
ShareInvestor Online Q&A (FY2008 results)
Dear Investors,
Thank you very much for the questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange. Your questions will be reposted in blue followed by our replies in black .
Kind regards,
The Management Team
Asia Enterprises Holding Limited
Dear Kelvin, you wrote:
Thank you for hosting this Q&A.
The results is not good and the timing of inventory purchases in 1H 08 seems most unfortunate. Nevertheless, I like to compliment the mgmt for the detail disclosure in the results announcement.
I like to ask:
1) How aggressive was the write-down of inventory? Are there a full write-down to current prices or only partial?
Thank you. The Group has always placed a strong emphasis on providing accurate, detailed and timely information to assist shareholders and investors in their investment decisions. We will continue to work on further improving our corporate disclosure and transparency.
The write-down of our inventory was made at the end of FY2008 in view of the sharp correction in steel prices during the later half of the year. Cost of each product item was compared against its net realisable value. In accordance with our accounting policy, the write-down of inventory was made to reflect the lower of net realisable value and cost. We believe our review of the Group's inventories was a comprehensive and prudently conducted exercise.
2) Out of your sales to the various industry, which industry will continue to grow and which one will continue to decline, in the view of the mgmt? What measures will be implemented to ensure that company sales will not be adversely affected?
It is difficult to provide an assessment on the sales outlook for each of our customer segments due to extremely uncertain economic circumstances and limited business visibility of the regional, and indeed, the global steel-consuming sectors.
While the shipbuilding industry has been witnessing reduced level of activities, demand for steel from this customer segment should be supported by the outstanding order books of the major shipyards as well as the shift in focus from new-builds to ship-repair. In addition, ongoing offshore and oil and gas projects in the region should continue to drive marine and related engineering activities. In Singapore, higher public spending on infrastructural development is likely to underpin demand for steel from the local construction sector.
Given the adverse economic and industry backdrop, we expect business conditions for steel distributors to be difficult in 2009. We will continue to focus on our value proposition of providing customers with prompt, reliable and comprehensive services, which is a key attribute for our high level of repeat business. At the same time, we will continue to place emphasis on prudent credit management to maintain the quality of our trade receivables and ensure the Group remains in a sound financial position.
3) Any other measures have been implemented to ensure the company can survive through this difficult period?
thks.
In light of present economic circumstances, we believe it is imperative for the Group to maintain our long-held business practices which have enabled the Group to remain profitable through several periods of severely unfavourable business conditions over the past 36 years.
To this end, we will continue to remain vigilant and prudent in our financial management, particularly with respect to our credit exposure, receivables collection and inventory procurement decisions. As the Group is not heavily geared and does not have any major long term financial obligations, we are not under significant pressure to liquidate our stock unfavourably. At the same time, we will continue to adopt stringent controls to ensure the Group maintains a lean operating cost structure.
Coupled with our experience and knowledge of the steel industry, we believe these practices will help the Group to conserve valuable resources to withstand challenges and also provide us with greater flexibility to respond quickly to changes in market conditions.
Dear Jayster, you wrote:
I believe FY08 profit would have been higher had Asia Enterprises not stocked up on its steel inventory when it posted record profits last year.
What measures will Asia Enterprises take to better control its steel inventory level given the volatility of steel prices?
As a major steel distributor in the region, we have to maintain a comprehensive range of steel products to ensure that the Group has sufficient and readily available inventory to meet our customers' requirements in a timely manner.
Having dealt in steel distribution for some 36 years, we recognise the importance of sound inventory management to maintain our business competitiveness vis-à-vis our competitors and to ensure the Group's financial health. The Group has always adhered to prudent inventory management practices, i.e. to strike a delicate balance between working capital management, procurement strategies and capitalising on business opportunities. We continually engage our base of over 600 active customers and worldwide suppliers, and our procurement decisions are based on a conscientious assessment of future steel demand and supply dynamics, and price trends.
In view of the recent sharp decline in steel prices, we have already made an inventory write-down of S$24.7 million at the end of FY2008. Procurement activities have slowed in line with the decline in demand. Going forward, we will focus on sales profitability while running down our existing stock and exercising prudence in inventory replenishment. As the Group is not heavily geared, we are not under significant pressure to liquidate our stocks unfavourably.
Will Asia Enterprises benefit from the increased spending by the government in public infrastructure projects?
We believe that higher government spending on infrastructural projects in Singapore would present the Group with increased opportunities from both our existing and new customers in the construction sector.
Dear Joanna Lee, you wrote:
What cost saving measures has Asia Enterprises taken to weather this slowdown in the steel industry?
At Asia Enterprises, we place strong emphasis on prudent cost management and have always maintained a lean operating structure. Our experiences through several economic crises have taught us that this provides us with greater financial flexibility to respond quickly to changes in market conditions.
The bulk of the Group's operating expenses stems from our staff costs; we have always worked to maintain a cost-effective personnel structure. Our total headcount over the last few years has remained relatively steady despite the significant growth we have achieved since the Group's listing in 2005. As a percentage of Group revenue, our total administrative, marketing and distribution expenses formed 4.5% of Group revenue in FY2008, compared to 5.8% in FY2007 and 5.9% in FY2006.
We are also prudent in our capital spending decisions. Through continuous improvements in our inventory management, our Group revenue has more than tripled from 2003 to 2008 while maintaining the same warehousing capacity since 2003.
At the same time, our cautious approach to external financing through the years has ensured minimal interest expenses and finance costs. We also maintain stringent control and close monitoring of customer credit to ensure the health of our trade receivables and minimise exposure to credit risk.
Going forward, we will keep up with these practices while looking for ways to further improve our cost management and operational efficiency.
What opportunities do Asia Enterprises see in this time of uncertainty?
We are constantly on the lookout for opportunities to expand our geographical coverage and steel product offerings that could further strengthen the Group's industry position as a Regional Steel Distribution Centre. With a sound financial backing comprising S$18.3 million of cash balances, zero net gearing, and no major long term financial obligations, we believe the Group is well-positioned to overcome the market challenges ahead, and has the business agility to respond to opportunities that may arise amid this dynamic operating environment.
Dear Alvin, you wrote:
Given the weakness in the shipbuilding and marine-related sectors, has Asia Enterprises looked into any other sectors to cover the shortfall in revenue?
The Group has forged strong relationships with its customers in the shipbuilding and marine-related sectors over the past 36 years. While the shipbuilding and marine-related sectors have been witnessing reduced level of activities, demand for steel from this customer segment should be supported by the outstanding order books of the major shipyards as well as the shift in focus from new-builds to ship-repair.
Nonetheless, we are constantly on the lookout for opportunities to expand our business in other sectors such as engineering/fabrication and construction which we also serve on a regular basis. The ongoing offshore oil and gas projects in the region should continue to drive both marine and related engineering activities. In Singapore, we believe that higher government spending on infrastructural projects would present the Group with increased opportunities from both our existing and new customers in the construction sector.
Has Asia Enterprises faced any difficulties in refinancing its short term loan obligations?
We have always maintained a prudent approach to external financing through the years. Our borrowings from banks are mainly trust receipts used to finance the purchases of our steel inventories. We have not faced any difficulty securing credit facilities in current times nor in the past, thanks to the Group's strong balance sheet, proven credit standing and long-standing relationship with our banks.
Once again, thank you for the interest in Asia Enterprises Holding Limited. We hope that our answers have given you a better insight of our Company and operations.
Kind regards,
The Management Team
Asia Enterprises Holding Limited
