Email This Print ThisFinancials Reports

Second Quarter Results Financial Statement And Related Announcement

Financials Archive

Get Adobe Reader Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.

Unaudited Second Quarter Financial Statements Announcement for the period ended 31/12/2017

Income Statement


Balance Sheet


Review Of Performance

Review Of Profit And Loss

Semiconductor industry review

Global semiconductor sales continued to grow at a fast pace during the second half of 2017. Based on statistics compiled by the Semiconductor Industry Association (SIA), worldwide chip sales during the five months from July to November 2017 increased 22.6% to US$179.3 billion, compared to US$146.2 billion in the corresponding period in 2016.

With chip sales notching up its highest-ever monthly sales of US$37.7 billion in November 2017, the SIA said that the semiconductor industry is poised to reach US$400 billion in annual sales for the first time. While global market growth continues to be led by sales of memory products, the SIA said sales of all other major semiconductor categories have also increased showing the breadth of the market's strength this year.

In its latest Semiconductor Market Forecast released on 28 November 2017, the World Semiconductor Trade Statistics (WSTS) said it now expects worldwide chip sales to reach a record US$408.7 billion in 2017. This represents an increase of 20.6% which is the industry's largest growth year since 2010. The WSTS also projects that semiconductor sales will increase another 7% to US$437 billion in 2018.

Group Revenue


For the three months ended 31 December 2017 (2Q18), the Group's revenue increased 10.3% yoy to S$15.6 million from S$14.2 million in 2Q17. This was driven mainly by higher sales in Singapore, the Philippines, China and the USA. Group revenue in 2Q18 would have been higher if not for the translational impact of the depreciation of the US dollar and the Philippine Peso by 2.6% and 7.1% respectively against the Group's reporting currency in Singapore Dollars.

On a quarter-on-quarter (qoq) basis, Group revenue in 2Q18 decreased 11.6% from 1Q18 due mainly to lower sales to customers in Malaysia, China, Singapore, the Philippines and Taiwan.

For the six months ended 31 December 2017 (1H18), Group revenue increased 21.1% to S$33.3 million from S$27.5 million in the previous half-year period. This was due mainly to higher sales in Malaysia, Singapore, the Philippines, China and the USA.

Revenue breakdown by Geographical Market


In 2Q18, the Group witnessed improved yoy sales in Singapore, the Philippines, China, USA and Europe. Sales in China increased 14% to S$4.1 million in 2Q18 and remained as our largest geographical market with a 26% contribution to Group revenue. Sales in the USA increased 34% to S$3.0 million in 2Q18 to become our second largest market, accounting for 19% of Group revenue. Malaysia registered a marginal 4% sales decline to S$2.9 million in 2Q18. Sales in Singapore increased 24% to S$1.3 milion while sales to customers in the Philippines grew 31% to S$1.6 million.

Capacity Utilisation


Our average capacity utilisation rate increased to 62% in 2Q18 from 56% in 2Q17 in tandem with the increase in Group sales.

Gross Profit (GP) Margin


The Group's gross profit (GP) increased 11.8% to S$8.8 million in 2Q18 as compared to S$7.9 million in 2Q17. The Group's GP margin in 2Q18 improved to 56.1% from 55.4% in the same period a year ago.

Other income, Distribution Cost, Administrative Expenses and Other Operating Expenses


Other income in 2Q18 fell to S$235k from S$385k in 2Q17 due mainly to the absence of the exchange gain of S$197k recorded in 2Q17. In addition to invoicing in various local currencies, the Group employs currency hedging to mitigate the possible effects of currency fluctuations.

We maintained tight control over our expense structure during 2Q18. Our distribution costs of S$831k and administrative expenses of S$2.3 million in 2Q18 were comparable to the year-ago period. In aggregate, our administrative, distribution and other operating expenses (inclusive of other income) in 2Q18 increased to S$3.8 million from S$3.6 million in 2Q17. As a percentage of Group sales, however, these overhead expenses decreased to 24.6% in 2Q18 from 25.4% in the same period a year ago.

