Group Managing Director’s Review

Dear Shareholder,

Despite continuing challenges brought about by the prolonged pandemic, the year 2021 marked a turning point for Boustead. After six consecutive quarters of losses, we started recording a profit after tax (PAT) from the first quarter onwards and ended 2021 with a full-year PAT of RM479 million, making it our first full profitable year since 2018.

While our performance was greatly boosted by the increase in price of commodities and demand for healthcare, all our Divisions performed well, especially our Pharmaceutical, Plantation and Trading, Finance & Investment. At the same time, there has also been a reinvigoration of spirit throughout the Group which is driving all the companies within our fold to achieve operational excellence and to optimise profit while generating sustainable value. Thanks to Reinventing Boustead, we are today more digitally-driven, efficient and relevant. More importantly, we operate by upholding a higher level of professionalism and integrity.

The year 2021 has been a resounding success financially, with the Group recording a 43% increase in revenue from RM7.9 billion a year ago to RM11.3 billion. After a streak of losses, we also rebounded with a profit before tax (PBT) of RM761 million against a loss before tax (LBT) of RM420 million in 2020. All of our Divisions delivered stronger results with Plantation, Pharmaceutical and Trading, Finance & Investment being the star performers.

As a result of profitability, we also ended the year with a healthier balance sheet. Our shareholders’ funds and total equity increased to RM3.3 billion (2020: RM3.1 billion) and RM5.5 billion (2020: RM5.1 billion) respectively while total borrowings decreased to RM7.0 billion (2020: RM7.6 billion), enhancing our gearing to 1.28 times (2020: 1.48 times).

Plantation was our best performing Division, clocking a three-fold jump in PBT to RM345 million, mainly as a result of record-high palm product prices. For the year as a whole, crude palm oil (CPO) averaged at RM4,341 per metric tonne (MT) as compared to RM2,811 per MT in 2020.

Our Pharmaceutical Division also shone brightly as a result of playing a central role in the nation’s fight against the pandemic through the sale of Sinovac COVID-19 vaccine to the Ministry of Health (MOH) and private sector. Healthy vaccine sales – together with enhanced demand across its contract with Government, private sector and Indonesian businesses – was reflected in a pre-tax profit of RM271 million.

The Trading, Finance & Investment Division also pulled in an outstanding turnaround performance, recording a PBT of RM192 million from a loss of RM83 million in the financial year ended 31 December 2020. This was mainly fuelled by higher oil prices which resulted in stockholding gains by Boustead Petroleum Marketing Sdn Bhd (BPM). Our associate Affin Bank Berhad, meanwhile, saw its contribution increase on higher net interest income, net fee and commission as well as income from Islamic Banking business.

The Property & Industrial Division incurred a lower deficit of RM7 million against RM343 million in 2020 with its bottom line propped up by one-off gains on the disposal of properties, lower fair value losses on investment properties and better results from the industrial segment. While affected by the property overhang, unattractive hotel occupancy and mall rental rates as well as cautious spending by consumers, the Division also stood to gain from increased exports from the industrial segment and the resumption of certain construction works.

The Heavy Industries Division posted a lower loss of RM40 million, a reduction from the previous year’s deficit of RM107 million, largely contributed by the successful completion of the Littoral Mission Ship (LMS) project. During the year, three LMS vessels were delivered to the RMN.

When I assumed my current position as Group Managing Director in December 2020, I was struck by two seemingly incongruous observations being the impressive quality of our people and the state of affairs of companies within the Group. Despite having a highly experienced team who are committed to Boustead, the Group was financially sapped due to certain long-standing issues. There was even a proposal put forward to privatise Boustead. My immediate priority, naturally, was to leverage our people to restructure and revamp the organisation. Setting up a core leadership team, we outlined a strategy named Reinventing Boustead. This strategy was rolled out in early 2021 and by the end of the year a new Boustead could be seen to emerge – rejuvenated, re-energised and more relevant to the operating landscape. Through our ongoing reinvention, we seek not only to survive the challenges faced today, but to contribute to a new way of living and working as we shape a more sustainable tomorrow.

