Unaudited Full Year Financial Statement for the Period ended 31 December 2007
Profit and Loss
Balance Sheet
Review
Revenue
Group revenue rose 23% to S$182.9 million for the financial year ended 31 December 2007 (“FY2007”). The improved performance over FY2006 is attributed mainly to higher customer orders and average selling prices.
In 2007, global steel prices continued to climb above the levels witnessed in 2006, underpinned by growing steel consumption, particularly in Asia, and higher cost of steel production due to escalating prices of raw materials. The shipbuilding and offshore marine sectors remained robust while the construction industry continued its recovery, enabling the Group to enjoy higher overall demand in FY2007 from existing and new customers in the Asia Pacific region.
Revenue Breakdown by Industry
The Group's top line growth in FY2007 was led by the shipbuilding and marine-related sectors which remained as its largest industry segment with a revenue contribution of 60%. Sales to the shipbuilding and marine-related sectors increased 14% to S$110.4 million, driven by sustained demand for shipbuilding plates, high tensile plates and other structural products.
The Group also capitalized on the upturn in Singapore's construction sector with the onset of major property projects and ongoing infrastructure developments. In FY2007, sales to customers in this segment rose substantially to account for 8% of Group revenue, as compared to 2% of Group revenue in FY2006. The Group also registered growth in sales to the engineering/fabrication sectors which accounted for 15% of total revenue in FY2007.
Revenue Breakdown by Geographical Market
Since the first half of FY2007, the Group began providing a geographical analysis of its revenue based on the destination of its shipments, as compared to a revenue analysis based on customers'billing addresses in FY2006. As a result, the revenue breakdown by geographical markets for FY2007 and FY2006 may not be directly comparable.
Singapore and Indonesia accounted for 41% and 44% of Group revenue respectively in FY2007. Higher sales were recorded in Singapore, spurred mainly by the thriving offshore marine and construction industries while sales to Indonesia were driven by the buoyant shipbuilding activities. Malaysia, which is the Group's other core market, contributed 10% to Group revenue in FY2007. The Group also made encouraging progress in its initiatives to build coverage of other potential markets in the Asia Pacific region, which contributed the remaining 5% of revenue in FY2007.
Gross Profit Margin
The Group's gross profit margin improved slightly to 19.3% in FY2007, from 19.1% in the previous year. While average selling prices were generally higher in FY2007, cost of sales for steel distribution was also higher due to the rising trend of steel prices in the market. Despite rising replacement costs for inventory in FY2007, the Group was able to sustain its gross profit margin due to strong industry knowledge, sound inventory management practices and financial position.
Distribution Costs and Administrative Expenses
Distribution costs increased to S$1.6 million in FY2007, from S$1.0 million in FY2006, as more of the Group's export orders were inclusive of freight charges. On the other hand, administrative expenses rose at a slower pace than sales to S$9.1 million in FY2007, an increase of 15% from S$7.9 million in the prior year.
Net Profit and Net Profit Margin
As a result of the factors discussed above, the Group turned in a healthy 28% growth in net profit to S$19.6 million in FY2007. Correspondingly, Group net profit widened to 10.7% in FY2007, from 10.3% previously.
Balance Sheet and Cash Flow Statement
As at 31 December 2007, the Group remained in a net cash position with cash and cash equivalent balances totaling S$14.3 million.
Trade and other receivables rose marginally from S$35.5 million at the end of FY2006 to S$37.9 million at the end of the period under review. 57% of the trade receivables was outstanding for less than 60 days while 37% was outstanding between 60 to 120 days. While the Group enjoyed higher business volumes in FY2007, it managed to improve its debtor turnover (days) to 76 days, from 87 days in FY2006.
At the end of FY2007, the Group had increased its inventories –which are measured on a weighted average cost basis –by S$25.4 million to S$66.8 million, to capitalise on favourable market demand.
For FY2007, the Group's return-on-asset (ROA) rose to 15.1%, from 14.2% in FY2006, while return-on-equity (ROE) also improved to 20.6%, from 18.8% in FY2006.
Dividend
The Board of Directors is pleased to propose a final dividend of 2.857 cents per share for FY2007, which is 28% higher than the last financial year. The total dividends to be paid will amount to S$7.8 million, which represents approximately 40% of the Group's profit attributable to equity holders of the Company in FY2007.
Commentary
Buoyed by rising costs of production, particularly raw materials such as iron ore, coking coal and scrap, and robust demand from various regions worldwide, steel prices are generally expected to remain firm during the first half of 2008.
Looking ahead, the Group expects to continue benefiting from healthy demand for steel products from its customers in the shipbuilding and marine related sectors in the region. Many of the shipyards in the region currently have order books that stretch into 2011 due to increasing activity in the offshore and marine industry. (Source: "Oil and Gas Sector", OCBC Investment Research, published 8 October 2007)
In addition, Singapore's construction sector is forecast to grow by as much as 10% in 2008 (Source: Building and Construction Authority), underpinned by the strong recovery in the private property market and implementation of public sector infrastructure projects. While the Group expects to benefit from higher demand for steel from the construction sector, its primary focus will remain on the shipbuilding and marine-related sectors in the region.
Besides its core markets of Singapore, Indonesia and Malaysia, the Group intends to continue working to strengthen its coverage of other territories in the Asia Pacific region that promise potential opportunities for growth. To meet the needs of its customers, the Group will also ensure it maintains an appropriate level of inventories as well as continue expanding its range of steel products to reinforce its position as a Regional Steel Distribution Center.
The Group is actively exploring various alternatives to position itself for further growth, such as the expansion of its storage capacity and the possibility of suitable acquisitions, joint-ventures or alliances that will enhance its existing business.
With increasing concerns of a possible slowdown in the global economy, the Group will ensure it continues to maintain a sound financial position as this is a practice that has enabled it to successfully weather periods of difficult business conditions over the last 34 years. Competitive conditions in the steel distribution industry are also expected to prevail. Barring a global economic slowdown and any other unforeseen circumstances, the Group is cautiously optimistic of its prospects in FY2008.