Nanofilm Technologies issued explanations Wednesday to address concerns raised by analysts and investors after its first half earnings release and the resignation of its chief operating officer, not long after its CEO stepped down, spurred an as much as around 36 percent share price drop earlier this week.
Last week, Nanofilm Technologies reported first half net profit slipped 17.9 percent on-year to S$17.9 million on revenue of S$96.6 million, up 24.2 percent on-year; gross profit margins fell 6.5 percentage points on-year to 46.1 percent, amid higher costs associated with the new Shanghai Plant 2, equipment qualification costs and higher new-product introduction costs, the company said.
On Wednesday, Nanofilm said in an SGX filing that the new Shanghai Plant 2 had incurred higher utility costs related to the rental of diesel power generators and diesel consumption for power, which was required as the application to the Chinese municipal government for high-tension power had taken longer than expected on contractor delays and the associated approval process due to the Covid-19 situation.
Shanghai Plant 2 costs
“The new Shanghai Plant 2 has since completed its connection to the government’s power grid in May, reverting back to normalized utility tariffs. Hence, such qualification costs related to the new Shanghai Plant 2 will not recur in the second half,” Nanofilm said.
For the equipment qualification costs, customers have qualified the coating equipment in the first half in anticipation of upcoming mass-production requirements, with most of equipment not yet contributing to revenue, Nanofilm said, adding the equipment is expected to contribute positively from the second half.
New product costs
New product introduction (NPI) projects posted a S$2.8 million on-year cost increase in the first half for projects yet to contribute meaningfully to revenue, Nanofilm said.
“When these NPI projects progressively enter into mass production from the second half of 2021, they are expected to contribute positively to the group’s revenues. The increased in NPI projects is a reflection of a higher business activity pipeline, underscored by our differentiated nanotechnology solutions as the preferred partner to our customers,” the company explained.
On Friday, the company said Ricky Tan Chong Ho resigned from his chief operating officer role after Nanofilm reorganised its reporting structure and assigned responsibility to oversee overall operations and performance of each business unit to the respective heads of those units. After the reorganisation and a period of sabbatical leave for personal reasons, Tan decided to pursue other opportunities, Nanofilm said.
In June, CEO Lee Lian Huang also stepped down.
On Wednesday, Nanofilm reiterated Lee departed due to health reasons, with Executive Chairman Dr. Shi appointed as interim CEO, assisted by newly appointed Deputy CEO Gary Ho, covering portfolios in commercial, product development and operations. Deputy CEO Gian Yi-Hsen is covering portfolios in strategy, planning and digital office, the company said.
“The group is actively assessing potential CEO candidates internally, in view of continuity and familiarity of the business that allow for smooth transition. The group will appoint the new CEO in due course,” Nanofilm said.
Nanofilm on Wednesday also reiterated Tan’s departure was after its business unit-oriented restructure and his unplanned personal leave.
“With the unplanned leave, the group adjusted the organizational structure to have respective business unit heads step-up in their leadership with the intention for an adjustment of the COO work scope post leave,” Nanofilm said. “After consultation on post leave future opportunities and preferences, the group and COO mutually concluded on a departure at this juncture.”
Shares of Nanofilm climbed 2.88 percent to S$3.93 by 1:50 p.m. SGT.