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DISPOSABLE
SOFT [LOGO APPEARS HERE]
GOODS
FOURTH QUARTER REPORT 1998
[GRAPHIC ART APPEARS HERE]
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REVIEW OF OPERATIONS
FOURTH QUARTER 1998
AND YEAR ENDED
DECEMBER 31, 1998
To our Shareholders:
We are pleased to announce our fourth quarter ended December 31, 1998 results.
Fourth Quarter ended December 31, 1998 compared to Fourth Quarter ended December
31, 1997
Net income for the fourth quarter of 1998 was $3.8 million compared with net
loss of $.08 million in the corresponding quarter of 1997. Earnings per share in
the fourth quarter of 1998 were $0.57 compared losses per share of $0.12 for the
corresponding period in 1997. The Company's net sales in the fourth quarter of
1998 increased by 9.7% to $56.7 million, compared with $51.7 million for the
same period in 1997. The sales in North American region increased due to the
improvement in production backlog in the last quarter of 1998. In addition, the
impact by Asian currencies improved towards the end of 1998. Gross profit margin
for the fourth quarter of 1998 was 31.8% compared to 31.2% of the previous year.
Selling, general and administrative expenses for the fourth quarter of 1998
decreased to $13.1 million compared with $17.8 million in the fourth quarter of
1997, primarily due to reduction of advertising and promotion expenses in most
of the Company's operation. The fourth quarter of 1998 result included a
reversal of $1.5 million of estimated executive compensation previously accrued
rateably over the first three quarters of 1998. The decrease in other income
from $0.6 million in 1997 to $0.1 million in 1998 was due to reduced bank
balances and repayment of loan receivable balance from shareholder.
Year ended December 31, 1998 compared to Year ended December 31, 1997
Earnings per share in 1998 were $.024 compared with $0.15 in 1997. Net income
for the year 1998 improved significantly to $1.6 million compared with $1.0
million for 1997.
The Company's net sales in 1998 dropped to $208.0 million compared with $230.9
million in 1997. The decline in sales were primarily due to the change in
marketing strategy from heavy promotional campaign to the Every Day Low Price
("EDLP") strategy in the Company's North American operations and the devaluated
exchange rate of Australian Dollars and Asian currencies. The Company's sales
volume in dollar term actually
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decreased marginally by $2.4 million in 1998 compared with 1997. Gross profit
margin declined by 4.6% from 33.4% in 1997 to 28.8% in 1998.
Selling, general and administrative expenses decreased substantially by $15.9
million to $56.2 million in 1998. The EDLP pricing strategy in North American
operation, Australian and Asian currencies exchange variance, cost saving
programs implemented in Asian operations and closure of operations in North
American and Asian Pacific regions contributed to the savings in expenses. The
restructuring cost of $1.4 million in 1997 represented the one-time charge for
closure of several manufacturing operations in North American and Asian regions
and wrote-down of certain surplus equipment used in its European operation. The
Company's interest expense in 1998 decreased to $2.5 million from $2.8 million
in 1997 due to repayment of borrowings. The decrease in other income to $0.9
million in 1998 from $1.3 million in 1997 was primarily due to reduced average
bank balances and repayment of loan receivable from shareholder.
Brandon Wang, the Chairman of the Company, said: "We are pleased to see that
our Southeast Asian operations have recovered to be profitable overall, as a
result of continuing improvement of local economy throughout the region. We are
confident that this improvement will fuel the strengthening of our market
positioning and as well as the profitability. In North America, we have
upgraded some of our manufacturing equipment with new generation high speed
machines. Preliminarily we are experiencing encouraging improvement of
efficiency and cost. This should lead to better operating margins in the
forthcoming quarters. In the adult incontinence area, we continue to enjoy the
growth of the business in all of the markets. Our Australian operation is both
profitable and increasing in distribution, and we should see positive results in
Europe after consolidation in 1999."
DSG International Limited and its predecessors have been in the business of
manufacturing and distributing disposable diapers since 1973. With
manufacturing plants in Georgia and Wisconsin, the Company also maintains
manufacturing operations in Hong Kong, Australia, Great Britain, Switzerland,
China and Thailand. Additionally, the Company distributes its products
throughout Asia, Australia, North America and Europe. The Company produces
private label disposable diapers, adult incontinence products, feminine napkins
and training pants at certain of its operations. Its best selling brands
include "Fitti /R/", "Pet Pet /R/", "Cosies /R/", "Cosifits /R/", "Baby Love
/R/", "Togs /R/", "Cares /R/", "Vlesi /R/", Dispo 123 /TM/", "Certainty /R/",
"Handy /TM/" and "Merit /R/".
May 3, 1999
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STATEMENTS OF OPERATIONS AND
BALANCE SHEET DATA
The Statements of Operations for the three-month period and year ending December
31, 1998 and 1997, and the Balance Sheet information as of December 31, 1998,
are derived from unaudited financial statements which, in the opinion of the
management, include all necessary adjustments, consisting only of normally
recurring adjustments, for a fair presentation of the results of operations for
these time frames. The results for the periods, however, are not necessarily
indicative of the results for the full year.
SUMMARY OF RESULTS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Year ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 56,724 $ 51,722 $207,925 $230,930
======== ======== ======== ========
Gross profit 18,035 16,139 59,928 77,001
Selling, general & administrative expenses 13,081 17,760 56,173 72,034
Restructuring expenses - 1,166 - 1,389
-------- -------- -------- --------
Operating income (loss) 4,954 (2,787) 3,755 3,578
Interest expense (721) (664) (2,511) (2,833)
Exchange gain (losses) (309) 752 (311) (610)
Other income 72 604 945 1,282
-------- -------- -------- --------
Income (loss) before income taxes 3,996 (2,095) 1,878 1,417
Provision for income taxes 519 1,234 (253) (443)
Minority interest (679) 84 (3) -
-------- -------- -------- --------
Net income (loss) $ 3,836 $ (777) $ 1,622 $ 974
======== ======== ======== ========
Earnings (losses) per share $ 0.57 $ (0.12) $ 0.24 $ 0.15
======== ======== ======== ========
Weighted average number of shares outstanding 6,675 6,675 6,675 6,675
======== ======== ======== ========
</TABLE>
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STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Year ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net (loss) income $ 3,836 $ (777) $ 1,622 $ 974
Other comprehensive income (expense), before tax
Foreign currency translation adjustments 2,478 (7,467) 1,613 (10,785)
Provision for income taxes - - - -
-------- -------- -------- --------
Other comprehensive income (expense), net of tax 2,478 (7,467) 1,613 (10,785)
-------- -------- -------- --------
Comprehensive income (expense) $ 6,314 $ (8,244) $ 3,235 $ (9,811)
======== ======== ======== ========
</TABLE>
During the year, the Company adopted the Statement of Financial Accounting
Standards ("SFAS") No. 130 Reporting Comprehensive Income, issued by the
Financial Accounting Standards Board. SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. The inclusion represents all
changes in equity except those resulting from investments by, and distributions
to owners.
BALANCE SHEET DATA
(Dollars in thousands, unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
<S> <C> <C>
Working capital $ 30,091 $ 30,823
Total assets 133,909 130,273
Long-term debt 20,957 21,281
(including deferred purchase consideration)
Shareholders' equity 68,013 64,778
</TABLE>
On December 31, 1998, the Company had cash and cash equivalents of $8,550.
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DSG INTERNATIONAL LTD.
17th Floor Watson Centre
Kung Yip Street
Kwai Chung
Hong Kong
Tel: (852) 2427 6951
Fax: (852) 2480 4491
