Interim Results

24th Mar 2009 07:00



24 March 2009

LED International Holdings Limited

("LED International", "the Company" or "the Group")

Interim Results 

For the six-month period ended 31 December 2008

CHAIRMAN'S STATEMENT

INTRODUCTION

LED International Holdings Limited and its subsidiaries specialise in the development, manufacture and sale of LED module and other LED products such as LED screens, advertising displays, outdoor signs, lamps, lighting and building illumination. The Board of Directors is pleased to report on the interim results of the Group for the six-month period ended 31 December 2008.

OPERATING REVIEW

The global business environment has deteriorated substantially throughout the period under review and, like many other businesses, our operating performance was significantly affected by the general slowdown in China's domestic and export markets. The Group experienced a loss for the six-month period ended 31 December 2008 compared with that of a profit during the comparable period in 2007. The operating loss was mainly attributable to weakening customer demand and relative increases in costs following the appreciation of Renminbi ('RMB'). 

Due to the above factors, the Board is continuing to implement measures to diversify sources of revenue and to reduce expenditure, control production costs and expand the customer base in different areas. The Board of Directors considers that the overall Group's operations remain sound.

FINANCIAL REVIEW

Revenue and loss attributable to shareholders for the six-month period ended 31 December 2008 amounted to approximately HK$36,759,000 and HK$2,101,000 respectively.

The Group achieved a steady growth in continuing operations upon completion of a contract to supply a substantial LED display screen to be delivered in phases during the six-month period ended 31 December 2008. Since September 2007, no business transactions on sales of LED signboards, LED lighting and lighting engineering had been conducted, which represented the Group's discontinued operations.

Overall gross margin of 12% was achieved during the period, lower than prior periods, due to the significant increase in costs. The significant increase in the Group's loss is primarily attributable to the operating expenses from the continuing operations of approximately HK$6,837,000, following the integration of the new operating business of Strongbase New Shenzhen Limited ('Strongbase New') as set out below, in the current six-month period.

In response to the intense competition in LED products in the PRC, the Group has strengthened its research and development capabilities through the acquisition of 'Strongbase New' to further raise its brand profile to distinguish itself from generic LED product suppliers.

CONTRACT UPDATE

Towards the end of 2007, the Group was awarded a contract to supply a substantial LED display screen and outdoor façade lighting for a new hotel development in North Point, Hong Kong which required the installation of a 790 sq. meter LED screen and an additional 2,500 meter standout lighting façade. The contract was for approximately HK$22,456,000. Due to additional requirements and new specifications from the developer, the project is expected to be completed in March 2009, nine months behind the original completion date of June 2008. 

It is estimated the contract was 95 per cent complete as at 31 December 2008. The Group anticipates that a substantial proportion of the trade receivable as at 31 December 2008 will become payable imminently.

ACQUISITION DURING THE SIX-MONTH PERIOD

On 28 July 2008, the Company acquired a 100 per cent stake in Strongbase New, a specialist in LED and LED related products, accessories and appliances. Strongbase New has both R&D and manufacturing expertise in relation to LED related products and possesses numerous patents and other intellectual property for LED products and LED applications. Its product offering includes LED devices, displays, lighting and appliances. The acquisition of Strongbase New allows the Group to broaden its product offering to include higher specification products for both its domestic markets and international clients. It will also provide the Group with access to new intellectual property for further product development.

PROPOSED DISPOSAL OF SUBSIDIARY

Following a strategic review by the Board of Directors, as announced last month, it was decided that an orderly disposal of Shenzhen China LED Photo Technology Limited ('Shenzhen LED') was the best course of action and in the best interests of shareholders. Shenzhen LED had ceased its business operations by September 2007. Production was transferred elsewhere and no trading by or through Shenzhen LED has been conducted since September 2007. Shenzhen LED previously manufactured LED screens.

The Group entered into a preliminary sale and purchase agreement with Tian Fu Kai Jia Information Company Limited ('TFKJ') on 11 February 2009 to dispose of Shenzhen LED. After the preliminary sale and purchase agreement was signed, the Group entered into further discussions in relation to the terms of the disposal. 

