TORONTO, Sept. 21, 2012 /CNW/ - Sunwah International Limited,TSX: SWH (the "Company"), an Asian based financial services firm today released its financial results for the year ended June 30, 2012. All figures quoted are in U.S. dollars unless otherwise specified.
The Group (Sunwah International and its subsidiaries) experienced a significant devaluation in its proprietary investments in Fiscal 2012, particularly during the first and last quarters, amid the bleakest global economic conditions since the financial meltdown of 2008. As a result, the Group's investment portfolio sustained realized and unrealized mark-to-market losses of $12.1 million, contributing to an overall net loss of $16.6 million for the 12-month period.
On a more positive note, owing mainly to a shift in strategy and a business development push within Sunwah International's Capital Markets Group during the year, revenue from services and other income only slightly decreased to $13.5 million (FY2011: $14.9 million) despite the depressed IPO and capital markets activity in Hong Kong and abroad. General and administrative expenses lowered in line with the decrease in operating income to $22.5 million during the year (FY2011: $24.2 million).
Financial highlights for Fiscal 2012 include:
- Commission and fee income of $10.5 million (FY2011: $13.1 million).
- Interest and dividend income up year-over-year to $3.0 million (FY2011: $1.8 million).
- Net loss of $12.1 million on the disposal and mark-to-market losses of financial assets/liabilities, compared to a net gain of $11.2 million in Fiscal 2011.
- Net loss of $16.6 million compared to a year-over-year net loss of $1.7 million.
- A decrease in general and administrative expenses to $22.5 million (FY2011: $24.2 million).
"Despite being, of course, disappointed with this year's results, we are buoyed by the fact that our back-to-basics approach of targeting resources where we excel, through the amplification of our Capital Markets Group business pursuits, is starting to produce results as demonstrated by this division's ability to capitalize on several key opportunities within the year," said Douglas C. Betts, President and Chief Executive Officer of Sunwah International. "As well, through our Strategic Investment Group, we continue to actively pursue additional revenue channels designed to stabilize our income base and capitalize on China's long-term domestic demand for foreign resources, particularly in the minerals and energy sectors in which we offer focused expertise."
Financial Results for the Year ended June 30, 2012
Loss attributable to shareholders was $16.6 million in FY2012, compared to $1.7 million in FY2011. The Group recorded a loss before tax of $21.8 million in FY2012, compared to $0.1 million in FY2011.
The Group recorded a net loss of $12.1 million on the disposal of financial assets/liabilities and remeasurement to fair value in FY2012, compared to a net gain of $11.2 million in FY2011. The FY2012 loss was attributable to the substantial unrealized mark to market losses of the Group's investment portfolio in the current year, mainly attributable to the deterioration of the market as influenced by the European sovereign debt crisis. A gain on disposal of available for sale financial assets of $0.1 million was recorded in FY2012, there was no such gain in FY2011.
Commission and fee income of $10.5 million was recorded in FY2012, compared to $13.1 million in FY2011. Interest and dividend income increased to $3.0 million in FY2012, from $1.8 million in FY2011, mainly due to the increase in the margin loans portfolio.
General and administrative expenses (including commission expenses) decreased to $22.5 million in FY2012 from $24.2 million in FY2011, mainly attributable to (i) the decrease in variable staff costs which was in line with the decrease in operating income; (ii) the non-cash transactions in relation to the recognition of $2.2 million compensation costs for the stock options granted by the Company and SWK to several directors, officers and employees of the Group in FY2011. The decrease was partially offset by the expenses incurred in relation to the relocation of office premises in Hong Kong and the legal fees and related expenses in relation to the K&L Gates' case in FY2012.
A fair value gain of $3.4 million in relation to the fair value changes on financial derivative liabilities of the Company's issued unsecured convertible debentures was recognized in FY2012, compared to a $2.1 million non-cash loss in relation to the fair value changes on financial derivative liabilities and net loss on repurchase, amendment of terms and conversion of the convertible debentures in FY2011.
An impairment loss on available for sale financial assets of $2.7 million was recognized in FY2012, attributable to the devaluation of certain investments held. The decline was in line with the deterioration of the capital market during the year. The decline in value was recognized in the consolidated statement of operations instead of other comprehensive expenses as there is objective evidence that the investments are impaired.
Provision for impairment of receivables of $0.5 million was recognized in the current year, compared to a write back of $0.3 million in FY2011.
Segmented Results of Operations for the Fourth Quarter
| Investment in
| Commission & fee income
| Other income
General and administrative expenses
Other (losses)/gains, net
Share of losses of associates
|Loss before income taxes and non-controlling interests||(3,423)||(882)||(724)||(6,888)||(5,805)||(4,092)|| (21,814)
- Brokerage (Capital Markets Group):
Commission and fee income of the brokerage division was $6.0 million for FY2012 as compared with $8.3 million for FY2011. Interest income from margin and IPO financings increased to $1.7 million in FY2012, from $0.7 million in FY2011.
