Investor Relations - Chairman's Message

Dear Shareholders,

The year in review

The financial year ended 30 June 2015 (‘FY15’) was a challenging and tough year for Hupsteel Limited& its subsidiaries (‘Hupsteel’ or ‘the Group’). Revenue for FY15 fell 28% to $83.7M from $116.6M reported for the previous financial year ended 30 June 2014. Eurozone debt problems and geopolitical conflicts had dampened global economic growth considerably during the year. Decline in oil prices, expectation of US rate hike and softening of regional economies were among the key factors that had affected the performance of many Singapore companies.

The decline in oil prices had particularly affected our customers from both the shipbuilding and the oil & gas sectors which traditionally consumed large quantities of
Hupsteel’s steel products. Demand for all categories of steel products was weak throughout FY15 and the Group had to constantly struggle against downward pressures on its selling prices. While it managed to prevent a significant decline in the gross profit margins of its products, the sluggish market conditions forced the Group to critically
review its stock holdings and wrote down carrying value of affected stocks to net realizable value.

With local and regional economies suffering from slower growth, strengthening of the US dollar and external political situations, many businesses would expect to continue facing a difficult time ahead. As the prospect of a protracted period of anemic economy growth is expected, the Group took the decision to write off its goodwill balance which arose from the past acquisition of the structural steel business. This decision of writing off the goodwill was made after evaluating that the sum of discounted value of forecasted future cashflows could no longer support the book value of the related assets.

Construction work at 6 Kim Chuan Drive progressed smoothly during the year and the redeveloped 8 stories industrial building received its temporary occupation permit on 24 August 2015. This building is located near the Paya Lebar airbase which will be relocated to make way for future development. This will herald increase demand for business space in that area and our building will be in a good position to meet that need.

During the year, our Group CEO, Mr Lim Kim Thor, reached the stipulated retirement age under his service agreement. The Board of Directors was happy that Mr Lim agreed to extend his employment with the Group. As part of our succession planning, the Board appointed Deputy Managing Director, Mr Lim Boh Chuan, as Co-CEO of the Group together with Mr Lim Kim Thor.

On 26 August 2015, the Group made further progress in its succession plan by promoting Mr Lim Boh Chuan to Managing Director and Mr Lim Beo Peng to Deputy Managing Director. This prepared the Group well for succession of its top management and strengthened the leadership for future growth.

During the year, the Group regularly sent its employees for skills and safety courses relevant to their areas of work. This will ensure that the workplace will be a safe place
to work in and employees are equipped with the right skills sets. It also frequently made donations to various charitable organisations for their works rendered to the society at large. It hopes to enlarge the Group’s footprint in this area and to encourage its employees to participate in voluntary activities and contribute selflessly to promote social awareness and well-being.

Outlook

The new financial year ending 30 June 2016 will continue to be challenging and tough for the steel business. Oil prices are not likely to recover in the short term and the world is preparing for the first hike in US interest rates and the impact that comes with it. Local economy has been forecasted to grow much slower than it was earlier predicted.

With little signs of recovery in the shipbuilding, oil and gas sectors, the main aim is, firstly, to maintain revenue and defend margins in the new financial year amidst keen market competition. The Group will then devise marketing plans to seek out new end-users from existing and non-traditional customer bases.

Active marketing of our new industrial building at 6 Kim Chuan Drive has commenced. Although timing of the launch may be affected by the various property cooling measures, it will spare no effort to seek out quality tenants for the building.

Presently, the Group has a strong balance sheet with a high balance of cash & cash equivalent. This will help it to weather the rough market conditions and at the same time, provide the necessary resources to seek out business opportunities that can complement its revenue or add new revenue streams for strategic expansion. Market development and inorganic business expansion will be key action areas in the short to middle term in order to spur growth and transform the Group.

This year, in addition to renewing the share buyback mandate, the Group will be proposing to consolidate shares in the ratio of 5:1 for adoption at the coming Annual General Meeting. The share consolidation exercise is to meet the Singapore Stock Exchange new requirement for shares to have minimum trading price of $0.20. I look forward to your support in adopting these schemes.

Dividend

The Directors are pleased to recommend a final tax exempt dividend of 0.1 cent per share for FY15 (FY14: 1.0 cent per share) which is subject to shareholders’ approval at the coming AGM. This is to express our appreciation to our shareholders for their unwavering support given to the Group over the years.

Acknowledgement

I am grateful to my fellow Directors for their support, valuable inputs and wise counsel and the Management and staff for their loyalty, dedication and contributions to the Group.

To our customers, suppliers and business associates, I would like to express our sincere appreciation for their continuing support.

Finally, I would like to specially thank our shareholders for your commitment, continued support and belief in the Group despite the challenges faced by the Group in the last year.

ONG KIAN MIN
Non-executive Chairman
17 September 2015