On behalf of the Board of Directors (the “Board”), I present to you the annual report of Serial System for the financial year ended 31 December 2022 (“FY2022”).

Financial Performance

Revenue increased 1% to US$906.7 million in FY2022 from US$895.9 million in FY2021, driven by the electronic components distribution business, our main revenue driver. The segment saw higher sales in China and Hong Kong, especially in emerging sectors such as artificial intelligence, automotive and renewables. We saw a similar trend in Southeast Asia and India, South Korea and Taiwan where demand saw good growth within the industrial, telecommunication and automotive segments.

Despite the continued easing of pandemic-related restrictions, our recovery was hindered by a confluence of factors such as higher interest rates, slower-than- expected economic recovery, currency volatilities and the effects of over-supply of semiconductors in the market.

With the easing of pandemic-related restrictions, supply chains have started to resume normalcy. However, with it also came the dissipation of the urgency experienced during the pandemic to stock up on the supply of chips which delayed order flows. As a result, for our core business of distribution of semiconductor components, we have had to record allowances for inventory obsolescence in the year under review.

Our other two business segments; consumer products distribution, and other businesses recorded lower revenue contributions. Revenue for the former declined by 23%, mainly due to lower demand for computers and computer peripherals. With the easing of pandemic- related movement restrictions in Malaysia, many people returned to their workplaces, or visited malls more frequently than during the lockdowns. This reduced the demand for electronic equipment needed to work from home. However, the slowdown in Malaysia was partially offset by fresh contributions from Thailand with existing and new product lines onboarded by the Group during the year.

Meanwhile, turnover for other businesses decreased by 7% mainly due to lower sales in the trading and distribution of fast-moving consumer goods in Singapore. This was partially mitigated by higher sales in the medical device assembly and distribution business.

The Group maintained its overall gross profit margin of 8.1%; the higher margins achieved within our other businesses were partially mitigated by lower margins in the consumer products distribution business amid intense market competition.

The above factors, combined with higher net foreign exchange losses amid the strengthening US dollar, resulted in the Group recording a net loss of US$4.6 million in FY2022, compared to a net profit of US$11.1 million a year ago.

Proposed Reverse Takeover of Achieva Technology

During the year under review, the Group commenced the process for a proposed Reverse Takeover (“RTO”) of our consumer products distribution arm, Achieva Technology Sdn. Bhd. (“Achieva Technology”). Through our wholly-owned subsidiary, Serial I-Tech (Far East) Pte. Ltd. (“SIFE”), we have entered into a sale and purchase agreement with SGX Catalist-listed Axington Inc. for the disposal of SIFE’s 100% equity interest in Achieva Technology in exchange for shares in Axington Inc.

Founded in 1996, Achieva Technology was acquired by Serial System in January 2016. Today, it has grown to become the leading consumer products distributor in Malaysia. The RTO will enable Achieva Technology, to tap into the capital markets to fund its rapid expansion independently, while incentivising senior management of Achieva Technology to deliver the best possible value.

Dividend

The Company has declared and paid an interim cash dividend of 0.11 Singapore cent a share in November 2022. No final dividend has been proposed for FY2022 as the Board deemed it necessary to preserve cash for working capital requirements in light of the challenging operating environment.

Outlook

Despite a softer short-term outlook, the long-term growth of the semiconductor chips sector remains bright. As technology continues to improve, it will require a greater number of high-quality chips with enhanced processing power and larger memory storage. Serial System will continue to offer its distribution expertise to customers in emerging industries such as 5G infrastructure, IoT, artificial intelligence, as well as electric and autonomous vehicles.

The lifting of China’s “Dynamic Zero” COVID policy in December 2022 will help spur business recovery. Meanwhile, the Group is also seeing an influx of interest from suppliers, particularly in China, who are looking for a reliable distributor for their products. We are confident our deep domain experience in the segment will serve us well in capturing market share.

That said, several headwinds lay ahead, such as prolonged Sino-US trade tensions and the continued Russia-Ukraine war which continue to cast geopolitical uncertainty and impact business. Meanwhile, the higher interest rates and inflation continue to impact operating margins. In response, management will continue to improve internal efficiencies and manage operating costs, and be vigilant in managing its inventories and trade credit.

Appreciation & Acknowledgements

On behalf of the Board of Directors and Management, I would like to convey my heartfelt thanks to our loyal customers and business partners for their support during these challenging times. Serial System would not have come so far without your trust and confidence in our products and services.

I also want to take this opportunity to express my deep appreciation for the diligent and committed efforts of the Serial System staff. A special mention goes to Derek for his exemplary leadership in navigating the Group through the ups and downs over the years.

Lastly, I wish to express my gratitude to our shareholders for their unwavering faith and support. Your continued trust in our long-term vision has contributed significantly to the growth of our business. As we move forward, we remain committed to adding long-term value.

Mr. Teo Ser Luck
Independent Non-Executive Acting Chairman
March 2023