Investment holding company United Pacific Industries (UPI) has been dealt another setback after recently acquired toy-making subsidiary Hong Kong Toy Centre International lost $39.37 million in the first half of this year. Hong Kong Toy's poor showing followed a set of disastrous results at another of UPI's acquisitions - stationery-maker Climax International - which reported debts of $600 million earlier this year. It also said there were some 'irregularities' in its previous accounts, such as exaggerated account receivables. UPI bought the two manufacturing companies separately last year and now holds 72.7 per cent of Hong Kong Toy and 29.3 per cent of Climax. The group's managing director, Simon Hsu Nai-cheng, admitted investing in Climax had proven to be 'a setback', but strongly defended the Hong Kong Toy purchase. 'Climax is definitely a setback. However, Hong Kong Toy has strong cash flow even though the P&L (profit and loss) doesn't look fantastic,' he said. Mr Hsu, formerly chief executive officer of Hanson Pacific - the Asian offshoot of the Anglo-American Hanson empire - blamed UPI's unfortunate investments on an over-reliance on public information. 'It's a learning process. We made mistakes in the way that we believed in public information too much,' he said. UPI has seen shares fall 28 per cent to 84 cents in the past month after revealing a $120 million provision for its investment in Climax. Climax suffered a $480.12 million net loss in the financial year to March last yearcompared with a restated account in the previous year. The loss led to difficulties putting together Climax's debt restructuring plan as a proposed rights issue was made impossible by its negative net-asset value, Mr Hsu said. 'We're trying to change the terms of the rights issue, but have not come to any conclusion yet,' he said. Hong Kong Toy, which saw its net loss shrink about 12 per cent to $39.37 million in the first six months, was in sound financial health, he said. Despite Hong Kong Toy's loss, UPI had no intention of making any provisions for its investment in the company, Mr Hsu said. He defended the loss, saying the first half was traditionally a quiet period for the toy industry. 'Hong Kong Toy will be profitable from April to October during which the peak season starts,' he said. 'We've been offloading inventory and unnecessary assets and spent the proceeds repaying debts,' he said. The disposal of fixed assets caused a $4 million exceptional loss in the first half this year. Hong Kong Toy slashed inventory by 25 per cent to $138 million on June 30, while debts were reduced by 45.5 per cent to $141 million.