Annual Report 2015 Sustainable Chemistry
Megachem Limited Annual Report 2015 1 A reaction of our Vision, a robust Business Strategy, sound Financial Fundamentals, catalyzed by a Passion for Excellence and Value Creation as well as our commitment towards Corporate Governance and Sustainability, all with an aim of preserving and enhancing the interest of our stakeholders. All these elements create a chemistry that is viable and sustainable – Megachem’s Sustainable Chemistry.
Megachem Limited Annual Report 2015 2 A Moment of Pride
Megachem Limited Annual Report 2015 3 Megachem Wins Four Awards At The Prestigious Singapore Corporate Awards 2015 Best Managed Board (Gold), Best Chief Financial Officer, Best Annual Report Award (Silver) and Best Investor Relations Award (Bronze), in the “less than $300 million market capitalisation”category.
Megachem Limited Annual Report 2015 4 Chairman’s Message SIDNEY CHEW Executive Chairman & Managing Director Dear Shareholders, It is with pleasure that I present to you, on behalf of the Board of Directors of Megachem Limited (“Megachem” or the “Group”), our annual report for the full year ended 31 December 2015 (“FY2015”). Resilience amidst macroeconomic uncertainties 2015 has been a year of resilience for Megachem. Against a backdrop of a challenging macroeconomic environment during the year, our overall operations have responded fairly well. This was achieved due to the strong foundations laid out while building Megachem’s global network in our earlier years and our prudent approach towards business. An improved bottom-line Our financial performance has been resilient although our revenue was impacted by a 4.6% decline to S$110.6 million in FY2015, largely led by lower sales from our America and ASEAN markets. Comparatively, revenue in the previous corresponding full year (“FY2014”) was S$115.9 million. The dip in revenue contribution from America was driven primarily by our conscious decision to actively mitigate potential risks in South America tied to the current geopolitical climate. However, our strong presence in North Asia, which led to a robust sales growth of S$2.7 million in that market, helped to partially offset the dip. Our distribution operations remained the largest contributor of the business. Sales from our distribution segment contracted 4.9% to S$107.1 million while our manufacturing operations grew 3.4% to S$3.5 million during the year. Despite the decline in revenue, we achieved a 8.2% rise in gross profit to S$25.4 million while gross profit margin improved 2.7 percentage points to 22.9% during the year. The rate of increase in our overall operating expenses was at a slower pace than the improvement in gross profit, thus, contributing to the 2.9% rise in our net profit after tax to S$3.3 million in FY2015 from S$3.2 million in FY2014. Correspondingly, EBITDA climbed to S$6.4 million in FY2015 from S$6.2 million in FY2014 while earnings per ordinary share rose to 2.22 cents in FY2015 from 2.08 cents in FY2014. Our Asia-centric approach, improvement in operational capabilities and strategy to strengthen ties with customers and suppliers over the years have provided us with a good buffer in these uncertain times.
Megachem Limited Annual Report 2015 5 Cash flow generation continued to be robust, with Megachem’s net cash position increasing by S$2.1 million to S$11.1 million which enabled us to reduce our bank borrowings by S$3.6 million to S$18.3 million. With the prudent management of our balance sheet, our gearing ratio improved from 0.52 times as at 31 December 2014 to 0.43 times as at 31 December 2015. This provides us the buffer and headroom to expand our business. Our net asset value per share increased to 31.65 cents as at 31 December 2015 from 31.45 cents as at 31 December 2014. 2016: Navigating cautiously, leveraging on a growing Asia market Given the headwinds brought on by weaknesses in Europe’s and China’s economies which spilled over from 2015, coupled with the volatility in commodity prices, currencies and stock markets, we expect a softer global macroeconomic outlook in 2016. As a specialty chemical solutions provider with a wide base of customers across a diverse range of industries and geographical regions, our operations are inextricably tied to the health of the global economy. As such, our efforts to drive a higher rate of revenue growth may be impacted. While market conditions over the short-term are challenging, we remain confident of our growth prospects over the mid-tolonger-term. Going forward, we intend to pursue a refined strategic approach, including further diversification of our business portfolio, to fortify our position in the market. Our Asia-centric approach, improvement in operational capabilities and strategy to strengthen ties with customers and suppliers over the years have provided us with a good buffer in these uncertain times. With a strong and established base in the region, we intend to continue leveraging on this advantage to pursue growth, and for Asia to act as Megachem’s springboard to further penetrate into other market segments and geographical regions. We anticipate Asia, one of the largest markets for chemicals, to continue being a key contributor to our business and remain a growing market for us. Good corporate governance and a culture of transparency On the corporate governance front, 2015 was a significant milestone year for us. We are delighted and honoured to have won four awards at the prestigious Singapore Corporate Awards. It was the first time we hauled in that many accolades in a single year since the Awards’ launch in 2005. The four awards were the Best Managed Board (Gold), Best Chief Financial Officer, Best Annual Report Award (Silver) and Best Investor Relations Award (Bronze), in the “less than $300 million market capitalisation” category. While this is a testament to our efforts in cultivating good corporate governance practices and in fostering a culture of transparency within the organisation, winning these awards also serve as an important reminder for us to continue on our commitment to uphold high standards. Rewarding our shareholders In appreciation of our loyal shareholders’ faith and confidence in Megachem all these years as we built the business to the wellestablished specialty chemical solutions provider today, the Board has proposed a final dividend of 0.7 cent per share. With the interim dividend of 0.3 cent per share, FY2015’s collective dividend of 1.0 cent per share represents a dividend payout ratio of 45.1% of Megachem’s net profit for FY2015. Words of Appreciation To our management team, staff, bankers, and business associates, I would like to express my gratitude and acknowledgement for the hard work in enabling Megachem to achieve success. I would also like to give thanks to my fellow Directors for their immense contribution in formulating and steering the Group’s strategy. I am confident that with our stakeholders’ support, Megachem will remain on track to achieve greater heights for years to come. Yours Sincerely, SIDNEY CHEW Executive Chairman & Managing Director Megachem Limited
