Elektromotive Group Limited

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    Reply To SGX - Half Year Financial Statement

    BackSep 26, 2002

    We refer to our half year financial statement announced on 16th September 2002. The SGX-ST has requested for clarification with respect to:-

    (a) As announced, the operating loss of the Group before tax for the 6 months ended 30 June 2002 was $1.585 million while Group operating profit before tax for the previous corresponding 6 months was $108,000, resulting in a negative variance in earnings of $1.693 million. This is despite a reduction in expenses of $1,357,000 and a gain of $612,000 on divestment of a 20% stake in Inovatif Media Asia Sdn Bhd ("IMA"), which would have an aggregate positive impact on earnings of $1.969 million in the 6 months ended 30 June 2002. The above positive impact was partly offset by the reduction of $1.155 million in gross profit and other income.

    The SGX-ST has requested an explanation of other material factors that had affected the Group's earnings for the 6 months ended 30 June 2002.

    In response thereto, the Directors of the Company wish to inform that:-

         

    (i) the improvement in market sentiment that the Directors had anticipated when we announced our Full Year Financial Statement for the financial year ended 31st December 2001 on 26th March 2002 has not materialized and the poor market conditions contributed to a substantial drop in turnover;

    (ii) turnover for the first quarter of 2002 is traditionally the lowest for publishing activities as a result of lower advertising and promotional activities during the period;

    (iii) losses incurred in the development and publication of new magazines, namely 24/7, Lookbook and Newman which were launched in June 02, June 02 and August 02 respectively. The costs in developing these new magazines were expensed off in our Half Year Financial Statement. These publications are expected to be profitable from 2003; and

    (iv) provision of diminution in value of investment in Asia Link Media Pte Ltd, has been provided in the our Half Year Financial Statement. Several magazines which were developed by ALM and scheduled to be launched this year have been aborted because of poor market conditions.

         

    (b) The SGX-ST noted that our announcement of 2nd April 2002 regarding our commentary on the prospects for the financial year ended 31 December 2002 stated that "The Group expects to remain profitable in the current financial year after taking into account the negative impact of the new investments on earnings and ......". The SGX-ST noted from the commentary in the Half Year Financial Statement announcement that while the Group is expected to show a profit in H2, it is unlikely that the profits from H2 will be able to offset the losses suffered in H1.

    The SGX has requested the following:-

         

    (i) The bases for the Directors' expectations disclosed in the Masnet announcement of 2 April 2002

    The Directors of the Company wish to disclose that their expectation of profitability for the Group for the financial year ended 31 December 2002 was based on the following factors:-

           

    (1) Anticipated economic recovery in 2002. At the time of our announcement, the general outlook had appeared positive and our Directors were of the view that an economic recovery would take place in H2 2002;

    (2) The anticipated launch of our new publications in first half of 2002, such that significant revenues from these publications would be reflected within the financial year ended 2002. Our publication of new magazines, namely 24/7, Lookbook and Newman were instead launched in June 02, June 02 and August 02 respectively;

    (3) The positive impact from the divestment of up to 70% stake in Inovatif Media Asia Sdn Bhd in Malaysia;

    (4) The anticipated contribution from our investment in Asia Link Media Pte Ltd; and

    (5) The acquisition of Auston Technology Group to be completed in July, instead of September. The delay in the acquisition meant that ATG's results will only now be consolidated with effect from September instead of July.

               

    (ii) When the Directors were first aware that the bases for their expectations were no longer appropriate, resulting in an expectation of losses for the current financial year instead of a profit as expected on 2 April 2002;

    The Directors of Company would like to inform that, as the Group is currently engaged in a wide range of new business and product development activities, which may or may not materialize during the year, and given the uncertain and volatile market conditions, it was difficult to determine with any degree of certainty prior to the announcement of the Half Year Financial Statement that their expectations as to the profitability may not be realized.

    Summarised below are some of the factors, which will have a material impact on the Group's H2 performance and on FY2002 as a whole:

               

    1. General market conditions;
    2. Timing of the launch of several more new magazine titles in Singapore and Malaysia;
    3. The successful conclusion of the proposed strategic alliance with CXN, which will contribute $1.2 million in profits to the Group in the current financial year;
    4. Divestment of further stakes in Inovatif Media Asia Sdn Bhd; and
    5. Sales of the Auston education franchise and licensing rights in the overseas markets. Currently, it is in discussion with a few overseas parties.

    Though the Directors are of the view that H2 will be profitable, but because of the various factors as mentioned above, which may or may not materialise, it is unsure as to whether the H2 profits would be sufficient to offset the losses suffered in H1.

    Under the circumstances, the Directors have decided to take a more prudent position in commenting the Group's prospect for FY 2002.

    (iii) A statement to explain whether it was possible for the Directors to inform investors of the material change in the Group's expected performance for the current financial year earlier by way of a profit warning via MASNET

    Due to the foregoing reasons disclosed, it was difficult for the Directors to form a view that their earlier statement as to anticipated profitability for FY 2002 were no longer appropriate, prior to the date of announcement of the Half Year Statement.

    The Company, however, has noted the SGX-ST's comments and will endeavour to make timely disclosures of the change in any circumstances giving rise to any views expressed by the Directors previously.

               

    (c) The SGX-ST has requested an explanation in paragraph 6 of the Half Year Results announcement whether the $7.9 million turnover and $2 million profit before tax were in relation to ATG's eight month results ended 31 March 02.

    The Directors of the Company wish to confirm that the Company, the unaudited proforma financial results for the eight month period ended 31 March 02 is in relation to the results of ATG.