Extracted from Annual Report 2020
The Year in Review
Challenges gives rise to opportunities. True strength and virtue will not be marred.
The financial year 2021 ("FY2021") was a challenging year. The COVID-19 pandemic which spread around the globe has impacted every aspect of life with far-reaching economic consequences. With the virus spreading at an alarming speed, many countries have imposed tight restrictions to curb the spread of the virus which has inadvertently disrupted the global supply chain and business operations. This has caused rapid economic downturns in many countries. While the Group is steering with the disruption in the business operations amongst others, at the same time, we had to continually navigate new laws, workplace practices and safety measures as the world fight against COVID-19 together.
Despite the various hurdles and obstacles, the Group has risen to the occasion, marking its first RMB1.0 billion breakthrough in revenue. Once again, Yongmao has demonstrated remarkable resilience in the face of crisis.
Disruptions to global supply chains due to the COVID-19 pandemic persisted during the first half of our FY2021. Governments' containment measures to curb the spread also inadvertently affected the operations of many of our local and overseas customers which led to delays and postponement in deliveries of our products. At the same time, limitation of freight activities has also caused further delays on deliveries.
However, the economy in the PRC has recovered steadily in the second half of year 2020 aided by strict virus containment measures and emergency relief for businesses, making it the first and only major economy in the world to achieve economic growth in 2020. Singapore, one of our major market other than the PRC has also progressively resumed construction activities in the second half of the financial year. In line with the recovery, the Group was able to fulfil more orders especially in the PRC and our performance improved notably in the second half of the financial year and enabled us to post a year-on-year revenue increase of 6.8% to RMB1.028 billion.
In tandem with the increase in revenue, gross profit also increased by 2.5% from RMB248.8 million in FY2020 to RMB255.0 million in FY2021. However, our average gross profit margin decreased from 25.9% in FY2020 to 24.8% in FY2021 due to a combination of lower average selling prices due to softer market conditions in 1H FY2021, higher production overhead costs due to lower production activities at the same period, and an increase in steel prices in 2H FY2021. As a result of the above, net profit attributable to equity holders decreased to RMB54.9 million for FY2021 as compared to RMB59.7 million in FY2020.
For the year under review, we had also completed the acquisition of Beijing Yongmao Jiangong Machinery Manufacturing Co., Ltd ("Beijing Yongmao") from Beijing Construction Group Co., Ltd, a state-owned entity of the PRC, on 24 February 2021. The acquisition resulted in Beijing Yongmao becoming a wholly-owned subsidiary, allowing the Group to have full autonomy over managing Beijing Yongmao and to streamline future work.
On 20 April 2021, the Group through its subsidiary, Fushun Yongmao Constuction Machinery Co., Ltd incorporated a wholly-owned subsidiary in the PRC under the name Liaoning Yongmao Heavy Industry Co., Ltd (辽宁永茂重工有限公司) with registered and unpaid capital contribution of RMB20,000,000. The entity was set up in Shenyang Area of China (Liaoning) Pilot Free Trade Zone.
We believe these will create greater operational efficiency to the Group.Achieving Greater Heights beyond the PRC
Our large and mega size tower cranes continue to gain traction in the international market with our success to take on notable projects.
During the year under review, we developed The STL4200 which is our largest luffing tower crane to-date. The STL4200 has a lifting capacity of 100T and we have been contracted to deliver two of these tower cranes to the Middle East. The cranes will be used to build the largest waste-to-energy conversion plant in the region, capable of processing 2,000 metric tonnes of waste every day during the first phase of operations, producing 60 megawatts of energy. The tower cranes will be delivered in the second half of 2021.
Further north, we shipped a STT3330 and two STL2400 cranes to Bolshoy Kamen in Russia. These tower cranes will be used in the Zvezda shipyard which is expected to be completed in 2024. Once completed, it will be one of the largest modern shipyards in Russia and among the first in the country to focus on large-scale shipbuilding.
As we make headway across borders, we continue to strengthen our position in existing markets. In Singapore, we continue to be one of the market leaders for the large and mega size tower cranes series with lifting capacity of 50T to 64T. Model STT983 sees the highest demand due to its suitability for Prefabricated Prefinished Volumetric Construction ("PPVC") construction. It is also more cost efficient, with it's lower storage and transportation needs.
