Results for the financial year ended 30 June 2006
Q. MM's exchange loss jumped by 3 times in FY2006 as about 50% of your sales is in USD. In view of the systemic weakness in USD, what is the company's strategy to manage this risk?
A. We manage our currency risk by hedging using foreign exchange forward contracts. The cost of purchasing these forward contracts was included in the exchange loss for FY2006. In addition to this, we also attempt to reduce our USD exposure by requesting our customers at various locations to be billed in local currency.
Back to topQ. What are the main raw materials used in manufacturing MM's consumables? Are their prices affected by fluctuations in the commodity market?
A. Our products are made from specialized materials, such as stainless steel, carbide, vespel and tool steel. While we experienced price increases for some raw materials during FY2006, our constant focus on improving quality, cost and cycle time helped to mute these pressures. In fact, as a percentage of sales, we were able to reduce direct material costs to around 9% in FY2006, compared to 10% in FY2005.
Q. It is heartening to see there will be a reduction in capex from $4.4 million for FY2006 to $3 million for FY2007. Is the capex a more aggressive ramp-up for your CMA business? Is it possible to share how you intend to use these funds in terms of geography and line of business?
A. Having already completed a S$1.9m investment in our CMA business last November, we intend to use the capex budget of $3m for FY2007 to make incremental increases to our capacity and to further upgrade the manufacturing capabilities of our core product segments at our existing manufacturing facilities.
Q. Will the company see a declining trend in capex (in absolute terms or as percentage of sales) over the next 3 years?
A. At this time, we expect capex for our core segments to remain fairly stable over the next few years. Depending on our progress as we step up our CMA marketing efforts, we may consider making further investments to increase capacity and enhance capability of this division post-FY2007.
Q. How big is your customer base in China?
A. We have over 120 customers in China.
Q. Do you expect a further decline in sales of core products in the US as customers migrate their operations to Asia?
A. In general, the US market will not be a big market for volume manufacturing but it is significant to us for working with chip companies that are doing R&D there. This gives us the opportunity to be involved in those efforts before manufacturing shifts to Asia for volume.
Q. How rapidly would MM expect to grow its CMA divison? Are the margins of the CMA business comparable to its current core business?
A. In FY2006, we achieved encouraging progress for the CMA division, which accounted for 6% of Group sales. In November 2005, we completed a S$1.9m investment in our CMA business that has increased the division's capacity by 140%. We are currently intensifying our sales efforts to extend our customer base to new sectors such as medical, instrumentation and other high-tech fields. For competitive reasons, we presently do not divulge the margins for the CMA business, separately from our core product segments.
Q. Would you say that FY2006 is an exceptional year for Micro Mechanics in terms of sales growth, which would normally not be seen in normal years?
A. We were encouraged by our FY2006 with sales growth of 19.2% y-o-y. This was in line with the Group's sales CAGR of 20.3% as measured from FY2003 to FY2006.