Profit before Tax and Net Profit


As a result of the above, the Group recorded a 15.8% increase in profit before tax to S$4.9 million in 2Q18 from S$4.3 million in 2Q17. After deducting income tax of S$1.0 million (S$0.9 million in 2Q17), the Group reported a 16.1% increase in net profit to S$3.9 million in 2Q18 from S$3.4 million in 2Q17. Net profit margin in 2Q18 was 24.9% as compared to 23.7% in 2Q17 and 29.2% in 1Q18.

The effective tax rate for 2Q18 was 20.9% as compared to 21.1% for 2Q17. Tax expense for the quarter included a provision of S$143k for withholding tax on dividends to be remitted to Singapore from various overseas subsidiaries.

For 1H18, Group net profit increased 34.6% to S$9.1 million from S$6.7 million in 1H17. Net profit margin increased to 27.2% in 1H18 as compared to 24.5% in 1H17. Correspondingly, the Group's earnings per share grew to 6.53 cents in 1H18 from 4.85 cents in 1H17.


The Board of Directors has declared the payment of an interim dividend of 4 cents per share (one-tier tax exempt) amounting to approximately S$5.6 million, to be paid on 13 February 2018 to the shareholders on record as at 5 February 2018.

Balance Sheet

The Group remains in a sound financial position. As at 31 December 2017, we had a balance sheet with total assets of S$70.2 million, shareholders' equity of S$57.2 million, cash and cash equivalents of S$22.4 million and no bank borrowings.

Long Term Assets

As at 31 December 2017, the Group's non-current assets increased to S$31.2 million as compared to S$26.6 million as at 30 June 2017. This was partly due to the recognition of right-of-use assets amounted to S$1.4 million, in relation to the Group's various factories that it occupies, following the adoption of FRS116 Leases in the current financial year.

Trade Receivables


Total trade receivables of S$11.0 million as at 31 December 2017 was unchanged from 30 June 2017. Of this, there was no outstanding amounts for 90 days or more (0.1% at end of 30 June 2017). The Group also did not incur any bad debt expenses during 1H18 and 1H17.

Trade & Other Payables

As at 31 December 2017, our trade payables totaled S$1.1 million, of which S$12k was outstanding for 30 days or more. Non-trade payables totaled S$2.4 million. Other accrued expenses stood at S$6.1 million.

Long term liabilities

As at 31 December 2017, the Group's deferred tax liabilities totaled S$1.6 million as compared to S$1.4 million as at 30 June 2017. With the adoption of the new accounting standard FRS116 Leases at the beginning of the current financial period, the Group recorded lease liabilities of S$1.2 million.


As a percentage of annualised sales, our inventory of S$4.3 million as at 31 December 2017 (S$3.7 million as at 30 June 2017) was 6.4% (6.4% as at 30 June 2017). Inventory written off in 2Q18 totaled S$26k (S$19k in 2Q17).

Capital Expenditure


We had capital expenditure of S$3.8 million in 2Q18 which was mainly in relation to new machines purchased for our factories in Malaysia, the Philippines, China and the USA. For 1H18, our capital expenditure amounted to S$6.0 million. We expect to incur total capital expenditure of approximately S$10.0 million during FY2018.

Cash Flow Analysis

The Group generated net cash from operations of S$7.5 million in 2Q18 (S$4.8 million in 2Q17). Net cash used for investing activities amounted to S$3.4 million, which was mainly related to capital expenditure. After paying S$7.0 million as final and special dividends for FY2017, we closed the period with a cash balance of S$22.4 million including S$0.2 million in pledged deposits.

Commentary On Current Year Prospects

Strategic, Operating and Financial Review

During 1H18, Group revenue increased 21.1% to reach a record of S$33.3 million from S$27.5 million during 1H17. The Group's profit before tax in 1H18 also hit a record of S$11.6 million, an increase of 32.7% from S$8.8 million in the same period a year ago. For 2Q18, Group revenue climbed 10.3% to S$15.6 million from S$14.2 million in the same quarter a year ago while profit before tax increased 15.8% to S$4.9 million from S$4.3 million in 2Q17.

