Group Performance

On behalf of the Board of Directors, I am pleased to present the annual report for the financial year ended 31 December 2010 (FY2010).

On the backdrop of a recovering semiconductor industry and an improved global economic and financial environment, I am glad to report a year of record revenue and profitability following two previous years of improving revenue and profitability. This is a testament that we have the right strategies and right management team in place.

For FY2010, Serial System posted a turnover of about $746.2 million and net profit of about $16.2 million. Turnover and net profit increased by about $189.7 million and $8.7 million or 34% and 116% respectively when compared to the financial year ended 31 December 2009 (FY2009).

For FY2010, net cash of $10.2 million was used in operating activities as compared to $3.2 million in FY2009. The negative cash flow from operating activities was mainly due to higher working capital requirements to finance increased volume of businesses for the electronic components distribution business. The Group's cash and cash equivalents as at 31 December 2010 was about $31.3 million and bank borrowings increased to about $79.7 million from about $46.4 million as at 31 December 2009. Net gearing ratio remained at a healthy level of 0.44 times as at 31 December 2010.

Based on the issued share capital as at the end of 2010, net assets backing per ordinary share as at 31 December 2010 were 13.51 cents as compared with 12.92 cents the previous year. On a fully diluted basis, net earnings per ordinary share grew 96% on a year-on-year basis from 1.11 cents to 2.18 cents.


Electronic Components Distribution

Electronic components distribution remains the Group's core business.

The Group's electronic components distribution business recorded an increase of 34% in revenue to $746.2 million due to strong demand for electronic products in all the Asian markets where the Group operates.

North Asia (comprising Greater China, South Korea and Taiwan) continued to be the Group's significant revenue contributor, accounting for 87% of the Group's total sales for FY2010 with Greater China covering 59%. North Asia posted a 31% increase in revenue mainly due to continued strong domestic demand of the China market and contribution by new customers / product lines and higher sales to certain existing customers of the South Korea and Taiwan subsidiaries.

South East Asia and India posted a 59% increase in revenue as all countries in South East Asia which relied heavily on export to United States of America and Europe, enjoyed growth as export of electronic products by the Group customers recovered strongly. India which the Group commenced operations in December 2006, registered turnover of $11.8 million in FY2010, an increase of 49% when compared to FY2009. The Group which regards India as one of its key market for future growth now operates 8 offices there.

Net profit after tax increased significantly from $7.1 million in FY2009 to $13.9 million due to higher gross profit dollar as well as higher gross profit margin earned from higher revenue, the Group's continued focus on cost efficiency and the positive impact of economies of scale. Gross profit margin improved from 8.7% in FY2009 to 9.3% due to more efforts channeled to the sales of higher margin products as the electronic industry remains highly competitive. Total expenses as a percentage of revenue on the other hand improved from 8.0% in FY2009 to 7.4% in FY2010.

Serial Microelectronics Pte Ltd (SMPL), a wholly owned Singapore subsidiary posted a 16% increase in turnover to $173.2 million. The increase was mainly attributable to a strong 59% growth in the businesses from South East Asia and India as these export oriented countries recovered strongly in FY2010. Amongst them, Thailand and Singapore recorded the highest increase in turnover as these markets improved in FY2010. Businesses transferred from the Korean subsidiaries however registered a decline of 14% in turnover due mainly to reduced orders from certain customers. SMPL recorded a higher net profit attributable to shareholders of $4.6 million as compared to a net profit of $2.7 million in FY2009 due to higher profit achieved by its South East Asia division from improved revenue figures.

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