SUNNINGDALE TECH: Consistently generates positive operating cash flow

Excerpts from non-executive chairman Koh Boon Hwee's message in Sunningdale Tech's 2015 annual report

"One of the world's largest...and with best-in-class capabilities"

Koh Boon Hwee, non-executive chairman of Sunningdale Tech. Photo: www.ntu.edu.sgOur geographical footprint has grown globally to eighteen manufacturing facilities in nine countries across Asia, Europe, North and South America. This not only created one of the world’s largest precision plastic engineering companies with best in class capabilities across the value chain but also bridges proximity with our customers to support them in every region. As we continue to invest in industry leading technologies and capabilities, we completed the acquisition of SKAN-Tooling on 17 September 2015. With a priority on modernisation, SKAN-Tooling specialises in the production and sale of moulds and prototypes for companies in the electronic, automotive and medical industries. This acquisition is in alignment with our three areas of business focus as we sharpen our competitive edge with enhanced capabilities. Furthermore, our enlarged manufacturing footprint, particularly in Europe provides us access to the market and instills confidence in our customers about our ability to handle projects on a global scale.

As communicated during our previous year’s report, our manufacturing plant in Brazil is now fully operational and has begun mass production. Despite the country’s economic slowdown in the third quarter of 2015, the perseverance of the team has allowed us to grow organically. Going forward, we strive to improve the utilisation level of this plant to generate a steady source of revenue for the Group.

Adding on the developments of our existing plants, our new manufacturing facility in Thailand has also commenced mass production in the second quarter of 2015. In line with our expectations, we similarly saw growth traction with customers.

Within Greater China, we continue to focus efforts on cost management. For instance, to mitigate the rising labour costs in first-tier cities such as Shanghai, we began construction of our plant in Chuzhou, which is scheduled to be operational by the end of 2016.

In China, we continue to face challenges due to rising labour costs as a result of the recent minimum wage increases. Furthermore, the overall uncertainty and volatility of China’s economic climate continue to weigh on our operations. To counter these headwinds, we have prioritised and accelerated business development efforts in the region. In order to increase the utilisation of our Southern China plant to maximise our returns on investment, we are proactively working on acquiring new customers and increasing market share among existing customers.

Outlook

As a plastics component provider into the worldwide supply chains of original equipment manufacturers, we continue to face pricing pressure from our customers who are affected by the shifts in global demand and fast-changing consumer sentiment.

Rising labour costs in both China and Malaysia will continue to remain on our watch-list moving into 2016. Our fundamental strategy of diversifying our customer base and expanding our product offering is still on track.

With our recent acquisitions, the Group is poised to reap the benefits of economies of scale along with operational synergies that will help drive down costs and improve our margins in the long run. We will also pay particular attention to working capital management and capital expenditure discipline as we navigate through market uncertainty.

The overall order backlog across our business segments has remained stable in 2016 and we continue to receive new project enquiries for high precision engineering parts. The ability of the Group to consistently generate positive operating cash flow has been instrumental in improving our balance sheet strength to a net cash position as we stay prepared for a challenging year ahead.