 | EXHIBIT 1 |
YEAR 2011 / 1st QUARTER
RESULTS OF OPERATIONS
OF GLOBAL SOURCES LTD.
The following discussion of our financial condition and results of operations should be read in conjunction with the accompanying financial statements.
Overview
We are a leading business-to-business (B2B) media company and a primary facilitator of two-way trade with Greater China. The core business is facilitating trade from Greater China to the world, using a wide range of English-language media. The other key business segment facilitates trade from the world to Greater China using Chinese-language media. We provide sourcing information to volume buyers and integrated marketing services to suppliers. Our mission is to facilitate global trade between buyers and suppliers by providing the right information, at the right time, in the right format. Although our range of media has grown, for more than 40 years we have been in the same primary business of helping buyers worldwide find products and suppliers in Asia.
Our key business objective is to be the preferred provider of content, services and integrated marketing solutions that enable our customers to achieve a competitive advantage.
We believe we offer the most extensive range of media and export marketing services in the industries we serve through our three primary channels – online marketplaces, magazines and trade shows.
We were originally incorporated under the laws of Hong Kong in 1970. In 1971, we launched Asian Sources, a trade magazine to serve global buyers importing products in volume from Asia. Realizing the importance of the Internet, we became one of the first providers of business-to-business online services by launching Asian Sources Online in 1995. In 1999, we changed the name of Asian Sources Online to Global Sources Online.
In April 2000, we completed a share exchange with a publicly-traded company based in Bermuda, and our shareholders became the majority shareholders of the Bermuda corporation. As a result of the share exchange, we became incorporated under the laws of Bermuda and changed our name to Global Sources Ltd.
Revenue
We derive revenue from two principal sources:
Online and other media services; and Exhibitions, trade shows and seminars.
Online and other media services consists of following two primary revenue streams:
Online Services — Our primary service is creating and hosting marketing websites that present suppliers’ product and company information in a consistent and easily searchable manner on Global Sources Online. We also derive revenue from banner advertising fees and the digital magazine we newly launched in July 2010.
Other Media Services — We publish trade magazines, which consist primarily of product advertisements from suppliers and our independent editorial reports and product surveys. Suppliers pay for advertising in our trade magazines to promote their products and companies. We also derive revenue from buyers that subscribe to our trade publications and sourcing research reports. We recognize revenue from our Online and Other Media Services ratably over the period in which the advertisement is displayed.
Exhibitions – trade shows and seminars — Our China Sourcing Fairs offer international buyers direct access to manufacturers in China and elsewhere in Asia. The first China Sourcing Fair was held in the fourth quarter of 2003. Subsequently, we have held several China Sourcing Fairs events in the second and fourth quarters of 2004 to 2010. In addition, in 2007 we launched new China Sourcing Fairs events in Dubai and Shanghai and in 2008 we launched new China Sourcing Fairs events in India. In September 2010, we held the China International Optoelectronic Expo in Shenzhen, China. We also launched 2 new China Sourcing Fairs events in Singapore and Johannesburg, South Africa in the fourth quarter of 2010. We established a new division to develop domestic shows in China, which will come under our new Global Sourcing Fairs brand and in the first quarter of 2011, we held our Global Sourcing Fairs event in Shanghai in January 2011. We held our International IC China Conferences and Exhibitions in Shenzhen, China in February 2011. We are launching new China Sourcing Fairs events in Miami, USA in 2011 and new Global Sourcing Fair Sports & Leisure event in Xiamen, China in November 2011. We derive revenue primarily from exhibit space rentals, but also from advertising and sponsorship fees in show guides and other locations in and around our event venues. We recognize exhibitor services revenue at the completion of the related events. Our major China Sourcing Fairs in Hong Kong are scheduled to be held in the second quarter and fourth quarter of each financial year. As a result, second and fourth quarter revenues are expected to be higher than the first and third quarter revenue.
