Berger International replies to SGX’s queries on its financial results

SGX got confused as the company’s trade receivables increased by 13.6% despite the revenue slump in its 2011 half year results.

According to SGXNET, on response to the queries raised by the Singapore Exchange Limited (“SGX”) on 21 October 2011 (set out in bold below), the Company wishes to provide the following information:

a) The Company recorded a $3.3 m or 13.6% increase in trade receivables from $24.2m as at 31 March 2011 to $27.5m as at 30 September 2011. This is in spite of the fall in the Company’s revenue for its 2011 half year results. Please provide the reasons for the increase in these trade receivables despite the decrease in revenue. To also state whether these trade receivables relates to any major customers and whether these customers have difficulties in making payments to the Company.

We would like to clarify that the decrease in revenue noted by SGX is with respect to revenue from paint sales for the 6 month period ended 30 September 2011 as compared to the corresponding previous period while the increase in trade receivables noted by SGX relates to balances as on 30 September 2011 compared with balances as on 31 March 2011.

If the % decrease in revenue for the 6 month period ended 30 September 2011 is in comparison with revenue for the 6 month period ended 30 September 2010, then the trade receivables as on 30 September 2011 should be compared with trade receivables as on 30 September 2010 and not 31 March 2011.

Trade receivables have decreased by 4% as on 30 September 2011 vis a vis 30 September 2010 while total revenue has decreased by 7% for the 6 month period ended 30 September 2011 as compared to the 6 month period ended 30 September 2010.

There is no material variance in trade receivable days in the current period ended 30 September 2011 as compared to the corresponding previous period.

There is no significant change in credit quality. Of the trade receivable balance at the end of September 2011, S$ 2.28 million is due from a customer of which S$ 2.21 million is within the credit period. There are no other customers who individually represent more than 5% of the total trade receivable balance.

b) The Company stated in its review of its 3 months income that the “revenue from paints sales has decreased by 8%” but when “adjusted for foreign exchange rate impact, the revenue has increased by 0.7%.” However, we note that the foreign exchange adjustment loss for the 3 months was only $320,000 while the Company’s
revenue had dropped $3.2m. Similarly, for the half year results, the foreign exchange impact of $167,000 is insignificant compared to the drop in revenue of $3.3m. Therefore, please explain the reasons for the decrease in revenue from paint sales.

For comparability of revenue from paint sales for the 3 month period (or 6 month period) ended 30 September 2011 with the corresponding previous period without the distortion of different exchange rates used in translation of paint sales revenue in the periods compared, it is necessary to compute the effect by using the same exchange rate used in the corresponding previous period.

Arising out of the above, it has been explained on page 10 of our announcement, that for the 3 month period, revenue from paint sales has decreased by 8.0% when compared to the corresponding previous period but when adjusted for foreign exchange rate impact, the revenue from paint sales has increased by 0.7%.” Similarly, for the 6 month period, it has been explained on page 11 of our announcement that “Revenue from paint sales has decreased by 6.2% to $52.3 million in the current period. Adjusted for foreign exchange rate impact, revenue from paint sales has increased by 3.0%.”

The above is only to clarify the impact of exchange rate variation on sales for the purpose of comparison between the current and the previous period.

Foreign exchange loss is computed with reference to the realized exchange loss during the period ended 30 September 2011 and unrealized exchange loss arising from revaluation of foreign denominated currency exposures of the subsidiaries and the company as on 30 September 2011.

c) The Company’s commentary on the next 12 months only states that the “global headwinds may impact demand conditions in the markets where the group operates”. Please elaborate the kind of impact these “global headwinds” would have on the group and specifically how the group will be affected.

As highlighted in our announcement, global headwinds may impact demand conditions in the markets where the group operates. This may result in lower paint revenue and profit.