Novo Group profit soars 667% to $12mln

Gross profit up by 21.1% to US$55.7mln in FY2010 from $46.0mln in FY2009.

Mainboard listed Novo Group Ltd., a global steel and coal supply-chain management company, is pleased to announce its full-year results for the financial period ended 30 April 2010 (“FY2010”), according to a Novo Group report.

The Group revenue for FY2010 was US$ 403.0 million, a 23% decline from FY2009 revenue of US$ 523.7 million. The Group’s net profit in FY2010 soared by 667% to US$ 12.0 million compared to net profit of US$ 1.6 million in FY 2009. Gross profit margin in FY2010 increased to 13.8% from 8.8% in FY2009.

In FY2009, raw materials contributed 24% of the Group’s revenue but the percentage share of raw materials to Group revenue increased to 60% in FY2010.

The growth is propelled by the strong demand for raw materials in PRC in FY2010. The main bulk of the Group’s revenue in came from sales of its raw materials such as iron ore and coal.

Sales of finished products in FY2010 accounted for 24% of the Group’s revenue, while it contributed 49% to Group revenue in FY2009. Semi finished products contributed 15% to the Group's revenue from a 27% contribution in FY2009. Finished products comprise of Hot and Cold rolled coils, Hot rolled plates deformed bars and wire rods while semi finished are billets and slabs.

PRC was the leading market for the Group in FY2010 accounting for 71% of the Group’s revenue while revenue coming from South East Asia was at 29%.

The Group handled a total of 2.6 million tonnes of steel products in FY2010 representing an increase of 35.7% from FY2009 tonnage of 1.9 million tonnes.

On a quarterly basis comparison, Group revenue decreased by 42.7% to US$ 57.3 million in 4Q FY2010 from US$100.1 million in 4Q FY2009. The decrease in revenue is due to the 63% decline in the revenue of the Group’s international steel trading business which stood at US$ 36.6 million in FY2010 from US$ 99.9 million in FY2009. This is attributed to the reduction in the demand for raw materials and semi-finished products in PRC in 4Q FY2010. Despite the decline in its top line, the Group’s net profit in 4Q FY2010 surge by 308.7% to US$ 1.9 million from US$ 0.5 million in 4Q FY2009.

Gross profit margin in 4Q FY2010 improved to 7.0% from 5.4% in 4Q FY2009. The improvement in the gross profit margin is due mainly to the contribution from domestic trading business and chartering business which both have better margin.

Distribution and selling expense decreased from US.1.7 million in 4Q FY2010 from US$ 4.2 million in 4Q FY2009. This is in line with the decrease of steel trading revenue and change of trading terms for certain major contracts in 4Q FY2010.

Earnings per share of the Group in FY2010 were at 1.90 US cents as compared to 0.25 US cents in FY 2009. Net Asset Value per share as of 30 April 2010 was at 8.8 US cents from 6.5 US cents in 30 April 2009.

The Group is proposing a final cash dividend of 0.5 Singapore cents per share as a gesture of appreciation for the support of its shareholders. Novo will announce the book closure and payable dates at a later date.

Commenting on this year’s set of results, Novo Group Founder and Executive Chairman Mr. Dicky Yu said, “Coming out from one of the deepest recession in recent history, Novo has managed to take advantage of opportunities available even during tough economic times to expand and strengthen its business.”

During the period of FY2010, Novo has achieved some key milestones in its quest to further expand its business. In September 2009, the Group acquired a 25,000-square meter land used right in Tianjin Economic Technological Development Area Western District to locate its steel processing centre. Investment consideration for the land use right was at US$ 1.1 million.

This processing centre is expected to handle 100,000 MT of Hot rolled coil and 100,000 MT Cold rolled coil to be cut, slitted and packed for distribution to end users such as electric appliances and automobile industries.

The Group has also acquired key accreditation such as the ISO 9001:2008 certification for stockholding and supply of reinforcement steel bars from HKQAA awarded to Novo Steel (HK) Limited, the Group’s domestic trade and distribution arm for Hong Kong and Macau. This certification qualifies Novo Steel (HK) Limited to supply to all major construction companies, listed companies as well as government in Hong Kong and Macau.

The Group has also been granted with scrap license in PRC which will allow the Group to trade scrap metal in PRC. During the period, the Group ventured into Coal trading to cater to the strong demand for coal in PRC.

“Coal demand in PRC will remain high because of strong demand and supply constraints. Most of PRC electricity comes from coal-fired power plants and it is expected that power generating capacity will continue to expand,” explained Mr. Yu.

The coal trading division has positioned itself to tap into this opportunity by securing allocation of coal from coal mines that will contribute to stable revenue moving forward.

In line with its plan to expand its investor base, Novo has applied for primary dual listing of its shares in the Mainboard of the Stock Exchange of Hong Kong. The Group believes that this move will be beneficial since the two markets attract different investor profiles and it would be advantageous to tap into the two markets when opportunity arises. Furthermore it would enable the Group to have exposure to a wider range of private and institutional investors and increase the liquidity of the shares.

Future outlook

On his view for the next 12 months, Mr. Yu is cautiously optimistic.

“In our major market which is PRC, the risk of the PRC economy overheating has become a concern and it has led to some measures adopted by the PRC government to cool the economy particularly on the property sector. These measures would affect not only the property sector but other sectors as well such as automobile and
electric appliance sector which are major sources of steel demand hence steel production in PRC is expected to slow down in FY2011,” he added.