Dear Fellow Shareholders,
It gives me great pleasure to present to you the Boustead FY2017 Annual Report for the financial year ended 31 March 2017.
The past year has seen a continuation of our most challenging period in a decade, one punctuated by the intense depth and length of cyclical downtrends in our respective business sectors. Today’s global business landscape has been made harsher by geo–political risks that came into play with Brexit and the US presidential election, both with tremendous economic and political implications.
Naturally, our revenue was impacted, decreasing 11% year–on–year to S$433.8 million and falling below our 10-year annual average. However, in terms of profit attributable to you – fellow owners of our Company – we fared better, increasing 18% year–on–year to S$33.3 million, boosted by major one–off other gains from our Real Estate Solutions Division under Boustead Projects Limited (Boustead Projects).
Adjusting net profit for other gains and losses net of non–controlling interests, normalised net profit would be 9% lower year–on–year at S$25.0 million but still be respectable given the challenging circumstances.
FY2017 – Six Successive Years of Broad-Based Profitability
In our previous annual report, I mentioned that macroeconomic conditions were extremely tough, akin to a severe storm. FY2017 has seen that storm intensify, sinking a number of ‘ships’ along the way, a parallel to the many defunct corporations in the global oil & gas industries, especially within the hardest hit offshore & marine sectors. The failures of many once high–flying SGX oil & gas corporations confirm this.
Although we also operate in the global oil & gas industries, all three divisions – including our Energy–Related Engineering Division – delivered profitability, bringing us a sixth successive year of broad–based profitability.
At our Energy–Related Engineering Division, the heat turned up, just as it has for the entire global oil & gas industries. Division revenue contracted 25% year–on–year to S$96.5 million, dropping below the S$100 million–mark for the first time in more than a decade. Division profit before income tax (PBT) fell 54% year–on–year to S$4.2 million. Nonetheless, it was a valiant effort to remain profitable even after excluding S$2.8 million in division currency exchange gains. During the year, we executed a number of strategic moves. Firstly, we shifted much of our GBP into SGD and USD before Brexit, effectively protecting the bulk of UK–headquartered Boustead International Heaters (BIH)’s net asset value. Secondly, we right–sized our division’s teams to eke out S$3 million in annual overhead savings. Thirdly, we refined our division’s global fabrication network with new lower–cost high-quality fabrication partners. Lastly, we completed top leadership successions for all three major subsidiaries within our division, paving the way for new ideas, management and strategies. We are getting ready for any radical transformation of the global oil & gas industries.
Our Real Estate Solutions Division under Boustead Projects was our largest revenue contributor for a tenth successive year. Division revenue declined 11% year–on–year to S$228.3 million, with lower revenue at both the design–and–build and leasing businesses. In contrast, division PBT grew 51% year–on–year to S$44.9 million, boosted by major one–off other gains. Respectably, division normalised net profit adjusted for other gains and losses would still have grown year–on–year. Boustead Projects remains Singapore’s private sector market leader for industrial real estate solutions, with a brand name that commands excellent respect from even the fiercest of competitors.
Our Geo–Spatial Technology Division was the bright spot for the year, with division revenue up 5% year–on–year to S$108.3 million. There was steady demand from key clients – government agencies – across Australia and South East Asia, and growing demand from new corporate clients. Division PBT rose by a stronger 10% year–on–year to S$21.9 million. Benefitting our division, the strong currency headwinds in FY2016 reduced to a gentle breeze in FY2017. Our division continues to be a key digital infrastructure player that supports disruptive global technological trends.
Upholding our dividend tradition, your Board proposed a final ordinary dividend of 1.5 cents for your approval. Together with the interim dividend of 0.5 cent already paid, the total ordinary dividend of 2 cents equates to a dividend payout ratio of 31%. Supposing we exclude the net profit contributed by Boustead Projects to the Group (since Boustead Projects makes decisions independently and separately from the rest of the Group), then our total ordinary dividend would equate to a dividend payout ratio of 71% of the net profit contributed by the rest of the Group. On a side note, Boustead Projects proposed a maiden dividend of 2.5 cents per Boustead Projects’ share, a move that should be welcomed by Boustead Projects’ shareholders.
The message that fronts our annual report states, ‘Delivering World–Class Customised Solutions for Global Markets’. This is a reference to our world–class engineered solutions and geo–spatial technology solutions that have penetrated 85 countries and territories globally. Whether as a Group or by division, we plan to expand this presence further.
Having global reach is vitally important to our Group, especially since we are headquartered in Singapore and do not possess a hinterland that our competitors elsewhere may enjoy. Acting and thinking globally has far–reaching positive effects on our Group’s business longevity.
Our focus on global markets also implies that we are betting on globalisation, that global trade continues to flow, multicultural exchanges take place and the pockets of expressed nationalism are eventually trumped by transnationalism.
As we push forward with acting and thinking globally, one project that truly captures our attention is China’s One Belt, One Road. The One Belt, One Road is about global connectivity and integration, if not at least inter–continental. Singapore undoubtedly possesses some expertise and knowledge in this area and can play an important role in the world’s foremost transnational project of this generation. On our part, we certainly will be exploring how we can play a relevant role, whether through our strong network and current businesses or potentially through new contacts, investments and projects.
With our global reach, the world is our oyster.
Our Broadening Acquisition Mandate
Acquisitions and investments are always on our minds.
Over the past several years, I have shared our investment philosophy and also stated that we are searching for synergistic acquisitions and investments that fall neatly into our three divisions. In this respect, we had some measured success, specifically at Boustead Projects where several investments made together with joint venture partners are bearing fruit. However, the same cannot be said for our other two divisions, where it has been extremely difficult to find the right acquisitions and investments.
