Report to Shareholders
 
     
 
FY-2016
CEO_2014
Dear Shareholders,

FY2015/2016 (“FY2016”) had been a challenging year for the Chasen Group as it continued to weather the economic slowdown in the local and regional markets. This resulted in reduced demand growth in the electronic manufacturing industries particularly, with consequential effects on the various economies that the Group operates in.

In the last 18 months, the IMF (International Monetary Fund), the World Bank as well as the OECD (Organization for Economic Cooperation & Development) have all been revising global growth downwards each time they reviewed their economic forecasts. The Singapore economy was no exception. Its weak economic data, China’s slowing economic growth and uncertainty over the US interest rate hike had weighed heavily on business sentiments and our year-end results.

Like any SME operating in this very competitive business environment, Chasen’s operating margin took a hit in the slow or non-growing economic pie. The FY2016 Group revenue was 5% lower than that achieved in the previous FY2015. With the reduced margin the Group was only able to report minimal operating profits. In view of the deteriorating business environment and tight cash flow experienced by many of our customers especially from the Technical & Engineering business segment, the Board adopted a conservative approach toward the collectability of receivables from several projects in the construction sector in Singapore and Malaysia. As a result the Group reported a substantial negative bottom line in excess of S$3 million for the year under review.

In the current financial year the Group would diversify our revenue base further, industry and geography wise. Our San Jose-based marketing office is making progress marketing of our integrated service capabilities directly to the US and European head offices of multi-national companies (“MNC”) that currently operate or intend to operate in our region. It successfully managed a project for TESLA in the US by synergizing the operations of Chasen subsidiaries in Singapore and China.

During the year in review a fire broke out in the warehouse of one of our Singapore subsidiaries in our Third Party Logistics (“3PL”) business segment. Its operation was adversely affected due to investigations by the relevant authorities and relocation of goods to replacement warehouses. Its revenue was negatively impacted when several customers did not renew their warehouse lease after some of their goods were damaged in the fire.

In Malaysia, our 3PL subsidiary continued to gain market share with increased trucking capacity in cross-border freight between Thailand and Malaysia and between Malaysia and Singapore. In the new financial year, it will extend its cross-border land freight capability from South-East Asia to China. To serve its customers more effectively it established a presence in Thailand, thus adding another country to the Group’s regional operations.

The subsidiaries in our Technical & Engineering business segment performed better after management reorganization. They secured more projects in a highly competitive industry both in terms of margins and trading terms. As cash flow tightened in the industry generally, collection poses increasing challenge even after successful adjudication under the Security of Payment Act. Hence, for greater financial prudency, higher provisions for doubtful collectability of receivables were made for certain projects conducted in earlier financial years. Management would place greater emphasis on credit worthiness of potential clients when pitching for projects going forward.

Since it was initiated last year, the Group’s program to inculcate a Chasen corporate culture began filtering through the rank and file via the ‘Shared Values’ workshops conducted in house by selected executives trained to present these values. We believe that when these Shared Values are embraced by all employees, it would make a difference in the way each employee project the values and image of the Company to our customers and the public.

After having completed a series of workshops for the managerial, executive/supervisory and office staff in 2015, we have begun engaging our general workers with these Shared Values in 2016. The schedule is targeted at ensuring that our general workers would be imbued with this corporate culture by the end of the current financial year.

We like to refresh our shareholders with the Group Shared Values as follows:

• Profit-Mindedness – recognizing and maximizing the effective use of resources
• Management Excellence – art in achieving all stakeholders’ needs from outside-in to inside out to attain a competitive edge
• Teamwork – to work with utmost co-operation to complete tasks promptly and efficiently
• Integrity – possessing strong moral values and principles to differentiate between right and wrong
• Respect – positive feeling of esteem or deference for a person or entity
• Commitment – responsibility of individual/entity to put in extra efforts in the completion/achievement of common goals/tasks
In this report, I shall further provide an update on the developments that have taken place in the year under review. At the same time, I shall make known our action plans for each business segment going forward to overcome challenges and thrive when growth opportunities present themselves to improve our business results in the new financial year.

FINANCIAL PERFORMANCE

For FY2016, our group revenue suffered a 5% contraction year-on-year from S$98.8 million to S$93.5 million. The shortfall was attributed largely, for the first time, to the reduction in revenue from the Specialist Relocation business segment by S$4.8 million or 10% from S$47.5 million to S$42.7 million. Meanwhile, Technical & Engineering recorded minimal increase of S$113,000 or 0.3% and Third Party Logistics reported a marginal drop of S$0.6 million or 3.6%.

Loss After Tax for FY2016 was S$3.3 million compared to a positive bottom line of S$2.2 million in FY2015. Loss was largely due to higher provision for and write-off of trade and non-trade doubtful debts. The negative bottom line was also the result of loss in foreign exchange from the depreciating Malaysian Ringgit and Renminbi.

