CEO's Business Review
Dear Valued Shareholders,
The financial year ended 2021 had been a significant and extraordinary year for the Group. FY2021 seemed like a tough year in the beginning, with the Group fresh from a net loss of US$7.5 million suffered in FY2020. Following the disposal of our Japan hotel operating business in FY2020, our main foci in the beginning of FY2021 were to ensure that all the rest of the business segments were able to operate optimally during the pandemic, and to steer the Group to a profitable “V-shape” recovery position in FY2021. I am pleased to announce that we have achieved a net profit of US$18.0 million in FY2021, the highest profit level in the history of the Group, and we are declaring a final and special dividend totalling S$0.05 per share. Including the interim dividend paid in 2021, the total dividend for FY2021 amounts to S$0.07 per share.
To achieve a more efficient and effective shipping portfolio, we decided to focus on small handysize dry bulk carriers which we have considerable experience and expertise. When the shipping market showed signs of recovery towards the end of 2020, we started disposing containerships in our portfolio. By 1H2021, we had disposed of all the containerships in our portfolio. The disposals contributed close to US$2.8 million to the Group’s profit for FY2021, including US$1.4 million gain on disposal of ship investment, US$1.0 million write-back of loans to ship investment, and US$0.4 million gain on disposal of asset held for sale.
At the same time, as the dry bulk market started taking off, our ship commercial management team put in place a strategy to maximise the potential charter income for the Group while managing the downside risks of potential market fall-back and charter party risks. For our 28k DWT ships, we tend to fix shorter charter period with rates closer to the higher short-term spot rates, while at the same time monitor the Sale and Purchase market for opportunities to realise disposal gain from these ships. For our bigger 37k DWT ships, we fix slightly longer-term charter which rates may not be as high as the shorter charter term rates, but the longer charters act as buffer should the market falls back. As a result of the team’s effort, the Group achieved a charter income of US$47.8 million in FY2021, a 57% increase from that of FY2020.
Meanwhile, due to COVID-19, many Governments restricted seafarers onshore as well as crew change, resulting in seafarers having to work for a prolonged period on ships, thereby suffering from physical as well as mental fatigue. Our ship management team worked tirelessly round the clock with charterers and relevant parties to facilitate crew changes where possible, minimising possible issues. At the same time, we have also increased spending on ship operating expenses to ensure smooth operation of our time-chartered ships. Vessel operating expenses had increased by 7% in FY2021 compared to FY2020 as a result.
Overall, our shipping business contributed US$22.1 million profit in FY2021, a sharp turnaround from the loss of US$10.4 million in FY2020.
Hong Kong Property Business
Due to the Mainland China and Hong Kong pursuing a zero-COVID-19 policy, the borders of Hong Kong are primarily closed to visitors who do not wish to serve quarantine notice. Accordingly, Mainland China investors’ investing activities into Hong Kong properties have slowed down during the pandemic. With buying activities slowing, Hong Kong property sellers with holding power have adopted a wait-and-see approach to the property market so as not to depress the market price.
Against this backdrop, the Group’s 4th and 5th Hong Kong property projects are ready for sale, with the 6th project’s construction expected to be completed in 2022. The projects’ lead developer is working closely with sales agents as well as potential buyers to secure sale transactions that are within the projects’ price target. We are cautiously optimistic that the Hong Kong property market would gain traction once the border restrictions of Hong Kong are relaxed. Due to the above, this segment contributed US$0.1 million to the Group’s profit for FY2021.
Japan Property Business
When the pandemic first started, there were anxieties in the market which presented opportunities for the Group to acquire 12 new land parcels for development of ALERO projects in 2020. However, as the anxieties subsided, costs of land parcels were being driven up, making the potential returns less attractive to the Group, hence only 5 new land parcels for development of ALERO projects were acquired in 2021. Notwithstanding, the Group completed 11 ALERO projects in 2021, with 10 ongoing projects as at end of 2021.
At the same time, Uni-Asia Capital (Japan) Ltd. (“UACJ”), the Group’s licensed asset management subsidiary in Japan, continues to source for new property project business opportunities. One such initiative is the development of group homes for persons with disabilities. In August 2021, the Group together with two other partners established a fund to develop group homes for the persons with disabilities. The fund’s initial target is to develop 5 group homes. After development, these group homes will be leased out to a professional operator to operate.
In addition, the public work facility development project in Wako City, Saitama Prefecture in Japan which UACJ-led consortium won the bid to develop in 2019 was officially opened in December 2021. The project is a private finance initiative project to build and operate a public use facility which includes a children’s centre, a healthcare facility, a public swimming pool and a spa. Following the official opening, the UACJ-led consortium will operate the facility for 20 years. At the end of the 20-year operating contract, Wako City will purchase the facility back from the consortium.
The above projects are part of UACJ’s efforts to increase the property assets under management, in particular, projects which contribute positively to the society. As at 31 December 2021, UACJ’s assets under management had reached JPY32.7 billion.
The Group’s property investment in Japan business segment contributed US$1.5 million to the Group’s bottom-line in FY2021.
Commitment to Sustainable Growth
In my FY2020 joint message with the Executive Chairman, Mr. Tanamoto, as published in our Annual Report for FY2020, we affirmed our commitment to the Group’s sustainable growth. In FY2021, we achieved a “V-shape” recovery and had started some IT initiation projects within the Group to enhance operational efficiency and effectiveness.
In the longer term, we are committed to building up a stronger balance sheet. As at end of FY2021, we have reduced our total borrowings to US$83.8 million, down from US$114.0 million as at end of FY2020. Our debt-to-equity ratio is now less than 1. Our operating cashflow is stronger than a year ago.
We will continue to work on strengthening our balance sheet, through timely divestment, deleveraging and achieving better liquidity position. In addition, we strive to reallocate our cash as well as human resources into more profitable projects, including both existing and new business arenas, so as to optimise profitability.
Our corporate philosophy is to take on new challenges, create new value and contribute to the society. With the ever-evolving business environment, we are keenly aware of the need to evolve and adapt. We will work hard for sustainable profitability for the Group through evolving, adapting, as well as exploring new business opportunities, so as to deliver a sustainable dividend yield that would lead to a share price that reflects the true long-term value of our Group.
Uni-Asia Group Limited
16 March 2022