Financial Review FY2023

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FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2023

Profit & Loss

Balance Sheet

Statement of profit or loss

Revenue

For the six months ended 30 June 2023 (“2H23”), the Group reported revenue of $192.105 million, a decline of 5.93% from $204.213 million in the corresponding period ended 30 June 2022 (“2H22”). This decline was predominantly driven by the Electrical Material Distribution (“EMD”) Segment, which experienced a decrease of $9.230 million, or 16.24%, from $56.826 million to $47.596 million, due to a significant reduction in the Electronic (“ELN”) Cluster during 2H23, a result of the global electronics downturn.

For the financial year ended 30 June 2023 (“FY2023”), the Group’s revenue increased by 11.26%, up $42.674 million from the last financial year (“FY2022”) of $379.052 million to $421.726 million in current financial year.

The Cable & Wire (“C&W”) Segment’s revenue increased by 20.57%, up $47.810 million from $232.418 million to $280.228 million. The increase in revenue came from Singapore, Malaysia, and Vietnam’s C&W segment, primarily driven by higher sales volume as both public and private sector construction activities continued to recover. In addition, FY2023 sales were boosted by revenue contribution from a newly acquired Malaysian subsidiary.

The EMD Segment registered revenue of $108.359 million, which was a drop of $1.669 million, 1.52% lower than $110.028 million in FY2022. This decrease was primarily due to a significant reduction in the ELN Cluster during 2H23 amidst the global electronics downturn. The effects were partially offset by higher revenue in the Chemical, Oil & Gas (“COG”) Cluster.

The Test & Inspection (“T&I”) Segment revenue declined by $2.836 million from $31.321 million to $28.485 million in FY2023. The decrease in the T&I Segment was largely due to lower revenue from the non-destructive testing and heat treatment services from Indonesia. This was mainly attributable to completion of projects and fewer sizeable new contracts being secured.

Revenue from the Switchboard Segment decreased by 11.94%, a decline of $631,000 from $5.285 million to $4.654 million. The decrease was due to intense competition in the Brunei market.

Gross Profit

Gross profit (“GP”) decreased by $17.725 million from $49.144 million in 2H22 to $31.419 million in 2H23. The gross profit margin (“GPM”) declined from 24.07% in 2H22 to 16.36% in 2H23 as a result of higher reversal of provision for onerous contracts in 2H22.

The Group’s GP for FY2023 decreased 16.74% to $66.654 million from $80.054 million in FY2022. GP margin declined by 5.31% from 21.12% in FY2022 to 15.81% in FY2023, attributed mainly to higher reversal of provision for onerous contracts in FY2022 and higher deliveries of loss-making projects during FY2023.

Other operating income

Other operating income decreased by $639,000 from $1.850 million in 2H22 to $1.211 million in 2H23.

For FY2023, the Group recorded other operating income of $5.000 million, an increase of $656,000 compared to $4.344 million in FY2022. This was mainly attributed to higher reversal of allowances for doubtful debts amidst improvements in collections, fair value gains on derivative financial instruments, higher scrap sales and net of the absence of Covid-19 related government grants received in FY2023.

Selling and distribution expenses

Selling and distribution expenses for 2H23 increased by $11,000, up 0.09% compared to 2H22. For FY2023, selling and distribution expenses increased by $2.294 million, up 10.53% compared to FY2022. This was mainly due to higher business operation costs and staff costs, which was in tandem with higher revenue.

Administrative expenses

Administrative expenses for 2H23 increased by $531,000, up 4.96% compared to 2H22. For FY2023, administrative expenses increased by $1.288 million, up 6.30% compared to FY2022. This was mainly because of higher staff welfare expenses and operating costs incurred by the newly acquired subsidiary in Malaysia.

Other operating expenses

Administrative expenses for 2H23 increased by $531,000, up 4.96% compared to 2H22. For FY2023, administrative expenses increased by $1.288 million, up 6.30% compared to FY2022. This was mainly because of higher staff welfare expenses and operating costs incurred by the newly acquired subsidiary in Malaysia.

Finance costs

Finance costs for 2H23 and FY2023 increased by $451,000 and $1.107 million respectively, mainly due to higher borrowings and higher interest rates for short-term bank borrowings.

Share of profit of associates

Lower share of profit from associates was mainly due to the lower profit reported by Nylect Group during the current financial year.

Profit before income tax

The Group’s profit before income tax (“PBT”) declined by $10.517 million to $6.476 million in 2H23 from $16.993 million in 2H22, in tandem with lower revenue and lower GPM achieved in 2H23.

PBT for FY2023 decreased by $5.889 million to $21.392 million from $27.281 million in FY2022, primarily due to lower GPM achieved in FY2023 and higher operating costs, which offset the effects of fair value adjustment on derivative instruments and allowances for doubtful debts being reversed.

