Sin Heng Heavy Machinery Limited

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Joint Message by Chairman & Managing Director
Extracted from Annual Report 2016

Dear Shareholders,

The financial year ended 30 June 2016 ("FY2016") was a year with challenges. Macro-economic headwinds, such as the slowdown in global and regional economies, the low oil and commodities prices, the volatile foreign currencies movements and the interest rate uncertainties, continue to persist in FY2016. These led to weaker customer demand, reduced business opportunities and intensified competition in our operating environment, which in turn, negatively impacted our financial performance for FY2016.

FINANCIAL RESULTS

Revenue for FY2016 decreased by 48.2% to S$92.1 million as revenue from both rental segment and trading segment were lower. Revenue from rental business decreased by 11.1% to S$41.4 million mainly due to the muted construction and infrastructural activities in the region, resulting in more competitive rental rates. Revenue from trading business decreased by 61.4% to S$50.7 million largely due to the moderation in customer demand for equipment purchases. The lower revenue led to the decline in the Group's gross profit by 58.6% to S$13.1 million. In response to the decline in profitability, the Group swiftly implemented cost containment measures which saw selling and administrative expenses decreased by 32.6% and 12.2% to S$1.6 million and S$14.5 million respectively. The Group also took steps to sharpen its business focus by divesting its minority stake in a noncore associate, Songcheon Engineering Pte. Ltd. As a result, a one-off accounting loss of S$1.6 million was recognised.

The Group recorded an overall loss after tax of S$4.0 million for FY2016.

FINANCIAL POSITION

Notwithstanding the loss, our financial position as at the end of FY2016 remained sound. Our cash and bank balances stood at S$33.4 million as at 30 June 2016, while total unsecured loans amounted to S$15.3 million. Through careful and prudent management of working capital and balance sheet, the Group recorded a net positive operating cashflow of S$12.5 million for FY2016.

NEW GROVE DISTRIBUTORSHIP

Throughout FY2016, the Group continued to work hard to expand our business. In December 2015, we were awarded the distributorship of Manitowoc's Grove range of all-terrain cranes for Indonesia. This new distributorship took effect from 1 January 2016. As part of the agreement, we will also provide after-sales service and parts for Grove cranes in Indonesia. Manitowoc's Grove brand is one of the most recognised and reliable names in the industry. This new partnership will further enhance Sin Heng's position as a leading crane distributor in the region.

RE-COMPOSITION OF BOARD AND RE-DESIGNATION OF SENIOR EXECUTIVES

Recently, the Board has also streamlined its composition and re-designated the roles of several senior executives. Firstly, Mr Hiroshi Takahashi and Mr Yoshihiro Kawahara have resigned as Executive Director and Non-Executive Director respectively in May 2016. On behalf of the Board, I would like to express our sincere appreciation to them for their invaluable contributions to the Group during their tenure. I would also like to warmly welcome Mr Atsushi Shimizu, who has joined the Board as a Non-Executive and Non-Independent Director from May 2016.

Next, with effect from 1 July 2016, I have taken on an executive role as Executive Chairman as well as assume the role of Interim CEO to take charge of the overall operations and financial performance of the Group until a replacement CEO is identified and appointed. With effect from the same date, Mr Don Tan had stepped down as Managing Director. He is currently appointed as Director of Operations, overseeing the Singapore crane rental division and several overseas subsidiaries of the Group. The Group COO, Mr William Teo, has also been re-designated as Senior Head, Business Development of the Group with effect from the same date. On behalf of the Board, I would like to thank Mr Don Tan and Mr William Teo for their dedicated contributions to the Group in their previous roles and we are looking forward to their continued contributions in their new appointments.

OUTLOOK AND STRATEGY

With significant uncertainties still surrounding the global and regional economies, we expect the path ahead to remain bumpy for the foreseeable future. By staying focused to our core strengths and capabilities, we aim to provide optimised lifting solutions and high quality services to continue winning over customers. We will also strive to maintain a strong financial position through active and prudent management of our working capital and balance sheet which will put us a good stead to capitalise on opportunities that will arise as market conditions improve.

IN APPRECIATION

At this juncture, I would like to sincerely thank our Board members, management team and staff for their loyalty, commitment and dedication to the Group. To our principals, customers, business associates and shareholders, I would like to extend heartfelt gratitude for your unwavering support and belief in us, which is crucial to see us through the challenging times ahead.


Mr Tan Ah Lye

Executive Chairman and Interim CEO
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