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Union Steel Holdings: FY2025 Financial Results and Operational Review · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today, we're taking a close look under the hood
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  at Union Steel Holdings Limited.
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  We'll be dissecting their unaudited condensed financial statements for the full
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  financial year ended 30 June 2025.
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  Okay, so let's unpack this. Our mission, as always, isn't just to rattle off
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  numbers. We want to get to the story behind Union Steel's performance this year.
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  And it's, well, it's quite a story. You've got a company wrestling with some
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  pretty immediate market challenges in its core business, while at the same time
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  making some really significant and costly strategic investments for the future.
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  We're going to try and explore why things unfold the way they did and what these
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  figures might signal about this, well, this bold pivot they seem to be making.
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  Absolutely. And that narrative is so important here.
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  Union Steel isn't simple. It operates across different segments,
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  metals, engineering, scaffolding.
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  Just glancing at the headline figures won't give you the full picture. Not at all.
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  We really need to dig into the underlying movements. It's not just the what, but the why now, right?
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  And we need to connect those dots back to their broader strategy.
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  It really is a classic balancing act. And these statements, well,
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  they show us where they're placing their bets. Indeed.
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  Okay, so let's start with that top-line overview.
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  And it's pretty clear FY 2025 was a challenging year for them.
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  Union Steel's total revenue for the year, it dipped about, what,
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  7.7%, down from roughly $215 million to just over $106 million.
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  Yeah, that's a noticeable drop. And maybe more significantly,
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  the profit that actually belongs to the shareholders, the owners,
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  that took an even bigger hit.
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  It fell from nearly $12.7 million down to $9.5 million, which translates directly
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  to their earnings per share. That dropped by about a quarter from 10.78 cents down to 8.08 cents.
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  Now, what's particularly striking, I think, is that this decline seems to have
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  sort of gathered pace in the second half of the year.
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  Revenue for just the second half of FY 2025 was down a much sharper 22.6 percent
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  compared to the same period last year.
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  Wow, 22.6 percent. That's steep for six months.
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  And net profit for that six-month stretch was almost halved,
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  dropped from $5.7 million down to S3.5 million dollars, roughly.
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  So what does that kind of accelerating trend usually tell us in a sector like this?
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  Is it like a sudden market shock or maybe delayed effects of earlier problems
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  finally hitting the bottom line?
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  Yeah, that accelerating trend in the second half, it's definitely a significant red flag.
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  It suggests a few possibilities. It could mean a sudden pretty significant downturn
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  in market conditions, maybe a rapid drop in demand or prices, like you said.
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  Or it could indicate that challenges which were perhaps masked or managed OK
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  in the first half finally sort of overwhelmed them.
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  For a company like Union Steel, with its diverse segments, it immediately points
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  us towards looking for a specific segment or maybe an external factor that really
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  tightened its grip towards the year end.
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  It wasn't just general market softness causing that kind of drop.
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  It signals, you know, critical areas that really demand a closer look to understand the core drivers.
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  That's a great setup for where we need to go next then. Yeah.
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  Let's break down where that revenue came from, or I guess we're really slowed
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  down segment by segment.
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  This is where we start to really understand those core drivers you mentioned.
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  Let's look at metals first. Interestingly, annual sales for the metals segment
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  actually saw a modest increase, nearly 4%, up to $46.4 million.
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  Oh, okay. So not all bad news on the revenue front then?
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  Not entirely. Apparently, this was mainly driven by higher sales volume of new
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  steel. But that positive was partly offset by lower sales of scrap metal.
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  Seems like scrap face continued price softness and strong market pressures.
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  Right. The scrap market can be pretty volatile. So a bit of a mixed bag there.
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  New steel holding up, scrap pulling it back a bit.
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  Exactly. Now contrast that with the engineering segment. This one took a significant hit.
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  Revenue fell over 14% to S53.4 million dollars in FY 2025.
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  14%. Yeah, that's substantial. And management's reason. They cite more intensive
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  market competition. And remember that second half acceleration we talked about.
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  The decline in engineering for just the second half was even steeper.
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  A sharp 34.8%. Ouch. Okay, that points a big finger at engineering for the second
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  half weakness. Seems like it.
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  And the scaffolding segment also saw a pretty substantial drop,
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  revenue down nearly 20% to S6.3 million dollars.
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  The reasons given were fewer secured contracts and, again, increased market challenges.
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  So metals showed some resilience, maybe even growth in parts,
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  but engineering and scaffolding really faced tougher headwinds.
