Extracted from Annual Report 2018
The Year in Review
When the winds of change beckon, some build bunkers, others build windmills.
I am pleased to present our annual report for the financial year 2018 ("FY2018"). The year in review saw ongoing changes in the industry that offered both challenges and opportunities. The transformation of industry trends, macroeconomic fluctuations and regulatory shifts were a mixed bag that we weighed carefully when steering the Group. At Yongmao, we have always recognised the importance of flexibility in our strategies. As Sun Zi once said in The Art of War, "like the coursing water that takes no fixed form, strategy embodies no constants" ("兵无常势，水无常形"). Thus, when faced with headwinds for the year, we were able to readjust our sails and harness the winds of change to achieve a positive set of results. In addition, we made inroads in strengthening the Yongmao brand locally and abroad as we further established our position by adapting to the needs of the industry, such as the growing preference for cranes that can be used to lift heavier modular construction parts in a construction method that is rising in prominence both in the PRC and Singapore.
For FY2018, Group revenue rose 9.1% year-on-year to RMB626.5 million, as compared to RMB574.5 million in FY2017. This rise came primarily on the back of higher towercranes sales, albeit with a lower proportion of these sales comprising of larger-sized towercranes which command a higher gross profit margin. Consequently, the Group's average gross profit margin fell from 34.2% in FY2017 to 28.9% in FY2018. Gross profit for the year was also lower due to keen price competition and higher steel prices. As a result of the aforementioned factors, net profit attributable to equity holders decreased from RMB28.1 million in FY2017 to RMB20.6 million in FY2018.Elevating The Yongmao Brand
While numbers tell an important part of the story for the year, we are proud to share how the Yongmao brand was brought to greater heights - both figuratively and literally. Our STL2400, one of the largest Luffing STL towercrane models with a maximum lifting capacity of 100 tonnes were mobilised to the Haikou Tower 1 site in Hainan province. Reaching a total height of 428 metres, the 94-storey supertall skyscraper is set to become Hainan's tallest building. Similarly, our ST80/75 40T towercranes also achieved another milestone by participating in the construction of the Grand Mosque of Algiers in Algeria. The mosque's 265-metre tall minaret is slated to be Africa's tallest once completed. Our role in these projects will help cement our standing in the industry and serve as a springboard for future endeavours.
Meanwhile, other heavyweight models in our line-up also made their mark with deployment to mega industrial projects of high complexity and specialised requirements. During the financial year, our STT1330 model towercrane took part in the construction of The Crimean Bridge built by the Russian Federation, to span the Strait of Kerch between the Taman Peninsula of Krasnodar Krai (Russia) and the Kerch Peninsula of Crimea (Ukraine). With a length of 18.1 km, it is the longest bridge in both Russia and Ukraine. In addition, our custommade mega-sized STT2830 - 120T model towercranes were built specifically for the Waste-to-Energy power plant in Shenzhen, while our mega-sized STT model towercranes STT2200 and STT3330 were used in the Attarat power plant in Jordan, the Shanghai Pudong Airport (Expansion), Samsung Electronics semiconductor factory in Xi'an and the Shanxi Yuxian Power Plant(山西盂县电厂). Lastly, our biggest megasized models, the STT3330 towercranes will be deployed for the construction of the viaduct over the Xindian River for Ankeng LRT in Taipei, Taiwan in the year 2018. This is the very first STT3330 towercrane to be operating outside of the mainland of the PRC.
In tandem with our efforts to establish ourselves in existing markets, the Group's effort in expanding to new markets continues. In Indonesia, we are entering a new market segment, in which our STT2200 will be deployed for a shipyard in FY2019. Beyond the region, we also made forays into the markets of Argentina, the Dominican Republic and Rwanda.
