Q) Our question is on competitive position. How are you positioned versus your competitors? Do you have advantages / disadvantages in costs, design, patents, service, closeness to customer,...? Does the fact that you are small mean you stand at a competitive disadvantage? What is the point of having two so different areas of business under one single company? Is there any synergy between them? Do you think you would be more competitive if you were merged into a bigger group (or created it absorbing others)? Thanks for your answer.

Within the Mechatronics field, there are few qualified suppliers who develop and manufacture specialized capital equipments - our Group's focus is on developing precise and complex electro-mechanical modules with demanding production tolerances. On the other hand, while there are more players in the EMS arena, most of our competitors do not provide the wide range of integrated services offered by our EMS division - our strategy is to offer a total design and production outsourcing solution to our customers.

We believe our key competitive advantage lies in our technological and manufacturing competencies, which enable us to provide fully-integrated manufacturing services to our customers. In addition, ElectroTech's well-established customer base and its wide market reach and knowledge better positions the Group for future expansion.

Though our Mechatronics and EMS divisions operate in different market segments, their basic business models are exactly the same - that is, to provide contract design and integrated manufacturing services. With both divisions, we are able to offer one of the widest and most diverse range of technologies and capabilities to our customers. In addition, we are also able to cross sell our services in Mechatronics to potential customers in Asia, and our services in EMS to potential customers in Europe.

In addition to organic growth, we also aim to seek growth through suitable acquisitions or strategic alliances, to leverage and expand our technological competencies.

Q1) From the latest FY results, gross profit margin has increased slightly to 21.8%, what is management's view on Electrotech's ability to sustain growth in its gross profit margin (and of course with the aim of increasing Net Profit Margin)? and any target for such growth?  What is the company doing to address the continual pressure on gross profit margin. 

For FY2006, overall Group gross profit margin fell slightly to 21.4%, due mainly to pricing pressure in the keypad segment of our EMS division. In the short term, we expect the pricing pressure to be sustained as our major customer continues to face increasing competition from other manufacturers of keypads.

Since the third quarter of FY2006, we have been working together with our customer to maintain their market share in the relevant geographical markets. We have begun to see the benefits from this measure as Group gross profit margin rose to 21.8% in the fourth quarter of FY2006, up from a year ago.

To bring more stability to our business in the long term, we plan to broaden our customer base by shifting the focus of our EMS division towards the automotive and electro-mechanical box-built businesses, with the aim of balancing our reliance on the keypad business. As such, we expect the sales volume of our keypads to remain at current levels for the next 2 years.

At the same time, we will also continue to keep a constant focus on cost management through optimal material usage as well as improvement of our machining and assembly processes, to improve our gross margins.

Q2) Foreign exchange translation loss impact this year was pretty significant, what are the steps that will be or have been taken to mitigate this risk?

The translation loss on our Mechatronics division in FY2006 was due to a stronger Sing dollar relative to the Euro currency during the period.

We do not, as a matter of policy, hedge translational foreign currency exposure. We will, however, hedge foreign currency exchange rate risks arising from material transactions denominated in foreign currencies.

Q3) Mechatronics contributes 64% of revenue and EMS 34% ... are plans on track to increase the contribution proportion of EMS in view of its higher profit margin? And timeline to achieve it?
Thank you.

We are currently growing both our Mechatronics and EMS divisions, and any change in the revenue mix will depend on the growth achieved by each individual division. Based on current visibility, we expect Mechatronics division to remain the main contributor to Group revenue for the next 2 years.

Q1) What is the management's plan for the cash balance of the Group? Proposed dividend payout is below last year's, so any further investment plans for FY2007?

We believe in maintaining a sound cash position to ensure sufficient internal working capital to fund our expansion plans. In FY2006, we completed the expansion of our Mechatronics facilities and invested in new and more sophisticated machineries for the division. The expanded capacity will support the new and re-engineering projects we are expecting for the division in FY2007. For our EMS division, we are in the process of upgrading our facilities to build up our business in the automotive market. We are also investing in new technology and machineries to expand our service offerings to customers.

Since our listing on the Main Board of SGX in April 2005, we have shown our commitment towards enhancing shareholder value with consecutive dividend distributions in the past two years. Although we do not have a formalized dividend policy, it has always been our Group's intention to maintain a dividend payout of around 30% to reward shareholders for their support to ElectroTech.

Q2) What is the management's strategy for the EMS/key pads division in view of its impact on the Group's the declining GPM?
Thank you.

The pricing pressure experienced in our keypad segment was due to increasing competition faced by our major customer in the keypad manufacturing sector.

Since the third quarter of FY2006, we have been working together with our customer to maintain their market share in the relevant geographical markets. We have begun to see the benefits from this measure as Group gross profit margin rose to 21.8% in the fourth quarter of FY2006, up from a year ago.

To bring more stability to our business in the long term, we plan to broaden our customer base by shifting the focus of our EMS division towards the automotive and electro-mechanical box-built businesses, with the aim of balancing our reliance on the keypad business. As such, we expect the sales volume of our keypads to remain at current levels for the next 2 years.

We are also investing in supporting technology for our keypad segment, such as our new sputtering machines, which will expand our service offerings and bolster revenue from the keypad segment.

At the same time, we will also continue to keep a constant focus on cost management through optimal material usage as well as improvement of our machining and assembly processes, to improve our gross margins.

Q) Your company's share I feel is undervalued given the low P/E ratio that the market is trading compared to peers and general market, I feel that your company's profile should be heighten to generate market interest including potential private equity group to invest. I have been holding your shares for sometime and it is disappointing to see that the share does not go up much despite the recent rally in the Asian market.

Since our listing last year, we have established several communications channels to increase our Group's exposure to the investment community. These include our corporate website and Shareinvestor online investor portal. We also hold regular briefings for analysts and fund managers to update them on our Group's recent developments and financial results.

Though our Group's current P/E ratio is low compared to our peers, we are confident of the growth potential for our Group. We will continue to build on our wealth of engineering and technological competencies to benefit from the continuing outsourcing trends for both our Mechatronics and EMS customers.

Q) Had vested in your company since 2005 and am glad to see its stable performance.  Although reasonable dividend payout is made annaully, we noticed that the company's shares are not actively traded in the SGX for a very long time. Please advise what steps the company will take to improve this situation.  Thank you.

Since our listing last year, we have consecutively paid out dividends of around 30% of our net profit in 2005 and 2006. The proposed dividend issues are to reward our shareholders for their continued support and belief in the Group.

Moving forward, we will continue to improve on our communications with the investment community. We would also explore other possible communication channels which would potentially increase the investment community's understanding of our business.