Reinventing Boustead is a three-pronged approach to shape Boustead into an organisation that is focused, efficient and driven by sustainable values as encompassed by Boustead Hijau (BIJAU). The ultimate objective is to transform the Group at a fundamental level, to transition from a brick-and-mortar institution into one that is digitally-driven and laser-focused on creating sustainable value. As stated in last year’s report, we recognise our duty to ensure returns for our key shareholders, namely the estimated 320,000 active Malaysian Armed Forces personnel and veterans represented by LTAT. Indeed, this has been translated into our new Vision. By extension, we seek to create value for all our stakeholders by embedding ESG principles into the core of Boustead. This means operating in a manner that protects the environment, ensures greater social inclusion and perhaps most pertinently, that upholds integrity and demonstrates our sincerity in our dealings with everyone.

The first pillar of our strategy, Performance Improvement Programme (PIP) builds on a transformation that was already ongoing, ‘EDG 20’. We have refreshed this PIP by providing the infrastructure and support for our subsidiaries to continuously identify and address process bottlenecks for enhanced business. Through the second pillar, 2nd Growth Engine, we are exploring high-growth business opportunities to ramp up sustainable revenue by embracing innovation on relevant technological services and adopting synergy on relevant digital businesses. The third pillar, Portfolio Optimisation, meanwhile, involves corporate restructuring through strategic sales, optimising our capital structure, accelerated investments and strategic mergers and acquisitions.

Building our 2nd Growth Engine, we have established Boustead Digital Services Sdn Bhd (BDigital) and Boustead Technology Sdn Bhd (BTECH) to develop and drive new businesses in the digital and green technology space. Through digitalisation, we seek to be part of a revolution that is disrupting all things traditional. Via green technology, meanwhile, we are committed to support the Government’s ambition of increasing renewable energy generation to 31% of total installed capacity by 2025, as well as supporting the Government’s aspiration for governmentlinked companies (GLCs) to achieve net zero carbon emissions by 2050.

To accelerate our presence in these areas, we are partnering start-ups and other players at the cutting edge of innovation who will be able to provide us with quick access to their technology and digital expertise. To date, we have signed multiple Memorandums of Understanding (MoUs) and Documents of Understanding (DoUs) with innovators such as NextGen Group, Sinohydro Bureau 9 Co Ltd International Co (Sinohydro), The Hive Southeast Asia General Partner Limited (Hive SEA), Accubits Technologies FZ LLE (Accubits) and ABM Silica Resources. We also entered into a subscription and shareholders’ agreement with MyAngkasa Digital Services Sdn Bhd (MyAngkasa Digital).

NextGen Group has been able to cultivate micro algae that grows on sequestered carbon and can be used to make sustainable biofuel. Sinohydro, meanwhile, is a subsidiary of Power Co Corp of China, a key player in China’s green industrial development. Together, we seek to develop land-based solar farms while also venturing into floating solar photovoltaic (PV) projects, rooftop solar, solar battery storage solutions and the development of waste-to-energy plants.

Hive SEA, Accubits, MyAngkasa Digital Services and Meraque Services Sdn Bhd (Meraque Services) are digital and technology companies that are developing applications (apps), artificial intelligence (AI) and blockchain solutions, among others, that will help Boustead digitalise our own operations as well as our service offerings. With Meraque Services, which specialises in unmanned aerial vehicles (UAV) or drones, we have already completed proof of concept (POC) on the use of drones to deliver pharmaceutical products through our subsidiary Pharmaniaga to Pangkor Island and areas in Selangor that were inaccessible during the floods at the end of 2021. Using drones for something as critical as the delivery of potentially life-saving drugs is a perfect example of how we seek to leverage new technology to create a better and more sustainable future.

We are rationalising non-strategic assets to streamline our operations and to pare down our borrowings. During the year, we completed the sales of Royale Chulan Bukit Bintang and Boustead Cruise Centre, the former as part of a restructuring of our Property business and the latter because the cruise business is not aligned with our future direction. The trend continued into 2022, with the disposal of 6.59 acres of land called B3 along Jalan Cochrane expected in the second quarter.

