Boustead – FY 2008 Financials Review and Discussion Part 2

Segmental and Divisional Review and Analysis

The table below shows the breakdown of revenues by business segment, for FY 2008 versus FY 2007.

Engineering services formed the bulk of revenues, contributing 83.6% of total revenues. This was not much different from FY 2007 where it took up 81.2% of total revenues. However, the Engineering division saw growth of 31.2% in total revenue, and this is considered decent. Geo-Spatial technology, which involves selling technology systems which optimise resource-finding and are mainly used by government agencies, saw decent revenue growth of 8.7%. This is a cash cow division which brings in a lot of cash but has low growth prospects. I suspect Boustead is using this division to generate the cash to fund the growth of the Engineering Division. As mentioned in the operational review, the Australian business unit saw double-digit growth which was offset by the flat performance from the Asian business units.

A further breakdown of Engineering Services reveals some very interesting insights. The rest of the explanations into the increases can be found in the company’s financial statements and press release. I would like to highlight a few things which may not have been mentioned:-

The growth in Energy-Related Engineering (BIH and C&E) was slower than expected due to the integration of the recently purchased Australian business with the existing Indonesian Business. This move stunted the short-term performance of Boustead Maxitherm but enhances the long-term competitive edge and revenue contribution from this division, and can be seen as a positive move for the future. As a result, revenue contribution (to total engineering services) from this division dropped from 46.8% in FY 2007 to 37.4% in FY 2008.

Real estate solutions took over as the dominant division for FY 2008, contributing more than half (52.8%) of revenues for the Engineering Division compared to just 44.7% in FY 2007. Stripping out the sale of 2 industrial leasehold properties in FY 2008, comparative revenues actually increased 58.9% (according to company announcement) rather than just the 54.9% featured in the table. With the recent slew of contracts clinched by Boustead Projects, including the Libyan Township project, FY 2009 should set to be an even better year for this division (more on this in Part 3).

The disappointment is in Salcon, representing the water and wastewater division. Although revenues grew 50.8% to S$35.9 million, it was because of the low base, and FF Wong mentioned that the division had incurred a loss of S$14.8 million for FY 2008 (from audiocast transcript) compared to a loss of S$7.7 million for FY 2007. As explained by FF Wong in the audiocast, this was because of two unfortunate events which caused the division to slip into losses when it was supposed to have turned around. This was the only blemish in an otherwise excellent year for Boustead in terms of growing all its business units. Part 3 will touch on Salcon’s plans and also cover a little on the Libyan Wastewater contract offered to Boustead for FY 2009.