HG Metal Manufacturing Ltd

Chairman's Statement

(extracted from Annual Report 2016)

DEAR SHAREHOLDERS,

STAYING RESILIENT AMIDST HEADWINDS

We are pleased to present to you the annual report of HG Metal Manufacturing Limited ("HG Metal") for the year ended 31 December 2016 ("FY2016").

2016 has been a year marked by a number of uncertainties in the global economic and political environment. Challenges ensued amidst a tight labour market, weak consumer sentiments, high material costs and falling business margins. A slowing global economy led Singapore's GDP growth to register only 1.8% for the whole of 2016.

Despite these headwinds, our efforts in re-aligning our business focus to the industry demands have helped us to stay resilient and to produce relatively respectable performance in the face of these challenges. During the year, we have managed to turn our business around, reversing a loss into a profit, while we remained focused on building up our expertise. We believe we are now better positioned to capture any growth and business opportunities whenever they arise.

FINANCIAL PERFORMANCE

Notwithstanding the anticipated macro-economic challenges and volatility in international steel prices, the Group has managed to stay its course and produced resilient results that were evident in the improved performance. This year, we went against all odds and placed our profitability back in the black.

In FY2016, the Group recorded revenue of S$108.5 million as compared to S$127.9 million in the previous year, translating to a 15% decrease in revenue. This was attributed to a 9% decline in sales volume and 7% drop in average selling price. In spite of this, gross profit surged by 20% from S$5.0 million in FY2015 to S$6.0 million in FY2016. The higher gross profit registered was due to a higher gross profit margin of 5.6% achieved during the year against 3.9% for the previous year, as a result of an improved procurement strategy and also better matching of customers' requirements.

Consequently, the Group reported a net profit after tax of S$0.9 million in FY2016 against a net loss after tax of S$5.6 million in FY2015. This was achieved by improved gross profit margin and reduced overhead expenses arising from the implementation of Group's cost optimisation program. However, the rise in other operating income of S$1.0 million was partially offset by the reduction in share of profit from associates of S$0.7 million.

The Group's inventory holding increased to S$14.2 million as at 31 December 2016 as compared to S$5.4 million a year ago on efforts to replenish stocks to support business activities.

The Group's bank balances and fixed deposits as at 31 December 2016 stood at S$37.7 million, decreasing from S$50.5 million in FY2015, mainly attributed to the Group's stock replenishment.

The Group's total borrowings were reduced to S$2.0 million as at 31 December 2016 as compared to S$6.8 million as at 31 December 2015 on account of full settlement of certain bank term loans.

PROPOSED DIVIDEND

As an appreciation to our shareholders for your unwavering support, the Board of Directors are pleased to recommend a final tax exempt dividend of 0.5 Singapore cents per ordinary share for FY2016. This is subject to shareholders' approval at the coming Annual General Meeting.

OUTLOOK AND BUSINESS STRATEGIES

We expect the business environment for the steel industry to remain challenging as the industry presents a mismatch between international steel prices and regional market demand. The recent surge in international steel prices in spite of a lagging demand within the local and regional markets coupled with the intensified competition have exerted pressure on the margins of the steel industry across the board.

While we acknowledge that the volatility in international steel prices and the fluctuations in foreign exchange currencies amidst a slower global economy are all likely to affect our business in the near term, the Group is focused on enhancing our competitive strengths and fostering strategic partnerships with our valued stakeholders to add value to the Group. Further, we are also strengthening our capabilities and widening our product range to better capture the local business opportunities arising from increased infrastructure spendings in Singapore.

The Group continues to be committed in exploring and pursuing viable growth opportunities, while managing the risk exposure of the business vigilantly. We believe that our strong balance sheet will enable us to remain focus in pursuing strategic business and investment opportunities, both locally and overseas, including the key overseas market of Myanmar.

APPRECIATION

On behalf of the Board of Directors, we would like to thank our business associates and customers for their support for all these years, giving us the opportunity to forge meaningful working relationships together. We would also like to extend our appreciation to our management team and staff for their dedication and commitment during these challenging times. Finally, we want to express our gratitude to our shareholders who have seen the value in us. We look forward to journeying with you as we continue to create greater shareholders' value in the years to come.

MR TAN KENG BOON
Chairman

MR FOO SEY LIANG
Executive Director