OPERATINGANDFINANCIALREVIEW

THE PERFORMANCE OF THE COMPANY WAS ACHIEVED UNDER DIFFICULT MARKET CONDITIONS

Stainless Steel Prices
During the financial year ended 30 June 2009 (“FY2009”), stainless steel prices plummeted globally. The fall in stainless steel prices was led by a contraction in demand for stainless steel products as well as a plunge in the costs of raw materials (e.g. nickel, chromium and molybdenum) used in the production of stainless steel.

As stainless steel buyers withdrew from the market, stainless steel mills responded by slashing production output. The bottom of the stainless steel price cycle was finally reached in the third quarter of FY2009.

By the end of FY2009, inventories at distributors and end-users were at very low levels and required replenishment. About this time, commodity prices (e.g. nickel, chromium and molybdenum) also began to rise.

Together, these factors resulted in a recovery in stainless steel prices. However, demand on the whole has remained weak amidst a slowly recovering global economy.

Market Outlook and Future Plans
The prospects for the financial year ending 30 June 2010 (“FY2010”) remain uncertain given that manufacturing and industrial activities, while on course for recovery, will not return immediately to pre-crisis levels.

In view of the impact such economic uncertainty will have on the demand for our products and the overall sentiment in the industry, we have taken the decision not to redevelop our existing warehouse facilities at 32 Gul Crescent, nor to acquire new warehousing facilities. Proceeds from our initial public offer set aside for those purposes have been put to use as working capital instead.

With an uncertain economic outlook and fears that the recession could be a prolonged one with the much hoped for recovery in FY2010 seemingly remote, we have taken the strategic decision to continue with stringent cost management.

We recognize the need to remain competitive. As such, we shall strive to increase market share through faster response to market conditions in terms of pricing and delivery. We intend to progressively widen the range of 304/304L and 316/316L grades of stainless steel products and explore strategic alliances with both suppliers and customers.

We remain open to new business opportunities that are earnings accretive, should these arise. While focusing on our existing markets, especially Singapore, we shall continue to explore opportunities in other geographical markets.

It is still early days to predict our performance for FY2010. Nevertheless, oil prices seem to be on the rise again, which may affect global recovery. Furthermore, stainless steel production in all regions is expected to rise in the second quarter of FY2010, which could lead to oversupply and some price slippage.

The outlook for the Oil & Gas and Petrochemicals sectors, which contribute substantially to our revenue, is good. More private sector and government investments are being slated for Jurong Island, home to over 94 leading petroleum, petrochemical, specialty chemical and supporting companies, with more than S$31 billion invested in fixed assets on site. The marine sector, another major contributor to our revenue, is also projected to grow with major shipyards indicating healthy order books. Demand for oil and gas exploration and production remains robust at current crude oil prices. These factors have positive consequences for rig building and ship repair activities, which can be expected to translate to demand for our products.

Review of Results of Operations

Revenue
Revenue decreased by $38.2 million or 41%, from $92.6 million for the financial year ended 30 June 2008 (“FY2008”) to $54.4 million for the financial year ended 30 June 2009 (“FY2009”). The decrease was due mainly to a decrease in sales volume of 2,114 tonnes or 35%, from 6,049 tonnes for FY2008 to 3,935 tonnes for FY2009 and a decrease in average selling price of $1,479 per tonne or 10% from $15,301 per tonne for FY2008 to $13,822 per tonne for FY2009, as a result of a fall in demand for stainless steel products.

Revenue contribution from bars/plates and pipes/fittings accounted for 44% (FY2008: 47%) and 49% (FY2008: 46%) respectively of total revenue in FY2009. Revenue from bars/plates decreased by $19.9 million or 45%, from $43.8 million in FY2008 to $23.9 million in FY2009. Revenue from pipes/fittings decreased by $16.0 million or 37%, from $42.9 million in FY2008 to $26.9 million in FY2009.

Geographically, revenue contribution from Singapore, Malaysia and other countries accounted for 73% (FY2008: 70%), 16% (FY2008: 14%) and 11% (FY2008: 16%) respectively in FY2009. Revenue from Singapore decreased by $26.5 million or 41%, from $65.0 million in FY2008 to $38.5 million in FY2009. Revenue from Malaysia decreased by $4.9 million or 37%, from $13.3 million in FY2008 to $8.4 million in FY2009. Revenue from other markets decreased by $6.8 million or 48%, from $14.3 million in FY2008 to $7.5 million in FY2009.

Gross profit
Gross profit decreased by $15.2 million or 60%, from $25.2 million for FY2008 to $10.0 million for FY2009. The decrease was due mainly to a decrease in revenue and a decrease in gross profit margin.

