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SIM Technology Group Limited — Interim / Quarterly Report 2012
Aug 21, 2012
50331_rns_2012-08-21_0788f904-c5f0-49e3-8efe-a5fffcea7815.pdf
Interim / Quarterly Report
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Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
SIM TECHNOLOGY GROUP LIMITED 晨訊科技集團有限公司[*]
(Incorporated in Bermuda with limited liability)
(Stock code: 2000)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012
The board of directors (the “Board”) of SIM Technology Group Limited (the “Company”) hereby announces the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2012 together with the comparative figures for the corresponding period in 2011 as follows:
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
| NOTES Revenue 3 Cost of sales Gross profit Other income 5 Other gains and losses 7 Research and development expenses Selling and distribution costs Administrative expenses Finance costs Loss before taxation Tax credit (charge) 6 Loss for the period 7 Loss for the period attributable to: Owners of the Company Non-controlling interests Loss per share (HK cents) 9 basic and diluted |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 1,316,727 1,265,378 (1,185,308) (1,142,168) 131,419 123,210 29,630 24,571 (20,652) 25,905 (91,911) (76,326) (53,758) (47,821) (58,065) (64,038) (2,433) (3,497) (65,770) (17,996) 2,494 (2,810) (63,276) (20,806) (58,282) (18,748) (4,994) (2,058) (63,276) (20,806) (3.4) (1.2) |
|---|---|
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CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
| Loss for the period Other comprehensive (expense) income: Exchange difference arising on translation to presentation currency Total comprehensive (expense) income for the period Total comprehensive (expense) income attributable to: Owners of the Company Non-controlling interests |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (63,276) (20,806) (10,204) 35,571 (73,480) 14,765 (67,800) 16,251 (5,680) (1,486) (73,480) 14,765 |
|---|---|
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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| NOTES Non-current assets Investment properties Property, plant and equipment Land use rights Goodwill Intangible assets Deferred tax assets Available-for-sale investments Deposits paid for property, plant and equipment Current assets Inventories Properties under development for sales Trade receivables 10 Notes receivable 10 Other receivables, deposits and prepayments Pledged bank deposits Bank balances and cash Current liabilities Trade payables 11 Other payables, deposits received and accruals Bank borrowings Tax payable Net current assets Total assets less current liabilities Capital and reserves Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Total equity Non-current liability Deferred tax liabilities |
As at As at 30 June 31 December 2012 2011 HK$’000 HK$’000 (unaudited) (audited) 281,637 273,023 708,196 684,271 96,163 98,401 7,321 28,321 132,756 180,432 20,663 17,946 16,470 16,605 5,522 11,680 1,268,728 1,310,679 519,444 620,729 232,081 206,772 256,733 105,512 296,352 631,521 301,780 293,548 262,190 171,890 352,604 500,817 2,221,184 2,530,789 569,346 871,302 424,654 327,327 438,449 511,472 2,385 5,214 1,434,834 1,715,315 786,350 815,474 2,055,078 2,126,153 170,500 170,500 1,751,880 1,815,966 1,922,380 1,986,466 82,744 88,424 2,005,124 2,074,890 49,954 51,263 2,055,078 2,126,153 |
As at As at 30 June 31 December 2012 2011 HK$’000 HK$’000 (unaudited) (audited) 281,637 273,023 708,196 684,271 96,163 98,401 7,321 28,321 132,756 180,432 20,663 17,946 16,470 16,605 5,522 11,680 1,268,728 1,310,679 519,444 620,729 232,081 206,772 256,733 105,512 296,352 631,521 301,780 293,548 262,190 171,890 352,604 500,817 2,221,184 2,530,789 569,346 871,302 424,654 327,327 438,449 511,472 2,385 5,214 1,434,834 1,715,315 786,350 815,474 2,055,078 2,126,153 170,500 170,500 1,751,880 1,815,966 1,922,380 1,986,466 82,744 88,424 2,005,124 2,074,890 49,954 51,263 2,055,078 2,126,153 |
|---|---|---|
| 1,310,679 | ||
| 620,729 206,772 105,512 631,521 293,548 171,890 500,817 |
||
| 2,530,789 | ||
| 871,302 327,327 511,472 5,214 |
||
| 1,715,315 | ||
| 815,474 | ||
| 2,126,153 | ||
| 170,500 1,815,966 |
||
| 1,986,466 88,424 |
||
| 2,074,890 | ||
| 51,263 | ||
| 2,126,153 |
