Dear Fellow Shareholders,
It gives us great pleasure to present to you the Boustead Projects FY2016 Annual Report for the financial year ended 31 March 2016.
Just over a year ago, we listed on the SGX Mainboard as one of only two Mainboard listings for 2015. In our first year as a listed corporation, our revenue was S$255.5 million, comparable year–on–year. However, net profit attributable to you – fellow owners of our Company – was down 7% year–on–year at S$22.9 million as a result of the highly competitive business environment that we operate in. Government measures implemented progressively over the years to reduce Singapore’s reliance on foreign labour and to curtail speculative real estate activities have intensified the downtrend in all three real estate sectors – commercial, industrial and residential – resulting in intense margin pressures across the industry.
However, despite this being a difficult year, we had a satisfactory performance.
FY2016 – A Tale of Two Businesses
FY2016 represented for us a tale of contrasting fortunes for our two businesses.
Our ‘bread and butter’ design–and–build business saw revenue decrease 3% to S$221.1 million. In FY2015, we had the benefit of revenue contribution from our largest design–and–build project, The Shugart for Seagate, with a contract value in excess of S$100 million. In FY2016, the largest project we were working on had a contract value below S$70 million. We had to rely on more projects with lower values to make up the overall revenue. Design–and–build profit before income tax (“PBT”) declined 29% to S$13.9 million, mainly due to significant margin pressures caused by the more competitive business environment.
On the other hand, our leasing business – helmed by an expanding industrial leasehold portfolio – continued to improve. Leasing revenue climbed 30% to S$34.4 million, driven by higher revenue generated by greater contributions from three properties completed during FY2015. Leasing PBT rose 14% to S$15.8 million, allowing us to partially buffer the downward pressure on our design–and–build business. In addition, a completed property under the Boustead Development Partnership (“BDP”), an integrated MRO and office facility for Safran Helicopter Engines at the Seletar Aerospace Park, was added to our portfolio taking our numbers to 16 completed properties.
Advancing Strategies for Long-Term Growth
FY2016 was a year of progress in the execution of our longer term growth strategies. These strategies were highlighted in our previous annual report and include the consolidation of our market leading position in Singapore, expanding our overseas presence and pursuing higher value opportunities.
Although prospects for Singapore’s industrial real estate sector remained weak, Boustead Projects continued to capture more than our fair share of design–and–build contracts, given our market leading position in the industrial space. In total, we secured 16 contracts worth S$189 million across Singapore, Malaysia and Vietnam. Of these, seven industrial design–and–build contracts were secured at home in Singapore, a credible performance given the difficult business environment.
Overseas, we made good inroads in Malaysia, which we have identified as our second most important geographic market behind Singapore. After delivering our first construction project for a repeat global pharmaceutical client in Kedah, we secured five more contracts, three in Iskandar Malaysia and two on the east coast of Peninsular Malaysia. We firmly believe that Malaysia will continue to underpin the growth in our overseas revenue even as we expand into other geographic markets. Given our strong flow of projects there, we have rapidly expanded our Malaysia team with the right capabilities to meet this growth.
In Vietnam, we secured two fit out contracts for industrial facilities. Although small in value, these contracts allowed us to maintain our presence there while searching for potentially larger opportunities further down the road.
Concurrent with our emphasis on geographic market diversification, we also strengthened our business development activities in securing opportunities in higher value industries. Targeting such industries will allow us to better compete as barriers to entry are higher. In higher value industries, quality, safety standards and technical specifications are more stringent, which suits our emphasis on design and value engineering. Our business model is constantly evolving. In a breakthrough, we were awarded a design–and–build contract to deliver a full–scale data centre for one of Singapore’s largest conglomerates. Moving forward, we aim to extend our track record in the aerospace, data centre and telecommunications, and healthcare industries. These are also industry clusters critical to Singapore’s future economic transformation and to a larger extent, that of the Asia Pacific as well.
Delivering the Difference
In last year’s annual report, we shared with you our approach to unlocking value through multiple capabilities. Our multiple capabilities enable us to ‘deliver the difference’, differentiating factors that set us apart and make our projects stand out.
As the only integrated industrial real estate solutions provider listed on the SGX Mainboard, our multiple capabilities cover 80% of the industrial real estate value chain and can be divided into three core areas: development, design–and–build, and industrial leasehold portfolio management and ownership.
