Group Managing Director’s Review

Dear Shareholder,

The adversity that we are faced with has sparked a reawakening for the Group. It presents an opportunity to reinvent ourselves by realigning and strengthening our commitment to our fundamental priority: placing the interests of all our shareholders as our highest priority by maximising shareholder value, particularly for our majority shareholder Lembaga Tabung Angkatan Tentera (LTAT), to enhance the lives of members of the Armed Forces.

This is encapsulated in our vision of Reinventing Boustead, which we have embarked on to reimagine and rethink our diversified core businesses in the digital age, premised upon driving creativity and innovation supported by a strong foundation of integrity.

On this note, I am honoured to pen my inaugural statement as Group Managing Director, showcasing the resilience of the Boustead Group in the financial year ended 31 December 2020, and the course we have set to improve prospects and maximise value for all our shareholders.

Boustead Holdings is an institution that has withstood the test of time. However, the challenges of the COVID-19 pandemic brought to light the need to re-establish digital evolution as our core priority before we become irrelevant. Led by our renewed mission of placing the interests of our key stakeholders first, specifically the brave members of the Armed Forces who serve the nation, the Reinventing Boustead strategy was born.

Anchored by this sense of responsibility towards the wellbeing of Armed Forces members and by extension their families, we aim to revamp the way in which we do business by capitalising on emerging opportunities and accelerating value creation within the Group’s existing core businesses as well as embarking on our performance improvement programmes.

The strategy will also include leveraging on the vast prospects of digitalisation and the Industrial Revolution 4.0 by venturing into the digital services and technology sector, adapting innovative business models to tap new revenue sources and rationalising non-strategic assets to strengthen our focus on our reinvented core businesses.

Reinventing Boustead is supported by the three pillars of Boustead’s DNA, consisting of Creativity to reimagine our business values and discover new opportunities; Integrity as the foundation anchoring our corporate governance standards towards best practices; and Innovation to explore relevant technologydriven solutions utilising platforms guided by the adoption of data analytics.

We have put in place a clear blueprint of Group-wide initiatives which we are already in the process of implementing. To support and ensure the successful execution of these initiatives, we are focused on developing a pool of 300 talents to drive the Reinventing Boustead strategy. With these initiatives progressing steadily, we will be able to define a clearer direction to revitalise Boustead and contribute to the long-term sustainability of the Group.

It is a new dawn, a new day and a new life for the Group, as we reinvent ourselves hereafter.

Amidst the challenging environment brought about by COVID-19, the Group leveraged on our diversified nature to generate a revenue of RM7.9 billion for the financial year ended 31 December 2020. While the tough economic conditions affected most of our Divisions, our Plantation and Pharmaceutical Divisions performed commendably, which helped to mitigate the impact and enabled the Group to record a lower deficit of RM420 million for the year. This translated into a higher EBITDA of RM585 million compared with RM455 million in the previous financial year. However, to preserve cash flow and ensure business continuity against the difficult landscape, we were unable to declare dividends for the year.

The Group’s gearing ratio at the end of the financial year was 1.48 times. Meanwhile, total borrowings reduced to RM7.6 billion from RM7.9 billion in the previous fiscal year. Total assets amounted to RM16.0 billion while shareholders’ funds stood at RM3.1 billion.

One of our key positive contributors to the Group was the Plantation Division, clocking in a profit of RM83 million. This marked a significant jump compared to the deficit recorded last year, which arose from impairment on property, plant and equipment and right-of-use assets. The improved results for the year under review were achieved on the back of better palm product prices as well as higher production of fresh fruit bunches, testament to the efficacy of ongoing enhancement measures to rejuvenate our plantation operations.

We also see a commendable performance by the Pharmaceutical Division, which posted a profit of RM30 million. Although the concession business was affected by reduced  demand, the Division took on a key role in the nation’s fight against the virus, appointed by the Ministry of Health to supply critical personal protective equipment (PPE) and other COVID-19 related items to healthcare facilities across the nation.

The Heavy Industries Division posted a lower loss of RM107 million, a reduction from the previous year’s deficit of RM1.0 billion. This was mainly attributable to lower impairment of goodwill amounting to RM36 million. The Division also recorded an operating profit of RM26 million as a result of contributions from the Littoral Combat Ship project.

