Results for the financial year ended 30 June 2012 (FY2012)
Q. Can you share with us the prevailing sentiment of your customers?
A. As we move towards the last few months of 2012, the mood of our customers is generally cautious. For our semiconductor tooling business, expectations are for the chip industry to end the year on a flat note. In addition, our Custom Machining & Assembly division serves the capital equipment industry which is experiencing a slowdown especially for semiconductor equipment.
While market conditions are generally slower, we see this period as an opportunity for Micro-Mechanics to work on our initiatives to strengthen our competitive advantage. Besides enhancing our performance and productivity, including investments in equipment to achieve repeatable, scalable and cost-effective processes, we are also aiming to strengthen our business planning system and increase our focus on customers.
In the face of prevailing cost challenges, it is also important that we continue to effectively manage our costs. In FY2012, our fixed overheads (selling, admin and other operating expenses) remained steady at S$12.2 million despite having to incur costs of repair for our Thailand factory which was affected by the floods in 2Q12; additional cost related to our ERP system which was fully implemented in FY2012; and increased operating costs in China after we doubled the size of our Suzhou factory.
Back to topQ. What are the factors for the improved revenue performance in 4Q12 versus 3Q12? Was this due to order backlog? What were the negative factors that caused weaker sales in 2Q12 compared to other quarters of FY2012?
A. We do not have backlog of orders for our semiconductor tooling business as the lead time from order to delivery is usually less than a week. Generally speaking, sales in the first and fourth quarters of our financial year are seasonally higher compared to the second and third quarters which are affected by the Christmas and Chinese New Year holiday seasons.
Besides market demand, the sequential improvement in 4Q12 also reflects the recovery of our Thailand operations (which were affected in 2Q12 and 3Q12 by the floods) and the positive results from some of our business initiatives.
Q. Do the customers in the semiconductor equipment industry account for a large proportion of the CMA division's revenue?
A. We presently have a bigger focus on the laser industry. In June 2012, we announced an order of almost S$1 million for parts used in lasers manufactured by Newport Corporation which is a global leader in the photonics industry. Our CMA division also focuses on the medical equipment sector apart from the wafer fabrication equipment makers.
Q. With the expected growth in tablets and smartphones, how is Micro-Mechanics aligning itself to take advantage of this trend? How much of your sales are in relation to the tablets and smartphones?
A. While increasing demand for tablets and smartphones is expected to drive the chip industry, this may be offset by the reducing market for notebooks and PCs. This is evident from the trend of global semiconductor sales in 2012.
Our semiconductor tools and parts are used in the semiconductor assembly and test process of our customers, who are global chip makers and chip packaging companies. It is difficult for us to estimate the percentage of Group sales derived from smartphones and tablets as the packaged semiconductors can be for a wide range of product lines and various applications.
Q. The Group incurred capital expenditure of S$6.5 million respectively in FY2011 and FY2012. At the same time, it is also paying sizeable dividends. Will the Group deplete its cash if it continues in this fashion?
Our capital expenditure has generally been lower in the past. However, in FY2011 and FY2012, we invested a higher amount on equipment that enables the Group to increase our capacity and capabilities in Asia and the USA. For example, by reducing our machine set-up time, we are able to increase our manufacturing productivity. In our USA factory, we have invested in a 24/7 Machining Line which is an automated system for around-the-clock machining of complex parts. With this system, we are able to reduce the delivery lead time and have greater flexibility to meet customers' orders and delivery schedules.
In FY2013, we intend to reduce our capital expenditure to around S$2.5 million, of which the bulk of the spending will be on ancillary equipment to enhance productivity.
Our operating cashflow in FY2012 was healthy and in fact, higher than in FY2011. Moreover, we own several of our properties and do not have any borrowings to service. Hence, we believe the Group should not suffer a drain in our cash balances.