GTI blames accounting glitch for Q4 profit plunge
An accounting error that appeared in the second quarter 2015 financial report of Taiwanese-owned garment manufacturer Grand Twins International (GTI) skewed the company’s fourth quarter 2015 earnings report, resulting in it declaring a staggering 450 per cent drop in profits during the quarter, a company executive said yesterday.
“A lot of the growth and loss reported for last year had to do with accounting practices which were cleared up by the end of the year,” said Henry Chan, GTI’s chief financial officer.
Chan explained that the company posted $3.6 million net profit in its second quarter 2015 filing to the Cambodia Securities Exchange (CSX), a 124 per cent increase compared to the same period a year earlier, despite falling revenues.
“This was wrong,” he said, indicating revenue was in fact higher than reported, while net profit was lower.
The error was inadvertently carried into GTI’s fourth quarter results, resulting in the appearance of a precipitous drop in profits, Chan claimed, adding that the mistake was not discovered until after the filing.
However, corrections were made in the company’s 2015 audited financial report, released April 4, which showed a 70 per cent decline in profit last year, with adjusted after-tax income of $1 million.
“As the only publicly listed garment factory in the country, we need to make sure that our reporting principles are strong,” said Chan.
The 2015 report attributed the 70 per cent decline in net profit to four factors: the rising average wages of its workers, costlier raw materials, higher printing and embroidery costs, and a decrease in the average selling price of its products.
However, the report showed only a nominal increase in labour costs, which rose to $9.4 million last year, compared to $9.3 million in 2014.
According to Chan, labour costs were more extensive than those explicitly outlined in the report, but were included in overhead costs.
He said the company’s total labour bill swelled by $1.7 million in 2015 as the result of the revised minimum wage in January 2015 as well as staff bonuses, overtime pay and other costs.
Chan was optimistic about GTI’s earnings prospects in 2016, adding that building renovations and increased mechanisation would help the company to stay buoyant against future wage hikes.
“We have confidence in our listing and that this year we will show better performance as we have increased our capacity to produce,” he said.
GTI, whose primary customer is German sportswear giant Adidas, is one of three companies listed on the CSX, and the only garment manufacturer.