Financial Review FY2022

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FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2022

Profit & Loss

Balance Sheet

Statement of profit or loss

Revenue

For the six months ended 30 June 2022 (“2H22”), the Group reported revenue of $204.213 million, up 24.72% from $163.731 million in the last corresponding period ended 30 June 2021 (“2H21”). The increase was from Cable & Wire (“C&W”) Segment which posted an increase of $31.873 million, up 32.89% from $96.895 million to $128.768 million. The Electrical Material Distribution (“EMD”) Segment’s revenue also posted an increase of $10.949 million, up 23.87% from $45.877 million to $$56.826 million. The revenue growth in both segments was on account of an expansion in both public and private sector construction activities and sustained global demand for semiconductors and semiconductors equipment.

The increase in revenue in 2H22 was however negated by decrease in revenue from Testing & Inspection (“T&I”) Segment and Switchboard Segment of $2.266 million and $74,000 respectively.

For the financial year ended 30 June 2022 (“FY2022”), the Group’s revenue was higher by 27.01%, up $80.610 million from the last financial year (“FY2021”) of $298.442 million to $379.052 million in current year.

The Cable & Wire (“C&W”) Segment’s revenue increased by 33.28%, up $58.041 million from $174.377 million to $232.418 million. The higher revenue was from Singapore, Malaysia and Vietnam’s C&W segment, driven mainly by increase in copper prices and higher sales volume. The increase was also because of construction activities picking up after relaxation of border restriction on the inflow of migrant workers and low base effects given the slow resumption of business activities after the Circuit Breaker Period (“CBP”) and Movement Control Order (“MCO”) in the first half of the financial year ended 31 December 2020 (“1H21”).

The EMD Segment registered revenue of $110.028 million, which was a growth of $23.018 million, 26.45% higher than $87.010 million in FY2021. The growth was supported by expansion in the Electronic Cluster and Building & Infrastructure Cluster. The Electronic Cluster continues to record strong performance driven by sustained global demand for semiconductors and semiconductor equipment while the growth in the Building & Infrastructure Cluster is underpinned by the resumption of construction activities.

The T&I segment revenue declined marginally by $230,000 from $31.551 million to $31.321 million in the current financial year. The decrease in the T&I Segment was largely due to lower revenue from the non-destructive testing and heat treatment services in Singapore, Malaysia and Indonesia. This was mainly attributable to completion of projects and fewer sizeable new contracts being secured. Nonetheless, laboratory testing services saw an increase after pickup in business activities in the construction sector.

Revenue from the Switchboard Segment decreased marginally by 3.98%, a decline of $219,000 to $5.285 million. This was a consequence of COVID-19 national partial lockdown measures implemented in Brunei during 1H22.

Gross Profit

Gross profit (“GP”) increased by $32.530 million from $16.614 million in 2H21 to $49.144 million in 2H22. The gross profit margin (“GPM”) improved from 10.15% in 2H21 to 24.07% in 2H22 due to the reversal of provision for onerous contracts amounting to $14.934 million resulting from the fall in copper price towards reporting date. Provision for onerous contracts of $22.687 million was recorded in 2H21 due to increase in copper price towards last financial year end.

The Group’s GP for FY2022 increased 93.49% to $80.054 million from $41.373 million in FY2021. GP margin grew by 7.26% from 13.86% in FY2021 to 21.12% in FY2022. This was attributed mainly to reversal of provision for onerous contracts of $10.130 million, offset partially by deliveries of the low margin projects that were secured 2-4 years ago when the copper price is low.

Other operating income

Other operating income decreased by $3.887 million from $5.737 million in 2H21 to $1.850 million in 2H22. This was mainly due to lower government grants recognised during 2H22. In addition, there was a fair value gain on derivative financial instruments of $3.173 million in 2H21, resulting from the increase in copper price towards 30 June 2021.

For FY2022, the Group recorded other operating income of $4.344 million, a drop of $15.813 million as compared to $20.157 million in FY2021. The decrease is attributed mainly to lower government grants recognised during the current financial year. In addition, there was a fair value gain on derivative financial instruments of $10.802 million in FY2021, resulting from the increase in copper price towards the end of FY2021.

Selling and distribution expenses

Selling and distribution expenses for 2H22 increased by $2.102 million, up 21.55% as compared to 2H21. For FY2022, selling and distribution expenses increased by $3.391 million, up 18.43% as compared to FY2021. This was mainly due to higher staff costs and business operation costs, which moved in tandem with higher revenue.

Administrative expenses

Administrative expenses for 2H22 increased by $317,000, up 3.05% as compared to 2H21. For FY2022, administrative expenses increased by $1.010 million, up 5.20% as compared to FY2021. This was mainly because of higher directors’ remuneration and staff costs linked to performance targets as well as higher operating costs incurred for the newly incorporated subsidiary in Cambodia.

Other operating expenses

Other operating expenses for 2H22 and FY2022 increased by $9.621 million and $12.889 million respectively, mainly due to fair value loss on derivative financial instruments and higher loss allowance for trade and other receivables. Fair value loss on derivative financial instruments was mainly due to reversal of last years’ fair value gain on derivative financial instruments against current year fair value gain on derivative financial instruments. Higher loss allowance for trade and other receivables was due to slower collection from the C&W Segment customers.

