Financials Reports

Financials Reports

Third Quarter Results Financial Statement And Related Announcement

Financials Archive

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Condensed Interim Financial Statements For Third Quarter and 9 Months Ended 31 March 2024

Condensed Interim Consolidated Statement Of Profit Or Loss And Other Comprehensive Income For The Third Quarter And 9 Months Ended 31 March 2024

Financials

Condensed Interim Statements Of Financial Position

Financials

Review Of Performance

Review Of Profit And Loss

Semiconductor Industry Review

According to the Semiconductor Industry Association (SIA), global semiconductor sales for the months of January and February 2024 totaled US$93.8 billion, which represented an increase of around 16% from the same two-month period in 2023. On a sequential basis however, chip sales has decreased from US$48.7 billion in December 2023 to US$47.6 billion in January 2024 and US$46.2 billion in February 2024. Despite slightly lower month-to-month sales, SIA said that market growth is projected to persist during the remainder of the year in view of the continuation of strong year-to-year growth in sales.

In its Semiconductor Market Forecast released on 28 November 2023, the World Semiconductor Trade Statistics Organization (WSTS) is projecting the worldwide semiconductor market to grow 13.1% to US$588 billion in 2024.

Note: The SIA report covers global semiconductor sales, and while the Group’s manufacturing of high precision tools and parts is part of the semiconductor industry’s supply chain, the performance of our specific business segment in any particular time period may not always correlate with the general sales trend of the semiconductor industry.

Group Revenue

Group Revenue

For the three months ended 31 March 2024 (3Q24), the Group’s revenue decreased by 8.7% year-on-year (yoy) from S$14.9 million in 3Q23 to S$13.6 million. On a quarter-on-quarter (qoq) basis, Group revenue in 3Q24 was comparable to S$13.5 million in 2Q24.

For the nine months ended 31 March 2024 (9M24), the Group’s revenue decreased by 17.1% to S$43.0 million as compared to S$51.8 million in 9M23. This was due mainly to the global semiconductor industry which continued to work through excess inventory built up during the recent downturn. The slowdown was relatively significant in the Wafer-Fabrication Equipment (“WFE”) sector. This affected its subsidiary in the USA (“MMUS”) where sales declined to S$7.5 million in 9M24 from S$14.9 million in the previous corresponding period. Subsidiaries in Asia, which produce mainly process-critical consumable tools for chip packaging processes, registered a marginal dip in sales of 4% to S$35.5 million, mainly mitigated by a pick-up in orders from China market during 9M24.

Revenue breakdown by Geographical Market

Financials

Based on geographical markets, the Group registered higher yoy sales in China, Malaysia and Taiwan which partially buffered the decreased sales in other markets in 3Q24.

Sales in China grew 12.5% yoy to S$4.7 million in 3Q24 on the back of stable domestic sales that was driven by demand from the electric vehicle and mobile phone sectors. China remained as the Group’s largest geographical market with a 35.1% contribution to Group revenue in 3Q24.

Sales in the USA decreased 42.0% to S$2.2 million in 3Q24 in tandem with the subdued conditions in the WFE sector. The USA market remained as our second largest market which accounted for 16.6% of Group revenue in 3Q24.

In Malaysia, the Group registered a moderate increase in sales of 4.8% to S$2.2 million in 3Q24 which constituted 15.8% of Group revenue. Sales in Singapore decreased 11.8% to S$1.4 million in 3Q24, due mainly to lower sales of WFE products. The Singapore market made up 10.3% of Group revenue in 3Q24

Capacity Utilisation

Financials

The Group’s average capacity utilisation rate decreased to 47% in 3Q24 from 50% in 3Q23, in tandem with the reduction in the Group’s revenue.

Gross Profit (GP) Margin

Financials

The Group’s gross profit decreased 3.2% yoy to S$6.3 million in 3Q24. As the cost structure of the Group’s operations is largely fixed in nature, any significant reduction in our revenue can have an adverse impact on the Group’s GP margin. Notwithstanding lower revenue in 3Q24, the Group’s GP margin improved from 43.8% in 3Q23 to 46.4% in 3Q24, attributed mainly to a change in sales mix and our ongoing efforts to control costs.

