CHIEF FINANCIAL OFFICER’S REVIEW CHIEF FINANCIAL OFFICER’S REVIEW The COVID-19 pandemic has been a game-changer for businesses worldwide, including ours. Despite the challenging global operating environment, we have demonstrated resilience and adapted our strategies to cater to our customers’ evolving needs. We have implemented a revenue diversification strategy that is gradually taking shape, and we have successfully expanded our global presence, including in the Kingdom of Saudi Arabia (“KSA”). Our new contract wins amounting to RM1.36 billion in 2022 saw a notable 62% coming from international business. However, even with the strong revenue growth, we are facing numerous headwinds which are placing pressure on our bottomline. These challenges include cost escalation and margin compression, which are attributed to global supply chain disruptions, inflationary pressures and minimum wage legislation. In addition, we are also investing in exploring new markets and developing technology enabler products, which is impacting our business. Though these initiatives are in their gestation period and yet to contribute positively to our bottom line, we are confident that they will in time. Given the current business challenges, we have initiated a range of strategic cost-saving and operational efficiency measures to proactively mitigate the effects of the rising costs and fierce competition. GROUP FINANCIAL PERFORMANCE During the year in review, the Group achieved a noteworthy increase in revenue of RM231.2 million (10.1% Y-o-Y), from RM2,292.4 million to RM2,523.6 million, with all business divisions except Property & Facility Solutions recording revenue growth. This positive trend is attributed to the resumption of business-as-usual in the post pandemic era, particularly with the significant increase in infrastructure service works for expressways under PLUS Malaysia Berhad and the securing of key contracts in healthcare support services, especially in Singapore and Taiwan, being two of the most notable value drivers of our revenue growth. As previously noted, our bottom-line was impacted by the general cost escalation resulting from external economic factors and our preliminary expenses related to exploring new technology and markets. As a result, our net profit growth did not keep pace with the increase in revenue. Despite these challenges, we were able to secure an increase in PAT of RM2.3 million (5.3% Y-o-Y) through our effective cost management and operational efficiency improvements to mitigate the impact of cost escalation and protect our profit margin. Supported by these wide-ranging initiatives, I’m pleased to report that we have achieved RM51.9 million in Group-wide cost savings in just two years, placing us on track to achieve our EoTF2025 goal of RM100 million in cost savings over 5 years ahead of time. STREAMLINING OUR PORTFOLIO FOR FUTURE GROWTH Over the past few years, the asset and facilities management industry has become increasingly competitive, with players engaging in price wars to stay afloat amidst the global cost escalation. This heightened competition has adversely affected our margins and profitability across all business segments. To position ourselves for future growth, we have directed concerted investment towards integrating cutting-edge technologies within our offerings, leveraging strategic partnerships with innovative companies including Alibaba, ITMAX, Disrupt-X, Softbank and Sumitomo to offer our clients access to technologies that drive enhanced cost-efficiencies and sustainability, amongst other benefits. Our technologydriven solutions also act as a key differentiator and competitive advantage from other active players in the IFM market. We have also expanded our presence in adjacent sectors that offer higher margins and growth opportunities with our entry into IFM services for the hospitality and manufacturing sectors in Singapore and Taiwan. Additionally, we established a subsidiary company, Edgenta Arabia Limited (“EAL”), and acquired a 60% equity stake in MEEM, a prominent facilities management company in the KSA. This places us in a strong position to tender for mega projects under the Saudi Vision 2030 plan, which has an investment value of USD1 trillion. As part of our portfolio restructuring efforts, we also divested our India-based associate, Faber Sindoori Management Private Limited, allowing us to streamline our portfolio and allocate resources towards our growth markets, ensuring optimal capital reallocation and recycling. By focusing on high-growth and high-margin markets and reallocating capital from underperforming assets, we are confident that we will continue to drive sustainable growth and create long-term value for our stakeholders. While our investment has impacted our bottom line during FY2022, it positions us to move up the asset and facilities management value chain, ensuring access to lucrative growth opportunities in international and high-growth markets. Healthcare Support The largest contributor to the Group’s revenue, the division recorded a 3.8% Y-o-Y increase from a substantial revenue base of more than RM1.4 billion per