Under our development capabilities, we have a development team that for more than a decade has successfully sourced, acquired, planned, implemented and financed projects. Our development team works closely with the BDP, our co-investment partnership with a reputable Middle East sovereign wealth fund that has the capacity to deliver a potential pipeline of over S$600 million in development and redevelopment projects in Singapore’s industrial real estate sector. Despite no new deals being secured under the BDP during FY2016 due to the muted market conditions, the BDP still represents an extremely important growth platform in our mix of capabilities, including helping our industrial leasehold portfolio to reach an ideal size where we could potentially manage and own a REIT. In Iskandar Malaysia, our development team has been actively evaluating potential developments and supporting two joint developments, iBP @ Nusajaya and a logistics project at the Port of Tanjung Pelepas. Construction of Phase 1 of iBP @ Nusajaya is well underway.
Under our design–and–build capabilities, we were the early pioneers of the design–and–build methodology in Singapore and have built up one of the best teams in the industry. Design, value engineering, project management, construction management, asset enhancement, and additions and alterations are all part of our integrated project delivery system that brings various building disciplines under one roof and eliminates significant additional costs, coordination, time and wastage for our clients. This approach has been embraced by our global clients, many of them Forbes Fortune 500, S&P 500 and Euronext 100 corporations. Essentially, we are the trusted design–and–build partner for the world’s best corporations.
One of our key design–and–build offerings is value engineering, the systematic design or redesign of a custom–built facility to ensure that clients enjoy greater or similar facility performance, function and quality at significantly reduced costs. Through value engineering, we continue to unlock value for clients, a significant competitive edge in our business model.
Bolstering our design-and-build offerings, we are also the outright market leader in building Green Mark Platinum–rated eco–sustainable industrial facilities. Having delivered the first Green Mark Platinum–rated industrial facilities in the heavy industry, aerospace and logistics industries, we recently took our tally to eight Green Mark Platinum–rated buildings of which seven are industrial facilities. The latest addition is for the world’s second largest logistics provider, Kuehne + Nagel’s Singapore Logistics Hub which received the Green Mark Platinum at the recent BCA Awards. Over 20% of all Green Mark Platinum–rated new non–residential facilities on Business 1 and Business 2 industrial-zoned land in Singapore have been built by us since the inception of the Green Mark Programme. Our Green Mark Platinum clients – Applied Materials, Boustead Singapore, DB Schenker, Kuehne + Nagel, Rolls-Royce, SDV, Seagate and Tat Hong – have enjoyed a combined estimated total energy and water savings of over 33.7 gigawatt hours and 82,700 cubic metres respectively per year. That would be enough to provide electricity for over 7,500 homes in Singapore and fill 33 Olympic size swimming pools every year. As governments and global corporations tackle the effects of climate change, we believe that we are the ideal partner to facilitate integration of eco–sustainable practices into clients’ facilities across South East Asia utilising the Green Mark Programme and U.S. Green Building Council’s Leadership in Energy & Environmental Design Program, an internationally–recognised green building rating system.
Our development capabilities mentioned earlier resulted in our design–build–and–lease business and our current industrial leasehold portfolio. Before adopting our current strategy to build up our portfolio, we had sold 10 design–build–and–lease properties and four development–for–sale properties for S$575 million, covering more than 276,000 square metres of gross floor area. Today, we have 18 wholly–owned and joint venture properties in our portfolio – both completed and uncompleted – with more than 223,000 square metres. Many of these properties are occupied on extremely long leases by world–class corporations. Our leasing business today is a pillar of strength for us and in FY2016, partially made up for the shortfall in our design–and–build business. We have several options before us to grow and unlock the value of this business and your Board and management will be closely evaluating all these options to enhance and create value for all our shareholders. Part of our growth plans may also include the expansion of our portfolio with the development of leasehold properties in targeted overseas markets.
To top things off, our focus on health, safety and environmental aspects are second to none. As one of just nine bizSAFE Mentors in Singapore, we believe that human life should be of the highest priority, which is why we not only focus on comprehensive safety training for our staff but also provide safety mentorship for all of our subcontractors. Our efforts have resulted in a safety track record that consistently outperforms that of Singapore’s construction industry.
This year, we will be celebrating 20 years of delivering the difference.
FY2017 – Building on Our Foundation
The foundation – our platforms for long-term growth – is in place. In FY2017, we plan to continue executing on our existing strategies, extending our market leading position in Singapore, looking for more opportunities around the region and shifting ever more so into higher value industries. Our balance sheet and negligible gearing will allow us to shift gears when the opportunities arise. With an order book backlog of S$208 million (at the end of FY2016 plus new orders since), we are healthy and ready to work through challenging times.
A Word of Appreciation
We would like to say thank you to our management and staff for their efforts in a difficult market and for helping us to upkeep our market leading position. We would also like to extend our thanks to all of you, our clients, business partners, associates, bankers, suppliers and shareholders for your continuing support. Last but not least, we would like to thank all of our Board colleagues for their wisdom, guidance and continued advice.
We look forward to seeing many of you at our upcoming Annual General Meeting.
John Lim Kok Min
Thomas Chu Kok Hong