Dear Shareholders,
On behalf of the Board of Directors (the "Board") of InnoTek Limited ("InnoTek" or the "Group"), I present to you the annual report for the financial year ended 31 December 2022 ("FY'22").
Almost three years since the outbreak of COVID-19, the Zero-COVID restrictions in China – where the bulk of our manufacturing operations is based – have only been lifted in December 2022. Amid the intense challenges of movement restrictions and supply chain restrictions, we continued to persevere under the leadership of our CEO Mr Lou Yiliang.
I am therefore pleased to report that our financial performance has in fact exceeded pre-pandemic levels in several aspects. FY'22 revenue surpassed S$186.7 million recorded in FY'19. We recorded a seventh consecutive year of profits in the year under review, with net profit after tax reaching S$2.3 million (FY'21: S$11.5 million). This was achieved as the Group recorded net profit of S$3.9 million in the second half of the year (2H'22), reversing the initial net loss of S$1.7 million for 1H'22.
The commendable performance comes even as the Group expanded our geographical footprint and diversified our customer base. As you would be aware, the Group is seeking to reduce dependence on TV/Display, Automobiles and Office Automation ("OA") equipment to diversify to new sectors such as Servers, medical devices and gaming machines. We are also focused on increasing our market share within the Electric Vehicles ("EV") industry.
Allow me to share several key developments achieved.
Within the OA segment, turnover in the parts sub-assembly business has improved significantly, underscoring the success of our efforts to move up the value chain from single-part manufacturing. The Group will build on this early success to grow this business further.
In February 2023, the Group acquired a 70%-stake in a facility located in Bac Giang Province, Vietnam, which manufactures metal structural components for equipment used in financial services, and OA projects. Through the acquisition, we have enhanced our sheet metal processing capabilities, and added metal stamping to our range of services in Vietnam.
The latest venture has also enlarged the Group's manufacturing footprint in Southeast Asia – where we now have one facility in Thailand and two in Vietnam. We are confident our strategic expansion will enable us to widen our customer base and fortify our capabilities in manufacturing as demand continues to shift from China to Southeast Asia.
FY'22 PerformanceFY'22 revenue rose 7.6% year-on-year to S$186.8 million from S$173.6 million in FY'21, driven by higher turnover in the Auto and OA segments. Our facility in Bac Ninh Province, Vietnam, also made its first full-year contribution, having recently commenced production of heatsinks for a TV customer.
Demand for auto products in China recovered, buoyed by local consumption stimulus measures, as well as higher orders from customers. They are looking to increase production to make up for lost capacity due to earlier pandemic-related lockdowns as well as the global chip shortage. Meanwhile, the OA segment was lifted by strong growth in the parts assembly business as well as higher demand from China and Thailand. We also expect business momentum to accelerate in our gaming machine, medical device and Servers segments.
The increase was partially offset by lower sales in the TV/Display segment amid dampened consumer sentiment in the Western hemisphere due to higher inflation and oversupply in the European TV industry.
Due to disruptions from China's "Dynamic Zero" COVID policy and higher costs for labour and raw materials, FY'22 gross profit declined to S$27.2 million from S$33.7 million a year ago. As a result, our gross profit margin declined (to 14.6% in FY'22 from 19.4% in FY'21), while net profit lowered to S$2.3 million from S$11.5 million, respectively.
Looking ahead, we remain cautiously optimistic as China's economy is expected to recover following the easing of COVID restrictions. Meanwhile, we continue to strengthen our facilities in Thailand and Vietnam to capture new projects and ramp up production.
While raw material supply and costs are stabilising, the Group will continue to implement cost control measures. We have also several long-term projects in emerging industries, as well as the EV market, which will contribute to our financial performance for FY'23.
Best CEO AwardI would also like to take this opportunity to congratulate Mr Lou who was named Best CEO in the small-cap category (market capitalisation of less than S$300 million) for SGX-listed companies at the Singapore Corporate Awards 2022.
Shareholders are aware, Mr Lou has led InnoTek through several years of restructuring since he was appointed CEO in November 2015. Under his leadership, we have consistently recovered from previous losses and sustained profitability throughout the pandemic. The prestigious award is well-deserved, and we look forward to Mr Lou continuing to provide leadership to the management team.
DividendAs a token of our appreciation for shareholders' unwavering support through this challenging year, the Board has proposed a first and final cash dividend of 2.0 Singapore cents per ordinary share, subject to approval at the upcoming Annual General Meeting. This is consistent with the dividend payouts in FY'21 and FY'20, even though net profit declined during the year under review.
Once again, I would like to thank our loyal shareholders for their steadfast support. We remain focused on identifying new avenues for growth, and we are confident of providing long-term value to our shareholders.
Appreciation
I extend my heartfelt appreciation to our customers and business partners for their continued support. Additionally, I would like to thank our staff, whose efforts have been invaluable to our success; in particular, I would like to thank Mr Lou for his leadership in navigating us through the challenges of the pandemic.
I would also like to express my gratitude to our shareholders, whose loyalty has been instrumental throughout InnoTek's journey. We will continue to innovate and evolve, and I look forward to your continued support in the years to come.
Mr. Neal Manilal Chandaria
Chairman, Non-Executive and
Non-Independent Director
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