Cirtek’s Financial Results in Second Half of FY2020 Demonstrate Significant Improvement, Sales of RFID Products Soars by 1.3 Times
Review of operations
As the pandemic raged on, the global retail market, including the apparel market, was seriously affected. As a result, demand for apparel labels and trim products decreased correspondingly. The Group’s business was inevitably affected, resulting in a year-on-year decrease in revenue of 26.5% to approximately HK$259.3 million. Nonetheless, the Group’s orders started to rebound in the second half year and showed improvement when compared with the first half year, narrowing the decline for the whole year. Gross profit dropped 25.5% to approximately HK$130.2 million. With effective cost control measures and flexible deployment of resources for efficiency improvement, in addition to the support of new products with higher gross profit, gross profit margin rose slightly by 0.7 percentage point to 50.2%. Despite the decline in gross profit as a result of the pandemic, and a one-off listing expense of approximately HK$10.6 million, the Group still managed to achieve profit attributable to the owners of the Company of HK$1.6 million, demonstrating marked improvement from the loss attributable to the owners of the Company of HK$11.8 million during the interim results ended 30 June 2020.
The Board recommended the payment of a final dividend in cash of HK0.075 cents per ordinary share for the financial year ended 31 December 2020 (2019: Nil).
Mr. Barry Chan, Chairman of Cirtek, said, “Aided by the strategic position of our factories, we have leveraged our advantages to deal with the challenges under the pandemic. With the market adapting to the post-pandemic new normal, we were pleased to see a recovery in orders for all product categories in the second half year, with Radio Frequency Identification (“RFID”) products performing particularly well. Over the last few years, we have unceasingly expanded its product portfolio and unleashed the potential of RFID technology in an effort to develop the underlying products. Our efforts in portfolio expansion and quality enhancement have paid off. An overwhelmingly positive response from customers facilitated a spike in product sales during the year, thus attesting to the success of product development efforts.”
In response to the challenges brought by the outbreak of the pandemic, the Group implemented a series of measures at the beginning of 2020, including strict prevention measures to ensure the safety of employees and arrangements for plants to resume operation as soon as possible. At the same time, it maintained close communication with business partners and adjusted production capacity based on customers’ needs. In addition, stringent cost control measures were taken, such as adjusting working hours according to order requirements and implementing a shift system.
In terms of production, the Group has established production bases in China, Vietnam and Bangladesh, being the world’s three largest garment export markets. Well before the outbreak of the pandemic, the Group gained insight into the increasing number of business opportunities arising from the growing demand for apparel labels and trim products in Bangladesh. It therefore made plans to expand local production capacity, and began construction of the new Bangladesh factory in October 2020. The new three-story plant has a gross floor area of approximately 10,600 square meters, which is expected to start production by the end of 2021. Through the new factory, the Group will be able to shorten production delivery times, improve production efficiency, increase production capacity and save costs, while providing additional space for the installation of new machines and for diversifying its product portfolio, which in turn will help the Group seize business opportunities arising from the market demand in the post-pandemic era.
In terms of products, sales of RFID products achieved the most handsome growth, achieving a year-on-year spike of 1.3 times, contributing HK$8.2 million in revenue. In order to meet the needs of customers with Internet of Things (IoT) applications, the Group established a subsidiary in mid-2020 with its own research and development team to focus on the development of RFID core technology and RFID system platforms, products and project solutions, which can be widely used in various areas of IoT applications, such as smart warehousing, smart production, anti-counterfeit tracking, file management, and smart washing. This is the Group’s dedication to providing impetus for industry digitalisation.
The Group is well prepared for 2021. The retail market has adapted to the new normal amid the pandemic, and it is expected that the increase in the number of orders during the second half of 2020 will continue into 2021. Following the industry’s recovery, the Group plans to consolidate its business relationships with existing international apparel brands through its global offices, as well as expand its geographical coverage and customer base by setting up sales offices in the regions where its potential customers are located, particularly in Europe. Additionally, in order to respond to its customers’ demands, the Group is conducting research into the feasibility of establishing factories in other Asian regions, Eastern Europe and South America, and thereby gain orders from local apparel suppliers to accelerate its business development.
In addition to market expansion, the Group will continue to invest in research and development, as well as the production of RFID products, and progressively promote the new RFID system platform, product and project solutions to its customers. In addition, Eco-concept products are set to be the most sought-after items in the near future, as evidenced by the enthusiastic demand for the products over the past year, hence Cirtek will develop and produce more eco-friendly products to diversify its product portfolio and create demand for its products.
Mr. Chan added, “As a leading manufacturer of apparel labels and trim products, with a wide range of apparel labels and trim products on offer, a well-established geographical footprint and a strong capability in product development, together with the commencement of operations at the newly established factory in Bangladesh in late 2021, Cirtek is able to satisfy the market demand for its products in the post-pandemic era. Under the leadership of our highly experienced management, we are confident that our Group is ready for a market recovery, and that it can return on right track to long-term growth, as well as maximize value for its shareholders.”
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