JEL Corp shot up to become a four-bagger in the past 2 months --- and now sports a hefty valuation of 3.4X book value (and no PE ratio because last year was loss-making),according to Bloomberg data. JEL has just published its FY2011 annual report. The joint statement by its chairman and CEO makes for interesting reading about the company's achievements in a 5-year struggle to overcome the blows that rained down on it after its founder-CEO, former deputy CEO and former CFO cooked the books. The statement says that the threat of being involuntarily delisted is yet to be overcome, but also points to the future work that will be done regardless. It has just received the financial backing of billionaire Sam Goi and prominent investor Koh Boon Hwee. Read on.....


Dear Shareholders,

JEL_board
JEL board: (L-R, seated) Gilbert Ee, CEO, Ryo Kobayashi, COO; (standing L-R) Francis Lee, non-exec chairman; Michael Gray, ID, and Edward Fu, ID. Photo: annual report

We are pleased to bring you this Annual Report for 2011.

Last year, we shared with you our pause, at the CROSSROADS, as we had to ponder yet again, the future of your Company, fraught with so many challenges.

We want to thank you, our shareholders, for giving a resounding vote of confidence! Especially at a time such as this. Despite so many difficulties and uncertainties, you rallied behind your Board and ensured that our very first Rights Issue, was almost 200% over-subscribed! This raised substantial funds, which, with the help of some accumulated cashflow from operations, enabled the Company to retire the entirety of our bank debts, under the terms of the Scheme of Arrangement (SOA). For the first time in our history, we are bank debt free!

These outcomes were never assured, given the lapsing of our Subscription Agreement, the risk of the SOA failing, and the pressures of getting off the SGX-ST watch-list. We must record our sincere thanks to each of our Lenders, as they have supported the work of this new Board and Management, throughout the last 5 years and voted unanimously for the SOA last year. We have kept faith with them and fulfilled completely, the terms of the SOA.

In the process, we have seen the emergence of a new controlling shareholder, in the person of our CEO; and an additional substantial shareholder. Even though they were all already among our shareholders, we welcome them aboard, with their increased stake!

We see clearly, the need to meet the two pre-requisites of getting off the watchlist, namely profitability and market cap size. Now that we have met one of these criteria, we have already applied for an extension of time and are awaiting the outcome. The Company is eligible to do so, under the guidelines of the Listing Manual. If given, your Board will act swiftly, towards meeting the other criterion of market size. Whilst your Board sees every reason why an extension should be given, in the event SGX-ST refuses, your Company may be involuntary de-listed and if so, remain a public, but unlisted company. Your Board has been working very hard to avert this possibility.

In the meantime, your Company needs to grow both organically and inorganically. After several years of consolidation, getting firmly on the growth pathway is essential for our future. Your Board will, given the opportunity, pursue twin tracks, namely of ensuring that our core businesses are healthy and grow stronger; and of looking at mergers & acquisitions opportunities, to give breadth and depth to the Group.

JEL_logo
The JEL name is on the brink of extinction: Shareholders will soon vote on a change to Global Strategic Holdings as proposed by the management.

With all these in mind, it’s fair to say the Company has TURNED THE CORNER, hopefully to a brighter future. To mark this unprecedented milestone, your Board is proposing a change of name. “JEL Corporation” has served us well, though in recent years, with mixed blessings. The name reflects the initials of the founder and two other members of his family and associates. The two other members of his family are no longer associated with the Group and while the founder remains a substantial shareholder, he is no longer a controlling shareholder and has not been involved in the management of the Group since he stepped down in 2007.

After considering various possibilities, the Board has come up with “GSH”, which stands for Global Strategic Holdings. This name reflects our global reach in distribution and our strategic positioning in emerging markets, befitting our existing business. As a generic name, it will also allow us to expand or diversify, through mergers & acquisitions, into other businesses. A change of name is an important decision that requires a special resolution of shareholders. The Board has obtained in principle approval of the name by SGX-ST and reserved the acronym name and the full name. Accordingly, an EGM will be held right after the upcoming AGM, to seek your kind approval.

We are now pleased to bring you highlights of last year’s results. Revenue increased from S$89.4 million in FY2010, to S$123.3 million in FY2011. Operationally, excluding any extraordinary items, the Group was profitable.

Revenue and Margin

The Group’s Revenue increased by 37.9%, from S$89.4m in FY2010, to S$123.3m in FY2011. Gross margins increased from 5.9% to 6.6%. Correspondingly, gross profit increased by 53.2%, from S$5.3m in FY2010, to S$8.1m in FY2011. The higher Revenue and gross profit in FY2011 were attributable to the better performance in the Group’s IT business in Indochina and Photographic business in Central Asia.

Administrative Expenses

Administrative expenses decreased by S$0.65m or 8.1%, from S$8.06m in FY2010 to S$7.41m in FY2011, mainly due to further cost reductions undertaken by the Group in FY2011.

Extraordinary Item

The one-off extraordinary item was due to the amortisation of finance expense of S$2.03m in FY2011, as a result of the Group’s borrowings being measured at amortised cost, using the effective interest method. However there was a gain on de-recognition of financial liabilities of S$0.47m, due to the de-recognition of the original borrowings and the recognition of new financial liabilities, as a result of the Scheme of Arrangement modifying the original Debt Restructuring Agreement.

Subsequent to FY2011, on 17 February 2012, the Group repaid the Lenders the amount of S$8.0m, under the terms of the SOA, and consequently extinguished the entire debts amounting to approximately $17.3m. The Group will record a net gain of approximately S$5.0 million in FY2012, as a result of this.

In summary, these items are non-cash and non-recurring in nature. Excluding this extraordinary item, the Company’s EBITDA improved from a loss of S$2.75m in FY2010 to a profit of S$0.72m in FY2011.

Looking ahead

On 3 March 2010, the Company was placed on the watch-list of the SGX-ST. Pursuant to Rule 1314 of the Listing Manual, the Company may apply for its removal from the watch-list of the SGX-ST, if it records consolidated pre-tax profit for the most recently completed financial year, excluding exceptional or non-recurrent income and extraordinary items; and has an average daily market capitalisation of S$40 million or more over the last 120 Market Days on which trading was not suspended or halted; or if the Company satisfies the quantitative criteria in Rules 210(2)(a) or 210(2)(b) of the Listing Manual, for listing of equity securities on the Main Board of the SGX-ST. Should the Company be unable to meet the requirements of Rule 1314 of the Listing Manual by 2 March 2012, the SGX-ST may either remove the Company from its Official List, or suspend trading of the Shares with a view to removing the Company from its Official List.

For FY2011, the Group has recorded an audited pre-tax profit excluding exceptional or non-recurrent income and extraordinary items. Under the guidelines to the Listing Manual the Company is eligible to apply for an extension of 12 months, to get off the watch-list. Accordingly, the Company has applied to the SGX-ST for an extension of 12 months, to the 2 March 2012 deadline, and your Board will keep you updated on the outcome.

We hope these comments will help you better understand our audited accounts and the business of our AGM and EGM. See you on 25 April 2012.

Sincerely,

Francis Lee
Non-Executive Chairman and Independent Director

Gilbert Ee
Chief Executive Officer

26 March 2012

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