The Group and TFKJ have agreed to the settlement of the purchase consideration of RMB 25 million payable in four equal tranches of RMB 6.25 million commencing from the date of signing the sale and purchase agreement, which is conditional on shareholder approval. The Group will obtain a charge on 45 per cent of capital value of certain LED Projects held by TFKJ to secure TFKJ's payment obligations.

The Group intends to apply the proceeds from the disposal to its working capital in order to enhance its financial position.

FUND RAISING

On 9 September 2008, the Company issued 29,692,084 new ordinary shares of HK$0.1 each to a strategic investor at 1 pence per share for ￡296,921 or equivalent to HK$4,692,000 for cash to increase working capital of the Company.

BOARD CHANGES

Mr. Stephen Wing Bun Chan has been appointed as the new Chief Financial Officer of the Group, although he is not a Board member. 

 

DIVIDEND

The Directors are not recommending payment of an interim dividend and the Board is committed to an ongoing review of the Company's dividend policy. 

PROSPECTS

The Board remains confident in the Group's long-term growth potential and considers that the overall operations of the Group remain sound. Our expertise in the LED sector, as well as our focus on high value added products, can help the Group to focus on the niche markets such as LED based road lighting and variable speed signs for China's highways and road network.

We believe it is a positive indication of our significant progress in the development in higher-end LED products that the Group has recently been selected by the Research Institute of Highway Ministry of Communications, a division of the Chinese Government's Traffic Department, to develop two projects on the use of LED products for road traffic purposes.

The Group is also looking to develop higher value-added LED products, such as the LED traffic lighting business where competition is weak, and to focus on areas where demand will remain strong. One key objective is to further develop our expertise in producing high quality, reliable and innovative LED products and solutions, and we will exploit this expertise in the LED sector to explore business opportunities in the LED related media business. China has a comparatively low per capita spending in outdoor advertising and, coupled with the Chinese government's determination to maintain domestic consumption in 2009, we believe there are good opportunities for the Group to enter the outdoor media market and to leverage its LED products and established relationships with leading media players. 

APPRECIATION

Finally, on behalf of the Board, I would like to thank our customers, suppliers and shareholders for their continued support of LED International Holdings Limited. I would also like to acknowledge the hard work of the management and all the staff for their contribution and dedication to the Company.

Thomas Li Xin Li

Executive Chairman

For further information:

LED International Holdings Limited	+852 2810 4470
Dennis Ow, Executive Director
Zimmerman Adams International	+44 (0) 207 060 1760
Dominique Doussot, David Newton, Jonathan Evans
ICIS	+44 (0) 207 651 8688
Christian Taylor-Wilkinson, Fiona Conroy

Notes to Editors:

LED International Holdings Limited and its subsidiaries specialise in the development, manufacture and sale of low powered / low maintenance LED screens and other LED products such as outdoor signs, lamps, lighting and building illumination. The screens are manufactured in a 'building block' format to a specific design, which allows screens to be assembled to suit a customer's size and definition specifications.

This design also ensures that the screens are relatively easy to transport and assemble. Based in Hong Kong, the Company's primary market has been the People's Republic of China ('PRC'), but it has also supplied end products to Macau, Japan and the USA. Part of the Company's strategy in 2007 was to widen its customer base to markets outside PRC.

The Company listed on AIM, a market operated by the London Stock Exchange, on 23 October 2006. For more information, please visit: http://www.led-intl.com

CONSOLIDATED INCOME STATEMENT

FOR THE SIX-MONTH PERIOD ENDED 31 DECEMBER 2008

	Note	2008 (Unaudited) HK$'000	Reclassified 2007 (Unaudited) HK$'000
Continuing operations
Revenue	2	36,759	34,488
Cost of sales		(32,203)	(24,894)
Gross profit		4,556	9,594
Other revenue		180	1,031
Distribution costs		(364)	(226)
Administrative expenses		(4,768)	(893)
Other operating expenses		(1,560)	(480)
Operating (loss)/profit from operations		(1,956)	9,026
Finance costs - interest (expense)/income, net		(145)	2
(Loss)/profit before taxation		(2,101)	9,028
Income tax		-	-
(Loss)/profit for the period from continuing operations		(2,101)	9,028
Discontinued operation
Loss for the period from discontinued operation	3	-	(6,413)
(Loss)/profit for the period		(2,101)	2,615
(Losses)/earnings per share	4
From continuing operations
- basic		(0.012)	0.063
- diluted		(0.012)	0.063
From discontinued operation
- basic		-	(0.045)
- diluted		-	(0.045)