Megachem Limited Annual Report 2015 6 Adhesives Construction Paint & Ink Polymerisation Our World of Chemistry Making The World A Brighter Place Performance Coatings And Polymers Driving Performance Advance Polymer Composites Plastics Polyesters Polyurethane Rubber
Megachem Limited Annual Report 2015 7 Electronics Industrial Cleaning Metal Finishing Water Treatment Sustaining Our Natural Resources Surface Technology Nourishing Our Well-Being Biotech Agriculture Feeds Flavours & Fragrance Food & Beverage Pharmaceuticals
Megachem Limited Annual Report 2015 8 Our World of Chemistry Energising The World Oil And Gas Lubricant & Grease Oil Field Petrochemical Bringing Vibrancy To Life Lifestyle Personal Care Photographic Textile
Megachem Limited Annual Report 2015 9 Our Prospects 2016 A Challenging External Environment The final months of 2015 ushered in further signs of growth deceleration in China, weakness in Europe’s economies, meltdown in crude oil prices plus heightened conflict and tension in the Middle East. The hangover from last year seems likely to extend for some time into 2016. Therefore we expect a more challenging economic environment going into 2016, marked mainly by continued concerns over the impact of slowing China’s economy and the economic health of Europe. Risks are also lurking in the currency markets with higher volatility as well as in the overall financial market which could ultimately hurt the overall economy. The prospects in chemical industry will inevitably move in tandem with the overall economy. Our efforts to maintain revenue growth momentum will be faced with mounting external challenges. 、 Refining Our Strategy In response to the challenges, Megachem will refine our strategy with a focus on building resilience while keeping an eye on the longer term opportunities that the industry presents. This will involve: –– pursuing diversification in our business portfolio; –– adjusting our portfolio with more emphasis on coverage of more resilient industries; –– leveraging on our extensive network in Asia to capitalise on the long term growth of one of the largest markets for chemicals; –– enhancing relationships with key global customers and suppliers; and –– improving operational excellence. Longer Term Growth Prospect Despite many headwinds ahead, the long term outlook of the chemical industry remains positive especially in Asia where growth will continue to outpace other regions. Although we may take a more cautious business approach in the short term, our longer term prospect remains intact given our strong business fundamentals and our strength in Asia. BUILDING RESILIENCE
Megachem Limited Annual Report 2015 10 Company Profile 11 Company Overview 12 Our Business Model 13 Our Global Footprint 14 Why Megachem 16 Defining Megachem 18 This annual report has been prepared by the Company and its contents have been reviewed by the Company’s Sponsor, SAC Capital Private Limited, for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited (the “Exchange”). The Company’s Sponsor has not independently verified the contents of this annual report. This annual report has not been examined or approved by the Exchange and the Exchange assumes no responsibility for the contents of this annual report, including the correctness of any of the statements or opinions made or reports contained in this annual report. The contact person for the Sponsor is Ms Tan Pei Woon (Telephone: (65) 6532 3829) at 1 Robinson Road, #21-02 AIA Tower Singapore 048542. Our Achievements 19 Board of Directors 20 Senior Management 22 Our Human Capital 23 Corporate Information 24 Corporate Offices 25
Megachem Limited Annual Report 2015 11 Company Profile Established in 1988, Megachem has since emerged as a leading chemical player in Singapore and the region. Listed on the Singapore Stock Exchange in 2003, we are today a global one-stop specialty chemical solutions provider, offering integrated value-added services including contract manufacturing tailored to customers’ needs as well as distribution of specialty chemicals. We have a global presence and diverse customer base from a wide spectrum of industries. Our technical capabilities, supply chain infrastructure and professional team serve to ensure total customer satisfaction. Your Total Chemical Solutions Partner
Megachem Limited Annual Report 2015 12 Company Overview Providing Integrated Value-added Solutions Serving you Globally with One-stop Supply of Specialty Chemicals A Premium Provider of Chemical Contract Manufacturing Services
Megachem Limited Annual Report 2015 13 Our Business Model Purchase Store Vendor Managed Inventory Custom Blending Transport Technical Support Auxiliary Services Value-Adding in the Chemical Supply Chain • Wide product portfolio – more than 1000 types and grades of chemicals • Global Sourcing Network - Europe, US, Japan, China, India • Global Distribution Network – presence in 11 countries around the world • Strong customer base – more than 2000 customers • Providing Just-in-Time delivery and Vendor-Managed Inventory Service • Mixing and Blending according to customers’ formulations • Repackaging from bulk to smaller packaging • Filling, packaging and labeling • Technical support from dedicated application laboratories Distribution Producers Chemical Users Manufacturing/Custom Blending
Megachem Limited Annual Report 2015 14 Our Global Footprint India Middle East China Philippines Thailand Malaysia Singapore Indonesia Australia UK Vietnam
Megachem Limited Annual Report 2015 15 With an extensive global network and strategic locations in Asia, we are well-positioned to develop strategic relationships and forging winning formula in a challenging business landscape.