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Development costs paid Deposits paid for purchase of property, plant and equipment Placement of pledged bank deposits Withdraw of pledged bank deposits NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Issue of shares Transaction costs attributable to issue of new shares New bank borrowings raised Repayments of bank borrowings Dividends paid Interest paid Repurchase of shares NET CASH USED IN FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE PERIOD, REPRESENTED BY BANK BALANCES AND CASH |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) 168,457 628 (64,469) (92,605) 206 93 (80,900) (83,742) (5,522) – (262,456) (44,583) 171,890 349,035 (241,251) 128,198 – 237,477 – (7,708) 219,582 127,175 (291,815) (417,203) – (51,733) (2,433) (3,497) – (13,195) (74,666) (128,684) (147,460) 142 500,817 534,522 (753) 9,302 352,604 543,966 |
|---|---|
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General information and basis of preparation
The Company was incorporated in Bermuda as an exempted company under the Companies Act 1981 of Bermuda (as amended) with limited liability. Its ultimate and immediate holding company is Info Dynasty Group Limited, a company incorporated in the British Virgin Islands.
The Company is an investment holding company. The principal activities of its subsidiaries are the manufacturing, design and development and sale of display modules, handsets and solutions, and wireless communication modules and property development in the People’s Republic of China (“PRC”).
The functional currency of the Company is Renminbi. The consolidated financial statements are presented in Hong Kong dollars, as the directors consider that it is a more appropriate presentation for a company listed in Hong Kong and for the convenience of the shareholders.
The condensed consolidated financial statements of the Group have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”.
2. Application of new and revised International Financial Reporting Standards
The condensed consolidated financial statements have been prepared on the historical cost basis except for certain properties, which are measured at fair values.
Except as described below, the accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 December 2011.
In the current period, the Group has applied, for the first time, the following amendments to International Financial Reporting Standards (“IFRSs”) issued by International Accounting Standards Board (“IASB”) that are effective for the Group’s financial year beginning on 1 January 2012.
IAS 12 (Amendments) Deferred tax – Recovery of underlying assets IFRS 7 (Amendments) Financial instruments disclosures – Transfers of financial assets
Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets
Under the amendments to IAS 12 “Deferred tax – Recovery of underlying assets”, investment properties that are measured using the fair value model in accordance with IAS 40 “Investment Properties” are presumed to be recovered through sale for the purposes of measuring deferred taxes, unless the presumption is rebutted in certain circumstances.
The Group measures it investment properties using the fair value model. As a result of the application of the amendments to IAS 12, the directors reviewed the Group’s investment property portfolios and concluded that the Group’s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodies in the investment properties over time, and that the presumption set out in the amendments to IAS 12 is rebutted. Previously, the Group recognised deferred taxes on changes in fair value of investment properties on the basis that the entire carrying amounts of the properties were recovered through use. As a result, the application of the amendments to IAS 12 in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.
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The application of other amendment to IFRSs had no effect on the condensed consolidated financial statements of the Group for the current or prior accounting periods.
3. Revenue
Revenue represents the amounts received and receivable for goods sold net of discounts and sales related taxes.
4. Segment information
Segment information is presented based on internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, represented by the executive directors, for the purpose of allocate resources to segments and assessing their performance.
The Group is currently organised into four reportable and operating segments – sale of handsets and solutions, sale of display modules, sale of wireless communication modules and property development.
As disclosed in the consolidated financial statements for the year ended 31 December 2011, property development operating activity has become substantial to the Group, therefore it is reported as a new reportable and operating segment. Figures in the segmental information for six months ended 30 June 2011 have been restated for comparative purposes only.
