Frencken Group posts 12.6% drop in 1Q earnings to $12.8 mil on lower margins, higher expenses
In its 1QFY2022 ended March business update, Frencken Group announced that its earnings declined by 12.6% y-o-y to $12.8 million from $14.7 million a year ago, due mainly to a decline in gross profit margin and higher selling and distribution, administrative and general expenses amid heightened supply chain challenges from the second half of FY2021.
Higher prices of materials, freight and energy in 1QFY2022 compared to the same period a year ago have driven up input costs and the group says that it is working on cost mitigation actions.
Revenue on the other hand has grown by 9.3% y-o-y to $198.4 million, driven primarily by double-digit sales growth of the group’s mechatronics division, which saw higher sales in the semiconductor, analytical & life sciences and industrial automation segments.
This was however offset by softer sales of the automotive segment which was affected by constrained customer demand as a result of semiconductor chip supply chain challenges and disruptions arising from the military conflict in Ukraine.
Gross profit margin for 1QFY2022 came in at 15.4%, 1.9 percentage points (ppt) lower y-o-y, while net profit margin was at 6.5%, 1.6 ppt lower y-o-y.
As at Mar 31, the group had total assets of $703.2 million including cash and cash equivalents of $178.2 million.
On the outlook, the group is concerned about the pandemic and current geopolitical tensions, which has caused the global business landscape continues to be weighed down by a host of challenges ranging from supply chain disruptions, higher cost pressures from raw materials, labour and freight, rising energy prices and workforce disruptions.
While its diverse exposure to multiple market segments in the high technology industry has resulted in higher revenues for 1QFY2022, the group is weary on the mounting supply chain challenges since 2H2021 that has exerted pressure on its profit margins. The group is hopeful that this pressure will show signs of easing potentially from the second half of 2022 as it continues to work on mitigating cost inflation through operational initiatives.
In FY2021, the group made several significant capital investments. “These investments for the future will see increased costs in the interim as the group sets up and qualifies new facilities to grow potential revenue drivers,” it says.
In FY2022, the group will be actively working on preparation of new sites and production facilities in Europe, Singapore and Malaysia to cater for future business growth.
Moving forward and barring unforeseen circumstances, the group expects a moderate increase in its 1HFY2022, as compared to 2HFY2021, led by improved performance from the group’s semiconductor, analytical & life sciences, industrial automation and automotive segments.
Shares in Frencken closed 1.53% higher on May 17 at $1.33.