Investor Relations - Chairman's Message

Dear Shareholders,

THE YEAR IN REVIEW

Hupsteel Limited and its group of companies
(‘Hupsteel’) journeyed through the last financial year
ended 30 June 2017 (‘FY17’) amidst continued
challenging economic and business conditions
affecting the marine, oil & gas industries.
While global and local economies have started
to report growth during the period, oil prices had
remained relatively low. The low oil prices hardly
spurred activities in the market resulting in weak
demand for new exploration assets. Singapore,
being a renowned centre for the construction of such
related assets, has been badly hit and recovery in
this sector was non evident in the last financial year
and is difficult to foresee in the near term.
Turnover for the financial year was largely derived
from supplying materials to meet routine repair
and maintenance requirements from many of the
Group’s existing customers. Proportionally, supplies to
construction of infra-structure projects had picked up
and become relatively large in the light of declining
sales to the marine, oil & gas sectors.
Revenue for FY17 dropped 12% to $49.1M from
$55.8M reported for financial year ended 30 June
2016 (‘FY16’). However, the Group achieved an
improved FY17 annual gross profit of $12.8M from
the $2.1M reported in FY16 as the Group did not
have to make large impairments for the diminution in
value of its stock compared to the $10.6M made for
diminution that was accounted for when computing
FY16 gross profits.
As the Group experienced lower volume in FY17, it
took steps to implement measures to contain costs.
As such, it managed to reduce FY17 staff cost
by 15% from $7.8M to $6.6M. In line with the
reduced volume, other operating expenses were also
much lower compared to the previous year where it
included an impairment against trade receivables of
$5.1M (FY17:$0.2M).
With better gross profits achieved throughout FY17
and lower expenses incurred, the Group was able
to report quarterly net profits after tax for the last 3
quarters. For the full financial year ended 30 June
2017, it reported net profit after tax of $0.72M,
turning around from two consecutive years of losses.
Over the last two years, the Group brought about a
renewal of its leadership. In December 2016, Mr Lim
Kim Thor, who had been the Chief Executive Officer
FOR THE FULL FINANCIAL
YEAR ENDED 30 JUNE
2017, IT REPORTED NET
PROFIT AFTER TAX OF
$0.72M, TURNING AROUND
FROM TWO CONSECUTIVE
YEARS OF LOSSES.
06 HUPSTEEL LIMITED
ANNUAL REPORT 2017
CHAIRMAN’S MESSAGE
(‘CEO’) of the Group since its public listing in 1994,
passed the baton to Mr Lim Boh Chuan, who had
been Co-CEO & MD since March 2015. Mr Lim Kim
Thor has remained with the Group as an Executive
Director in charge of the oil & gas business. We are
glad that the transition had been smooth and look
forward to Mr Lim Boh Chuan’s leadership to bring
the Group to the next phase of growth.
On behalf of the Board and shareholders, I would
like to extend our greatest appreciation to Mr Lim
Kim Thor for years of tireless leadership and steering
the Group through numerous market downturns and
crises. The vast amount of experiences that he had
accumulated over the years would be a ready source
which the current management team could tap on.
The Independent Directors had played a significant
role in managing the leadership renewal. They had
considered the views of various parties, mediated
among them and provided clear direction on
succession planning, always conscious on the need
to safeguard the core businesses of the Group. In
this aspect, I would like to extend my appreciation of
thanks to my fellow Independent Directors who had
worked tirelessly and provided invaluable guidance
on the matter.
With Mr Lim Boh Chuan taking over the leadership of
the Group, I would like to rally the management, staff
and shareholders to give our support to him so that he
might bring the Group through the current challenging
business conditions and lay a strong foundation for
future growth.

I am delighted to report that the Group had registered a net profit after tax of $4.7M for the financial year ended 30 June 2018 (‘FY18’), as compared to $720K for the prior financial year ended 30 June 2017 (‘FY17’). Even after discounting a net gain of $2.3M from properties (sale of a shop house which yielded a profit of $4.5M less $2.2M net book value of an industrial building writing off as the building has been torn down for re-development), the operations of the Group have still performed better in FY18 than in FY17.  