IFRS Reporting Commences First Quarter of 2011
The financial results discussed in this document are prepared under International Financial Reporting Standards (IFRS). We adopted IFRS with December 31, 2010 as its first IFRS reporting date. We will present our financial results in accordance with IFRS in our annual report on Form 20-F for the year ended December 31, 2010. Beginning with this first quarter ended March 31, 2011 and for all future reporting periods, we will report our financial results in accordance with IFRS in all financial communications including the reports to the Securities Exchange Commission of the United States and the comparative financial information for the respective quarters will be restated to reflect the date of transition to IFRS as of January 1, 2009.
Results of Operations
The following table sets forth the results of our operations:
| Three months ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue | ||||||||
| Online and other media services (Note 1) | $ | 31,982 | $ | 29,921 | ||||
| Exhibitions | 4,381 | 4,505 | ||||||
| Miscellaneous | 1,173 | 1,111 | ||||||
| 37,536 | 35,537 | |||||||
| Operating Expenses: | ||||||||
| Sales | 14,439 | 12,960 | ||||||
| Event production | 1,052 | 1,184 | ||||||
| Community and content | 7,022 | 7,317 | ||||||
| General and administrative | 8,243 | 7,336 | ||||||
| Information and technology | 3,173 | 2,849 | ||||||
| Total Operating Expenses | 33,929 | 31,646 | ||||||
| Profit from Operations | 3,607 | 3,891 | ||||||
| Net profit attributable to the Company’s shareholders | $ | 3,536 | $ | 3,695 | ||||
| Diluted net profit per share attributable to the Company’s shareholders | $ | 0.10 | $ | 0.08 | ||||
| Shares used in diluted net profit per share calculations | 35,349,989 | 46,135,941 | ||||||
Note: 1. Online and other media services consists of:
| Three months ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Online services | $ | 27,239 | $ | 23,230 | ||||
| Print Services | 4,743 | 6,691 | ||||||
| $ | 31,982 | $ | 29,921 | |||||
The following table represents our revenue by geographical areas:
| Three months ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| China | $ | 27,906 | $ | 25,325 | ||||
| Rest of Asia | 7,873 | 8,197 | ||||||
| United States | 1,568 | 1,783 | ||||||
| Europe | 106 | 36 | ||||||
| Others | 83 | 196 | ||||||
| $ | 37,536 | $ | 35,537 | |||||
Consolidated Results
Revenue
Our total revenue grew by 6% to $37.5 million during the three months ended March 31, 2011 from $35.5 million during the three months ended March 31, 2010. China accounted for 74% of total revenue during the three months ended March 31, 2011 compared to 71% of total revenue during the three months ended March 31, 2010. Our Online and Other Media Services revenue grew by 7% from $29.9 million during the three months ended March 31, 2010 to $32.0 million during the three months ended March 31, 2011 resulting from a 13% growth in our Online and Other Media Services revenue in our China market, partially off-set by declines in our Hong Kong, Taiwan, US and other Asian markets. Our China market represented 76% of Online and Other Media Services revenue during the first quarter of 2011 compared to 72% during the first quarter of 2010. The growth in our Online and Other Media Services Revenue resulted mainly from a 17% growth in our revenue relating to hosting online websites and digital magazines for our customers off-set partially by decline of 29% in our print advertising revenue. Magazine advertising continues to be under pressure from the global shift by advertisers away from print advertising. Our Exhibitions revenue declined by 3% to $4.4 million during the three months ended March 31, 2011 compared to $4.5 million during the three months ended March 31, 2010. The decline in our exhibitions revenue resulted from the cancellation of our International IC China Conferences and Exhibitions in Shanghai, China, which were held in March 2010 during last year. China represented 58% of Exhibitions revenue for the three months ended March 31, 2011 compared to 64% for the three months ended March 31, 2010.
Total revenue from China grew by 10% during the three months ended March 31, 2011 compared to the three months ended March 31, 2010 although our total company revenue grew only by 6% during the year.
Business Strategy
We have a large market opportunity primarily focused on China’s exports and domestic B2B market. Our business strategy to achieve our objectives is to serve our markets with online, print and trade show media that address our customers’ needs at all stages of the buying process. Our business strategy is built around the following four key foundations.
Market Penetration
With our existing products in our existing markets there is potential for future growth. For example, we believe that there are many additional potential customers who we can attract to become customers of Global Sources Online and our China Sourcing Fairs.
New Product Development
Three new verticals for Solar & Energy Savings Products, Medical & Health Products and In-Car Electronics & GPS were launched in the third quarter of 2010. Each of these verticals are served by an online marketplace, digital magazine and printed magazine, and China Sourcing Fairs are scheduled for the Solar and Medical categories in the second quarter of 2011 in Hong Kong.
We continue developing our China Sourcing Fairs. In 2010, we held 55 China Sourcing Fairs shows versus the 30 we held in 2009. We are focused on specialization and have established unique market positions for categories including Security Products, Fashion Accessories, Baby & Children’s Products, and Underwear & Swimwear. Our strategy has also involved launching shows in developing markets and in 2010 we launched shows in Johannesburg and Singapore.
We plan to introduce online sourcing fairs that will extend the reach and value of our face-to-face trade shows. The first online sourcing fair is scheduled to launch in April 2011 together with the Hong Kong series of China Sourcing Fairs. Through these online sourcing fairs, buyers can view exhibitor booths and products even if the buyers are unable to physically attend the show.
Expansion into China’s Domestic B2B Market
We intend to continue developing existing products and launch new products and services for China’s domestic market. This is a significant medium-term business opportunity where we intend to leverage our brands, content, sales representatives, expertise and community. We established a new division to develop domestic shows, which will come under our new Global Sourcing Fairs brand.
Acquisitions and/or Alliances
We intend to support our strategy by looking for acquisitions and/or alliances designed to drive growth and accelerate achievement of our goals. We plan to seek complementary businesses, technologies or products that will help us maintain or achieve market-leading positions in particular niche markets. For example, in 2009 our eMedia Asia Ltd. acquired a majority stake in the China International Optoelectronic Expo and recently it completed the acquisition of the EDN-Asia and EDN-China and certain associated titles and websites at a cash consideration of $4.0 million in April 2011.
Operating expenses
Sales. We utilize independent sales representatives employed by independent sales representative organizations in various countries and territories to promote our products and services. Under these arrangements, the sales representative organizations are entitled to commissions as well as marketing fees. These representative organizations sell online services, advertisements in our trade magazines and exhibitor services and earn a commission as a percentage of revenue generated. For online and other media services, the commission expense is recognized when the associated revenue is recognized or when the associated accounts receivable are paid, whichever is earlier. For exhibitions, the commission expense is recognized when the associated revenue is recognized upon conclusion of the event. Sales costs consist of operating costs for our sales departments and the commissions, marketing fees and incentives provided to our independent sales representative organizations, as well as sales support fees for processing sales contracts.
Sales costs increased by 11% from $13.0 million during the three months ended March 31, 2010 to $14.4 million during the three months ended March 31, 2011. This was mainly due to a growth in sales commissions in turn due to a growth in revenue, increase in sales marketing expenses, increase in business tax expenses as a result of change in applicable business tax rates in China and increase in share based non-cash compensation expenses.
Event Production. Event production costs consist of the costs incurred for hosting the exhibition or trade show and seminar events. The event production costs include venue rental charges, booth construction costs, travel costs incurred for the event hosting and other event organizing costs. The event production costs are deferred and recognized as an expense when the related event occurs.
Event production costs declined from $1.2 million during the three months ended March 31, 2010 to $1.1 million during the three months ended March 31, 2011. This was mainly due to reduction in event organizing costs resulting from the cancellation our International IC China Conferences and Exhibitions in Shanghai, China.
Community and Content. Community and content costs consist of the costs incurred for servicing our buyer community as well as for marketing our products and services to the global buyer community and our content management services costs for our print publications business and online services business. Community and content costs also include costs relating to our trade magazine publishing business and marketing inserts business, specifically printing, paper, bulk circulation and magazine subscription promotions, promotions for our on-line services, customer services costs and the event specific promotions costs incurred for promoting the China Sourcing Fairs events and the technical conferences, exhibitions and seminars to the buyer community. The event specific promotion costs incurred for events are expensed as incurred.
