The financial year ended 31 March 2012 ("FY2012") was a very good year for Tat Hong, with the Group achieving a 63% increase in net profit attributable to shareholders to S$42.3 million on the back of a 23% growth in revenue at S$719.8 million.
The strong performance was despite the challenging global operating environment brought about by long drawn economic issues in Europe and in the US, which had widespread consequences on other regions.
All of the Group's core business segments registered double-digit revenue growth, with the exception of the Tower Crane Rental division, whose revenue grew by 3% mainly because it was somewhat affected by various local shareholder issues in China that have since been resolved in 4QFY2012.
Revenue in FY2012 rose to a record S$719.8 million, from S$584.2 million in FY2011. The Group's gross profit improved 26%, from S$208.5 million in the previous financial year FY2011, to S$263.0 million in FY2012. Gross profit margin also rose 0.8 percentage points to 36.5% in FY2012 mainly due to the improved rental rates and higher utilisation from the Crane Rental and General Equipment Rental divisions.
Due to the better performance by the Group's major associated companies, the Group's FY2012 share of associates' profits increased by S$2.5 million to S$3.8 million as compared with FY2011.
However the Group's share of losses in Joint Venture companies increased by approximately S$1.9 million to S$2.4 million in FY2012 as compared with FY2011 due mainly to an impairment charge on oil-rigs and a provision for doubtful debt.
With the significantly increased level of activities reflected in the S$135.6 million and S$54.5 million increase in Revenue and Gross Profit respectively in FY2012, total operating expenses increased by 17% or S$28.2 million to S$192.7 million as compared to FY2011. The increase in operating expenses was represented mainly by a 53% or S$7.0 million increase in total distribution expenses to S$20.2 million and a 15% or S$20.4 million increase in other operating expenses to S$157.9 million.
The rise in total distribution expenses resulted from increased fuel and transport charges as well as motor vehicle lease charges of S$2.9 million plus a S$3.6 million provision for doubtful debts mainly for accounts receivables in China, compared to a net write back of doubtful debt provision of about S$744,000 in the previous year.
Included in the S$20.4 million increase in other operating expenses was a S$14.8 million loss on disposal of tower cranes through a public auction and a late payment penalty charge of S$1.2 million incurred by 52.3% owned subsidiary, Si Chuan Tat Hong Yuan Zheng Machinery Construction Co, Ltd. Also, staff cost, from a larger headcount and annual salary increases to cope with the increased level of activities was higher by S$14.0 million. The higher level of activities also resulted in S$5.6 million increase in the cost of upkeep of machinery, vehicles, rental and insurance expenses.
The aforesaid rise in other operating expenses in FY2012 was however partially offset by a net foreign exchange gain of S$4.7 million in FY2012 as compared to a loss of S$1.7 million in FY2011, and the exclusion of a S$5.0 million impairment of goodwill by the Australian unit as well as a one-off S$6.4 million charge for damages suffered as a result of the floods in Australia in FY2011.
Equity attributable to Shareholders grew by S$37.5 million to S$556.4 million as at 31 March 2012, from S$518.9 million a year earlier. The Group's cash and cash equivalents stood at a healthy S$76.8 million as at 31 March 2012. Net gearing was 0.79 times, compared to 0.75 times as at end March 2011 due to funding of investments in freehold and leasehold properties - S$26.3 million, and net purchases of plant and equipment - S$50.2 million in FY2012, as the crane fleets continue to be expanded to meet the strong demand.
Trade and other receivables increased by approximately S$39.4 million in FY2012 as a result of increased revenues and timing of sales. Trade and other payables increased by approximately S$149.0 million in FY2012 due mainly to purchases of inventories – S$132.3 million, which resulted in a net increase of S$33.0 million in inventories for stocking up to meet demand.
Revenue generated by the Distribution division in FY2012 increased by approximately 25% to S$339.2 million as compared with FY2011. The biggest contributor to the Group's revenue continue to benefit from strong sales achieved by the Group's Australian Unit from recovery activities to repair the damage wrought by natural disasters in several Australian states in 2010/11. There were also increased infrastructural activities in New South Wales and Queensland as well as mining infrastructure in Western Australia. Elsewhere in the Asia-Pacific, sales of excavators rose as a result of strong demand in the logging, plantation and mining industries in Vietnam and Indonesia.
Gross profit margin in FY2012 increased to 19.9% from 19.4% the previous financial year.
The Group's Crane Rental division generated S$225.0 million in revenue in FY2012 compared to S$185.0 million in FY2011, with Gross Profit margin improving to 57.3% from 56.0% in FY2011 as a result of higher rental and utilisation rates.
All of the Group's key rental markets experienced generally higher rental rates and utilisation - in Singapore, from construction activities on Jurong Island as well as MRT, LTA and housing projects; in Malaysia, from increased activities in iron ore mining as well as oil and gas and LNG projects; in Hong Kong, the commencement of projects such as the Hong Kong Boundary Crossing Facilities, Central – Wan Chai Bypass and the Guangzhou – Shenzhen – Hong Kong Express Rail Link contributed to higher revenues; in Thailand, from the mass rail transportation system and flood barrier project; in Australia, from ramping up activities of the Gorgon LNG project in 4QFY2012 and improved revenues recorded by its lift and shift arm.
The General Equipment Rental division registered the highest percentage growth in revenue. Sales by this division rose 39% to S$96.9 million in FY2012, mainly driven by the continuing strong demand in Australia from recovery efforts and re-building programmes following the natural disasters that occurred in 2010 and 2011.
