An overview of our business
Our group comprises three main segments: Unifiedcomms, GlobeOSS and Captii Ventures.
Throughout 2022, Unifiedcomms continued to address mobile network operators and integrated telecoms service providers with application and platform software, turnkey solutions and systems and a variety of professional and managed services. In 2016 a unit within Unifiedcomms called PostPay was revitalised into a fresh start- up and given prominence as part of a wider reorganisation of the Unifiedcomms business. PostPay focuses mainly on providing advanced solutions for prepaid credit on a managed service model.
GlobeOSS meanwhile, has developed into Malaysia's leading systems integration and solutions provider in the field of telecoms big data and analytics.
Unifiedcomms operates primarily in the telecoms-tech markets of three regions: South East Asia (SEA), South Asia (SA) and the Middle East and Africa (MEA) while GlobeOSS focuses exclusively on SEA. For Unifiedcomms, with the exception of Malaysia, Singapore and Pakistan, where engagement with the customer is conducted directly by our own personnel, the majority of our engagements with customers are carried out through various sales channel partners. This two-tier sales and distribution approach enables us to cost-effectively reach customers within each region of focus and to tap into the local knowledge and insights of our partners to build and deliver compelling solutions.
Captii Ventures, the venture investment arm of our group, focuses primarily on the SEA market for start-up investment opportunities. Our venture investment business regularly interacts with other venture capital (VC) management companies in the region and participates in funding rounds primarily as a co-investor following the lead investors.
As at end-2022, a total of 189 people are employed in our group. The majority of our personnel are located in Malaysia, where our operational headquarters is situated, while the rest work out of Singapore, Pakistan, Brunei, Thailand, Indonesia and Vietnam.
A slow and disappointing year
The group recorded consolidated revenue of S$23.2 million for the financial year 2022, a slight decrease of 2.6% as compared to the S$23.9 million achieved in 2021.
Both GlobeOSS and Unifiedcomms businesses recorded a marginal decline in revenue against their 2021 results. GlobeOSS recorded revenue of S$8.3 million in 2022, a decrease of 4.2% from the S$8.7 million achieved in 2021. Unifiedcomms meanwhile had a 1.7% decline in revenue, turning in total revenue of S$14.9 million in 2022 versus S$15.2 million the year before.
Lower revenue at Unifiedcomms was caused by revenue from system sale contracts declining sharply to S$1 million in 2022 from S$1.5 million in 2021.Unifiedcomms managed service revenues meanwhile improved from S$13.7 million to S$13.9 million, but this growth was insufficient to offset the decline in system sale revenues.
The Unifiedcomms customer base has traditionally been concentrated in the SEA region. This has not changed in 2022, with Unifiedcomms SEA region revenues accounting for 97.5% of total revenue recorded for the year.
GlobeOSS also experienced a decline in system sale contract revenues in 2022. System sale contract revenues declined to S$5.3 million in 2022 versus the S$5.5 million achieved in 2021. Managed service contract revenues of this business in 2022 meanwhile were flat against 2021.
GlobeOSS continues to have both its system sale and managed service business concentrated in the SEA region. The decrease in GlobeOSS revenue from the SEA region reflects the S$0.4 million decrease in system sale contract revenues between 2021 and 2022.
Group-wide system sale revenue decline
The decline in group revenue this year against last year was mainly attributable to the 10.5% or S$0.7 million fall in both Unifiedcomms and GlobeOSS system sale contract revenues.
The revenue region that proved most disappointing was SEA, which had its contribution fall from S$23.4 million to S$22.8 million. Similarly, the SA region's results were below expectations, due to the underperformance of certain managed service contracts, coupled with impact of unfavourable foreign exchange movements. The MEA region's contribution to total group revenue at S$0.2 million this year was flat against the year before.
In 2022, SEA, our home region, continues to be the largest geographic source of revenue, accounting for 98.3% of group topline.
Lower gross profit in line with lower revenue
In line with the lower consolidated revenue of S$23.2 million for 2022, 2.6% lower than 2021 revenue, absolute gross profit recorded for the year was lower compared to 2021.
Group gross profit for 2022 was S$11.3 million, down by S$0.3 million or 2.8% against what was recorded in 2021. The magnitude of decline in gross profit was marginally higher than that of revenue as a result of the less favourable sale mix recorded in 2022. Gross profit margin earned on group revenue was marginally lower this year at 48.6% compared to 48.7% achieved the year before.
Managed service contract average gross profit margin showed a marginal decline to 44% in 2022 as compared to 44.3% achieved in 2021. This was primarily due to higher third-party costs on certain Unifiedcomms managed service contracts. Meanwhile, gross profit margin earned on system sale contract revenues improved to 61.2% in 2022, primarily due to the lower relative contribution of GlobeOSS to system sale contract revenues of the group as compared to 2021.