Segment information about these businesses is presented below:
Six months ended 30 June 2012 (Unaudited)
| Revenue External sales Inter-segment sales Total Segment (loss) profit Other income Corporate expenses Gain from changes in fair value of investment properties Finance costs Loss before taxation |
Sale of handsets and solutions HK$’000 1,037,257 – 1,037,257 (79,556) |
Sale of Sale of wireless display communication modules modules HK$’000 HK$’000 38,701 240,769 92,804 – 131,505 240,769 (2,265) 9,706 |
Property development HK$’000 – – – (3,414) |
Segment total HK$’000 1,316,727 92,804 1,409,531 (75,529) |
Elimination HK$’000 – (92,804) (92,804) – |
Consolidated HK$’000 1,316,727 – 1,316,727 (75,529) 13,549 (12,262) 10,905 (2,433) (65,770) |
|---|---|---|---|---|---|---|
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Six months ended 30 June 2011 – restated (Unaudited)
| Revenue External sales Inter-segment sales Total Segment (loss) profit Other income Corporate expenses Gain from changes in fair value of investment properties Finance costs Loss before taxation |
Sale of handsets and solutions HK$’000 934,024 – 934,024 (18,836) |
Sale of Sale of wireless display communication modules modules HK$’000 HK$’000 58,715 272,639 17,643 – 76,358 272,639 (15,002) 7,299 |
Property development HK$’000 – – – (1,742) |
Segment total HK$’000 1,265,378 17,643 1,283,021 (28,281) |
Elimination HK$’000 – (17,643) (17,643) – |
Consolidated HK$’000 1,265,378 – 1,265,378 (28,281) 15,560 (9,977) 8,199 (3,497) (17,996) |
|---|---|---|---|---|---|---|
Inter-segment sales are charged at mutually agreed terms.
Segment result represents the financial result by each segment without allocation of rental income, interest income, other income, corporate expenses, gain from changes in fair value of investment properties, finance costs and taxation.
The following is an analysis of the Group’s assets by reportable and operating segments:
| Sale of handsets and solutions Sale of display modules Sale of wireless communication modules Property development Total segment assets |
As at As at 30 June 31 December 2012 2011 HK$’000 HK$’000 (unaudited) (audited) 985,340 1,795,330 159,206 359,119 596,818 378,461 241,494 255,162 1,982,858 2,788,072 |
|---|---|
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For the purposes of monitoring segment performances and allocating resources between segments, all assets are allocated to reportable and operating segments other than investment properties, certain property, plant and equipment, pledged bank deposits, bank balances and cash, deposits paid for property, plant and equipment, available-for-sale investments, deferred tax assets and certain other receivables, deposits and prepayment. Assets used jointly by reportable and operating segments are allocated on the basis of the revenues earned by individual operating segments.
5. Other income
| Refund of VAT_(Note)_ Government grants Interest income earned on bank balances Rental income (Less: outgoings of HK$346,000 (2011: HK$331,000)) Repairs and maintenance income Others |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) 10,270 5,728 2,500 3,283 3,656 7,610 9,150 7,848 3,978 – 76 102 29,630 24,571 |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) 10,270 5,728 2,500 3,283 3,656 7,610 9,150 7,848 3,978 – 76 102 29,630 24,571 |
|---|---|---|
| 24,571 |
Note:
Shanghai Simcom Limited, Shanghai Speedcom Technology Limited and Shanghai Simcom Wireless Solutions Limited, wholly-owned subsidiaries of the Company, are engaged in the business of distribution of self-developed and produced software. Under the current PRC tax regulation, it is entitled to a refund of Value Added Tax (“VAT”) paid for sales of self-developed software in the PRC.
6. Tax credit (charge)
| Tax credit (charge) comprises: PRC Enterprise Income Tax – current period – overprovision in prior periods Deferred tax credit (charge) |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) (1,294) (2,687) – 3,570 （1,294) 883 3,788 (3,693) 2,494 (2,810) |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) (1,294) (2,687) – 3,570 （1,294) 883 3,788 (3,693) 2,494 (2,810) |
|---|---|---|
| 883 (3,693) |
||
| (2,810) |
No provision for Hong Kong Profits Tax has been made for both periods as the Company and its subsidiaries have no assessable profits arising in Hong Kong.
PRC Enterprise Income Tax is calculated at the rates prevailing in the relevant districts of the PRC taking relevant tax incentives into account. The estimated average annual tax rate used for PRC Enterprise Income Tax is 15% for six months ended 30 June 2012 (1 January 2011 to 30 June 2011: 15%).
