Tough to make sense of group's intentions
IN its publicity and corporate information, electronics firm Group Sense (International) places a great deal of emphasis on its new products as a source of major future profit growth.
The creators of the Instant-Dict talking dictionary said in September that the launch of three new products and expansion into new product areas was going to increase profit.
Group profit almost doubled from $25.4 million in 1991, to $49.1 million in 1992. In 1993 profits peaked at $126 million, coinciding with the group's listing.
Then the slide set in. In 1994, reported attributable profit slumped to $85.9 million, and in 1995 it fell further to $24.3 million.
If so much store is being put into Group Sense's new product lines, why is the group's inventory rising? Group annual accounts for the period ending March 31 could disturb a casual reader of the figures.
Sales came off, falling from $541 million to $534.8 million. Operating profits slumped by 87 per cent to $11.16 million.
The poor performance was blamed on the strong Japanese yen raising component costs, rising interest rates, delays of products from technical problems and rising production costs.
There also was higher depreciation at a new factory and larger publicity and promotional expenses. Falling product sales also were mentioned.
There was a net outflow of $9.69 million from operating activities, against a net inflow of $8.7 million in 1994.
Interest payments more than doubled from $4.8 million to $13.8 million. On consolidated cash flow, there was a big cut in dividends, from $63.2 million in 1994 to $17.6 million.
The net outflow from finance servicing and return on investment fell from $64.8 million to $27.56 million. In real terms, after stripping out the dividend, net outflow jumped from about $1.6 million to about $10 million.
With net outflow before financing of $88.9 million in 1995, down from $225 million in 1994, the group took on $61.2 million in new bank loans to hold the fort.
On the balance sheet, current assets and works in progress leaped from $147.38 million in 1994 to $189.79 million in 1995. This compared with $67.98 million in 1993, the peak year since listing, and $42.97 million in 1992, the year before listing.
Inventory growth can be excused if the volume of business is getting bigger. In Group Sense's case sales were down in 1995.
In 1995 raw materials were $90.3 million, against $85.7 million previously. Work in progress was $35.86 million, against $28.6 million.
The big rise came in finished-goods inventory, up to $63.6 million from $33 million.
Total inventory makes up more than half the value of net current assets at $350.54 million, up from $295.47 million, a rise almost wholly due to new inventory. Cash in the bank fell from $50.8 million to a rather unlucky $44.64 million.
Under this item, trade debtors rose about $10 million to $79.22 million.
On the liability side, bank borrowing due within one year almost doubled from $63.7 million to $130.2 million.
This compares with short-term bank borrowing in 1993 of $9.7 million, down from $17.35 million in 1992.
In 1995 bank loans were up six-fold from $10.9 million to $65.8 million.
Mortgage loans slid almost $20 million to $104 million while trust receipt loans and bank overdrafts nearly doubled to $54.57 million and $30.57 million.
Hopefully the worst of the expansion costs are out of the way and some of the investment in new factories and products begins to contribute to instead of drain the coffers.
Nevertheless the company has entered a critical period.
If the new products do not perform the way management hopes, there could be some bigger disappointments coming to current year results.
Director emoluments have slid from $5.9 million to $5.5 million after three directors waived their salary increments to which they were entitled under service contracts. The total involved was $495,000.