SPECIALIST RELOCATION BUSINESS SEGMENT

For the first time since the inception of the company, the Specialist Relocation business, which has been the mainstay of the Group, recorded a drop in its revenue. This has been attributed partly to the global slowdown of the electronics manufacturing industry that had translated into reduced job orders from the recurring contracts and slower implementation of new plant projects that we have in the secured the PRC.

There have been no new entrants to the semi-conductor or solar panel manufacturing industry in Singapore for some time, hence the non-availability of mega projects for Chasen Logistics Services Limited (“CLSG”) and Liten Logistics Services Pte Ltd (“LLS”) to bid for. These subsidiaries sustain their operations through recurring business in the form of maintenance contracts from existing customers. At the same time, both subsidiaries have also been diversifying their specialist relocation services into other industries where they have to compete with other general logistics players.

In line with the Group’s operating strategy to synergise resources of related business units, the operations of CLSG and LLS would be amalgamated to provide a cutting edge in a more competitive and price sensitive environment.

After having moved to its new premises to better service its customers, Penang-based Chasen Logistics Sdn Bhd (“CLSB”) was faced with a new challenge when some of its customers in the solar panel and semi-conductor manufacturing industry either relocated or downsized their Malaysian operations. Management at CLSB was nifty enough to quickly fill its warehouse capacity by moving to serve other industries such as the large retailers who need to store their FMCG inventory. In addition, CLSB has also started production of wooden pallets for customers in the different industries from manufacturing to automotive to retail. This high volume pallets production would utilize the additional floor space available at its new premises to help sustain its operations and grow its bottom line in the current financial year.

Together with the technical capability at Chasen Engineering Sdn Bhd (“CESB”) and Towards Green Sdn Bhd (“TGSB”) CLSB would also be able to supplement its logistics services with complementary technical services to customers in the heavy plant industries such as oil and gas, in line with the Group’s integrated service business model.

Our Vietnam entity, Chasen Transport Logistics Co., Ltd (“CTL”) continues its rapid growth path consistent with the higher growth rate of the Vietnamese economy. Besides incorporating logistics engineering into its portfolio of services, it has also diversify into pallet manufacturing to meet the needs of its specialist relocation customers, replicating the successful business model of CLSG.

The much publicized slowdown of China’s economy has also affected the growth of Group’s Shanghai-based Chasen (Shanghai) Hi-Tech Machinery Services Pte Ltd (“Hi-Tech”). While it continued to be successful in securing specialist relocation projects from the growing LCD TFT panel manufacturing industry in the last financial year, the implementation and completion of these projects were intermittent and created a cost burden that adversely affected its bottom line. The regular stop/go work rate caused the company to maintain a workforce that is sometimes idle for sustained period. Yet the Company could not reduce its work force as the project would resume at short notice.

To sustain its viability the Company has relocated from Shanghai to Chuzhou in Anhui Province with its much lower operating cost, in terms of property rental and minimum wage policy. In addition, it received preference investment terms from the local authority. The lower cost profile would enable Hi-Tech to price itself more competitively in the slower economic growth period as the Chinese economy restructures.

THIRD PARTY LOGISTICS (3PL) BUSINESS SEGMENT

This business segment experienced a negligible drop of S$0.6 million or 3.6% in their annual revenue. Despite Singapore-based DNKH Logistics Pte Ltd experiencing a most painful year due to a fire incident at its Tuas premises, this segment has shown marked improvement. This has largely been attributed to our Penang-based subsidiary, City Zone Express Sdn Bhd (“CZE”), which has maintained its steady business growth in both revenue and profitability.

In the current FY2017, on the initiative of CZE, the Group has through Singapore-registered City Zone Express Pte Ltd (“CZE-S”), extended its Malaysian operation into Thailand through a joint venture with experienced Thai logistics businesses. This Thailand-registered joint venture company, City Zone Express Company Limited (“CZE-T”) has set-up its operating offices in Bangkok and Songkla. The objective of this joint venture initiative is to capture a larger share of the inland and cross-border transport business within Indo-China. Eventually, both CZE and CZE-T would be covering overland routes within South-East Asia (from as far south as Singapore) to China (as far north as Shanghai).

TECHNICAL & ENGINEERING BUSINESS SEGMENT

Though they are small players in their respective industrial sectors, the operating subsidiaries in this business segment were able to maintain their market share in a non-growing if not declining economic sector by posting a very marginal increase of S$113,000 or 0.3% over last year’s revenue. Despite the challenges in the local construction industry, Hup Lian Engineering Pte Ltd (“HLE”) and Goh Kwang Heng Scaffolding Pte Ltd (“GKHS”) continued to maintain their foothold to sustain their operations and hope to increase their market share in the current financial year. With several major projects secured and efficient execution they would contribute positively to the Group results in the current financial year.

