Chairman's Statement
Extracted from Annual Report 2011
Dear Shareholders,
On behalf of the board of directors, it is with pleasure that I present to you the annual report of The Straits Trading Company Limited (“Straits Trading”) for the financial year ended 31 December 2011.
Though our transformation is far from complete, we are pleased to report that we have become a stronger player in our chosen markets, and we are starting to see the results of initiatives put in place to create greater shareholder value. As a result, Straits Trading has emerged stronger and leaner with a sharper focus, and is better positioned with a robust management team and an improved set of results.
I am pleased to report that during FY2011, our revenue grew by 11% to $1.5 billion. The increase was broadbased across all businesses, with the highest contribution coming from our Resources division. Significantly, our net profit increased by 62% to $45.6 million. The better year-on-year results were due to higher profits from both tin mining and smelting operations in Malaysia, improved operating performance from the Hospitality division and fair contributions from our Property division. Our earnings per share (EPS) increased from 8.6 cents in 2010 to 14 cents in 2011. Our net asset value (NAV) per share also increased from $3.52 to $3.57.
MAIDEN MTN ISSUE
Given the uncertain economic outlook for global financial markets, we decided to strengthen our capital structure and balance sheet, by launching a Multicurrency Debt Issuance Programme in October 2011. This was followed by our successful inaugural S$225 million note issue in November 2011. Our debut on the capital markets was met with enthusiastic response by investors, as evidenced by the strong subscription rate at 4.5 times of the original intended deal size. We are heartened that investors appreciate the strength and stability of Straits Trading and the assets we possess.
With our additional capital resources, we are betterpositioned to take advantage of any opportunistic acquisitions of assets that may arise, as well as undertake further investments to enhance and upgrade our existing assets, given the uncertain economic outlook. It will also enable us to ride through any unexpected turbulence with adequate funds.
REVENUE
PROGRESS IN TRANSFORMATION
We have been making encouraging progress in transforming Straits Trading into a holding company with stakes in businesses that are focused players in their chosen fields. The objective of these businesses should be to achieve a targeted return on equity or capital, justifying the capital that has been allocated to them such that the parent company, Straits Trading, receives a steady stream of income. Such a structure should afford shareholders a degree of risk diversification across industries and geographies. At the same time, the importance of capital allocation to each of these businesses as well as the balance between centralised and decentralised management control is critical. There should be sufficient control from the parent, to ensure proper risk assessment and mitigation but sufficient autonomy in the business to ensure continued entrepreneurial strivings.
One of the visible effects of these changes is our streamlined corporate structure, as well as the strong top line growth in all our businesses. However in some of our businesses, this top line growth has yet to be translated into profits, as this can only be achieved through restructuring.
Consequently while 2011 saw increased top line growth, we also saw sharp falls in profits in some of our businesses as harsh decisions were made to “write-off” or impair investments made before 2008, which we thought were not of strategic value. This fall in profits was exacerbated by longer term strategic decisions that we felt were necessary such as, in the case of the Hospitality division, investing significant amounts of capital in businesses or assets which we thought were sub-optimal in performance and which would benefit in the longer term from this increased capital injection. (More of this will be covered under the reviews on “Resources” and “Hospitality”).
PROFIT BEFORE TAX
We also concede that some of the impairments and “write-offs” made were conservative and erred on the side of prudence.
The accompanying charts above show graphically the increase in top line growth for all businesses as well as the impact of impairments, capital expenditure and investment decisions made in 2010 and 2011.
We remain optimistic that barring further economic jolts in the global economy, profits should follow top line growth in future years.
MALAYSIA SMELTING CORPORATION BERHAD
Malaysia Smelting Corporation Berhad (MSC) reported a higher net profit for FY2011, a turnaround from FY2010. This was due to higher profits from both its mining and smelting operations in Malaysia, attributable to improved operating performance and higher average tin prices.
The secondary listing of MSC on the Singapore Exchange early last year has successfully raised its profile in the market and increased its access to a larger pool of potential investors. In the long-term, we are optimistic that this secondary listing will enable MSC to enjoy wider investor interest and position it as an Asian integrated tin player that it is.
The additional funds raised have also enabled MSC to invest more capital in its mining arm to expand production. During the course of the year, MSC commenced operation of a new production unit at its Rahman Hydraulic tin mine in Perak that contributed to an increase in mine output. Work is also ongoing to upgrade the smelting and refining facilities at Butterworth to increase refining capacity and improve efficiency. Such investments will enhance the integration between the two arms, leading to increased efficiency and scale.
Rahman Hydraulic Tin currently undertakes its operations over five mining leases in the state of Perak covering an area of 601 hectares. MSC recently announced that the State of Perak has approved the renewal of these leases for a longer period up to 2030. The extension of the current mining leases to 2030 will enable Rahman Hydraulic Tin to undertake the necessary additional investments to optimise its long-term production levels. This is expected to result in an increase in future earnings and thus, the overall valuation of Rahman Hydraulic Tin.
An application has already been submitted for extension of P. T. Koba's Contract of Work (COW) agreement for another 10 years from 2013. Efforts are also ongoing to acquire tin exploration and mining concessions and development projects in Malaysia and Indonesia. The MSC Group is also evaluating several tin prospects in the Democratic Republic of Congo (DRC).
MSC is also continuing to pursue the divestment of the remaining two non-tin assets at acceptable prices.
Global economic uncertainties notwithstanding, and subject to renewal of P. T. Koba's Contract of Work, the Board of MSC expects its operating performance for FY2012 to be profitable.
