I am pleased to present to you the annual report for Serial System for the twelve months ended 31 December 2019 (“FY2019”). Despite the challenges faced, we have pushed through and closed the year on a positive note.
Following the termination in late-2018 of our agreements with Texas Instruments, which had been our single-largest supplier and source of revenue, we have diversified our supplier base, restructured to right-size our workforce and improved internal efficiencies further. We have been working hard to lower operating expenses while maintaining staff morale and team spirit.
The cessation of this longstanding distribution agreement had coincided with other challenges even before the onset of the COVID-19 situation. Foremost among these have been the slowdown in the domestic Chinese economy and the ongoing U.S.-China trade tensions. Against this backdrop, we have continued to seek out new business opportunities with suppliers and channel partners to diversify and reinvigorate our revenue streams. Some of these are within the electronic components sector while others are in the consumer products sector or outside of this sector, but all nonetheless draw on our strengths in management and fostering business partnerships across Asia, and particularly in Greater China. These efforts have led to several of our ventures coming to fruition over the course of the past year.
For the electronic components sector, our 91%-owned subsidiary Serial Microelectronics (HK) Limited (“SMHK”) has entered into a joint-venture agreement in January 2019 with LSD Science and Technology (Hong Kong) Co., Limited (“Lierda HK”), subsidiary of a company listed on the China OTC Stock Exchange. Together, SMHK and Lierda HK have established a joint-venture company, Lierda Serial China Limited, in Hong Kong to distribute a new product line in Hong Kong and China and explore further potential synergies. SMHK holds a 49% equity interest in Lierda Serial China Limited.
SMHK has also entered into a distribution agreement in July 2019 with NASDAQ-listed Neonode Inc., an optical sensing technology company to promote and sell its optical sensor products in China, Taiwan and Hong Kong. To date, the technology of U.S.-based Neonode Inc. has been deployed for over 70 million products, including 4 million cars and 66 million consumer devices.
In August 2019 the Group signed a joint-venture agreement with Unitrontech Co., Ltd. (“Unitron”), a company listed on the KOSDAQ of the Korea Exchange in South Korea. The joint-venture with Unitron will enable the distribution of Unitron’s product line and ranges outside of South Korea in China, Hong Kong and South East Asia.
In the consumer products sector, as furtherance of our efforts to grow in the managed print services (“MPS”) space, our wholly owned Singapore subsidiary Serial System International Pte. Ltd. (“Serial System International”) has acquired a 49% equity interest in a newly incorporated company in Thailand, Print IQ Co., Ltd., (“PIQ Thailand”), which offers managed print services and supplies printer and toners. PIQ Thailand represents our commitment to grow the MPS business as we continue to look for opportunities to expand our coverage in the region after Singapore and Indonesia. The MPS industry is a growing market as companies worldwide shift towards a leasehold model for their operations. We look forward to growing this segment of business while staying true to our commitment to quality for our customers.
In other sectors, Serial System International has acquired a 55% equity interest in a newly incorporated company, SG Networks Pte. Ltd., (“SGN”), which will specialise in infrastructure projects for telecommunications, security and power lines. In addition, Serial System International has also moved further into the fast-moving consumer goods (“FMCG”) market with URG Pte. Ltd. (“URG”), a 45.5%-owned subsidiary. URG not only will distribute a wide range of FMCG in Asia but also has the manufacturing capabilities to process and bottle customised oil blends.
SGN and URG represent the next step in our strategy for future growth and diversified revenue streams. We believe this is the first step into new and exciting market opportunities, strengthening Serial System’s overall portfolio.
Serial System has reported a net profit after tax of US$8.0 million on revenue of US$791.6 million for FY2019.
In appreciation of your continued support and loyalty through the challenges faced, we have proposed a final cash dividend of 0.13 Singapore cent per ordinary share. Together with an interim payout of 0.22 Singapore cent per ordinary share, the total dividend payout from our FY2019 financial performance is 0.35 Singapore cent per ordinary share.
While we continue to focus our efforts to increase and diversify our revenue streams to recover the business lost with Texas Instruments, we remain mindful of the state of the Asian markets in which we operate. The outbreak of COVID-19 in China gathered momentum in 1Q2020, and has spread to the rest of the world. This has affected business operations not only in China and the Asian region but is quickly spreading on a global scale.
We have to acknowledge that this health crisis and the oil shock felt in 1Q2020 will continue to impact economic sentiment at least through the rest of FY2020. We will redouble our efforts in our core semiconductor business while looking out for other opportunities which leverage on our strengths and network, and which enhance shareholder value.
We should not be over-pessimistic. Serial System emerged stronger after each crisis faced in the last three decades. These challenges now will only make us stronger.
It is my firm belief that there will always be demand for semiconductors due to the plethora of essential and infrastructural electronic devices that use them as building blocks. The proliferation of applications in Internet of Things (“IoT”), Artificial Intelligence (“AI”), mobility services and autonomous vehicles promises to supercharge the semiconductor industry in the next decade.
Despite keen competition in the industry, we continue to enjoy a reputation as an established distributor with a proven track record, and an integral part of the international supply chain for chipmakers, original equipment manufacturers and major electronic brands.
Appreciation & Acknowledgements
I would like to welcome Mr. Goi Kok Ming Kenneth to our board of directors. Kenneth joined the Board on 8 May 2019. With decades of experience in the food and beverage and supply chain industry and the property sector, his knowledge, experience and fresh insights will be instrumental to steer the Company forward during this challenging period and invaluable as we continue to explore more investment and acquisition opportunities.
On behalf of the board of directors, I would to express our appreciation for the continued trust, support and hard work of our customers, business partners, shareholders and staff. We have weathered a very challenging year, and with your continued support, we endeavour to redouble our efforts to forge ahead through challenging times in Year 2020 and beyond.
Dato’ Seri Dr. Derek Goh Bak Heng BBM
Executive Chairman & Group CEO