Although our search has been long and at times, fruitless, we have not given up. In the background and largely invisible to the public eye, we have intensified our efforts and conducted due diligence on an increasing number of acquisition and investment opportunities. Disappointingly, the number of rejections has also been mounting, as we continue to take a risk–measured approach in order to ensure that we get it absolutely right. Not that I am trying to find an excuse but based on hindsight from how previous acquisition targets have performed since our rejections, it seems that we have been mostly right and good stewards of our capital thus far.
This year, let me share my further thoughts on acquisitions and investments, specifically about our broadening acquisition mandate. Our investment philosophy remains the same, except that we are willing to be more adventurous in our search. Our broadening mandate now covers opportunities outside of our three divisions and includes evaluating innovators, start–ups and start–up graduates (start-ups that have commercialised but with a short track record), especially those that possess potentially disruptive and innovative technology, a sustainable business model, solutions with a high commercialisation rate, and most importantly, a budding and energetic management team that we can trust.
Why are we paying attention to start–ups and start–up graduates? Let us remember that every great corporation that exists today began life as a start–up. Once upon a time, we too were a start–up in 1828.
In Boustead’s more recent history, here are start–up stories that you may not be fully aware of.
In the past year, not only did we celebrate our 188th Anniversary as Singapore’s oldest continuous business, we also recently celebrated the 20th Anniversaries of our division pillars, Boustead Projects (established in May 1996) and BIH (established in April 1997). Both division pillars were start–ups when our current management team took over the Group in 1996.
Our Real Estate Solutions Division under Boustead Projects began life with just six staff and paid–up capital of S$1 million. We brought together an enterprising team to pioneer a business model that was different from others at that time, first with the design–and–build business and thereafter, design–build–and–lease business. Two decades on and over 160 projects later, Boustead Projects has grown to 125 staff, generated total revenues of over S$2.7 billion during the period, with peak revenue of S$279 million in FY2011. Most importantly, Boustead Projects has always been profitable and gone on to become the Group’s most important pillar. Eventually, Boustead Projects reached a critical mass and sustainable performance level that allowed for a partial spin–off and separate listing on the SGX Mainboard in April 2015.
Our Energy-Related Engineering Division’s largest subsidiary, BIH began life with 23 staff and a paid–up capital of £500,000. We acquired an experienced and talented team who had been severely tested by the previous global oil & gas recession lasting from 1983 to 1997. Recognising that this team could achieve great things in a better business environment with the right backing and resources, we introduced this team into BIH. It proved to be an excellent move. Two decades on and over 210 projects later, BIH has generated total revenues of over £589 million during the period, with peak revenue of £75 million in FY2014. BIH has been an excellent financial performer, registering just one small loss in the very first year and going on to become the division’s largest contributor. Today, BIH is a major global force in providing process heater systems and waste heat recovery units to some of the world’s largest energy developments. BIH may be in a challenging space at the moment but with a strong balance sheet and business model focused on high–value added activities and low capital expenditure, BIH has the flexibility to emerge as an even stronger player when the recovery arrives.
Our Geo-Spatial Technology Division was inherited. We had the good fortune to receive a business with excellent long–term fundamentals. However, although we had signed on Esri exclusive distributorships for Australia and parts of South East Asia in the late 1970s and early 1980s (before my time here), our division was as small as a start–up graduate when we first took over, with division revenue of about S$15 million in FY1996. Thanks to the outstanding work of our regional teams, our division’s total revenue over the past decade nearly touched S$1 billion, with division revenue and PBT hitting highs of S$114.4 million and S$29.7 million respectively in FY2013, representing phenomenal compounded growth and demonstrating the excellent long–term fundamentals. Our recent performance has not hit the same highs but our best years are still ahead.
All three divisions have excelled over the past two decades, indicating our proven track record with various businesses including innovators, start–ups and start–up graduates.
So, let us be open–minded and embrace opportunities outside of our three divisions as these new opportunities – even if they are not synergistic – could be our future pillars, twenty years from now.
Aligned with our broadening mandate, we have also begun to build an ecosystem to identify and support innovators and start–ups with potential, apart from those that we may acquire or invest in. For example, Esri Singapore recently established the Esri Singapore Innovation & Startup Programme. This programme aims to support the most promising innovation–focused business partners and start-ups with three years of Esri software, technical advisory support and training so that they can jumpstart product and application development on the world’s best geo-spatial technology platform to develop smart nation solutions that address real–world challenges in our communities. On a separate but related front, Boustead Projects was awarded a hard–contested concept and price tender from JTC Corporation to undertake a development at Mediapolis, one–north. This iconic 12–floor high-tech multi-tenanted business park development is targeted at multinational corporations and start–up graduates from knowledge–based and innovation-driven clusters with the intention to testbed emerging media concepts, content, services and applications. We are helping to shape businesses of our future economy with both hard and soft infrastructure.
Along with growing our current businesses, we intend to be an incubator of sustainable businesses, a role which we have been associated with for almost two centuries. Not to mention that our brand name could add immense credibility and muscle to innovation and start–up efforts or any business that we acquire, for that matter.
A Word of Appreciation
I would like to express my deepest gratitude to our management and staff around the world for their efforts during these continued challenging times. Though we face these difficult times, we face them together. I would also like to thank my fellow Board colleagues for their invaluable advice. Last but not least, I would like to extend my appreciation to all our clients, business partners, associates, bankers, suppliers and shareholders for your continuous support.
Thank you for supporting us. I look forward to seeing you at our upcoming Annual General Meeting.
Wong Fong Fui
Chairman & Group Chief Executive Officer