We will continue to support the Board and Management of MSC in pursuing their strategy to grow and expand into new territories and markets.
With its key capabilities, and strong competencies we are confident that MSC will continue to deepen and extend its leadership position in the tin industry in the foreseeable future.
Further details of the business of MSC can be found in the review on “Resources”.
STRAITS DEVELOPMENTS
Our Property division continues to make good strides in the premium property sector, as we leverage on our strengths and expertise in the development of, and investment in premium lifestyle projects.
We achieved higher revenue on the back of healthy sales of premium residential developments as well as higher commercial property rental.
Looking ahead, we will continue to focus on the development of premium lifestyle projects catering to the affluent segment in the market. We will continue to explore opportunities to grow and expand our portfolio, especially in the prime residential districts. We are pleased to add that our relatively conservative view of the Singapore residential market since 2010 has made us less vulnerable to the recent property cooling measures. Having focused our efforts on developing the real estate that we own such as our Good Class Bungalow (GCB) land, and restricting ourselves to investing in prime located properties, we think we are well positioned to ride out this current property cycle. At the same time, our large cash resources should enable us to make opportunistic acquisitions, should they arise.
RENDEZVOUS HOSPITALITY GROUP (RHG)
Our Hospitality division recorded a significantly reduced loss in FY2011, compared with FY2010, coupled with an increase in revenue. The improved performance was due to higher room rates and average occupancy, lower corporate costs and fair value gains.
This is a very encouraging sign of the progress we have made, as our efforts to turn around the business have begun to bear fruit. However we remain mindful that there is still more hard work to come.
Our hospitality business also realised a number of other key milestones during the year. Our flagship property in Singapore, after an extensive refurbishment, was rebranded under the Rendezvous Grand banner.
An important element in our hospitality strategy is our asset optimisation programme, which aims to unlock value from existing assets and achieve better returns through ongoing cost and productivity improvements.
These refurbishment programmes are expected to lead to higher revenue and better profitability for our hotels due to their improved positioning in their respective markets.
Our Hospitality division has also embarked upon a rebranding programme under the “One Rendezvous” initiative, aimed at strengthening the brand equity and enhancing the value proposition of our hotels. This new brand structure, in which the existing Marque hotels will be rebranded as Rendezvous, should lead to greater awareness among our target market segments and result in better coherence when engaging with our core customers.
With good progress made in transforming our Hospitality division, we are exploring additional ways to add value to the Rendezvous brand and our hotel network. This may involve strategic partnerships, potential acquisitions of assets in key Asia Pacific cities and other such value generating initiatives.
WBL CORPORATION LIMITED
During 2011, our interest in WBL Corporation Limited decreased slightly to 17.3% from 17.8% the year before, due to the conversion of outstanding convertible bonds that led to an increase in the total outstanding share capital of WBL. All four of WBL's core divisions comprising Technology, Automotive, Property and Engineering and Distribution performed profitably for the financial year ended 30 September 2011. WBL paid out a total dividend of 10 cents per share in 2011.
DIVIDENDS
We are pleased to inform shareholders that we will be increasing our interim dividend payout to four cents per share for FY2011 in view of the better performance of the Group in FY2011 compared to FY2010. This is consistent with our goal of working towards a fair and sustainable dividend policy, as our businesses are transformed and value is unlocked.
2012 AND BEYOND
At the time of writing, 2012 appears to be a year of uncertainty for the global economy. Although progress has been made in Europe in dealing with the crisis, and there are signs of improvement in the US economy, the US and Europe are still both dealing with unprecedented debt burdens. Austerity programs are also being implemented in Europe. Climate change has affected countries such as Japan, Australia and Thailand, contributing to business disruptions and in some instances, personal tragedies. The political situation in the Middle East remains volatile, contributing to higher oil prices and in countries where GDP growth has been high, many of their governments are now working to slow growth down so as to avoid a huge wealth divide. We see this in China and Singapore as evidenced by greater government economic intervention and higher taxes. For these reasons, we remain cautious about the prospects for the year before us.
However Straits Trading is in very good shape to meet the challenges ahead. We have a sound portfolio of good quality assets and projects, a lean organisation as well as businesses that are adequately funded and backed by a strong balance sheet and a clear strategy for delivering value.
Some of the initiatives for 2012 include reviewing plans for our land-bank in Butterworth, developing our 3 remaining undeveloped GCB plots, as well as making additional value-accretive investments in our Hospitality division.
2012 also marks a significant milestone in the history of our company, being our 125th year of existence. With our pedigree and long history, we are quietly confident of definitively transforming our company to seize the opportunities ahead and reinforce our position as a leading corporate stalwart.
NEW ADDITIONS TO THE EXECUTIVE TEAM
We are pleased to welcome Mr Mark Greaves who joined Straits Trading in September 2011, as Adviser to the Chairman's Office. This appointment complements the formal establishment of the Chairman's Office within Straits Trading as a strategic planning and corporate development platform for the Group as a whole. Mr Greaves' role is to assist the Chairman's Office with major corporate and strategic issues.
We would also like to welcome on board Mrs Diana Ee-Tan as Adviser to our Hospitality division. Mrs Ee-Tan, a veteran in the hospitality industry will be advising our overseas hospitality businesses in matters of strategic importance.
I wish to extend my heartfelt thanks to my fellow Directors, our valued shareholders, advisers, business associates, clients, customers and financiers for their steadfast support. I would also like to express our sincere appreciation to the management and staff for their contribution, dedication and commitment to the continued progress and prosperity of The Straits Trading Group.
Chew Gek Khim
Executive Chairman
28 March 2012