Finance costs

Finance costs for 2H22 and FY2022 increased by $188,000 and $266,000 respectively, mainly due to higher interest on lease liabilities arising from a new lease in Cambodia and higher interest charges from short-term bank borrowings.

Share of (loss) profit of associates

Higher share of profit from associates was mainly due to the Nylect Group performing better during the current financial year.

Profit before income tax

The Group’s profit before income tax (“PBT”) grew $16.876 million to $16.993 in 2H22 from $117,000 in 2H21.

PBT for FY2022 increased by $5.963 million to $27.281 million from $21.318 million in FY2021, on the back of higher reversal of provision for onerous contracts.

The C&W Segment’s PBT for FY2022 increased by $5.680 million from $12.505 million to $18.185 million, mainly driven by reversal of provision for onerous contracts against fair value loss on derivative financial instruments and lower COVID-19 grants extended by the Singapore government.The EMD Segment’s PBT expanded by $1.456 million from $6.296 million to $7.752 million, moving in tandem with higher revenue. The PBT from T&I Segment and Switchboard Segment however declined by $1.065 million and $145,000 respectively. Lower PBT from T&I Segment was mainly the result of set-up costs for the subsidiary in Cambodia and lower grants from the Singapore government.

Income tax expense

Income tax expense for 2H22 and FY2022 increased by $2.572 million and $1.282 million respectively. The increase moved in tandem with higher profit during the year.

Statement of financial position

Cash and bank balance decreased by $10.133 million, due to higher payment for purchases and repayment of bank borrowings towards period end.

Trade receivables increased by $22.044 million, as a result of higher sales towards current period end.

Other receivables in total decreased by $1.085 million primarily due to lower receivables from matured copper derivative contracts.

Contract assets decreased by $2.762 million, primarily attributable to unbilled revenue and retention sum receivables for those revenue recognised over time for on-going contracts.

Derivative financial instruments in total decreased by $12.277 million, mainly due to fair value adjustments on foreign currency forward contracts and copper contracts.

Inventories increased by $28.872 million, mainly due to higher purchases in the C&W and EMD Segments towards period end.

Property, plant and equipment fell by $871,000, mainly due to depreciation charges of $5.037 million, disposal and write off of property, plant and equipment with net book value of $310,000 against additions of property, plant and equipment amounting to $4.521 million, particularly the plant and machinery for T&I Segment.

Right-of-use (“ROU”) assets decreased by $484,000 mainly due to depreciation charges of $1.448 million, derecognition of ROU with net book value of $140,000 against additions of ROU amounting to $854,000 and adjustments of $88,000.

Deferred tax assets decreased by $1.550 million, mainly due to timing differences arising from reversal of provision for onerous contracts.

Bank borrowings in total increased by $13.193 million, primarily because of higher bank borrowings by the C&W Segment and EMD Segment for purchase of inventories, as well as higher bank borrowings by the T&I Segment for working capital purpose.

Trade payables increased by $10.154 million, substantially due to higher purchases by the C&W Segment and EMD Segment towards current period end.

Other payables in total increased by $1.165 million, mainly the result of higher provision for staff costs towards current period end.

Provision for onerous contracts decreased by $10.130 million as a result of decrease in copper price towards reporting date.

Statement of cash flows

The cash and cash equivalents at the end of the year decreased to $29.196 million compared with $39.329 million at the end of the previous financial year.

The Group’s net cash used in operating activities of $7.440 million was attributable to increase in trade receivables and inventories and payment of income tax offset by operating profit before working capital changes, decrease in contract assets and other receivables and increase in trade and other payables as well as advances received from customers.

The net cash used in investing activities of $3.866 million was mainly for purchase of property, plant and equipment, net of proceeds from disposal of plant and equipment, dividend received from an associate and interest received.

The net cash from financing activities of $1.187 million was mainly due to net proceeds from bank borrowings against repayment of borrowings, lease liabilities, dividends and interest paid.

Commentary

Ongoing geopolitical tensions, inflationary pressures and aggressive tightening of monetary policy are expected to weigh on the macroeconomic environment, increasing risks of a global recession. These headwinds may amplify the volatility in commodity prices and exacerbate supply chain disruptions which, in turn, would result in higher input costs amidst a tight labour market.

Notwithstanding these challenges, robust vaccination rates and the progressive easing of border restrictions have facilitated the pickup in business activities.

The Group remains cautiously optimistic of the industry prospects, particularly in the industrial, infrastructure and energy sectors where demand is expected to remain resilient because of secular growth trends. The Group will also remain vigilant in managing the ongoing price tension arising from the global shortage of copper, volatile copper prices, elevated shipping and freight costs as well as growing domestic wage pressures.

In addition to sharpening operational efficiencies, the Group remains focused on digitalisation, upskilling and sustainable development. The Group will continue to strategically execute its key initiatives to deliver long-term value to its stakeholders.