Switchgear Division

Operationally, FY2008 was a good year for our Switchgear business. This Division continued to maintain its position as the Group's main driver for revenue and profit growth. External revenue for this Division increased 21.3% from $96.2 million in FY2007 to $116.7 million in FY2008. This segment's revenue accounted for 54.7% of Group revenue as compared to 50.2% in FY2007. Profit before interest and tax also rose 23.9% from $9.7 million in FY2007 to $12.1 million in FY2008.

The improvement in the Division's top and bottom line is due to the Group's adoption of a diversified strategy targeting different industry sectors in Singapore. Besides capitalising on data centre projects for banks and wafer fabrication plants for semiconductor clients, we have expanded our sales and services to the offshore & marine industry and the solar fabrication industries.

For FY2008, our Switchgear Division completed major data centre projects for some of the established foreign banks that are based in Singapore, in the Hong Kong SAR as well as the Philippines. We also delivered switchgears for the commercial sector in Singapore such as the Orchard Turn developments - The ION at Orchard, the Straits Trading Building at Battery Road, and also the Jurong Point Development.

During the year under review, our Switchgear Division was able to deliver value-added services to our customers; we have worked hand-in-hand with our business partners to ensure on-time delivery and timely service response. Credit must also go to the manufacturing and servicing team for maintaining our capability in Switchgears. Specialist knowledge is needed when developing switchgears for the various industries because they require very fine tolerances with minimal downtime for equipment. In the coming year, we will launch a 24/7 servicing team on standby to support critical installations to further enhance our service offerings. An in-house test bay station of 1000kW capacity will also be set up to perform full load test on completed Main Switchboards. This is a milestone for us because we are the first in Singapore to set up this facility. Although Singapore is currently in the midst of a recession, we believe that the projects that we have on hand and the projects expected in the pipeline will be sufficient to see us through FY2009. In the pipeline are switchgear projects related to data centres for banks and telecommunication sectors, as well as some large projects across a wide spectrum of market segments. The Singapore Government's decision to bring forward the $4.7 billion worth of construction projects to boost the economy should also benefit our switchgear business.

Our overseas switchgear business recorded a mixed performance, as the regional economic downturn took its toll on switchgear demand in these markets.

Our operations in Sydney, Australia have seen steady orders and business growth; however earnings suffered as our subsidiary experienced unrealised exchange losses due to the volatile foreign exchange rates from the strong devaluation of the Australian dollar versus the Singapore dollar. Besides the main switchboards, we have moved into the business of distribution boards. We have established a good reputation for quality and service and have started to gain recognition in Australia. Presently we are exploring penetration into Perth, Melbourne and Brisbane.

The Malaysia market has performed well, and we are confident about the pipeline of projects to be delivered in the coming year. Switchgear demand is still strong with regular additions to our order books. We see key challenges for FY2009 to come from increased price competition of other switchgear manufacturers due to the economic slowdown and uncertain political climate in Malaysia which had caused some major development projects to be put on hold. Our Malaysia operations serve a dual purpose of providing parts fabrication and metal works for Singapore as well as a platform for further developing the lucrative Malaysia market which offers huge demand potential for switchgears. We are also exploring the possibility of fabricating "DIY" breakdown switch boxes for sale to other overseas markets.

Our joint venture in China with the Yanlord Industrial Group is still in its infancy and its operations are being fine-tuned as we continue to tap on our JV partner's local knowledge and contacts for more business opportunities while providing them with industry-specific expertise. We will always be on the lookout for new opportunities and are poised to seize on them when the macroeconomic indicators improve.

Our Vietnam plant has started operations since the second quarter of FY2008. We will continue to develop the Vietnamese market and adapt to the economic situation. Our present focus is to develop a team of managers and skilled workers as we prepare to penetrate this market which has plenty of growth potential in the long term. We have completed our first project, which is the provision of switchgears to an oil platform.

The year ahead will be very challenging. Stringent monitoring will be required to minimise costs and overheads this year. As the construction landscape is changing, we intend to weather this downturn by repositioning ourselves as a one-stop service provider of complete solution for high and low tension switchgears.

Moving forward, we will continue to seek new business opportunities both in Singapore and overseas. Other new markets which we are targeting for the Switchgear business are in the Middle East and Africa. In addition, we will also constantly hone our competitive edge by exercising prudence in our operations.

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