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The COVID-19 pandemic in FY2020 has brought challenging times to our businesses and in all the countries which we operated in. Our three business divisions had reported lower revenue in 1H2020 against 1H2019. However, although our 2H2020 Group revenue was lower than 2H2019, except for Engineering division both PCS and ICT divisions had recorded higher revenue in 2H2020 as compared to 1H2020.
PCS - Revenue was significantly impacted with lower channel, prepaid and retail sales. Retail sales in 1H2020 were severely affected by the lower traffic at shopping malls and the temporary shop closures during the Circuit Breaker Period in Singapore, as well as the Movement Control Order in Malaysia. In 2H2020, despite the implementation of Phase 2 re-opening (“Safe Transition”) in Singapore from 1 June 2020 and the launch of new handset and tablet models by manufacturers, sales in general have remained subdued. Although take up of new handset models improved, consumer demand remained weak. With respect to the sale of prepaid, there was also no significant increase in sales despite the opening up of dormitories for foreign workers to start work. Online delivery sales by the PCS division had partially offset the lower revenue.
ICT - Lower revenue in FY2020 was due to lower equipment sales, lower maintenance revenue, and delay in project completion. The prevailing economic conditions and uncertain outlook have caused majority of our customers to postpone their non-critical spending. While offices are reopening, working from home is still the de facto arrangement. This has led to longer than usual time to process requests for proposal and awards of tenders. Consequently, many of our sale opportunities did not materialise within the forecasted timeline. Although there were new projects relating to mobile telecommunicating, increase in demand for our unified communication services to ecommerce and call centre, these have not been able to compensate for the shortfall in revenue from our major projects. During FY2020, there was however a one-off revenue recognition for the implementation of e-registration services provided to a customer in the public sector.
Engineering - Our operations in Singapore, Indonesia, Malaysia, the Philippines and Vietnam have been impacted to varying degrees of severity, depending on the movement control measures imposed by the government in these countries in response to the COVID-19 pandemic. Although the order book remained healthy, there were project implementation delay from site access and material readiness issues coupled with transportation and logistical challenges resulting in lower revenue recognition in FY2020. However, power supply, transmission equipment and product sales were higher in FY2020. There was also new source of revenue arising from the provision of field maintenance services. Except for our Malaysian operations, all other operations reported a decrease in revenue in FY2020.
With lower revenue registered in FY2020, the Group’s overall operating PBT in FY2020 had reduced substantially as compared to FY2019. Lower gross profit was partially mitigated by government and rental support received in Singapore. Operating expenses were also lower across all the three business divisions with savings from wage freeze and forced leave implemented in FY2020. Our three business divisions had reported lower PBT in 1H2020 against 1H2019. However, although our 2H2020 Group PBT was lower than 2H2019, except for the Engineering division, both PCS and ICT divisions had recorded higher PBT in 2H2020 as compared to 1H2020, leading the Group to reverse its 1H2020 losses to a small operating profit in FY2020. The Group however reported losses in FY2020 due to the full impairment of the goodwill acquired in FY2010 for the investment in S & I.
PCS - Profit from the Malaysian operation was lower due to lower variable commission recognised with lesser walkin customers. The Singapore operations suffered significant losses due to lower revenue. In FY2019, there was also higher one-off commissions received from a major customer for a migration exercise from cable to fibre network. Manufacturers’ incentives received were also lower due to lower purchases. These were partially mitigated by write back of inventory recognised from sales of aged inventories, lower marketing and finance expenses in FY2020 arising from the lower sales activities.
ICT - Despite the lower revenue in FY2020 against FY2019, there was higher gross margin in FY2020 against FY2019 with increase in service revenue mix. Our unified communication business had reported higher PBT in FY2020. The ICT division’s weaker operating PBT in FY2020 was mainly due lower PBT from our infrastructure business due to lower customer spending and a higher share of losses recognised from an associate due to loss of certain content income as a result of hotel closures.
There was a full impairment of the goodwill recognised for the Group’s investment in S&I which was acquired in FY2010. Due to the uncertain economic outlook arising from the COVID-19 pandemic, with lesser visibility on the order book building for FY2021, a lower revenue and revenue growth rate for S&I were forecasted for FY2021. As the recoverable amount is below the carrying value, a full impairment was made.
Engineering - Work-from-home has changed mobile usage patterns since demand has shifted towards residential areas rather than traditional office areas. As a result, regional telco operators are focusing more on network enhancement activities instead of new network rollouts. This has impacted our overall margin since network upgrades are generally of lower value compared to new rollouts. Losses in FY2020 were mainly attributed to unforeseeable losses recognised for projects in the Philippines. The stringent lockdown measures imposed by the Philippines government because of the COVID-19 pandemic had resulted in cancellation of orders, loss in productivity due to inefficient workforce mobility and supply and logistic disruptions. Profit from the Indonesian operation was also lower in FY2020 due to higher manpower and financing costs incurred as a result of delays in project completion due to the COVID-19 pandemic. These were partially mitigated by lower losses in the Singapore operations due to improvement in margins.
The global economy is expected to improve on the back of aggressive vaccinations roll-out and the progressive reopening of economies. In Singapore, the Ministry of Trade and Industry has forecasted GDP growth of 4.0 to 6.0 per cent in 2021. Notwithstanding the anticipated recovery, there remains considerable risks such as the resurgence of COVID-19 infections especially in regional countries, and geopolitical uncertainty. Consequently, consumer confidence and business sentiment could be impacted. The Group, therefore, maintains a cautious outlook for FY2021.
Segment wise, PCS division will continue to experience subdued consumer demand given the economic and job market uncertainties. ICT division is anticipated to face implementation delays of major projects with the deferment of non-critical spending by enterprises. Engineering division will continue to be impacted by movement control measures in Indonesia, Malaysia and the Philippines if the COVID-19 infections in those countries are not brought under control.
Taking into account these factors, the Group’s financial performance expectations based on pre-COVID-19 assumptions may have to be moderated. The fundamentals of the Group, however, remain strong, namely our balance sheet, working capital position and cashflow. The Group does not foresee liquidity issues with net cash and net current asset position as at 31 December 2020. We also have adequate banking facilities for any short-term funding needs to weather this downturn.
The Group will continue to focus on maintaining financial prudence and improving our cost structure and competitiveness through digitalisation and other operational improvements, and enhancing our competencies through upskilling and reskilling of our workforce. However, first half performance will be impacted by reduced government grants and rental subsidies. At the same time, we will reposition the Group for growth through new business initiatives, particularly in the ICT and PCS segments through some targeted investments.
The longer-term prospects for our industry remain cautiously positive. The roll-out of 5G networks in Singapore and the region and regional network upgrading, continued demand for cloud migration services and Internet of Things (“IoT”) in keeping with digitalisation trends and the ongoing evolution of smart devices is expected to provide the growth impetus for our business.
This release may contain forward-looking statements that involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements as a result of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital availability, competition from other companies and venues for the sale/distribution of goods and services, shifts in customer demands, customers and partners, changes in operating expenses, including employee wages, benefits and training, and governmental and public policy changes. You are cautioned not to place undue reliance on these forward looking statements, which are based on current view of management on future events.