Dear Shareholder,
This financial year marked a challenging one for your group as we are facing difficulties from various fronts. On this note, and as part of the inaugural message to you, our loyal shareholder, we would like to assure you of our commitment to undertake a transformation journey to improve the financial position of your group, despite the challenging journey ahead.
From an operational standpoint, the Group is focusing on the strategic turnaround of underperforming businesses through cost management and the pursuit of viable new business opportunities. Moreover, Boustead is also looking at the implementation of an Investment Monitoring Framework to further streamline our investment efforts.
In terms of the Group’s funding, debt restructuring and asset rationalisation are some of the areas we are focusing on as part of our transformation initiative. We look to continue strengthening our corporate governance policies and guidelines in order to ensure that we comply with stringent corporate governance standards, and that our Board is able to effectively oversee corporate governance matters.
We will be revamping our organisational structure for optimal efficiency. In line with this, we have established a Group Transformation Office (GTO), which acts as a nerve centre for all transformation activities. The GTO is also tasked with the provision of long-term strategic direction Group-wide, planning of annual initiatives, as well as performance tracking for our business units. In addition, our GTO will also oversee the restructuring of our subsidiaries in order to optimise the value we can provide to shareholders. Termed EDG 20, the Transformation Plan will see the execution of 20 key transformation initiatives to be undertaken Group-wide.
We look to launch EDG 20, in the third quarter of the 2020 fiscal year as we commence on a threeyear journey to evolve and enhance efficiency in order to achieve sustainable organisational excellence and growth.
The Group reported stable top line results. In fact, our revenue grew from RM10.2 billion in 2018 to RM10.3 billion in the financial year ended 31 December 2019. Moreover, we clocked in earnings before interest, tax, depreciation and amortisation (EBITDA) of RM455 million, signifying a 35.0% increase compared with RM337 million in the previous year. This clearly reflects the viability of our businesses, as revenue growth is a pertinent indicator of business continuity and sustained growth in any commercial venture.
However, our results were weighed down by impairments at the Heavy Industries and Plantation Divisions, amounting to RM844 million and RM176 million respectively. This was compounded by the RM47 million impairment recorded by our Property Division. We were also faced with a one-off amortisation impact of RM247 million owing to the recognition of the remaining unamortised Pharmacy Information System (PhIS) investment under the Pharmaceutical Division.
As a consequence of these non-cashflow impacting accounting measures, we posted a loss of RM1.3 billion for the year. Hence, given the direct knock-on impact to the Group’s earnings, we are unable to pay any dividends for the year. The Group’s gearing stood at 1.4 times (2018: 1.0 times) based on total borrowings of RM7.9 billion (2018: RM7.5 billion) over total equity of RM5.7 billion (2018: RM7.8 billion). Total assets came in at RM17 billion and shareholders’ funds was RM3.7 billion. The Trading & Industrial Division reported the highest contribution to the Group with a profit of RM157 million, primarily owing to the healthy growth momentum recorded by Boustead Petroleum Marketing. The Finance & Investment Division recorded a higher profit of RM156 million, an 86% increase compared with RM84 million in 2018, mainly due to share of profit in our joint venture company and better results from our university operations.
The Group’s Property Division recorded a deficit of RM102 million mainly due to the impairment on Royale Chulan Cherating, due to the assessment of prospects for this hotel. The Division was also impacted by lower sales and lesser progress billings from property development activities. The Plantation Division incurred a deficit of RM135 million primarily as a consequence of the impairment on recently acquired plantation assets in Sabah. These estates will require more time for rehabilitation than what was initially expected at the point of acquisition. The Division was also encumbered by the decline in palm product prices for the first three quarters of 2019, increased finance costs, higher depreciation charges as well as amortisation expenses. The Pharmaceutical Division was awarded with a contract extension by the Ministry of Health (MOH) for the provision of medicines and medical supplies for 25 months until 31 December 2021. The Division also secured a contract to provide logistics and distribution services for five years ending 31 December 2024. Consequently, the Division was required to accelerate the
recognition of unamortised PhIS costs, which made an impact on results for the year. The Division was also hampered by a stock write-off provision for the voluntary product recall of Ranitidine, hence, closing the year under review with a loss of RM207 million. The Heavy Industries Division was adversely impacted by a goodwill impairment charge recorded due to uncertainties related to future shipbuilding projects. This was compounded by the impairment recorded by MHS Aviation on its EC225 helicopters amounting to RM80 million, which was attributable to market value and aging of assets particularly given the persisting uncertainties faced in the oil and gas industry. Coupled with these factors, the Division was faced with a sluggish sector resulting in lower defence-related and commercial-based maintenance, repair and overhaul business opportunities. This led to a deficit of RM1.2 billion.
Our involvement in core sectors of the Malaysian economy necessitates the inclusion of sustainability practices as part and parcel of our day-to-day operations. The Group’s 2019 Sustainability Report, which marks our second standalone Sustainability Report, details our sustainability performance for the year in relation to four core areas of impact: economic, environment, our people and the wider communities. We have utilised the Bursa Malaysia Sustainability Reporting Guide and the Bursa Malaysia Main Market Listing Requirements (Practice Note 9) in developing this report. In addition, we have referred to the Global Reporting Initiative (GRI) Standards – Core Option.
