BUSINESS THAT WITHSTANDS THE TEST OF TIME

Dear Shareholders,

We started the financial year after a severe economic crisis.  Pre-tax profit plunged from $17 million in FY2008 to $1.6 million in FY2009. We expected the going to be fraught with challenges and uncertainties.  And indeed it was for the mills, distributors and end-users.  In H1 of FY2010, the stainless steel industry saw weak consumption yet faced rising input (nickel, molybdenum and chromium) costs. The weakening US dollar and speculators, rather than fundamentals, pushed up nickel prices.  

Nickel prices on the London Metals Exchange rose from approximately US$18,700 per metric ton at the end of January 2010 to US$24,900 towards the end of March 2010 despite reported ample global nickel stocks. 

In early Q4 of FY2010 nickel and molybdenum prices went up further.  Nickel price was US$25,800 per metric ton at the end of April 2010 and US$19,400 at the end of June 2010 - a decline of almost 25%.  This price volatility made stocking decisions particularly difficult.

PERFORMANCE

The downturn last year posed a real challenge to us, but the difficulties we faced helped reinforce the strength of our business model.  We focused on our core business and our unbroken profit record was maintained.  We ended this year with a net profit of $3.7 million.

In the midst of the volatile market, which makes price-forecasting difficult, the Company maintained a conservative inventory, purchasing and pricing policy throughout the year.  Our inventory at end of FY2010 was $28.3 million, compared with $34.6 million at end of FY2009.  In terms of average inventory turnover time, it declined from 338 days to 296 days.   Hence, in spite of the weak economic conditions, the pre-tax profit improved from FY2009’s $1.6 million to $4.5 million in FY2010.  In fact our margins improved across the board on all the industrial segments that we sell to.

The results for FY2010 also benefited from the Jobs Credit Scheme.  During the financial year, we benefited from a $138,000 grant that went towards defraying some of our employment costs.  However, the Scheme was discontinued on 1 April 2010. 

In a climate of open and intense competition, the key to success is to compete better and faster in terms of product and service.  We will need to focus on driving productivity and speeding up response time from order to delivery.  We will also need to look into opportunities to grow our revenue from new geographical locations and activities.

STRATEGY IMPLEMENTATION

SG Metals Pte Ltd was incorporated during the year to undertake the importation and sale of stainless steel products from China.  For this purpose, our second warehouse at 32 Gul Crescent which we decided not to redevelop was renovated during the year to provide 1,087 square metres of additional covered storage area. 

We also incorporated a “wholly foreign owned enterprise” in Suzhou, the People’s Republic of China.  We entered into a one year agreement with a major customer (a USA corporation) to whom we will provide supplies in Suzhou.  We leased a warehouse in the Suzhou Industrial Park for this purpose. This is the first time we ventured out of Singapore, and is not without risks.  However we must be willing to take a calculated risk and be prudent in seeking such opportunities. 

In the new financial year, improving our margins, accessing new markets and introducing new products are our key challenges.  In view of this, the Company’s organisational structure was reviewed, some key performance indicators were established and a monthly variable pay component was introduced during the year to face the new challenges.

MARKET OUTLOOK AND GROWTH ASSESSMENT

We recognise 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 widen the range of stainless steel products and explore strategic alliances with both suppliers and customers. While focusing on our existing markets, especially Singapore, we shall continue to explore opportunities in other geographical markets like Brazil where the outlook for Oil and Gas is promising.

We will also search for potential acquisitions that could extend our core competencies or provide diversification and are earnings accretive.  Market entry through acquisitions will be more efficient as it provides immediate scale.  However, we are mindful that valuation has to be reasonable and business risks must be manageable.

MANAGING CHANGE

In ensuring that the Company remains resilient to economic changes, we aspire to be more innovative in our business approach, driving excellence in all our operations and processes, and embrace a customer-oriented culture.

We also aim to boost business growth by strengthening our infrastructure in management capability and business processes.  

Finally, I wish to express my appreciation and gratitude to my colleagues who have been fully committed and engaged to engender positive changes for the Company.  Last but not least, my appreciation goes to our shareholders for their support throughout the year and for contributing towards our progress even in challenging times.

Lim Lian Soon
Chief Executive Officer