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Notes to the Interim Financial Report

By Sara Graham,2014-05-12 16:49
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Notes to the Interim Financial Report

    ESTHETICS INTERNATIONAL GROUP BERHAD (“the Company”)

    (408061-P)

Notes to the Quarterly Report for the Fourth Quarter ended 31 March 2007

    A1. Basis of preparation and accounting policies

    The Quarterly Report is unaudited and has been prepared in accordance with Financial Reporting Standards (“FRS”) 134 : Interim Financial Reporting and Paragraph 9.22 of the Bursa Malaysia Securities Berhad (“Bursa Malaysia”) Listing Requirements, and should be read in conjunction with the audited

    financial statements for the financial period ended 31 March 2006.

    The significant accounting policies and methods of computation adopted in this Quarterly Report are consistent with those in the audited financial statements for the financial period ended 31 March 2006 except for the adoption of the new/revised Malaysian Accounting Standards Board (“MASB”) approved Financial Reporting Standards (“FRSs”) that are effective for the current financial year.

    In the current financial period, the Group adopted the following new/revised FRSs below, which are relevant to its operations. The previous year comparatives have been restated as required, in accordance with the relevant requirements.

FRS 2 Share-based Payment

    FRS 3 Business Combinations

    FRS 5 Non-Current Assets Held for Sale and Discontinued Operations

    FRS 101 Presentation of Financial Statements

    FRS 102 Inventories

    FRS 108 Accounting Policies, Changes in Estimates and Errors

    FRS 110 Events after the Balance Sheet Date

    FRS 116 Property, Plant and Equipment

    FRS 121 The Effects of Changes in Foreign Exchange Rates

    FRS 127 Consolidated and Separate Financial Statements

    FRS 128 Investments in Associates

    FRS 131 Interests in Joint Ventures

    FRS 132 Financial Instruments: Disclosure and Presentation

    FRS 133 Earnings Per Share

    FRS 136 Impairment of Assets

    FRS 138 Intangible Assets

    FRS 140 Investment Property

    The adoption of the new/revised FRSs did not result in substantial changes to the Group’s accounting policies other than the effects of the following FRSs:

FRS 101 Presentation of Financial Statements

    FRS 136 Impairment of Assets

    FRS 138 Intangible Assets

    FRS 140 Investment Property

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    The principal effects of the changes in accounting policies resulting from the adoption of the above FRSs

    by the Group are as discussed below:

    i) FRS 101: Presentation of Financial Statements

    The adoption of the revised FRS 101 has affected the presentation of minority interest and other

    disclosures. In the consolidated balance sheet, minority interest is now presented within total

    equity. In the consolidated income statement, minority interest is presented as an allocation of

    the net profit or loss for the period. A similar requirement is also applicable to the statement of

    changes in equity. FRS 101 also requires disclosure, on the face of the statement of changes in

    equity, total recognised income and expenses for the period, showing separately the amounts

    attributable to equity holders of the parent and to minority interest.

    The current period’s presentation of the Group’s financial statements is based on the revised

    requirements of FRS 101, with the comparatives restated to conform with current period’s

    presentation.

    ii) FRS 136: Impairment of Assets and FRS 138: Intangible Assets

    Intangible assets other than goodwill

    Under the new FRS 138, computer software is an intangible asset. Although the application of

    FRS 138 is prospective, the Group has reclassified the comparative amount for computer software

    for better presentation. Accordingly, from 1 April 2006, computer software is stated at cost less

    accumulated amortisation and impairment losses. Its cost is amortised based on its definite life

    and amortisation is recognised accordingly.

    The new FRS 138 requires that the useful lives of intangible assets other than goodwill be

    assessed at the individual asset level as having either a finite or indefinite life. Some of the

    intangible assets are regarded to have an indefinite useful life when, based on an analysis of all of

    the relevant factors, there is no foreseeable limit to the period over which the asset is expected to

    generate net cash inflows for the Group. Intangible assets with indefinite useful lives are not

    amortised but instead, are tested for impairment annually. In accordance with the transitional

    provisions of FRS 138, the change in the useful life assessment from finite to indefinite is made

    on a prospective basis.

    iii) FRS 140: Investment Property

    FRS 140 defines an investment property as a property held for long-term rental yield and/or for

    capital appreciation and, that is not occupied by the companies in the Group. It is initially

    measured at cost, including direct transaction costs.