This year’s Sustainability Report incorporates more data, with a view to provide an account of the most important sustainability information pertaining to our Group in terms of our impact, challenges, as well as our progress, in line with our commitment to strengthen the Group’s sustainability reporting. To this end, the Group has included further key performance indicators (KPIs) that work to affirm our contribution to sustainable development. We are cognisant of the journey ahead as we look to fortify our sustainability efforts. Moving forward we aim to strengthen our efforts and establish our Second Group Sustainability Roadmap
for FY2021-2025.
Our ability to record positive growth in revenue in 2019 despite the challenging economic backdrop is reflective of our strength and our underlying fundamentals. Moreover, the impairments, amortisation and fair value losses taken up in 2019 were necessary in terms of good governance and accounting principles. As we journey ahead, the Group is conscious of the tremendous challenges ahead not just for the Group or the nation but also globally, as we face the onslaught of the COVID-19 pandemic and the impact of post Movement Control Order (MCO). We are focused on realising our transformation strategy by improving the way we operate with a view to strengthening our prospects over the long-term, amidst tough market conditions.
At our Plantation Division, we have introduced a new management structure of Strategic Business Units (SBUs) as part of the first phase of a four-phase transformation plan. We have merged the Division’s 48 estates and 10 palm oil mills into 10 SBUs. This measure allows us to consolidate our operations and better focus on strengthening our fundamentals.
We have also streamlined the management and support functions by establishing centralised specialist teams that provide support to our 10 SBUs in terms of replanting, mechanisation, foreign workers, procurement and engineering.
While our Property Division, particularly our Hotel segment is facing challenges caused by the COVID-19 pandemic, we will continue to undertake a strategic review of our asset portfolio. Infrastructure and earthworks for our township development in Mutiara Hills, Semenyih, Selangor is proceeding and we look forward to launching our first development comprising 140 units of double storey terrace houses in the second half of 2020.
Our Pharmaceutical Division is honoured to aid our frontliners at MOH as they face the difficult task of fighting the COVID-19 pandemic. The Group’s Pharmaceutical Division is expected to improve on prospects in the local and regional pharmaceutical sector. We expect the recent 25-month extension obtained by our Logistics and Distribution segment for the supply of medicines and medical supplies to MOH facilities as well as the five-year contract to supply logistics and distribution services to MOH, to be a key earnings contributor. Whilst we continue to pursue further extension of these two contracts, we will work towards expanding our product mix. We look to continue participating in Government tenders while looking out for private sector prospects, both locally and globally. This will reduce our dependence on Government contracts and concession at Pharmaniaga Berhad.
Looking ahead, for our Finance & Investment Division, we expect the special relief measures announced in relation to the COVID-19 pandemic to have an impact on our earnings. Nevertheless, AFFIN Bank is staying focused to aid the SME market jumpstart their businesses post-pandemic, particularly through SMEColony, our mobile app that serves as a comprehensive resource and business reference platform for SMEs.
Our Trading & Industrial Division is expected to continue facing a challenging operating environment given the drastic drop in oil prices, weak consumer sentiments as well as slower economic growth due to the COVID-19 pandemic. UAC Berhad will focus on Industrial Building System products related to affordable housing.
The Heavy Industries Division will continue exploring long-term prospects from the ongoing 15to5 Transformation Plan by the Royal Malaysian Navy and the opportunities demonstrated in the Defence White Paper that represents Malaysia’s defence sector’s direction for the next 10 years.
The following pages provide you with a thorough review of how our divisions have performed in 2019 and some of the plans ahead. It is expected that 2020 will be another tough year due to the macro and micro repercussions as a result of the COVID-19 pandemic, sluggish oil prices and trade conditions.
The Group would like to assure shareholders that we are committed to staying the course as we believe there are inherent opportunities and potential Group-wide. As we journey through these undeniably challenging circumstances, the Group will either build on value or review business prospects, with a view to providing sustainable yields to our shareholders.
We are very honoured to have a seasoned Federal and State policymaker joining the Board as our Non-Independent Non-Executive Chairman, effective 1 May 2020. Dato’ Seri Mohamed Khaled Nordin brings with him a vast expanse of knowledge in business and equally important, in terms of policy matters. With his proven leadership, we are confident that the Group will flourish under Dato’ Seri Mohamed Khaled Nordin’s helm.
We would also like to welcome our Independent and Non-Executive Directors, Lieutenant General Dato’ Fadzil Mokhtar (R), Dato’ Nonee Ashirin Dato’ Mohd Radzi, Mr Abraham Verghese and Mr Loong Caesar to the Board, as well as Encik Izaddeen Daud who joined us on 18 May 2020.
It would be remiss of us to not bring special attention to our long serving former Directors who have retired from the Board, including former Chairman Gen. Tan Sri Dato’ Seri Panglima Mohd Ghazali Hj. Che Mat (R), Dato‘ Sri Ghazali Mohd Ali, Datuk Francis Tan Leh Kiah, Datuk Azzat Kamaludin and Dato’ Wira (Dr.) Megat Abdul Rahman Megat Ahmad. The Group has indeed greatly benefitted from their collective wisdom over the years. We wish them all the very best in their journey ahead.
We thank our shareholders for the trust and support placed in us as we work harder to strengthen shareholder value. We would also like to express our appreciation to fellow Bousteadians, the Board, customers and all regulatory authorities.
