1 July 2009. 4. Effective for annual periods beginning or or after 1 January 2010. The adoption of IFRS 3 (Revised 2008) may affect the Group's accounting for business combinations for which the acquisition dates are on or after 1 January 2010. IAS 27 (Revised 2008) will affect the accounting treatment for changes in the Group's ownership interest in a subsidiary. The directors of the Company anticipate that the application of other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group. 3. SEGMENT INFORMATION The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Group's chief operating decision maker in order to allocate resources to segments and to assess their performance. In prior years, on segment information is presented as the Group is principally engaged in the manufacturing and distributing branded softwear for branded electronic products and accessories which comprise a single business segment. However, information reported to the Group's cheif operating decision maker for the purposes of resource allocation and performance assessment focuses more specifically on the following geographical location of customers. The Group's reportable segments under IFRS 8 are therefore as follows:
The following is an analysis of the Group's revenue and results by operating segment for the period under review: For the six months ended 30 June 2009
Revenue
For the six months ended 30 June 2008
Revenue
Segment profit represents the gross profit earned by each segment. This is the measure reported to board of directors for the purposes of resource allocation and performance assessment. 4. (LOSS) / PROFIT BEFORE TAX
(Loss) / Profit before tax has been arrived at:
After charging:
449 292
Cost of inventories (ii) 12,454 36,452 Depreciation on property, plant and equipment 1,313 364 Minimum lease payment under operating lease 180 595 Net foreign exchange losses 6 425 Impairment loss on other receivables - 1,526 Research and development costs 162 243 Note: (i) Staff costs include approximately HK$162,000 (for the six months ended 30 June 2008: HK$243,000) relating to research and development costs disclosed separately in Note 4(c ). (ii) Cost of inventories includes approximately HK$159,000 (for the six months ended 30 June 2008: HK$2,310,000) relating to operating lease charges, staff costs and depreciation, which are included in the respective total amounts disclosed separately above or Note 4(b) for each of these types of expenses. After crediting:
5. INCOME TAX EXPENSES
2009 2008
No provision for income tax has been made for the Company and group entities established in the Cayman Islands and Hong Kong as they have no assessable income during the interim period. The provision of Hong Kong profits tax is calculated by applying the estimated annual effective tax rate of 16.5% for the six months ended 30 June 2008. Pursuant to the relevant laws and regulations in the People's Republic of China ("PRC"), the Group's PRC subsidiary is exempted from PRC enterprise income tax for the two years from the first profit-making year and thereafter is entitled to a 50% relief from PRC enterprise income tax for the following three years. The PRC subsidiary was in its [ third ] profit-making year for the six months ended 30 June 2009. 6. EARNINGS PER SHARE
7. MOVEMENT IN PROPERTY, PLANT AND EQUIPMENT During the six months ended 30 June 2009, the Group spent HK$3,203,000 (for the six months ended 30 June 2008: HK$83,000) on the acquisition of property, plant and equipment.
8. GOODWILL
2009 2008
COST
On 18 January 2008, PAQ Manufacturing Limited, a wholly owned subsidiary of the Company, acquired 51% equity interest in Plato Leatherware Company Limited at a cash consideration of HK$2,448,000.
The net liabilities acquired on 18 January 2008 and the goodwill arising are as follows:
Net assets/(liabilities) acquired:
Total consideration satisfied by:
Net cash outflow arising on acquisition:
On 11 June 2008, PAQ Manufacturing Limited further acquired the remaining 49% equity interests in Plato Leatherware Company Limited at a cash consideration of approximately HK$9,901,000 and 8,772,000 issued shares of the Company. Plato Leatherware Company Limited became a wholly owned subsidiary of the Company thereafter. Pursuant to the sale and purchase agreement in relation to the acquisition of the remaining 49% equity interests in Plato Leatherware Company Limited, a part of cash consideration of HK$2,448,000 for the acquisition was contingent on the fund raising by the Company after admission to the AIM by means of share placement on or before 1 May 2009. Management of the Company considered that the fund raising exercise was not probable and did not include the aforesaid cash consideration of HK$2,448,000 in the cost of acquisition at the acquisition date. Subsequent to the date of acquisition of the remaining 49% equity interest in Plato Leatherware Company Limited and up to 1 May 2009, no fund raising by the Company occurred. After the completion of the acquisition of the remaining 49% equity interests in Plato Leatherware Company Limited on 11 June 2008, the goodwill arising is as follows:
Purchase consideration:
Acquisition of additional interest in a subsidiary from a minority
Note: At 31 December 2008, the consideration of 8,772,000 shares of the Company for the acquisition had not yet been issued and therefore the fair value of 8,772,000 shares to be issued for the acquisition had been recognized as "shares to be issued" in the equity. Shares to be issued was based the published price of the Company's shares as quoted on the AIM on 11 June 2008.
9. TRADE AND OTHER RECEIVABLES
2009 2008
An ageing analysis of trade receivables (net of allowance for doubtful debts) at the end of the interim / reporting period is as follows:
2009 2008
Trade receivables are due upon the date of billing.
10. TRADE AND OTHER PAYABLES
2009 2008
An ageing analysis of trade payables at the end of the interim / reporting period is as follows:
2009 2008
The average credit period on purchase of goods is 30 days.
11. BORROWINGS
Secured:
Unsecured:
At the end of the interim / reporting period, the bank borrowings were repayable as follows:
2009 2008
348 347
Note:
SHARE CAPITAL
Note:
All the new shares issued during the financial period rank pari passu in all respects with the existing shares of the Company. 13. BANKING FACILITIES At the end of the interim period, the Group had general banking facilities granted by banks to the extent of approximately HK$13,300,000 (as at 31 December 2008: HK$13,300,000). The Group's bank borrowings and other banking facilities were secured by:
14. COMMITMENTS
At the end of the interim / reporting period, the total future minimum lease payments under non-cancelable operating leases were payable as follows:
2009 2008
Operating leases related to rental premises with lease terms of between two to five years. None of the leases includes contingent rentals. 16. CONTINGENT LIABILITIES PAQ Manufacturing Limited, a wholly owned subsidiary of the Company, was one of the defendants in a pending litigation and dispute arising from the ownership of a copyright with a supplier. The supplier's claims against the defendants are mainly for damages in resepct of the defendants' acts of copyright infringement. No provision in relation to this claim has been made in this condensed consolidated interim financial information, as legal adviser indicates that it is not probable that a significant liability will arise. There were no contingent liabilities as at 31 December 2008 and 30 June 2009. 17. RELATED PARTY TRANSACTIONS
2009 2008
780 603
This information is provided by RNS The company news service from the London Stock Exchange END
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