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7. Loss for the period
| Loss for the period is arrived at after charging (crediting): Amortisation of intangible assets (included in cost of sales) Less: Amount capitalised in development costs classified as intangible assets Amortisation of land use rights Depreciation of property, plant and equipment Less: Amount capitalised in development costs classified as intangible assets Staff costs including directors’ emoluments Share-based payments Less: Amount capitalised in development costs classified as intangible assets Operating lease rentals in respect of land and buildings Less: Amount capitalised in development costs classified as intangible assets Write-down of inventories (included in cost of sales) Loss on disposal of property, plant and equipment Net foreign exchange loss (gain) Gain from changes in fair value of investment properties Reversal of allowance for bad and doubtful debts Impairment loss recognised in respect of goodwill |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) 129,959 75,677 (553) – 129,406 75,677 1,426 1,073 49,794 28,765 (1,545) (1,470) 48,249 27,295 185,554 169,071 3,714 4,051 (64,584) (67,799) 124,684 105,323 4,396 4,413 (934) (865) 3,462 3,548 10,860 3,511 35 24 10,522 (8,023) (10,905) (8,199) – (9,683) 21,000 – |
Six months ended 30 June 2012 2011 HK$’000 HK$’000 (unaudited) (unaudited) 129,959 75,677 (553) – 129,406 75,677 1,426 1,073 49,794 28,765 (1,545) (1,470) 48,249 27,295 185,554 169,071 3,714 4,051 (64,584) (67,799) 124,684 105,323 4,396 4,413 (934) (865) 3,462 3,548 10,860 3,511 35 24 10,522 (8,023) (10,905) (8,199) – (9,683) 21,000 – |
|---|---|---|
| 75,677 – 75,677 |
||
| 1,073 | ||
| 28,765 (1,470) 27,295 |
||
| 169,071 4,051 (67,799) 105,323 |
||
| 4,413 (865) 3,548 |
||
| 3,511 24 (8,023) (8,199) (9,683) – |
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8. Dividends
| Six months | ended 30 June | |
|---|---|---|
| 2012 | 2011 | |
| HK$’000 | HK$’000 | |
| (unaudited) | (unaudited) | |
| Dividends recognised as distribution during the period: | ||
| Final dividend paid for the year | ||
| ended 31 December 2010 of HK3.0 cents | – | 51,733 |
The directors do not recommend the payment of an interim dividend for six months ended 30 June 2012 (2011: HK1.0 cent).
9. Loss per share
| The calculation of the basic and diluted loss per share attributable to the owners of the Company is based on the | The calculation of the basic and diluted loss per share attributable to the owners of the Company is based on the | The calculation of the basic and diluted loss per share attributable to the owners of the Company is based on the |
|---|---|---|
| following data: | ||
| Six months ended 30 June | ||
| 2012 | 2011 | |
| HK$’000 | HK$’000 | |
| (unaudited) | (unaudited) | |
| Loss | ||
| Loss for the purposes of basic and diluted loss | ||
| per share (loss for the period attributable to | ||
| the owners of the Company) | (58,282) | (18,748) |
| ’000 | ’000 | |
| Number of shares | ||
| Number of ordinary shares in issue (30 June 2011: | ||
| weighted average number of ordinary shares) for the | ||
| purpose of basic loss per share | 1,704,999 | 1,577,784 |
The computation of diluted loss per share for the six months ended 30 June 2012 and 2011 does not assume the exercise of the Company’s share options as it would reduce loss per share.
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10. Trade receivables and notes receivable
The normal credit period taken on sales of goods is 0 to 120 days. The following is an aged analysis of trade receivables and notes receivable presented based on the invoice date at the end of the reporting period:
| 0 – 30 days 31 – 60 days 61 – 90 days 91 – 180 days Over 180 days Less: Accumulated allowances Trade receivables 0 – 30 days 31 – 60 days 61 – 90 days 91 – 180 days Notes receivable_(Note)_ |
As at As at 30 June 31 December 2012 2011 HK$’000 HK$’000 (unaudited) (audited) 142,418 83,370 64,368 9,238 11,880 5,827 24,602 6,434 25,704 12,982 268,972 117,851 (12,239) (12,339) 256,733 105,512 265,634 609,155 6,263 3,783 6,921 6,599 17,534 11,984 296,352 631,521 |
|---|---|
Note: Notes receivable represent the promissory notes issued by banks received from the customers.
