Chairman's Statement
(Extracted from Annual Report 2008)
Dear Shareholders,
As I pen this message to you, the world is in the grip of what may be one of its worst recessions since the Great Depression. At a time when even the largest companies with long and illustrious histories cannot profess to be fully immune to the economic maelstrom, the Board of Directors at ElectroTech Investments Limited would like to assure you that the Group will, as always, exercise prudence in our operational and financial management while we continue to pursue our longer term strategies and business plans.
Our strategy has always been to set our sights on the attainment of long term goals when planning and executing the Group's business roadmap. We do acknowledge that at times, this strategy may entail that we bear a certain degree of discomfort in shorter term performance. Nonetheless, we believe that this is an approach that has served the Group well over the years.
These long term business goals were uppermost on our minds when the Group committed itself to substantially expand our mechatronics business through a proposed merger with ETLA Limited ("ETLA"), a Singapore-Incorporatad contract equipment solutions provider that has a broad base operational presence in Asia. After carefully evaluating ETLA's operations, we concluded that it complements our Mechatronics Division's plan and strategy to further expand our manufacturing base in Asia to support the Group's regional growth plans. After lengthy negotiations, an agreement was reached end on 3 November, we announced plans to acquire all the outstanding shares of ETLA by way of a proposed share swap involving new ElectroTech shares.
Financial Performance
2008 was a tough year for the global technology sector. The slowdown in the US and world economies took a heavy toll on consumer and business confidence, especially with the onset of the global credit crunch during the final months of the year. Together with a bulld-up in cost and price pressures along the technology supply chain, the result was rapid erosion in sales and profitbility for many cornpanies in the sector.
In spite of this, the Group reported revenue of S$227.0 million for the financial year ended 31 December 2008 ("FY2008"), a relatively mild dip of 7.8% from the previous financial year. The resilient performance is mainly attributed to the growth in sales of our medical, automotiive and office automation business segments, which helped to cushion against harsh business conditions in the semiconductor and keypad business segments. However, this changing product mix had an impact on the Group's overall profit margins and consequently led to a 36.2% fall In our net profit to S$14.7 million for FY2008.
Prospects and Business Strategies
The business outlook for the technology sector in 2009 will remain challenging. With the global economy In recession and credit markets still in stasis, it is expected that business conditions in the sector will probably get worse before they improve. In these tough times, we are glad for our sound balance sheet, which has healthy cash balances and minimal borrowings. This steady financial footing will allow us to focus our attention on strengthening the operations of our two core divisions to ensure that we are well prepared to capitalise on opportunities when the economy recovers.
At our EMS Division, we have been executing a strategy over the past two years that has progressively shifted the division's product mix towards products with higher value and longer life cycles. The early fruits of this strategy were reaped in FY2008 as our automotive and office automation business segments did well io register double-digit growth rates despite the slowing economy. As a result, the EMS Division was able to broaden its revenue base in these more stable business segments, which recorded a combined contribution of 42% of the division's revenue in comparison to 27% in FY2007. At the same time, this strategy also enabled the division to reduce its reliance on the keypad segment, which has higher revenue volatility and shorter order visibility.
While the EMS Division will undoubtedly face a higher level of uncertainty in FY2009 due to the depressed market condition resulting in the risk of potential project delays, we are encouraged by the progress that has been made in our automotive and office automation business segments. Therefore, we intend to continue enhancing our capabilities in these areas.
At our Mechatronics Division, if the proposed merger with ETLA is completed as planned, the division's top priority will be to gradually integrate its operations with ETLA with the aim of optimising the use of the merged group's resources. Our pian is for each strategic location in Singapore, Malaysia and China to have manufacturing capabilities and capacities that will enable them to meet their respective business and growth expectations. At the same time, the Group intends to enhance and build on the design and development, as well as engineering and project management capabilities in each location such that they will be able to meet the requirements and expectations of existing and potential customers in the respective markets.
When fully completed, we am confident that this operational integration will transform our Mechatronics Division into a global contract manufacturer that offers a compelling partnership for original equipment manufacturers.
For a start, the proposed merger will substantially strengthen our global operational capabilities as it will combine our Mechatronics Division's strength in upfront design and development, engineerlng and project management with ETLA's strength in manufacturing know-how and its geographical presence. By combining the merged group's skills and technology, we will enhance our ability to offer customers complete and integrated solutions across the whole value chain.
Over the past few years, we have been gradually building up our mechatronics operations in Penang as part of our strategy to take advantage of an ongoing trend for original equipment manufacturers to relocate to lower-cost centers and growth markets in Asia. With the addition of ETLA's established manufacturing facilities in Singapore, Malaysia and China, the proposed merger will significantly expand our manufacturing footprint, especially in the growth regions of Asia. This will provide us wiih greater opportunity to capture a bigger share of the growing capital equipment contract manufacturing business in these growth regions and at the same time, target new opporiunities in the various business sectors in each of these geographic locations.
An added bonus is that both ETLA and our Mechatronics Division have their own separate base of customers. This means there is less risk of cannibalisation of customers and greater opportunities for us to cross-sell our pooled facilities and capabilities to an expanded customer base while enjoying the benefits of increased sector diversification.
Last but not least, the proposed merger will result in a larger and multi-talented management team that will be able to draw on the management's decades of experience in regional and global business to lead the Group forward.
Proposed Dividend
The Board of Directors is pleased to recommend a first and final tax-exempt dividend of 1.92 cents per share for FY2008, which represents a payout ratio of 39.8% of our Net Profit Attributable to Shareholders in FY2008. The proposed dividend is subject to the approval of shareholders at the Annual General Meeting to be held on 8 April 2009.
Appreciation
I would like to thank my fellow directors on the Board for their valued contributions. On behalf of the Board, I also wish to thank the management and staff in The Netherlands and Malaysia for their dedication, commitment and contributions to the Group.
In addition, I would like to thank our valued customers, business partners and suppliers for their continuing support, patronage and guidance. I would also like to express my appreciation to shareholders for your continued support of ElectroTech investments Limited.
Dato' Larry Low Hock Peng
Non-Executive Chairman