ANNUAL REPORT YEAR 2018

Dear Shareholders,

2018 started on a positive note with signs of broad-based global economic recovery. But as the year progressed, downside risks increased with weakening growth momentum. The situation was further compounded by arising political trade tensions between U.S and China and other geopolitical issues, including Brexit and NAFTA.

Delivering Performance

Despite the challenging operating environment, AnnAik was able to build on our transformation strategy started in 2016 to achieve $1.22 million profit attributable to owners of the Company for the financial year ended 31 December 2018. Notwithstanding the absence of the one-off gain on dilution of interest in investment amounting to $4.58 million in 2017, the Group had turned around from a $1.96 million operating loss in 2017 to a $1.22 million operating profit in 2018. A few notable developments during the year had contributed to the improvement in the Group’s operating results. Amongst which, the successful completion of our restructuring exercise for the steel flanges manufacturing division significantly lowered the operating cost incurred in 2018. The completion and securing of environmental projects under the EPC model by an associate company for rural wastewater treatment, improved utilisation rate of ChangXing HengYi Wastewater Treatment Co., Ltd and LinXing Water Supply Co., Ltd, as newly set up industrial wastewater treatment plants also contributed positively to results of the environmental division and the overall performance of the Group in 2018.

Realising Growth Potential

After two years of sluggish demand for steel products worldwide, the steel industry saw signs of recovery as countries in the region embarked on infrastructure development projects. Additionally, low stock levels, prior industry consolidation and tight supply capacities created a demand vacuum for steel products, pushing prices and gross profit margin for steel products to increase in 2018. Under the influence of these market forces, AnnAik achieved higher gross profit margin for our steel flanges manufacturing and steel products distribution divisions in 2018. In addition, besides stepping up our sales efforts for Metal Wang Pte Ltd and AnnAik Pte Ltd in the steel products distribution division, AnnAik also successfully tap into opportunities in the Korean market through our new subsidiary – Handel Co., Ltd. Concurrently, we also diversified our focus beyond the oil and gas industry to healthcare and high-tech infrastructural projects. Resultantly, the Group’s revenue increased 15.06% from $49.34 million in 2017 to $56.77 million in 2018.

Looking Ahead

The world economy continues to be plagued by much uncertainty and pessimism in 2019. The negative sentiment has caused many companies to delay or put off their global investment plans as evidenced in the scale back of new major oil and gas, offshore and marine and downstream projects in the region. Although China’s ambitious Belt and Road initiative is expected to spur capital investment and trade globally, the project has yet to generate significant benefits to date, as it is still primarily focused on using Chinese resources for infrastructure construction. Fortunately, the change in the Group’s direction for the past few years is gaining traction. On one hand, our investment in the environmental industry provides stability for the Group with its recurrent income model; on the other, it has enabled AnnAik to diversify our business from the traditional steel products business to the growing environmental industry. Today, the environmental division has become a growth engine for the Group. Foreseeably, global trade pattern will continue to change and sustainability will increasingly become a key priority for many countries. Given our strong head start in the industry, AnnAik is well positioned to seize arising opportunities in different parts of China and the region. Therefore, we will build upon our advantage by increasing our investment in the environmental division to strengthen AnnAik’s presence and capabilities. Comparatively, the steel flanges manufacturing and steel products distribution divisions are facing strong headwinds as a result of the rise of trade protectionism policies. These unpredictable changes in trading policies have made international trading challenging and uncertain. As a countermeasure, AnnAik will look to tap into domestic capital spending to sustain growth and demand. Concurrently, we will also seek out new partners in existing markets while exploring avenues to engage new customers.

In Appreciation

AnnAik had a productive year in 2018. We managed to deliver creditable results despite challenging macroeconomic circumstances. This is an achievement that belonged to not only AnnAik, but also our shareholders, customers and business partners. Their continued support, trust and confidence in us have strengthened our resolve to work harder and do better. Of course, we also recognise that these results would have been impossible without invaluable contributions from our Board, management and staff. Confronting the challenges ahead, AnnAik remains committed to realising our strategic objectives and achieving our profitability goals. Thus, apart from keeping a strong focus on our existing businesses, we will also adapt our strategy in tandem with shifts in the economic landscape so as to stay competitive and ready to take advantage of new growth opportunities.

James Ow Chin Seng
Executive Chairman cum CEO

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