Captii Limited

Investor Relations.
(Extracted from Annual Report 2017)

Dear Captii Shareholder:

On behalf of the Board of Directors, I am pleased to present the Annual Report of Captii Limited for the financial year ended 31 December 2017.

A year of contrasts

Our Group entered 2017 on a strong footing having delivered nine consecutive years of profits.

Our GlobeOSS business generated higher revenue this year while our Unifiedcomms business unfortunately did not. GlobeOSS posted revenue of S$13.1 million, an increase of 19.2% from the S$11.0 million recorded in 2016. Unifiedcomms revenue in contrast declined by 4.5% to S$11.7 million in 2017 compared to the S$12.3 million achieved the year before.

The higher revenue delivered by GlobeOSS - which more than offset the decline in Unifiedcomms revenue performance - was the main driver for the S$1.4 million improvement in overall Group revenue for the year to S$24.8 million.

Gross profit recorded was lower this year and in spite of the 5.8% increase in Group revenue, Group gross profit declined by 9.2%. This reflected the considerably lower average gross profit margin for the year of 45.7%, which resulted from the less favourable sales mix for 2017. This year the lower margin system sale contract revenues of GlobeOSS comprised a much greater proportion of our Group revenue.

Group profit before tax came in at S$2.8 million for the year, 62% lower compared to the S$7.4 million recorded for 2016. Although our Group bottom line benefitted from the better performance of GlobeOSS this year, the absence of a significant fair value gain on the Captii Ventures investment portfolio that was enjoyed in 2016 had resulted in a much lower profit before tax for our Group for 2017. In the last quarter of 2017, each of our venture investments was appraised and in this process, several were fair-valued with a different valuation model that was assessed as being more appropriate under the circumstances than what was employed in previous periods. This resulted in some investments having lower computed fair values even as compared to what was recorded at the end of the third quarter of 2017.

Our overall bottom-line for the year was positive at S$2.3 million, but 64.4% lower than the S$6.5 million recorded last year. This significant decline in bottom line performance was largely due to the flow down effect of lower gross profit margin realised as well as the absence of any fair value gain on the venture investment portfolio in 2017.

Our 10th consecutive year of profit but lower ROE

2017 represented our tenth consecutive year of profitability. However as a result of the decline in bottom-line performance, Our Group's return on equity (ROE) was reduced to 3.2% this year from 15.7% the year before.

Flat system sale contract revenues and improved managed service contract performance this year

Efforts to grow the managed service business persisted in 2017 and the results are encouraging. Revenues from this contract type improved by S$1.0 million against last year with the increase being attributable to the higher managed service contract revenues at both GlobeOSS and Unifiedcomms. The revitalised unit within Unifiedcomms business now called PostPay (formerly Mobilization) that focuses on amongst others, prepaid credit solutions on a managed service model, achieved significant growth this year. PostPay revenues grew sufficiently in 2017 to countervail any decline or slow growth in the other managed service contracts in the Unifiedcomms portfolio.

Group system sale contract revenues was relatively flat for 2017. System sale revenue at Unifiedcomms continued to decline this year to about half the revenue achieved in 2016. GlobeOSS in contrast, saw system sale contract revenues further improve in 2017, especially in the latter part of the year. The strong performance of GlobeOSS in delivering system sale contract revenue growth was had more than offset this underperformance at Unifiedcomms system sale business.

Investing in technology and innovation

At the start of 2017, we continued to have adequate cash balances to continue with the strategy of augmenting organic growth with growth by strategic investment. The Captii Ventures team identified and screened many candidates for investment throughout 2017 and completed four further investments in both early and late stage start-ups to bring the number of investees in the portfolio to fourteen in total. The work to identify, screen and engage on further investment opportunities will persist in the new year.

Balance sheet strength and dividends

Apart from the further investments made by Captii Ventures in 2017, during the year we continued to reinvest at GlobeOSS and Unifiedcomms businesses - especially for the PostPay business - for further product development as well for the acquisition of assets to support the fulfilment of managed service contracts. We continued to have a strong balance sheet at year-end 2017 with zero borrowings and ample cash and cash equivalents of S$7.4 million. This was also after declaring and paying to shareholders a dividend for the eighth year running. We had on 12 September 2017, paid a taxexempt interim dividend of 2.5 Singapore Cents per share, in-line with the dividend per share paid in 2016. In light of the anticipated capital requirements of our Group's growth and investment-driven development strategy, no further and final dividend payment has been recommended by our Directors for the financial year ended 31 December 2017.

In gratitude

2017 proved to be a broadly positive year for our Group. We ended the year with improved revenue and operating profit results courtesy of a strong year at GlobeOSS and the early results of the PostPay business at Unifiedcomms. Unfortunately, the venture investment activities at Captii Ventures did not yield any realised or fair value gain this year to contribute to our overall Group bottom line.

We look forward to doing better in the year ahead and will strive to deliver an improvement in Group financial performance for 2018.

For the year that was, I extend my deepest gratitude to the talented and dedicated individuals across all the businesses that make up our Group, for your commitment and perseverance. I ask the same from you again in the new financial year ahead, to move our business onward and upward. To you, our shareholder, I thank you for your continued belief and patience in our people and our business. Last but certainly not least, my thanks go to the government agencies and regulatory bodies for their guidance and support.


Wong Tze Leng
Group Executive Chairman

21 March 2018