Community and content costs declined by 4% from $7.3 million during the three months ended March 31, 2010 to $7.0 million during the three months ended March 31, 2011 due mainly to a 21% decline in bulk circulation costs, paper cost and printing charges resulting from the implementation of certain cost saving measures and a decline in our promotion costs for our exhibition events off-set by increase in our content management services costs.
General and Administrative. General and administrative costs consist mainly of corporate staff compensation, marketing costs, office rental, depreciation, communications and travel costs, foreign exchange gains/losses and amortization of software and intangible assets (described in the following paragraphs).
We have issued share awards under two equity compensation plans (“ECP”) to former employees, consultants and employees of third party service providers after they were resigned or retired from their respective employment or consultancy service. Under these two plans, the share grants vest over a five-year period on a graded vesting basis, with a percentage of shares vesting each year. The grantee is subject to the non-compete terms stipulated in the plan. The Company has the ability to enforce the non-compete agreement by forfeiting the unvested shares if the grantee fails to comply with the non-compete terms. There is no vesting condition other than the non-compete terms. We recognize the intangible asset relating to the non-compete provisions of each of the above awards at the fair value of the respective award. The intangible asset is amortized over the non-compete period specified in the award on a straight-line basis. The amortization expense relating to these intangible assets is included in the general and administrative costs.
In December 2009, our subsidiary, eMedia Asia Limited (“eMedia Asia”), acquired the entire issued share capital of eMedia South China Limited which holds a 70% equity interest in Shenzhen Herong GS Exhibition Co., Ltd. for a total purchase consideration of $6.8 million. We accounted for this acquisition as a business combination. We recorded the acquired intangible assets at fair value of $5.8 million and goodwill of $2.5 million in connection with this acquisition. A majority of amortizable intangible assets have useful lives of 14 years and the others less than one year. The amortization expense relating to these acquired intangible assets is included in the general and administrative costs. There was no impairment to goodwill during the quarter based on our assessment.
General and administrative costs increased by 12% from $7.3 million during the three months ended March 31, 2010 to $8.2 million during the three months ended March 31, 2011, due mainly to increases in marketing expenses, payroll costs, travel costs and professional fees paid for the merger and acquisition activities.
Information and Technology. Information and technology costs consist mainly of payroll, office rental and depreciation costs and fees paid to third parties relating to our information and technology support services and the updating and maintenance of Global Sources Online. Information and technology costs increased by 11% from $2.8 million during the three months ended March 31, 2010 to $3.2 million during the three months ended March 31, 2011 due mainly to increases in payroll costs and depreciation costs.
Non-Cash Compensation Expense. We have issued share awards under several equity compensation plans (“ECP”) to both employees and non-employees. The Company’s share awards to non-employees are share grants to consultants and to employees of third party service providers. We also recognize non-cash compensation expenses relating to the share awards granted to our directors under The Global Sources Directors Share Grant Award Plan.
The share grants to employees and non-employees vest over a six-year period on a graded vesting basis, with a percentage of shares vesting each year. The share grants have a service condition that the awardees who received the share grants must continue to provide the services during the vesting period. The awardees will receive the shares on the respective vesting dates if they continue to render services to the Company. If an awardee ceases to provide services, any shares that have not vested are forfeited.
Persons eligible to receive grants under the Global Sources Directors Share Grant Award Plan are the directors of the Company. Share grants to directors will be vested at the end of four years or in accordance with such other vesting schedule as may be determined by the Plan Committee.
The Company accelerates the vesting of share grants in the event of death of an awardee or if the Company is in liquidation or in certain cases, if there is a takeover or a change of control of the Company.
The total non-cash compensation expenses, resulting from ECP and The Global Sources Directors Share Grant Award Plan recorded by us and included under the respective categories of expenses during the three months ended March 31, 2011 and during the three months ended March 31, 2010 were $0.4 million.