As we continued to build our portfolio, our marketing efforts also kept pace and opened up new avenues to grow the awareness of our brand and capabilities. During FY2018, Yongmao continued to actively participate in major trade events. This included the Fushun Multinational Procurement Fair ("抚顺市跨国采购洽谈会"), where we hosted business partners at our Fushun production facilities, allowing them to observe our operations first hand. We were also represented at China's National Construction Mechanisation Conference, where CEO Tian Ruonan spoke on Yongmao's transformative journey of growth from the 1990s to the present. Similarly, Group General Manager Sun Tian attended the "Intermat" construction trade show in Paris as a panel speaker, as part of a delegation organised by the Chinese Ministry of Commerce and the Chinese Embassy in France. General Manager Sun Tian highlighted to the floor on Yongmao's eminent position at the vanguard of an emerging wave of Chinese-made products internationally recognised for their quality. Our participation in these trade events have greatly raised the visibility of the Yongmao brand, and these marketing efforts enable us to reach out to a greater network of customers.Turning Challenges To Opportunities
At Yongmao, we endeavour to see the bigger picture and look beyond short-term challenges that may arise from external factors such as policy changes, to how the Group and our stakeholders at large can benefit in the long term. One case in point was the Chinese government's drive to "preserve the blue skies" as highlighted during the 19th National People's Congress. The Chinese government has stepped up a multitude of environmental regulation measures that affect the domestic manufacturing industry. This is a shift away from unbridled economic growth toward a more balanced and sustainable form of development. For Yongmao, these conditions exacerbated a transitory production gap due to improving domestic and international demand. Despite these regulatory shifts posing initial disruptions to our production yield, we understood their necessity and have since reviewed our processes, adjusting and realigning them with market conditions and regulations. One such initiative was the upgrading of our paint spraying facilities, a move to comply with new production regulations. Now we stand on stronger foundations to deliver quality in line with the latest needs and requirements of the industry today.Leading The Way For A Quality Revolution
In addition to being compliant, we constantly seek to raise the bar. Another national initiative introduced during the 19th National People's Congress was the Chinese leaders' rallying call for the staging of a "Quality Revolution" ("品质 革命"), where manufactured goods become innovation-driven and achieve international quality standards. As a worldclass towercrane manufacturer, Yongmao fully espouses this vision, and attaches the utmost emphasis on product quality and attaining international standards to further our quest for quality.
Our R&D efforts stand at the forefront of this endeavour, wherein we constantly develop and push forward with new products, new production methods and new materials. Building on the well-received STT2200 and STT3330 models in 2015 and 2016 respectively, we continued with the release of more mega-size topless towercranes, i.e. the STT1130 - 50T topless towercranes in 2017, as well as the STT2830 - 120T topless towercranes in 2018 mentioned earlier. We also continuously develop core proprietary technologies alongside our product development cycles. Recent breakthroughs include our patented "trapezoidal arm" ("平头塔式起重机梯形臂架"), "luffing tightrope" ("塔式起重机变幅紧绳装置") and "pin extraction" ("塔式起重机拔销器") features. This approach has enabled us to fortify our market competitiveness.Testaments To Our Successes
For the year under review, we are heartened to have been recognised with the following rankings, awards and certifications:
These certifications and awards further affirm Yongmao's pursuit of greater quality standards and stand us in good stead amongst our customers. As with the perfection of a craftsmanship tempered over a thousand forgings and a hundred refinements (钢浇铁铸, 千锤百炼), we remain ever committed to improving on our quest for quality.Gearing For A Future-Ready Yongmao
Moving forward, we believe that we are well positioned to capitalise on the opportunities in the new financial year. The abovementioned preparations are set to work in conjunction with the projected developments in the industry and macroeconomic environment. In the PRC, the construction sector saw a sizable growth of 10.5%, from 193.6 billion yuan in 2016 to 214.0 billion yuan in 2017. Led by the powerhouse Beijing-Tianjin-Hebei integration, Yangtze River Economic Belt, Xiongan economic zone and "One Belt One Road" masterplans, and coupled with a projected 6.8% national GDP for 2018, the domestic construction sector is likely to continue to enjoy robust growth. However, domestic economic growth may also cool in the coming months due to rising borrowing costs for businesses, brought about by Chinese government crackdowns on financial risk.
Global construction, on the other hand, is likely to grow at a more moderate rate of about 3.7% across the next five years. Demand for towercranes in other overseas markets is mixed with demand in Singapore, Taiwan and the Middle East expected to pick up in the replacement market, while other markets such as Macau may be more muted. The key development underscoring the path ahead is Prefabricated Prefinished Volumetric Construction ("PPVC"), a practice where materials and components are assembled at a production facility before being delivered to the construction site. Prefabrication is gaining traction, especially in the Singapore market - our second-largest sales market in Asia after the PRC. Singapore regulators have already established the framework for increasing adoption of the PPVC method. The Building Construction Authority has already mandated the PPVC method for selected non-landed Government Land Sale sites, and 80% of the Build-to-Order flats launched in Singapore last year were also built with the PPVC method.
Amidst the risk of a looming global trade war impacting on an otherwise encouraging market outlook for FY2019, we will continue to focus in product innovation, quality and customer service standards and especially the development of big and mega-sized towercranes catered for industrial projects. Our marketing efforts will set sights on expanding in the international markets, to diversify and broaden our income streams. Concurrently, we will also continuously review and hone our internal operational processes and maximise our human talent amid rising costs and a labour crunch.Dividend and Acknowledgements
On behalf of the Board, I would like to thank our business partners, management, staff and shareholders for their invaluable contributions throughout the year. In appreciation of our shareholders' enduring show of support, we will also be rewarding shareholders with a final dividend of 1.0 Singapore cents for FY2018, to be approved at the upcoming Annual General Meeting.
We have made significant progress and development amid an uncertain economic environment over the past years. With an established track record and our professional team, I am confident that we are well-equipped with the capacity to generate sustainable growth. We look forward to another good year ahead.
Sun Zhao Lin