    The Group adopted the cost model to measure all its investment properties. Under the cost model,

    investment property is measured at depreciated cost less any accumulated impairment losses.

    Investment properties previously classified under property, plant and equipment is now disclosed

    as a separate line item on the face of the consolidated balance sheet within non-current assets.

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    iv) The effect to the Group’s comparative figures on adoption of the above FRSs is as follows:

     As previously Effects on

     stated adoption of FRSs As restated

     RM’000

     As at 1 April 2006

     Property, plant and equipment 44,569 (3,748) 40,821

     Investment properties - 3,101 3,101

     Computer software - 647 647

    A2. Auditor‟s report of previous annual financial report

    The Group’s previous annual financial report for the financial period ended 31 March 2006 was not

    subject to any audit qualification.

A3. Seasonal or cyclical factors

    ndrdGenerally, the business of the Group experienced higher revenue in the second (2) and third (3)

    quarters of the financial year and during the festive seasons with correspondingly higher profits.

A4. Unusual items due to their nature, size or incidence

    There were no unusual items affecting assets, liabilities, equity, net income, or cash flows during the

    current quarter and financial year-to-date except as disclosed in Note A1.

A5. Significant estimates and changes in estimates

    There were no changes in estimates that had material effect in the current quarter and financial year-to-

    date results.

A6. Debts and equity securities

     There were no issuances, cancellations, repurchases, resale and repayments of debt and equity securities

    during the financial year under review.

A7. Dividends paid

    On 8 September 2006, the Company paid a final tax exempt dividend of 5% amounting to RM3,000,000

    in respect of the financial period ended 31 March 2006. On 9 April 2007, an interim dividend of 5% less

    27% tax amounting to RM2,190,000 for the financial year ended 31 March 2007 has been paid, with the

    date of entitlement being 12 March 2007.

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A8. Segmental information

     Current Year Quarter Ended Current Year To Date

    (Twelve (12) Months) Ended

    31 March 2007 31 March 2007

     Segment Segment Segment Segment

    Revenue Results Revenue Results

    RM ‟000 RM „000 RM „000 RM „000

    Professional services and sales 21,249 3,160 49,561 7,631

    Product distribution 31,584 5,981 104,093 14,057

    Others 3,000 2,818 3,000 2,571

    Total 55,833 11,959 156,654 24,259

    Elimination (13,479) (6,804) (31,994) (6,700)

    Consolidated 42,354 5,155 124,660 17,559

A9. Property, plant and equipment

    The property, plant and equipment of the Group are carried at historical cost less accumulated

    depreciation. Accordingly, no valuations have been brought forward from the previous annual financial

    report.

A10. Subsequent event

     Please refer to note B8.

A11. Changes in composition of the Group

    I. Airellis International Sdn Bhd

     On 22 August 2006, the Company acquired a new wholly-owned subsidiary company, Airellis

    International Sdn Bhd (Airellis). The principal business activity of Airellis is direct selling of skin care and

    wellness products. Airellis has yet to commence operations.

    II. Shareholders' Agreement on restructuring of Dermal Concept Co. Ltd (DCCL) and Leonard

    Drake (Thai) Co. Ltd (LDCL)

    The Company executed a Shareholders’ Agreement dated 15 September 2006 with Aungkana

    Chaicharoensukasem (Aungkana) and Dermal Tech (Thai) Co. Ltd. (DTT) which are the existing

    shareholders of DCCL and its subsidiary company, LDCL with a new investor, Stay Enterprise Co. Ltd

    (New Investor) to incorporate a joint venture company, to act as a holding company to DCCL and LDCL

    in Thailand which will acquire 99.99% equity interest in DCCL and as a result will gain 99.93% equity

    interest in LDCL.

    The shareholding structure of the joint venture company, Dermal Wellness International Co Ltd, is EIG

    (49.9%), New Investor (45.0%), Aungkana (2.75%) and DTT (2.35%).

    The above restructuring has been completed on 8 December 2006.

    III. EIG Global Pte Ltd

    On 27 December 2006, a new wholly-owned subsidiary company named EIG Global Pte Ltd was

    incorporated in Singapore. The principal business activity is investment holding.

