ShareInvestor Online Q&A (2Q2009 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 Jayster, you wrote:
Construction seems to be the bright spark in your 2Q09 results chalking up 326% revenue growth in the quarter. What business development measures has the company taken up to seize the opportunity this upswing in the construction sector?
The Group has a long track record of supplying steel products to the major steel consuming industries, including construction. Since the beginning of 2009, construction activity in Singapore has picked up significantly due to the increasing number of projects in both the public infrastructure and private sectors. The Group is capitalising on this increase in construction activity by focusing more of our sales efforts on customers operating in the public infrastructure segment during this period to counter the effects of slower business activities in other sectors. As a result, we benefited from substantially higher orders from this industry segment in 2Q09, compared to the year-ago period.
As the construction sector is expected to be underpinned by the pipeline of committed projects in both public infrastructure and housing, the Group will continue to leverage our experience and customer relationships to strengthen our market share of this segment. At the same time, we are also ready for opportunities in other sectors where steel demand is improving. Over the last few months, we have seen a moderate increase in steel purchases from our customers in other industries, including the shipbuilding and marine-related sectors and engineering/fabrication industry.
I've noticed that the company is drawing down on its existing inventory when steel price is falling. Does it make sense to stock pile more low cost steel now as government around the world has implemented fiscal infrastructure stimulants that may drive steel prices higher?
Due to the severe and sudden reduction in regional demand for steel in the aftermath of the global financial crisis, the Group's strategy over the last few quarters has been to align our inventories with slower business conditions. While this has entailed running down the level of our inventory during a downward trend in global steel prices, we have continued making purchases on a selective basis to maintain a comprehensive range of steel products to fulfill our customers' needs.
Although global steel prices have shown signs of stabilising in recent months due to improving end-user demand and replenishment activity, the future trend of steel prices for the rest of the year is still uncertain at this juncture as it is also dependent on the supply of steel that may come onstream in the fourth quarter, given the plans of major steel mills to increase their production output.
As such, the Group will continue to base our inventory decisions on careful assessment of the industries that our customers operate in, as well as the demand and supply dynamics of the steel market. We will also continue to balance our inventory management decisions with financial considerations to ensure the Group maintains a strong balance sheet to better withstand the volatile business environment, maintain business agility, and be ready for any opportunities that may arise.
Dear Serene Lim, you wrote:
I've noticed that two CFO in your company has resigned in short succession namely Hee Siew Fong in Jul 2008 and Teo Kok Meng in Mar 2009. Investors usually view departure of the CFO negatively even when the usual reply is the candidate seeking other or further career development.
What procedures does the HR department go thru when you hire top executive crucial to the management of the company?
How does the company align the compensation and benefits of the employees to the bottomline of the company in the long term?
At Asia Enterprises, we recognise that our human capital has been the cornerstone of our Group's progress and success over the years. As such, we place great emphasis on motivating and retaining our existing staff as well as attracting new talents to further strengthen the Group.
In the recruitment of new employees, we have always adhered to a stringent hiring process that includes review of the candidates' qualifications and capabilities, and assessment of their ability to meet the positions' requirements. We also place emphasis on ensuring our employees receive competitive remuneration packages and a fair reward system that is aligned to the Group's financial performance. In addition, we continually look into ways to improve our employees' welfare and personal development.
We believe these are important attributes that have helped the Group to retain existing employees and successfully attract new talents. Indeed, our employee retention rates have been generally good over the years, with around 40% of our current workforce having stayed with us for 5 to over 30 years.
Dear David Koh, you wrote:
Will the company turn to the market for equity funding should an M&A opportunity arise?
The choice of funding will ultimately depend on the size and cost when the opportunity for a potential transaction arises. With a sound cash position and no major long-term financial obligations, we believe the Group has the benefit of several options should we require additional funding for an M&A or other growth opportunities that arise.
While we are open to funding through the equity market, we will also give due consideration from the perspective of dilution to existing shareholders when assessing this option.
Dear Gerald Tan, you wrote:
How long do you think the supply glut of steel will last?
According to a recent report published by global steel consultancy MEPS in August 2009, steel inventory levels in most parts of the world have reached low levels following rapid destocking across the supply chain since the global economic downturn. With steel demand from certain end-user markets showing a slight recovery in the last two months, major steel mills worldwide have seen their order books improve and are planning to increase their production output during the second half of this year.
However, MEPS still expects global steel consumption to remain subdued for the rest of 2009 as the relatively weak economic conditions are likely to persist. Moreover, an increase in steel production over the next few months could lead to an oversupply situation if steel demand does not recover sufficiently.
Will the company pay dividend year end if it remains profitable?
We will assess the Group's operating results, financial position, working capital needs and other cash requirements at the end of the financial year when recommending the dividend payout. Although we do not have a formal dividend policy, the Group has always placed importance on rewarding our shareholders for their continued support of Asia Enterprises, and has consistently paid out approximately 40% of net profit as dividends every year since our listing in 2005.
Dear C M Ng, you wrote:
Would the Management consider paying dividend twice in a year? This would make shareholders, especially the retirees, happier to receive the cash dividends twice in a year, instead of waiting for the full 12 months to receive the final dividend.
Thank you for your suggestion. Our Board of Directors regularly discusses the option of paying an interim dividend as part of our efforts to reward shareholders. However, we have to weigh this against a number of other important considerations. In recent years, the demand and supply dynamics in the steel industry has been subject to increased volatility, which generally has an immediate and direct impact on the financial performance of steel distributors. 2008 was such a year as the strong performances of the industry during the first six months were largely negated by the steep decline in steel demand and selling prices that occurred in the latter months of the year.
In light of the still uncertain outlook for the global steel industry, our current priority is to ensure the Group maintains a sound financial position. This will place us in a better position to overcome market challenges as well as provide greater flexibility to take advantage of changes in the market situation. Having said that, our Board will continually review the option of making interim dividend payments in future years.
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
