Board Committees - memtech international Ltd - the forefront of Technology

Chairman's Statement

Dear Shareholders,
On behalf of Memtech International’s Board of Directors, I sincerely present to you our Annual Report for the financial year ended 31 December 2008 (“2008”).
2008 was a turbulent year, especially so for China as it met with various problems and challenges. The first half of 2008 saw a surge in operating costs, while the second half of the year witnessed the deterioration of the global economic crisis. As such, consumers across the world, including in China, were impacted by the global economic downturn. This has inevitably hit the global mobile handset industry. Being part of the mobile handset manufacturing chain, Memtech has also been affected. Despite these challenges, we focused on strengthening our fundamentals to maintain the scale of our operations and cash position as we position ourselves to seize the opportunities when the economy recovers.
Our commitment to providing high quality and value-added services to our customers continued to bear fruit in 2008. We secured larger orders from Foxconn, one of our major customers, to supply mobile phone components mainly for its Nokia CDMA projects. We also obtained Sony Ericsson’s approval to directly engage it in the manufacture and supply of all ranges of mobile phone keypads. These orders of increasing scale and value from our MNC customers was a great shot in the arm for the Group’s long term prospects.
On the other hand, China’s mobile phone industry continues to offer vast growth opportunities for Memtech as we derive the bulk of our orders from our PRC customers. With the support of our domestic and MNC customers, we managed to maintain our profitability for the year. However, the onset of the global economic slowdown caused a significant decline in market demand in the second half of 2008, which further worsened beyond our expectations in the fourth quarter. As a result, the Group posted a 10.4% drop in revenue to US$109.3 million in FY2008. Net profit decreased 95.9% to US$0.7 million. Rising raw material prices and overheads, coupled with lower utilization rates and selling prices, resulted in an 11.1 percentage points decline in the Group’s gross profit margin to 15.1%.
Due to higher salaries and general operating costs, the Group’s sales and marketing expenses increased 37.8% to US$5.8 million in FY2008. Higher exchange losses as well as increased salary and general costs expenses were offset by a lower allowance for doubtful debts in FY2008, which was a result of improvements in our customer base. This resulted in lower general and administrative expenses of US$10.2 million, a decrease of 14.7% from the previous year. The Group maintained a healthy cash flow position and balance sheet, with cash and cash equivalents of US$32.3 million as at 31 December 2008.
To strengthen our industry position and expand market share, the Group remains committed to our strategy of providing modular solutions and expanding our production capabilities to offer a diversified product range. Our investments also achieved considerable progress in 2008. Teradisplay Co., Ltd, a South Korean high-technology touch screen panel manufacturing company which the Group invested in since February 2008, successfully incorporated a subsidiary in Nantong, China in May 2008. The Nantong production plant was ready for operations in end 2008. As the use of touch screen panels gain growing popularity in the global mobile handset market, our investment in Teradisplay Co., Ltd will further strengthen our competitive edge and market position by staying abreast of technology and trends.
To complement our efforts in providing a wider product offering, we are also consistently expanding our market reach to different geographical areas. This has allowed us to serve a wide customer base and grow our business and customer network, and in turn deepening our market share in China and other regions.
Outlook for 2009
After overcoming the challenges in 2008, we are faced with yet another trying year in 2009. With a bleak industry outlook ahead, we are bracing ourselves to proceed with utmost caution. At the same time, the Group is focusing its efforts for the year to maintain our core strengths, enhance our operating efficiency and further improve our cost structure.
As the world is mired in the midst of a global economic downturn, consumer sentiment has been severely impacted. This has translated to lower sales of mobile handsets globally. The number of handsets sold globally in 2009 is expected to be 9% lower than in 2008, marking the first decline after consecutive growth for 15 years. Mobile handset manufacturers are expected to first clear existing inventories before rebuilding stock levels in the second half of the year. As such, the Group has selectively embarked on project development activities with some customers and maintained constant interaction with them. This will enhance our competitiveness and better position us to stay ahead of the competition when consumer confidence and spending recovers.
In spite of the lack of optimism globally, it is estimated that China’s mobile phone market will attain a 7.7% growth with handset shipments reaching 239.1 million units in 2009. Compared to the year before, marked improvements in China’s telecommunications services are expected to bolster the growth of the domestic mobile phone industry despite the weak consumer sentiment. This year, the three major telecommunications operators in China operating 3G licenses are also expected to invest an estimated RMB170 billion in network infrastructure construction, which will in turn boost the domestic market demand for new high-tech and high-speed 3G mobile phones and indirectly spur domestic mobile handset component suppliers to embark on related product development. To ensure that the Group stays abreast of market trends, we have commenced operations of manufacturing components for smart phones to cater to the 3G-specific requirements of domestic mobile phone manufacturers, in particular established customers such as Huawei and ZTE.
In its bid to support consumption levels in the country, the Chinese government has leveraged on recent rural consumption trends to roll out subsidies for various household appliances targeted at farmers to increase their buying power. Mobile phones were recently included in the household appliance subsidy program due to its popularity with the rural markets. As a result, this project is expected to drive the growth of the low to mid-end mobile phone segment in China.
In a constantly evolving environment, consumers are placing greater emphasis on quality mobile handsets with attractive exteriors and better functions. To meet their growing demand, we are committed to the pursuit of excellence and innovation in the provision of products and services. In line with current industry developments and mobile phone consumption trends, we will fine-tune our market strategy to focus on China’s mobile phone market. We will also extend our range of mobile phone components and solutions to satisfy the diverse needs of end customers.
To control costs more efficiently, the Group has restructured its three subsidiaries in Dongguan to streamline their management and reduce relevant expenses. We also seek to enhance our production efficiency by minimizing production costs and reducing our workforce. More orders will be allocated to the manufacturing plants in Huzhou and Nantong to maximize the Group’s utilization rates and returns. Besides being actively engaged in marketing and promotional activities to realize greater market penetration, we are determined to grasp each and every business opportunity and have redirected our marketing resources to new and existing customers that are less affected by the economic slowdown.
In 2009, the Group will continue its focus in its core business: the supply of keypads for the mobile phone market. At the same time, we will strive to penetrate new sectors such as E Books, Net Books and other IT equipment, as well as the automotive industry to achieve better returns.
Acknowledgements
Sustained by the unwavering support and trust of our shareholders, Memtech has come thus far amidst the challenges over the past year. On behalf of the Board of Directors and the management team, I would like to express our heartfelt gratitude to all shareholders. As a gesture of appreciation and thanks, we have declared a first and final dividend of 0.5 Singapore cents per share, equivalent to S$3.58 million (or approximately US$2.48 million).
I would also like to thank our customers, suppliers and business associates for standing by us all this while. Last but not least, I am sincerely grateful towards all Directors, management and staff who have gave in their best to Memtech. As we strive together in unity, we will be able to overcome adversity and attain greater progress ahead.
CHUANG WEN FU

Executive Chairman
April 2009

Outlook for 2009

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