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2008

	Note	At 31 December 2008 (Unaudited) HK$'000	At 30 June  2008 (Audited) HK$'000
Non-current assets
Property, plant and equipment		10,283	9,494
Goodwill		12,621	12,621
Intangible assets		2,657	-
		25,561	22,115
Current assets
Inventories		9,344	9,786
Trade and other receivables		34,914	16,711
Cash and cash equivalents	6	427	321
		44,685	26,818
Non-current assets classified as held for sale	3	63,670	65,608
		108,355	92,426
Current liabilities
Trade and other payables		82,560	66,176
Current taxation		1,467	1,481
		84,027	67,657
Liabilities directly associated with non-current assets classified as held for sale	3	21,116	22,867
		105,143	90,524
Net current assets		3,212	1,902
NET ASSETS		28,773	24,017
CAPITAL AND RESERVES
Share capital	8	19,418	14,846
Reserves		9,355	(5,950)
Amount recognised directly in equity relating to non-current assets held for sale		-	15,121
TOTAL EQUITY		28,773	24,017

CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX-MONTH PERIOD ENDED 31 DECEMBER 2008

	Note	2008 (Unaudited) HK$'000	Reclassified 2007 (Unaudited) HK$'000
Operating activities
(Loss)/profit before taxation
- Continuing operations		(2,101)	9,028
- Discontinued operation		-	(6,408)
		(2,101)	2,620
Interest income		(1)	-
Interest expense		57	-
Depreciation of property, plant and equipment		1,488	2,726
Amortisation for intangible assets		25	498
Loss on disposal of property, plant and equipment		9	-
Operating (loss)/profit before changes in working capital		(523)	5,844
Decrease in inventories		1,077	9,170
Increase in trade and other receivables		(10,776)	(12,719)
Increase/(decrease) in trade and other payables		8,482	(1,934)
Increase in amounts due from related companies		-	(2,381)
Cash used in operations		(1,740)	(2,020)
Income taxes paid		-	-
Net cash used in operating activities		(1,740)	(2,020)
Investing activities
Payment for purchase of property, plant and equipment		(869)	(49)
Net cash (paid for)/received in business combination	7	(1,815)	102
Proceeds from disposal of property, plant and equipment		8	-
Interest received		1	3
Net cash (used in)/generated from investing activities		(2,675)	56
Financing activities
Proceeds from the issue of shares		4,692	3,304
Interest paid		(57)	-
Net cash generated from financing activities		4,635	3,304
Net increase in cash and cash equivalents		220	1,340
Cash and cash equivalents at beginning of period		429	510
Effect of foreign exchange rate changes		(114)	985
Cash and cash equivalents at end of period		535	2,835

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH PERIOD ENDED 31 DECEMBER 2008

The principal activities of the Group are the assembly and manufacturing of LED element products, sale and installation of LED display screen, and sale of LED signboards and LED lighting and lighting engineering.

		2008 (Unaudited) HK$'000	Reclassified 2007 (Unaudited) HK$'000
Continuing operations
Sale of LED element products		16,148	34,488
Sale and installation of LED display screen		20,611	-
		36,759	34,488
Discontinued operation
Sale of LED signboards, LED lighting and lighting engineering (note 3)		-	12,117
		36,759	46,605

3. DISCONTINUED OPERATION

On 11 February 2009, the Group entered into a sale and purchase agreement to dispose of its entire interest in a wholly-owned subsidiary, Shenzhen China LED Photo Technology Limited ('Shenzhen LED' or the 'disposal group'). Accordingly, the assets and liabilities of Shenzhen LED were classified as held for sale as at 31 December 2008 and stated at the lower of the carrying amount and fair value less costs to sell. The disposal is to be completed within six months.

