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Boustead Singapore Limited’s Latest Earnings: A Tough Year Ahead

Boustead Singapore Limited (SGX: F9D) had released its fiscal fourth-quarter results for the financial year ended 31 March 2015 (FY2015) yesterday evening.

For a quick background, Boustead Singapore’s a technology group that’s focused on providing geo-spatial solutions and infrastructure-related engineering services. Within this general classification, Boustead Singapore has three business divisions: Real Estate Solutions; Energy-Related Engineering; and Geo-spatial Technology.

Late last year, the company had proposed a spin-off of its real estate operations into a new listed entity. The new company, called Boustead Projects Limited (SGX: AVM), started trading as a separate entity on 30 April 2015. Boustead Singapore, which remains the majority owner of Boustead Projects with a 51.2% stake, had distributed shares of the real estate outfit to shareholders as a dividend-in-specie.

FY2015 will be the last fiscal year in which Boustead Singapore will present its results with a wholly-owned real estate subsidiary. With that, let’s dig into the important details.

Financial highlights

Boustead Singapore ended FY2015 with annual revenue of S$556.4 million, up 8% from a year ago. But, the bottom-line weakened with Boustead Singapore’s net profit falling 10% to S$66.3 million. This was due to a number of factors:

  1. Administrative and financial costs had been bumped up due to the spin-off of Boustead Projects.
  2. Boustead Singapore had generated more profits in regions with a higher tax rate during the fiscal year, resulting in its effective tax rate jumping from 18% in FY2014 to 25% in FY2015.

If non-recurring items were adjusted for, Boustead Singapore would have seen its net profit in FY2015 grow by 3% from where it was in FY2014.

On the cash flow front, it wasn’t a good year for the company. Annual operating cash flow had fallen by more than half from S$106.3 million in FY2014 to S$43.3 million and this had resulted in Boustead Singapore’s free cash flow sinking by nearly two-thirds from S$103.5 million to S$39.6 million.

Boustead Singapore ended FY2015 with a strong balance sheet that had a net-cash position of S$73.6 million (S$260 million in cash and equivalents and S$186.5 million in total borrowings).

But, it’s worth pointing out that the company’s balance sheet has weakened a fair bit from a year ago when there was a net-cash position of S$165.9 million; Boustead Singapore had taken on more debt during FY2015 largely due to the Real Estate Solutions division building up its industrial leasehold real estate portfolio.

The board of directors had declared a final dividend of 2.0 cents per share, down from the dividend of 3.0 cents seen in the same period a year ago. Together with an interim dividend of 2.0 cents and a dividend in specie (from the de-merger of Boustead Projects, as mentioned earlier) of 15.5 cents, Boustead Singapore’s total dividend for FY2015 stands at 19.5 cents, up significantly from the 7.0 cents paid in FY2014.

Business highlights

Let’s move on to Boustead Singapore’s individual business divisions.

The Energy-Related Engineering division ended FY2015 with a 4% decline in annual revenue to S$190.3 million largely on the back of a weaker business environment; it’s worth remembering that the price of oil had collapsed dramatically at the end of 2014. But, cost savings in major projects and an improvement in margins had led to a 29% jump in pre-tax profit to S$33.4 million for the division.

Meanwhile, the Geo-Spatial Technology business division saw a modest 3% increase in revenue to S$110.6 million with firm demand seen in Australia and South East Asia. Unfortunately, goodwill impairment and a decline in the Australian dollar against the Singapore dollar had weighed on the bottom-line, resulting in a 10% year over year drop in pre-tax profit to S$22.7 million for the division.

The Real Estate Solutions division was a standout performer in terms of top-line growth; revenue for FY2015 had jumped by 22% to S$255.4 million compared to a year ago. The increase can be attributed to more design-and-build revenue being earned during the year. But with “tighter margins”, the division’s pre-tax profit had declined by 15% to S$33.4 million.

Going forward

Boustead Singapore ended FY2015 with an order book backlog of S$388 million, up slightly from the selfsame figure of S$380 million seen a year ago. But, despite the healthy order book, the company had warned of tougher times ahead in the near future in its earnings release:

“[Bousetad] continues to stay cautious on its business prospects given the current headwinds which the Group faces in the global oil & gas and industrial real estate solutions markets. With the ongoing slump in global crude oil prices, the Group expects continued delays in the award of sizeable contracts, which will have a significant negative impact on the Energy-Related Engineering Division in FY2016.

In addition, the highly challenging business environment is also likely to affect future gross margins although the Group has put in place cost management measures to partially mitigate this.”

Investors might want to expect lower profitability from Boustead Singapore in the current fiscal year given that the firm itself had commented that “the level of profit [in FY2016] is unlikely to match that of FY2015.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned.