Radiance Electronics Limited (the "Company") refers to the letter from SGX dated 2 October 2003, wherein the SGX raised certain queries with respect to the Company's full year financial statement and dividend announcement.

1. We refer to your announcement of 30 September 2003 on the above and the Company's IPO prospectus dated 12 June 2003 ("IPO Prospectus").

2. Please provide further information on the following in an announcement to be released via MASNET by 4 October 2003. In your announcement, please disclose our questions and your corresponding answers to enable investors to understand the matters raised by the Exchange. If any our queries have been addressed previously, please contact us to clarify this:-

(a) We note in the Income Statement an allowance for doubtful debts made in FY 2003 amounting to $1.56 million, up $1.14 million from $0.42 million incurred at 1H2003. In this respect, please:

(i) Disclose the underlying factors which caused the additional provisions to be necessary and whether full provision has been made to outstanding debts relating to this customer;

The additional provision of $1.14 million from $0.42 million incurred at 1H2003 was necessary due to the nature of the reorganization of the key customer which was uncertain at the date of the Company's last announcement on 30 September 2003. Based on then available information, adequate provision has been made against the amount due. At the end of this announcement, we have no reason to believe that the provision is inadequate to any material extent.

(ii) Advise if this amount is related to the provision for doubtful debts which were written back in FY June 2002 amounting to $0.305 million disclosed on page 162 of the Company's IPO prospectus. If so, to explain the reasons for the write back in FY 2002; and

This amount is not related to the write back of the general provision in FY2002. The write back in FY2002 was in response to lower trade debtor turnover as disclosed in page 78 of the Company's IPO prospectus on credit policies.

(iii) Advise whether this relates to the major customer undergoing reorganization as disclosed in section 8 of the Company's Full Year Results.;

Yes, this relates to the major customer undergoing reorganisation.


(b) We note the Company's comments on the competitive conditions of the industry in which the group operates that "Subsequent to the year-end, the Company has been advised by one of its major customers that they are undergoing a reorganisation, the impact of which is unknown at the date of this statement". In this respect, please:


(i) Advise when the reorganization commenced and how this had impacted the Company's operations to-date since the commencement of the reorganization;

At 7:02 p.m. on 2 October 2003 our subsidiary in Shanghai, Radiance Electronics (Shanghai) Co. Ltd., was notified by Channel Master LLC ("CM") of its intention to file a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court in the District of Delaware. By the filing of the voluntary Chapter 11 petition, CM will formally commence its reorganization.

While this would have required disclosure via MASNET, we have not done a separate announcement in view of this response to queries raised by SGX.

On 5 August 2003, we were informed that a New York firm of investment bankers, SG Cowen Securities Corporation ("SG Cowen") was retained by CM to assist it in evaluating a range of potential strategic alternatives including the potential sale of CM to third party strategic and financial buyers. Radiance Group was then approached as a potential strategic investor. The Company entered into a non-disclosure agreement with CM on 6 August 2003 with a view to evaluating such potential investment opportunity. Other than the approach from SG Cowen as aforesaid, no further details of the reorganization was made available to us up until 2 October 2003 when we received CM's notice of intention to file Chapter 11 petition.

Since we learned of the reorganization, we have taken steps towards managing our business relationship with CM. In particular, we have implemented advance payment before shipment policy as well as selective new order taking.

(ii) Elaborate on the nature of the reorganization of this major customer in order for investors to understand how such reorganization may impact on the Company in the future; and

No detail of the petition has been received as at the date of this announcement. Further announcement in this respect will be made, if relevant, at a later date when we receive a copy of the petition from CM.

The continuity of our business relationship with CM will depend on the eventual outcome of the reorganization under Chapter 11.

(iii) Provide further information on the amount of sales & profits attributable to this major customer in the past;

 

(c) In compliance with paragraph 14 of Appendix 7.2, the Company must provide a review of performance by business segments and disclose factors which affected performance in each segment. As the Company had disclosed its segmental results for its pro forma group for FY 2002 in its IPO prospectus, we are of the view that the review can be made in comparison with the pro forma financials as disclosed in the IPO prospectus;


 

Primary Reporting Format - Business Segments

The business of the Group is organised into the following products segments:


• Satellite communications ("SC")
  
• Computer peripherals ("CP")
  
• Others - represents investment and management activities

 

 

 

Secondary Reporting Format - Geographical Segments

In presenting information on the basis of geographical segments, segment revenue is based on the location of the customers. Segment assets are based on the geographical location of the assets.

 

 

Turnover in FY2003 increased by S$24.2 million or 39.4% from FY2002. The increase was mainly due to the increase in turnover of S$25.8 million from the SC segment and was offset by a decrease of S$2.1 million in the CP segment. The increase in the turnover of SC segment is mainly due to shipment of products of higher value.

Segment result of SC increased by $2.0 million or 39.2% as a result of the increase in turnover, up by 51.6%. This was offset by a S$0.5 million decrease in the CP segment and another S$1.1 million of head office expenditure.

Increase in turnover from North America and Europe geographical segments was mainly due to the increase in the turnover of the SC segment.


 

(d) In the Company's IPO prospectus, the Company stated on page 44 that "contributions from satellite communications?will continue to contribute strongly to our growth over the next few years". Arising from the recent development in respect of the major reorganization of a major client, please advise if this statement is still correct. If not, please provide a revised prospect statement;


At page 44 of the Company's IPO prospectus, we stated that "contributions from satellite communications ? will continue to strongly contribute to our growth over the next few years". Notwithstanding the uncertainty of our continuing relationship with CM, we remain of the view that contribution from satellite communications will continue to be a major contributing factor to our growth over the next few years. Our belief is based on the fact that our other satellite communications customer continues to be a significant player. We are working with new customers in the satellite communications sector to maintain our presence and competitive advantage in this sector.

For the current financial year FY2004, we expect the satellite communications sector to continue to be our major contributor. Given the uncertainty with our continuing relationship with CM in the future, we have intensified our efforts to diversify into non-satellite communications business. To the extent that we are able to successfully diversify into these sectors, such sectors may also become an additional contributing factor to our future growth. As disclosed in our last announcement, we are now in the final stage of product qualification for a non-satellite communications customer, the first shipments of products are anticipated only in the second quarter of FY2004. We are hopeful of developing this customer into a key account for the Group.

(e) Paragraph 4 of Appendix 7.2 requires the Company to state whether the same accounting policies and methods of computation as in the issuer's most recently audited annual financial statements have been applied. In this respect, the Company should advise whether the accounting policies and methods of computation used by the Company in its Full Year Results is the same as that applied in underlying audited accounts of its pro forma results included in its IPO prospectus. Pursuant to paragraph 5 of Appendix 7.2, if there are any changes, the Company must provide reasons for and the effect of the change; and

The accounting policies and methods of computation have been consistently applied in the current financial period results and the pro forma results included in the IPO prospectus.

(f) The Company must provide the breakdown of sales and operating profit for the first half and second half of FY June 2003 in the format required paragraph 15 of Appendix 7.2.

Turnover in the second half of FY2003 (2HY2003) decreased by S$12.0 million or 32.7% mainly due to seasonal fluctuation as experienced by the electronics industry. Operating profit decreased by S$2.7 million of 71.0% as a result of the decrease in turnover and the additional provision for doubtful debts.