Operation & Financial Review

While the Group ended FY2018 with higher sales, profit margins and earnings, it had its mind on business diversiication and cost control all through the year. The need for multiple income streams and being nimble were top priorities amid a highly competitive operating environment for distribution.


After a strong first half, momentum in the second half of FY2018 slowed notably as the Sino-US trade dispute and Texas Instruments’ (“TI”) decision to cease ties with Serial System took their toll on business. As a result, the Group’s revenue for the full year grew merely 2% from the previous year to US$1.53 billion.

Revenue from electronic components distribution business edged up 2% to US$1.47 billion, driven by higher contributions from operations in Taiwan, South Korea and China. Turnover from these three markets rose 43%, 24% and 7% respectively, boosted by higher demand for certain product lines from both new and existing customers.

Revenue from consumer products distribution business slipped 1% to US$55.0 million as lower sales in Singapore and Indonesia in the final quarter of FY2018 offset higher contributions from Malaysia and from Print-IQ Singapore Pte. Ltd.

Profit Margins

in four years, from 7.0% as the Group focused on more lucrative electronic components and consumer products. Net profit margin doubled to 1.2% from 0.6%.

Other Operating Income

Other operating income rose four-fold to US$24.5 million from US$6.0 million, driven mainly by a one-off gain of US$18.3 million from the sale of the Group’s entire 27.34% stake in SPL Holdings (Australia) Pty Ltd (“SPL”).

Higher inance income and a one-off fair value gain of US$0.9 million arising from the convertible bond prior to its conversion to a 20% equity stake in PT Sentral Mitra Informatika also lifted other operating income.


Distribution expenses increased 9% to US$53.3 million due to higher staff and related costs, sales commission expenses, freight and handling charges, and storage charges for the electronic components distribution business.

Administrative expenses rose 33% to US$17.3 million. These included legal and professional fees of US$3.1 million for the Group’s proposed listing of its 91%-owned subsidiary Serial Microelectronics (HK) Limited in Hong Kong. The listing application lapsed on 8 November 2018. Higher staff-related costs associated with the electronic components distribution business also contributed to the increase in administrative expenses.

Finance expenses increased 39% to US$14.3 million as the Group used non-recourse trade receivables facilities and other trade facilities to fund working capital requirements for the electronic components distribution business. Higher interest rates across all trade facilities also drove up inance expenses.

Other operating expenses went up 46% to US$33.1 million. These included an allowance of US$5.4 million for impairment losses on Tong Chiang Group Pte. Ltd. and its three property entities, and higher impairment losses on goodwill arising from the acquisition of consumer products distribution subsidiaries, foreign exchange loss, fair value loss on inancial assets, at fair value through proit or loss and staff and related costs.

Associated Companies and Joint Venture

Share of losses in associated companies amounted to US$0.3 million compared to US$0.4 million in the previous year. The decrease was due to a smaller loss of US$0.1 million reported by Bull Will Co., Ltd, which incurred a bigger loss of US$0.6 million in FY2017.

The Group’s share of loss in its 27.5%-owned joint venture, Musang Durians Frozen Food (M) Sdn. Bhd., increased to US$0.5 million from US$0.03 million as sales were not suficient to cover operating expenses.

Net Profit

With higher gross proit margins and a one-time gain of US$18.3 million from the divestment of SPL, the Group turned in a net proit after tax of US$17.7 million, up from US$9.6 million in FY2017. A US$1.7 million write-back of inventory obsolescence and a 52% decline in total loss allowance on trade and other receivables also contributed to the increase in net proit.


As at 31 December 2018, the Group had US$58.3 million in cash and cash equivalents, compared with US$72.2 million as at 31 December 2017.

Trade and other receivables decreased by US$42.3 million (net of factored trade receivables) following the reclassiication of US$70.2 million from trade receivables to inancial assets, at fair value through proit or loss. Without the reclassiication, trade and other receivables would have increased by US$27.9 million, in line with higher sales of electronic components in Taiwan and South Korea and longer payment terms from customers in Hong Kong, China and South Asia. Average turnover days for trade receivables (including the reclassiied amount of US$70.2 million) increased to 54 from 51.

Inventories decreased by US$23.5 million due to lower inventory holdings in Hong Kong as the Group adopted a more cautious stance amid the trade tensions between China and the United States. The consumer products distribution business also held less inventories in anticipation of lower sales in Indonesia and Singapore.

Investments in associated companies decreased by US$14.6 million due to the disposal of SPL, impairment losses of US$5.4 million for Tong Chiang Group Pte. Ltd. and its three property entities, and a net currency translation loss of US$0.4 million resulting from the translation of net investments in associated companies denominated in foreign currencies. There was an addition of US$2.7 million arising from the conversion of a convertible bond to a 20% equity stake in PT Sentral Mitra Informatika.

Property, plant and equipment decreased by US$2.3 million mainly due to depreciation charges amounting to US$2.9 million and a currency translation loss of about US$1.2 million. Addition to property, plant and equipment amounted to US$1.9 million.

Intangible assets decreased by US$4.7 million mainly due to impairment losses amounting to US$4.5 million provided on goodwill arising from the acquisition of consumer products distribution subsidiaries.


Trade and other payables decreased by US$8.8 million as the Group’s Hong Kong electronic components distribution subsidiary made fewer purchases. Average payment days for trade payables declined to 29 from 35.

Borrowings declined by US$24.5 million due to lower bank borrowings by electronic components distribution subsidiaries in Hong Kong and Singapore. Instead of taking more bank loans, the Group tapped internal funds to inance working capital requirements.

Share Capital

Serial System’s number of issued shares as at 31 December 2018 was 895,841,914 (excluding treasury shares of 9,946,000), unchanged from the same period a year earlier.