financials

Full Year Financial Statement And Dividend Announcement

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Revenue analysis on sale of goods

Revenue - Geographic sector

China remained our biggest market with sales of RMB 43.1 million and accounted for 57% of total revenue in 4Q2009. On a quarterly comparison, sales in 4Q2009 increased by 219% compared to 4Q2008, due primarily to the low sales recorded in 4Q2008 where customers had refrained from placing larger orders in view of the deteriorating economic climate then. Sales in the Agriculture & Forestry segment increased by over 10 times, led mainly by the sales of the Mist Duster (anchor product of Agriculture & Forestry segment) which experienced an increase of more than 14 times in terms of quantity sold over the same period. The Garden & Lawn segment had also increased by 89%, driven mainly by the sales of the Brush Cutter (anchor product of Garden & Lawn segment) which experienced an increase of 115% in terms of quantity sold over the same period. On a full year comparison, sales to China increased by 29% to reach RMB 195.4 million and accounted for 50% of total revenue in FY2009.

Sales to Europe and Australia registered moderate growth in 4Q2009 compared to 4Q2008 with an increase of 13%. The Group continued to make inroads into new markets such as Russia as well as reinforced existing markets such as Australia and Spain. On a full year comparison, the increase in sales in 4Q2009 marked a consistent increase over the 4Q2008 as observed previously in the first 3 quarters of 2009, leading to an overall revenue contribution of RMB 71.7 million for FY2009, accounting for 19% of total revenue.

Sales to Southeast Asia market declined by 5% in 4Q2009 compared to 4Q2008 with revenue of RMB 12.5 million in 4Q2009 compared to RMB 13.2 million in 4Q2008. On a full year comparison, sales decreased by 35% to RMB 69.9 million for FY2009 compared to RMB 107.4 million for FY2008. Consistent with the preceding quarters, the Group exercised prudence via a selective acceptance of orders from our customers in this market. Notwithstanding the above, Southeast Asia remained a key market and was the 2^nd highest revenue generating market in FY2009.

Revenue from the other markets remained relatively unchanged for 4Q2009 compared to 4Q2008, with sales reaching RMB 10.4 million in 4Q2009 compared to RMB 9.9 million in 4Q2008. FY2009 revenue increased by 39% to RMB 39.5 million compared to RMB 28.4 million in FY2008 on the back of higher sales in the preceding quarters.

Revenue - Business sector

Revenue from our Agriculture & Forestry segment increased by 249% to RMB 38.7 million in 4Q2009 compared to RMB 11.1 million 4Q2008. The increase was primarily due to the low sales recorded in 4Q2008 where customers had refrained from placing larger orders in view of the deteriorating economic climate then. FY2009 sales amounted to RMB 166.7 million, with China remaining as the single largest market and accounted for 76% of the total revenue contribution in both 4Q2009 and FY2009 for this segment.

Revenue from the Garden & Lawn sector increased by 27% in 4Q2009 to RMB 33.5 million compared to RMB 26.3 million in 4Q2008. Consistent with the observation noted in the Agriculture & Forestry sector, the increase was mainly due to lower sales recorded in 4Q2008 where customers had refrained from placing large orders in view of the deteriorating economic climate then. FY2009 sales amounted to RMB 203.3 million compared to RMB 178.2 million for FY2008, representing a 14% increase over FY2008. As disclosed previously in preceding quarters, the increase was due to an increase in export sales to Europe & Australia markets as the Group had actively cultivated new markets as well as reinforced existing ones.

Sales of gasoline engines and spare parts sales decreased by RMB 2.9 million in 4Q2009 compared to 4Q2008. On a full year comparison, sales remained relatively consistent with FY2009 recording RMB 17.4 million of sales compared to RMB 19.8 million for FY2008. 

Gross margin from sale of goods

The Group incurred a gross profit margin of 12.4% in 4Q2009 compared to 17.8% in 4Q2008. Consistent with the observation in the preceding quarters of 2009, customers remained cautious after a turbulent start to 2009 even as the global economy began to show signs of recovering. Notwithstanding the decline in margins, the Group continued to build upon the gross profit recorded in 3Q2009 with a further increase in gross profit in 4Q2009, thereby reversing the trend of gross losses which was observed for the first 2 quarters of 2009. The gradual improvement in global economic sentiments in since 3Q2009 had resulted in improvements in selling prices in certain markets, which on a full year basis resulted in the narrowing of FY2009 gross loss to RMB 5.4 million.

Other Items of Income & Expense

Interest income decreased for both 4Q2009 and FY2009 due to lower fixed deposits placements.