General and administrative expenses were $10.7 million in FY2012, a decline from $10.8 million in FY2011, mainly due to the decrease in commission expenses and variable staff costs which were in line with the decrease in operating income in the division. The decrease was offset by the legal fees and related costs of approximately $1.0 million absorbed in FY2012 in relation to the K&L Gates' case.
As explained in the notes to the consolidated financial statements, the Group had deposited HK$40.0 million, approximately equivalent to $5.1 million (the "Escrow Funds") into an escrow account maintained by a law firm, K&L Gates in Hong Kong in FY2011, but the law firm has not returned the Escrow Funds despite the demand for payment by the Group. The Group's legal counsel has reviewed the documentary evidence in respect of the escrow agreement, has analyzed the legal duties and obligations of the law firm arising from the terms of the escrow agreement and has analyzed the legal and professional duties and obligations of the law firm arising from the receipt of the Escrow Funds (which were client monies and held in trust). The Group's legal counsel is of the opinion that the Group has good prospects on succeeding on its claim to recover the Escrow Funds and that it is very likely that any judgement obtained would be satisfied. However, there might be a reduction in the ultimate recovery of the Escrow Funds by the amount of the service fees paid to the Group and the legal fees and expenses for the lawsuit which might not be entirely recovered. As a result, the Group recognized an impairment loss of HK$3.5 million (equivalent to approximately $0.4 million) on the other receivable during the year.
The overall loss increased to $3.4 million in FY2012, compared to $1.4 million in FY2011.
- Corporate Finance & Capital Markets (Capital Markets Group):
Commission and fee income of the division declined to $4.4 million for FY2012 from $4.7 million for FY2011. Several listing applicants delayed their IPO proposals or scaled down the fundraising sizes during the year. The division completed the listing of Sino Harbour Property on the Main Board in July 2011 and the placing of shares of China Leason in August 2011. The Group was appointed the book runner for the IPO of Noble House (China) Holdings in December 2011.
General and administrative expenses decreased to $5.1 million for FY2012 from $5.6 million for FY2011, mainly attributable to the decrease in variable staff costs which were in line with the decrease in fee income in the current year.
The division recorded a loss of $0.9 million in FY2012, compared to $0.5 million for FY2011.
- Asset Management (Asset Management Group):
Commission and fee income of $0.1 million was recognized in FY2012. The Group recruited a new fund manager in the current year and is looking for opportunities to set up small boutique funds for selected high net worth clients.
In the second half of FY2011, Sunwah International Asset Management ("SIAM") was formed to act as a global fund platform for the "family of funds" model. Selling, general and administrative expenses decreased to $0.8 million for FY2012, compared to $1.0 million for FY2011. The business model is being re-evaluated in light of current market conditions.
There was a loss of $0.7 million for FY2012, compared to $1.0 million for FY2011.
- Investment In Securities (Strategic Investment Group):
Mark-to-market investments produced a trading loss of $7.2 million in FY2012 as compared with trading income of $8.8 million in FY2011, largely due to a decline in global stock markets and commodity price. The division invested in several listed debt securities to diversify its investment portfolio in FY2011 in order to decrease its holding of large positions in individual stock. The division reduced its investment portfolio in Hong Kong listed shares to finance the acquisition of the office property during the year.
General and administrative expenses decreased to $0.8 million in FY2012 from $1.5 million in FY2011, attributable to the decrease in variable staff costs as a result of the decrease in operating income in FY2012.
Overall, a loss of $6.9 million was recorded for FY2012, compared to an income of $8.2 million for FY2011.
- Structured Investment (Strategic Investment Group):
The division has invested in several listed securities of natural resources companies, listed securities engaged in the provision of education services, an investment vehicle engaged in the acquisition and operations of high-end automotive dealerships in the PRC and several unlisted private investment funds.
A trading loss of $4.8 million was recorded in FY2012, compared to trading income of $2.4 million in FY2011, mainly attributable to the net unrealized mark to market losses on the investment portfolios during the year, in line with the poor performance of the capital market.
Included in the trading income was a $0.1 million gain on disposal of available for sale financial assets recognized during the year. There was no such gain in last year.
Other gains of $1.1 million were recorded in FY2012, compared to losses of $2.3 million in FY2011. A fair value gain of $3.4 million on the convertible option derivative component of the Company's convertible debentures was recognized in FY2012, compared to a net loss of $2.1 million on the net loss on financial derivative liabilities and convertible debentures in FY2011.