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  That's the picture, yeah. Okay.
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  And when we connect these segment performances, like you said,
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  They directly explain that overall gross profit decline.
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  For FY 2025, gross profit was down 13% overall, landing it as $27.2 million.
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  So those reduced contributions from scaffolding, the weaker scrap metal prices
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  hitting the metal segment despite higher new steel sales, and especially those
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  lower sales from engineering, it all feeds into that drop.
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  Makes sense. And the gross profit margin also thinned out slightly, didn't it?
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  From about 27.2% down to 25.6%. Now, that phrase, intensive market competition
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  in engineering, it's, you know, a standard sort of phrase. But what does it mean?
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  Is it new players jumping in or maybe a shift in what clients need?
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  Perhaps towards different, more specialized tech that maybe Union Steel's current
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  offerings aren't quite hitting.
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  Good question. What we're kind of seeing in the broader market suggests,
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  well, a trend towards greater efficiency, high-tech solutions,
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  sometimes highly customized stuff.
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  Companies relying maybe on more traditional methods or those facing really aggressive
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  pricing from competitors, they're definitely feeling the squeeze.
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  That context is helpful.
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  And it wasn't just about the type of business, but also where it's happening.
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  Geographically, Singapore is still their main market, obviously,
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  but its share actually decreased quite a bit.
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  From 81% of revenue in FY 2024, down to 65% in FY 2025.
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  Oh, wow. That's a big shift away from the home market share. Yeah.
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  Meanwhile, overseas revenue actually increased, mainly driven by higher sales
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  in, interestingly, the metals and engineering segments. Hmm.
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  So they're finding more opportunities, or perhaps deliberately pushing more,
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  outside Singapore, especially in the segments that were overall weaker domestically, like engineering.
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  Seems that way. It's an important detail, especially given that domestic competition point.
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  But despite the overall drop in revenue in gross profit, if you look a bit deeper,
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  other income and expenses reveal some, well, some unexpected silver linings,
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  which is quite interesting.
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  Ah, okay. Let's hear the good news then.
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  Well, on the positive side, other income jumped significantly,
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  up by a third to $8.80 million for the year.
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  Key drivers. A million-dollar recovery of debts they had previously written
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  off, basically, money they thought was gone came back.
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  Nice. Found money is always good. Right.
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  Plus about half a million in higher scrap sales, maybe timing or specific deals there.
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  And another C8.4 million dollar increase from rental and warehousing services.
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  So a nice little boost. Okay, that helps cushion the blow a bit.
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  And looking at other operating expenses, these actually declined,
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  down 5% to S3.8 million dollars, mostly due to a S1.0 million dollar fair value
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  gain on an investment property.
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  So a property hold for rent, not operations, was revalued upwards.
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  Mm-hmm. Pay per gain, but still helps the P&L.
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  Plus about C8.3 million dollars saved from an expired tenancy's rent. However.
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  There's always a however, isn't there? It usually is. This is partly offset
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  by a C8.9 million dollar increase in the lost loans on financial assets,
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  which, for listeners, basically means they're setting aside more money to cover
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  potential future bad debts.
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  Right. A prudent move, probably, given the environment, but it does hit the
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  current profit. Exactly.
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  Prudent but costly right now. Yeah, it's good to see those other categories
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  providing some cushioning, but it really is a tale of two sides here because
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  we also have to talk about where costs increased.
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  Go on. Administrative expenses, they actually rose by over 10% up to S18.8 million dollars in FY 2025.
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  And when you dig into that, about half a million dollars was due to higher staff-related costs.
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  They mention headcount expansion, salary adjustments.
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  Okay, investing in people or maybe just inflation? Could be both.
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  Another half a million was from increased depreciation, which usually follows
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  buying new assets, right?
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  They mention a leasehold property acquisition and a new building.
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  Ah, connecting to those investments. Exactly. But what really catches the eye
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  is another half a million dollar jump, this time in professional fees.
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  And they link this directly to the acquisition of an associated company.
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  This immediately flags that strategic pivot we talked about as being a significant
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  cost driver already in FY 2025.
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  Right. M&A isn't cheap. No, it isn't. And that strategic spending also clearly
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  shows up in their finance costs.
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  Those rose by $7.7 million to $2.4 million.
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  Why? Higher interest expenses from new loan facilities. And crucially,
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  these loans weren't just for, you know, day-to-day stuff.