11. Trade payables
The aged analysis of the Group’s trade payables at the end of the reporting period presented based on the invoice date is as follows:
| 0 – 30 days 31 – 60 days 61 – 90 days Over 90 days |
As at As at 30 June 31 December 2012 2011 HK$’000 HK$’000 (unaudited) (audited) 494,403 651,230 53,580 184,506 4,720 2,102 16,643 33,464 569,346 871,302 |
|---|---|
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INTERIM DIVIDEND
The Board does not recommend the payment of interim dividend to shareholders for the six months ended 30 June 2012.
MARKET AND BUSINESS REVIEW
Business Review
In the first half of 2012 (‘1H-2012”), the Group has encountered unprecedented difficulties in its operations. Perhaps most importantly, the Group recorded a significant loss in handset business. In the global handset industry, virtually every other handset providers, save for two globally dominant brands, also encountered daunting challenges. Under such circumstances, our customers were adversely affected and we were no exception. Our profit managed to remain stable in the communication module segment, but the sluggish global economy dragged down the market demand beneath expectations during the first half of the year. There was strong market demand for display modules, in particular for capacity touch panels (“CTP”), as our production lines were still at the construction stage in 1H-2012 and has not yet been able to make a profit contribution to the Group. Besides, the impairment on goodwill from the acquisition of a subsidiary in 2009 increased its loss during the period. Therefore, the net loss of the Group for 1H-2012 surged to HK$58.3 million (2011: HK$18.7 million).
Handset business
In 1H-2012, the transition to high-end ODM in our handset business was unsuccessful mainly due to the unexpected serious problems occurred in the Group’s targeted market and customers. The significant changes in the global handset industry, and two handset giants locked up more than 90% of the profit of the entire handset industry, leaving other handset providers to operate at a loss or struggle with gross profit plummeting to the brink of losses.
Local Japanese market
The above said handset giants have also taken a market share exceeding 50% or more from the local Japanese brands. The high-end international ODM market, particularly in Japan, was the key market for our transition into the high-end ODM in handset business, but our Japanese customers have now encountered unexpected difficulties requiring them to replan their business strategies and directions. The original projects, which we had previously secured and including products developed and evaluated by us, were all cancelled while the new projects are pending their strategic decision. Even if the new projects could be confirmed shortly, due to the long product development cycle, they would not contribute to our business results this year and the first half of next year. The Group recorded some shipment of ODM smart phones to the Chinese operators under a Japanese brand in 1H-2012, but was below our expectations. In addition, the said Japanese brand suspended the business cooperation with the Group starting from the second half of 2012 because of its new investors. Meanwhile the Group is holding exploratory discussions with new international customers, but any business resulting is not expected to contribute to our results in the near term.
Operator procurement market
The operators have secured a dominant role in the smart phone market by offering tariff subsidies and procurement through tendering. Due to the practice of bulk volume procurement, branded handset
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providers have adopted a low-price strategy for tendering intending to win the tender at the lowest possible price, with the aim to capture a larger market share. In using this approach, the branded handset providers do not intend to gain profit and even anticipate losses. Under such circumstances, the Group, as an ODM handset provider, is also not likely to record a profit. The Group even needs to provide credit terms to some renowned customers. Since both the handset sales volume and turnover of this market are huge, we will not exit this market but will adopt the strategy of risk control and keep on exercising our minimum customer price level policy. While our monthly production and delivery capacity of smart phones exceeded 1 million units, the total shipping volume of our smart phones reached only 2.16 million units in 1H-2012.
Open market
The Group has exited the low-to mid-end feature phone market. As all current handset product sales in the open market are smart phones, and this market is open and therefore highly competitive, both our shipping volume and gross profit were below expectation.