The Group was still facing poor market demand for its steel products in the first half of FY18 due to the doldrums in the marine, shipbuilding, oil and gas sectors caused by the decline in oil prices. Recovery in these sectors in the first half of FY18 was rather slow despite oil prices trending up last year and as a result the rise in demand for the Group’s steel products was not significant then.  

There was a quick and robust pick-up in demand for pipes and fittings after Chinese New Year from the oil & gas sector. As such, turnover improved in the second half of FY18. However, the better operational performance was not contributed evenly by the major product groups of the Group. In particular, demand for structural steel products was relatively stagnant during the period. It had remained so because the shipbuilding & construction sectors that consumed mainly structural steel products had not shown healthy improvement.  

In the last few years, the Group took various cost cutting measures and adjusted itself to meet the challenges of a depressed market for its products, although at the of this calendar year, it noticed early sporadic signs of recovery in demand from the oil and gas sector. It continued with its efforts to meet customers’ needs by responding timely to their requirements. It would keep close contact with the market to bring in items relevant to current needs of the market.  

The property at 6 Kim Chuan Drive has been successfully leased out. Also, to better utilize the Group’s properties, the Group decided to rejuvenate the property located at 38 Genting Lane by re-developing it into a new 8 storey Industrial Building, the construction of which is still in progress.

The Group would be presenting its inaugural sustainability report this year. It would be looking to adopt practices that are suitable to the mainly trading environment the Group operates in. It would also be working with its major suppliers, who are mostly overseas steel mills, to understand sustainability issues affecting the industry which in turn will help the Group to find its own directions in this aspect. For a start, it would like to educate its staff on their roles and responsibilities towards building a sustainable operation and environment. It hopes to inculcate the desire and discipline to reduce waste, be responsible user of vital limited resources and on how to preserve planet Earth for the future generations.

 

Past Annual General Meetings had always seen lively exchange of views between shareholders and management. We would love to preserve the growing culture of dialogue in a mutually respectful manner as shareholders discuss matters affecting the Group and help management chart a course of actions that takes into account the concerns of various parties. I am privileged to be called to chair the Board of Directors & the Annual General Meeting since last year and would look forward to the co-operations from management & shareholders to enable me to manage these meetings in a productive way.

 

OUTLOOK & FORWARD

With continuing unfavourable conditions of weak oil prices, fears of US interest rate hikes, uncertainty surrounding Brexit negotiations, unabated terrorist threats and global political tensions, the new financial year remains a challenging one.

Recovery in the marine, oil & gas sectors will be slow. The Group will need to engage its customers more intensely and find new ways of collaborating with them to open up more opportunities that are beneficial to both parties. We have to tap on each other’s strengths to overcome difficulties and the current market doldrums. Under the new leadership, the Group will strive to take stock of its achievements so far and strategize for new growth impetus. It will have to transform its traditional ways of doing business and inculcate new mindset.

Although the property market has yet turned around, the Group is seeking ways to achieve returns from its portfolio of properties held. It is looking for good quality tenants for its building located at 6 Kim Chuan Drive and had recently sold a shophouse unit at Jalan Besar for a handsome gain over its net book value. More action will be taken on its remaining properties in anticipation of a recovery in market conditions and shareholders will be kept abreast of any new development.

DIVIDEND

The Directors are pleased to recommend a final tax exempt dividend of 1 cent per share and a special tax exempt dividend of 1 cent per share for FY17 which is subject to shareholders’ approval at the coming AGM. This recommended dividend is higher than the dividend paid in FY16, which was 1.0 cent per share. The Group looks forward to the continual support of its shareholders in the coming year amidst the challenging conditions.

ACKNOWLEDGEMENT

I am grateful to my fellow Directors for their support, valuable inputs and wise counsel and the Management and staff for their loyalty, dedication and contributions to the Group. To our customers, suppliers and business associates, I would like to express our sincere appreciation for their continuing support.

Finally, I would like to specially thank our shareholders for your commitment, continued support and belief in the Group despite the challenges faced by the Group in the last year.

 

ONG KIAN MIN

Non-executive Chairman
27 September 2017