The corresponding amounts for the non-cash compensation expenses are credited to shareholders’ equity.
Profit From Operations. The total profit from operations during the three months ended March 31, 2011 was $3.6 million as compared to $3.9 million during the three months ended March 31, 2010. The decline in total profit from operations resulted mainly from increases in sales costs, general and administrative costs and information technology costs off-set partially by a growth in revenue and declines in event production costs and community and content costs.
Interest income. We recorded interest income of $0.05 million arising mainly from U.S. Treasury securities and term deposits placed with banks during the three months ended March 31, 2011 compared to an interest income of $0.3 million during the three months ended March 31, 2010. The decline in interest income was mainly due to lower yield on the term deposits with the banks during the three months ended March 31, 2011 as well as a decline in our cash and bank balances as a result of our share repurchase through tender offer that we completed in the third quarter of 2010.
Income Taxes. Certain subsidiaries of the group operate in the Cayman Islands and other jurisdictions where there are no taxes imposed on companies. Some of our subsidiaries operate in Hong Kong SAR, Singapore, China and certain other jurisdictions and are subject to income taxes in their respective jurisdictions.
We reported a tax provision of $0.06 million during the three months ended March 31, 2011 and $0.1 million during the three months ended March 31, 2010.
Net profit attributable to the Company. Net profit attributable to the company was $3.5 million during the three months ended March 31, 2011, compared to $3.7 million during the three months ended March 31, 2010. The decline in net profit attributable to the Company resulted mainly from increases in sales costs, general and administrative costs and information technology costs off-set partially by a growth in revenue and declines in event production costs, community and content costs and interest income.
Diluted Net profit Per Share. The diluted net profit per share attributable to the Company’s shareholders increased from $0.08 to $0.10. The number of shares used for the computation of net profit per share was decreased from 46.1 million to 35.3 million as we repurchased our shares through tender offer in the third quarter of 2010.
Liquidity and Capital Resources
We financed our activities for the three months ended March 31, 2011 using cash generated from our operations and we had no bank debt as at March 31, 2011.
Net cash generated from operating activities was $21.5 million during the three months ended March 31, 2011, compared to $9.4 million cash generated from operating activities during the three months ended March 31, 2010. The primary source of cash from operating activities was collections from our customers received through our independent sales representative organizations.
Receivables from sales representative organizations increased from $8.2 million as of March 31, 2010 to $8.9 million as of March 31, 2011 due to increase in our collections. The receivables from sales representative organizations may decline in the near future as the collections are transferred to our bank account. In the long term, if our China business and our exhibition business grow as the economic climate improves, the receivables from sales representative organizations may increase. All the authorized signatories to the collection depository bank accounts maintained by our sales representatives in China are our employees, a majority of whom are our senior management staff.
In 2004, 2007 and 2008 we purchased office space of 9,000 square meters, 1,939.38 square meters and 6,364.50 square meters respectively, in commercial buildings in Shenzhen China. In 2008 we also purchased office space of 22,874 square feet together with six car parking spaces in a commercial building in Hong Kong SAR. These buildings are situated on leasehold lands with lease periods ranging between 50 to 55 years. We record the depreciation on these assets on a straight-line basis over the remaining lease term. The total net book value of these four office properties as of March 31, 2011 and as of December 31, 2010 was $71.4 million and $71.5 million respectively. The total market value of these four office properties as of December 31, 2010 was $136.4 million based on independent valuation reports prepared by Savills Valuation and Professional Services Limited, Hong Kong. Based on our management’s assessment, the total market value of these four office properties as of March 31, 2011 was not less than the total market value as of December 31, 2010. We are currently in the process of negotiations to acquire a commercial property in Shanghai, China in order to support our continued business expansion in China. All future payments for this acquisition will be funded from our internal cash resources.
