First Quarter Financial Statement for the period ended 31 December 2009

Financials Archive

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Profit & Loss

Balance Sheet

Review of Performance

Overview - FY09

For the second year running, all of the Group's four business divisions turned in profits. The performance of the Group in FY09 year-on-year ("yoy") was mainly attributable to:

• Higher attributable profits from the Technology arm by US-based flexible circuit maker Multi-Fineline Electronix, Inc. ("MFLEX") and Electronic Manufacturing Services ("EMS").
• Higher attributable profits from the Automotive Division arising from lower operating costs.
• Uptick in profit contribution from the Engineering & Distribution business due to better operations management.

These were partly offset by lower contributions from the Property Division resulting from foreign exchange losses as well as interest expense on new loans obtained for new projects.

Below is a summary of the performance of the Group by division in FY09 versus FY08:

Group revenue for the year ended 30 September 2009 ("FY09") was S$2,049.8 million, down marginally from S$2,072.8 million in the previous financial year ("FY08"). Net operating profit was S$56.3 million, a slight decrease of 3% yoy. Net attributable profit to shareholders (PATMI), including non-recurring loss of S$13.7 million, was S$42.6 million for FY09.

Technology Division

• Attributable profits from the Technology Division increased by 17% from S$30.8 million in FY08 to S$36.1 million in FY09.
• MFLEX recorded higher sales of S$1,128.7 million, an increase of 10% yoy. PATMI rose by 6% to S$39.9 million in FY09. The sales and PATMI growth resulted from higher demand for smartphones and other consumer electronic devices that require flex assemblies.
• EMS reported an S$4.5 million increase in PATMI to S$2.8 million in FY09, despite a drop in divisional sales of S$25.1 million. The higher profit was the result of a change in sales mix, as well as savings arising from internal restructuring and cost-cutting measures implemented in the face of the economic downturn.
• Sales for MFS Technology Limited ("MFS") came in 37% lower at S$128.4 million resulting in a net attributable loss of S$6.6 million. Sales decreased primarily because of sluggish demand from major customers, particularly in the personal communication segment (Flexible Printed Circuit Boards ("FPC") Division) and the power supply and automotive segment (the Printed Circuit Boards ("PCB") Division).

Automotive Division

• The Automotive Division contributed a net attributable profit of S$13.4 million, up 17% from S$11.5 million in FY08. Despite a reduction in sales revenue, a higher PATMI was achieved, primarily because of lower selling and general & administrative expenses.
• Sales fell by 14% yoy to S$335.3 million as the automotive market was affected by global financial uncertainty, which resulted in lower unit car sales across all brands. The termination of the Chevrolet franchise in 3Q FY09 was another contributing factor to the lower sales revenue.

Property Division

• Net attributable profit from the Property Division came in at S$12.9 million in FY09 compared with S$25.7 million in FY08.
• Excluding sales from the Shanghai Olympic Garden development, which was accounted for as an associated company till 3Q FY08 , sales declined by S$16.4 million because of the lower gross floor area available for sale in Suzhou. This decline was partially offset by higher sales from Lakeside Gardens in Chongqing.
• Profit was also affected by the higher foreign exchange losses of S$4.9 million and interest expense on S$118 million in new loans obtained for the funding of the New Summer Palace and Chengdu Orchard Villa projects.

Engineering & Distribution Division

• The Engineering & Distribution division posted a 6% increase in net attributable profit from S$14.7 million in FY08 to S$15.6 million in FY09, despite a fall in sales.
• The rise in the Division's PATMI was due to the Trading group's 14% increase in PATMI to S$13.4 million for FY09. This was the result of a combination of better margins and lower costs for raw materials.
• Sales from the O'Connor's Group dropped S$6.8 million to S$60.9 million, while PATMI fell S$0.7 million to S$2.2 million. This decline was due mainly to the generally poor economic climate, which caused customers to defer purchase plans and competitors to forgo margins.

Others

• The Agro-technology business recorded a profit of S$0.6 million in FY09 compared with a loss of S$2.0 million in FY08. This turnaround was achieved mainly in the US operations through aggressive cost controls, gains in efficiency from larger order sizes and reduced scrap, which resulted in significantly lower overheads.

