IPS SECUREX HOLDINGS LIMITED
(Company Registration No. 201327639H)
(Incorporated in Singapore)
RESPONSE TO QUESTIONS FROM SHAREHOLDERS AND THE SECURITIES INVESTORS ASSOCIATION (SINGAPORE) IN RESPECT OF THE COMPANY'S ANNUAL REPORT AND ANNUAL GENERAL MEETING FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021
The Board of Directors (the "Board" or "Directors") of IPS Securex Holdings Limited (the "Company" and, together with its subsidiaries, the "Group") wishes to address the queries raised by Securities Investors Association (Singapore) ("SIAS") and would like to thank all shareholders of the Company ("Shareholders") who submitted their questions relating to the Company's annual report ("Annual Report") for the financial year ended 30 June ("FY") 2021 in advance of the Annual General Meeting of the Company to be held by way of live audio-visual webcast and live audio-only stream on Thursday, 28 October 2021 at 9.00 a.m. (Singapore Time).
Substantial and relevant questions received from Shareholders have been grouped under a few key sections. Please refer to the Company's responses to the aforementioned questions from Shareholders and SIAS as set out in the Appendix hereto.
BY ORDER OF THE BOARD
Chan Tien Lok
27 October 2021
This announcement has been prepared by IPS Securex Holdings Limited ("Company") and has been reviewed by the Company's sponsor, United Overseas Bank Limited ("Sponsor"), for compliance with Rules 226(2)(b) and 753(2) of the Singapore Exchange Securities Trading Limited ("SGX-ST") Listing Manual Section B: Rules of Catalist.
This announcement has not been examined or approved by the SGX-ST. The SGX-ST assumes no responsibility for the contents of this announcement, including the correctness of any of the statements or opinions made or reports contained in this announcement.
The contact person for the Sponsor is Mr. David Tham, Senior Director, Equity Capital Markets, who can be contacted at 80 Raffles Place, #03-03 UOB Plaza 1, Singapore 048624, Telephone: +65 6533 9898.
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RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS FROM SHAREHOLDERS
FY2021 Financial Results
1(a) With reference to page 92 of the Annual Report about "Investment in subsidiaries". For "Securex GS Pte Ltd", does it belong to Security solutions segment, or Maintenance and leasing segment? Please refer to page 90 of the Annual Report about "Plant and equipment". For "Securex GS CGU", does it belong to Security solutions segment, or Maintenance and leasing segment?
1(b) Please refer to page 91 of the Annual Report about "Investment in subsidiaries". It was stated that "As the estimated recoverable amount was lower than cost of investment, an impairment loss of $1,344,160 (2020: Nil) was made." What caused Securex GS Pte Ltd's "operating profits being lower than originally budgeted" in FY2021?
1(c) What caused Securex GS CGU's "low profitability" and "operating profits being lower than originally budgeted" in FY2021?
Securex GS Pte Ltd's ("SGS") business operations include both the Security Solutions segment (for security solutions products and integrated security solutions) and the Maintenance and leasing segment (for service maintenance and leasing programs). The plant and equipment under SGS, thus falls under both segments.
The poor economic environment and weak customer demand due to the ongoing COVID- 19 pandemic and the Singapore government's various measures to curb its spread has led to project delays which had affected the profitability of SGS in FY2021.
As disclosed on page 91 of the Annual Report, the Company assesses at each reporting date whether there is any indication that its investment in subsidiaries is impaired. To determine whether there is indication of impairment, the Company considers factors such as a significant deterioration in the financial position of the subsidiaries or the subsidiaries are experiencing significant financial difficulties. In FY2021, management determined that the estimated recoverable amount of SGS based on the present value of the future cash flows expected to be derived from its underlying assets was lower than the Company's cost of investment in SGS due to the reasons as aforementioned. Consequently, the said impairment loss of $1,344,160 was recorded in FY2021 and this is consistent with the Group's accounting policies, in particular, as disclosed on page 84 in Note 3.7 "Significant Accounting Policies - Impairment" of the Annual Report.
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Please refer to page 10 of the Annual Report about "Revenue". It was stated that "The Group also experienced a S$7.8 million decrease in revenue from providing integrated security solutions in Singapore due to a delay in receiving required government approvals." How much of this S$7.8m decrease in revenue has the Group managed to recover from receiving required government approvals?
The Company will update Shareholders on this matter in its SGXnet announcement for its financial results for the six months ending 31 December 2021.
Please refer to page 100 of the Annual Report about "Revenue". Why "Rental income" declined by 19.4% from $1,412,151 in 2020 to $1,137,849 in 2021? Was it mainly due to "expiration of a 7-yearlease-and-maintenance contract with the Housing & Development Board", or were there other major reasons?
