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Extracted from Annual Report 2017


All our Financial indicators point to the Fact that our Divisions have Financial indicatorsperformed admirably

Dear Shareholder,
It has been an exceptional year for Boustead Holdings Berhad. We crossed a substantial milestone of over RM1 billion in profit before tax, a first for the Group. This is a highpoint in our history, achieved against a backdrop of tough market conditions due to heightened competition and a challenging environment that demands much more from businesses to realise their goals.

We are pleased that our Divisions have delivered such earnings. Once again, this attests to the fact that our diversified nature is the ideal structure for us to continue growing and seizing the business opportunities that lie ahead.

Financial Performance

Organic growth drove our profitability, coupled with disposal of lands. The opportunity to unlock value was timely, given that we would not have been able to garner such results if we were to maintain some of these land banks. On this premise, we recorded an outstanding profit before tax of RM1.1 billion. Revenue grew by 20% compared with last year to a record RM10 billion. Profit after tax came in strongly as well at RM923 million. All our financial indicators point to the fact that our Divisions have performed admirably.

Leading the way was the Plantation Industrial Division. The Heavy Industries Division marked a turnaround, while the Finance & Investment, Pharmaceutical and Property Divisions delivered solid results.

On the back of this exemplary performance and testament to our prudent management, shareholders benefitted from strong dividend yields and dividend payouts. Total dividend for the year is 11 sen per share, with a total payout of RM223 million. This represents a dividend yield of 3.8% based on the closing price for the financial year. The fourth interim dividend of 2.5 sen per share will be paid on 29 March 2018 to shareholders on the register as at 15 March 2018.

As we grow our businesses and improve our competitive edge in the various sectors that we operate in, we have successfully reduced our gearing ratio to 0.7 times (2016: 0.9 times). The Boustead Group is asset-rich and a gearing ratio of this nature is highly acceptable. Shareholders’ funds have also grown to RM5.9 billion.

Despite strong fluctuations in commodities, the Plantation Division delivered a record profit of RM733 million, representing a profit contribution of 66% to the Group. This was driven by disposal of plantation lands. We chose to undertake this disposal as urbanisation is spreading at a rapid pace in certain areas where our plantation estates are located. It is important to note that we did not dispose of plantation lands to other players in the plantation sector. The disposal was one-off in nature, netting us a gain of RM555 million for 678 hectares of land. In tandem, the organic growth due to strong crop production and crude palm oil prices further boosted earnings.

The Trading & Industrial Division was the second strongest contributor, delivering a profit of RM132 million. This was propelled by Boustead Petroleum Marketing Sdn Bhd (BHPetrol), as a result of its business operations and logistical efficiencies. UAC Berhad and its group of companies further reinforced the Division’s bottom line. The Division’s profit contribution to the Group amounted to 12%.

The Heavy Industries Division posted an impressive turnaround, registering a profit of RM73 million. This was primarily due to improved performances by Boustead Naval Shipyard and MHS Aviation Berhad (MHS).

The Affin Group which is the primary contributor to the Finance & Investment Division did well during the year despite intense competition in the banking and finance sector. The Division recorded a profit of RM71 million compared with RM62 million in the previous year.

In the Property Division, our investment properties particularly in the retail sector have been plagued by an oversupply of shopping malls and excess office space in prime areas, which has clearly eaten into our profitability. The Division was impacted due to these conditions and as such delivered a profit of RM54 million.

The Pharmaceutical Division remains a mainstay of profitability for Boustead, posting a profit of RM54 million. This was supported by solid performances by the Division’s various segments, particularly its Indonesian operations which have become a key driver given the sheer size andstrong prospects of this thriving market.

Corporate Initiatives

The Group had a busy year in terms of strengthening our fundamentals. We stand firm in our commitment to unlock the value of our businesses. In line with this, we are focused on ensuring effective usage of our land bank. Accordingly, we undertook the disposal of 678 hectares of plantation land with high development potential. As a result, we were able to realise the capital appreciation of the lands at a substantial premium. This subsequently enabled us to embark on the proposed acquisition of 11,600 ha of plantation land, which will see the Group substantially expanding our land bank.

Further to this, we are also acquiring 6.59 acres of prime freehold land in the heart of Kuala Lumpur on Jalan Cochrane, for residential development.

As part of our ongoing drive to tap the capital markets for efficient cost of funding, in 2017 we established an Islamic Medium Term Note Programme of up to RM2.5 billion in nominal value. We have raised RM1 billion which was successfully taken up by investors, with the remaining RM1.5 billion to be issued in the future. Proceeds will be utilised towards the replacement of bonds that will be due and for property development activities.

In a bid to improve its operational efficiencies, the Affin Group has undergone a restructuring. We are pleased that they have streamlined their corporate structure in order to create better organisational alignment. This investment is indeed a viable one for the Group and it bodes well that they have initiated this effort.

Continuing our strategy from prior years, we have taken active steps to review business strategies for companies within our portfolio which are not performing or are lagging behind. It is important that companies with potential are strengthened and transformed to contribute to the Group. Of course, we will not hesitate to review the business potential of the companies within our portfolio of investments.

Towards this end, we ceased operations of Boustead Sissons Paints Sdn Bhd and Boustead Engineering Sdn Bhd as we had spent a great deal of time and effort to revive the business prospects for these companies. However, given their loss-making record and lack of contribution, it was a prudent decision to bring these entities to a close. We assure our shareholders that on an annual basis, we will do the needful to improve the contributions of our various companies to the Group’s bottom line.