More than 50 initiatives have been outlined to achieve our Reinventing Boustead vision. Among these, 12 are high-priority as they address critical issues that have a deep impact on the Group financially, operationally or both. While these are by and large still ongoing, we have achieved significant successes, two of which are noteworthy.

The first concerns the Littoral Combat Ship (LCS) project being undertaken by our Heavy Industries Division. Ever since the programme was halted in 2019, Boustead through Boustead Naval Shipyard Sdn Bhd (BNS), has been working steadfastly to revive it. As a result of our efforts, via engagements with MINDEF and various Government agencies, the Cabinet had on 20 April 2022 unanimously approved the continuance of the LCS project. We are hopeful that this decision will provide a significant financial boost to the Group and BNS.

A second achievement was the renewal of a contract with the Government to Pharmaniaga Berhad (Pharmaniaga) for the provision of logistics and distribution services. Pharmaniaga has been supplying hospitals and clinics under the MOH with pharmaceutical products and other medical items since 1998. Its last contract agreement, however, ended in 2021. This contract accounts for a significant proportion of Pharmaniaga’s revenue, hence a bridging extension till December 2022 followed by a 10-year contract till November 2032. Meanwhile, it is with pride that the Group noted how Pharmaniaga successfully delivered on its commitment to supply the Government with 20.4 million doses of the Sinovac COVID-19 vaccine, thus playing a key role in protecting Malaysians against the virus. Currently, we are awaiting approval from the vaccine originator, Sinovac Life Sciences Co Ltd, to market the vaccine internationally.

Our people truly are our most valuable asset and to fully leverage their potential, we have rolled out a number of initiatives to energise a more conducive, digitally-empowered work environment while developing the inherent talents that exist.

Indeed, building our talent is another Reinventing Boustead initiative, called Super Talent. In driving this initiative, we established a Group Human Resources Council whose task is to channel high-potential employees from across the Group into the programme to accelerate their development. Within the first quarter of 2021 itself, the council had outlined a talent management framework and identified about 300 highly capable talents also known as B300. Starting April 2021, these talents have been assigned to various Reinventing Boustead initiatives, based on their skills and interests. Some of the assignments are cross-functional while others even see talent move to an entirely different company within the organisation. For example, we have talents from Pharmaniaga leading the Group Internal Audit Department, from Boustead Heavy Industries Corporation Berhad (BHIC) leading Information Technology Department (IT) in Boustead Plantations Berhad and talent from Boustead leading Finance Department in BHIC. While providing our talent with broad exposure to enhance their professional development, this programme also allows us to draw synergies from the cross-fertilisation of knowledge and expertise across the Group.

Besides the specific agenda on talents, another initiative affecting our people as a whole is the Digital Employee Experience (DEX) where the Group is reinventing the way of working by leveraging on digitalisation and technology to provide a more sustainable and leading-edge employee experience while working in Boustead.

Further enhancing cohesion and connectedness, we launched our very own internal communication platform, Boustead Engagement and Execution Platform or BEEP2, which has replaced emails and other communication platforms, allowing for instant and easy access to each other. Meanwhile, to engender a sense of belonging and comradeship, we now call our employees ‘Bousteadors’. We believe it is important to motivate a high level of employee engagement to obtain the full support of our people as we go through this challenging period.

While seeking to entrench Boustead’s sustainability, we are also committed to playing a larger role in increasingly urgent environmental and social issues at the global level as it is becoming evident that these require multi-stakeholder cooperation and collaboration to manage. Our commitment is such that we wish for sustainability not to be something good that we add on to our operations, but something that guides our business direction and strategies, and is integrated into our operations.

We have outlined a BIJAU agenda to drive this ambition. The first step has been to thoroughly re-evaluate what we currently do and to pivot our business in a manner that ensures the creation of ESG value as we grow. As mentioned earlier, we are embarking on various renewable energy projects which will contribute to the nation’s transition to a low-carbon economy. We are particularly excited about our collaboration with NextGen Group because the micro algae being cultivated has a very high yield and does not require much land. In fact, it does not need to grow on land at all as NextGen Group has developed a technology that allows the algae to grow on rooftops, deserts, oceans and even wastewater treatment plants.

