Hitchins Group Ltd (the "Company") refers to the letter from the SGX-ST dated 25 March 2003, wherein the SGX-ST raised the certain queries with respect to the Company's half-year financial statement and dividend announcement.
The queries from the SGX-ST are reproduced below:-
"We note from the Company's prospectus issued on 13 January 2003 that the Group had reported a pre-tax profit of $2.7 million for the financial year ended 30 June 2002 ("FY2002"). From your Announcement, we note that for the first half of FY2002 and the first six months of the financial year ending 30 June 2003 ("FY2003"), the Group's profit before tax was only $432,000 and $436,000 respectively, Please provide the following information in an announcement via MASNET as soon as possible but not later than 27 March 2003:-
a) Explain the favourable factors that had attributed to the substantially higher Group profits in the second half of FY2002 as compared to the first half of FY2002.
b) Whether the Company expects these favourable factors to have a significant positive impact on the Group's profit on the second half of FY2003 and provide the basis for the Company's expectation.
c) If the Company does not expect the favourable factors to be present in the second half of FY2003, explain why it was not possible for the Company to provide a profit warning to investor prior to the Company's listing."
The Company responds to the queries raised by the SGX-ST as follows:-
(a) Explain the favourable factors that had attributed to the substantially higher Group profits in the second half of FY2002 as compared to the first half of FY2002.
The main favourable factors, which attributed to the substantially higher Group profits in the second half of FY2002 as compared to the first half of FY2002 were:
(i) Substantially higher profit contributions from the Group's PRC operations for the second half of FY2002
Profit contributions from the Group's PRC operations increased by 233% for the second half of FY2002 compared to the first half of FY2002. This increase was due to the backlog of orders accumulated during the winter months from October to December 2001. Most new projects tend to commence after March resulting in an increase in orders for such projects during the second half of FY2002.
(ii) Recognition of other operating income in the second half of FY2002
The Group recognised certain other operating income in the second half of FY2002, which increased the Group's profits in the second half of FY2002. These other operating income consisted of mainly a write back of interest expense waived on Redeemable Convertible Preference Shares and a write back of provision for unutilised leave, amounting to a total of $600,000.
(b) Whether the Company expects these favourable factors to have a significant positive impact on the Group's profit on the second half of FY2003 and provide the basis for the Company's expectation.
Based on the current state of the order books for the Group's PRC operations, the Company expects profit contributions from its PRC operations to continue to show a substantial increase in the second half of FY2003. However, since the write back of other operating income for the interest expense waived on the Redeemable Convertible Preference Shares and the provision for unutilised leave are non-recurrent items, the Company does not expect such factors to be present in the second half of FY2003 (the "Absence of the Favourable Factors").
(c) If the Company does not expect the favourable factors to be present in the second half of FY2003, explain why it was not possible for the Company to provide a profit warning to investor prior to the Company's listing.
Based on the factors known to the Company at the time prior to the listing, the Company is still of the view that it was not necessary to provide any profit warning notwithstanding the Absence of the Favourable Factors, as the Company expected that the Group's operating profit for the second half of FY2003 to be sufficient to compensate for the Absence of the Favourable Factors.