Other credits have declined for both 4Q2009 and FY2009 mainly due to a lower foreign exchange adjustment gain.

Distribution costs remained relatively consistent for 4Q2009 compared to 4Q2008, rising by approximately 3%. On a full year basis, distribution costs for FY2009 compared to FY2008 was higher by approximately 8% due to higher export sales, increased travelling and increased entertainment by our sales department to cultivate closer relationship with existing and new customers.

Administrative expenses increased by 25% to RMB 9.3 million for 4Q2009 compared to RMB 7.5 million in 4Q2008. The increase arose mainly due to the renewal of certificates of compliance to the European emission standards as well as an increase in research and development activities. Notwithstanding the increase in 4Q2009, FY2009 administrative expenses declined by 10% from RMB 24.5 million in FY2008 to RMB 21.9 million in FY2009 as a result of cost-cutting measures as well as an absence of the accrual for profit-sharing for the executive directors due to the loss-making position of the Group in FY2009.

Finance costs increased in FY2009 mainly due to the early termination of fixed deposits which resulted in a reversal of the accrued interest income previously recognised. The fixed deposits had been placed in FY2008 with a maturity date in FY2009 and interest income of RMB 866,000 had been recognised on an accrual basis in FY2008. The quantum of the loss in interest income was confirmed subsequent to clarification with the bank and the financial expense was recognised accordingly in FY2009. In addition, interest expenses had also increased due to the unsecured short-term revolving bank loans which were taken up to finance the operational needs of the holding company. The loans had been repaid in FY2009.

Other charges increased in FY2009 mainly due to the amortisation of the TOPSO trademark, an additional recognition of RMB 2.7 million of allowance of impairment on trade receivables in 4Q2009 which brought the total recognised allowance of impairment on trade receivables to RMB 6.2 million for FY2009 as well as the recognition of an impairment loss on investments in associates due to the cessation of customer relationship as previously explained in 3Q2009.

Share of losses from equity-accounted associate for FY2009 arose from equity accounting for the Group's share of losses in China Steel Australia Ltd for the financial year. 

Income tax expense

Income tax credit of RMB 10.5 million arose due to the recognition of deferred income tax asset arising from losses carried forward by the Group's subsidiary. 

Balance sheet

Investments in an Associate refer to the Group's investment in China Steel Australia Ltd ("CSA") and the purchase price allocation process as required under the Financial Reporting Standards ("FRS") 103 was completed during the year. As explained previously in 3Q2009, an impairment charge of RMB 2.3 million pertaining to the fair value of a customer relationship intangible asset had been recognised as CSA had ceased relationship with that customer. In addition, the Group's investment in CSA had also declined due to the Group's accounting for its share of losses.

Inventory had decreased mainly due to a more prudent management of inventory. The Group had exercised caution towards the procurement of inventory in an effort to reduce unnecessary holding of inventory.

The increase in trade receivables is consistent with the increase in sales in accordance to the Group's strategy of protecting and expanding its market share. Out of the trade receivables balance of RMB 92 million, approximately 91% of the balances are current. Barring unforeseen circumstances, the Group expects these current debts to be collectible. Notwithstanding, the Group had reviewed the total outstanding trade receivables and had decided to adopt a prudent stance and provide an additional RMB 2.7 million in 4Q2009 for allowance on impairment of trade receivables, bringing the total recognised allowance of impairment on trade receivables to RMB 6.2 million for FY2009.

Value Added Tax (VAT) refundable relates to the net VAT rebates due from the PRC tax authorities for export sales over the VAT payable for domestic sales. With the increase in domestic sales in FY2009, VAT payable had correspondingly increased, thereby lowering the net VAT receivable from the tax authorities.

Trade payables and accrued liabilities had increased mainly due to the increased in purchases and sales orders. This is consistent with the increase in sales.

Cash flow

The Group generated a net cash inflow from operating activities of RMB 9.2 million in 4Q2009. Notwithstanding a higher level of inventory in 4Q2009, a lower prepayment and receivables and payables contributed to the operational cash inflow for 4Q2009. This consequently lowered the FY2009 net cash used in operating activities to RMB 64 million.

Commentary On Prospects

The manufacturing industry has not fully recovered with customers remaining tentative towards the placement of larger orders that were seen prior to the financial crisis, notwithstanding the improving global economic sentiments. Customers remain price-sensitive towards selling prices adjustments and continue to adopt a cautious approach. The Group will continue to safeguard our existing market share in key markets and cultivate close ties with our customers. The Group will also continue to adopt a prudent stance in its business dealings as well as its impairment assessments on its assets and investments.