C&G Industrial: discontinuation in the Industrial Application Differentiated Polyester Short Fibre Project
This is some sort of a profit guidance for C&G Industrial as well. We will be expecting a much much lower cashflow next quarter. We do hope it is at least positive. I do applaud them for making this move, rather than not be reactive and not control cost and capacity requirements.
A 9.3 mil expense is a tear drop in its 560mil cash reserves. But look to this to impact profit margin in the coming quarter.
For more information on C&G, i have a pretty good discussion here on the fundamentals of the company. do note that C&G does not pay much dividend but at this moment, its cash is more than its share price. The only thing not going for it is that this whole company is a sham to launder cash from illegal business ha.
The Board of Directors of the Company would like to announce that the Company has recently undertaken a review of the ISF Project in the light of the recent global economic and financial crisis and, as a result of the review, would be discontinuing the project.
The Company has to date incurred a total of RMB9.3 Million (or approximately S$1.9 Million) on land clearance and other construction related works on the project, and technical consultancy fees for the project. The Company had originally earmarked a sum of approximately S$40 Million for the project from the proceeds of a share placement undertaken in June 2007.
The global impact from the recent financial meltdown affecting major established financial institutions in the United States and the contemporaneous global credit crisis have made it imperative for the Board to review management’s original analysis of business prospects and assumptions in respect of the ISF Project.
The impact of the global financial crisis has resulted in a liquidity crunch affecting the Company’s existing and target customers. A number of the Company’s existing and target customers face increasingly higher financing costs and lack of credit to finance their business operations. This in turn is expected to adversely affect their demand for the higher cost new industrial bi-component fibre products including the adhesive-bonded cloth products and the non-adhesive synthetic cotton products, which form the core products (the “ISF Products”) of the ISF Project.
The costs of construction in the PRC have on the other hand increased in the last few months. The increased costs arose primarily because of higher raw materials costs and higher labor costs. The PRC government has recently imposed higher minimum wages for workers. This has led to an upward spiral in wages costs in the construction industry.
The higher construction costs will likely lead to a significant costs over-run for the Company to complete the project. Higher raw materials costs, wages costs as well as an increase in royalties for the right to use the proprietary technology relating to the ISF Products are envisaged to increase production costs.
Up till the recent weeks before the drastic and precipitate worsening of the global financial crisis and the inevitable knock-on effects on the Company’s business environment, the Company was still of the view that the ISF Project would be viable in the longer term in spite of increased costs. However, with the anticipated sustained downturn in demand for higher cost ISF Products, exacerbated by the increase in construction and production costs, the Company believes that risk of incurring a substantial loss should it proceed any further with the ISF Project has become
unacceptably high.As the above adverse factors are not expected to abate within the next few years, the Board believes that it would be in the best interests of the Company to discontinue the ISF Project. The Board believes that it would be prudent for the Company to remain in a strong cash position in the current uncertain global financial environment where credit is generally unavailable.
The discontinuation of the project will result in the Company writing off the sum of RMB9.3 million incurred in respect of the ISF Project so far. This will have an impact on the Company’s earnings for 3QFY2008. However, the bulk of the share placement proceeds earmarked for the ISF Project is still retained by the Company as cash reserves.
The Board intends to maintain the Company’s strong cash reserves to support the Company’s existing core business.
The Board will however continue to evaluate business opportunities for profitable investments. The Board will seek shareholders’ approval before making any other investment(s) with the Company’s share placement proceeds that had been originally earmarked for the ISF Project.
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