year, contributing to a RM53.9 million increase in revenue for FY2022. The increase was driven by the mobilisation of new contracts secured in Singapore and Taiwan, and the appreciation of the Singapore Dollar (SGD) against the Malaysian Ringgit (MYR). However, the implementation of the minimum wage in Malaysia and inflationary pressure led to cost escalation, which caused a RM4.7 million (-5.0% Y-oY) decrease in Normalised PBT. Property & Facility Solutions The division experienced a decline in revenue of RM5.0 million (-2.9% Y-o-Y) due to the completion of key projects in Malaysia and the UAE, as well as the delayed handover of some new contracts. The impact was further hampered by the margin compression due to global supply chain disruptions and inflation across all costs including manpower, sub-contractors and operating costs, resulting in a decrease of RM13.3 million (-63.3% Y-o-Y) in PBT. Infrastructure Services The division performed strongly, benefiting from increased pavement works on expressways from core clients, PLUS Malaysia Berhad and Jabatan Kerja Raya, as well as new wins in East Malaysia and Indonesia. This contributed to commendable increases of RM175.9 million (29.5% Y-o-Y) in revenue and RM24.3 million (59.3% Y-o-Y) in Normalised PBT. The division’s strong performance was further supported by operating efficiency initiatives, including staff rationalisation exercises conducted over the past two years, which helped to streamline costs and refresh the division’s talent pool. Asset Consultancy The division saw a RM17.1 million (20.7% Y-o-Y) increase in revenue due to higher staff utilisation rate and the resumption of major infrastructure projects. Amid the significant impact of COVID-19 pandemic to the division, we took steps to optimise costs by implementing staff rationalisation and stringent cost management measures in recent years. The efforts, coupled with the resumption of projects, led to positive outcomes in FY2022. The division successfully achieved a turnaround in the current financial year, generating a profit of RM1.8 million compared to a loss before tax of RM17.2 million in FY2021. This represents a significant improvement of RM19.0 million (110.5% Y-o-Y). OPERATIONAL RESILIENCE AND MITIGATING BUSINESS CHALLENGES Across our operations, we were impacted by escalating labour, energy and material costs driven by existing supply chain imbalances and geopolitical instability. To mitigate against these pressures, we sought to drive savings through stringent cost management and control, operational efficiency initiatives and the optimisation of our practices. Amongst the various actions taken, we undertook a staff rationalisation exercise to reduce costs related to our workforce, continued to strategically optimise our procurement cost and streamlined our supply chain processes. In addition, we also leveraged our LEAN programme to identify operational efficiency opportunities across our processes. Our ongoing digitalisation and mechanisation initiatives have enabled us to unlock digital processes that will generate long-term cost savings and quality improvements. In delivering improved cost management, our procurement practices will continue to play a key role. In collaboration with HSBC Amanah Malaysia Berhad, we launched the Supplier Financing Programme (“SFP”), whereby our suppliers can access financing without collateral, leveraging on our strong financing position. The SFP complements the Government of Malaysia’s Bumiputera Vendor Development Programme to nurture SME suppliers to grow into larger companies and obtain hassle-free access to affordable financing, and ensure the suppliers have sufficient cash flow to carry out their obligations and deliver goods and services on time. The programme allows us to help our suppliers to reshape their business towards a sustainable future, which indirectly has contributed as our social responsibility under our ESG initiatives. This initiative benefits us by ensuring our suppliers have ample cash flow and lower financing costs to carry out their obligations, thereby building better supplier relationship and strengthening our position when undertaking price negotiations. In parallel to the SFP, we also initiated our Strategic Vendor Management Programme. Through this programme, we are able to foster close working relationships with our vendors through capacity building, which in turn will help us to achieve better pricing, improved delivery schedules and higher quality products or services. The programme also allows us to gain a better understanding of our vendors’ business strategies and priorities, which enables us to align our requirements with their capabilities, especially in areas of ESG which benefit both parties in the long run. Overall, the Strategic Vendor Management Programme is a crucial component of our procurement strategy, allowing us to build strong partnerships with our vendors, improve our procurement cost, and deliver value to our customers. FINANCIAL PERFORMANCE BY SEGMENT p.44 p.45 UEM EDGENTA BERHAD INTEGRATED ANNUAL REPORT 2022 1 2 3 4 5 6 7 8 9 KEY MESSAGE
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