Megachem Limited Annual Report 2015 16 Every single element has to be exactly in place to create the desired formula for success and Megachem has been building this winning formula over the decades. Several vital ingredients make up this potent formula: Our integrated solutions, superior manufacturing capability, extensive global network, our strong customer base, outstanding product portfolio, efficient supply chain solutions and sophisticated IT support services. Together, these elements give our customers the competitive edge they seek, making us their indispensable partner on their journey to growth. Integrated Specialty Chemical Solutions Provider Megachem’s capabilities in proprietary chemical products manufacturing, contract manufacturing and global distribution provide customers with integrated solutions, thus adding higher value to them. These make us a one-stop shop where customers can find total solutions. Superior Manufacturing Capability In contract manufacturing, we add value by blending materials according to our customers’ formulation and specific requirements. With our proven track record with several multinationals, customers can confidently outsource to us their non-core production activities so that they can focus on what they do best - making their business grow. Extensive Global Network Our extensive network in Singapore, Malaysia, Indonesia, Thailand, Philippines, Vietnam, China, India, Middle-east, Australia and the UK enables us to serve our customers globally. Our direct presence in these markets offers a premium service level and minimized operating cost for our customers. Our integrated network also allows for cross-border exchange of market information and enables us to connect our suppliers to their desired markets. Strong Customer Base Over the years we have developed a strong and diversified customer base comprising largely multi-nationals companies spread across a wide range of industries. This is a testimony of their confidence in us and of our ability to deliver long-term value to them. Our Competitive Strengths Why Megachem? Outstanding Product Portfolio We carry a wide range of products which provides a one-stop shop and enables us to be a key supplier to our customers. Quality Supply Source Our suppliers have proven track records in quality, consistency, competitive pricing and supply reliability. A strong presence in Asia has helped several of our principal suppliers to penetrate key markets, which led to our appointment as their sole distributor and business partner. Efficient Supply Chain Solutions Our warehousing facilities stock different classes and grades of specialty chemicals. Coupled with an efficient logistics support, we are able to deliver just-in-time which in turn helps customers improve inventory planning and reduce inventory cost. Sophisticated IT Infrastructure Megachem invests heavily in a world-class IT infrastructure including mySAP Business Suite software. This enhances our service efficiency as well as provides seamless information exchange which gives us a competitive advantage over our competitors. Delivering Excellence
Megachem Limited Annual Report 2015 17 Your Advantages As our Customers Competitive Product Pricing Megachem can act as a single source supplier of a full suite of products, offering you increased product cost effectiveness. Through product bundling, overall product cost and freight cost can be reduced for our customers. Process and Operational Cost Efficiency Instead of having a big procurement team inquiring with several suppliers, negotiating prices, terms and conditions with each of them, you can rely on us as one single point of contact. By consolidating your chemical materials requirements and outsourcing to us, it enables you to focus your time and effort on your core activities. We source and order your products for you, store them in close proximity to your production locations and deliver them “just-in-time” for your use. Product Options Megachem has global sourcing network around the world with the ability to source for quality products at economical cost. We are able to offer various alternatives for your chemical raw material requirements offering wider choices in terms of product quality and pricing. Optimum Service Level Megachem partners many multi-nationals companies, serving them as a global supplier. For these companies our Key Accounts Managers provide impeccable level of personalised service and offer customised solutions. Adding Value Through Contract Manufacturing Megachem adds further value to your business by providing contract manufacturing services. We source the raw materials for you, store them in our warehouse, produce the finished products according to your formulations, pack them according to your requirements and deliver them to you or your customers. By engaging us as your contract manufacturer, you outsource your non-core production to us and in so doing you reduce your capital expenditure, production and other related costs. Outsourcing your non-core productions to us also enables you to penetrate key markets in Asia without investing heavily in capital expenditure. We have the facilities to produce chemicals to your specific needs and the logistic infrastructure to manage your raw materials and finished goods storing and delivery. As our Suppliers Your Partner in Growing your Markets As a supplier to us, we add value to you by bringing your products to your desired markets. We do so by leveraging on our extensive network around the world, especially in Asia where there is a tremendous potential for growth. Supported by an efficient logistical infrastructure and our in-depth market knowledge, we can assist you in developing your markets bigger and faster. Streamlining your Distribution Channels Acting as your distributor, you can outsource smaller customer accounts to us enabling you to channel your resources towards the bigger customers thus streamlining your distributions channels, operations and reducing your operational cost. Reducing your Inventory Cost By appointing us as your distributor, you will be able to reduce your inventory holding cost. Our robust inventory management system and strong supply chain infrastructure will ensure sufficient level of stocks to meet customers’ demand within shortest possible delivery time. Market Information Sharing We view our suppliers as important business partners. As such there will be open channels of sharing and communication of market knowledge and information to keep our suppliers abreast of market development. Building Values Together
Megachem Limited Annual Report 2015 18 Defining Megachem ENERGIZED passion performance-driven engage execute Differentiate change Supporting Megachem’s key success factors is the invigorating DEEEP culture – one that bonds the spirit of our people together with common values, easily recognizable in the conduct of our business where We constantly Differentiate ourselves to stay ahead of competition We are Energized towards realizing our vision in everything that we do We constantly pursue better ways to Engage with our business partners to achieve mutually beneficial relationship Our people are committed to Execute and deliver quality results Because we truly believe in our Passion to better serve and deliver our best We are a Performance-Driven organization We embrace Change to stay relevant.
Megachem Limited Annual Report 2015 19 At Megachem, we are constantly pursuing higher standards of business excellence. Our string of achievements and awards garnered over the years attest to our customer-focused corporate values and quality standards. Our Achievements
Megachem Limited Annual Report 2015 20 Board of Directors Mr Jeffrey Tan Bock Chia Executive Director Mr Jeffrey Tan is one of the founders of Megachem. As an Executive Director, he oversees the Group’s operations in China as well as the implementation of the Group’s business strategy. Mr Tan completed his “A” levels at Hwa Chong Junior College. His experience in the chemical industry started since 1988 with the founding of Megachem. Mr Tan is also a Honorary Council Member of the Singapore-China Business Association. Mr Sidney Chew Choon Tee Executive Chairman & Managing Director Mr Sidney Chew, the Group’s Executive Chairman and Managing Director, is one of the founders of Megachem. He was appointed as the Managing Director of the Group on 9 November 2005. As Executive Chairman, he leads the Board in setting Megachem’s vision and strategic direction. In his executive functions, he assumes primary responsibility for managing the Group’s operations. He holds a Bachelor of Science (Hons) in Chemistry and a Bachelor of Arts, majoring in Business Administration, from the University of Guelph. He has many years of experience in the chemical industry. Prior to this, he was a director with a chemical company where he was responsible for product development, marketing and technical matters. Mr Chan Kam Loon Lead Independent Director Mr Chan Kam Loon was appointed to the Board on 28 September 2007 as an Independent Director and serves as Chairman of the Audit Committee and a member of the Nominating and Remuneration Committee. He was subsequently appointed as Lead Independent Director on 21 February 2011. He holds a degree in Accounting and Finance from the London School of Economics and is a member of the Institute of Chartered Accountants in England and Wales. He has many years of experience in accounting and audit with KPMG London and PWC Singapore, investment banking with Morgan Grenfell Asia Ltd and HG Asia Securities Ltd and was a director of investments at Suez Asia Holdings. Mr Chan was head of the Listings Function of Markets Group at the Singapore Exchange for 3 years. He also serves as an independent director of three other SGX listed companies.