Included in other gains in FY2012 was a one-off gain on the deemed partial disposal of an associate of $0.4 million, resulting from the dilution in the Group's share ownership upon the private placement that took place in an associated company.
As a result of the weakened Hong Kong equity market, the Group suffered a fair value loss on available for sale investments which were acquired in FY2011. An impairment loss of $2.7 million was charged to the Group's consolidated statement of operation and included in "Other gains/(losses), net" in FY2012 as the investments were considered impaired. In FY2011, fair value gain of $0.3 million on these investments was recognized in other comprehensive income.
The division recorded an overall loss of $5.8 million in FY2012, compared to a loss of $1.9 million in FY2011.
- Corporate and Other Activities:
In FY2012, the Group completed the acquisition of an office property located in Hong Kong for approximately $27.8 million and a mortgage bank loan of $13.2 million was drawdown to finance the acquisition of the property.
General and administrative expenses decreased 11% to $7.3 million in FY2012 from $8.3 million in FY2011, mainly attributable to the recognition of $2.1 million non-cash compensation costs in relation to the grant of stock options by the Company and SWK to several directors, officers and employees of the Group in FY2011. The decrease in expenses was partially offset by the expenses incurred in relation to the relocation of office premises in Hong Kong during the year.
Other losses of $0.3 million were recognized in FY2012, compared to a net gain of $0.3 million in FY2011. Included in other losses in FY2012 was an impairment loss on goodwill in a subsidiary of $0.4 million.
The corporate and other activities of the Group incurred an overall loss of $4.1 million for FY2012, compared to $3.5 million for FY2011.
Financial Results for the Fourth Quarter ended June 30, 2012
The Group reported revenue of $0.3 million for Q4 of FY2012, compared to $1.7 million for Q4 of FY2011. Net loss attributable to the owners of the Company was $7.0 million in Q4 of FY2012, compared to $4.7 million in Q4 of FY2011. Basic loss per share was $0.0760 for Q4 of FY2012, compared to $0.0525 in Q4 of FY2011.
Taking into account the operating cash flow requirements of the Company and the cash dividend received and receivable from SWK, its primary operating subsidiary, the company did not declare any final dividend to shareholders in FY2012.
Outlook for FY2013
The Company believes that China will continue to be a major factor in any growth in the global economy. The Company continues its focus on natural resources - in particular mining and energy - and should benefit from China's continuing growth. Increasingly, we expect the Chinese Renminbi to play a larger role in international currency transactions driven by China's increased global stature as an international investor and the growing importance of China as a trading partner.
We believe that the flow of investment capital from Europe (both Western and Eastern Europe), North America and the Middle East towards Asia will increase, particularly in China and South East Asia. The Group continues to position itself as a financial services provider participating in these flows of capital.
FY2013 will be a difficult year for investors as capital markets worldwide (including Hong Kong) adjust to the issues arising from the European Union and the United States referred to above and to a slowing of the growth of the Chinese economy.
About Sunwah International Limited
Sunwah International, is a strategically positioned asset-based financial services provider, linking the global investment community with China's high growth economy. Leveraging a 20-year track record and significant relationships throughout Asia, Sunwah International is now positioned into three integrated divisions: Capital Markets Group, consisting of brokerage and financial services, including investment banking; Strategic Investment Group, a merchant bank focused on mining and natural resources; and our Asset Management Group specializing in private equity funds. The organization's primary subsidiary, Sunwah Kingsway Capital Holdings Limited is based in Hong Kong and listed on The Stock Exchange of Hong Kong. The Sunwah Kingsway group of companies comprises Sunwah International's primary operating subsidiaries and is licensed to provide a range of financial services. Sunwah International operates from six offices located in Hong Kong, Beijing, Shanghai, Shenzhen, Macau and Toronto.
China is widely recognized as an increasingly important player on the world's financial stage. As the country continues to grow, its greatest needs will lie in energy and resources. Following a recent restructuring, the Company is positioned as a middle tier provider of financial services in these sectors and an opportunistic investor in these and related sectors. Sunwah International's strategy is to use investment activities strategically to generate advisory services revenue while creating value for its shareholders through asset accumulation.
Founded in 1990, the Company is listed on the main board of the Toronto Stock Exchange under the symbol SWH.
This press release contains forward-looking statements that are based on the beliefs of Management and reflect the Group's current expectations. In certain cases, forward-looking information can be identified by the use of words such as "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "will", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, investors should not place undue reliance on forward-looking information. Forward-looking information is provided as of the date of this press release, and the Company assumes no obligation to update or revise them to reflect new events or circumstances.
SOURCE: Sunwah International Limited
For further information:
Gary Quedado, Sunwah International Group, (416) 861-3099 Ext. 0238, [email protected]