Letter to Shareholders
Extracted from Annual Report 2007
Dear Valued Shareholders,
FY2007 was a year of consolidation and disciplined expansion for the ArianeCorp Group. We remained steadfast to our three key growth directives, namely, to seek strong partnerships and acquisitionopportunities that fit our strategic goals, to maximize the synergies of our acquisitions, and to enhance our technical competencies and assets.
The Group's evolution during the year benefited greatly from our disciplined acquisitions of established businesses and operational expertise to sharpen our telecommunications focus. Having secured S$50 million redeemable zero coupon convertible bond of which the Group only drew down S$2 million, the Group intends to use this source of funds partly for strategic expansion at the appropriate time in the future.
The acquisitions of CarrierNet Corp and Uni3 solidified the Group's competitive positioning within the telecommunications market in the Asia Pacific. Both transactions have been successfully completed and we are in full consolidation mode to integrate these businesses into ArianeCorp's business architecture.
The inclusion of CarrierNet's business boosted Group revenue to S$17.4 million in FY2007 from S$2.7 million the previous year. As the region's leader in prepaid telephony products and services, with an established global VoIP network, CarrierNet provided the leverage for ArianeCorp to deepen our penetration into the telephony market segment. Through CarrierNet's networks, the Group now has immediate market access to the Singapore and Australia retail pre-paid markets, estimated at S$50 million and A$20 million in turnover respectively per month. This offers the Group tremendous upside growth potential.
The Group made a loss after tax of S$4.7 million. This loss was mainly due to a loss in short term investment, a forfeiture of deposit in an aborted proposed acquisition, expenses incurred in relation to fundraising and also general administrative expenses.
Due to CarrierNet's sizeable wholesale and bilateral contracts with several international carriers within the region, the Group has also been able to raise the quality of its voice services by gaining direct access to the world's major carriers including PCCW, SingTel, Maxis, AT&T, and Italy Telecom among others.
The addition of Uni3, a dominant marketing and distribution operator for retail prepaid products in Singapore, is expected to sharpen ArianeCorp's competitive edge in the retail VoIP and telecom product space.
In the past year, the Group has also taken significant strides in expanding its regional footprint organically. Aside from enlarging its presence in Singapore, China, Indonesia, Australia and Malaysia, we will also establish a direct presence in new markets such as Cambodia, Japan and Vietnam, bringing our network to more countries in the Asia Pacific.
Bracing for greater competition,
staying nimble and effective
In view of increasing competition in the telecommunications arena, ArianeCorp is honing its operations to improve efficiencies and exploit its key competencies.
To date, the Group has re-engineered the backend systems of CarrierNet to strengthen its emphasis on quality telecommunications routes. This emphasis on quality has provided a solid base for the Group's retail business to stay poised for potential growth within the region, even as many independent telecommunications companies sacrifice the quality of their routes by lowering price.
The Group also redefined its previous wholesale strategy to focus on quality termination routes that command a higher price. This move led to an initial reduction in total traffic volume for the Group, but this was subsequently positively turned around four months after implementation in the first quarter of 2007.
Performance Summary and Outlook
Notwithstanding the loss after tax of the Group, the consolidation of CarrierNet into the Group's business had a positive impact as the latter was profitable during the year. A S$15.3 million contribution from the new subsidiary lifted Group turnover significantly by 545%, while the Electronics division contributed S$2.1 million of the Group's total revenue. Gross profit rose by 359% to almost S$4.0 million. The addition of CarrierNet's assets increased the Group's fixed assets by S$3.3 million, while current assets rose by S$3.6 million.
CarrierNet's wholesale business strengthens the backbone of the Group's revenue model, with its ability to achieve cost efficiencies through greater economies of scale. The subsidiary will press on to maintain high retail market penetration in countries with an influx of foreign workers such as Australia, China, Hong Kong and Singapore. CarrierNet is also expected to grow and build new markets in Africa, Bangladesh, Europe, India, Indonesia, Middle East and Vietnam.
Both Uni3 and CarrierNet are on track to become significant contributors to Group revenue in FY2008. For FY2007, the Electronics Division experienced a decline in sales revenue of about 29% to S$2.1 million as compared with FY2006 S$2.7 million. Nett loss for FY2007 was S$643K, a small improvement of about 7% against FY2006 loss of S$690K.
The decline was mainly due to the competition from Mainland Chinese LCD manufacturers in addition to the end-of-life for some of the existing projects. Moving forward, the Division will continue to look into further cost-cutting and venture into more niche market with lesser competition.
The Group is considering all its options to unlock the value of the Optic Fiber Network for the shareholders. The Group is still in discussion with various parties to deploy necessary resources to provide the last mile and light up the Fiber Network. In the event no strategic or beneficial alliance and partnership can be achieved, the Group may consider the disposal of the Network.
Going forward, the Group will continue to be vigilant for business opportunities and strategic partnerships to further expand its scope and extend its reach in the region and beyond. The Group will carefully manage its growth strategies well so as to improve the quality of its earnings in the year ahead.
Acknowledgements
On behalf of the Board of Directors, I would like to extend our gratitude and appreciation to Mr Kea Kah Kim who resigned as Managing Director and Chief Executive Officer and Mr Goh Seh Leong who resigned as Independent Director of the Company on 6 February 2008 and 18 January 2008 respectively. We would like to thank them for their invaluable contributions to the Company and wish them well in their future endeavors.
Through the collective efforts of the Group's senior management and employees, as well as the continuous support of our customers, business associates and shareholders, the Group made significant progress in FY2007 that has put us on a solid growth path. On behalf of the Board of Directors, I would like to thank you all for your unwavering support as we look forward to embracing the challenges of the year ahead.
Mr Lew Syn Pau
Chairman
ArianeCorp Limited