Ocean Sky International Limited - Ocean Sky International Ltd ...

OPERATING EXPENSES
Our operating expenses consist of the following:
Distribution costs comprise transport and freight charges relating to exports.
Administrative and other operating expenses comprise expenses from general administration, marketing,
merchandising, finance, shipping and logistics, management information system, technical, product
development, purchasing and production planning departments. The expenses also include bank
charges, courier charges, depreciation, salaries and remuneration and statutory contributions, insurance,
office supplies, staff welfare, telecommunications, travelling, utilities and exchange differences.
Finance costs comprise interest payable to banks and finance companies.
REVIEW OF PERFORMANCE
FY1999 TO FY2000
The increase of 84.5% in turnover to $104.6 million in FY2000 as compared to FY1999 was attributed to
the following factors:
(a) increased orders from existing customers; and
(b) the setting up of our own Hong Kong marketing and sourcing subsidiary which help us to secure
new customers such as Foot Locker, Inc.
Cost of sales increased in FY2000 as a result of the increase in turnover. Sub-contracting charges as a
percentage of turnover was higher in FY2000 compared with FY1999 due mainly to utilisation of subcontracting
services in Brunei to meet customers’ orders while our second factory was still under
construction. However, this increase in sub-contracting charges was partially offset by savings in labour
costs.
Operating expenses were 14.9% of turnover in FY2000 compared with 14.4% in FY1999. The marginal
increase was due mainly to bank charges and interest expense due to the increase usage of bank
facilities to support our business growth. The higher bank interest was also the result of a term loan
taken up to finance the purchase of our Singapore premises at Tampines Street 92 which act as the
Group headquarters. This was offset by a lower rate of increase in salaries and wages. Distribution
costs as a percentage of our operating expenses remained unchanged.
Profit before taxation increased by 14.5% from S$6.1 million to S$6.9 million. The rate of increase was
lower than the rate of increase in turnover due mainly to lower gross profit margin. Our lower gross profit
margin arose from the higher sub-contracting charges incurred during the period.
FY2000 TO FY2001
Our turnover increased by 72% to $180 million in FY2001 as compared with FY2000. We were able to
secure additional orders from existing customers such as Old Navy (a label of Gap, Inc.) because of our
standing as a reliable vendor and our ability to satisfy customers’ requirements.
Other income increased primarily due to sales of excess quota rights of S$391,000 in FY2001 compared
with only S$61,000 in FY2000. Such sales of excess quota rights do not contribute significantly to our
business.
The increase in cost of sales was in line with the increase in turnover. As our Brunei operations became
fully operational, we reduced our reliance on sub-contracting services and hence incurred lower subcontracting
charges. However, our labour costs and other factory overheads, such as factory rental, as
a percentage of turnover increased because our new plants in El Salvador and Honduras were not
operating at the optimal level during their start-up phase.
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