Revenue generated by the Tower Crane Rental division increased by 3% to S$58.7 million as compared to the preceding year, due mainly to the overall increase in rental contracts in second tier cities and the improved utilisation rates achieved by Jiangsu ZhengHe Tat Hong Equipment Rental Co., Ltd ("JZHTH"). However, 52.3% owned subsidiary, Si Chuan Tat Hong Yuan Zheng Machinery Construction Co., Ltd ("SCTH") had to dispose its crane assets through a court-sanctioned public auction that resulted in it incurring a one-off accounting loss of S$14.8 million, and a late payment penalty charge of S$1.2 million in settling its debts to a crane manufacturer. Although the Group accounted for such one-off accounting loss, those same operating crane assets continue post-auction to belong to the Group under a different China subsidiary which had won the public bid for the crane assets – and in the process, preserving the unit and tonnage capacity within the Group to meet future demand.
With the completion of the buy-over of the Chinese party's ownership in JZHTH in 4QFY2012 and a renewal of its management team, the Tower Crane Rental Division is now geared towards improving its performance.
In FY2012, the Group undertook various corporate and M & A activities to increase the Group's foot-print and to strengthen its position to better benefit from the renewed building and construction, and resource infrastructure developments in the Asia-Pacific region. Some of these activities, by the Group and its associated companies, included:-
In June 2011 - Hup Hin Transport (M) Sdn Bhd, in which the Group has an effective interest of 42%, was incorporated in Malaysia to undertake the business of manufacturing and repair of lifting gears, handling of heavy equipment as well as crane towing and recovery services in Malaysia.
In July 2011 – 100% owned Tat Hong Crane Logistics Sdn Bhd was incorporated in Malaysia, to provide reprocessing, reconditioning and repair services and trading of heavy machinery and equipment in Malaysia.
In September 2011 – a 50% joint venture Company - Tat Hong (PNG) Limited ("THPNG"), was formed in Papua New Guinea, with Curtain Bros Papua New Guinea Limited, a major civil construction company which provides engineering, port and transportation services and expertise to the resources and construction industries in Papua New Guinea as the other 50% partner. THPNG rents cranes, general plant and equipment to various customers in O&G, mining and infrastructure, and wholesales machinery, equipment and supplies for the construction industry.
In January 2012 – Tat Hong (Thailand) Co., Ltd which was previously a 49% owned associated company became a wholly owned subsidiary with the Group's acquisition of the remaining 51% interest. It rents cranes and provides spare parts and related services in Thailand.
In March 2012 – the Group acquired the remaining 50% interest in PT World Wide Equipment South East Asia ("PTWWE") not owned by the Group to make it a wholly owned subsidiary. PTWWE's principal business activities are those of marine equipment maintenance and overhaul, steel fabrication for marine contractors, offshore lifting services, supply of marine equipment and yard storage for the oil and gas industry. It operates from the Indonesian island of Batam.
Additionally, the Group, through wholly owned PT Tat Hong (Batam) had acquired in late 2011, a 14.0 hectare plot of land with deep sea frontage on the Indonesian island of Batam and is in the midst of constructing a deep-sea jetty facility to support its growing marine sector crane and haulage business.
During FY2012, various equity injection and capital restructuring transactions were undertaken in respect of the operating entities in China to strengthen their capital base and support capital expenditure in growing the tower crane fleet size to 757 units as at 31 March 2012, from 684 units at the end of the previous financial year. Various China shareholders' issues, such as that in JZHTH, were also resolved by the end of the financial year under review.
Having streamlined a number of areas of our business operations in FY2012, and barring any unforeseen circumstances and fallout from the Eurozone crisis, the Group expects to continue to improve its performance in FY2013 as compared to FY2012 as it seizes opportunities in the growing infrastructural demands across the Asia- Pacific region.
Our Australian operations are looking particularly strong with encouraging demand for equipment and services arising from on-going post-disaster rebuilding programmes and growth opportunities from the resource and infrastructural sectors in Western Australia and Queensland. More projects are also expected from the Northern Territory in the near future as the Territory Government alone has committed a record A$1.5 billion of public spending on infrastructure in its Budget 2011-121.
Divisionally, the outlook for the Group's Equipment Distribution unit remains favourable, especially in Australia where it should benefit from newly awarded exclusive distribution rights for a range of crushers and screens, as well as in Indonesia.
The Crane Rental division is also expected to continue its growth momentum in FY2013, with a crane fleet of 627 units as at 31 March 2012 (573 units at 31 March 2011), from the tremendous opportunities presented by major infrastructure and construction projects in Singapore, Hong Kong and across Southeast Asia, including Papua New Guinea.
Now that various local shareholders' issues in China have been resolved, the management of the Tower Crane Rental division expects to turn in a better performance in FY2013, especially with a renewed focus to increase utilisation rates and productivity in supporting the on-going and new large building and infrastructure projects in Shenyang, Tianjin, Wuhan, Chongqing, Sichuan and Guangdong. China is also expected to resume the expansion of its nuclear power sector in the second half of 2012 with many plans reaching the final approval stage, and these are expected to bring new opportunities for Tat Hong in terms of the construction of these plants2.
Based on Tat Hong's strong standing in the industry and its high ranking among the world's crane companies, the Group is optimistic of its future as it continues to invest in fleet expansion and renewal.