Advance payments received from customers were $124.0 million as of March 31, 2011, compared to $97.3 million as at December 31, 2010, which improved our liquidity. The majority of our customers in China pay us in advance for our Online and Other Media Services business. The majority of our Exhibitions business collections are advance payments.
We continuously monitor collections from our customers and maintain an adequate allowance for doubtful accounts. While credit losses have historically been within our expectations and the allowances established, if bad debts significantly exceed our provisions, additional allowances may be required in future.
We invest our excess cash in term deposits with commercial banks, U.S. Treasury securities and available-for-sale securities to generate income from interest received as well as capital gains, while the funds are held to support our business.
Generally, we hold securities with specified maturity dates such as Treasury Bills until their maturity. We invest excess cash on hand in short term U.S. Treasury Bills and in term deposits with major banks to generate interest income. The market values of U.S. Treasury Bills and in term deposits with banks as at March 31, 2011 were $68.5 million and $12.6 million, respectively compared to the market values of U.S. Treasury Bills and in term deposits with banks as at December 31, 2010 of $59.3 million and $16.7 million, respectively. We do not engage in buying and selling of securities with the objective of generating profits on short-term differences in price or for other speculative purposes. Our objective is to invest to support our capital preservation strategy.
We hold a Documentary Credit facility with the Hongkong and Shanghai Banking Corporation Limited, for providing documentary credits to our suppliers. This facility has a maximum limit of approximately $0.6 million. As at March 31, 2011, the unutilized amount under this facility was approximately $0.6 million. Hongkong and Shanghai Banking Corporation Limited has also provided a guarantee on our behalf to our suppliers. As at March 31, 2011, such guarantee amounted to $0.003 million.
We did not recognize deferred income tax assets of $7.7 million in respect of losses as at March 31, 2011 that can be carried forward against future taxable income as the realization of the related tax benefit through future taxable profits is not probable.
During the first quarter of 2007, we entered into a number of venue license agreements for our exhibition events amounting to $44.4 million in payments over five and a half years. The agreements are cancelable under Force Majeure conditions, or upon notice and payment of cancellation charges to the other party. In May 2010, we entered into a number of venue license agreements for our exhibition events amounting to a gross value of approximately $16.7 million in payments over five years. Again, in December 2010, we entered into a number of venue license agreements for our exhibition events amounting to a gross value of approximately $3.3 million in payments over four years. The agreements are cancelable under force majeure or other specified conditions, or upon notice and payment of cancellation charges to the other party. The amounts paid will be expensed when the related events are held. As of March 31, 2011, we have paid approximately $29.4 million under these agreements.
As approved by our board of directors, in August 2010 we repurchased through a tender offer 11,121,000 of our common shares at purchase price of $9.00 per share and paid a total of $100.089 million in purchase consideration to the tendering shareholders. We are holding the repurchased shares as treasury shares.
On February 4, 2008, our board of directors authorized a program to buyback up to $50.0 million of common shares. We may, from time to time, as business conditions warrant, purchase shares in the open market or through private transactions. The buyback program does not obligate us to buyback any specific number of shares and may be suspended or terminated at any time at management’s discretion. The timing and amount of any buyback of shares will be determined by management based on its evaluation of market conditions and other factors. As of March 31, 2011, we have not bought back any of our shares under this program.
On April 2, 2011, our subsidiary, eMedia Asia Limited in which the Company owns 60.1% equity interest, acquired 100% interest in Canon Communications Asia Pte Ltd and Beijing Reed Advertising Services Co., Ltd., which together own EDN-China, EDN-Asia and certain other associated publication titles and websites from Canon Communications LLC, a subsidiary of United Business Media Limited, for a cash consideration of approximately $4.0 million. Acquisition related costs of approximately $0.128 million incurred during the first quarter of 2011 have been expensed under general and administrative expenses in the consolidated income statement.
With the acquisition of EDN-China and EDN-Asia, eMedia Asia Limited further expands the reach of its multi-channel media network that serves to advance the design capability and competitiveness of electronics manufacturers in Asia and throughout China. Details of the fair value of assets acquired and liabilities assumed, the amount of goodwill to be recorded and the effect on the cash flows for the Group are not disclosed, as the accounting for this acquisition is still in progress. The acquired entities will be consolidated with effect from the date of acquisition.
