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http://www.creative.com/corporate/investor/files/ER/Q2FY12_Earnings_Release.pdf
12 REVIEW OF GROUP PERFORMANCE
CONSOLIDATED INCOME STATEMENT
Net Sales
Net sales for the second quarter of FY2012 decreased by 14% compared to the same quarter in FY2011, and net sales
for the first half year of FY2012 decreased by 13% compared to the same period in FY2011. Revenue was lower in
the second quarter and first half year of FY2012 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 was 20% in the second quarter of FY2012 and 19% in the first half year of FY2012 compared to
26% in the second quarter of FY2011 and 25% in the first half year of FY2011. Gross profit margin in the second
quarter and first half year of FY2012 was lower due to write-down of inventories.
Net Loss
Net loss for the second quarter of FY2012 was US$33.9 million compared to net loss of US$10.9 million in the second
quarter of FY2011. Despite the decrease in sales, there was an improvement in operating results for the second quarter
of FY2012 compared to the same period in the prior year. While gross profit was lower by US$5.6 million, operating
expenses comprising selling, general and administrative expenses and research and development expenses decreased
by US$10.2 million in the second quarter of FY2012 compared to the second quarter of FY2011. However the
Group’s results in the second quarter of FY2012 was negatively impacted by other losses (net) of US$23.6 million as
explained below.
Net loss for the first half year of FY2012 was US$63.4 million compared to US$14.5 million in the first half year of
FY2011. Sales have decreased and gross profit was lower by US$10.8 million for the first half year of FY2012
compared to the same period in the prior year, but operating results for the Group has improved due to a decrease in
operating expenses by US$14.8 million. The Group’s results in the first half year of FY2012 was negatively impacted
by other losses (net) of US$35.0 million as explained below.
Selling, general and administrative expenses in the second quarter and first half year of FY2012 decreased by 26% and
15%, respectively, compared to the same period in the prior year. The decrease in selling, general and administrative
expenses was mainly a result of the cost cutting actions taken in FY2011.
Research and development expenses in the second quarter and first half year of FY2012 decreased by 38% and 32%,
respectively, compared to the same period in the corresponding year. The decrease in research and development
expenses was mainly a result of cost cutting actions taken in FY2011. The Group will 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.
Depreciation and amortization was US$0.7 million and US$2.4 million in the second quarter and first half year of
FY2012, respectively, compared to US$1.8 million and US$3.6 million in the same periods in the prior year.
Deprecation and amortization was lower in the second quarter and first half year of FY2012 due mainly to disposal of
a wholly-owned manufacturing subsidiary in China in the fourth quarter of FY2011 and assets being fully depreciated.
Other losses (net) of US$23.6 million in the second quarter of FY2012 comprised mainly impairment charges of
US$15.6 million for equipment and intangible assets and provisions of US$6.5 million for commitments for other
expenditures and obligations, pertaining to the installation and operation of a wireless broadband network in Singapore
by a subsidiary QMax Communications Pte Ltd (“QMax”).
At the end of the second quarter of FY2012, QMax suspended the wireless broadband project as the vendor for the
equipment has failed to deliver on the key network performance requirements set out in the relevant supply contract.
The Company and QMax have given notice to the vendor to terminate or rescind the supply contract on the grounds of
material breach of the contract and/or misrepresentations by the vendor. The Company and QMax have also recently
initiated legal proceedings against the vendor to recover damages and all losses suffered in relation to the wireless
broadband project, after discussions with the vendor failed to reach a satisfactory conclusion. Pending the outcome of
the legal proceedings, for the Group’s results in the second quarter of FY2012, full provisions have been made for the
impairment of equipment and related intangible assets for the project, as well as commitments for other expenditures
and obligations to third parties relating to the project. No recognition has been made in the accounts for any recovery
of compensation for losses suffered and damages that the Group is seeking from the vendor.
Other gains (net) of US$2.6 million in the second quarter of FY2011 were due mainly to foreign exchange gains of
US$2.6 million compared to a foreign exchange loss of US$1.5 million in the second quarter of FY2012.
Other losses (net) of US$35.0 million in the first half year of FY2012 included impairment charges of US$15.6 million
for equipment and intangible assets, provisions of US$6.5 million for commitments for other expenditures and
obligations as explained above, US$10.2 million foreign exchange losses and a US$3.1 million impairment loss on
investments due to adverse business conditions in certain investee companies. Other gains (net) of US$15.7 million in
the first half year of FY2011 were due mainly to foreign exchange gains of US$15.8 million.
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 due mainly to the cash
and cash equivalent balances held by the Group. Cash and cash equivalents were held mainly in Singapore dollar,
with the balance mainly in US dollar, Euro, British Pound and Japanese Yen. The exchange loss in the first quarter of
FY2012 was due mainly to the significant depreciation of Singapore dollar and Euro against the US dollar, and in the
second quarter of FY2012, Euro continued to depreciate against the US dollar. The exchange gain in the first quarter
of FY2011 was due mainly to the significant appreciation of Singapore dollar and Euro against the US dollar, and in
the second quarter of FY2011, Singapore dollar continued to appreciate against the US dollar.