Megachem Limited Annual Report 2015 21 Mr Lee Bon Leong Independent Director Mr Lee Bon Leong was appointed to the Board on 5 September 2003 as an Independent Director. He holds a Bachelor of Law (Hons) and a Masters of Law from the National University of Singapore. A practising lawyer with many years of experience in corporate and conveyancing law, Mr Lee is the Chairman of the Nominating Committee and a member of the Audit and Remuneration Committee. Mr Lee is the Senior Partner of Lee Bon Leong & Co. He is a Justice of the Peace and was a member of the Panel for the Disciplinary Committee of Enquiry Public Service Commission. Mr Lee is the Vice-Chairman and Trustee of the Inmates’ Families Support Fund and a member of the Institutional Discipline Advisory/ Review Committee (IDAC/IDRC). He is also the Vice Chairman of the Home Detention Advisory Committee 2. He is also serving as an independent director in two other SGX listed companies. Mr Atsushi Saito Non-executive Director Mr Atsushi Saito was appointed to the Board on 21 November 2012 as a Non-executive Director. He holds a degree in Economics and started his career in Chori Co.,Ltd in 1974. He has vast experience in the chemical industry, having held key positions within Chori Co.,Ltd. Mr Saito is currently the Chairman of PT Chori Indonesia, the Managing Director of Chori Singapore Pte Ltd as well as the Chief Representative of Chori Co., Ltd Manila office. Concurrently he holds the position of Supervisor in charge of developing South-east Asia business. Prior to his current positions, he was the Deputy General Manager of the Chemicals, Life Science, Machinery and Electronics operations of the Chori Group. Dr Tay Kin Bee Independent Director Dr Tay Kin Bee was appointed to the Board on 1 July 2013 and serves as Chairman of the Remuneration Committee and a member of the Audit Committee. He holds a Doctor of Business Administration degree, a Master’s degree in Accounting and Finance as well as a Bachelor’s degree in Mechanical Engineering (1st Class Honours). He has vast experience in the chemical industry, having served as the Managing Director and CEO of a specialty chemical distribution company for several years in Malaysia and Singapore. Dr Tay had also made significant contribution to the chemical industry, sharing his knowledge and expertise in various committees. Currently he is the Chairman of Singapore Chemical Industry Council, Deputy Chairman of the Chemical Standards Committee (Singapore Standards Council) and Deputy Chairman of the Workplace, Safety & Health (Chemical Industries) Committee (Ministry of Manpower). He is also a director of SPCI Pte Ltd, a chemical manufacturer of sulphur-based products.
Megachem Limited Annual Report 2015 22 Senior Management Mr Chan Khai Leong Group General Manager Mr Chan Khai Leong joined Megachem in December 2007 as the Business Development Director and was appointed as its Group General Manager in January 2009. As Group General Manager, he is responsible for the overall strategic planning as well as overseeing the day-to-day business operations for the Group’s headquarters in Singapore. He also takes charge of the Group’s manufacturing operations as well as operations in China. Mr Chan holds an honours degree in Chemistry from the National University of Singapore and has more than 20 years of experience in the chemical industries, assuming senior management roles in sales and marketing, production and plant expansion projects, technical service and business development in a wide range of specialty chemicals for use in a variety of industries. Mr Francis Yau Thiam Hwa Chief Financial Officer Mr Francis Yau joined Megachem in 2000 as the General Manager of Megachem (Shanghai) Pte Ltd and Megachem International Trading (Shanghai) Co. Ltd prior to his appointment as the Group’s Financial Controller in 2001. He was promoted to the position of Chief Financial Officer on 1 January 2007. Mr Yau takes responsibility for all financial matters including financial and treasury planning, financial risk management and investor relations. He had several years of corporate banking experience prior to joining Megachem. He holds a bachelor degree in Business Administration from the National University of Singapore, majoring in finance and is also a member of the Institute of Singapore Chartered Accountants. He also serves as an independent director of a company listed on SGX. Ms Kwok Hwee Peng Group Finance Manager Ms Kwok Hwee Peng joined Megachem as Group Accountant in 2002 and was promoted to the position of Group Finance Manager in 2008. She is responsible for the Group’s financial reporting and is also the Company Secretary. She has several years of experience in accounting and audit with PricewaterhouseCoopers prior to joining Megachem. She holds a Bachelor of Accountancy from the Nanyang Technological University and is also a member of the Institute of Singapore Chartered Accountants.
Megachem Limited Annual Report 2015 23 Our Human Capital At Megachem, our people are our greatest asset hence is at the heart of everything we do. We believe in the continuous investment and development of our people to realize their full potential to help the organization achieve excellence in our business results. The People Developer accolade is testimony to this longstanding commitment and belief that investment in people will thrust the organization towards the pinnacle of excellence in our relationship with our partners, customers and suppliers. In pursuit of People Excellence, we adopt a holistic approach to human capital development. Rewards & Benefits Megachem considers the competitive market place, relative value of each position to the Company as well as among similar jobs, performance of individual employees, qualifications and relevant work experience in deciding how much an individual is paid. The Company reviews its compensation and benefits program regularly to ensure it is on par with the market. The Company believes in providing targeted incentives and rewards to employees, consistent with their performance contribution to profit result outcomes. Welfare and Well-Being We are committed to create and sustain a working environment supportive of work life balance for all employees where they are respected partners of the business. The Company conducts various programs to foster welfare and well-being among colleagues, to improve overall health of employees and to achieve work-life harmony. In so doing, a visible team of committed, productive and motivated employees is highly energized to realize the corporate vision, mission, values and culture. Learning and Development We place people at the core of our human resource (‘HR”) strategy and holds strong belief in the nurturing of our employees to achieve excellent business results and a high level of competency. The Company’s HR policy is one that promotes the availability of opportunities for people to be trained on a continuing basis. Career & Leadership Development Our performance appraisal process has a development component that encourages employees to plan development that will help increase their performance and growth in their personal and professional development. In addition, to ensure a rewarding and fulfilling career at Megachem, the Company has in place a Mentorship Program where mentees are guided and coached by Mentors in professional developmental and personal growth. Higher Learning Education Support The Higher Learning Education (“HLE”) program provides financial assistance to eligible employees who choose to further their professional education and training (“PET”) that will enhance their knowledge and skills. This program provides reimbursement of eligible expenses for approved Diploma/ Degree/Master/PhD certification programs related to employee’s current or future job responsibilities. Students and Graduates Megachem welcomes Interns/Attachment students to embark on an exciting learning journey with challenging assignments and projects. Fresh graduates are strongly encouraged to apply and join the Company as Management Trainees in their first step towards building a promising career. Megachem is a certified “People Developer” organisation in Singapore. “People Developer” is a certification awarded by Spring Singapore to companies which have achieved excellence in human capital development. This niche standard provides us with a total approach to attracting, managing and engaging employees for high performance and aims to bring the best out of our people.
