Published January 20, 2009

A season of profit warnings

Economic downturn continues to take its toll on companies

By JESSICA YEO

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IT'S a season for profit warnings as the economic downturn, which looks set to worsen, drags down more companies.

With at least three more profit warnings issued yesterday, a minimum of 12 companies so far this month have cautioned the market of weaker results.

The latest to issue warnings are China Sun Bio-Chem Technology Group, HLN Technologies and New Lakeside Holdings. Others in the count are AEI Corporation, City e-Solutions, Delong Holdings, Inno-Pacific Holdings, Interra Resources, Japan Land, Memtech International, Sky China Petroleum Services and TTL Holdings.

The global financial crisis and the economic downturn were cited by many companies as a leading reason for their poorer results. Among other things, the economic meltdown has led to many adverse factors - a slowdown in demand, a change in commodity and material prices and exchange losses.

Eight out of the 12 companies faced slowing demand, which affected their profits.

One of them was Delong, a China-based steel company, which suffered when the demand for steel products in the mainland fell significantly in the second half of FY2008.

A consolation for Delong is that the demand for steel products in China is recovering with the government's expansionary policies.

Five of the companies cited decreases in selling prices.

Interra Resources, an unhedged producer of oil, saw its earnings fall in tandem with the sharp fall in oil prices.

Higher costs were faced by two of the companies. Japan Land saw higher expenses in general takeover and other corporate action exercises.

Exchange costs were also a reason for two of the companies' profit losses. One of them, City e-Solution, attributed its loss to unrealised exchange loss on revaluation of foreign currency cash deposits.

Reasons for profit losses suffered by another two companies included provisions and impairment charges.

Of the three which issued warnings yesterday, China Sun Bio-Chem Technology, a processor of corn starch and a manufacturer of modified starch products, said it expects to report a net loss for the fourth quarter of FY2008.

China Sun said the global financial crisis had affected the local demand for goods, which used corn starch as raw material.

This resulted in a lower selling price for its corn starch. Losses were also due to lower-than-expected average utilisation rates at two plants.

It said it believes that demand for its products will remain soft in the first half of 2009.

HLN Technologies said it expects to see substantially lower profits for FY2008, compared with FY2007. This is due to lower sales, loss on disposal of assets, impairment charges and provisions. However, it expects to register significant positive operating cash flows and a stronger financial position compared to FY2007.

New Lakeside said it expects to report a group loss before tax for its first half ended Dec 31, 2008. The loss was due to the deteriorating global economic climate which caused a fall in demand, average selling price and total sales volume of its apple juice concentrate.