Sustainability Commitment

As the Group pushes forward, we appreciate the importance of ensuring that we grow and develop in a sustainable manner. This is all the more pertinent given our role as one of the leading conglomerates in Malaysia, as we strive to lead by example.

Over these past many years, we have instituted various policies and programmes in order to achieve this. This was formalised in 2016 with our inaugural Sustainability Report, which provided an overview of the key sustainability initiatives undertaken across our various business units.

Building on this, as part of our proactive approach to sustainability, we are mindful of the need to have a greater focus on materiality. This helps to identify areas of relevance not only for the Group but also for our stakeholders.

To this end, in our 2017 Sustainability Report, driven by our Sustainability Committee we have taken a conscious effort to address key material issues in Economic, Environment and Social areas. The initiatives carried out during the year are well in line with the Group’s Sustainability Vision, Building a Legacy of Sustainable Growth as a Leading Diversified Conglomerate.

Outlook

We are heartened by the strong prospects that the Group is poised to leverage on. The year ahead will certainly bring its fair share of setbacks and challenges, particularly with heightened competition in many of the sectors that we are thriving in. We are confident of our track record and the fundamentals that your Group has in place.

To pursue our growth plans, in 2018 we have committed capital expenditure in the region of RM1.3 billion. Of this, we have allocated approximately RM675 million for the proposed acquisition of plantation land and RM430 million to expand our land bank for property development activities. The remaining capex will be utilised to reinforce our presence in the hospitality sector, particularly for Royale Chulan Cherating. Funds will also go towards shoring up our position in the plantation sector by upgrading our estates and mills. We are always on the lookout to acquire viable businesses and have allocated a portion of the capex as part of our war chest for potential acquisitions.

As for our various business segments, we are bullish on the Plantation Division, with the proposed acquisition of plantation land amounting to 11,600 hectares (ha) which is expected to be completed by the second quarter of 2018. This will leapfrog our land bank by a considerable 14% to 93,400 ha. This latest acquisition that we are pursuing is indeed scarce in Malaysia, given that land banks of this size are few and far between. This is an extremely viable acquisition, especially given the robust age profile of the estates. The fact that they are strategically located in close proximity to our existing estates will also provide economies of scale.

While this may not result in immediate yields, we are taking a long-term position. As a forward-thinking Group with a track record of over a century in the plantation sector, we are conscious of the need to plan for our future growth.

The Heavy Industries Division continues to see good progress in the Littoral Combat Ship project as well as the Littoral Mission Ship project. Operational efficiencies have also been strengthened. Apart from this, MHS Aviation Berhad now has better visibility in terms of settlement for the termination of a joint operations contract, which is a positive development.

In our Trading & Industrial Division, we are focused on expanding our network of BHPetrol retail petroleum stations. This investment has certainly flourished over the years. The retail petroleum industry has also greatly transformed and evolved, now providing convenience stores, drive-ins and other one-stop services to engage customers. We are at the forefront of delivering this to customers and will leverage on the strong potential of these services. Additionally, UAC Berhad was appointed as the main contractor for Lembaga Tabung Angkatan Tentera and Perumahan Penjawat Awam 1Malaysia’s affordable housing project in Bukit Jalil, which is expected to further support the Division’s performance.

The entire banking and finance sector is undergoing rapid changes with the introduction of fintech and the evolution of services. Consumers are demanding more and demanding it now. The Affin Group which is a core driver in the Finance & Investment Division has performed well and we expect this to continue in the coming year.

TOur Property Division benefits from assets that are second to none. This includes property investments that are strategically located in retail and commercial hubs along with office towers. We are confident that our prime portfolio of properties will bear fruit over the long-term. We have also planned for launches in our township in Johor, our new Mutiara Hills township, our One Cochrane condominium project and a commercial building in our signature development in Mutiara Damansara.

Tapping into the vast prospects of the healthcare sector, the Pharmaceutical Division is focused on expanding its presence, both domestically and in the international marketplace. Along with ongoing research and development into new products, we are bullish on the prospects that Indonesia holds for Pharmaniaga. To this end, we are increasing our energy and resources to grow market share in Southeast Asia’s largest country.

On the whole, we are optimistic that the year ahead will be a much better one for the Group. The socioeconomic and political stability of our nation will certainly be a contributing factor. The Group is exploring numerous opportunities to strengthen organic growth and, for the right reasons, enter into new business ventures.

To do this, we have taken great strides to build our talent pool by grooming young business leaders who are taking the helm of various businesses of the Group. We are pleased with their performance and they are indeed part and parcel of our corporate culture.

We would like to assure our shareholders that our commitment is second to none. We will redouble our efforts to unlock value and deliver results, especially for our shareholders who have been loyal to us over these many years.

In the ensuing pages, there is a detailed elaboration of how our Divisions have performed and prospects ahead. This is followed by a thorough analysis of our sustainability efforts. We have expanded our sustainability cause far and wide, permeating every facet of our organisation. I trust you will find the respective reports insightful.

Boustead would not have been able to achieve such excellent results without the combined efforts of a myriad of parties. Our deepest gratitude to our shareholders as well as our host of customers, both institutional and consumers in general. And of course, to all the regulatory authorities, thank you for your unwavering support.

I would like to thank our shareholders who have been with us these many years for their unwavering loyalty. To new shareholders, we assure you that ours is a Group that will not rest on its laurels and we will find new ways to deliver value.

TAN SRI DATO' SERI LODIN WOK KAMARUDDIN
Deputy Chairman/Group Managing Director
5 March 2018

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