Dear Shareholders,
On behalf of the Board of Directors of Hafary Holdings Limited (“Hafary” or the “Group”), it gives me great pleasure in presenting you with the Group’s Annual Report for the financial year ended 30 June 2011 (“FY2011”). For the year under review, Hafary recorded sterling results with significant improvements in both the top and bottom lines.
Financial Performance
Group revenue surged by 57.4% to S$60.4 million in FY2011 from S$38.4 million in FY2010. The increase was contributed mainly by Hafary Pte Ltd (“HPL”), the Group’s sales arm for tiles and sanitary ware and fittings. The increased demand for the Group’s products was driven mainly by the healthy local property market and increased spending power of homeowners as a result of the improved economic climate in Singapore in the last 12 months.
The opening of its third showroom at Tradehub 21 at 18 Boon Lay Way in September 2010 has enhanced the Group’s market presence and improving accessibility to its products. This has in turn contributed to the improved financial results in the year under review.
The increased revenue and operations of the Group is also attributed to its increased market profile, a result of ramped up marketing and advertising initiatives during the year.
The Group’s other subsidiaries - Surface Project Pte. Ltd. (“SPPL”), Surface Stone Pte. Ltd. (“SSPL”) and Wood Culture Pte. Ltd. (“WCPL”), also contributed to the significant revenue growth of the Group.
Performance of Project and General Segments
Both the Group’s business segments, Project and General, reported improvements in revenue for FY2011.
Against the backdrop of an increased number of private property launches in the past two to three years, sales from the Project segment, involving the supply of surfacing materials for major property development mainly by SPPL, increased to S$22.6 million in FY2011, representing an increase of 103.9% or S$11.5 million from S$11.1 million recorded in FY2010. The substantial improvement in Project sales reflects the Group’s success in securing orders to supply surfacing materials to several notable development projects in the year under review, such as Double Bay Residences and The Regency.
The General segment, involving the supply of surfacing materials for home renovation or small property development, continued to be the leading sales generator, recording revenue of S$37.7 million, which makes up 62.5% of Group revenue.
Profit, Net of Tax
Riding on the back of the significant increase in operations for FY2011, the Group’s net profit for the year under review surged by 130.2% from S$3.3 million to S$7.5 million. This represents an increase of S$4.2 million in net profit from the preceding reporting year.
This significant increase in net profit for FY2011 reflects the Group’s ability and success in managing costs effectively while riding on the growing demand for its surfacing materials as well as sanitary ware and fittings.
Consequently, net profit attributable to shareholders of the Company increased to S$6.9 million in FY2011 from S$3.1 million in FY2010.
Dividend
In gratitude to our shareholders for the support and confidence in us, the Board is pleased to recommend a final tax-exempt (one-tier) dividend of 0.9 Singapore cent per ordinary share for the financial year ended 30 June 2011, for approval at the forthcoming Annual General Meeting.
Corporate Developments
The significant growth in business achieved in recent years coupled with the anticipated increase in business volume prompted the Group to take active and decisive steps in acquiring additional showroom and storage space. Esteemed shareholders of Hafary approved, in an Extraordinary General Meeting (“EGM”) on 22 July 2011, the acquisition of three properties located at Eunos, Changi and Sungei Kadut for commercial and warehousing purposes. The Eunos acquisition will allow the Group to relocate the existing office, showroom and warehouse at Defu to a larger facility at the Eunos property to support the future expansion needs of the Group.
The Changi property is intended for the consolidated warehousing and storage of tiles in one location. Together with the Eunos property, both of these facilities will meet the Group’s short-to-medium term warehousing needs.
The Sungei Kadut property will, after renovation, support the Group’s operations as its marble-processing plant. Backed by its experience in operating a marble-processing facility, the Sungei Kadut operations will enable the Group to exercise greater control over its marble-processing capabilities, and thus further improve operational efficiency.
The estimated total acquisition cost for the above three properties, including purchase and development costs, amounted to approximately S$43.2 million.
During the EGM, our esteemed shareholders also approved the development and subsequent disposal of the majority of the freehold property at 79 Aljunied Road at a minimum reserve price of S$46.9 million. The Group has since received the requisite approvals from the relevant authorities to commence the sale of space in the development property in September 2011.
Outlook
Despite the increasingly grim global economic outlook and heightened volatility in the financial markets, the Singapore economy appears to be staying its course and showing moderate growth. Nevertheless, the Group will continue to strengthen its leading position as the preferred one-stop provider for surfacing materials and sanitary ware and fittings. Alongside this, the Group will also continue to expand and enhance its wide range of products offerings in sync with the latest design trends that appeal to the Singapore market, while exploring opportunities to offer complementary products to its customers at competitive prices.