Streamlining efforts

• A net non-recurring loss of S$13.7 million was reported as a result of the Group's ongoing streamlining efforts.
• The net non-recurring loss was mainly attributable to the Automotive Division's impairment of goodwill and the termination of the Chevrolet franchise (S$6.7 million), and the Technology Division's loss on dilution from share options exercised for MFLEX (S$4.8 million).
• This was slightly offset by gains on disposals relating to the Agro-technology in China and other investments (S$1.7 million) as well as the buildings of Wearnes Cambion under the Technology Division (S$0.7 million).

Highlights for 4Q FY09

• Group net operating profit came in 5% higher yoy at S$18.5 million. Including non-recurring items, Group PATMI for 4Q FY09 was S$18.8 million.
• Despite lower sales to its main customers as global demand is curbed by the financial turmoil, profit for the Technology Division only took a minor dip of 4% to S$12.5 million.
• Earnings for the Automotive Division increased 17% from S$3.0 million in 4Q FY08 to S$3.5 million in 4Q FY09. The higher earnings in spite of lower sales came about because of the successful implementation of cost control measures. 4Q FY09 earnings were also affected by the termination of Chevrolet franchise which ended in 3Q FY09.
• Net attributable profit for the Property Division climbed by S$4.3 million to S$4.8 million in 4Q FY09. This arose mainly from (1) an increase in the units sold in the Shanghai Olympic Garden and (2) gain on disposal of sale of an investment property in Suzhou.
• Contribution from the Engineering & Distribution Division increased by 13% yoy to S$6.2 million, driven mainly by higher sales from Applied Engineering.

Below is a summary of the performance of the Group by division in 4Q FY09 versus 4Q FY08:

Balance Sheet Review

• Cash & equivalents increased from S$300.1 million as at September 2008 to S$444.4 million as at September 2009 due to a net cash inflow of S$151.8 million.
• Inventories were reduced from S$203.7 million to S$162.8 million owing to enhanced inventory management in MFLEX and the Automotive Division.
• Trade and other receivables were reduced from S$426.5 million to S$355.5 million largely as a result of better receivables collection.
• Debt increased from S$357.9 million to S$428.5 million due mainly to loans obtained for the development of New Summer Palace, Shenyang and the capital injection into Chengdu Huaxin International Realty for the Chengdu Orchard Villa project.
• As a result of a stronger cash position, the Group turned from a net debt of S$57.8 million to a net cash of S$15.9 million as at 30 September 2009.

Cash Flow Statement Review

• The net cash inflow of S$151.8 million was attributed primarily to higher cash inflow from operations and cash raised from the issue of convertible bonds, partly offset by capital expenditures relating to MFLEX's manufacturing facilities in China, the acquisition cost of additional interest in MFS and repayment of bank loans.

Commentary On Current Year Prospects

Technology

MFLEX expects to benefit from the seasonal increase in customer demand associated with the holiday season in the first quarter of fiscal year 2010. The company will also continue to improve yields and labour productivity, so as to relieve the pressure on gross margins arising from higher material costs. In addition, the planned completion of MFLEX's new manufacturing facility in Suzhou is expected to help meet future capacity requirements, starting from the next fiscal year.

For MFS, the Division remains cautiously optimistic that results will continue to improve. In the face of intense competition, MFS will become more cost-efficient and competitive through a series of restructuring exercises expected to be completed by 2010.

Automotive

The Automotive Division expects to face a competitive and even mixed operating environment heading into the new financial year. The entry-level car segment could be affected by reduced COE allocation and climbing premiums in Singapore. Regional car markets, however, are expected to improve in tandem with the gradual recovery of the world economy.

The expected launch of new models across the division's world-renowned marques will continue to add to the Division's performance. Furthermore, the Division will strengthen its core retail distribution business by building on its high-performance and customer-focused culture.

Property

The Property Division anticipates lower sales in the coming year for most of the completed joint venture projects in Shanghai, Suzhou and Chongqing due to lower gross floor area available for sales. However, the Chengdu Orchard Villa, which broke ground this year, is likely to fetch higher average selling prices as its sub-phase launches continue. Efforts will be focused to time property launches carefully to reap the best returns on investment.

The Division will also continue to divest some of its non-core investment properties, while looking for opportunities to increase land bank in the cities of Chengdu, Suzhou and Shanghai.

Engineering & Distribution

The Engineering & Distribution Division will continue to generate healthy returns for the Group as the economy heads into recovery. This will be supported by the revival of shelved projects and steady backlog orders from the Trading group, and the expansion of products and services from the O'Connor's group.