The Group GP margin remained stable at 47.1% for both 9M24 and 9M23.

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

Financials

Other income decreased 54.5% to S$86k in 3Q24 from S$189k in 3Q23, owing mainly to an absence of gain on disposal of assets.

The Group continue to exercise vigilance on cost management. The rise in distribution costs by 13.2% to S$0.8 million from the previous year's S$0.7 million is attributed to higher travel expenses and sales commissions, which correlates with the uptick in sales activity in the Taiwanese market.

Administrative expenses have declined by 10.3% to S$2.1 million from S$2.4 million in 3Q23, a reflection of reduced staff expenses following a decrease in headcount. Similarly, other operating expenses saw a significantly decrease by 30.0% to S$0.9 million compared to the same period last year, as a result of manpower optimisation initiatives at MMUS.

Overall, the Group's overhead expenses, net of other income, have reduced to S$3.7 million from S$4.2 million in 3Q23 with a lower overhead expense ratio of 27.4% against revenue. This is a notable improvement from the 28.1% recorded in 3Q23, reflecting the Group’s continued efforts in cost management and resource optimisation

Profit before Tax and Net Profit

Financials

As a result of the above, the Group’s profit before tax increased by 10.6% to S$2.6 million in 3Q24 from S$2.3 million in 3Q23.

Income tax expenses increased by 5.7% to S$742k in 3Q24 from S$702k in 3Q23. The tax expense in 3Q24 included a provision of S$226k for withholding tax on dividends to be remitted to Singapore from various overseas subsidiaries. The Group’s effective tax rate decreased to 28.7% in 3Q24 from 30.0% in 3Q23 due mainly to higher taxable profit.

After deducting income tax expenses, the Group’s net profit grew by 12.8% yoy to S$1.8 million in 3Q24 from S$1.6 million in 3Q23.

For 9M24, the Group’s net profit decreased by 23.4% to S$6.0 million from S$7.8 million in 9M23 due to lower profit registered in 1H24. Net profit margin was 13.9% in 9M24 as compared to 15.0% in 9M23.

Correspondingly, the Group’s earnings per share decreased to 4.29 cents in 9M24 from 5.60 cents in 9M23.

Balance Sheet

The Group remains in a sound financial position. As at 31 March 2024, it had a balance sheet with total assets of S$54.2 million, shareholders’ equity of S$43.9 million, cash and cash equivalents of S$13.1 million and no bank borrowings.

Long Term Assets

As at 31 March 2024, non-current assets decreased to S$25.9 million as compared to S$28.4 million as at 30 June 2023 due mainly to the depreciation of property, plant and equipment.

Trade Receivables

Financials

Trade receivables decreased to S$10.2 million as at 31 March 2024 from S$10.6 million as at 30 June 2023 in tandem with lower revenue. Of this, S$59k was outstanding for 90 days or more (30 June 2023: S$4k). There was bad debts written off of approximately S$4k during 9M24 (9M23: S$141).

Trade & Other Payables

As at 31 March 2024, our trade payables stood at S$0.7 million (30 June 2023: S$0.7 million). Non-trade payables totaled S$0.9 million (30 June 2023 : S$1.4 million).

Long term liabilities

As at 31 March 2024, the deferred tax liabilities was S$1.5 million compared to S$1.6 million as at 30 June 2023.

Inventory

As a percentage of annualised sales, the Group’s inventory of S$4.2 million as at 31 March 2024 (30 June 2023: S$4.3 million) was 7.3% (30 June 2023: 6.5%). Inventory written off in 3Q24 totaled S$30.7k, as compared to S$17.9k in 3Q23.