While the Singapore entity of the REI Promax Group is struggling with orders from its customers to breakeven its Singapore operation, its China-based subsidiary, Suzhou Promax Communication Technology Co., Ltd (“SZPMX”) continued its operational growth with steady stream of orders from their telecommunication customers. It will be relocating to new premises out of the more expensive Suzhou Industrial Park to house its growing operational capacity in a more economical operating cost model. It hoped to receive its first direct export orders from a US company in the current financial year.

The Group’s China-based wastewater treatment and industrial water production entity, Eons Global Water (Jilin) Co., Ltd (“EGW”) continues to encounter slow revenue growth due to local bureaucratic issues in the Jilin Economic & Technological Development Zone (“ETDZ”). In this regard, the Group has engaged a local entity, Jilin BiYuan ShuiWu Co., Ltd (“JBS”) to help resolve the issues. JBS has the relevant resources and capacities to provide the relevant services to EGW to resolve all operational issues relating to the successful commercial operation of EGW’s Industrial Water Purification Plant and Sewage Plant within specific target dates. If successful, JBS, through a partnership framework agreement with EGW would participate in the operation of this business. EGW is hopeful that it can overcome these challenges in the current financial year and record an improvement to its revenue by the end of FY2017.

CHALLENGES

In the current financial year the Group expects the global economic landscape to continue to pose challenges to our business operations. The current economic climate will also not spare our customers and invariably, they will respond. We are anticipating that the reactions and actions of our customers may impact our financial performance moving ahead.

Analysts’ reports have indicated that payment performance had worsened generally as partial and slow payments increased. The decline in payment performance came as no surprise given that payment delays have slowed down strongly towards the end of 2015. However, in times of economic uncertainties, a partial deferment of payment may offer a viable alternative for firms to circumvent cash flow issues.

The resultant effect is that Chasen would face increasing costs without corresponding consideration from our customers who are themselves caught in a similar bind. Since the Company was founded in 1995, it has faced such economic cycles and our resilience and experience will enable us to meet these economic challenges without compromising our commitment to customers. We shall continue to service our customers with the same standards that they have come to know us for.

I would like to assure all our stakeholders that we are committed to delivering higher shareholder value and I hope you will continue to give us your support.

OPPORTUNITIES

Worldwide, the demand for electronics has been on the wane due to competition and other available substitutes over the last few years. The growth of the semiconductor and electronics manufacturing industries have slowed down in Singapore. This has impacted on the earnings of our relocation business. However, we remain as committed in providing support to our MNC customers through our services as one of the appointed in-house relocation specialists.

The Group had in the financial year under review, established a global marketing office, Chasen (USA)., Inc (“CSJ”) based in San Jose within California’s Silicon Valley with a view to project our integrated service capability to the head offices of MNCs whose regional operations are familiar with the Group’s capability. It would also manage specialist relocation projects secured in the western hemisphere. The Group hopes to benefit from the recent trend encouraged by the Obama Administration as well as the lower US operating cost environment afforded by the changed energy cost situation, which saw US companies relocating production facilities back home. CSJ presence in the US would enable us to court our prospects through business networking events and maintaining contacts with the decision makers in the HQ of US MNCs.

In its maiden business, CSJ managed a relocation project for TESLA synergizing the resources of CLSG and Hi-Tech (Shanghai). This successful start gave the Group an opportunity to be considered for the next phase of the TESLA project. CSJ is also sourcing for opportunities in the aviation and power plant industries as relocation projects in these industries utilize the same skill-set. The success of CSJ would enable the Chasen Group to realize its vision of becoming a global integrated service provider.

For the 3PL business segment, the extension of CZE’s capability in cross-border trucking from Singapore to Thailand to beyond the Thai border eastward opened the door to a ‘new business model for an old business’ in land freight transportation. The key thrust of CZE’s new Thai operation is land freight or road trucking cargo from South-East Asia stretching all the way from Singapore into Indo-China and beyond. It can even link-up with the China promoted New Silk Road to freight cargo all the way to Russia and Western Europe by train. If successful it would be a new growth sector for the Group as there are currently very few players in this door-to-door delivery sector competing against the very expensive air freight and the less expensive sea freight.

We are confident that the inherent advantages of land freight and the safe and reliable door-to-door delivery service provided by CZE, it is poised to secure substantial revenue when this cross-border freight operation takes off in the current financial year.

APPRECIATION

On the Group’s behalf, I would like to thank our customers, vendors, advisors, bankers, partners and business associates whose support have been most invaluable in this challenging year. My heartfelt appreciation also goes out to our shareholders who had patiently and trustingly stayed with us throughout this period. Finally, I would like to thank my directors, management team and employees who have worked closely with me on this journey. In the midst of these developments, we shall regroup, reorganize reflect and continue in progressing our business model in building an even stronger Chasen in FY2017.


LOW WENG FATT
Managing Director and CEO