Extracted from Annual Report 2020
I am pleased to present our performance for the financial year ended 31 December 2020 ("FY'20"), a period of great challenge because of COVID-19. The Company had to deal with multiple challenges such as disruption of supply chains, temporary shutdowns of our manufacturing plants and delayed orders, particularly in the first half of the year.
The rapid recovery of the Chinese economy from the early days of the pandemic – the only one among major global economies to have done so – came as a welcomed relief. As businesses activities and supply chains restarted, the order uplift in the second half contributed significantly to our performance.
Our revenue for the year declined marginally while net profit net for FY'20 declined by 16.7% to S$13.9 million. Nonetheless, it is our fifth consecutive year of profitability. Considering the challenges faced, this is a commendable performance that underscores the hard work and sacrifice of the InnoTek team.
Behind the cloud of the pandemic, there were also silver linings.
The Auto division, while impacted by the disruptions in the days of the pandemic, experienced a good recovery as the outbreak of COVID-19 in China was put under control. This compared to the situation a year ago – even before COVID-19 – when China's car sales declined for several consecutive quarters.
On the TV/Display front, stay-home measures and the shut-down of sport and entertainment facilities led to increased demand for home entertainment, which translated into greater sales for TV bezels above 55 inches.
However, the Office Automation ("OA") division was impacted by the global economic slowdown, which pushed down its contribution to Group revenue even after a recovery in the second half.
Beyond the sectoral performance outlined above lies a Group-wide intensive effort to respond collectively to the challenges of disruption and even further pricing pressure due to the pandemic. Shareholders will know that for several years we have eked out savings in materials, time and manpower through process improvements at the production floor, automation and incentivising the workforce for productivity gains. This gathered even greater momentum in response to the pandemic and the ongoing issues of rising production costs and increased competition in China.
For the whole of FY'20, revenue declined 1.9% to S$183.2 million, reflecting the slower first half, the partial plant shutdowns as well a reduction of orders for OA products.
Gross profit margin increased to 24.6% from 21.8% due to relentless efforts to reduce outsourcing, material costs and to improve automation as part of internal efficiency initiatives, as well as subsidies from the Chinese and Singapore governments to help domestic businesses recover from the pandemic.
Profit before tax remained relatively stable at S$19.2 million compared to S$19.4 million in FY'19. This was achieved despite the unfavourable foreign exchange loss and higher income tax expense, resulting in FY'20 net profit decreasing S$2.8 million to S$13.9 million from S$16.7 million a year ago.
InnoTek's earnings per ordinary share for FY'20 decreased to 6.13 Singapore cents from 7.36 Singapore cents in FY'19; conversely, our net asset value per share increased to 78.6 Singapore cents as of 31 December 2020 from 71.1 Singapore cents on 31 December 2019. We have a healthy balance sheet with a net cash balance.
As outlined above, the pandemic meant that FY'20 was a tale of two halves: a difficult first and a second which included recovery for the Auto and TV/Display divisions.
Looking ahead, China's Auto division is experiencing great change, with a clear shift towards electric vehicles ("EV"). For InnoTek, our precision metal components also serve EV manufacturers. But as the industry evolves holistically towards charging stations and infrastructure support, we will seek to deepen our value proposition with existing and develop new customers.
This means moving beyond single-part manufacturing to parts assembly. We have secured initial orders of the latter and expect orders to increase as we establish our foothold within the segment.
For the TV/Display division, the pent-up demand for home display units experienced in 2020 is expected to slow down. Our focus is to continue working closely with customers to meet their increasing requirements for bezels.
While demand for OA products remains weak, the recovery since the second half of FY'20 is expected to continue through to this year. The Group's factory in Rayong, Thailand, commenced commercial production of OA products in 2020. While the pandemic dampened demand and affected production volume, the Group is looking to develop the factory to support automotive customers in Thailand for the coming year.
At the same time, we remain committed to improving Quality, Cost, Delivery and Services ("QCDS") while relentlessly pursuing productivity gains as well as increasing automation. Customers recognise and appreciate our progress in QCDS, a strategy which allows us to deepen relationships and trust level as they themselves undergo constant change.
COVID-19 has shown to everyone how uncertain is the world that we live in. Crises can arise suddenly, and disruptions can be wide-ranging in their impact on the cost of raw materials and logistics. We need to stay nimble and remain attentive to our own efficiency programmes and to clients' needs.
In the coming year, China's economy will continue to recover steadily, but we still need to tread cautiously. So long as the COVID-19 pandemic continues, we need to be resilient to face various difficulties, shortages of materials and logistics, as well as sharp price increases, severe shortages of labour in traditional manufacturing, and high labour costs. We firmly believe that we must continue to strengthen our core corporate culture, and strive to become our customers' partners as soon as possible, to have a brilliant future.
I would like to thank our business partners, customers, suppliers for their support during this challenging year. I also want to thank the management and employees for their unwavering support and loyalty and the board of directors for their counsel and advice. Lastly, I would also like to extend my gratitude to our shareholders for their continuing faith. Together we look forward to a better 2021.