The Trading, Finance & Investment Division registered a deficit of RM83 million. Although the Division realised a one-off gain of RM45 million on the disposal of an associate company, Kao (Malaysia) Sdn Bhd, this was offset by the challenges of the pandemic which affected core businesses. This included a stockholding loss by Boustead Petroleum Marketing arising from a steep drop in average fuel prices and lower sales volume during the Movement Control Order (MCO) enforced to contain the spread of the virus. Similarly, our tourism-related entities under this Division were significantly affected by the pandemic due to border closures which impacted the tourism and travel industry. Our associate company AFFIN Bank Berhad also reported a lower contribution due to increased allowances for credit losses, higher operating expenses and a one-off modification loss relating to COVID-19 relief measures.

The Property & Industrial Division posted a deficit of RM343 million, as the property sector experienced significant disruptions during the pandemic and the MCO. The property development segment was impacted by lower progress billings, while the property investment segment recorded higher fair value losses. The hotel segment experienced lower room occupancy and a decline in F&B revenue, in addition to higher impairment on hotel buildings. The industrial segment was also affected by weaker sentiment amidst the pandemic.

Our Reinventing Boustead strategy is deeply rooted in achieving sustainable growth for the Group. As we have progressed in our sustainability journey, we are conscious that more meaningful impact can be made to enhance value and achieve our goals.

Reflecting this, we created our dedicated sustainability theme, Replanting the Seeds of Sustainability. This theme embodies our aim to breathe new life into our sustainability efforts by sowing the seeds of integrity, which is integral to Reinventing Boustead, deeply embedding this across our economic, environmental and social commitments.

Our sustainability e f forts are comprehensively captured in our standalone Sustainability Report, which is developed in accordance with the standards and requirements of the Bursa Malaysia Main Market Listing Requirements (Practice Note 9) and the Bursa Malaysia Sustainability Reporting Guide. We also benchmarked the report against the Global Reporting Initiative (GRI) Standards, presenting our material topics for the year, related impact and key achievements.

As we continuously work to enhance our reporting standards, in 2020 we incorporated new performance indicators and specific targets for key indicators. This allows for comparative analysis and helps us better track our progress to achieve our sustainability goals. As COVID-19 had far-reaching effects during the year, this is also reflected in our report, depicting our response from a sustainability perspective which also allowed us to ensure business continuity.

Moving forward, we will scale up our sustainability commitments in meaningful, relevant ways through value creation, equipped with a strong set of ethical principles and adhering to the highest standards of governance and integrity.

Although the pandemic is certainly not over, vaccination programmes undergoing in many countries sets a more positive tone for 2021. Brighter prospects are projected for the year ahead, as the world gradually moves forward on the road to recovery.

Having weathered through this adversity, we continue to steward the Group back towards our vision of enhancing the lives of Armed Forces members. This will be achieved by our Reinventing Boustead strategy, to future-proof the Group and put us on stronger footing as we evolve.

Reflecting our capabilities, our Pharmaceutical Division was entrusted by the Government to play an instrumental role in the National COVID-19 Immunisation Programme, inking an agreement to supply 12 million doses of the Sinovac COVID-19 vaccine, to be filled and finished at our small volume injectable plant. With the arrival of the first batch of the bulk vaccine from Beijing, China for Process Validation in February 2021, the Division marked a milestone with the first human vaccine in history to be filled and finished in Malaysia. With fill and finish manufacturing activities progressing well, we aim to distribute the vaccines in May 2021.

Apart from this, following the conditional approval from the authorities for the Division’s Sinovac COVID-19 vaccine finished product in March 2021, the Government has procured an additional supply of 400,000 finished product and it has been delivered to all MOH facilities in support of the Government’s National COVID-19 Immunisation Programme.

For our Plantation Division, we continue to undertake operational enhancements to improve long-term prospects. A key feature is our 25 Year Replanting Programme, RP25, to rebalance and optimise the age profile of our oil palms. The RP25 programme also entails improvement of in-field infrastructure to facilitate mechanisation activities and enable efficient management of the replanting process.

In tandem, we will refine and ramp up our mechanisation initiatives across our plantation operations to increase efficiencies. This is applied to key areas such as harvesting, in-field crop evacuation, external crop transporting, mature weeding and manuring.