Capital Expenditure

Financials

The Group’s capital expenditure in 3Q24 and 9M24 amounted to S$560k and S$1.6 million respectively. During 9M24, approximately S$0.8 million was incurred for the acquisition of new machines and accessories for the Group’s five factories worldwide; S$0.5 million was utilised for renovation works at its factories in Singapore, the Philippines and China; and almost S$0.2 million was used for the purchase of computers and IT software. Capital expenditure for the full year FY2024 is estimated to be around S$2.5 million.

Cash Flow Analysis

The Group generated net cash from operations of S$3.2 million in 3Q24 (S$1.6 million in 3Q23). After deducting net cash used in investing activities of S$0.6 million and net cash used in financing activities of S$4.6 million which was attributed largely to payment of dividends, we ended 3Q24 with cash and cash equivalents of S$13.1 million, which included S$0.1 million in pledged deposits.

Commentary On Current Year Prospects

During 3Q24, the Group continued to experience significant challenges due to slow market conditions in the semiconductor industry, particularly the WFE sector which had a significant impact on MMUS’s sales. As a result, the Group’s revenue decreased 8.7% to S$13.6 million from S$14.9 million in the same period a year ago. Despite lower revenue, the Group’s saw an increase in profit before tax of 10.6% to S$2.6 million from S$2.3 million in 3Q23 due to its cost management efforts. Net profit for the quarter also rose 12.8% to S$1.8 million. For 9M24, Group revenue declined 17.1% to S$43.0 million while net profit declined 23.4% to S$6.0 million due to weaker performance recorded in 1H24.

Business Strategy / Plans
As the Group moves into 4Q24, it is cautiously optimistic that the worst of the semiconductor industry downturn may be behind us. During 3Q24, Group sales increased slightly by 0.8% from S$13.5 million in 2Q24 as market conditions remained uneven across geographical and business segments.

At MMUS, revenue for 9M24 declined nearly 50% to S$7.5 million from S$14.9 million in 9M23. Notwithstanding this, the Group is encouraged to see an uptick in new orders from customers. During 3Q24, MMUS’ new orders increased 55.6% to S$3.4 million from S$2.2 million in 3Q23. While disappointed with MMUS’ segment loss of S$1.9 million in 9M24, the Group remains optimistic about the tremendous mid and long-term potential in the US market. The potential is supported by the US government's significant investment in the semiconductor industry and the surging demand for advanced AI and memory chips. Over the last nine months, the Group has been working diligently to make MMUS become a profitable contributor to the Group. To simultaneously address the present downturn and optimistic future, we have taken actions that are expected to increase productivity by way of process improvement, automation, and optimization of manpower resources.

As for the operations in Asia, the Group continues to focus on the value it brings to its customers and strengthen its fundamentals as part of our Five-Star Factory intiative. This is to ensure the Group is primed to benefit from a recovery in the semiconductor industry.

Because a single defect can cause disastrous consequences in the ultra-complex manufacturing process of semiconductors, our customers need the parts and tools that we make to be flawless. In the future, the Group expects only a handful of suppliers capable of meeting the increasingly stringent requirements of the semiconductor industry. The Group remains focused on its goal to become a leading Next Generation Supplier of high precision tools and parts used in process-critical applications for the wafer-fabrication and assembly processes of the semiconductor industry.

Whether it is the adverse impact of a market downturn, geopolitical unrest or a host of other unforeseen events, the Group remains mindful of the need to have goals, structures and processes in place that make it easier for the Group to adapt to changes in the operating environment and ensure business continuity. This requires the Group to continue focusing on a handful of key areas which include:

  • Being a responsive, cost-effective and resilient supplier to the Group’s customers by continually automating its operations and working to reduce or eliminate tedious processes where it is challenging to find the right people and also prone to human error.

    To ensure the Group has the requisite capacity and capabilities, capital investments of S$0.6 million were made during 3Q24 (S$0.4 million in 3Q23), bringing the total capital expenditure in 9M24 to S$1.6 million. For the whole of FY2024, the Group expects to spend about S$2.5 million for capital expenditure.