The results and cash flows of the discontinued operation included in the consolidated income statement and the consolidated cash flow statement are as follows:

		2008 (Unaudited) HK$'000	Reclassified 2007 (Unaudited) HK$'000
Revenue - sales of goods (note 2)		-	12,117
Cost of sales		-	(12,704)
Gross loss		-	(587)
Other income		-	831
Distribution costs		-	(775)
Administrative expenses		-	(651)
Other operating expenses		-	(5,225)
Loss from operations		-	(6,407)
Finance costs		-	(1)
Loss before taxation		-	(6,408)
Income tax		-	(5)
Loss for the period from discontinued operation		-	(6,413)
Net cash inflow from operating activities		-	1,514
Net cash outflow from investing activities		-	-
Net cash inflow from financing activities		-	-
Net cash inflow from discontinued operation		-	1,514

The major classes of assets and liabilities comprising the disposal group classified as held for sale as at 31 December 2008 are as follows:

		At 31 December 2008 (Unaudited) HK$'000	At 30 June  2008 (Audited) HK$'000
Non-current assets classified as held for sale
Property, plant and equipment		21,555	21,650
Intangible assets		15,818	15,888
Trade and other receivables		12,396	14,108
Amounts due from related companies		13,793	13,854
Cash and cash equivalents (note 6)		108	108
Total		63,670	65,608
Liabilities directly associated with non-current assets classified as held for sale
Trade and other payables		4,642	4,759
VAT payable		16,474	17,286
Current taxation		-	822
Total		21,116	22,867

Certain property, plant and equipment and intangible assets of Shenzhen LED are retained by the Group prior to proposed disposal. The purchase consideration is the net asset value of Shenzhen LED in the amount of approximately RMB25 million determined by reference to the independent auditor's report as at 15 February 2009.

4. (LOSSES)/EARNINGS PER SHARE

From continuing and discontinued operations

Basic losses per share are calculated by dividing the consolidated loss attributable to equity holders of the Company for the six-month period ended 31 December 2008 of HK$2,101,000 (2007: profit of HK$2,615,000) by the weighted average number of shares in issue during the period of 181,609,000 shares (2007: 141,630,000 shares).

As there were no potential dilutive shares, diluted losses per share equal the basic losses per share in 2007 and 2008.

From continuing operations

Basic earnings per share are calculated by dividing the consolidated loss attributable to equity holders of the Company from continuing operations for the six-month period ended 31 December 2008 of HK$2,101,000 (2007: profit of HK$9,028,000) by the weighted average number of shares in issue during the period of 181,609,000 shares (2007: 141,630,000 shares).

As there were no potential dilutive shares in 2007 and 2008, diluted earnings per share from continuing operations equal the basic earnings per share from continuing operations.

From discontinued operation

Basic losses per share are calculated by dividing the consolidated loss attributable to equity holders of the Company from discontinued operations for the six-month period ended 31 December 2008 of HK$Nil (2007: HK$6,413,000) by the weighted average number of shares in issue during the period of 181,609,000 shares (2007: 141,630,000 shares).

As there were no potential dilutive shares in 2007 and 2008, diluted earnings per share from discontinued operation equal the basic earnings per share from discontinued operation.

5. DIVIDEND

The Directors do not propose an interim dividend for the six-month period ended 31 December 2008 (2007: Nil).

6. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. Cash and cash equivalents can be reconciled to the related items in the consolidated balance sheet as follows:

		At 31 December 2008 (Unaudited) HK$'000	At 30 June  2008 (Audited) HK$'000
Analysis of the balance of cash and cash equivalents:
Cash and cash equivalents in the consolidated balance sheet		427	321
Cash and cash equivalents classified as held for sale (note 3)		108	108
		535	429

Included in cash and cash equivalents is the following amount denominated in a currency other than the Company's functional currency to which they relate:

		At 31 December 2008 (Unaudited) FC'000	At 30 June  2008 (Audited) FC'000
Chinese Yuan Renminbi		407	278

7. ACQUISITION OF SUBSIDIARY

 

On 21 July 2008, the Company entered into an agreement to acquire the entire issued share capital of Strongbase New Shenzhen Limited ('Strongbase New') from a related party as set out in note 9(i) at a consideration of HK$5,500,000. Strongbase New is a specialist in research and development and production of LED related products.