New market expansion for handsets
Due to the intense competition caused by the commoditisation in the traditional handset market, product differentiation is the way forward for the Group. Towards this end, the Group is actively leading the way in expanding into new market segments for handsets, including creating smart phones for industry use and for “Internet of Things” applications. Orders for these products should earn a more reasonable gross profit for the Group even though the quantity of each order is not high. This differentiation would represent a challenging repositioning and retransformation of the Group’s handset business.
Broaden income sources and reduce expenditures to control costs
Taking into account that the benefits of the Group’s efforts to broaden income sources (increase income) will not be too evident in the short term, the Group has redoubled its efforts to control expenditures and lower costs in recent years and these efforts have begun to yield fruit.
Communication module business
Regarding communication modules, clients and end users alike in overseas markets experienced strong cost pressure due to the testing economic conditions and subsequent lack of consumer confidence. Against this unfavourable backdrop, however, the Group’s competitive products were able to accelerate their penetration into markets both in Europe and North America as it forged closer collaboration with overseas operators. While the SIM900 (2G) family remained the most popular product in the wireless module segment, the SIM5320 (3G) was also well-received due to its backward compatibility with 2G products. Besides, the SIM5320’s “value for money” advantage was endorsed by well-known operators in North America to their customers. Furthermore, the Group also launched the SIM800 family of products utilising the MTK platform, with a low-cost advantage, targeted at a wide-range of market segments. In the PRC, the Group maintained its leading market share and boosted its collaboration with major local operators on M2M application projects, and these projects have been widely deployed in several areas.
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Display modules business
Anticipating the continuous market demand for the CTP used in smart phones and other handheld terminals, the Group has integrated its display module business unit with the CTP manufacturing plants in both Shanghai and Shenyang to form a new display module business unit. This new business unit will design and produce LCM display modules and CTP modules as well as hybrid LCM-CTP modules to be supported the Group’s ODM smart phones, enabling the Group’s handsets to stay ahead of the competition. To exploit this business opportunity, the Group has expanded the display module business to external sales. These modules have enjoyed a positive market response since their debut. In June alone, the shipping volume of CTP modules accounted for 70% of the Group’s total shipping volume of display modules and the management believes that sales will sustain upward momentum in the near future.
PROSPECTS
Although the operating environment of the handset industry will continue to be challenging, the scale of the handset business is not likely to be replaced in the short term. While exploring an appropriate direction for its transition, the Group continues its ongoing efforts in the R&D of mid-range to high-end handsets, including 4G LTE smart phones to meet the strict quality specifications and price requirements of customers and operators. In addition, the Group will devote greater resources to develop new markets. The Group is committed to exploring new opportunities in differentiating smart phones in areas such as industrial applications and for the “Internet of things” segments in order to expand market coverage and enhance overall gross profit margin of the Group’s handset business.
Looking ahead, the handset industry and the global operating environment are fraught with challenges, and the Group’s handset business is expected to take time to recover. However, with a committed management team and a healthy financial position, in addition to the rising growth momentum and strong competitive edge in the communication module and display module segments, the management believes the Group should return to profitability once the plan for business repositioning and transition is successfully implemented. Thus, we are confident of achieving sustained growth in the medium-to-long term.
FINANCIAL REVIEW
For the six months ended 30 June 2012 (“1H-2012”), the Group’s revenue increased slightly by 4.1% to HK$1,316.7 million (2011: HK$1,265.4 million) as compared with that of the first half of 2011 (“1H2011”). The sales increase was attributable to the increase in the sale of ODM handsets in 1H-2012, which had much higher average selling price than feature phones.
The gross profit of the Group increased by 6.7% to HK$131.4 million (2011: HK$123.2 million) for 1H2012 as compared to 1H-2011 while the gross profit margin stayed flat at 10% (2011: 9.7%).
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The Group incurred a loss for the reporting period of HK$58.3 million (2011: HK$18.7 million). The loss was mainly attributable to the significant segment loss incurred in handsets and solutions segment as well as the recognition of impairment on the goodwill arising from the acquisition of a subsidiary in year 2009. The basic loss per share was HK3.4 cents (2011: HK1.2 cents).
