Executive Management Report

Executive Management Report

(extracted from Annual Report 2023)

To all our stakeholders,

At the start of the Group’s financial year ended 30 June 2023 (“FY2023”), we began to see slowing market conditions for the global semiconductor industry. Based on data from the World Semiconductor Trade Statistics (“WSTS”), worldwide sales of semiconductors for the 12 months from 1 July 2022 to 30 June 2023 declined 14.8% to US$511.1 billion from US$600.2 billion for the same 12-month period ended 30 June 2022.

Indeed, after hitting sales of S$20.2 million in the three months ended 30 September 2022 (“1Q23”), the Group’s revenue decreased by 17% quarter-on-quarter (qoq) to S$16.7 million in 2Q23 followed by another 11% qoq decline to S$14.9 million in 3Q23. Although Group revenue improved slightly to S$15.2 million during 4Q23, our full-year revenue decreased by 18.7% to S$67.0 million in FY2023 from S$82.5 million in FY2022.

The sudden and sharp slowdown in the industry, together with rising costs for everything from materials to manpower and energy, exerted significant pressure on our gross profit which declined 29.2% to S$31.2 million in FY2023 from S$44.0 million in the previous financial year. These factors also led to a contraction of our gross profit margin to 46.5% in FY2023 compared to 53.4% in FY2022. After deducting administrative, distribution and other operating expenses (net of other income) of S$17.6 million, the Group’s profit before tax fell 47.9% to S$13.6 million from S$26.2 million in FY2022. Profit before tax was also affected by an operating loss of S$1.5 million at our plant in the USA (“MMUS”). As a result, the Group’s profit after tax declined 50.7% to S$9.8 million in FY2023 from S$19.8 million during FY2022.he total dividends for all of FY2022 to 14 cents per share.

Business Strategy

While the suddenness and rapidity of the semiconductor industry’s downturn caught us and many industry watchers by surprise, we have always been mindful of the need to build an organisation that is flexible and resilient. As the Group moves into FY2024, we will continue our strategy to grow our core businesses by maintaining a strong and unrelenting focus on the value we bring to our customers, while building sustainable, competitive advantages through repeatable, scalable and cost-effective manufacturing processes.

In the future, we think there may only be a handful of suppliers capable of meeting the increasingly stringent requirements of the semiconductor industry. We remain focused on our goal to become a leading Next Generation Supplier of high precision tools and parts used in processcritical applications for the wafer-fabrication and assembly processes of the semiconductor industry.

To this end, we plan to continue automating our operations and working to reduce or eliminate tedious processes that are both difficult to staff and prone to human error. We are also working diligently to implement a number of key initiatives designed to streamline labor-intensive work areas, better digitalise our processes and build a stronger, more flexible team of people across our factories in Singapore, Malaysia, China, the Philippines and the United States. With the Group’s decentralized structure, we will continue strengthening our ability to provide fast, effective and local support to our global customers.

To ensure we have the requisite capacity and capabilities for future growth, the Group made capital investments of S$4 million for our five factories during FY2023. For FY2024, we are expecting to incur another S$4 million in capital expenditure for machinery and equipment to upgrade the production capacity and capabilities of our factories.

At our plant in California, we have made a strategic decision to narrow our engineering focus to four main product areas for the wafer-fabrication equipment sector in order to develop a compelling offering and competitive differentiation for MMUS. As part of this strategy, we completed various measures and a restructuring during 4Q23 that will reduce MMUS’ yearly operating cost by about S$2 million in FY2024.

Creating a profitable and strategically important business in the wafer-fabrication arena has been a long and challenging endeavor for the Group. However, we believe our progress with customers, combined with our operational measures and initiatives to sharpen MMUS’ competitiveness, will place it in a better position to achieve our goal of profitable long-term growth.

Leadership Succession

In 2023, Micro-Mechanics marks forty years since I founded the Company in Singapore in 1983. As we gear up for the next four decades, I would like to convey my deepest appreciation to Mr. Chow Kam Wing, Executive Director and CFO, and Mr. Low Ming Wah, Executive Director and COO, both of whom have recently retired from the Group after 27 and 34 years respectively of invaluable service. Since stepping down, Mr. Chow and Mr. Low remain employed by the Group as advisors and are helping to pave the way for a smooth leadership transition.

After joining the Group in 2001 and advancing through various key finance roles, we were delighted to announce the promotion of Ms. Wendy Tan Wei Lee to Vice President, Finance which took effect on 1 February 2023. In her new role, Ms. Tan is responsible for finance, accounting and internal control matters. She has also taken on the appointment of our Company Secretary.

We were also pleased to appoint Mr. Kyle Borch as Deputy CEO and Executive Director on 1 January 2023. Mr. Kyle Borch joined Micro-Mechanics in August 2018 and has been active in various engineering roles of the Group’s operations.

Ultimately, our goal is for each factory to master the fundamentals of excellence for stringent and complex manufacturing. In his Deputy CEO’s Message, Mr. Kyle Borch will provide more information on specific operational initiatives.

Leadership succession can be a difficult process and potentially disruptive for organisations as people work to adapt to changes that are inevitable. At the same time, we think these transitions can be healthy as they open up opportunities to introduce improvements to our operational processes and for our people to grow, learn new skills and be recognised for their contributions. Not including personnel reductions implemented as part of MMUS’ restructuring in 4Q23, the Group continues to benefit from a stable and committed team with an annualised retention rate of 93.7% during 2H23. At the end of FY2023, we had 495 great people compared to 524 at the end of FY2022.

As we begin a new financial year and chapter for the Group, we would like to thank our independent directors for their guidance and commitment to good governance. We are also grateful to our people for their dedication and teamwork, especially during this year of leadership transition and market tumult. Indeed, during times such as these our saying has never rung more true: People Make Everything Happen!

Sincerely yours,

Christopher R. Borch
Chief Executive Officer and Executive Director

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