Chairman's Message

Extracted from Annual Report 2023

Chairman

Dear Valued Shareholders,

On behalf of the Board of Directors, I am pleased to present to you Megachem's annual report for the financial year ended 31 December 2023 (“FY 2023”).

CHALLENGING YEAR IN FY 2023

FY 2023 proved to be a difficult year for Megachem as both external and internal events had resulted in a certain degree of impact to our business operation.

Economic uncertainty and ongoing geopolitical events have led to a weak demand and inventory overhang in the chemical industry. Apart from that, the fire incident at Megachem's warehouse facility in the morning of 5 July 2023 resulted in the Group's first ever loss in its history.

Despite these challenges and setbacks, Megachem's diversified business model, across a wide spectrum of products and customer base, provides resilience. Our diversity in terms of markets, global customers and suppliers, has proven to be the key competitive differentiation that sets us apart. Furthermore, with our agility, Megachem continues to seize growth opportunities time and time again and stay resilient notwithstanding several major economic recessions throughout the years.

RESILIENT PERFORMANCE DESPITE ONE-OFF IMPACT

For FY 2023, Megachem's revenue stood at S$123.0 million, a decline of 14.4% as compared to the S$143.7 million in the previous financial year ended 31 December 2022 (“FY 2022”). The fall in revenue was broad-based across its various market segments and in both distribution and manufacturing activities.

In line with the lower sales, gross profit decreased by 34.6% to S$22.5 million and gross profit margin declined to 18.3%, compared to 23.9% in FY 2022. Adjusting for the impact of the fire incident, gross profit margin and gross profit would be 23.1% and S$28.5 million respectively.

Total operating expenses (excluding finance cost) increased by 12.3% year-on-year, mainly due to the fire incident. Expenses such as customer compensation claims, demolition and decontamination costs and higher waste disposal costs were incurred. Excluding the one-off fire incident, total operating expenses would be lower by 6.1% year-on-year.

As a whole, Megachem recorded a net loss of S$5.8 million in FY 2023 as compared to a net profit after tax of S$6.1 million in FY 2022. Excluding the one-off net impact of the fire incident, Megachem would have remained in the black, with a net profit after tax of S$1.9 million.

Loss per share for FY 2023 came in at 4.43 cents as compared to earnings per share of 4.41 cents in FY 2022. Net asset value per share decreased to 37.48 cents as at 31 December 2023, from 43.96 cents as at 31 December 2022. The Group's financial position remained sound and healthy, with cash and bank balances of S$13.6 million as at 31 December 2023, as compared to S$11.9 million as at 31 December 2022. Net gearing ratio stayed at a healthy level of 0.30 times as at 31 December 2023.

Overall, our prudent financial discipline has allowed us to maintain a healthy financial position, giving us financial flexibility to tide through this difficult moment for future business growth and expansion.

TACKLING UNCERTAINTIES AHEAD

We can expect that 2024 will continue to be a year of uncertainties, given the on-going Russia-Ukraine war and the Israel-Hamas conflict which had caused disruptions to supply chain and hence posed a risk to the overall economic growth.

Even though global inflationary pressure recently eased, leading to a pause in interest rate hikes, factors such as high costs and tepid demand may continue to be a drag on the economy and business activities.

Given these uncertainties ahead, we will need to remain focused and nimble so that we can better handle these uncertainties in the near term.

TAPPING LONG-TERM OPPORTUNITIES

In the longer term, given the large population size and developing middle class, the Asian region will remain the key area that contributes towards our main growth engine. Chemicals have been said to be the “industry of industries”. We anticipate that as Asia's production capacity expands, driven by flourishing market potential and investments, the demand for chemicals will likewise increase.

To capture the various opportunities upon the improvement in business conditions, we will continue to strengthen and solidify our foundation of a diverse geographic and product base to remain competitive and provide value-added solutions to a pool of global customers.

We will continue to work closely with our customers through the enhancement of our product offerings and provide effective one-stop solutions to them as well. Apart from prioritising our customers' need, we will also leverage on our track record of operational excellence, prudent financial management and diversified business model to create long-term value for our stakeholders.

SUSTAINABLE CHEMISTRY

Megachem has always deemed sustainability to be one of our top priorities in creating long-term value for our stakeholders. We will continue to prioritise sustainability in our operations and to collaborate with our stakeholders in building a better world for everyone.

WORDS OF APPRECIATION

I would like to express my heartfelt appreciation to the management team, staff, bankers and business associates for their commitment and support in allowing us to get this far. I want to convey my deepest appreciation as well to my fellow independent directors, who together with me will be stepping down to make way for board renewal, for their contributions. Finally, I would like to express my gratitude to our shareholders for their continuous unwavering support.

I believe that Megachem is well-positioned to take on new opportunities as they present themselves by capitalising on our strengths and diversified product offering to provide clients with one-stop solutions. We will work towards building a more sustainable speciality chemicals business for our clients while focusing on executing our Asia-centric strategy.

Lee Bon Leong

Independent and Non-Executive Chairman
Megachem Limited