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     IV. Ina Gail Pte Ltd (IG), Leonard Drake (S) Pte Ltd (LDS) and Leonard Drake (HK) Ltd

    (LDHK)

    On 23 March 2007, the Group announced the acquisition of 100% equity interest in Ina Gail Pte Ltd,

    Leonard Drake (S) Pte Ltd and Leonard Drake (HK) Ltd for a cash consideration of SGD3.00. IG is

    principally engaged in the business of distribution of skincare, wellness and cosmetic products and beauty

    equipments in Singapore. LDS and LDHK are principally engaged in the business of operating a chain of

    professional skin care centres retailing skin care, wellness and cosmetic products and providing beauty

    therapy services in Singapore and Hong Kong respectively.

    The above acquisition has been completed on 30 March 2007.

A12. Changes in contingent liabilities

     31 March 2007 31 March 2007

     Limit (RM‟000) Utilised (RM‟000)

    Corporate guarantees extended by the Company to

    financial institutions in consideration of credit facilities

    given to a subsidiary company 28,500 11,701

A13. Capital commitments

     31 March 2007

     RM‟000

    Property, plant and equipment

     Contracted but not provided for in the financial statements -

A14. Related party transactions

    There were no material related party transactions during the current financial year under review.

A15. Change of financial year

    On 27 December 2005, the financial year of the Company has been changed to end on 31 March from 31

    January commencing financial period ended 31 March 2006 and thereafter to end on 31 March of every

    subsequent year.

    Accordingly, there are no comparative figures for the current quarter and the preceding year

    corresponding period.

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Additional information required by Bursa Malaysia Listing Requirements

B1. Review of performance

    The Group recorded revenue of RM124.7 million for the financial year ended 31 March 2007 as

    compared to group revenue of RM114.4 million for the previous year fourteen (14) months financial

    period ended 31 March 2006. The growth has been attributed to the revenue contribution from the new

    acquiree companies in Singapore and Hong Kong from 1 December 2006 onwards, increase in turnover

    from sales to Hong Kong dealers, full year sales contribution from Lexwel International Sdn Bhd and

    Lexwel International (S) Pte Ltd and higher incremental revenue from Leonard Drake (M) Sdn Bhd and

    Asterspring Franchise International Sdn Bhd.

     The profit before taxation for the current financial year was RM18.1 million versus RM18.9 million for

    the previous year fourteen (14) months financial period. Net profit for the current financial year stood at

    RM13.8 million in comparison to RM14.1 million for the previous year fourteen (14) months financial

    period.

     During the financial year under review:

    a) the acquisitions of IG, LDS and LDHK have contributed positively to the revenue and profits of the

    Group from 1 December 2006 onwards;

    b) the direct selling business, Lexwel International Sdn Bhd and Lexwel International (S) Pte Ltd have

    started to record profits;

    c) the subsidiary company in Hong Kong, Esthetics International (HK) Limited maintained its trend of

    revenue and profit growth;

    d) the revenue from the regional and export businesses of the Group increased to 40% from 29% of total

    Group revenue;

    e) the gain arising from disposal of properties in Damansara Jaya has contributed to the group profits

    whilst offseted by the increase in depreciation and other expenditure for the new corporate office

    building.

B2. Material changes in the quarterly results compared to the results of the preceding quarter

    For the quarter ended 31 March 2007, the Group recorded profit before taxation of RM4.9 million over

    revenue of RM42.4 million as compared to profit before taxation of RM4.5 million over revenue of

    RM28.7 million in the preceding quarter. The higher revenue for the current quarter was mainly

    contributed by the additional turnover from the new acquiree companies in Singapore and Hong Kong.

B3. Commentary on prospects

     The wellness and beauty industry is expected to continue to grow in year 2007 while remaining

    competitive.

    The Group’s main growth and earnings drivers, both locally and regionally, for the new financial year are

    as follows:

    a) introduction of new wellness products and services;

    b) continuous extension of distribution network of dealers/distributors and corporate owned outlets;

    c) expansion of the fast moving consumer goods business;

    d) growth of the direct selling business;

    e) establishment of Dermalogica Consultation Pods; and

    f) franchise scheme and expansion of the education and training business;

    g) export of home brands.

