Operation & Financial Review
The Group recorded revenue of US$791.6 million for the full financial year FY2019, a decrease of 48% compared to US$1.53 billion in FY2018.
Revenue from electronic components distribution business declined by 49% to US$750.3 million, mainly due to the termination of the distribution business with Texas Instruments (“TI”), which has impacted sales in all markets in Asia. Excluding the decline in turnover as a result of the TI termination and the discontinuation of a product line in March 2018, revenue for the business segment would have increased by 14%. This increase can be attributed to the Group’s ongoing efforts to growing existing product lines and contribution from new product lines secured post-TI termination.
Revenue from the consumer products distribution business declined 33% to US$36.6 million, mainly due to the weak demand and keen competition in the Singapore and Malaysia markets in which the Group operates, as well as the Group’s continued rationalisation and exit of non-profitable products.
Overall gross profit margin declined to 6.8% from 7.8% in FY2018, due to lower margins achieved by the electronic components distribution and consumer products distribution businesses as a result of keen competition in a challenging environment.
Other Operating Income
Other operating income rose by US$11.1 million or 45%, due to a net consideration of US$25.4 million in relation to the transfer of the distribution business with TI to an authorized distributor, gain on sale and fair value gain on financial assets, at fair value through profit or loss of US$1.0 million and US$0.9 million respectively and higher rebates and commission income of US$2.1 million from suppliers.
A gain of US$18.3 million on disposal of the Group’s 27.34%-owned SPL Holdings (Australia) Pty Ltd and a fair value gain of US$0.9 million on conversion of convertible bond to 20% equity shares of Indonesia listed, PT Sentral Mitra Informatika (“PT SMI”) in FY2018 offset the overall increase in other operating income in FY2019.
Distribution expenses decreased by US$17.3 million or 32%, mainly due to lower staff and related costs, freight and handling charges, storage charges, custom duties and taxes, and other sales-related expenses associated with the electronic components distribution business as a result of the reduction of sales in FY2019.
Administrative expenses decreased by US$7.9 million or 46%, mainly due to the absence of legal and professional fees in relation to the Hong Kong IPO of Serial Microelectronics (HK) Limited which amounted to US$3.1 million in FY2018, and lower staff-related costs and bank charges associated with the electronic components distribution business.
Finance expenses decreased by US$5.4 million or 38%, mainly due to lower bank borrowings, in line with the decrease in sales.
Other operating expenses decreased by US$4.9 million or 15%, mainly due to the absence of an impairment loss on investment in associated companies and a fair value loss on financial assets, at fair value through profit or loss which amounted to US$5.4 million and US$2.6 million respectively in FY2018. A currency translation gain in FY2019 as opposed to a loss in FY2018, lower staff costs and impairment losses on goodwill arising from acquisition of consumer products distribution subsidiaries also contributed to the reduction in other operating expenses. An allowance for inventory obsolescence in FY2019 as opposed to a write-back in FY2018, an impairment loss on investment in the Group’s 27.5%-owned joint venture, Musang Durians Frozen Food (M) Sdn. Bhd., and higher loss allowance for non-trade receivables (third parties) partially offset the decrease in other operating expenses.
Associated Companies and Joint Venture
Share of profit in associated companies amounted to US$0.5 million, contributed by the Group’s 19.02%-owned Bull Will Co., Ltd and 20%-owned PT SMI. This compared to a share of loss of US$0.3 million in FY2018.
The Group’s share of loss of joint ventures amounted to US$0.4 million, mainly due to share of loss resulting from 27.5%-owned Musang Durians Frozen Food (M) Sdn. Bhd. The lower loss as compared to US$0.5 million in FY2018, was mainly due to lower operating expenses incurred by Musang Durians Frozen Food (M) Sdn. Bhd.
The Group reported a net profit after tax of US$8.0 million, a decrease of 55% as compared to US$17.7 million in FY2018, mainly due to lower gross profit earned as a result of lower sales and gross profit margin. The net profit after tax for FY2019 included a US$25.4 million net consideration in relation to the transfer of TI distribution business to an authorized distributor, whereas the net profit after tax for FY2018 included a gain of US$18.3 million on disposal of the Group’s 27.34% stake in SPL Holdings (Australia) Pty Ltd. Net margin for FY2019 was 1.0% as compared to 1.2% in the previous year.
As at 31 December 2019, the Group had US$47.1 million in cash and cash equivalents, compared to US$59.2 million as at 31 December 2018.
Trade and other receivables decreased by US$53.6 million (net of factored trade receivables), mainly due to lower sales achieved by the electronic components distribution business in FY2019. The decrease was partially offset by longer payment terms for certain customers of the Group’s electronic components distribution subsidiaries. Average turnover days for trade receivables increased to 87 in FY2019 from 54 in FY2018.
Inventories decreased by US$24.9 million, mainly due to lower inventories held by the Group’s electronic components distribution subsidiaries.
Investments in subsidiaries decreased by US$12.1 million, mainly due to impairment of investments in the Company’s Singapore investment holding subsidiaries and consumer products distribution subsidiaries amounting to US$12.9 million.
Property, plant and equipment decreased by US$0.05 million mainly due to depreciation charges amounting to US$4.5 million and a currency translation loss of about US$0.4 million in FY2019. The decrease is offset by a net increase in right-of- use assets (included in property, plant and equipment) of US$4.4 million and additions of US$0.4 million to property, plant and equipment in FY2019.
Trade and other payables decreased by US$47.4 million, mainly due to lower purchases by the Group’s electronic components distribution subsidiaries. The recognition of contingent consideration received in December 2018 from the authorized distributor for the transfer of TI distribution business to other income in FY2019 also contributed to the decrease in trade and other payables. Average payment days for trade payables increased to 40 in FY2019 from 29 in FY2018.
Borrowings declined by US$85.7 million, mainly due to lower bank borrowings by the Group’s electronic components distribution subsidiaries as the Group utilized funds generated from operations and the consideration received in relation to the transfer of TI distribution business to an authorized distributor, to reduce its borrowings and to finance its working capital requirements. The Company’s current portion of a term loan amounting to US$5.9 million which was refinanced to be payable on 31 May 2021, was reclassified to non-current borrowings as at 31 December 2019. Included in the Company’s current borrowings is a one year interest-bearing loan amounting to S$3.5 million (US$2.6 million) from the Company’s substantial shareholder, Mr Goi Seng Hui disbursed on 24 December 2019.
Serial System’s total number of issued shares as at 31 December 2019 was 895,841,914 (excluding treasury shares of 9,946,000), unchanged from the same period a year earlier.