Mencast
Operations Review
(Extracted From Annual Report 2011)
2011 was a pivotal year where we successfully grew our businesses, diversified our earnings streams and transformed into a complete maintenance, repair and overhaul ("MRO") solutions provider for the Marine and Oil & Gas industries. For the financial year ended 31 December 2011 ("FY2011"), the Group again delivered record profitability, with net profit attributable to shareholders of S$10.2 million, representing an increase of 20.5% from the prior year. This marks our seventh consecutive year of record revenue and profits.
Key Business Highlights in 2011
Following a general strengthening of the economy, the Group aggressively executed the "Triple Play Strategy" we laid out in our last Annual Report for the financial year 31 December 2010 ("FY2010"). This Strategy is a key component in our master plan to transform into a leading MRO solutions provider.
Our "Triple Play" strategy has three main components:
- Capacity expansion
- Generate new revenue streams
- Make synergistic acquisitions
Our Group has made outstanding progress in execution on all three fronts.
The commissioning of our new waterfront facilities at 42E Penjuru Road will increase the land area of the Group's facilities from 9,644 sqm to 51,353 sqm and bring with it an enormous increase in our business potential.
Our new facilities, along with new advanced equipment have allowed us to successfully add new revenue streams such as the production of the Mewis Duct for our alliance partner, Becker Marine Systems Gmbh & Co. KG ("Becker"). The Mewis Duct is a propulsion improvement device that produces up to 10% fuel and emission savings. Becker is the global market leader for high-end performance rudder and manoeuvring solutions and Mencast is honoured to be their preferred manufacturer of heavy rudder assemblies and high-end sterngear equipment in the Asia Pacific region.
Over the past year, as part of our strategy to expand our business and increase our capabilities, we successfully acquired and integrated several companies being Top Great group of companies ("Top Great"), Unidive group of companies ("Unidive") and the assets of Team International Development and Team Precision Engineering. ("Team Assets").
Transformation into a Complete MRO organization
Mencast's business focuses on time sensitive, high precision and mission critical needs of our customers and the reputation built over the years has rewarded us with an excellent base of quality customers. Leveraging on our strong brand name and industry standing to expand our business and become a complete MRO solution specialist not only diversifies our revenue streams, but also creates positive synergies, economies of scale and strengthens our value proposition, attracting new customers and retaining existing customers.
Our "Partner Perfect" Brand
To reflect the transformation of our Group's business, we have also undertaken a new branding initiative. Our management, in conjunction with staff, clients and other stakeholders unanimously endorsed our new "Partner Perfect" philosophy. This embodies the collective efforts and responsibility to be the perfect partners in every aspect to our customers, suppliers, employees and business partners.
This branding exercise also sees the integration of our subsidiaries and businesses under one banner and unites our employees and subsidiaries with a common vision, mission and goal.
Our service credo reflects "Expert solutions, lasting relationships", highlights that our customers partner with Mencast for the high standards we hold ourselves to and the relationships we build and maintain with them as our partners. Our brand value proposition is supported by the following six pillars:
- Commercial ethos
- Full engagement
- Responsiveness
- Superior technical ability
- Resourceful
- Environmental championship
Mencast Centre of Excellence
Our people are the key to our success and growth. At Mencast, we believe in nurturing our staff and helping them grow their skill sets even further. We are establishing a "Mencast Centre of Excellence" in 2012 with the aim to build on our skills base in key areas such as production, safety, management and operational skills.
As a training-oriented employer, Mencast seeks to develop the potential of each employee to the fullest, thus retaining them within the Group and exposing them to the different opportunities available within each subsidiary. Through this centre, productivity and work practices will improve as knowledge created in areas of focus are disseminated across the Group. This will not only benefit our existing employees to diversify their skill sets but also help us attract new talent to the Group.
Review of Financial Performance
As a result of the successful execution of our "Triple Play" strategy, the Group achieved a very significant revenue increase of 75.9% to S$56.4 million in FY2011. The increase was mainly due to the maiden revenue contributions from our newly acquired subsidiaries, Top Great, Unidive and the Team Assets.
The revenue contribution from the newly acquired subsidiaries was offset by lower revenue in the Marine Services business segment. This decrease was mainly due to lower manufacturing orders following the Group's decision to focus on new growth areas and subdued new shipbuilding orders during the year. Repair services business was largely unchanged as compared to the prior year.
With maiden contributions from the newly acquired subsidiaries, the Group's gross profit increased 47.0% to S$23.5 million in FY2011. The Group's gross profit margin decreased from 49.8% in FY2010 to 41.6% in FY2011 due to the combination of a change in business mix and decrease in gross profit margin from Marine Services as a result of competitive pricing.
The Group's administrative expenses more than doubled from S$6.2 million in FY2010 to S$12.6 million in FY2011. The increase was mainly due to expenses of approximately S$5.8 million attributable to Top Great and Unidive following the completion of their acquisitions.
Finance expenses also increased by 67.7% to S$0.8 million in FY2011 due mainly to additional working capital loans and construction loans drawdown amounting to S$24.4 million.
The Group continued to maintain a good cash balance of S$9.5 million in FY2011. Operating and financing activities helped to maintain this healthy balance. The increase in cash from operating activities was due to higher profit and better working capital management. The increase in cash from financing activities was mainly due to the net proceeds from bank borrowings and finance lease liabilities, offset partly with payment of dividends.
The purchase of equipment and machinery, the construction of the Group's manufacturing plant at 42E Penjuru Road and partial payment for the recent acquisitions, resulted in a net cash outflow from investing activities for the Group in FY2011.
The Group achieved a return on equity of 17.9% in FY2011. Earnings per share increased from 5.39 cents in FY2010 to 5.77 cents in FY2011. Net asset per ordinary share registered an increase from 23.8 cents as at 31 December 2010 to 30.5 cents as at 31 December 2011.