Extracted from Annual Report 2017
I am pleased to present the annual report for InnoTek Limited ("InnoTek" or the "Group") for the financial year ended 31 December 2017 ("FY'17"). It has been almost two years since I joined the Board as Executive Director and Chief Executive Officer of Mansfield Manufacturing Company Limited ("Mansfield"), InnoTek's main operating subsidiary.
As shareholders are aware, I was re-designated as Group Chief Executive Officer in March 2017 to better reflect my role in leading the team through the arduous journey of restructuring and stabilising our core business. We worked with management and employees to improve cash flows, customer engagement and operational efficiencies, even as we strengthened our product offerings through employees training and technological innovation.
These tough measures were essential for us to stay profitable and competitive at a time when customers across all our business segments – office automation ("OA"), TV and automotive – are cutting costs. I am grateful to the InnoTek family for their support and resilience through this transformative period.While it has not been an easy road, we are now poised to recognise the fruits of our labour in FY'18 and beyond.
FY'17 revenue dipped 1.0% to $212.7 million from $214.7 million in FY'16, due to lower sales of OA and consumer products as Japanese customers moved production out of China. This was offset by higher sales of heat sinks – a new product which we introduced in the first half of FY'17, and can be used in TVs and computers – as well as TV bezels and car display panels.
The TV segment, which typically has lower margins, overtook OA as our main revenue contributor this year, accounting for 39% of sales in the last three months of FY'17.
The Group's net profit after tax was $9.8 million in FY'17, a drop from last year's $11.6 million mainly due to higher tax expenses. However, we were heartened to see that our profit before tax was $15.8 million in FY'17, $2.0 million higher than the $13.8 million in FY'16.
InnoTek's net cash position improved to $35.8 million as at 31 December 2017 compared to $30.0 million a year earlier, due to positive cash flows from operations.
Earnings per ordinary share for FY'17 declined to 4.39 cents compared to 5.17 cents a year ago. Conversely, the Group's net asset value per share increased to 59.8 cents as at 31 December 2017 from 55.8 cents.
The manufacturing sector in China has been beset by challenges such as wage inflation, higher raw material prices and other operating costs. Several companies – including major Japanese customers in the OA segment – have transferred operations from China to lower-cost Southeast Asian countries such as Vietnam and Thailand.
To strengthen our synergies with these key customers, we have incorporated a subsidiary in Thailand, Mansfield (Thailand) Co. Ltd. ("Mansfield Thailand"). We expect to complete construction of the plant in the second quarter of 2018 and commence production in the second half of 2018. Until then, we will support the operations in Thailand from our Dongguan facilities.
While OA has taken a backseat as our top revenue driver, our business in China still holds promise. In the third quarter of 2017, we incorporated a subsidiary in Weihai, China, Mansfield Technology (Weihai) Co. Ltd. ("Mansfield Weihai"). In January 2018, it passed Hewlett Packard's ("HP") audit requirements for new facilities. Mansfield Weihai can now support HP's printer-related operations, following the electronics giant's US$1.05 billion acquisition of Samsung's printer business in China.
Mansfield Weihai will be primarily engaged in research and development, the design and manufacture of precision metal stamping, tooling, non-metal and assembly products and services. It is scheduled to begin mass-producing OA products under the HP brand in the second half of 2018.
We are cautiously optimistic about prospects in the TV and automotive segments, both of which we are developing as core businesses. The TV sector is seeing relatively stable growth amid demand for better-quality finishes and larger, higher-definition panels. We are investing in initiatives such as robotics and other forms of automation to enhance manufacturing efficiency.
Meanwhile, China's automotive sector is undergoing a period of transition, as current programmes are nearing end-of-life while new ones will only start production in the second half of 2018. We are continually pursuing new programmes and exploring partnerships with global suppliers, and are looking into the production of car interior and safety components.
Although we were profitable in FY'17, there is still room for improvement in our business fundamentals, processes and product lines. It is vital that we stay versatile and humble to keep pace with customer requirements and industry trends, even as we expand our customer base and geographical presence.
I wish to express my deepest gratitude to all my colleagues at InnoTek, as well as our business partners, customers and suppliers, for their faith in us. I look forward to another year of growth together.