In a similar vein, our STT1330 tower cranes has also stepped foot in Hong Kong for one of the pioneer projects using the Modular Integrated Construction ("MiC") method, a form of construction similar to PPVC. The cranes were instrumental in the construction of a multi-welfare services complex for the Social Welfare Department in Kwu Tung North. Meanwhile, our STL1400 crane was used in the construction of Cheong Kong Centre Phase 2, a commercial building in the Central District.
While in Mainland China, demand for our cranes was fuelled by government infrastructure and building projects. Our cranes were used in the following projects during FY2021:
Our determination to be a leading tower crane player continues to gain momentum and recognition as we maintain our ranking among the top 10 tower crane manufacturers in the world and among the top 5 in China, as recognised by China Construction Machinery Magazine (中国工程机械工业杂志).
Further affirming our leading position in the industry, we secured the following awards for FY2021:
We are greatly appreciative of the recognition awarded by these agencies as these acknowledgements of our expertise and capabilities help strengthen our brand position in the industry. We will strive to maintain and subsequently surpass expectations in our continuous pursuit of excellence.
Global Business Outlook and the New Normal
The global economy is expected to expand 5.6% in 2021, largely on strong rebounds from a few major economies especially the PRC and the United States. However, many emerging market and developing economies continue to struggle with the COVID-19 pandemic and its aftermath, the World Bank said in its June 2021 Global Economic Prospects.
The PRC government has set a modest annual economic growth target for 2021, at above 6%, even though analysts are tipping growth of around 8%, reflecting the release of pent-up demand. In particular, industrial production has recovered earlier and more powerfully, driven by policy-supported public sector investment, housing and auto demand, as well as surprising strength in exports.
While the Chinese's economy has recovered relatively well compared to other nations, the government is once again looking at infrastructure investment as a pillar for economic growth. Government investment is expected to include new infrastructure such as informational networks, urbanization, major transportation and water conservancy projects. Traditional infrastructure projects will continue to drive infrastructure spending, given their very large scale, capital intensity and ambitious development targets. All these will likely continue to drive demand for construction equipment in the PRC.
Meanwhile, in our other key market - Hong Kong, the construction industry contracted by 4.4% in real terms in 2020 due to the disruptions caused by the COVID-19 pandemic. In 2021, the construction industry is expected to register growth of 1.5% in real terms, supported by a recovery in global economic conditions and government investment on infrastructure projects to revive economic growth. The Housing Authority has planned to market approximately 100,000 units of affordable public housing between 2020 to 2024.
Hong Kong has also been dipping its toes into the emerging MiC method which refers to construction whereby free-standing integrated modules, complete with finishes, fixtures and fittings, are manufactured in a prefabrication factory and then transported to a site for installation in a building. The MiC method is growing in prominence amidst the shortage and aging of the construction sector workforce, with several pilot projects already underway. The application of the MiC will require higher lifting capacity tower cranes to be deployed for the project similar to that of Singapore PPVC projects. The advent of this shift in construction methods will bode well for Yongmao as we have an established position as a leading provider of cranes suitable for MiC projects.
In Singapore, the outlook for the construction sector is cautiously optimistic. Construction activity in 2021 is expected to be driven mainly by the public sector in 2020. Notwithstanding that construction demand for 2021 is not yet back to pre-COVID levels, the Singapore government expects a sustained recovery in construction demand over the next five years. The Building and Construction Authority projects construction demand for 2021 to be between S$23 billion and S$28 billion up from S$19.5 billion last year, largely attributed to the backlog created during the pandemic.
Whilst governments around the world have rolled out mass national vaccination programmes and at the same time executing economic recovery stimulus plans, we anticipate that the market will gradually normalise from the second half of 2021 onwards contingent on the success and speed of vaccination in each country. However, we are now facing the new and more infectious variants of the virus with many countries having reported a resurgence of new cases. The extent of the economy impact is expected to be less severe than in 2020.
Nonetheless, the Group remains cautious with heightened vigilance and commitment in exercising cost discipline whilst we navigate the new normal. The Group will continue to drive and focus on delivering innovative products, high quality and value to our customers while catering to their needs.Dividend and Acknowledgements
In recognition of the continued support from our shareholders, especially over the uncertainties arising from the past financial year, we are proposing a final dividend of 1.0 Singapore cent per ordinary share. This is subject to at the upcoming Annual General Meeting.
On behalf of the Board, I like to thank our business partners, staff and shareholders for their continued support as we navigate through these challenging times. I also like to thank healthcare workers around the world for continuing to hold frontline in the ongoing fight against the COVID-19 pandemic. Stay safe, and I wish you all good health.
Sun Zhao Lin