SINGAPORE (Jan 15): Global Invacom, the global provider of satellite communications equipment, is expecting to book a net loss for FY19 as it makes “significant changes” to its operations.
As a result of the ongoing US-China trade war and its tit-for-tat tariffs, Global Invacom says it is just one of the affected multinational companies with operations in China.
For 2019, some 25% of the group’s manufacturing output came from China.
“Our factory in Shanghai has become uncompetitive as a result of the 25% tariffs on both steel and electronics,” CEO Tony Taylor tells The Edge Singapore. “All-in wages in China are currently about two-thirds of an equivalent operation based in the UK.”
As such, the group is pulling the plug on its operations in China and relocating to the Philippines. Following the move, the Philippines will be responsible for 45% of the group’s manufacturing activity, with another 45% attributable to the US and the remaining 10% to Rest of the World.
According to Taylor, the group has been contemplating a relocation to Southeast Asia since 2007, after noticing a significant spike in costs from its operations in China.
“Our labour costs have been increasing rapidly over the years,” shares Taylor. “We began automation in 2014, which has seen our manpower figures fall to 300 from an initial 1,100. But we are unable to automate any further,” he adds.
Global Invacom hopes to complete the relocation by June, with some 80% of production slated to be shifted over by end-January.
“Trump’s tariffs forced us to make a decision faster, and we don’t envision any tangible outcomes from the Phase One deal that is reportedly about to take place,” says Taylor.
Global Invacom will only retain a core team of some 30 staff in Shanghai who will oversee global sourcing and procurement of key components. The remaining employees will be made redundant, says the group.
Global Invacom has also partnered Philippines-based electronics manufacturer EMS Group to outsource production of the majority of items previously manufactured in Shanghai.
“Having established a partnership with EMS, the group also intends to develop partnerships with local component suppliers. Despite the relocation to the Philippines, the group will continue to rely on China as a major source of components for the near future,” says Taylor.
While the relocation will help improve the group’s profitability margins and spare the products from being slapped with additional US tariffs, Global Invacom is expecting to book a net loss for FY19 on the back of one-off, non-recurring charges related to the termination of its Shanghai operations.
While unwilling to disclose an estimated figure, Taylor notes that the loss is expected to be “quite large”, compared to the net profit of US$1.5 million in FY18.
However, Taylor maintains that the group is set bounce back in FY20 on the back of its re-alignment of Asian manufacturing operations and ongoing process improvements.
“Global Invacom expects its operational and financial performance in FY20 to improve compared to FY19,” says Taylor, adding that the group will remain operationally profitable for FY19.
Global Invacom will report its unaudited financial results for FY19 in February.
As at 12.49pm, shares in Global Invacom are trading 0.1 cent lower, or 0.7% down, at 14.2 cents.