12 REVIEW OF GROUP PERFORMANCE
CONSOLIDATED INCOME STATEMENT
Net Sales
Net sales for the second quarter of FY2012 decreased by 14% compared to the same quarter in FY2011, and net sales
for the first half year of FY2012 decreased by 13% compared to the same period in FY2011. Revenue was lower in
the second quarter and first half year of FY2012 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 was 20% in the second quarter of FY2012 and 19% in the first half year of FY2012 compared to
26% in the second quarter of FY2011 and 25% in the first half year of FY2011. Gross profit margin in the second
quarter and first half year of FY2012 was lower due to write-down of inventories.
Net Loss
Net loss for the second quarter of FY2012 was US$33.9 million compared to net loss of US$10.9 million in the second
quarter of FY2011. Despite the decrease in sales, there was an improvement in operating results for the second quarter
of FY2012 compared to the same period in the prior year. While gross profit was lower by US$5.6 million, operating
expenses comprising selling, general and administrative expenses and research and development expenses decreased
by US$10.2 million in the second quarter of FY2012 compared to the second quarter of FY2011. However the
Group’s results in the second quarter of FY2012 was negatively impacted by other losses (net) of US$23.6 million as
explained below.
Net loss for the first half year of FY2012 was US$63.4 million compared to US$14.5 million in the first half year of
FY2011. Sales have decreased and gross profit was lower by US$10.8 million for the first half year of FY2012
compared to the same period in the prior year, but operating results for the Group has improved due to a decrease in
operating expenses by US$14.8 million. The Group’s results in the first half year of FY2012 was negatively impacted
by other losses (net) of US$35.0 million as explained below.
Selling, general and administrative expenses in the second quarter and first half year of FY2012 decreased by 26% and
15%, respectively, compared to the same period in the prior year. The decrease in selling, general and administrative
expenses was mainly a result of the cost cutting actions taken in FY2011.
Research and development expenses in the second quarter and first half year of FY2012 decreased by 38% and 32%,
respectively, compared to the same period in the corresponding year. The decrease in research and development
expenses was mainly a result of cost cutting actions taken in FY2011. The Group will 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.
Depreciation and amortization was US$0.7 million and US$2.4 million in the second quarter and first half year of
FY2012, respectively, compared to US$1.8 million and US$3.6 million in the same periods in the prior year.
Deprecation and amortization was lower in the second quarter and first half year of FY2012 due mainly to disposal of
a wholly-owned manufacturing subsidiary in China in the fourth quarter of FY2011 and assets being fully depreciated.
Other losses (net) of US$23.6 million in the second quarter of FY2012 comprised mainly impairment charges of
US$15.6 million for equipment and intangible assets and provisions of US$6.5 million for commitments for other
expenditures and obligations, pertaining to the installation and operation of a wireless broadband network in Singapore
by a subsidiary QMax Communications Pte Ltd (“QMax”).
At the end of the second quarter of FY2012, QMax suspended the wireless broadband project as the vendor for the
equipment has failed to deliver on the key network performance requirements set out in the relevant supply contract.
The Company and QMax have given notice to the vendor to terminate or rescind the supply contract on the grounds of
material breach of the contract and/or misrepresentations by the vendor. The Company and QMax have also recently
initiated legal proceedings against the vendor to recover damages and all losses suffered in relation to the wireless
broadband project, after discussions with the vendor failed to reach a satisfactory conclusion. Pending the outcome of
the legal proceedings, for the Group’s results in the second quarter of FY2012, full provisions have been made for the
impairment of equipment and related intangible assets for the project, as well as commitments for other expenditures
and obligations to third parties relating to the project. No recognition has been made in the accounts for any recovery
of compensation for losses suffered and damages that the Group is seeking from the vendor.
Other gains (net) of US$2.6 million in the second quarter of FY2011 were due mainly to foreign exchange gains of
US$2.6 million compared to a foreign exchange loss of US$1.5 million in the second quarter of FY2012.
Other losses (net) of US$35.0 million in the first half year of FY2012 included impairment charges of US$15.6 million
for equipment and intangible assets, provisions of US$6.5 million for commitments for other expenditures and
obligations as explained above, US$10.2 million foreign exchange losses and a US$3.1 million impairment loss on
investments due to adverse business conditions in certain investee companies. Other gains (net) of US$15.7 million in
the first half year of FY2011 were due mainly to foreign exchange gains of US$15.8 million.
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 due mainly to the cash
and cash equivalent balances held by the Group. Cash and cash equivalents were held mainly in Singapore dollar,
with the balance mainly in US dollar, Euro, British Pound and Japanese Yen. The exchange loss in the first quarter of
FY2012 was due mainly to the significant depreciation of Singapore dollar and Euro against the US dollar, and in the
second quarter of FY2012, Euro continued to depreciate against the US dollar. The exchange gain in the first quarter
of FY2011 was due mainly to the significant appreciation of Singapore dollar and Euro against the US dollar, and in
the second quarter of FY2011, Singapore dollar continued to appreciate against the US dollar.