Megachem Limited Annual Report 2015 24 Corporate Information BOARD OF DIRECTORS Sidney Chew Choon Tee (Executive Chairman & Managing Director) Jeffrey Tan Bock Chia (Executive Director) Chan Kam Loon (Lead Independent Director) Lee Bon Leong (Independent Director) Tay Kin Bee (Independent Director) Atsushi Saito (Non-executive Director) AUDIT COMMITTEE Chan Kam Loon (Chairman) Lee Bon Leong Tay Kin Bee REMUNERATION COMMITTEE Tay Kin Bee (Chairman) Lee Bon Leong Chan Kam Loon NOMINATING COMMITTEE Lee Bon Leong (Chairman) Chan Kam Loon Sidney Chew Choon Tee EXECUTIVE COMMITTEE Sidney Chew Choon Tee (Chairman) Jeffrey Tan Bock Chia Chan Khai Leong Francis Yau Thiam Hwa Kwok Hwee Peng COMPANY SECRETARIES Toon Choi Fan Kwok Hwee Peng REGISTERED OFFICE 11 Tuas Link 1 Singapore 638588 Tel : (65) 6933 9999 Fax : (65) 6863 2818 Website: www.megachem.com SHARE REGISTRAR AND SHARE TRANSFER OFFICE Tricor Barbinder Share Registration Services (a division of Tricor Singapore Pte. Ltd.) 80 Robinson Road #02-00 Singapore 068898 Tel : (65) 6236 3333 AUDITORS RSM Chio Lim LLP 8 Wilkie Road #03-08 Wilkie Edge Singapore 228095 Partner-in-charge: David Eu Chee Wei (with effect from financial year ended 31 December 2012) PRINCIPAL BANKERS Citibank, N.A. HSBC Oversea-Chinese Banking Corporation Limited Standard Chartered Bank United Overseas Bank Limited CONTINUING SPONSOR SAC Capital Private Limited 1 Robinson Road #21-02 AIA Tower Singapore 048542 Tel : (65) 6532 3829 INVESTOR RELATIONS ADVISOR Citigate Dewe Rogerson i.MAGE Pte Ltd 55 Market Street #02-01 Singapore 048941 Tel : (65) 6534 5122 Email : dolores.phua@citigatedrimage.com INVESTOR RELATIONS CONTACT Citigate Dewe Rogerson i.MAGE Pte Ltd Dolores Phua Email : dolores.phua@citigatedrimage.com Han Zhongchou Email: zhongchou.han@citigatedrimage.com Megachem Limited Francis Yau Thiam Hwa Email : fsyau@sg.megachem.com INVESTOR RELATIONS WEBSITE www.megachem.com www.shareinvestor.com PERSONAL DATA PROTECTION OFFICER CONTACT Megachem Limited Woo Tze Yung Email : tywoo@sg.megachem.com
Megachem Limited Annual Report 2015 25 Corporate Offices Megachem Limited Megachem Manufacturing Pte Ltd Megachem Raya Pte Ltd Megachem (Shanghai) Pte Ltd 11 Tuas Link 1, Singapore 638588 Tel: +65 6933 9999 Fax: +65 6863 2818 E-mail: enquiry@sg.megachem.com Website: www.megachem.com C. N. Chemicals Sdn. Bhd. No. 121 Jalan SS25/2, Taman Mewah, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia Tel: +60 3 7803 0795 Fax: +60 3 7803 0878 E-mail: enquiry@my.megachem.com P.T. Mega Kemiraya Wisma 77. 6th Floor Jl S. Parman Kav. 77 Slipi Jakarta Barati, 11410 Indonesia Tel: +62 21 536 3189 Fax: +62 21 535 8987 E-mail: enquiry@id.megachem.com Megachem (Thailand) Limited 25 Soi Chalongkrung 31, Ladkrabang Industrial Estate Soi G1/9, Lamplathew, Ladkrabang, Bangkok Thailand 10520 Tel: +66 2 739 6333 Fax: +66 2 739 6332 E-mail: enquiry@th.megachem.com Megachem Phils., Inc Room 1205 12th Floor, City & Land Mega Plaza ADB Avenue, Corner Garnet Road Ortigas Center, Pasig City, Philippines Tel: +63 2 687 6086, 687 6089, 687 6097 Fax: +63 2 687 7937 E-mail: enquiry@ph.megachem.com Megachem International Trading (Shanghai) Co., Ltd 988 Dingxi Road, Unit 1901, Yintong Building, Shanghai, China 200050 Tel: +86 21 5237 5028 Fax: +86 21 5237 5025 E-mail: enquirysh@cn.megachem.com Megachem International Trading (Beijing) Co., Ltd Room 2212, Building 7, First City Mingdundao External Guangqumenwai Street, Dongcheng District Beijing, China 100022 Tel: +86 10 8751 2969, 5336 3032 Fax: +86 10 8751 3382 E-mail: enquirybj@cn.megachem.com Megachem (UK) Ltd Castlegate Business Park, Caldicot, Monmouthshire, NP26 5AD, United Kingdom Tel: +44 0 1291 422 747 Fax: +44 0 1291 422 479 E-mail: enquiry@uk.megachem.com Megachem Middle East FZE Jafza View 19/1504 Jebel Ali Free Zone Dubai 262594 United Arab Emirates Tel : +971 4886 5711 Fax : +971 4886 5722 E-mail : enquiry@uae.megachem.com Megachem Vietnam Company Limited Unit 703, 7th Floor 45 Dinh Tien Hoang Street, Ben Nghe Ward District 1, Ho Chi Minh City, Vietnam Tel: +84 8 3910 6638 Fax: +84 8 3910 6636 E-mail: enquiry@vn.megachem.com MGI Chemicals Private Limited 407, 4th Floor, Jaswanti Landmark, LBS Marg, Vikhroli (West), Hiranandani Garden Powai Mumbai 400079, India Tel: +91 22 4026 0957, 4026 0958 Fax: +91 22 4026 0907 E-mail: info@in.megachem.com MG Chemicals (Australia) Pty Ltd Suite 8, 12 Pascoe Vale Road Moonee Ponds Victoria Australia 3039 Tel: +61 03 9326 2882 Fax: +61 03 9375 7886 E-mail: enquiry@au.megachem.com
