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Chairman's Message

Extracted from Annual Report 2015

Chairman

Dear Shareholders,

It is with pleasure that I present to you, on behalf of the Board of Directors of Megachem Limited ("Megachem" or the "Group"), our annual report for the full year ended 31 December 2015 ("FY2015").

Resilience Amidst Macroeconomic Uncertainties

2015 has been a year of resilience for Megachem. Against a backdrop of a challenging macroeconomic environment during the year, our overall operations have responded fairly well. This was achieved due to the strong foundations laid out while building Megachem's global network in our earlier years and our prudent approach towards business.

An Improved Bottom-Line

Our financial performance has been resilient although our revenue was impacted by a 4.6% decline to S$110.6 million in FY2015, largely led by lower sales from our America and ASEAN markets. Comparatively, revenue in the previous corresponding full year ("FY2014") was S$115.9 million. The dip in revenue contribution from America was driven primarily by our conscious decision to actively mitigate potential risks in South America tied to the current geopolitical climate. However, our strong presence in North Asia, which led to a robust sales growth of S$2.7 million in that market, helped to partially offset the dip.

Our distribution operations remained the largest contributor of the business. Sales from our distribution segment contracted 4.9% to S$107.1 million while our manufacturing operations grew 3.4% to S$3.5 million during the year.

Despite the decline in revenue, we achieved a 8.2% rise in gross profit to S$25.4 million while gross profit margin improved 2.7 percentage points to 22.9% during the year.

The rate of increase in our overall operating expenses was at a slower pace than the improvement in gross profit, thus, contributing to the 2.9% rise in our net profit after tax to S$3.3 million in FY2015 from S$3.2 million in FY2014. Correspondingly, EBITDA climbed to S$6.4 million in FY2015 from S$6.2 million in FY2014 while earnings per ordinary share rose to 2.22 cents in FY2015 from 2.08 cents in FY2014. 

Cash flow generation continued to be robust, with Megachem's net cash position increasing by S$2.1 million to S$11.1 million which enabled us to reduce our bank borrowings by S$3.6 million to S$18.3 million.

With the prudent management of our balance sheet, our gearing ratio improved from 0.52 times as at 31 December 2014 to 0.43 times as at 31 December 2015. This provides us the buffer and headroom to expand our business. Our net asset value per share increased to 31.65 cents as at 31 December 2015 from 31.45 cents as at 31 December 2014. 

2016: Navigating Cautiously, Leveraging On A Growing Asia Market

Given the headwinds brought on by weaknesses in Europe's and China's economies which spilled over from 2015, coupled with the volatility in commodity prices, currencies and stock markets, we expect a softer global macroeconomic outlook in 2016.

As a specialty chemical solutions provider with a wide base of customers across a diverse range of industries and geographical regions, our operations are inextricably tied to the health of the global economy. As such, our efforts to drive a higher rate of revenue growth may be impacted.

While market conditions over the short-term are challenging, we remain confident of our growth prospects over the mid-to-longer-term.

Going forward, we intend to pursue a refined strategic approach, including further diversification of our business portfolio, to fortify our position in the market.

Our Asia-centric approach, improvement in operational capabilities and strategy to strengthen ties with customers and suppliers over the years have provided us with a good buffer in these uncertain times. With a strong and established base in the region, we intend to continue leveraging on this advantage to pursue growth, and for Asia to act as Megachem's springboard to further penetrate into other market segments and geographical regions. We anticipate Asia, one of the largest markets for chemicals, to continue being a key contributor to our business and remain a growing market for us.

Good Corporate Governance And A Culture Of Transparency

On the corporate governance front, 2015 was a significant milestone year for us. We are delighted and honoured to have won four awards at the prestigious Singapore Corporate Awards. It was the first time we hauled in that many accolades in a single year since the Awards' launch in 2005. The four awards were the Best Managed Board (Gold), Best Chief Financial Officer, Best Annual Report Award (Silver) and Best Investor Relations Award (Bronze), in the "less than $300 million market capitalisation" category.

While this is a testament to our efforts in cultivating good corporate governance practices and in fostering a culture of transparency within the organisation, winning these awards also serve as an important reminder for us to continue on our commitment to uphold high standards.

Rewarding Our Shareholders

In appreciation of our loyal shareholders' faith and confidence in Megachem all these years as we built the business to the wellestablished specialty chemical solutions provider today, the Board has proposed a final dividend of 0.7 cent per share. With the interim dividend of 0.3 cent per share, FY2015's collective dividend of 1.0 cent per share represents a dividend payout ratio of 45.1% of Megachem's net profit for FY2015.

Words Of Appreciation

To our management team, staff, bankers, and business associates, I would like to express my gratitude and acknowledgement for the hard work in enabling Megachem to achieve success. I would also like to give thanks to my fellow Directors for their immense contribution in formulating and steering the Group's strategy.

I am confident that with our stakeholders' support, Megachem will remain on track to achieve greater heights for years to come.

Yours Sincerely,

Sidney Chew

Executive Chairman & Managing Director
Megachem Limited