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.

Hupsteel Limited and its group of companies(‘Hupsteel’) journeyed through the last financial yearended 30 June 2017 (‘FY17’) amidst continuedchallenging economic and business conditionsaffecting the marine, oil & gas industries.While global and local economies have startedto report growth during the period, oil prices hadremained relatively low. The low oil prices hardlyspurred activities in the market resulting in weakdemand for new exploration assets. Singapore,being a renowned centre for the construction of suchrelated assets, has been badly hit and recovery inthis sector was non evident in the last financial yearand is difficult to foresee in the near term.

Turnover for the financial year was largely derivedfrom supplying materials to meet routine repairand maintenance requirements from many of theGroup’s existing customers. Proportionally, supplies toconstruction of infra-structure projects had picked upand become relatively large in the light of decliningsales to the marine, oil & gas sectors.

Revenue for FY17 dropped 12% to $49.1M from$55.8M reported for financial year ended 30 June2016 (‘FY16’). However, the Group achieved animproved FY17 annual gross profit of $12.8M fromthe $2.1M reported in FY16 as the Group did nothave to make large impairments for the diminution invalue of its stock compared to the $10.6M made fordiminution that was accounted for when computingFY16 gross profits.

As the Group experienced lower volume in FY17, ittook steps to implement measures to contain costs.As such, it managed to reduce FY17 staff costby 15% from $7.8M to $6.6M. In line with thereduced volume, other operating expenses were alsomuch lower compared to the previous year where itincluded an impairment against trade receivables of$5.1M (FY17:$0.2M).

With better gross profits achieved throughout FY17and lower expenses incurred, the Group was ableto report quarterly net profits after tax for the last 3quarters. For the full financial year ended 30 June2017, 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 (‘CEO’) of the Group since its public listing in 1994,passed the baton to Mr Lim Boh Chuan, who hadbeen Co-CEO & MD since March 2015. Mr Lim KimThor has remained with the Group as an ExecutiveDirector in charge of the oil & gas business. We areglad that the transition had been smooth and lookforward to Mr Lim Boh Chuan’s leadership to bringthe Group to the next phase of growth.

On behalf of the Board and shareholders, I wouldlike to extend our greatest appreciation to Mr LimKim Thor for years of tireless leadership and steeringthe Group through numerous market downturns andcrises. The vast amount of experiences that he hadaccumulated over the years would be a ready sourcewhich the current management team could tap on.

The Independent Directors had played a significantrole in managing the leadership renewal. They hadconsidered the views of various parties, mediatedamong them and provided clear direction onsuccession planning, always conscious on the needto safeguard the core businesses of the Group. Inthis aspect, I would like to extend my appreciation ofthanks to my fellow Independent Directors who hadworked tirelessly and provided invaluable guidanceon the matter.With Mr Lim Boh Chuan taking over the leadership ofthe Group, I would like to rally the management, staffand shareholders to give our support to him so that hemight bring the Group through the current challengingbusiness conditions and lay a strong foundation for future growth.

 

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