Megachem Limited Annual Report 2015 26 Financial Highlights 27 Operating and Financial Review 30 Share Information 39 Year in Review 41 Financial Calendar 41 2015 performance review
Megachem Limited Annual Report 2015 27 Financial Highlights SALES (S$’MIL) 0 20 40 60 80 100 120 2011 2012 2013 2014 2015 106.9 106.3 108.7 115.9 110.6 2011 2012 2013 2014 2015 2 3 0 4 1 5 6 7 8 7.2 5.9 5.7 6.2 6.4 2011 2012 2013 2014 2015 0 1 2 3 4 5 6 5.1 3.4 2.8 3.2 3.3 EBITDA (S$’MIL) NET PROFIT AFTER TAX & BEFORE NON-CONTROLLING INTERESTS (S$’MIL) 2011 2012 2013 2014 2015 0 1 2 3 4 3.64 2.38 1.88 2.08 2.22 EPS (CENTS)
Megachem Limited Annual Report 2015 28 Financial Highlights Profitability - Full Year 2015 2014 2013 2012 2011 Sales (S$’mil) 110.6 115.9 108.7 106.3 106.9 Sales Growth (%) -4.6% 6.7% 2.3% -0.6% 12.5% Profit After Tax (S$’mil) 3.3 3.2 2.8 3.4 5.1 Profit After Tax Growth (%) 2.9% 14.6% -17.8% -33.3% 5.4% Profit After Tax Margin (%) 3.0% 2.8% 2.6% 3.2% 4.8% EBITDA (S$’mil) 6.4 6.2 5.7 5.9 7.2 EPS (cents) 2.22 2.08 1.88 2.38 3.64 Weighted Average Number of Ordinary Shares (mil) 133.3 133.3 133.3 133.3 133.3 ROE (%) 7.0% 6.6% 6.2% 7.9% 12.5% Profitability - Half-year 2015 2014 2013 2012 2011 Sales for first half (S$’mil) 57.6 55.6 51.9 54.0 57.3 % Growth 1H vs 1H 3.5% 7.3% -4.0% -5.6% 26.7% Sales for second half (S$’mil) 53.0 60.3 56.8 52.2 49.6 % Growth 2H vs 2H -12.1% 6.1% 8.8% 5.3% -0.4% Profit After Tax for first half (S$’mil) 1.5 1.1 1.5 2.1 3.0 % Growth 1H vs 1H 30.7% -24.7% -26.3% -32.4% 8.0% Profit After Tax for second half (S$’mil) 1.8 2.1 1.3 1.3 2.0 % Growth 2H vs 2H -12.6% 61.5% -4.8% -34.7% 1.9% Financial Position 2015 2014 2013 2012 2011 Total Assets (S$’mil) 77.7 83.3 74.7 72.3 67.5 Shareholders Equity (S$’mil) 42.2 41.9 40.3 39.9 38.9 Net Asset/Share (cents) 31.65 31.45 30.24 29.90 29.21 Borrowings (S$’mil) 18.3 21.9 17.7 16.0 15.3 Gearing ratio (times) 0.43 0.52 0.44 0.40 0.39 Cash (S$’mil) 11.1 9.0 8.5 8.1 7.6 Current ratio (times) 2.07 1.74 1.76 2.05 2.43 Dividend 2015 2014 2013 2012 2011 Net Dividend/Share (cents) 1.00 1.00 1.00 1.30 1.30 Net Dividend Payout (%) 45.1% 48.0% 53.3% 54.7% 35.7% Net Dividend Yield (%) (1) 2.8% 3.0% 3.3% 5.0% 6.6% Note: (1) Dividend Yield = Dividend per share / average of beginning and closing prices of the respective financial year
Megachem Limited Annual Report 2015 29 Global Markets industry Coverage FY2015 FY2015 FY2014 FY2014 ASEAN 68% North Asia 13% America 3% Europe 6% South Asia 4% Middle East 4% Australia 2% ASEAN 66% North Asia 10% America 9% Europe 6% South Asia 4% Middle East 3% Australia 2% Performance Coatings & 46% Polymers Advanced Polymer 10% Composites Surface Technology 25% Biotech 13% Oil & Gas 4% Lifestyle 2% Performance Coatings & 51% Polymers Advanced Polymer 8% Composites Surface Technology 23% Biotech 12% Oil & Gas 4% Lifestyle 2%
Megachem Limited Annual Report 2015 30 Operating and Financial Review H2 2015 S$‘000 H1 2015 S$’000 H2 2014 S$’000 S$’000 S$’000 ASEAN 36,183 38,843 37,725 (2,660) (6.8) (1,542) (4.1) North Asia 7,882 6,615 6,818 1,267 19.2 1,064 15.6 Europe 3,083 3,438 3,906 (355) (10.3) (823) (21.1) America 755 2,856 6,328 (2,101) (73.6) (5,573) (88.1) South Asia 2,380 2,363 2,443 17 0.7 (63) (2.6) Middle East 1,696 2,194 1,720 (498) (22.7) (24) (1.4) Australia 967 1,231 1,354 (264) (21.4) (387) (28.6) Africa 43 31 - 12 38.7 43 NM Total 52,989 57,571 60,294 (4,582) (8.0) (7,305) (12.1) Variance Fav(Unfav) H2 2015 VS H1 2015 % Variance Fav(Unfav) H2 2015 VS H2 2014 % 1. PROFITABILITY ANALYSIS Geographic Segment Sales Analysis 1.1 SALES S$’000 % S$’000 % S$’000 % ASEAN 75,026 67.8 76,950 66.4 (1,924) (2.5) North Asia 14,497 13.1 11,794 10.2 2,703 22.9 Europe 3,611 3.3 9,898 8.5 (6,287) (63.5) America 6,521 5.9 6,586 5.7 (65) (1.0) South Asia 4,743 4.3 4,418 3.8 325 7.4 Middle East 3,890 3.5 3,442 3.0 448 13.0 Australia 2,198 2.0 2,833 2.4 (635) (22.4) Africa 74 0.1 3 0 71 NM Total 110,560 100.0 115,924 100.0 (5,364) (4.6) Variance Fav(Unfav) FY2015 FY2014 * NM : not meaningful H2 2015 vs H1 2015 Overall sales in the second half of 2015 (“H2 2015”) dipped by S$4.6 million or 8.0% as compared to the first half of 2015 (“H1 2015”) as most markets contracted in H2 2015. The biggest fall was mainly contributed by reduced sales to America, mainly South America, of S$2.1 million or 73.6% as the country risk associated with the region had increased. This was followed by sales to ASEAN which contracted by S$2.7 million or 6.8%. Sales from other markets such as Middle East, Australia and Europe fell by a smaller magnitude. On the other hand, North Asia recorded growth in sales of S$1.3 million or 19.2% in H2 2015 vs-à-vis H1 2015, mainly from higher exports.
