Extracted from Annual Report 2008
Dear Shareholders,
Performance Review
For the financial year ended 30 September 2008, the Group recorded a net loss of $10 million following a 32% drop in sales to $216.8 million. Loss per share amounted to 1.5 cents as compared with the earnings per share of 1.2 cents reported in the prior financial year.
Sales in the last quarter of our financial year, from July to September 2008, have recovered to $59.1 million and we realised a net profit after tax and minority interests of $1.6 million during this period.
It has been one of the most challenging years for the Group, especially for the FPC (flexible printed circuits) division, the main revenue contributor which generally accounts for more than 70% of total sales. During the financial year under review, FPC sales fell 42% to $150.1 million from $258.3 million. The resultant loss after tax and minority interests from this division was $11.7 million as compared to the profit of $4.8 million realised in the 2007 financial year.
On a brighter note, the PCB (printed circuit board) division fared much better, achieving an 8% rise in sales to $66.7 million from $61.7 million. The PCB division posted $1.6 million in full year profit after tax and minority interests as compared to the $3.2 million profit recorded in the prior fiscal year. This was after the one-off $0.9 million impairment expense for the old factory in Changsha, China which has been de-commissioned.
Overall sales dropped primarily due to the FPC division which suffered from fewer new quality programs, less high volume production orders, reduced assembly activities which dipped 25% and lower assembly component content which experienced a decline to 21% from 38% in financial year 2007.
During the year, we experienced margin compressions because of the fall in the average unit selling prices notably in the communications and wireless portables sectors, the display and imaging, and the data storage segments and the lower yielding technology mix in terms of production content where multi-layered board (MLB) sales declined to 26% from more than 50% achieved in the 2007 fiscal year. The stronger Singapore dollar vis-à-vis the US dollar in three out of the four quarters and rising metal prices were additional factors leading to margin erosion pressures.
Despite the net loss, we experienced a positive operating cash flow of $0.4 million during the financial year under review. Cash and cash equivalents as at 30 September 2008 stood at $42.4 million, a decline of around $20 million from $61.9 million on 30 September 2007. This drop in cash and cash equivalents was primarily due to capital expenditures of $16.6 million during the year. Our cash position, nonetheless, remains healthy and strong.
Strategic & Operational Review
The transfer of all FPC mass production activities from our Singapore facility to our upgraded plant in Malaysia and China has been completed. All our FPC assembly activities previously undertaken in Singapore will now be conducted in our factory in Malaysia. Meanwhile, our operations in China
are now capable of handling FPC design and development, including prototyping activities and FPC assembly.
Such transfers to lower-cost FPC production sites overseas will benefit the Group’s margins in the longer term especially when demand picks up and production activities are ramped up.
Our PCB subsidiary, MFS Technology (PCB) Co. Ltd was named a ‘Marquee Supplier’ by Emerson, an American engineering technology company based in St Louis. This award was given in recognition of Emerson’s top 38 global suppliers. Emerson was among our top 10 customers accounting for around 5% of total sales in the PCB division in FY2008.
The Group’s PCB production capacity has since increased
by 30% or to 360,000 square feet following the extension of the plant in Xingsha and with the new facility having begun commercial operations during the year under review. Consolidation of the two PCB operations after the de-commissioning of the Changsha plant will enable us to improve our operational efficiency and reduce operating cost.
Outlook
The operating environment will remain as challenging as ever. The Group is in a strong net cash position and this places us in a better position to ride out the uncertainties in an unstable global economic climate.
We have also been successful in our diversification efforts to broaden our customer base in the display and imaging, and personal communication segments. We believe the group design wins from these customers who are market leaders in their respective fields would contribute significantly to our performance in 2009 and beyond.
The personal communications market will continue to be the main revenue generator for the Group’s FPC business, accounting for around 80% of FPC sales. This is because the FPC market is still driven by the mobile handset segment. The various forecasts for world mobile handset shipments reported are mixed and range from a negative 6% growth to a positive growth of 10%, but we believe this market will continue to grow.
While the FPC division anticipates new developments and programs to kick in during the current financial year, contributions from such operations are only expected to be realised after the first half of our current financial year. Production activities will depend on the launch of the new manufacturing programs and the Group’s effectiveness in fulfilling the anticipated increase in orders.
Meanwhile, the performance of the PCB business is encouraging and we hope to maintain and grow this segment further. Growth for our PCB business will be driven primarily by the telecommunications and automotive sectors.
On the macroeconomic front, the softening of oil and metal prices, and the strengthening of the US dollar are positive factors which will lead to improved margins.
Dividends
The board of directors has recommended a final tax-exempt dividend of half cent per ordinary share. Once approved by shareholders, the dividends will be paid on 27 February 2009.
Appreciation
We are all the more appreciative of the shareholder support given especially during such difficult and challenging times. The directors, management and staff of the Group remain committed and will continue in their endeavours to deliver value-added growth to the business.