Segment results
| Handsets and solutions Wireless communication modules Display modules Total |
Revenue HK$’M 1,037 241 39 1,317 |
Six months ended 30 June 2012 Gross Gross profit profit margin HK$’M % 83 8.0 45 18.9 3 8.2 131 10.0 |
Revenue HK$’M 934 273 58 1,265 |
Six months ended 30 June 2011 Gross Gross profit profit margin HK$’M % 76 8.2% 51 18.6% (4) (6.3%) 123 9.7% |
|---|---|---|---|---|
Handsets and solutions
For 1H-2012, the revenue of the handsets and solutions segment increased by 11.1% because of the increase in ODM sales as compared to 1H-2011. The revenue of ODM handsets and solutions was about 50% and 29% (2011: 27% and 47%) respectively of the total revenue of the Group. The turnover of smart phones for 1H-2012 was about 96% (2011: 8%) of the turnover of the handsets and solutions segment.
Wireless communication modules
For 1H-2012, because of the testing economic conditions and subsequent lack of consumer confidence, market demand was weak. The revenue of wireless communication modules decreased by 11.7% as compared with that in 1H-2011 but the gross margin stayed flat at 18.9% (2011: 18.6%) in 1H-2012.
Display modules
Portion of the display modules had been included as part of the Group’s full handset sales, actual growth of display modules were embed in the Group’s ODM business. The gross profit margin of display modules increased to 8.2% (2011: loss of 6.3%) due to the significant increase in the proportion of the CTP revenue out of the total display modules revenue (almost all revenue in 1H-2011 were from LCM modules), and the gross profit margin of CTP being more reasonable compared to that of LCM, which was too low.
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LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
At 30 June 2012, the Group had bank balances of HK$352.6 million (31 December 2011: HK$500.8 million), excluding pledged bank deposits (in Renminbi and US dollars) for the purpose of US dollars borrowings, among of which 82.3% was held in Renminbi, 17.5% was held in US dollars and the remaining balance was held in Hong Kong dollars. The Group had net bank balances (total bank balances less bank borrowings) of HK$176.3 million (31 December 2011: HK$161.2 million). The Group intends to finance its working capital and capital expenditure plans from such bank balances.
The turnover period of inventory, trade receivables, notes receivable and trade payables of the Group are presented below:
| For the | For the | |
|---|---|---|
| six months ended | year ended | |
| 30 June | 31 December | |
| 2012 | 2011 | |
| Days | Days | |
| Inventory turnover period | 87 | 63 |
| Trade receivables turnover period | 25 | 12 |
| Notes receivable turnover period | 64 | 41 |
| Trade payables turnover period | 132 | 88 |
The increase in inventory turnover period was because our customers asked for deferral of shipment and about 34% of the inventory as at 30 June 2012 were finished products. The increase in the turnover period of trade receivables was because the Group granted longer credit terms since June of this year upon the request of some renowned customers, resulted in the increase in trade receivables. The trade receivables is expected to increase more in the second half of 2012. In the fourth quarter of 2011, the purchase volume of the Group was large which resulted in a larger trade payables balance at the beginning of this year, and the purchase amount in 1H-2012 was not large, as a result, the trade payables turnover period increased significantly.
As at 30 June 2012, the current ratio, calculated as current assets over current liabilities, was 1.5 times (31 December 2011: 1.5 times).
Other than entering into non-deliverable foreign exchange forward contracts to eliminate the foreign exchange exposures in US dollars denominated bank borrowings, the management of the Group considered that it was not necessary to use any other financial instrument for hedging purpose or adopt any particular hedging policy.
As at 30 June 2012, the Company had 1,704,999,000 ordinary shares of HK$0.10 each in issue.
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GEARING RATIO
As at 30 June 2012, the total assets value of the Group was HK$3,489.9 million (31 December 2011: HK$3,841.5 million) and the bank borrowings was HK$438.4 million (31 December 2011: HK$511.5 million). The gearing ratio of the Group, calculated as total bank borrowings over total assets, was 12.6% (31 December 2011:13.3%).
EMPLOYEES
As at 30 June 2012, the Group had 4,606 (31 December 2011: 4,979) employees. The Group operates a mandatory provident fund retirement benefits scheme for all its employees in Hong Kong, and provides its PRC employees with welfare schemes as required by the applicable laws and regulations of the PRC. The Group also offers discretionary bonuses to its employees by reference to individual performance and the performance of the Group.