Megachem Limited Annual Report 2015 31 H2 2015 vs H2 2014 Similarly, compared to the second half of 2014 (“H2 2014”), sales decline were led by America and ASEAN while overall sales to North Asia improved. FY 2015 vs FY 2014 Sales for the full year of 2015 (“FY 2015”) decreased by S$5.4 million or 4.6% to S$110.6 million as compared to full year of 2014 (“FY 2014”) led largely by fall in sales to America and ASEAN markets of S$6.3 million or 63.5% and S$1.9 million or 2.5% respectively. This was partially compensated by improvement in sales to North Asia and Middle East of S$2.7 million or 22.9% and S$0.4 million or 13.0% respectively. H2 2015 S$‘000 H1 2015 S$’000 H2 2014 S$’000 Distribution activity 51,202 55,892 58,533 (4,690) (8.4) (7,332) (12.5) Manufacturing activity 1,787 1,679 1,761 109 6.5 27 1.5 Total Sales 52,989 57,571 60,294 (4,582) (8.0) (7,305) (12.1) Variance Fav(Unfav) H2 2015 VS H1 2015 % Variance Fav(Unfav) H2 2015 VS H2 2014 % S$’000 S$’000 FY 2015 S$‘000 FY 2014 S$’000 S$’000 % Distribution activity 107,094 112,571 (5,477) (4.9) Manufacturing activity 3,466 3,353 113 3.4 Total Sales 110,560 115,924 (5,364) (4.6) Variance Fav(Unfav) H2 2015 vs H1 2015 H2 2015 vs H2 2014 Distribution segment remained as the main contributor to total sales but activities contracted in H2 2015 as compared to H1 2015 and H2 2014. Revenue from contract manufacturing increased by S$109,000 or 6.5% compared to H1 2015 as manufacturing activities were normally higher in the second half of the year but was relatively flat as compared to H2 2014. FY 2015 vs FY 2014 Sales from distribution segment decreased by S$5.5 million or 4.9% while revenue from manufacturing segment increased by S$0.1 million or 3.4%. Business Activity Segment Sales Breakdown
Megachem Limited Annual Report 2015 32 Operating and Financial Review 1.2 Gross profit 1.3 Other operating income H2 2015 vs H1 2015 H2 2015 vs H2 2014 Gross profit margin for H2 2015 jumped to 23.7% as compared to 22.2% in H1 2015 mainly due to a larger proportion of sales contributed from ASEAN and better gross profit margin across several markets such as ASEAN, Middle East and South Asia. However, the higher gross profit margin was inadequate to compensate for the drop in gross profit that resulted from the decline in sales in H2 2015 of S$4.6 million, which caused a marginal decrease in gross profit by S$0.2 million or 1.7% as compared to H1 2015. Vis-à-vis H2 2014, gross profit margin was 3.0%-point higher due to same reasons noted above plus a lower write off of inventory in H2 2015. As a result, gross profit for H2 2015 was marginally higher by S$0.1 million despite S$7.3 million decline in sales. FY 2015 vs FY 2014 Year-on-year, gross profit margin improved by 2.7% point to 22.9% mainly due to better gross profit margin across ASEAN, America and Middle East markets and a lower write off of inventory in FY 2015. We achieved higher gross profit of S$25.4 million, which represented an increase of S$1.9 million or 8.2% as compared to the previous year despite recording a fall in sales in FY 2015. H2 2015 S$’000 H1 2015 S$’000 H2 2014 S$’000 S$’000 % S$’000 % Bad debt recovered 19 51 12 (32) (62.3) 7 57.9 Change in fair value of financial assets held for trading - forward foreign exchange contracts (43) 76 47 (119) (157.5) (90) (192.4) - listed equity security 10 - 55 10 100.0 (45) (81.8) Grant income 59 33 - 25 75.9 59 100.0 Net foreign exchange gain - - 190 - - (190) (100.0) Variance Fav(Unfav) H2 2015 VS H1 2015 Variance Fav(Unfav) H2 2015 VS H2 2014
Megachem Limited Annual Report 2015 33 1.4 Operating expenses H2 2015 S$’000 H1 2015 S$’000 H2 2014 S$’000 S$’000 % S$’000 % Employee remuneration and related expenses 6,287 6,277 6,094 (10) (0.2) (193) (3.2) Net foreign exchange (gain)/loss (305) 389 - 694 178.6 305 100.0 Professional fees 346 270 363 (76) (28.0) 17 4.7 Travelling and transport 540 461 520 (79) (17.1) (20) (3.9) Rental 1,393 1,305 1,153 (88) (6.8) (240) (20.8) Variance Fav(Unfav) H2 2015 VS H1 2015 Variance Fav(Unfav) H2 2015 VS H2 2014 FY 2015 S$’000 FY 2014 S$’000 S$’000 % Bad debt recovered 70 63 7 10.8 Change in fair value of financial assets held for trading - listed equity security 10 60 (50) (83.3) Change in fair value of financial assets held for trading - forward foreign exchange contracts 32 47 (15) (31.6) Grant income 92 41 52 127.0 Net foreign exchange gain - 190 (190) (100.0) Variance Fav(Unfav) H2 2015 vs H1 2015 H2 2015 vs H2 2014 Other operating income in H2 2015 decreased as compared to both H1 2015 and H2 2014. The main factors causing the decrease were mainly lower fair value gain from listed equity security and forward foreign exchange contracts offset by higher grant income received. FY 2015 vs FY 2014 Other operating income decreased by S$182,000 or 38.7% to S$288,000 mainly due to net foreign exchange gain recorded in prior year of S$0.2 million, as opposed to net foreign exchange loss suffered this year of S$83,000, as well as lower fair value gain from listed equity security and forward foreign exchange contracts of S$65,000 in total. This was partially offset by an increase in grant income received of S$52,000. H2 2015 vs H1 2015 H2 2015 vs H2 2014
Megachem Limited Annual Report 2015 34 Operating and Financial Review The impact of net foreign exchange gain of S$0.3 million in H2 2015, as compared to a net loss of S$0.4 million in H1 2015, was the main reason for the decrease in total operating expenses from S$11.0 million to S$10.6 million in H2 2015. The net foreign exchange gain in H2 2015 arose mainly from the appreciation of United State Dollars against British Pound and Singapore Dollars. Excluding the impact of foreign exchange, operating expenses in H2 2015 would have increased by S$0.3 million due to higher rental, professional fees and travelling and transport expenses. As compared to H2 2014, total operating expenses were higher marginally by S$0.1 million or 1.4%. Excluding net foreign exchange gain of S$0.3 million in H2 2015, the increase would be higher by S$0.4 million which was mainly attributable to higher employee remuneration and related expenses and rental expense. FY 2015 vs FY 2014 Total operating expenses for FY 2015 amounted to S$21.6 million which represented an increase of S$1.4 million or 6.9% as compared to last year. Excluding net foreign exchange loss, the increase would be smaller at S$1.3 million or 6.5%. The main variances in our operating expenses were as follows: FY 2015 S$’000 FY 2014 S$’000 S$’000 % Employee remuneration and related expenses 12,563 11,711 (852) (7.3) Net foreign exchange loss 83 - (83) (100.0) Professional fees 616 689 73 10.6 Rental 2,698 2,098 (600) (28.6) Variance Fav(Unfav) Employee remuneration remained the largest component of total operating expenses followed by rental expenses. The increase of S$0.9 million or 7.3% for employee remuneration was in line with annual pay increment and additional headcount hired for expansion. Increase in warehousing rental rates and higher average inventory level compared to last year led to an increase in rental expenses of S$0.6 million or 28.6%. Lower professional fees were incurred as certain services such as tax-related consultancy fees and lawyers’ fees for financing of the purchase of land in Malaysia did not recur in the current year.
