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Second Quarter Financial Statement And Dividend Announcement 2017

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the Second Quarter ended 30 June 2017

Balance Sheet

Review of Performance

Review for the Quarter ended 30 June 2017 (Q2’17)

Turnover

The Group’s revenue for the April-to-June 2017 quarter (“Q2’17”) decreased by S$1.6 million or 3.2% to S$49.0 million from S$50.6 million in Q2’16.

The lower revenue was mainly due to:

  1. Revenue decline from the Precision Components segment, due to lower demand for office automation and consumer products. Certain major Japanese customers have also migrated new production programmes from China to plants in South East Asia. In addition, sales for automotive products were slightly lower as current programmes are nearing end-of-life while mass production from some newly secured automotive programmes will only start next year.

    This was offset by:

  2. Revenue increase from the Precision Machining (previously named as Precision subassembly) due mainly to the higher sales from TV Bezel programmes in Q1’17 as compared to Q1’16.

  3. Tooling sales increased in Q2’17 compared to Q2’16. Tooling sales in Q2’16 was affected by the relocation of Feng Chuan Dongguan to consolidate its operations with Suns Mansfield Dongguan.
Net Profit

InnoTek Group recorded a profit of S$0.5 million in Q2’17, S$1.8 million lower than Q2’16. The S$1.8 million decline was due mainly to:

  1. Mansfield Group (“MSF”) recorded a profit of S$0.8 million, S$1.6 million lower than Q2’16 due mainly to:
    1. MSF’s gross profit (“GP”) margin reduced to 15.8% in Q2’17 from 16.7% in Q2’16 mainly due to lower revenue
    2. Higher G&A expense mainly from higher bonus provision of S$0.3 million.
    3. Higher tax expense of S$0.3 million mainly from profit making Magix as it has fully utilised the carried forward losses from previous years.
    4. Exchange loss of S$0.4 million compared to exchange gain of S$0.4 million in Q2’16.

  2. InnoTek’s loss in Q2’17 was S$0.3 million, S$0.2 million higher compared to a loss of S$0.1 million in Q2’16. This is due mainly to net loss of S$0.1 million in Q2’17 compared to net gain of S$0.1 million from the investment securities portfolio managed by an investment bank.

Review for 6 months ended 30 June 2017 (1H’17)

Turnover

The Group’s revenue for the January-to-June 2017 period (“1H’17”) decreased by S$3.5 million or 3.4% to S$100.1 million from S$103.6 million in 1H’16.

The lower revenue was mainly due to:

  1. Revenue decline from the Precision Components segment, due to lower demand for office automation and consumer products. Certain major Japanese customers have also allocated new production programmes to plants outside of China. In addition, sales for automotive products were lower as current programmes are nearing end-of-life while mass production from some newly secured automotive programmes have not started mass production.

    This was offset by:

  2. Revenue increase from the Precision Machining (previously named as Precision subassembly) due mainly to the higher sales from TV Bezel programmes in 1H’17 as compared to 1H’16.

  3. Tooling sales increased in 1H’17 compared to 1H’16. Tooling sales in 1H’16 was affected by the relocation of Feng Chuan Dongguan to consolidate its operations with Suns Mansfield Dongguan.
Net Profit

InnoTek Group recorded a profit of S$3.1 million in 1H’17, higher by S$1.3 million compared to the profit of S$1.8 million in 1H’16 due mainly to:

  1. Mansfield Group profit for 1H’17 increased to S$3.6 million, S$0.6 million higher compared to a profit of S$3.0 million in 1H’16 due mainly to:
    1. Despite lower revenue, MSF’s gross profit margin increased to 17.4% in 1H’17 from 15.9% in 1H’16. This is mainly due to:
      1. Lower direct /indirect headcount
      2. Lower depreciation due to disposal of old PPE in 2016 and lesser addition of new PPE
    2. Lower administrative expenses attributable to business tax and statutory charges, motor vehicles expense, repair and maintenance, as well as lower administrative headcount. This was partially offset by higher bonus provision.
    3. This was offset by:

    4. Higher tax expense of S$1.3 million mainly from profit making Magix Dongguan as it has fully utilised the carried forward losses from previous years.

  2. InnoTek’s loss in 1H’17 was S$0.5 million, S$0.7 million lower compared to a loss of S$1.2 million in 1H’16 due mainly to
    1. Net gain of S$0.1 million compared to net loss of S$0.3 million from the investment securities portfolio managed by an investment bank.
    2. Lower exchange loss resulting from conversion of loan to Mansfield Manufacturing into long-term loan and exchange difference to be treated as part of other comprehensive income in shareholder’s equity reserve.
Commentary

The operating environment in China remains challenging for the Group, particularly for its office automation (“OA”) business segment, as a result of rising cost pressures across the board.

The OA business has seen a more evident drop in sales as some major customers accelerated the relocation of production to lower-cost countries in Southeast Asia. The Group incorporated Mansfield (Thailand) Co. Ltd (“Mansfield Thailand”) in April 2017 and has increased its registered share capital to satisfy partial payment for land purchased in the Amata City (Rayong) Industrial Estate in Thailand. Upon setting up a factory in Thailand, which will be completed only in the first half of FY2018 (“1H’18”), Mansfield Thailand expects production to commence in the second half of FY2018 (“2H’18”). All operational activities in Thailand will be supported from Dongguan until the completion of Mansfield Thailand.

The Group is constantly striving to secure more automobile programmes, as its automotive sector has the longest product life cycle among the Group’s three business segments. The Group will be increasing its involvement in the car seat business, with an extension into the children’s car seat segment as a new revenue stream. In the first half of FY2017, two of the Group’s factories – Mansfield (Wuhan) and Sun Mansfield (Dongguan) – have received several car seat moulds and stamping orders.

The TV segment remains competitive as a major customer has changed the design of its TV bezel, replacing the bottom portion with plastic instead of a full aluminum TV bezel to reduce costs. This possible drop in TV bezel sales will be cushioned by the introduction of a new product – a heat sink – a type of aluminum alloy CNC machining product with high flatness and structural requirements. The Group has been increasing its sales efforts and has begun taking orders for heat sinks for use in both TVs as well as computers. The TV segment will remain an important contributor for the Group.

The Group remains cautiously optimistic about its outlook for FY2017. Following the restructuring efforts in FY2016, the Group’s focus this year will be on driving internal efficiencies and achieving cost savings, as well as new customer acquisitions and product innovations to counter the tough operating environment. Revenue contributions from Mansfield Thailand’s operations are expected to commence from 2H’18 and will gather momentum from FY2019, which will help address the issue of Japanese customers migrating the business volume of their OA products out of China.