Extracted from Annual Report 2017
Dear Fellow Shareholders,
The Year 2017 in Summary
The year 2017 proved to be a challenging year for many businesses operating within the personal computer (PC) and hard disk drive (HDD) industries, as worldwide demand for new personal computers and data storage devices remained stagnant, and global product shipment numbers continued to be weak throughout the year. We also saw industry consolidation and capacity rationalization taking place throughout the supply chain.
Ongoing market weakness and underutilized capacity among the component suppliers also resulted in intensified price pressure, in addition to periodic cost discounts being called for by the end customers.
Perhaps the only silver lining in the HDD industry remains in the form of "Enterprise" storage, with the increasing popularity of on the go "cloud" storage solution demanded by users of mobile phones and personal digital devices, who are looking for higher definition and quality in their video recordings and photo resolutions. This segment of the data storage industry, while currently accounting for perhaps less than 15% of total market, is seeing rising potential with ever increasing speed and dropping cost of internet access. This method of data storage, which uses "enterprise grade" storage servers, with very large storage capacity, and high speed, utilizing multiple units of enterprise grade hard disk drives within each server, may continue to see growing demand.
With the shifting industry trends and changing end user demands, businesses operating within HDD industry will need to adapt to changes in customer requirements, in order to remain relevant and ensure business survival. Amid facing a competitive landscape of ever intensifying price pressure from not just peers, but also from alternative storage medium like flash memory, suppliers need to continue to upgrade product quality and capabilities to remain competitive and relevant.
The changing supply chain landscape also sees drive manufacturers and component manufacturers increasingly relocating their production facilities from China, which is facing fast rising costs, to South East Asian countries like Thailand and Malaysia.
As the relocation trend picks up pace, AEI plans to tap on potential opportunities presented, as the customers will be nearer to us, giving us the proximity advantage as they re-evaluate their supplier base.
AEI's successful track record and reputation as a high quality precision aluminium extrusion supplier to the HDD and Electronics market, will present us as a favourable choice. We intend to take full advantage of this new regionalization drive and gain new share of this important market.
The Group's Performance in 2017
For the financial year just ended, the Group registered total business turnover of $8.2 million, a decrease of 32.8% compared to last year, following lower sales contribution from its core Electronic and Precision Engineering customer segment, amid ongoing weakness in the global PC and HDD markets.
Overall, the Group reported a loss after tax of $9.5 million, after taking into account other operating expenses including fair value assessment loss on buildings.
You can refer to the Operations Review section of this annual report for a detailed review of the Group's financial results in FY2017.
Receipt Of Approval-In-Principle From SGX-ST
(i) Entry into S$50,000,000 Subscription Agreement - The Proposed Allotment And Issuance Of Up To 62,500,000 Shares At An Issue Price Of S$0.80 Per Share
(ii) Proposed Bonus Issue Of Up to 27,119,659 Free Warrants
On 10 November 2017, the Group announced that it had obtained in-principle-approval from the Singapore Exchange Regulation Pte Ltd (SGX-ST) for the allotment and issuance of:
(i) up to 62,500,000 shares at an issue price of S$0.80 each.
(ii) up to 27,119,659 free warrants with each carrying the right to subscribe for one new share at an exercise price of S$1.00 for each warrant share, and on the basis of one free warrant for every existing share.
Extraordinary General Meeting (EGM) is scheduled on 27 March 2018.
Industry analysts remained subdued in their forecasts for PC and HDD industries for the upcoming financial year. The Group continues to make active efforts to increase market share in this important customer segment, and to take part in qualifying for new customer programs. At the same time, we continue to upgrade product quality and capability so that we may strengthen our leadership position and keep pace with the latest technological development and product trends. The Group also undertakes further steps in cost monitoring, against a backdrop of rising raw material and energy prices, and works on greater operational efficiency and productivity. These efforts have been instrumental in helping the Group remaining a major player in this market.
Producing extrusions for the HDD industry has been the core business for the Group. Over the years, the Group has faced weaker customer orders and intensifying competition, which resulted in escalating price pressures and lower profitability. In view of the challenging demands by customers of the Group's core business, the Group believes that it is important to review other business opportunities and strategies to generate additional revenue streams, reduce reliance on existing business and to enhance shareholders' value. On 8 August 2017, we announced a subscription agreement. We believe, if the proposed subscription is passed at the EGM, the new Shareholder, New Impetus Strategy Fund (NISF) will bring AEI Corp into another dimension by investing in infrastructure businesses (more information can be found in the circular to shareholders) and hopefully become a bigger, diversified and profitable company. If the proposed subscription is passed at the EGM, and NISF completes Tranche 1 (see circular to shareholders), shareholders will be rewarded with Bonus Warrants for their continued participation in and support for the Company by providing them an opportunity to increase their equity participation in the Company and future growth of the Company.
On behalf of the team at AEI Corp, I would like to express my heartfelt appreciation to all our customers, suppliers, business associates, shareholders and board members for all their generous support and I look forward to our continued partnership for the exciting years ahead.