Review of Operations
The COVID-19 pandemic suddenly broke out at the end of 2019 and spread globally, bringing unexpected and unprecedented impact on all industries worldwide. In the face of the unexpected pandemic, the Group responded quickly to reduce the adverse effects on its business. However, in this severe operating environment, the performance of the Group has inevitably been affected.
In the first half of the year, the Group’s revenue amounted to approximately HK$114.0 million and gross profit was HK$58.6 million. Gross profit margin continuously improved by 0.5 percentage point to 51.4%. The reason for such growth can be attributed to the depreciation of the Renminbi against the Hong Kong dollars which led to lower cost of both raw materials consumed and direct labor in terms of Hong Kong dollars, reinforced by effective cost control measures and efficiency improvement. However, affected by a one-off listing expense of approximately HK$10.6 million, the Group recorded a loss attributable to the owners of the company of HK$11.8 million (first half of 2019: profit of approximately HK$10.1 million).
In response to sudden changes in the market, the Group has maintained close communication with business partners to flexibly adjust production capacity according to customer needs. At the same time, the Group has adopted strict cost control measures, such as adjusting working hours according to order requirements and implementing a shift system for the work schedule of employees. While enhancing its cost-control measures, the Group has also actively diversified its income streams. With years of mastery in the development and production technology of radio frequency identification (RFID) tag products, the Group’s RFID product categories and quality have been continuously improving, which has strengthened customers’ confidence in and has promoted these products so that they have enjoyed the largest order growth in the first half of the year.
Mr. Barry Chan, Chairman and Executive Director of Cirtek, said, “Before the outbreak of the pandemic, we already established a comprehensive global footprint. In addition to setting up the strategic production bases in China, Bangladesh, and Vietnam, being the world’s three largest garment export markets, we also have established offices in the United States, Belgium, Hong Kong, Mainland China, Bangladesh, Vietnam, India and Pakistan with businesses covering more than 40 markets around the world, which lays a solid foundation for business development and creating significant business advantages. In March 2020, we were successfully listed on the Main Board of the Stock Exchange of Hong Kong Limited, marking a new level of development. The listing not only enhances our corporate image, but also strengthens our capital position and helps overcome immediate challenges.”
Although prospects remain uncertain, the Group firmly believes that opportunities and challenges coexist. In terms of market demand, the “Stay-at-home Economy” has been stimulated during the pandemic and has accelerated the change in retail models from brick-and-mortar shops to online stores. Hence, brands with online sales channels have tended to be more resilient than those with only physical stores. In light of this, the Group will seize opportunities to cooperate with brands with multiple sales channels. The Group expects the application of RFID and Near Field Communication (NFC) technologies in apparel retailing will become more popular as well. The Group has built a solid foundation in the fields of RFID tags and NFC products through product development and advancements in production technologies over many years, and will deploy more equipment and resources to develop this potentially rich segment in response to the increasing market demand for these products.
In terms of market expansion, after the containment of the pandemic in China and the gradual resumption of work and production, spending sentiment will be further released, creating a battleground for major international and domestic apparel brands, which is expected to usher in more business opportunities. Therefore, the Group intends to invest more resources into expansion within the domestic market. As for the European and American markets, the Group has set up sales offices in countries like the United States and Belgium and will strive to solidify existing business relationships with international apparel brands, while seeking new customers at the same time, so as to capture the rebound in demand after the stabilization of the pandemic.
As for production support, the Group has set up production facilities in China, Bangladesh and Vietnam. Due to the pandemic, the production of the new Bangladesh factory will be slightly delayed to start at the end of 2021, and the Group believes it can satisfy the market demand for production capacity in Bangladesh after the pandemic. The Group has also received requests from customers asking for support in other Southeast-Asian production locations, and will explore establishing a business presence in such regions in the future.
Mr. Chan added, “We are fully prepared to explore new opportunities, and have implemented strict cost control measures. Cirtek has been an enduring player in the apparel labels and trim products manufacturing industry, with a history stretching nearly 30 years. Having passed multiple economic cycles and market changes, Cirtek has built the resilience for sustaining growth and enhancining its business scale. This year, Cirtek will take a step up to the capital stage despite the pandemic, all thanks to the management team’s ample industry experience and capacity to quickly adapt to shifting trends. We are confident that we can lead Cirtek through the wind and waves, attain new business milestones, and create maximum value for our shareholders.”
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