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  They were specifically secure to finance some pretty hefty long-term investments.
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  Buying that leasehold property, funding the investment in the associated company,
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  and even paying for the construction of a new office building.
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  So they're borrowing significantly to fund these big strategic plays.
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  Precisely. It's very clear they're leveraging up to execute this strategy. Got it.
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  And just to quickly round out the income statement side, tax expenses actually
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  decreased by a million dollars. Oh, OK.
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  Some relief there. Yeah, but it's mainly just due to the lower profit we discussed
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  earlier and also reversing a prior year's over provision.
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  So less profit means less tax, essentially. Right. A consequence rather than a cause.
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  And that whole situation lower profits.
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  But big strategic spending financed by debt leads us right into the balance
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  sheet and cash flow. This is where you really see the impact of these strategic
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  moves on their financial health.
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  So on the asset side, property, plant and equipment, or PPE,
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  jumped by nearly S14 million dollars. Fourteen million. OK.
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  Driven by, as you mentioned, acquiring and building new facilities.
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  Right of use assets also increased by F2.6 million dollars due to new leases.
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  Right. Those leasing standards mean more shows up on the balance sheet now. Yep.
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  And investment properties also rose, mainly because they reclassified a property
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  they used to occupy themselves, decided to rent it out instead,
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  and then it got revalued upwards.
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  Okay. Shifting assets around a bit, too. But the really big news on the asset
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  front, I think, is that substantial investment they made, $6.9 million poured
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  into Enneco Energy Limited.
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  That's a company listed on the SGX main board. They bought a 29.4% equity stake, plus warrants.
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  Yeah, that's a major move. Almost S11 million dollars into an associate.
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  That's not pocket change. A clear strategic diversification play.
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  Definitely feels like it. Now, on the operational side, a bit of good news.
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  Trade and other receivables actually decreased by nearly $12 million.
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  Oh, that is good news. It means they collected cash faster. Seems so.
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  They specifically mentioned improved collection efforts, especially in that
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  challenged engineering segment. That's crucial.
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  Cash is king, especially when profits are squeezed.
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  And similarly, trade and other payables also decreased by $7.0 million.
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  Reflecting, they say, lower project-related purchasing and fulfilling some contract liabilities.
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  Okay, so some tightening up on the working capital front, it seems. Yeah.
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  Now, these asset and liability changes, they have really direct implications
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  for cash flow, don't they?
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  And they really, really tell the story of this balancing act Union Steel is performing.
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  On a very positive note, net cash generated from operations more than doubled.
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  It jumped from $13.2 million in FY24 up to $27.0 million in FY25.
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  Wow, that's impressive given the profit drop. It really is.
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  Driven mainly by those improved collections from engineering you mentioned,
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  and it's vital because it shows their core business can still throw off strong
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  cash, even when reported profits are down.
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  Like the engine is still running, even if it's spettering a bit on the profit gauge? Exactly.
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  It's like having a tight budget, but still managing to, you know, earn a decent paycheck.
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  All that good operating cash and then some was basically poured straight into investing activities.
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  Net cash used in investing activities surged massively, up to S$35.2 million
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  compared to just S$14 million the year before.
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  OK, where did all that cash go? Well, largely into those significant capital
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  expenditures we've been talking about.
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  S-14.5 million dollars for a leasehold property, S-2.2 million dollars for the
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  new office building, S-5.2 million dollars for replacing rental materials,
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  and of course the S-12.5 million dollar cash outflow related to that Enico investment.
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  Right, that adds up quickly. It's like, you know, clearing out your savings
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  account to do a massive home renovation, hoping it's going to pay off big time
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  down the road. A big bet on the future value.
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  A very big bet. And to finance these large investments, net cash flow from financing
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  activities swung dramatically.
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  It went from an outflow of $6 million in FY24 to an inflow of $11.3 million
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  in FY25, driven entirely by those new loan facilities we talked about. Borrowing to invest.
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  Precisely. And the consequence of all this borrowing, the net gearing for union
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  steel, it rose significantly, jumped 25.5% in FY2025, way up from 11.2% the year before.
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  Okay, so for our listeners, remind us what net gearing signifies. Sure.
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  Net gearing is a key measure of a company's financial leverage.
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  It basically shows how much of its operations are funded by debt compared to
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  its own equity or capital.
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  So jumping from 11 percent over 25 percent means they've taken on considerably
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  more debt relative to their size.
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  It's definitely a calculated risk banking on future growth to handle that debt. Got it.