PURCHASE, SALE OR REDEMPTION OF SHARES
During the reporting period, neither the Company nor any of its subsidiaries has purchased, redeemed or sold any of the Company’s listed securities during the reporting period.
CORPORATE GOVERNANCE CODE
Save as mentioned below, the Company has complied with the code provisions laid down in (i) the former Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules during the period from 1 January 2012 to 31 March 2012 and (ii) the revised and renamed Corporate Governance Code as set out in Appendix 14 to the Listing Rules (both hereinafter referred to as “Corporate Governance Code”) for the period from 1 April 2012 to 30 June 2012.
According to the code provision E.1.2 of the Corporate Governance Code, the chairman of the Board shall attend the annual general meeting of the Company and arrange for the chairmen of the audit, remuneration and nomination committees (as appropriate) or in the absence of the chairman of such committees, another member of the committee or failing this his duly appointed delegate, to be available to answer questions at the annual general meeting.
At the annual general meeting of the Company held on 18 May 2012 (“2012 AGM”), Ms Yeung Man Ying, the chairman of the Board, was unable to attend due to unexpected business engagement. Mr Chan Tat Wing, Richard, an executive Director and the chief finance officer of the Group, chaired the 2012 AGM on behalf of the chairman of the Board pursuant to the bye-laws of the Company and was available to answer questions. Mr Liu Hing Hung, an independent non-executive Director and the chairman of the Remuneration Committee and the Audit Committee, was also available at the 2012 AGM to answer questions from shareholders of the Company.
According to the code provision A6.7 of the Corporate Governance Code, the independent non-executive Directors should also attend general meetings of the Company.
At the 2012 AGM, Mr Xie Linzhen and Mr Dong Yunting, each an independent non-executive Director, were unable to attend due to unexpected business engagement.
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COMPLIANCE WITH THE MODEL CODE
The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules as its own code for securities transactions. All directors of the Company have confirmed, following specific enquiry by the Company with all the directors, that they have fully complied with the required standard as set out in the Model Code for the period under review.
AUDIT COMMITTEE
The audit committee of the Company (“Audit Committee”) has reviewed with management the accounting principles and practice adopted by the Group and reviewed the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2012. In addition, the condensed consolidated financial statements of the Group for the six months ended 30 June 2012 have been reviewed by our auditor, Messrs. Deloitte Touche Tohmatsu, and an unqualified review report was issued. The Audit Committee comprises the three independent non-executive directors of the Company.
PUBLICATION OF RESULTS ANNOUNCEMENT AND INTERIM REPORT
This announcement is published on the websites of the Company (www.sim.com) and The Stock Exchange of Hong Kong Limited (www.hkex.com.hk). The 2012 interim report will be dispatched to the shareholders and available on the above websites in due course.
APPRECIATION
The Board would like to thank our shareholders, customers, suppliers, bankers and professional advisers for their support of the Group and to extend our appreciation to all our staff for their dedication and contributions throughout the reporting period.
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DIRECTORS
As at the date of this announcement, the executive directors of the Company are Ms Yeung Man Ying, Mr Wong Cho Tung, Mr Wong Hei, Simon, Mr Zhang Jianping, Ms Tang Rongrong and Mr Chan Tat Wing, Richard, and the independent non-executive directors of the Company are Mr Liu Hing Hung, Mr Xie Linzhen and Mr Dong Yunting.
By order of the Board SIM Technology Group Limited Wong Cho Tung Director
This announcement contains certain forward-looking statements. The words “believe”, “intend”, “expect”, “anticipate”, “estimate”, “predict”, “is confident”, “has confidence” and similar expressions are intended to identify forward-looking statements. These statements are not historical facts or guarantees of future performance. Actual results could differ materially from those expressed, implied or forecasted in such forward-looking statements. Such forward-looking statements are based on the current beliefs, assumptions, expectations, estimates and projections of the directors and management of the Company about the business, the industry and the market in which the Company operates, and are subject to risks, uncertainties and other factors that could significantly affect expected results.
Hong Kong, 21 August 2012
- For identification purposes only
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