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Financial Report

First Quarter Financial Statement And Dividend Announcement for the Period Ended 31 March 2017

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UNAUDITED FINANCIAL STATEMENT FOR FIRST QUARTER OF FY2017

Statements of Comprehensive Income (for the group)

Operating loss is arrived at after crediting and (charging) :



Review of Performance

Statements of Comprehensive Income

The following paragraphs should be read in conjunction with our Statements of Comprehensive Income for quarter ended 31 March 2017.

Revenue

Overview

The Group recorded a 19.2% year-on-year ("yoy") decrease in revenue to US$16.1 million in 1Q2017. The lower revenue was a result of (1) slower start of Indonesia ICT Solutions than previous year, (2) the restructuring of Korea operation and (3) more focus on services in the rest of the countries.

ICT

The Group's "ICT" division revenue decreased 24.1% yoy to US$14.5 million in 1Q2017, which accounts for most part (90.0%) of the Group's total revenue. While the "Services" segment decreased 7.9% yoy to US$3.5 million mainly due to the restructuring of business operation in Korea and Singapore.

Digital Media Services

The Group's Digital Media sales increased in 1Q2017 due to the completion of existing ordered projects in China. China business operation has shifted to "ICT" division and therefore registered no new sales orders for Digital Media Solutions.

Revenue from "China" region grew 5.7% yoy to US$3.7 million in 1Q2017 mainly due to the completion of work in progress in "Digital Media Services". As a result, China's contribution increased to 23.0% of the Group's total revenue for 1Q2017.

Revenue from "Indonesia" declined 13.1% yoy to US$10.6 million in 1Q2017 due to slower start compared to previous year. Indonesia's contribution, however, increased to 65.8% in 1Q2017 of the Group's total revenue due to the reduction of overall group revenue.

Meanwhile, the Group recorded 56.9% yoy drop to US$1.8 million in 1Q2017 for "Others" outside of "China" and "Indonesia" as most of these countries went through restructuring and are focusing on "Services" rather than "Hardware" sales. As a result, revenue contribution from "Others" decreased to 11.2% of the Group's total revenue in 1Q2017.

Gross Margin

Gross margin declined 24.11% yoy to 18.9% in 1Q2017 mainly due to lower revenue from Indonesia and Korea.

Total Operating Expenses

The Group's total operating expense decreased 47.18% yoy to US$3.7 million in 1Q2017. The Group has streamlined its operation over the last years; resulting in lower operating expenses.

Loss Before Tax

The Group's loss before tax was reduced to the level of US$0.5 million in 1Q2017 compared to US$2.9 million in 1Q2016 as a result of the group optimization.

Statement of financial position

The following paragraphs should be read in conjunction with our Statements of Financial Position as at 31 March 2017.

Total current assets decreased by US$9.3 million to US$54.5 million as at 31 March 2017 compared to the last year end unaudited figures. This was largely due to the net impact from:-

  • US$1.6 million increase in cash and cash equivalents to US$7.8 million;

  • US$0.1 million increase in pledged bank deposits;

  • US$6.2 million decrease in trade receivables to US$23.6 million;

  • US$1.3 million decrease in other receivables, deposits and prepayments to suppliers; and

  • US$3.5 million decrease in indent inventories.

Aging of total trade receivables are as follows:-

The above trade receivables are with credit worthy, reputable customers and all projects are irrevocable and not from any interested party. As the Group is undertaking many projects concurrently, a task force is in place in each country to work closely with each of the telecom and the enterprise customers on the progress of their projects.

Non-current assets increased by US$0.2 million to US$6.8 million as at 31 March 2017 as the deferred tax assets increase during the period.

Total current liabilities have been also decreased by US$7.8 million to US$37.7 million as at 31 March 2017. This was due mainly to a US$5.1 million decrease in trade and other payable; and US$0.9 million decrease in bank loan.

As at 31 March 2017, the Group's equity attributable to shareholders decreased by US$1.0 million to US$18.2 million mainly due to the loss of US$0.6 million during 1Q2017.

Statement of cash flows

The following paragraphs should be read in conjunction with our Statements of Cash Flows as of 31 March 2017.

The Group generated US$3.6 million of cash in operations in 1Q2017 compared to US$5.7 million utilized in 1Q2016. The Group had the decrease of trade receivables of US$7.1 million and the increase of other receivable of US$0.4 million and the decrease in inventories of US$3.9 million; of which positive impact is bigger than the decrease in trade payables of US$5.7 million and other payable of US$1.0 million in 1Q2017.

The Group utilized US$0.2 million of cash in investing activities for 1Q2017 as compared to US$1.3 million cash generated 1Q2016 due to increase in pledge bank deposits of US0.1 million and purchase of fixed assets of US$0.1 million.

The Group has utilized US$1.3 million of cash in financing activities in 1Q2017. The Group spent US$1.9 million of cash in repayment of bank loans and raised the new bank loans of US$0.5 million in 1Q2017.

a result of the above activities, the Group recorded an increase in cash and cash equivalents of US$1.6 million in 1Q2017, compared to the decrease of US$3.8 million in 1Q2016.

Commentary

The Group remains cautious and continues to exercise prudence in view of the slower growth and challenging ICT business environment. As such, the Group is shifting from ICT business in emerging markets to services and slimming down the operation in matured markets; which may result in lower revenue from "ICT" division.

However, the Group will continue to pursue opportunities in niche markets comprising IT security solutions, software, managed services and cloud computing. Although these solutions are relatively lower in business volume and market opportunities, they yield higher profitability and are in line with the Group's focus to generate more recurring revenue in software and services in the ICT division.

The Group sees the limitation of fund as a major obstacle in order to expand the business especially in emerging markets where capital intensive hardware systems integration is the major market opportunity.

Going forward, it is difficult for the Group to prospect for growth potential within the current "ICT" business division, while remaining vigilant due to the limitation of fund in undertaking projects with intensive working capital required.

Balance Sheet