On 28 July 2008, the Company issued 16,025,000 ordinary shares of HK$0.10 each at HK$0.156 as partial consideration of HK$2,500,000. On 18 August 2008, the Company paid HK$2,000,000 to the seller in accordance with the terms of acquisition agreement.

The balance of HK$1,000,000 will be paid in cash within 3 years from the completion of the acquisition.

The fair values of the identifiable assets and liabilities of subsidiary acquired as at their date of acquisition, which have no significant difference from their carrying amounts, are as follows:

		At 31 December 2008 (Unaudited) HK$'000	At 30 June  2008 (Audited) HK$'000
Net assets acquired:
Property, plant and equipment		1,472	2,254
Intangible assets		2,683	-
Inventories		635	7,619
Trade receivables		3,051	8,877
Other receivables, deposits and prepayments		4,376	606
Cash and cash equivalents		185	102
Trade payables		(614)	(7,195)
Other payables and accrued expenses		(6,288)	(9,341)
		5,500	2,922
Goodwill arising on acquisition		-	12,621
Total consideration		5,500	15,543
Satisfied by:
Fair value of ordinary shares issued		2,500	-
Cash paid and payable		3,000	15,543
		5,500	15,543
An analysis of the net cash (outflow)/inflow on acquisition of subsidiary is as follows:
Purchase consideration satisfied by cash		(2,000)	(15,543)
Deposits paid in previous year		-	15,419
Effect of foreign exchange rate changes		-	124
Cash acquired		185	102
Net cash (outflow)/inflow on acquisition of subsidiary		(1,815)	102

8. SHARE CAPITAL

		Number of shares	HK$'000
Authorised:
Ordinary shares of HK$0.10 each		200,000,000	20,000
Issued and fully paid:
Ordinary shares of HK$0.10 each at 1 July 2008		148,460,420	14,846
Issue of new shares (note a)		16,025,000	1,603
Issue of new shares (note b)		29,692,084	2,969
Ordinary shares of HK$0.10 each at 31 December 2008		194,177,504	19,418

On 28 July 2008, the Company issued 16,025,000 ordinary shares of HK$0.10 each at HK$0.156 as partial consideration of acquisition of subsidiary as set out in note 7.

On 9 September 2008, the Company issued 29,692,084 ordinary shares of HK$0.10 each at 1 pence per share for ￡296,921 or equivalent to HK$4,692,000 for cash to increase working capital of the Company.

9. RELATED PARTY TRANSACTIONS

For the purposes of the interim financial information, a party is considered to be related to the Group if:

the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;

the Group and the party are subject to common control;

the party is an associate of the Group or a joint venture in which the Group is a venturer;

the party is a member of key management personnel of the Group or the Group's parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

the party is a close family member of a party referred to in (a) or is an entity under the control, joint control or significant influence of such individuals; or

the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

		2008 (Unaudited) HK$'000	2007 (Unaudited) HK$'000
Sales of raw materials and finished goods to Guangdong Jian Long Da Electro-Optics Science & Technology Co. Limited ('PRC Strong Base')		-	370
Rental income receivable from PRC Strong Base		-	712
		At 31 December 2008 (Unaudited) HK$'000	At 30 June  2008 (Audited) HK$'000
Amount due from PRC Strong Base		5,874	5,900
Amount due from Guangdong Yayi Photo Technology Limited		7,919	7,954

10. EVENTS AFTER THE BALANCE SHEET DATE

On 11 February 2009, the Group entered into a preliminary sale and purchase agreement to dispose of Shenzhen LED and this was announced to shareholders. This disposal constitutes a fundamental change of the Company's business under AIM Rule 15 requiring shareholder approval at Extraordinary General Meeting on 3 April 2009.

11. SUBSIDIARIES

Details of wholly-owned subsidiaries as at 31 December 2008 are as follows:

Subsidiaries	Principal activities
LED International (Far East) Limited	Investment holding
Shenzhen China LED Photo Technology Limited	Discontinued operation
Kepu Electronic Technology (Shenzhen) Company Limited	Manufacturing of LED element products
Strongbase New Shenzhen Limited	Research and development and production of LED related products

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ENDIR CKNKDFBKDPNB

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Related Shares:

Led International Holdings