Chairman's Message

extracted from Annual Report 2014

DEAR SHAREHOLDERS,

The Group is heartened to register continued profitability for the full year ended 31 December 2014 (FY2014). Against the backdrop of intense competition and rising business costs in China, as well as space and production constraints in Singapore, we achieved revenue and net profit of S$224.5 million and S$9.6 million respectively.

Despite the Group's sales growth slowed down in the second half of FY2014, overall, the Group still managed to achieve a 4.1% growth in full-year revenue – a reflection of higher sales performance from our China's plants, Nantong Tat Seng and Tianjin Dansun.

In line with revenue growth, cost of sales increased 4.3% to S$179.1 million and gross profit improved 3.7% to S$45.4 million in FY2014. Distribution and selling expenses rose 6.2% to S$13.3 million mainly due to higher revenue achieved by the Group. Other contributing factors to the higher distribution and selling expenses include higher costs incurred on custom clearance and warehouse's storage charge in the "export processing zone" of a new customer in China, and higher transportation costs arising from increased sales with longer delivery distance. Further, general and administrative expenses increased 11.8% to S$15.9 million as a result of higher minimum wage and an increase in all related statutory fund contributions imposed by the government of China.

As at 31 December 2014, the cash and bank balances (excluding bank balances pledged as security) of the Group stood at S$15.6 million, compared to S$23.1 million last year. The dip was due to a loan repayment of S$6.5 million to holding company, Hanwell Holdings Limited and higher dividend payment in FY2014.

BUSINESS REVIEW BY GEOGRAPHICAL SEGMENTS

Singapore
Revenue from Singapore dipped 9.0% to S$36.8 million, accounting for 16.4% of total Group revenue in FY2014. Sales performance was impacted by space and production constraints after the consolidation exercise of two Singapore operations in FY2014. Along with a reduction in sales of lower margin products, revenue in the first half of FY2014 declined by 11.6%. The Group had taken various steps to alleviate the space and production constraints and increase revenue, including but not limited, to build a mezzanine floor and purchase a high-speed six-colour flexo folder gluer machine to replace the two older printing machines, this new machine has greatly reduced setup time per job, boost the productivity by increasing printing output (square meter) per minute and solves the congested storage problem from boards to printed boxes. These swift steps taken by the Group has lifted Singapore's revenue in the second half of the year by 7.8% as compared to the first half of FY2014.

China
Revenue from our China operations rose 7.2% to S$187.7 million, representing 83.6% of the total Group revenue. In FY2014, the stronger sales performance validated the Group's strategy to raise productivity and strengthen sales efforts.

To strive and compete more effectively, the Group explored various ways to raise efficiency and reduce business costs. To succeed this, the Group spent the past year raising operational efficiency at the various plants in China, for example, at Nantong Tat Seng, workflow was re-designed and staff training was conducted to ensure that the plant operates at the most optimal level. In Suzhou, a consultant was engaged to raise the skill sets of workers and the middle management. We progressively centralise certain management functions at Suzhou, the headquarters of China subisidiaries to streamline headcount. The production systems were also enhanced and a new and effective management system was implemented to monitor the capacity and performance of printing machines in Suzhou. This move by the Group had proven to be effective and successfully increased the efficiency of Suzhou's printing department by 20%. Plans are underway to implement a similar system to other plants in China. To fend off competition, sales and marketing efforts were intensified during the year to secure higher orders.

DIVIDEND

The Board of Directors has recommended a final dividend of S$0.01 per ordinary share, subject to shareholders' approval at the forthcoming Annual General Meeting. Including the interim dividend of S$0.01 per ordinary share, total dividend for FY2014 would amount to S$0.02 per ordinary share – a level similar to last year.

LOOKING AHEAD

The road ahead of us will undoubtedly be more challenging. In particular, economic growth in China is expected to slow down. The tightening of borrowings rules and regulations from China's central bank will also impact the Group's overall business landscape. In Singapore, the manufacturing sector is shrinking as more multinational corporations relocate their operations elsewhere with a lower cost base, and this trend will in turn affect the demand for our packaging products. Cost of operations in China and Singapore are also expected to continue on an upward trend.

Riding on the Group's capabilities and strong presence in the corrugated packaging industry, we will further penetrate the medium and high-end market with higher value products such as dual art boards. Operational processes will be continually enhanced and appropriate measures will be adopted to drive sustainable growth. Besides initiatives such as centralising certain functions to drive down costs, the Group will continue to invest in efficient machinery and staff training. We believe by continuing to offer excellent service quality, we will set ourselves apart from the competition.

In Singapore, to tackle rising costs brought about by the hiring restriction on foreign workers and more expensive raw materials due to higher US dollar exchange rate, the Group will continue to raise productivity. Over the years, we have built a solid reputation for our capabilities to cater to the growing food and pharmaceutical sectors in Singapore. We will work hard to further cement this foothold and increase our market share in these two growing sectors.

WORDS OF APPRECIATION

On behalf of the Company, I would like to convey our deepest condolences to the family of the late Mr Kuik See Juan. An Independent Director of the Group for 13 years, Mr Kuik had made invaluable contribution to the Company and we thank him for his dedicated service.

I would also like to take this opportunity to thank the Board of Directors, staff and business associates for their support. I look forward to forging a stronger partnership as we work together to propel the Group's growth. To all shareholders, thank you for placing your trust in us.

Dr Allan Yap
Executive Chairman