HONG KONG (Sept. 28, 2:10 p.m. ET) — In an indication of the difficulties facing China's small and mid-sized plastics molders, Hong Kong-listed injection molder V.S. International Group Ltd. blamed rising labor costs and raw material prices for significantly higher losses in its fiscal year ending July 31.
The Macau-based company told the Hong Kong Stock Exchange Sept. 25 that it lost HK$61.1 million (US$7.8 million) for the year, up from losses of HK$13.9 million (US$1.78 million) last year, even as sales rose 9 percent to HK$1.63 billion (US$209.1 million).
The company, which supplies plastic parts and assemblies for the electronics industry, also said the uncertain global economy and the strengthening Chinese currency were adding to its profit problems, and said it would step up efforts on cost control and “head count management.”
V.S. International employs 7,900, with its largest production base in Zhuhai, Guangdong province, and facilities in Shenzhen and in Qingdao, in Shandong province.
The company told the stock exchange that its liabilities exceeded its assets and that “may cast significant doubt” on its ability to continue as a company, but said it anticipated being able to refinance its debts.
“The directors have evaluated all the relevant facts available to them and are of the opinion that there are good track records or relationships with banks which enhance the group's ability to renew the current bank loans upon expiry or to secure other adequate banking facilities to enable the group to meet its financial obligations as and when they fall due for the foreseeable future,” it said.
The company said labor costs rose 20 percent for the year to HK$311 million (US$39.9 million), mainly from the increases in the minimum wage imposed by various cities in China, and raw material prices jumped 14 percent to HK$982 million (US$125.9 million).
“The Group will continue with its effort to improve production efficiency and increase productivity to mitigate the impacts of rising cost and wages,” it said.
About 58 percent of V.S. International's sales come from plastic injection molding and 6 percent from injection mold making, with the remainder from electronics assembly.
While it did not suggest these factors were contributing to losses now, the group in 2008 had entered into a joint venture in the mining industry in China's Heilongjiang province, but last year reported losses of HK$8.0 million (US$1.02 million) from that.
This year, it said it recovered HK$4.7 million (US$603,000) of that investment from its former partners. It has since withdrawn from that venture.