While growing the Group's top line and the value we create for our customers remains a key priority, we have also been working tirelessly to enhance our manufacturing processes, productivity and cost structure by focusing on various strategies, such as 24/7Machining, IT automation and department integration. Hence, in spite of ongoing selling price and cost pressures, our GP margin in 2Q18 improved slightly to 56.1% from 55.4% in 2Q17.

We are also continuing to work diligently to keep a tight rein on overhead expenses. Despite ongoing cost pressures, the Group's total distribution, administrative and other expenses including other income increased only S$0.2 million to S$3.8 million in 2Q18 compared to 2Q17. As a result, our total overhead expenses as a percentage of sales, declined to 24.6% in 2Q18 from 25.4% in 2Q17.

After deducting taxes of S$1.0 million (S$0.9 million in 2Q17), the Group reported a net profit of S$3.9 million in 2Q18, an increase of 16.1% from S$3.4 million in the same quarter a year ago.

At the end of 1H18, the Group employed 482 great people. Compared with our year-on-year sales growth of more than 20% during 1H18, we added only 27 people or 5.8% to the 465 employees with the Group at the end of 1H17. As the Group grows, we plan to continue automating our operations, streamlining our processes and using technology to leverage the know-how and skills of our people.

With no bank borrowings to service and a careful watch over inventory and receivables, net cash generated from operating activities in 2Q18 totaled S$7.5 million (S$4.8 million for 2Q17). After net investing activities of S$3.4 million primarily for new equipment and a dividend payment of S$7.0 million, the Group ended the quarter in a strong financial position with S$22.4 million in cash (including S$0.2 million held as security deposits) and no bank borrowings.

Market, Industry and Competitive Conditions

On a short-term basis, business forecasting and planning will remain difficult. Visibility continues to be clouded by a host of political and economic uncertainties while continued unrest in various parts of the world coupled with rapid technological change and the effects of globalization make markets unpredictable, volatile and costcompetitive.

According to statistics compiled by the SIA, world-wide chip sales increased about 22.6% to US$179.3 billion during the five months from July to November 2017, compared to US$146.2 billion in the corresponding period in 2016. Based on the industry's strong growth, the WSTS recently revised its forecast for world-wide semiconductor sales growth during 2017 to 20.6% from its previous prediction of 17%.

We believe the semiconductor industry's robust growth during 2017 may indicate a prolonged period of stronger industry growth as chips become increasingly used in nearly every aspect of modern life. While this would be a welcome change from the sluggish industry conditions witnessed during 2016, the semiconductor industry is being increasingly driven by price-sensitive consumer applications. As such, we expect to see continued price and cycle-time pressures from our customers. Together with rising costs and a shortage of skilled workers, the operating environment for the Group is expected to remain challenging.

Key Operating Strategies

Although market and business conditions are continually changing, we understand what is required for the Group to sustain its growth over the long term. We will maintain our focus on our customers and the value we bring to their businesses. Whether we design and manufacture a tool for a delicate semiconductor assembly process or machine a part used in a critical wafer-processing application, our mission is to deliver Perfect Parts and Tools, On Time, Every Time based on repeatable, scalable and cost-effective processes.

At Micro-Mechanics, we are fond of saying that People Make Everything Happen. Dealing with relentless cost pressures, adapting to rapid change and implementing new initiatives to improve key outcomes requires an effective culture. We define this as the way our people make decisions and work together. To be successful over the long-term, it is essential for our people at all levels to understand, embrace and act in ways that are consistent with our vision, mission, goals, strategies and core values. We intend to keep learning how to better harness the enormous potential of every person at Micro-Mechanics to make better decisions, be more effective and thereby enhance the value we create for our customers and other stakeholders.