Although the private property launches may have slowed down, the Group is confident of growing its business in other segments . By leveraging on its position of market leadership, the Group is poised to capitalise on the increased opportunities presented by the mass market segment. In particular, the Group hopes to capture greater market share, especially in the public housing arena, with 25,000 HDB Build-to-order (“BTO”) flats on track for completion by end of 2011 and 25,000 BTO flats to be launched in 2012 in new towns and matured estates.*
As part of its growth strategy in developing its regional operations, the Group has incorporated two subsidiaries, namely Hafary Vietnam Pte. Ltd. (“HVPL”) and Hafary China Pte. Ltd. (“HChPL”), to carry out overseas expansion of its business. Having envisaged expansion into the Vietnam market during the Group’s Initial Public Offering of its shares on Catalist in December 2009, HVPL will act as the Special Purpose Vehicle (“SPV”) to hold investments in Vietnam. China was subsequently identified as a potential market. HChPL will thus act as the SPV for the Group’s expansion and acquisition of assets in China when the opportunities arise.
The business outlook for the current reporting year (“FY2012”) remains optimistic, given the Group’s stronghold in the Singapore market. Barring any unforeseen circumstances, the Group is confident of building on its firm business foundation and hopes to continue to perform credibly in the foreseeable future.
Acknowledgements
I would like to take this opportunity to express my most sincere gratitude to my fellow Directors for your guidance and leadership. To all our shareholders, loyal customers, associates, Management and employees, your commitment and invaluable support over the years have played an instrumental role in Hafary’s success today, and for this, we are most grateful. In the current year and beyond, we aim to take our business to greater heights and in turn, enhance shareholder value.
*Source: News release dated 15 August 2011 on Housing and Development Board website
FY2011 Results at a Glance
Overall, the Group’s top and bottom lines achieved substantial growth, reflecting an increased demand for the Group’s products - driven mainly by the robust Singapore property market and increased spending power of homeowners as a result of the improved economic climate in Singapore in the last 12 months. Group revenue increased by 57.4% to S$60.4 million in FY2011 from S$38.4 million in FY2010. The bulk of the revenue increase came from Hafary Pte Ltd, the Group’s sales arm for tiles and sanitary ware and fittings. Other subsidiaries, Surface Project Pte. Ltd., Surface Stone Pte. Ltd. and Wood Culture Pte. Ltd., also contributed to the Group’s significant revenue growth.
In line with the increase in Group revenue for FY2011, the Group’s net profit surged by 130.2% to S$7.5 million from S$3.3 million in the preceding reporting year. This sterling performance in the bottom line in FY2011 reflects the Group’s effective cost containment and ability to leverage on the growing demand for its surfacing materials as well as sanitary ware and fittings. Profit before income tax increased by $4.9 million from $4.2 million in FY2010 to $9.1 million in FY2011. The effective tax rate for FY2011 is 17.4% and comparable to the Singapore corporate tax rate of 17%.
1 Interest rate for bank saving deposits as at 30 June 2011. Source: MAS website.
2 Interest rate for bank 12-month fixed deposits as at 30 June 2011. Source: MAS website.
3 Singapore Government Securities bond yield as at 9 September 2011. Source: MAS website
4 Interest paid on Central Provident Fund ordinary account (For balance above $20,000) for 1 October – 31 December 2011. Source: CPF news release on 29 August 2011.
5 Based on proposed dividend of 0.9 Singapore cents for FY2011 and closing price of S$0.25 on 9 September 2011.
Financial Review
Subsequent Developments
There are no significant developments subsequent to the release of the Group’s and the company’s audited financial results, as announced on 29 August 2011, which would materially affect the Group’s and the company’s operating and financial performance as at 3 October 2011.
Operations Review
Both the Group’s business segments, Project and General, recorded increases in revenue for FY2011.
Given the increased influx of private property launches in the past two to three years, sales from the Project segment, contributed mainly by Surface Project Pte. Ltd., increased to S$22.6 million in FY2011, representing an increase of 103.9% or S$11.5 million from S$11.1 million recorded in FY2010. The strong improvement in Project sales was underpinned by the Group’s success in securing several well-known development projects in the year under review, including Double Bay Residences and The Regency.
The General segment, continued to be the leading sales generator for the Group. Its FY2011 sales of S$37.7 million constitutes 62.5% of Group revenue.
Generally, the increased operations of the Group can also be attributable to its increased market profile since the company’s listing on the Catalist on 9 December 2009. The group’s presence in the market was enhanced with the opening of its third showroom at Tradehub 21 (18 Boon Lay Way) in September 2010.
In October 2010, the Group acquired a freehold land of approximately 2,704 square metre in 79 Aljunied Road, Singapore 389822. The property was initially planned for redevelopment into a six-storey building to house the Group’s corporate headquarters as well as showroom space. In view of the acquisition of other properties outlined in the next paragraph and to maintain an acceptable leverage ratio, the management decided to dispose an appropriate number of units in the building. The disposal was approved by shareholders at the Extraordinary Meeting held on 22 July 2011. The Group has commenced disposal of units in the development property after receiving the requisite approvals from the relevant authorities in September 2011. Construction of property has also commenced in September 2011 and is expected to be completed by June 2013.
In the same Extraordinary General Meeting on 22 July 2011, shareholders also approved acquisition of three leasehold properties, namely 105 Eunos Avenue 3 Singapore 409836 (land area of approximately 4,978 square metre), 3 Changi North Street 1 Singapore 498824 (land area of approximately 10,466 square metre) and 18C Sungei Kadut Street 4 Singapore 729066 (land area of approximately 5,191 square metre). These properties will be redeveloped to meet the Group’s operational and warehousing needs.