Novo Group profit down to US$1.6mln

Despite revenue growth of 13%, profit slipped due to global economic crisis and China's cooling measures.

Mainboard listed Novo Group Ltd. (“Novo” or the “Group”), a global steel supply-chain management company with integrated value-added services, on Sunday reported its results for the 3 months ended 31 July 2010 (1Q FY2011).

The Group posted revenue of US$ 117.2 million for 1Q FY2011 up by 13% from US$ 103.7 million in 1Q FY2010. Top line growth was due to the increase in the prices of iron ore and other steel products coupled with increase in the sales of semi-finished products in South East Asia, though the demand for iron ores dropped.

During the period, contribution from the domestic trade and distribution business grew significantly in 1Q FY2011 to US$15.1 million from US$ 1.1 million in 1Q FY 2010 which also led to revenue growth, according to a Novo Group report.

The Group’s net profit of US$ 1.6 million for the period represented a decrease of 60% from 1Q FY2010 net profit of US$3.9 million. The dip in the net profit was attributed to the slow down in global economic growth and the cooling measures implemented in the PRC that affected steel demand. Gross profit of the Group decreased to US$ 6.7 million in 1Q FY2011 from US$ 8.8 million in 1Q FY2010 and gross profit margin slipped to 5.27% in 1Q FY2011 from 8.46% in 1Q FY 2010.

Group expense climbed in tandem with the growth in revenue. Distribution and selling expenses increased by 23% to US$ 4.2 million in 1Q FY2011 from US$ 3.4 million in 1Q FY2010. This was due to additional expense incurred by the domestic trade and distribution business and the change of trading terms for certain major contracts.

Administrative expense increased to US$ 1.2 million in 1Q FY2011 from US$ 1.0 million in 1Q FY2010 due to the increase in the overhead cost of domestic trade and distribution business in Hong Kong and higher depreciation cost being recorded compared with 1Q FY2010. Finance cost decreased by 40% to US$ 0.3 million in 1Q FY2011 from US$ 0.4 million in 1Q FY2010

Earnings per share decreased to 0.22 US cents in 1Q FY2011 from 0.64 cents in 1Q FY2010. Net Asset Value (NAV) per share as at 31 July 2010 improved to 9.0 US cents from 8.8 US cents in 30 April 2010.

Mr. Dicky Yu, Novo Group Executive Chairman said ‘The impact of the measures implemented by the PRC government to cool down its economy started to be felt. Steel output in June 2010 was at 4 month low due to the weak demand from the property sector and automobile sector. Iron ore import demand also moderated towards the second half of the year.” Mr. Yu foresees that there will be lower demand for iron ore in the second half of the year as steel mills trim its output following the weak demand.

In June of this year, PRC iron ore imports fell to 47.2 million tonnes from 51.9 million tonnes in May based on the data from China Iron and Steel Association.

Despite this development, Mr. Yu is optimistic of the prospects ahead for the Group’s business divisions.
“PRC steel products export is still strong as seen from the data by the PRC customs wherein total steel product export from the period of January to July of this year went up by 152% to 28.1 million tonnes on a year-on-year comparison. This augurs well for our international steel trade division; while the Group’s domestic trade and distribution division is also coming along well with revenue climbing significantly as compared to 1Q FY 2010 which is an encouraging development.”

He also cited coal trading as one of the emerging business of the Group will continue to grow steadily due to the strong demand in the PRC. “The Group is positioned to tap into this opportunity though our coal trading division” he added.

The Group expects its business division such as international trading, domestic trade and distribution and coal trading to be key drivers of growth it its top and bottom line going forward.