  • Maintaining a healthy gross profit margin through the Group’s relentless focus in strengthening its GP margin with initiatives that enhance the value to its customers, improve quality and streamline its plant operations. While the Group’s GP margin was under pressure over the last few years due to rapidly rising costs from materials to energy and manpower, it managed to acheive a healthy GP margin of 46.4% in 3Q24 compared to 43.8% in the same period a year ago through its efforts in cost management.

  • Building a lean, effective and resilient operation by maintaining a tight rein on expenses while striving for operational effectiveness and resilience. With prudent cost management and a stringent process for determining and approving major expenses and investments, the Group was able to reduce overhead expenses in 3Q24 to S$3.7 million from S$4.2 million in the same period a year ago. Moving forward, the Group intends to continue focusing on manpower and resource optimisation to support the Group’s customers and core manufacturing activity.

In FY2023, the Group began an initiative called “Five-Star Factory” with the goal to more clearly define and implement the fundamentals that the Group believes each of it plants need to achieve sustainable success. These include:

  • being responsive to the needs of the Group’s customers and working to solve their high-value problems;
  • cultivating a culture of fresh thinking, ingenuity and innovation;
  • being process oriented and using data to enhance decision-making and operational excellence;
  • developing and maintaining clean, well-organized, lean and productive work areas;
  • continuing to train and develop all its people, and constantly working on succession planning to ensure continuity of key management and leadership positions; and
  • working continuously to put the safety and security of its people, data and property as a top priority

In addition, as the Group starts formal Environmental, Social and Governance (“ESG”) reporting, it is also using its Five-Star Factory initiative to identify and implement programs that will improve the way it generates and uses energy, reduces environmental waste, enhances the well-being of its employees and reinforce its commitment to good governance.

Leadership Update
On 1 January 2023, the Group is pleased to appoint Mr. Kyle Borch as Deputy CEO and Executive Director. After traveling extensively to its plants in Asia during 2023, Mr. Kyle Borch has in January 2024 relocated to the Group’s headquarters in Singapore where he will continue to oversee the operations of our four plants in Asia and focus on implementing our Five-Star Factory initiative.

At the end of April 2024, the Group’s former Chief Operating Officer, Mr. Low Ming Wah, will complete a one- year service period as an advisor and fully retire from the Group. The Board of Directors wishes to thank Mr. Low for his invaluable assistance during the last year which has helped the Group to smoothly complete the transition of responsibilities.

Good Governance & Financial Discipline
Micro-Mechanics' commitment to good governance has been a cornerstone of its corporate philosophy since its public listing in 2003. This dedication to aligning operations and decision-making processes across all levels in the Group has not only protected and enhanced stakeholder value, it has also earned the Group over 30 awards in the past two decades. These recognitions are testaments to the Group’s efforts in ensuring transparency, good governance, and strong investor relations.

The Group’s aim is to build a great manufacturing business with a strong balance sheet while fostering a culture of resourcefulness, discipline and careful decision making. During 3Q24, the Group generated S$3.2 million in net cash from operating activities (S$1.6 million in 3Q23). After deducting net cash used in investing activities of S$0.6 million and net cash used in financing activities of S$4.6 million mainly for the payment of dividends, the Group ended 3Q24 with cash and cash equivalents of S$13.1 million, which included S$0.1 million in pledged deposits.

Shareholders' Returns
Since listing on the SGX in 2003, the Group has regularly exceeded its dividend policy to distribute at least 40% of annual earnings. However, given the current uncertain economic and geopolitical conditions, the Board believes that it may now be prudent for the Group to retain a higher amount of cash than it had typically held on its balance sheet.

For FY2023, the Board paid total dividends of 9 cents per share which translated to a payout ratio of 128%. For 1H24, the Board of Directors declared a one-tier tax-exempt interim dividend of 3 cents per ordinary share totaling S$4.2 million which was paid during 3Q24 bringing the cumulative dividends distributed since becoming a listed company to 125.9 cents per share. This translates into a return of about 684% based on dividends alone for shareholders who bought Micro-Mechanics shares at its Initial Public Offering.

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