Additionally, under the Reinventing Boustead strategy, we have implemented a Plantation Performance Improvement Programme. This focuses on enhancing yields via artificial intelligence and big data for precision farming.

We will continue to pursue viable opportunities for the various segments under our Property & Industrial Division. In keeping with the Reinventing Boustead strategy to rethink and revitalise our businesses, we are undertaking the redevelopment of one of our signature destinations in the Mutiara Damansara township, eCurve. Plans for a landmark development are already in motion to spark an urban rejuvenation for the area.

Better progress is expected for our property development segment, particularly given the positive take-up rate recorded thus far for One Cochrane Residences, with all units on track to be sold by end-2021. Our property investment segment is also generating a steady stream of rental income from building properties. For the industrial segment, we are widening our presence in export markets and seeking out strategic partnerships in both the public and private sectors, including supporting affordable housing projects with our innovative Industrial Building System products.

Meanwhile, although challenges will persist for the hotels segment as the tourism industry remains impacted with international travel still restricted and large gatherings not yet permitted, we are taking the initiative to strengthen customer relationship management and streamline direct booking. In addition, we are introducing new features such as a rewards programme to support guest retention. Aside from this, in February 2021 we successfully completed the disposal of the Royale Chulan Bukit Bintang Hotel.

In our Trading, Finance & Investment Division, we aim to expand our network of petrol stations to grow our market share. Complementing this, we are seeking opportunities for new partnerships with other quick service restaurants as well as car wash operators to broaden our offerings for consumers. Further to this, our own brand of ready-to-eat offerings will be introduced at select petrol stations commencing early 2021.

We are exiting our cruise terminal business, which is a non-core business. In line with this, in March 2021, the Group entered into a share sale agreement for the proposed disposal of Boustead Cruise Centre Sdn Bhd for a total cash consideration of RM230 million. With completion targeted for the third quarter of 2021, subject to fulfilment of the conditions precedent, the proceeds will contribute to reducing the Group’s gearing and strengthening our liquidity and cash flow position.

Our Heavy Industries Division will continue to undertake defence-related shipbuilding and ship repair activities. Encouragingly, the Littoral Mission Ship (LMS) project is demonstrating good progress. Along with this, our contracts with the Royal Malaysian Air Force and the Malaysian Maritime Enforcement Agency for the maintenance of helicopters have been extended, which will further contribute to the Division. We are also focused on commercial ship repair activities, successfully securing new contracts for maintenance, repair and overhaul works for four commercial vessels in 2021.

Progress is underway to resume the Littoral Combat Ship (LCS) project which was halted since 2019. We are grateful for the announcement made by the Ministry of Defence regarding the conditional resumption of the LCS project and are committed in delivering all LCS units.

The following pages provide a detailed account of the respective Divisions’ performance, key challenges faced, as well opportunities in the year ahead.

As we begin a fresh chapter for the Group, I would like to express my appreciation to our former Managing Director, Dato’ Sri Amrin Awaluddin, for steering the Group through much of the volatility of 2020. This certainly set in place the critical elements to embark on the Group’s reinvention. Our sincere gratitude as well to former Board members, Dato’ Abdul Hamid Sh Mohamed, Puan Nik Amlizan Mohamed, Mr Abraham Verghese A/L TV Abraham and Mr Loong Caesar for their valuable contributions during their respective tenures.

We were also pleased to welcome to the Board new Directors, namely Tan Sri Abu Bakar Abdullah, Datuk Seri Hajjah Zurainah Musa and Encik Izaddeen Daud.

Above all, with this reboot, we are steadfast in our commitment to our foremost priority, our ultimate stakeholders, the members of the Armed Forces. We are confident that with our strategy leading the way, we will be able to maximise value.

Our sincere appreciation to all our shareholders for their continued trust in the Group as we strive to do our utmost to deliver on our objectives. To my fellow Board members and all our Bousteadors who have rallied their spirits in a tough year, as well as our customers and all the regulatory authorities, thank you for your unwavering support.

Building on our strong foundation, we aim to reinvent ourselves as a dynamic, high-performing technology-forward organisation, with creativity, integrity and innovation deeply embedded within our DNA to achieve sustainable growth.

Dato’ Sri Mohammed Shazalli Ramly
Group Managing Director
31 May 2021

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