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  And one final indicator on financial health, perhaps reflecting this caution
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  or need to preserve cash.
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  The proposed final dividend was reduced down to 0.85 cents per share from 1.30 cents last year.
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  Yeah, that's a fairly common signal, isn't it? When a company is tightening
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  its belt, maybe adjusting to lower profits or crucially here,
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  when they're making such substantial investments, they need to keep that cash handy. Makes sense.
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  Okay, so given all these strategic shifts, the borrowing, the mixed performance...
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  What's the road ahead look like? What are the big trends and competitive conditions
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  unions steel themselves foresee for the next, say, 12 months?
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  Right, the outlook section. Yeah.
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  In their metals segment, they
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  say the market for both new steel and scrap metal remains challenging.
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  Ongoing price softening, heightened competition. The usual suspects.
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  However, management says they're cautiously optimistic, specifically about their
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  steel leasing and logistic services.
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  So maybe trying to shift towards more service-oriented offerings within metals.
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  Rather than just relying on pure commodity sales.
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  Seems like it. Try to find more stable revenue streams, perhaps.
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  Then for the scaffolding segment, they say it continues to face heightened market
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  competition market challenges leading to fewer secured contracts.
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  Pretty tough picture. Yeah, it sounds like more of the same struggles there.
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  But they do add it's supported by a stable base of recurring customers and management
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  is actively pursuing expansion opportunities.
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  So not giving up on it. Okay, try to build on that recurring base.
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  And finally, the engineering segment.
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  This is interesting. They say the sector benefits from strong energy demand,
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  investment activity, and sustainable initiatives.
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  Sounds positive, right? It does. Yeah, lots of macro tailwinds there, potentially.
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  But project execution has apparently been slower than expected due to phasing
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  changes, extended lead times, the usual project-based headaches.
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  Hmm. The reality of large projects. Plus, investor sentiment is cautious due
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  to geopolitical uncertainties, evolving tax regimes.
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  So while the underlying demand might be there, converting it to smooth revenue is tricky.
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  Management expresses measured optimism here for the near term,
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  supported by what they call a stable order book and sustained investment interest. Measured optimism.
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  Cautiously optimistic. Those are definitely the key phrases,
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  aren't they? No one's shouting from the rooftops. Not at all.
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  It reflects the challenges. Yeah, it makes sense given the headwinds they've described.
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  And interestingly, there were also some subsequent events mentioned,
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  things that happened after June 30th, the end of the financial year.
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  Oh, like what? Well, they show ongoing strategic activity.
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  Post FY 2025, there have been more transactions related to that Enico investment.
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  It involved both some disposals of shares and also exercising some warrants,
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  which indicates they're actively managing that stake, you know,
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  not just sitting on it passively.
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  OK, fine tuning that investment. Seems so. And also another major property deal,
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  a $7.5 million acquisition of a leasehold property at One Benoit Road by one
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  of their subsidiaries, Applied Engineering.
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  And they have plans for an eight-year lease extension on that, too.
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  Wow. So the big spending continues even after the year end. Exactly.
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  It really underscores this continuous capital deployment into property and strategic
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  stakes, which raises the kind of the crucial question.
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  How will these really substantial strategic investments and the increased debt
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  that comes with them, how will that all play out against the backdrop of what
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  are clearly still pretty challenging market conditions in their core segments?
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  This is a really bold strategic pivot, and it looks like they're doubling down
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  on it. Okay, so let's try and wrap this up.
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  Recapping our deep dyes into Union Steel Holdings. FY 2025 was,
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  well, definitely a year of declining profits, largely driven by softer performance
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  in engineering and scaffolding, plus those weaker scrap metal prices hitting
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  the metal segment. Yep, the core business felt the pressure.
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  But critically, it was also a year defined by these really significant strategic
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  investments, buying property, building new facilities, taking that big stake
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  in Enico Energy. So what does this all mean for you, the listener,
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  trying to understand Unionsteel?
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  Well, they're clearly navigating a really complex balancing act.
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  On one hand, dealing with immediate tough market pressures in their traditional core segments.
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  On the other hand, simultaneously making these substantial long-term bets designed
• 18:02
  to hopefully reposition the company for a different future.
• 18:05
  Right. And that notable rise in their debt, their gearing, that's a direct reflection
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  of funding these strategic plays. They're taking on more risk now,
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  aiming for hopefully higher rewards later.
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  It's a calculated gamble on growth, but definitely happening in a tough environment.