To redress social inequities, we are working with our technology partners on the application of digital technologies such as blockchain and tokenisation in solutions that will help to create greater financial inclusion hence more equal distribution of wealth.

Over and above these initiatives, we will step up all efforts to mitigate our own carbon emissions. During the year, we have been putting in place various systems and processes to monitor and track our emissions. Next, we will leverage green technologies to help us minimise our emissions, while investing in carbon credit programmes. Our goal is to become a net-zero emissions organisation by 2050.

Underlying our entire BIJAU agenda is a deep-rooted commitment to operate with integrity and sincerity which have always been part of our DNA. Today, our mission is to reawaken awareness throughout the Group of the values that we stand for as we reinforce our stakeholders’ trust in our ability to deliver and create value for them.

As we finalise this integrated report in April 2022, the number of COVID-19 cases has been decreasing after it peaked in March 2022 due to the emergence of Omicron, which is more contagious than previous variants. On a positive note, it is not particularly virulent and therefore hospitalisation as well as mortality rates are well under control. This lends reason to believe that the economy will start to pick up during the year. The International Monetary Fund (IMF) has predicted that Malaysia will experience 5.4% gross domestic product (GDP) growth in 2022, compared to 3.1% in 2021.

Along with a general economic recovery, all our Divisions are expected to perform even better in 2022 than they did in 2021. Both Property & Industrial and Trading, Finance & Investment Divisions stand to gain from unrestricted movements and increased disposable incomes which will translate into greater consumer spend.

In the Plantation Division, the expectation is that CPO prices will continue to be strong. These, combined with the ability to bring in foreign labour, are positive indicators for the industry in general as well as our own operations. Our Pharmaceutical Division will be leveraging its new expertise in the manufacture of vaccines to expand its portfolio of biopharmaceutical products while also focusing on Halal and over-the-counter products. Along with portfolio growth, it will also look to establishing a greater international presence. Finally, as the Cabinet has on 20 April 2022 unanimously approved the resumption of the LCS project, the Heavy Industries Division is looking forward for a rapid reversal of fortune.

At the Group level, we will continue to drive our three-year Reinventing Boustead strategy. While a number of initiatives outlined have been completed or are nearing completion, others are at various stages of progress. Together with the concerted efforts of B300, our priority in 2022 will be to ensure these are accomplished within the timeframes set. Concurrently, we will continue to push our BIJAU agenda to transition into a greener, more sustainable organisation that operates at the highest level of integrity.

We highly value our stakeholders especially the Malaysian Armed Forces service members, veterans and their families. Our Vision, therefore, is to create value for them as we build a ‘new’ Boustead. In 2022 and indeed the years to come, we will continue to focus on Reinventing Boustead for a sustainable future.

Our success will depend on the continued collaboration with our business partners, suppliers and customers. On behalf of Boustead, I would like to take this opportunity to thank these stakeholders for their contributions which have been both valued and appreciated. At the same time, I would like to express my gratitude to the entire Boustead family, who truly represent our growth engine. My appreciation goes, first and foremost, to our esteemed Board of Directors, whose steady counsel has been critical in these very challenging times. Of particular note, I would like to acknowledge the contributions of our outgoing Chairman, Dato’ Seri Mohamed Khaled Nordin, who successfully steered the Group in our first year of Reinventing Boustead. I would also like to take this opportunity to welcome our new Chairman, Datuk Seri Mohd Redzuan Md Yusof, as well as other new Board members who bring with them many years of experience in the corporate and public sectors. The Board’s guidance continues to be a source of great strength to the Group.

I would also like to acknowledge my colleagues in the Management team, it is a rare privilege to work with a group as dedicated and determined as you. Meanwhile, a heart-felt thank you to all Bousteadors across the Group for your unrelenting commitment to Boustead and our stakeholders. With your continued support, I have the utmost confidence that we can reinvent anything! InsyaAllah.

Dato’ Sri Mohammed Shazalli Ramly
Group Managing Director

Get In Touch

Got a question? Feel free to contact us, we are eager to answer your enquiries.