Trek posts $3.8 million interim post tax net profits

Main board listed engineering solutions provider, Trek 2000 International Ltd ("Trek" or "the Group") today announced a post tax net profit of $3.8 million representing a marginal increase of 2.7% compared to the $3.7 million posted in the corresponding period last year. The improved profitability is attributable to the continued growth in its Digital Technology business, which also saw its maiden contribution from licensing fees amounting to about $0.9 million in the first half of FY2002.

The Group recorded revenues of $49.1 million in the first six months which was comparable to its performance in the previous year. The contributions were primarily from Digital Technology, which saw an increase of about 13.5% rising from $16.3 million to $18.5 million. The strong performance of the digital technology business is due to the Group's expanding footprint in the US market, which in turn created stronger consumer awareness and demand for its solutions. . Furthermore, with its ongoing R& D efforts, the Group was able to introduce solutions with higher capacity and enhanced features to the market. The Group expects to increase its focus on Digital Technology to maintain its competitive edge in the market.

Customized Engineering reported a decline of about 11.0% in its revenue, which dipped from $34.4 million in the previous year to $30.6 million. The performance of the Group's Customized Engineering business reflects the prevailing weak economic climate in the global IT industry.

On a geographical basis, the US market posted the strongest growth. On a year-on-year basis, sales to external customers in the US posted the highest growth increasing from $0.3 million to $5.7 million representing a growth of about 19 times that of the previous year. India also posted a growth of about 4.5% rising from $4.8 million to $5.1 million representing a growth of about 4.5%. Markets in Singapore, Malaysia, Thailand and other markets were softer due to the prevailing weak economic conditions in the Asian region.

"The market conditions continue to be challenging given the uncertainties around the world and the ongoing weakness of the global IT market. Having delivered the first half year's performance the team continues to work hard to deliver more new solutions to the market to meet the demands of our IT customers. For the second half of the year we expect our performance to be stronger than the first half of this year, as we deliver more solutions to the market. Moreover, contribution from licensing fees is expected to become increasingly important as we see more patents being registered and approved. We remained committed to try and achieve a double digit growth for the Group this year unless situations beyond our control arises." Said Mr Henn Tan, Chairman of Trek 2000 International Ltd.

Being a R&D company, protecting our intellectual property rights is an important part of our business. As more solutions are developed, new patents will be filed in selected countries for their protection. During the first half of this year, three new patents have been filed bringing to 14, the total number of patents filed and pending approval.

The Group's pretax operating profit posted a 9.6% to $4.4 million due to the contribution from licensing fees earned by the Digital Technology business. The half-year also saw higher depreciation and amortization costs as a result of the costs incurred in patent registration and the higher development costs capitalized under the R&D activities. With effect from 1 January 2002, the Group changed its accounting policy with respect to the treatment of development expenditure, whereby such expenditures are amortized over the useful estimated lives of the respective solutions. Previously such costs were expensed to the profit and loss account when incurred. As a result of this change, an amount of $0.2 million was capitalized in the first half of FY2002, which in turn had a positive impact on the overall profit margin of the Group.

The Group has a net cash position of about $20.7 million as at 30 June 2002 compared to $15.5 million at 31 December 2001. The majority of the cash are denominated in US Dollars. The Group's sales and purchases are primarily denominated in US Dollars hence maintaining the balance in the same currency will reduce its exposure to unnecessary currency fluctuations. However, due to the fact that its reporting currency is in Singapore Dollar, the volatility of the USD / SGD exchange rate this year resulted in an unrealized loss of $0.07 million.

Looking ahead, the demand in the IT industry globally is expected to remain slow. With the softer US economy and the lower purchasing power of both consumers and corporations, IT expenditures are not expected to show significant increases this year. The Group will continue to expand its sales and marketing efforts geographically to step up its direct sales and ODM business. Furthermore, the recent patent approval received from the authorities in Singapore for our ThumbDrive, has given us added opportunities to establish more dialogues with international IT customers both from Asia and the US. We are confident that the Group will be able to see orders from new customers this year although the full impact of the sales may not be felt until 2003. The Board and Management of Trek2000 is confident that the Group's performance for the second half of this year will be stronger than the first half, assuming that there will not be any economic or political setbacks in the latter part of FY2002.

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