We anticipate that our cash and securities on hand and expected positive cash-flows from our operations will be adequate to satisfy our working capital needs, capital expenditure requirements and cash commitments for the next 12 months. However, looking to the long term, we may raise additional share capital, or sell debt securities, or obtain credit facilities as and when required to further enhance our liquidity position, and an issue of additional shares could result in dilution to our shareholders.
Recent Accounting Pronouncements
The following recent accounting pronouncements that are applicable to us do not have a material effect on our results of operations and financial condition:
| (i) | Revised IAS 24 (revised), “Related party disclosures”. |
| (ii) | IFRIC 14, ‘Prepayments of a minimum funding requirement |
| (iii) | Amendments to IFRS 7, ‘Disclosures – Transfer of financial assets’ |
| (iv) | Improvements to IFRS 2010 (annual improvements project) |
We are still evaluating the impact on our results of operations and financial condition of the following recent accounting pronouncements that are applicable to us:
| (i) | IFRS 9, “Financial instruments” |
Revised IAS 24 (revised), “Related party disclosures”, issued in November 2009. It supersedes IAS 24, “Related party disclosures”, issued in 2003. IAS 24 (Revised) is mandatory for periods beginning on or after January 1, 2011. Earlier application, in whole or in part, is permitted. The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. We will apply the revised standard from January 1, 2011. The adoption of this revised standard is not expected to have any impact on our consolidated financial statements.
The following new standards, amendments and interpretations have been published and are mandatory for our accounting periods beginning on or after January 1, 2011 or later periods but are not expected to have material impact on our consolidated financial statements:
| · | IFRIC 14, ‘Prepayments of a minimum funding requirement’ |
| · | Amendments to IFRS 7, ‘Disclosures – Transfer of financial assets’ |
| · | Improvements to IFRS 2010 (annual improvements project) |
IFRS 9, “Financial instruments”, issued in November 2009. This standard is the first step in the process to replace IAS 39, “Financial instruments” recognition and measurement”. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Group’s accounting for its financial assets. The standard is not applicable until January 1, 2013 but is available for early adoption. We have yet to assess IFRS 9’s full impact. However, initial indications are that it may affect our accounting for its debt available-for-sale financial assets, as IFRS 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognized directly in profit or loss.
Qualitative and Quantitative Disclosures about Market Risk
During the three months ended March 31, 2011 and the three months ended March 31, 2010, we have not engaged in foreign currency hedging activities.
In the three months ended March 31, 2011 and the three months ended March 31, 2010, we derived more than 90% of our revenue from customers in the Asia-Pacific region. We expect that a majority of our future revenue will continue to be generated from customers in this region. Future political or economic instability in the Asia-Pacific region could negatively impact our business.
Forward-looking Statements
Except for any historical information contained herein, the matters discussed in this report contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “predict,” “strategy,” “forecast,” “will” and similar terms and phrases, including references to assumptions.
These forward-looking statements include current trend information, projections for deliveries, business growth strategies and plans, projected capital expenditure, expansion plans and liquidity. These forward looking statements involve risks and uncertainties that may cause our actual future activities and results of operations to be materially different from those suggested or described in this report on Form 6-K. These risks include but are not limited to: product demand; customer satisfaction and quality issues; labor disputes; competition, changes in technology and the marketplace; our ability to achieve and execute internal business plans; the success of our business partnerships and alliances; worldwide political instability and economic growth; changes in regulatory and tax legislation in the countries in which we operate; and the impact of any weakness in the currencies in Asia in which we operate.
In addition to the foregoing factors, certain other risks and uncertainties, which could cause actual results to differ materially from those expected, estimated or projected can be found in the section “Risk Factors” in our Annual Report on Form 20-F filed with the United States Securities and Exchange Commission.
If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this report on Form 6-K, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the forward-looking statements included in this report.