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Barring any unforeseen circumstances, the Board is cautiously optimistic about the Group performance for

    the financial year ending 31 March 2008.

    B4. Profit forecast

    The disclosure requirements for explanatory notes for the variance of actual profit after taxation and

    minority interest and forecast profit after taxation and minority interest are not applicable.

    B5. Tax expense

    Current Year Quarter Current Year-to-date

     Ended Ended

     31 March 2007 31 March 2007

     RM‟000 RM‟000

     Current tax expense

     Malaysian 660 3,437

     Overseas 291 562

     Deferred tax expense

     Malaysian 72 197

     Overseas 146 146

     1,169 4,342

The Group effective tax rate for the financial year-to-date of 24.0% is lower than the Malaysian statutory

    tax rate principally due to profit arising from disposal of properties attracting a lower Real Property Gains

    Tax rate and the lower regional statutory tax rates.

    B6. Unquoted investment and properties

    There were no sales of unquoted investment or properties during the current quarter and financial year-to-

    date other than for Dermal Esthetica Sdn Bhd, a wholly-owned subsidiary of the Company, has on 30

    September 2006 entered into three concurrent Sale and Purchase Agreements with Gamuda Paper

    Industries Sdn Bhd for the disposal of three contiguous units of four-storey shop-office at No. 54, 56 and

    58, Jalan SS22/25, Damansara Jaya, 47400 Petaling Jaya, Selangor Darul Ehsan for a total selling price of

    RM4,850,000. The net profit attributable to the above disposal is RM2,725,100.

    B7. Quoted investment

    There were no purchases and/or disposal of quoted investment for the current financial year under review.

    B8. Status of corporate proposal announced but not completed

    I. Proposed Private Placement

    On 11 April 2007, the Company announced a private placement of new ordinary shares of RM0.50 each

    representing not more than 10% of the issued and paid-up share capital.

The Securities Commission has on 14 May 2007 approved the above private placement.

II. Joint Venture with Energy Medicine Naturopathy Sdn Bhd (EMN)

    On 11 April 2007, the Group entered into a shareholder agreement with EMN to form a 51% : 49% joint

    venture company to penetrate into the preventive medicine, quantum medicine, energy medicine,

    complementary medicine, regenerative medicine market, and the distribution of related wellness and

    lifestyle products and services.

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B9. Borrowings and debt securities

    Borrowings Securities As at

    31/3/2007

     RM‟000

    Short Term

    Hire purchase liabilities Secured 27

    Total short term borrowings 27

    Long term

    Hire purchase liabilities Secured 107

    Total long term borrowings 107

B10. Off balance sheet financial instruments

    As at the date of this announcement, the Group has not entered into any contracts involving off balance

    sheet financial instruments.

B11. Changes in material litigation

    There was no pending material litigation as at the date of this announcement.

B12. Dividends

    The Company paid a final tax exempt dividend of 5% amounting to RM3,000,000 in respect of the

    financial period ended 31 March 2006 on 8 September 2006 and an interim dividend of 5% less 27% tax

    (31/3/06 interim dividend : 5% less 28% tax) amounting to RM2,190,000 for the financial year ended 31

    March 2007 on 9 April 2007.

    The Board of Directors recommends a final tax exempt dividend of 5% amounting to RM3,000,000 for

    the financial year ended 31 March 2007 (31/3/06 final dividend : 5% tax exempt) to be approved by the

    shareholders at the forthcoming Annual General Meeting. The total dividends for the financial year are

    5% tax exempt and 5% less tax (31/3/06 : 5% tax exempt and 5% less tax).

    The Board of Directors has on 25 May 2007 approved a general dividend policy. It is the intention of the

    Board to endeavour to distribute between 30% to 50% of its net profit to shareholders, for at least the next

    two (2) financial years, after taking into consideration, inter alia, the performance of the Group, the

    availability of cash resources and reinvestment opportunities.

B13. Basic earnings per share

    The calculation of basic earnings per share for quarter ended 31 March 2007 and financial year-to-date is

    calculated by dividing net profit for the quarter/year by the weighted average number of ordinary shares

    in issue during the quarter and financial year-to-date of 120,000,000 ordinary shares of RM0.50 each.

    This announcement is dated 25 May 2007

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