The C&W Segment’s PBT for FY2023 decreased by $710,000 from $18.185 million to $17.475 million, mainly driven by lower GPM, lower reversal of provision for onerous contracts, fair value gains on derivative financial instruments and reversal of allowances for doubtful debts due to improvements in collections during the current financial year.

The EMD Segment’s PBT declined by $225,000 from $7.752 million to $7.527 million, in tandem with lower revenue.

The T&I Segment’s PBT for FY2023 decreased by $4.939 million from PBT of $1.127 million to loss before tax of $3.811 million, due to lower revenue achieved in Indonesia in FY2023, and impairment loss on right-of-use assets recognised for a leased building in Cambodia during the current financial year.

PBT from Switchboard Segment increased by $24,000 or 10.96% compared to FY2022.

Income tax expense

Income tax expense for 2H23 and FY2023 decreased by $1.734 million and $507,000 respectively. The decrease was in tandem with lower taxable profit reported during the current financial year.

Statement of financial position

The cash and bank balance increased by $2.807 million due to higher collections from customers towards the end of the current financial year.

Trade receivables decreased by $17.347 million, as a result of improved collections from customers and lower sales towards the end of the current financial year.

Other receivables in total increased by $1.642 million primarily due to higher advances paid for purchase of goods and higher down payments made for the purchase of plant and equipment.

Contract assets decreased by $302,000, largely attributable to unbilled revenue and retention sum receivables for those revenue recognised over time for on-going contracts.

Derivative financial instruments in total increased by $647,000, mainly due to fair value adjustments on foreign currency forward contracts and copper contracts towards the end of the current financial year.

Inventories increased by $2.359 million, mainly due to higher inventories held to cater to deliveries in the C&W Segment for the coming months.

Property, plant and equipment decreased by $533,000 due to depreciation charges of $5.087 million, as well as the disposal and write-off of property, plant, and equipment with a net book value of $130,000. These reductions were offset by the additions of property, plant, and equipment amounting to $5.017 million and property and plant equipment acquired through acquisition of a subsidiary amounting to $303,000.

Net decrease in right-of-use (“ROU”) assets of $2.991 million was mainly due to impairment loss of $2.706 million, depreciation charges of $1.666 million, de-recognition of ROU with net book value of $12,000 against additions of ROU amounting to $1.147 million and ROU adjustments of $388,000.

Deferred tax assets decreased by $561,000, mainly due to timing differences arising from reversal of provision for onerous contracts during the current financial year.

Bank borrowings increased by $2.156 million, as a result of higher bank borrowings by the C&W Segment for copper purchases. Conversely, bank borrowings by the EMD and T&I Segments decreased due to higher repayments made toward the end of the current financial year.

Trade payables decreased by $15.089 million, primarily driven by lower purchases and prompt payments to suppliers by the C&W and EMD Segments toward the end of the current financial year.

Other payables in total decreased by $632,000, because of lower provision for staff costs towards the end of the current financial year.

Provision for onerous contracts amounted to $7.886 million, reduced by $4.671 million from the end of the previous financial year, caused by the decrease in copper price towards the end of FY2023 and partial delivery of the contracts during the current financial year.

Statement of cash flows

The cash and cash equivalents as at 30 June 2023 increased to $32.003 million compared with $29.196 million at the end of the previous financial year.

The Group’s net cash from operating activities of $18.085 million was attributable to operating profit before working capital changes, decrease in trade receivables, contract assets, as well as increase in advances received from customers, offset by increase in other receivables and inventories, decrease in trade and other payables, as well as payment of income tax.

The net cash used in investing activities of $5.214 million was mainly for purchase of plant and equipment, acquisition of a subsidiary, net of interest received, proceeds from disposal of an investment property, proceeds from disposal of plant and equipment, and dividend received from an associate.

The net cash used in financing activities of $10.038 million was mainly attributable to repayment of bank borrowings, dividends paid, lease liabilities and interest paid, net of proceeds from short-term bank borrowings.

Commentary

The business environment is expected to remain challenging, with global growth projected to slow amid ongoing geopolitical tensions, persistently high inflation and elevated interest rates. This confluence of headwinds may amplify the volatility in commodity prices and exacerbate supply chain disruptions which would contribute to rising cost pressures.

Notwithstanding these challenges, the Group remains vigilant in managing the ongoing price tension arising from the volatile copper prices as well as growing wage pressures.

The Group will continue to focus on executing its strategy and is constantly on the lookout for suitable business opportunities in South East Asian region where demand is expected to remain resilient. The growing investment in digital infrastructure and rapid adoption of emerging technologies, such as artificial intelligence, will present opportunities for the Group to support the growth of the digital economy. Furthermore, the collective commitment of industry participants to decarbonise transportation has fueled the growth of the electric vehicle ecosystem. The Group believes that this will pave the way to strengthen its involvement in the sustainable economy.