Yes, it was mainly due to the expiration of a 7-yearlease-and-maintenance contract with the Housing & Development Board that covers a certain district only.
4(a) Please refer to page 94 of the Annual Report about "Trade and other receivables". How much of the $4,563,644 "Impairment loss on trade receivables" in FY2020 has been collected back so far?
The Group is actively pursuing and discussing with its customers to collect the outstanding amount.
4(b) How much of the $213,666 "Impairment loss on trade receivables" in FY2021 has been collected back so far?
The Group has collected approximately 28% of the impairment loss on trade receivables in FY2021 as at 30 September 2021 and is actively pursuing and discussing with its customers to collect the outstanding amount.
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In FY2020, the Gross Profit Margin (GPM) was 39.1%, yet the impairment loss rate on trade receivables was as high as 50.4%. In FY2021, the results margin from operating activities was 1.48%, yet the impairment rate on trade receivables was 9.1%. Assuming there was no impairment loss on trade receivables from "government bodies and agencies", it was likely that most impairment loss came from non-government bodies and agencies. May I ask the Audit Committee is the Group choosing wrong customers from private sector?
All of the Group's customers in both public and private sectors are required to go through our Know-Your-Customer ("KYC") onboarding processes and necessary reviews. The Group assesses local customers' creditworthiness by reviewing their financial standings through publicly available records and conducting an internal credit review on an annual basis. The Group also monitors the collection of payments and trade receivables past due on a regular basis. Any specific provision or write-off will only be made when the collectability of an outstanding debt is doubtful or when the debt is uncollectible.
Due to the higher comparative political risk in the countries that the Group's customers operate in, the Group is occasionally exposed to unexpected political and operating circumstances. Changes or shifts in political leadership for example, may be accompanied by budget and internal reviews which may cause delays to customers' planned projects and in some cases, a postponement or even cancellation of projects. In such scenarios, the Group will monitor the situation and continue the dialogue with its customers, since their security concerns will still exist.
Please refer to page 94 of the Annual Report about "Inventories". While the Group's revenue has declined by 55.0% yoy, inventories had increased 3.1times from $1.63m in 2020 to $5.10m in 2021. May I ask the Audit Committee has the Group over-stocked on those slow-moving inventories?
No, the Group has not over-stocked on slow-moving inventories. The increase in stock relates to requirements for a project that is in progress.
Please refer to page 92 of the Annual Report about "Other investment". It was stated that "The above club membership is held in trust by a director". What club membership is this? And which director is holding in trust?
The club membership relates to a social (non-golf) membership of Seletar Country Club, of which our Executive Director and CEO Mr Kelvin Lim is holding in trust.
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8 Please refer to page 41 of the Annual Report about "Corporate governance report". Despite the Group's revenue declining by -55.0% yoy and net profit declined by 95.3% yoy, the aggregate total remuneration paid to the four (4) key management personnel (who are not Directors or the Group CEO) i.e Lee Yeow Koon/ Lee Siew Han/ Lee Chea Siang/ Boey Teik Heng has increased by 18.1% from $633,567 in 2020 to $748,364 in 2021. Can the Remuneration Committee share what remuneration factor(s) specifically led to the increase? How much is attributable to each of these remuneration factor(s)?
As the security solutions industry is a niche and specialised industry, the Group believes in retaining talents that can contribute to its long-term goals. In particular, one of the key management personnel had his work scope expanded to include sales and had also received a one-off bonus following the completion of a major project.
RESPONSES TO QUESTIONS FROM SIAS Question 1
In FY2020, the group experienced a significant increase in revenue after years of declining revenue. In FY 2021, revenue slipped to a new low of $8.69 million.
The trend in the group's consolidated revenue is shown below:
FY2014 - $12.45 million
FY2015 - $15.66 million
FY2016 - $12.77 million
FY2017 - $11.57 million
FY2018 - $10.87 million
FY2019 - $8.98 million
FY2020 - $19.32 million
FY2021 - $8.69 million
The increase in FY2020 was due to a significant increase in revenue to $13.6 million in the security solutions segment. In FY2021, revenue from the security solutions segment decreased by $10 million to $3.6 million.
Would management help shareholders understand how much of the decrease in revenue could be attributed to the pandemic? While the pandemic might have disrupted travel and cut organisations' budgets, the decrease in revenue could be observed from as early as FY2016.
Would management consider disclosing the order book on a regular basis during its routine results announcement? Doing so would allow shareholders to understand the progress made by the group in securing project-based contracts and improve the visibility of the group's earnings.
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