Chairman's Statement
Dear Shareholders,
The year ended 31 December 2009 (“FY2009”) was a year for Uni-Asia Finance Corporation (the “Company” or collectively with its subsidiaries, the “Group”) to weather the challenging business environment caused by global financial crisis.
FY2009 started with an uncertainty and fear of a global recession, purportedly to be the worst financial crisis since the Great Depression of the 1930s. Businesses were cutting back on capital expenditure and staffing, while consumer demand decreased dramatically in the first half of the year. Governments and central banks in many countries responded to the situation with unprecedented fiscal and monetary stimulus packages to sustain their economies.
Fortunately, faster recovery in emerging countries such as India and China has propelled the world economy upward. However, most of the advanced countries recorded negative GDP growth in 2009 and the pace of recovery is said to be slower than in the past recessions.
Our ship investment / management business was unavoidably affected by the global financial crisis and recession. Because of the lack of liquidity from the banks and stringent conditions even if loans were available, raising funds from the banks to finance vessel purchases, and arrangement of such financing had been difficult throughout the year. Investors also had a diminished appetite for ship investment due to uncertainty of the maritime industry and this also slowed down our business development.
Our property investment / management business in Japan also remained subdued throughout the year under a depressed Japanese economy, and with no signs of improvement yet. Hotel operations were also heavily hit by the deteriorating economic situation with less business trips due to budget cuts and less overseas customers due to the global recession and an appreciation of Japanese yen, which reduced our hotel income.
To cope with the above challenging business environment, the management team focused on establishing a lean cost structure by reducing operating expenses including top management’s benefits and relocating our Tokyo office. We have successfully reduced our operating cost so as to lower our breakeven point.
In the meantime, we also practised prudent cash resource management and reduced the external debt of Capital Advisers by disposing some property assets. In addition, we successfully exercised a private share placement to Yamasa Co., Ltd, by issuing 52,199,200 new shares at S$0.49, which resulted in S$25.3 million in net proceeds. This equity fund raising exercise contributed not only to the enhancement of our cash flow but also strengthened our balance sheet.
Despite the above efforts, cost reduction could not make up for the significant fall of the revenue which was more than expected. This included loss on disposal of properties (US$1.8 million) and fair value adjustment loss on investment in hotel and residential property funds (US$5.8 million), which reduced investment returns. Furthermore, impairment of assets such as hotel properties and account receivables coupled with a provision on onerous contracts increased our expenses. As a result, the Group, unfortunately incurred a net loss of US$15.7 million for FY2009.
STRATEGIC DIRECTION
The external environment, though challenging, is something that we will weather through. We will continue to seek business developments in line with our current business model in order to flexibly cope with continuous tough business environment.
While a number of indicators point to the start of an economic recovery, such as a recovering stock market and export-led growth by emerging countries, unemployment continues to be at the high throughout Europe, US, and Japan. A recovery of consumer spending and investment by private sector is yet to be confirmed. Therefore, a return to pre-crisis condition is not imminent due to the current slow pace of recovery. Assuming a prolonged sluggish economy, we will try to focus on the following three points:
- To capture upcoming business opportunities in the midst of economic recovery with less reliance on external borrowings;
- To continue prudent cash resource management; and
- Stringent cost management for a more resilient cost structure.
SHIP INVESTMENT/MANAGEMENT
We expect that the maritime industry would continue to suffer from a lower level of cargo traffic volume, though it depends on vessel types. Among the various types of vessels, we focus on dry bulk carriers, taking into consideration the liquidity and current market situation. As at 31 December 2009, the Company’s consolidated free cash balance was approximately US$53 million. We believe that we would be well positioned to capitalise on opportunities presented during the current slowdown of the shipping industry and market. Amongst other things, we are considering the launching of a new opportunity-driven fund which invests in discounted vessels, with a focus on small handy bulk carriers. We will also look at some other opportunities to expand our maritime investment/ management business in line with our business model by making use of our strengthened cash position.
As we foresee the continuous tight credit policy of financial institutions, we will emphasise more on equity investment with other investors, with less reliance on non-recourse ship financing.
PROPERTY INVESTMENT / MANAGEMENTThe property market in Japan is still frozen. Lack of available financing is making the sales-purchase transactions difficult which is adversely affecting our property investment/ management business. Assuming this situation continues for the time being, we will make efforts to maintain the resilient operating cost structure. We will focus more on our fee business which does not require additional investment and bank finance. In order to improve the hotel performance, we had enhanced its management structure so that we can pay more attention to hotel operation and take necessary actions quickly to cope with the changes in the market. Even though we expect the hotel performance to improve in line with the recovery of the economy in 2010, the market situation is still unstable. To survive the tough business environment, we will undertake more detailed marketing for each hotel.
China’s economy is now one of the driving forces pulling the world economy back on track of recovery. Our first investment in office units in Guangzhou is performing well, and we will consider similar investment opportunities when available. We have been looking at logistics-related business opportunities in China, because we believe that we can leverage on our experiences in financing services for transportation / property sector. In 2009, we started to provide administrative advisory services in respect of a warehouse project in China, where the other party invests in and operates the warehouse facilities. We are thus acting as a service provider without any equity interest in the project. We may seek for another opportunity to expand this sort of service function by using our existing capabilities in ship / property asset management.
CONFIDENCE FOR THE FUTUREThe outlook for the year 2010 is still uncertain, whether the world economy will be back on trail of a self sustaining economic recovery from recession or do we face prolonged sluggish economic outlook with a double dip recession in the world economy including Japan. In either case, we expect that there will be some good chances to capture attractive investment opportunities which will promote our future growth. Realising opportunities for growth, we will move quickly by taking advantage of our available cash resources. We will continue to enhance our performance by prudent resources management and appropriate resource allocation.
The Board and I are confident that our strategy and our existing resources will enable us to overcome the current difficult business environment and to attain future growth after the end of the economic crisis. We believe that our contributions as an alternative asset management company will continue to benefit our customers with outstanding growth opportunities, and create value for our shareholders.
Mr Kazuhiko Yoshida
Chairman and CEO
15 March 2010