Results for the financial year ended 30 June 2005

Results for the financial year ended 30 June 2005

Q. Do you foresee the trend of high capital expenditure ($3 - 5M) to continue once the China plant investment is in place?
Q. Micro-Mechanics raised its full year dividend to 3 cents per share, representing a 60% payout on FY2005 earnings of 4.9 cents per share. Can we expect a similar dividend payout in FY2006?
Q. With capacity utilization of 68%, the Group had excess capacity in FY2005. Why are you planning to spend S$4.5 million on new equipment?
Q. How does Micro-Mechanics’ cost and product quality compare with its competitors?
Q. How do you measure cycle time, and has it improved in FY2005?
Q. You plan to invest S$1.5 million in FY2006 in your Custom Machining and Assembly (CMA) division. Since this is a relatively new and small part of the Group’s revenue, what are the prospects for this business segment?
Q. Is your proposed bonus issue an indication of your confidence in the Group’s growth prospects for FY2006 and beyond?

Q. Do you foresee the trend of high capital expenditure ($3 - 5M) to continue once the China plant investment is in place?

A. During FY2005, we expect total capital expenditures, including outlays for our new plant in Suzhou, China, to be in this spending range. Although we have not finalized our investment plans for FY2006, we intend to watch capital spending carefully since these have a direct and significant impact on cash flow and earnings.

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Q. Micro-Mechanics raised its full year dividend to 3 cents per share, representing a 60% payout on FY2005 earnings of 4.9 cents per share. Can we expect a similar dividend payout in FY2006?

A. Micro-Mechanics does not have a dividend policy at present. The payout depends on our assessment of the capital we require to support growth. In FY2005, we generated operating cash flow of S$7.0 million, while our total proposed dividend (including an interim dividend paid in March 2005) is S$3.3 million. Our dividend payout reflects a balance between our strong emphasis on maintaining a solid balance sheet and the efficient use of capital. This approach strikes a balance between shareholder returns and funding (future) growth.

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Q. With capacity utilization of 68%, the Group had excess capacity in FY2005. Why are you planning to spend S$4.5 million on new equipment?

A. In the semiconductor industry, rapid business upswings are typical. To retain customers and expand market share, we think it is essential to be ready for such increases. Our investment plan includes both capacity additions, primarily for our new plant in China, and equipment that enhances capability, particularly at our new Custom Machining and Assembly (CMA) division.

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Q. How does Micro-Mechanics' cost and product quality compare with its competitors?

A. There is little, if any, third-party market information about the segment of the semiconductor industry in which we compete. However, based on our continual focus on cost and quality, we think we compare favourably with our rivals. One measure of competitiveness is gross profit, which for Micro-Mechanics, was 60.4% in FY2005.

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Q. How do you measure cycle time, and has it improved in FY2005?

A. We look at cycle time in two key areas. In general, inventory is needed to accommodate planning and manufacturing inefficiencies. Therefore, to the extent that planning and manufacturing become more efficient, the need for inventory is reduced. We ended FY2005 with inventory of S$0.7 million, up slightly from S$0.6 million in the previous year. However, when measured as a percentage of annual sales, our inventory value declined to 2.7% from 2.8% in FY2004. Another measure we use is the time to deliver each customer order from receipt to shipment. Through a constant focus on improving our operations, we aim to improve this delivery cycle and thereby enhance our competitiveness in the market place.

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Q. You plan to invest S$1.5 million in FY2006 in your Custom Machining and Assembly (CMA) division. Since this is a relatively new and small part of the Group's revenue, what are the prospects for this business segment?

A. We are optimistic. In addition to our core semiconductor business, we would like to build a division that goes beyond the semiconductor industry, allowing us to explore other industries where precision manufacturing is needed. During FY2005, sales at our CMA division more than doubled to S$1.4 million, and included orders from new customers from the medical, instrumentation and high-tech equipment fields. In the long term, we believe CMA will be a valuable component of our growth and profitability.

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Q. Is your proposed bonus issue an indication of your confidence in the Group's growth prospects for FY2006 and beyond?

A. As MM begins a new financial year, we are encouraged both by the improving outlook for the semiconductor industry, and our prospects for another year of steady, sustainable and profitable growth. To reward our shareholders for their support and confidence, the Board of Directors has proposed a one-for-four bonus issue. The bonus issue may also improve trading liquidity.

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