Megachem Limited Annual Report 2015 35 Finance costs comprised the following: 1.5 Finance costs 1.6 Share of profit of associated companies H2 2015 S$‘000 H1 2015 S$’000 H2 2014 S$’000 Bills payables 137 144 168 8 5.2 32 18.9 Bank loans 173 139 104 (35) (25.0) (70) (67.4) Total finance costs 310 283 272 (27) (9.6) (38) (13.9) Variance Fav(Unfav) H2 2015 VS H1 2015 % Variance Fav(Unfav) H2 2015 VS H2 2014 % S$’000 S$’000 FY 2015 S$‘000 FY 2014 S$’000 S$’000 % Bills payables 281 287 7 2.3 Bank loans 312 205 (107) (52.3) Total finance costs 593 492 (100) (20.4) Variance Fav(Unfav) H2 2015 vs H1 2015 H2 2015 vs H2 2014 Average trade borrowings continued to fall in H2 2015 as compared to H1 2015 and H2 2014 as a result of positive cashflow. On the other hand, new long term bank loan was drawn down in March 2015 to finance the land purchase in Malaysia. This caused overall finance costs for H2 2015 to be higher than H1 2015 and H2 2014 by S$27,000 or 9.6% and S$38,000 or 13.9% respectively. FY 2015 vs FY 2014 Finance costs increased year-on-year by S$0.1 million or 20.4% primarily due to new long term bank loan drawn down and higher borrowing rates although average trade borrowings had decreased. H2 2015 vs H1 2015 H2 2015 vs H2 2014 The distribution business segment from our associated company in Thailand remained weak in H2 2015.The increase in our share of profits of S$0.3 million or 87.0% vis-à-vis H1 2015 was primarily due to one-time valuation gain of S$0.2 million on plant and equipment resulting from the restructuring of one of our associated companies. As compared to H2 2014, share of profits were higher by S$40,000 or 7.3% mainly due to valuation gain on plant and equipment of S$0.2 million. FY 2015 vs FY 2014 Year-on-year, our share of profit decreased by S$0.1 million or 11.3% as the Thai economy had yet to see a strong recovery this year, which mirrored the performance of our ASEAN market although net gain on restructuring of one of the associated companies helped to increase profitability in the current year.
Megachem Limited Annual Report 2015 36 Operating and Financial Review 1.7 Profit before income tax H2 2015 vs H1 2015 As compared to H1 2015, the increase in net profit before tax for H2 2015 of S$0.4 million or 17.4% were mainly due to net impact of the reversal of net foreign exchange loss and valuation gain from plant and equipment from associated company. H2 2015 vs H2 2014 Despite higher gross profit earned, net profit was lower by S$0.3 million or 11.3% due to higher operating expenses of S$0.4 million incurred in H2 2015. FY 2015 vs FY 2014 Although we achieved higher gross profit of S$25.4 million, which represent an increase of S$1.9 million, this was eroded by higher operating expenses and finance cost of S$1.4 million, unfavourable foreign exchange impact of S$0.3 million and lower share of profit of associated companies of S$0.1 million. As a result, net profit before tax increased marginally by S$0.1 million or 3.0% to S$4.4 million as compared to last year. As for EBITDA, it increased by S$0.2 million or 2.6% to S$6.4 million in FY 2015. 1.8 Net profit after tax Consistent with the above, net profit after tax increased by S$0.3 million or 20.1% vis-à-vis H1 2015 but fell by S$0.3 million or 12.6% as compared to for H2 2014. Year-on-year, it was up marginally by S$0.1 million or 2.9% to S$3.3 million. 1.9 Total comprehensive income H2 2015 vs H1 2015 H2 2015 vs H2 2014 Total comprehensive income fell by S$50,000 or 4.8% and S$1.2 million or 55.6% as compared to H1 2015 and H2 2014 respectively. This was due to net exchange losses on translation of foreign operations of S$0.8 million in H2 2015 as opposed to a smaller loss of S$0.5 million in H1 2015 and net exchange gain on translation of S$0.2 million in H2 2014. The net exchange losses on translation of foreign operations of S$0.8 million in H2 2015 and S$0.5 million in H1 2015 arose primarily from the significant weakening in Malaysian Ringgit while the net exchange gains on translation in H2 2014 resulted from a mix of a stronger Thai Baht and United States Dollar. FY 2015 vs FY 2014 Year-on-year, total comprehensive income fell by S$1.3 million or 40.0% mainly from the significant weakening in Malaysian Ringgit.
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