To support this aim, we began a training program several years ago called MM University. Beginning with a series of workshops on Customer Value, Business Planning, 24/7Machining, and The Fundamentals of Value-Driven Decision Making, our initial goal was to help our people understand the need to have a shared framework for making more informed and aligned decisions.

During the last few years, we have learned that it takes more than a series of workshops to build an effective decision-making framework and culture. Additionally, the training material needs to be easy for our people at all levels to understand and reference in their daily work and decision making. To this end, we are working to compile a series of textbooks designed to clearly explain the fundamentals of how we are working to run the company.

During 3Q18, we will release the second edition of 24/7 Decision MakingTM. This enhanced version of our employee text book includes new training material on Corporate Governance which is our core methodology for guiding and controlling the Group. When practiced with understanding and commitment, we believe Corporate Governance is the nucleus of all of our many efforts to build long-term growth, profitability and stakeholder value.

In our latest version of 24/7 Decision MakingTM, we have also included additional training material on the importance of safeguarding confidential information, as well as simple best practices for everyone at Micro- Mechanics from the shop floor to the board room with respect to dealing in shares of the Company. Ultimately, we want everyone at Micro-Mechanics to have the tools they can refer to and use every day as they make decisions, take actions and help us build a great company.

Transparency, Governance and Corporate Awards

On 18 July 2017, the Group received two Gold Awards at the Singapore Corporate Awards (SCA) 2017 for Best Managed Board and Best Investor Relations. In the Singapore Governance and Transparency Index (SGTI) released on 2 August 2017, Micro-Mechanics received a score of 92 points to rank 19th out of 606 companies listed on the Singapore Exchange. The top 20 companies in the SGTI are mainly large capitalisation companies. In recognition of our efforts, the Group received a Special Commendation Award at the Singapore Governance and Transparency Forum 2017 on 1 August 2017.

At the 18th Investors' Choice Awards 2017 on 19 September 2017, the Group was also conferred the Shareholder Communications Excellence Award (Small Cap) 2017, Singapore Corporate Governance Award (Small Cap) 2017 and Singapore Corporate Governance Award (Information Technology) 2017 by Securities Investors Association Singapore.

Including these awards, the Group has received recognition 26 times for our good corporate governance and transparency practices since our listing in 2003.

Transparency and good governance are more than just ticking boxes. Indeed, accurate, complete and timely information is the foundation for sound decision making – not just for investors – but for everyone at Micro- Mechanics from the board room to the shop floor. We intend to continue working to build a strong corporate culture based on transparency, clear metrics of performance, stakeholder accountability and an unwavering commitment to good governance.

On 24 November 2017, Micro-Mechanics was also recognized as a winner of the Singapore Productivity Awards (SPA) 2017 by the Singapore Business Federation ("SBF"). The SPA "recognizes and celebrates organizations for their leadership and performance in their productivity journeys. Other than celebrating productivity excellence, the Award winners serve as important enterprise role models to spur the wider business community to transform and be more productive." This award encourages us to work even harder to live up to this greatly appreciated endorsement and inspiring goal.

Appreciation and Stakeholder Value

Since our listing we have also maintained a consistent practice of rewarding shareholders for their continuous support of Micro-Mechanics. For FY2017, the Group paid an interim dividend of 3 cents per ordinary share, a final dividend of 4 cents per ordinary share, and a special dividend of 1 cent per ordinary share. As a result, the total dividend payment for FY2017 increased to 8 cents per ordinary share compared to 6 cents per ordinary share for FY2016.

For the half year ended 31 December 2017, the Board is pleased to declare an interim dividend of 4 cents per ordinary share (one-tier tax exempt) which is to be paid on 13 February 2018. Including this interim dividend for 1H18, we will have distributed a total of 57.9 cents per share to our shareholders since 2003. Based on dividends alone, this translates into a return of more than 300% for our shareholders who bought Micro-Mechanics shares at our Initial Public Offer.

We would also like to express our appreciation to all of our people at Micro-Mechanics for their vision, teamwork and tireless commitment. Indeed, People Make Everything Happen!

We look forward to continue working together to build value for all our stakeholders.