Gross profit margin decreased from 27% for FY2008 to 18% for FY2009. The decrease was due mainly to a decrease in average selling price. In the face of a downtrend in stainless steel prices in FY2009, gross profit margin was affected by inventories purchased when stainless steel prices were higher.

Other operating income
Other operating income decreased by $0.7 million or 62%, from $1.2 million for FY2008 to $0.5 million for FY2009. The decrease was due mainly to a decrease in interest income of $0.2 million, a decrease in reversal of allowance in doubtful trade debts of $0.1 million and a decrease in reversal of allowance for damaged/obsolete inventories of $0.4 million.

Expenses
Distribution costs decreased by $0.3 million or 8%, from $3.8 million for FY2008 to $3.5 million for FY2009. The decrease was due mainly to the decrease in sales volume.

Administrative expenses decreased by $2.1 million or 42%, from $4.9 million for FY2008 to $2.8 million for FY2009. The decrease was due mainly to no performance bonus for FY2009 in line with the decrease in profit of the Company.

Other operating expenses increased by $2.2 million or 888%, from $0.2 million for FY2008 to $2.4 million for FY2009. The increase was due mainly to an allowance for inventories write-down of $2.1 million for FY2009.

Finance costs decreased by $0.2 million or 55%, from $0.4 million for FY2008 to $0.2 million for FY2009. The decrease was due mainly to lower interest expense incurred on bills payables as a result of lower utilization of trade financing and lower interest rate charged.

Profit before income tax
Profit before income tax decreased by $15.4 million or 91%, from $17 million for FY2008 to $1.6 million for FY2009. The decrease was due mainly to the decrease in gross profit and an increase in other operating expenses, offset by the decrease in administrative expenses.

Profit before income tax margin decreased from 18% for FY2008 to 3% for FY2009. The decrease was due mainly to the decrease in gross profit margin, the increase in distribution costs as a percentage of revenue and the increase in other operating expenses as a percentage of revenue.

Income tax expenses
Income tax for FY2009 relates to a provision of income tax payable for FY2009 of $659,000, offset by a reversal of deferred tax liability of $44,000, a deferred tax asset of $328,000 recognised for the year and over-provision of income tax of $176,000 in respect of prior year.

Net profit for the financial year
Net profit for the financial year decreased by $13.1 million or 89%, from $13.7 million in FY2008 to $1.5 million in FY2009.

Review of Financial Position
The Company continued to enjoy a positive working capital position as at 30 June 2009.

Inventories
Inventories decreased by $12.8 million or 27%, from $47.4 million as at
30 June 2008 to $34.6 million as at 30 June 2009. The decrease was due mainly to a decrease in purchases during the year and an allowance for inventories write-down of $2.1 million for FY2009 (FY2008: Nil). Average inventories turnover days increased from 251 days for FY2008 to 338 days for FY2009.

Trade receivables
Trade receivables decreased by $10.3 million or 48%, from $21.5 million as at 30 June 2008 to $11.2 million as at 30 June 2009. The decrease was due mainly to a decrease in revenue. Average trade receivables turnover days increased from 90 days for FY2008 to 109 days for FY2009.

Trade payables
Trade payables decreased by $1.9 million or 52%, from $3.7 million as at 30 June 2008 to $1.8 million as at 30 June 2009. The decrease was due mainly to a decrease in purchases. Average trade payables turnover days decreased from 31 days for FY2008 to 30 days for FY2009.

Other payables
Other payables decreased by $1.9 million or 73%, from $2.6 million as at 30 June 2008 to $0.7 million as at 30 June 2009. The decrease was due mainly to no accrual of performance bonus (FY2008: $1.6 million).

Deferred tax asset/liability
Deferred tax asset was $0.3 million as at 30 June 2009 (deferred tax liability of $44,000 as at 30 June 2008). The deferred tax asset of $0.3 million was due mainly to an allowance for inventories write-down of $2.1 million for FY2009.

Review of Cash Flows
The Company continued to enjoy positive cash flows in FY2009.

Net cash generated from operating activities
Net cash generated from operating activities for FY2009 was $18.8 million, due mainly from operating cash inflows before working capital changes of $2.3 million, a decrease in inventories of $12.8 million and a decrease in trade receivables of $10.3 million. This was offset by a decrease in trade payables of $1.9 million, a decrease in other payables of $1.8 million and income tax paid of $3.1 million.

Net cash used in investing activities
Net cash used in investing activities for FY2009 was $0.3 million, due mainly to renovation and the purchase of motor vehicles and machinery.

Net cash used in financing activities
Net cash used in financing activities in FY2009 was $13.0 million, due mainly to the repayment of bills payables and payment of dividend.