The Straits Times / The Business Times News on Hyflux
Hyflux net profit slides 63% to $17 million
By Matthew Phan - March 01, 2007
The
Business Times
HYFLUX, best-known for its membrane-based solutions to water treatment, reported a 63 per cent fall in net profit for the 2006 full year to about $17 million, in what analysts said was not an unexpected set of results.
While 2006 was spent investing in new markets and products, and restructuring to prepare for the CitySpring Infrastructure Trust, the group has now optimised its business model and expects technology in the pipeline to bear fruit this year, said senior executives.
Revenues for the period dipped one per cent to $129.8 million, as a fall in municipal revenues was balanced by growth in industrial and other segments.
Municipal sales fell in Singapore as the company had completed a large desalination project in 2005. Revenues from the Middle East also fell, and Hyflux eliminated revenues from China, after it upped its equity stake in Chinese unit SinoSpring in July 2006.
Industrial sales grew 59 per cent to $90.1 million in FY2006 - making up 70 per cent of group sales, compared to 43 per cent in FY2005 - thanks to strong orders from the pharmaceutical and biotechnology sectors.
Its consumer division also recovered from $0.8 million in FY2005 to $7 million for FY2006, or 5 per cent of group revenues.
However, expenses rose significantly, due partly to higher personnel expenses, with headcount increasing by over 100 people to 798 in 2006.
Finance costs also rose, due to project financing for the SingSpring desalination plant. Hyflux divested the plant to CitySpring Infrastructure Trust in 2006, and plans to sell its pipeline of Chinese projects to the trust as they are completed.
With CitySpring trading at a higher price and lower yield of about 4 per cent, this means investors are looking at lower yields for such assets, said Grace Goh, Hyflux's CFO. 'The difference between the investors' required yield and our return is our capital gain. A lower expected yield benefits us. We can encash the money we would otherwise earn over 30 years and redeploy it to more plants,' she said.
Success in water treatment has much to do with 'how much money you have to pursue business and how you do financial structuring', noted Kerryn Tay of CIMB-GK Research, who said she had 'not expected much from 2006'.
Hyflux also said it was confident of going back on track to achieve its target of 30 per cent compounded annual growth rate (CAGR) from 2003 to 2008. Given the company's net profits of $19.5 million in FY2003, this implies earnings of over $50 million in FY2007 and over $70 million in FY2008.
Chief executive Olivia Lum said Hyflux is pilot testing technology targeted at the industrial segment, and expects double-digit growth in the industrial order book. Total order book stood at $435 million (excluding projects under SinoSpring) in FY2006, up 37 per cent year-on-year.
Click here for Hyflux's press release
FY06 financial statements |
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