OPERATING &
FINANCIAL REVIEW
REVENUE AND GROSS PROFIT
In FY2014, the Group’s revenue decreased by 29%
to S$187.9 million, from S$266.0 million in FY2013
due to lower steel prices and a 23% reduction in
sales volume. Our lower revenue was also due to
a business rationalisation exercise implemented
during the year where we progressively cleared
slow-moving and obsolete stock at lower selling
prices. Trading remained our largest business
segment, contributing 84% of total revenue, while
Manufacturing contributed 16%.
The Group’s gross profit declined by 30% from
S$16.1 million in FY2013 to S$11.3 million in
FY2014. However, gross profit margin remained
relatively stable at about 6.0%.
OTHER OPERATING INCOME
Other operating income increased 12% from S$5.0
million to S$5.6 million in FY2014, mainly due to
increased warehouse and storage rental income,
as well as foreign exchange gains.
KEY EXPENSES
Compared to revenue, distribution expenses in
FY2014 declined by 36% to S$1.7 million, from
S$2.7 million in FY2013. Lower headcount and a
reduction in management fee had resulted in 9%
decrease in administration expenses to S$10.5
million, from S$11.6 million last year.
Operating expenses increased from S$10.7 million
to S$25.3 million in FY2014 due to the following
provisions:
i)
Provision for inventory of S$9.8 million – a step
forward to shift the Group’s business model
from a general stockist to an asset-light steel
solutions provider who help customers source
for their steel requirements;
ii) Provision for doubtful debts of S$2.7 million.
Legal actions have been taken to recover such
debts; and
iii) S$1.7 million for impairment of fixed assets on
the non-performing entities of the Group.
Finance costs were 51% lower at S$0.9 million,
down from S$1.7 million in FY2013 due to
substantial repayment of bank borrowings in the
financial year.
NET PROFIT AFTER TAX
As a result of lower sales revenue, provisions and
reduced share of associate profit, a net loss after
tax of S$16.8 million was incurred in FY2014.
BALANCE SHEET
As at 31 December 2014, inventory level stood at
S$28.0 million, down from S$96.7 million a year
ago, as a result of our ongoing efforts to clear
inventories. Excluding the disposal proceeds from
the sale and leaseback of the property at Jurong
Port Road of S$0.3 million (2013: S$4.6 million),
trade and receivables stood at S$35.2 million as at
31 December 2014, as compared to S$50.9 million
as at 31 December 2013. This is in line with the
lower revenue and the improved debt collection.
During the year, the Group paid down bank
borrowings using internal generated funds.
Accordingly, total bank borrowing decreased
to S$12.7 million as at 31 December 2014, from
S$62.1 million a year ago.
CASH POSITION
In FY2014, net cash inflows generated from
operating activities stood at S$65.3 million,
compared to net cash flows used in operating
activities of S$34.2 million in FY2013. This was
mainly attributable to better management of
working capital and lower inventory purchases. Net
cash flows used in financing activities was S$36.1
million versus S$6.5 million in FY2013 because of
substantial repayment of bank borrowings, offset
by the S$14.7 million proceeds from the issue of
new shares in FY2014.
The Group’s cash position improved significantly in
FY2014. As at 31 December 2014, cash and cash
equivalents rose to S$52.7 million, up from S$16.1
million as at 31 December 2013. The stronger
cash position will provide the Group with financial
resources to pursue future business opportunities.
08
HG METAL MANUFACTURING LIMITED
ANNUAL REPORT 2014
