Message from CEO
Extracted from Annual Report 2022
DEAR VALUED SHAREHOLDERS,
Since the onset of the pandemic, I have given updates about the intense challenges such as supply chain disruptions, movement restrictions and delayed orders amid economic uncertainty. Our financial performance, like that of many other corporations, has been affected.
As I write this message, the Central Government in China has lifted the Zero-COVID policy for more than three months (since December 2022). Some of the earlier supply chain disruptions have eased but we now have to deal with a cost structure that is significantly higher than before the pandemic. Compounding this is a combination of exceptional uncertainties occurring at the same time. These include geopolitical uncertainties such as the conflict in Ukraine. Higher inflation has led to a spike in interest rates, and economic growth is at a much slower rate in China.
Nonetheless, when I look back at the year under review, I am proud of what we have achieved under the circumstances. We remained steadfast in our business strategies which have included diversification of products and to new locations, while relentlessly pursuing cost efficiencies. As a result, despite the headwinds, we recorded a seventh consecutive year of profits.
For FY'22 InnoTek achieved revenue of S$186.8 million, narrowly surpassing our pre-pandemic revenue of S$186.7 million in FY'19. While revenue has reverted to pre-pandemic levels, our revenue mix has undergone a significant change.
Over the past two years, the Group has secured projects in emerging industries such as Servers, Electric Vehicles (EV), medical equipment and gaming machines, and expects revenue contribution from these segments to grow in the coming years. Meanwhile, we have successfully grown our parts sub-assembly business, which provides greater growth potential compared to single-part manufacturing.
As shareholders are aware, we acquired a 70%-stake facility in Bac Giang Province, Vietnam, in February 2023, further strengthening our presence within Southeast Asia. The facility, which will support customers in the sectors of financial equipment and OA will add sheet metal processing to our service offerings while enhancing our existing metal stamping capabilities. As we build up the facility's capabilities, the Group intends to target customers in the power supply and energy storage market.
The acquisition follows the establishment of our first overseas facility in Rayong, Thailand in June 2018, followed by the second in Bac Ninh Province, Vietnam in August 2021. This significant geographical expansion is in line with our strategy to capture new customers in Southeast Asia, while supporting the growing number of customers adopting a "China + 1" manufacturing strategy.
BUSINESS REVIEW
The Group's Office Automation ("OA") segment recovered strongly, lifted by improved performance in the parts sub-assembly business, as well as higher turnover from our customers in China and Thailand as earlier supply chain disruptions eased.
On the Automobile front, we saw business momentum pick up in the second half of the year, as customers increased orders to make up for lost production time during COVID-related lockdowns, and higher demand for auto products due to stimulus policies implemented. This growth was partially mitigated by weaker demand in the Chinese commercial vehicle market.
For the TV/Display segment, consumer sentiment was impacted by high inflation in Europe and USA, an oversupply in the European TV industry, as well as the prolonged Russia-Ukraine conflict. Meanwhile, our diversification towards new emerging markets has seen significant progress, with higher contributions from the gaming machine and medical device businesses.
Cost control and quality management continued to be strengthened, enabling the Group to remain competitive. We are also enjoying the early fruits of our efforts to optimise our process of manufacturing new products. This is reflected in the improved yield and lowered rework rates within our precision machining segment and in the productivity gains during the second half of FY'22.
InnoTek has also continued to integrate more internal resources to strengthen our overseas facilities. Mansfield Thailand Co. Ltd., our manufacturing facility in Thailand, has ramped up the production of OA and Auto products, following the easing of COVID-related restrictions. Meanwhile, our Vietnamese facility recorded its first full year of revenue, and has secured a project to produce TV bezels, which will commence in the first quarter of 2023.
FINANCIAL REVIEW
FY'22 revenue grew 7.6% to S$186.8 million from S$173.6 million in FY'21. Despite the higher top line, the Group recorded gross profit of S$27.2 million in FY'22 which was lower when compared to S$33.7 million in FY'21. The decline was mainly due to operational disruptions in China, higher rework rate during the first half of FY'22, as well as higher costs of raw materials and labour. Accordingly, gross profit margin declined to 14.6% in FY'22 from 19.4% in FY'21.
We recorded a net profit of S$2.3 million compared to S$11.5 million in FY'21. Earnings per share for FY'22 amounted to 0.98 Singapore cents (FY'21: 5.04 Singapore cents), while net asset value per share declined to 76.4 Singapore cents as at 31 December 2022 from 83.2 Singapore cents a year ago.
OUTLOOK
We anticipate China's economic growth to recover in the coming months, which will drive business momentum for the Group. Despite persistently elevated costs, we remain committed to optimising QCDS – quality, cost, delivery and service – while implementing cost control measures.
Additionally, the Group will continue to strengthen our facilities in Thailand and Vietnam, while focusing efforts to secure projects in the EV market, and growing our customer base in emerging industries. Already, we have secured several long-term projects, which will contribute to our financial performance for FY'23.
APPRECIATION
I wish to express my sincere gratitude to our valued business partners, customers and suppliers for their unwavering support. I would also like to express my appreciation to the management team, and hardworking employees, who have shown remarking dedication and commitment during these challenging times.
Above all, I am deeply grateful to our shareholders for their trust through the years. I look forward to another year of growth together, as we continue to capture new projects and expand our geographical footprint.
Mr. Lou Yiliang
CEO, Executive and Non-Independent Director