|ISDN answered 30 questions submitted by shareholders ahead of the AGM. The answers take up 10 pages, one of the longest, if not the longest, response by a listco company to date. Here, we reproduce 6 Q&As. The rest can be viewed on the SGX website.|
Date: 29 June 2020
|What is the effect of the Covid-19 on the company?
The Company was hit by the extended lockdown in the People’s Republic of China (“PRC” or “China”), and most operations were shut for about 8 weeks.
Fortunately, we were permitted to continue operations in Singapore even through the recent circuit breaker period as we were deemed an essential service in the city-state.
To withstand these challenges, we stayed focussed on two key priorities – the health and safety of our employees and preparing the business to snap back into operation once the strict restrictive measures were lifted.
Through the rigorous precautionary measures in place, we also managed to sustain a healthy employee base all the way to the present.
Thanks to the hard work of the ISDN team and contributions from our energy business, ISDN was able to post S$3.1 million in net profit after tax and non-controlling interests for 1Q2020 despite the 2-months lockdown in the PRC.
On top of that, we had a solid April as China’s industrial operations resumed, and we were able to post 31.4% year-on-year growth in net profit after tax and non-controlling interests for the 4 months from the start of 2020 to 30 April.
Was ISDN’s stellar April performance a one-off?
Our order visibility is short; hence it is always difficult for us to project the future; however, the trade we are in will not be obsoleted after covid19, and Industrial automation and Industrial 4.0 are here to stay for a long time.
The 4th industrial revolution has just begun.
In FY2019 financial results, it seems that the profit margin for the motion control segment is the highest. Isn’t it better to focus more on growing the core business, especially with trends like Industry 4.0, IoT, Robotics, Made in China 2025?
|"We are a large company so we have the opportunity and the resources to make additional bets on the side, especially if they involve small amounts of investments and could create strong payoff."|
We will always focus on our core Motion Control business.
In fact, you will note that ISDN Motion Control is one of the 5 centres of excellence we announced. However, we cannot stand still as a company because the industry continues to grow.
Customers want more connected and more intelligence automation, so we have the opportunity to use our strength motion control to open the door to customers and seek to deliver more and more additional solutions to each customer over time.
Industry 4.0, Robotics, and Made in China 2025 as well as OBOR are all themes we working to capitalise on.
But, we are a large company so we have the opportunity and the resources to make additional bets on the side, especially if they involve small amounts of investments and could create strong payoff.
So the disinfectant products are an example: the investment is quite modest, it does not distract our staff from the core business, and there is a big potential industrial market and need for it right now.
Our focus will always be on our core, but like all large technology companies, we look to make very small bets to incubate future business lines also.
The remuneration for the founder at $3-3.5 million is about 43-49% of the net profit after tax for FY2019 when profit attributable to shareholders is around $7.05 million. Please explain why the Board thinks that this is a fair and reasonable pay-out.
Since the initial public offering of ISDN Holdings, our Managing Director and President, Mr Teo Cher Koon, has entered into a service agreement with ISDN Holdings Limited. In the agreement, it is stipulated that the remuneration to Mr Teo includes a fixed salary component, benefit in kind and allowances, and a variable performance bonus that is computed based on the Group’s profit before tax and non-controlling interests.
In May 2019, the Remuneration Committee (RC) appointed Carrot Consulting Pte Ltd, an independent human resource management consultancy firm, to conduct an industry renumeration benchmarking exercise to make a recommendation on Mr Teo’s remuneration package.
The RC has recommended, and the Board has approved of the recommended change in Mr Teo’s variable performance bonus component calculations metric with effect from FY2020.
Based on the new metric, Mr Teo’s remuneration package for FY2019 would be in the range of S$2,000,001 to S$2,500,000, had the new service agreement been in effected since 1 January 2019.
|Has the Novo Tellus investment brought positive synergies to ISDN? What are the plans going forward?
The large-scale consolidation project launched in our PRC businesses, for instance, proved to be very successful.
Combining our different PRC businesses into one entity enabled us to reap cost savings from leaner operations as we reduced many task duplications.
In 4Q2019, we also began utilising new CRM and SAP systems to generate and gather useful data metrics to make key decisions quicker in order to deliver growth at the lowest possible cost.
We are now working to streamline our Singapore business. As for enhancing our capabilities, with the guidance from Novo Tellus, we reorganised our businesses into five major vertical segments – ISDN Software, ISDN Motion Control, ISDN Precision Engineering, ISDN System Solutions, and ISDN Renewable Energy.
This will allow us to pool our best engineering capabilities together to gain new synergies.When Novo Tellus joined as an investor in 2019, they re-looked at our business and set into motion a full suite of initiatives to upgrade our operational capabilities and efficiencies.
ISDN’s revenue has been hovering around $290-300 million for the past three years. With the expertise of Novo Tellus and the positive broader trends, is there potential for a notable increase in revenue in the foreseeable future?
Yes, we believe the Industrial Automation market is very large, and ISDN is well positioned. We do not like to overpromise, and we don’t believe in pumping up revenue just to show some growth.
Instead, both we and Novo Tellus believe in building solid foundations for growth that will last many years. So we will not give long term growth guidance, but instead we point to what we are doing to establish the foundations for a bigger and more advanced ISDN.
Just in the past year we have made progress with:
|• Establishing ISDN Software and ISDN Solutions, together with Precision, Motion Control and Energy.
This allows us to concentrate our focus so we can scale powerfully.
• Upgrading our IT systems so we can improve customer intelligence and productivity.
• Concentrating our operations so that we improve controls and also drive better cost and risk controls.
These are all aimed at increasing ISDN’s capabilities to deliver more advanced solutions to customers. And they are consistent with our philosophy of building strong growth foundations for the business.