The sales mix of our group in 2022 continues to show greater than fifty percent of group revenue being generated from managed service contracts. Due to the decline in system sale contract revenues, this year's managed service contract revenues accounted for 73.1% of group revenue, up from 70.7% recorded in 2021.
Higher total opex, but lower before exceptional Items
Our group's operating expenditure for the year increased significantly to S$14 million this year as compared to S$9.5 million in 2021.
In 2022, we had a significant impairment loss on goodwill and a fair value loss being assessed on our group's venture investment portfolio.
The impairment loss on goodwill this year amounting to S$2.8 million was mainly due to the impact of a significantly higher discount rate being applied to the future cash flows of part of our Unifiedcomms business, which was in turn, precipitated by the spike in benchmark interest rates in our home region and around the world.
The challenging environment for business and market valuations for several Captii Ventures investees resulted in a significant decline in the fair value of the group's venture investment portfolio this year, This gave rise to the fair value loss of S$2.1 million in 2022, in stark contrast to the substantial gain recorded in 2021.
Moreover, we sustained a further foreign exchange loss during the year, primarily due to the continued weakening of the Pakistan Rupee against the Singapore Dollar.
Excluding the effect of exceptional items charged to the income statement this year such as the fair value loss and impairment loss on goodwill, our group operating expenditure for 2022 was lower at S$9.1 million compared to S$9.4 million for 2021. This decrease in opex was due to lower technical support expenses, as a result of higher capitalisation of product development efforts in 2022.
Negative bottom line from large non-cash charges
The group net loss for the year was S$3.2 million, in contrast with the net profit of S$9.5 million achieved in 2021. In 2021 we recorded a substantial fair value gain on the remeasurement of the group's previously held interest in OOPA Pte Ltd ('OOPA'); negative goodwill arising on the step-up interest on the acquisition of OOPA; and fair value gain on investment on the revaluation of other investees in the Captii Ventures investment portfolio. These exceptional gains in 2021 amounting to S$8.1 million had no cash impact on our business.
In contrast with the large exceptional gains of 2021, in 2022 our group had impairment and fair value losses totalling S$4.9 million.
When the bottom line numbers are examined more closely, to exclude exceptional, non-cash gains and losses such as the fair value gain and negative goodwill enjoyed on the acquisition of OOPA, those to do with fair value movements of the other Captii Ventures investments, and any impairment loss on goodwill, the profit performance of Unifiedcomms and GlobeOSS is made more apparent. The 'adjusted' net profit generated by Unifiedcomms and GlobeOSS businesses such non-cash items are excluded, declined from S$2.2 million in 2018 to S$1.6 million in 2022.
In terms of bottom line, our group recorded a net loss margin of 14% for 2022, in contrast with the net profit margin of 39.8% in 2021. If the effect of any fair value and impairment loss are excluded, our group net profit margin for 2022 would have shown an improvement from the 6.1% recorded in 2021 to 7% this year.
We recorded negative EBITDA of S$1.6 million in 2022, in tandem with our group's net loss result for the year. A significant proportion of this negative EBITDA is accounted for by the fair value loss on the Captii Ventures investment portfolio this year and the impairment loss on goodwill. Removing the effect of these non-cash items in 2022, the cash generation performance of our underlying businesses can be identified. EBITDA before exceptional items and fair value gain stood at S$3.3 million for 2022 – a decrease of 7.8% against what was achieved in 2021.
Because of the exceptional losses, our group recorded a negative return on equity (ROE) of 7.1% for the year. If the effect of fair value and impairment losses are excluded, our group would have shown a better ROE for 2022.
With the performance of our underlying businesses being maintained if not improved further in 2023, we are optimistic of being able to also further extend our dividend payout track record - to at minimum, maintain the same dividend per share that was paid to all shareholders last year.
Investing in (external) technology and innovation
As at end-2022, we continued to have more than sufficient capital to augment our organic growth plans with growth by strategic investment. This remains an essential element of our current business plan that targets sustained, double-digit group profit growth and a significant uplift of our ROE performance.
Throughout 2022, our venture investment business persisted in identifying and evaluating many investment opportunities in the SEA region, unfortunately none could be progress to consummation. After two exits during the year, we ended 2022 with a portfolio of nine remaining investments in new technology ventures and start-ups as at end-2022.
Reviewing our 2022 balance sheet
Now to turn to our group's balance sheet: we ended 2022 with higher current assets of S$27.9 million, as compared to S$27.2 million as at end-2021. This was mainly attributable to the increase in other non-financial assets from S$2 million to S$3.4 million as a result of higher contract assets. The increase in contract assets relate to higher uncompleted system sale contracts of our GlobeOSS business in 2022. The group's cash and cash equivalents as at end- 2022 meanwhile stood at S$13.2 million as compared to S$13.8 million as at end-2021.
Our total non-current assets declined from S$44.1 million as at 31 December 2021 to S$35.3 million as at 31 December 2022, representing a decrease of 20.1%. This was mainly due to the decrease in other financial assets as a result of the significant non-cash fair value loss assessed on the venture investment portfolio as at 2022, as well as the impairment loss on goodwill (classified as intangible assets).
Total liabilities of our group fell from S$8.7 million as at 31 December 2021 to S$6.4 million as at 31 December 2022. This decrease is attributable to the reduction in trade and other payables following repayments in 2022.
Reviewing movements in group cash
Our group's net cash used in operations was S$0.2 million in 2022, in contrast with the net cash generated from operations of S$3.7 million in the previous year. This was mainly attributable to a less favourable working capital change of S$3.5 million for 2022, in contrast with the favourable working capital changes of S$0.1 million for 2021. This decline was mainly due to higher repayment of trade and other payables in 2022 as compared to 2021.
Our group's net cash from investing activities for 2022 amounted to S$2 million, in contrast with the net cash flow used in investing activities of S$0.4 million in 2021. This increase was primarily due to proceeds received from disposal of two venture investments in 2022.
The group's net cash used in financing activities for 2022 amounted to S$0.6 million as compared to S$1.6 million for 2021. The $1.0 million reduction in net cash used in financing activities was mainly due to newly drawn-down borrowings in 2022 amounting to S$0.9 million, coupled with a halving of the repayment of existing borrowings compared to the sums repaid in 2022. These borrowings relate to working capital financing facilities utilised for certain system sale contracts.
Recurring revenues remain strong
We expected system sale market conditions to continue to be somewhat challenging for our group in 2022 and for our managed service contract portfolio to deliver significant growth. The decline in both GlobeOSS and Unifiedcomms system sale contract revenues in 2022 evidenced the lumpiness that is to be expected in the contribution of system sale contracts to the group's result. Unifiedcomms meanwhile, achieved higher managed service contract revenues, with the outperformance of a new contract more than offsetting the underperformance of certain existing managed service contracts. However, this improvement in revenue performance came at the expense of thinning margins.
Significant uncertainty and lumpiness is still to be expected in the contribution of system sale contracts to our group's future results. The need for our group to continue to strengthen our managed service contract portfolio and to continue to grow our venture investing business as the basis for delivering steady, if not rapid yet sustainable future growth, remains.
Challenges and opportunities in 2023 and beyond
The risk and uncertainty of the economy going into recession due to geo-political tensions, supply chain disruption, and rising inflation and interest rates, especially in the group's regions of focus, have weighed on our minds when considering the outlook for the next twelve months.
The operations of Unifiedcomms and GlobeOSS in the financial year under review had been minimally impacted by geo-political tensions and supply chain disruption. However Unifiedcomms' weighted average cost of capital (otherwise the discount rate applied to future cash flows), which is relevant to the valuation of our business, had increased significantly due significant hikes in benchmark interest rates. In 2022, the valuation of Unifiedcomms as a cash-generating unit was significantly affected by this adverse macroeconomic development. As a result, an impairment loss on goodwill of S$2.8 million in relation to this business was provided and reflected in 2022, though this impairment loss has no cash flow impact to our group.
On the business front, both Unifiedcomms and GlobeOSS contracts in-hand continue to be progressed and management of the group are hopeful that new projects and initiatives requiring our products and services will continue to be pursued by customers. The possibility remains however, that larger system sale contracts that have yet to be committed in the financial year under review, may be further deferred, or even abandoned entirely if macroeconomic and industry conditions worsen or do not improve significantly enough.
At Captii Ventures, the group's venture investment business, the climate for business development and funding continues to be challenging for start-ups in certain industries. Such a challenging environment for business operations and market valuations for some of our investees had resulted in a substantial reduction in the fair value of Captii Ventures' investment portfolio, translating to a fair value loss of S$2.1 million in 2022. On a more positive note, the group had successfully materialised certain unrealised fair value gains recorded in prior years by exiting from two venture investments. As a result of these exits, disposal proceeds of S$2.4 million were received and are reflected in the consolidated statement of cash flows for 2022.
Against this negative macroeconomic backdrop for the future, the group remains optimistic and will continue to work closely with customers and investees, to minimise the negative impact of economic uncertainty on the group financial performance.
Wong Tze Leng | Anton Syazi Ahmad Sebi |
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Executive Chairman | Executive Director |
24 March 2023