Captii Limited

Investor Relations.
(Extracted from Annual Report 2021)

An overview of our business

Our group comprises three main segments: Unifiedcomms, GlobeOSS and Captii Ventures.

Throughout 2021, 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 (formerly Mobilization) 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 solution provider in the telecoms big data and analytics field.

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 as either lead investor or as a co-investor following the lead investor. In 2021 Captii Ventures added one new investee to its portfolio of start-up investments while also supporting existing investees in realising the development plans for their business.

As at end-2021, there are a total of 173 people that are employed in our group. The majority of these personnel are located in Malaysia, where our operational headquarters is situated, while the rest work out of Singapore, Pakistan, Brunei, Thailand, Indonesia and Vietnam.

Generally a positive year for group revenue

2021 was a positive year for our business in terms of group revenue growth but a mixed one when we examine the performance of each of our business segments. Our group achieved consolidated revenue of S$23.9 million in 2021, an increase of 11.8% as compared to the S$21.4 million recorded for 2020.

Unifiedcomms posted an increase of 25.9% in revenue, turning in total revenue of S$15.2 million in 2021 versus S$12.1 million the year before. In contrast, GlobeOSS recorded revenue of S$8.7 million in 2021, a decrease of 6.6% from the S$9.3 million achieved for 2020.

Unifiedcomms delivered an improvement in both system sale and managed service contract revenues in 2021. Managed service revenues increased by 27.2%, from S$10.8 million in 2020 to S$13.7 million in 2021, while system sale revenues increased by 15.3%, from S$1.3 million in 2020 to S$1.5 million in 2021.

The Unifiedcomms customer base has traditionally been concentrated in the SEA region. This has not changed in 2021, with Unifiedcomms SEA region revenues accounting for 96.8% of the total revenue achieved for the year.

The GlobeOSS business experienced a decline in managed service contract revenues in 2021. Managed service contract revenues decreased to S$3.1 million in 2021 from S$5 million achieved for 2020. GlobeOSS system sale contract revenues however increased by 28.9%, from S$4.3 million in 2020 to S$5.5 million in 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$1.9 million decrease in managed service contract revenues between 2020 and 2021, that had more than offset the improvement in system sales contract revenues.

Growth in both system sale and managed service revenues

The increase in group revenue this year against last year was mainly attributable to the 27.2% or S$2.9 million increase in Unifiedcomms managed service contract revenues and the 28.9% or S$1.2 million increase in GlobeOSS system sale contract revenues.

We expected 2021 to be a difficult year for Unifiedcomms and GlobeOSS on the system sale front. However contrary to earlier expectations, market conditions improved in the second half of the year, especially for GlobeOSS. Coupled with improved success rates for sales opportunities, significant growth in GlobeOSS system sale contract revenue was delivered in the second half of the year.

SEA once again served as the principal driver for the improvement in group revenue for the year, growing by 14.2% or S$2.9 million against last year's contribution. The region that turned in a disappointing performance was MEA, which had its contribution fall from S$0.6 million to S$0.2 million. The SA region's contribution to the total group revenue was maintained at S$0.3 million this year.

In 2021, SEA, our group's home region, continues to be the largest geographic source of revenue, accounting for 97.9% of group revenue.

Higher gross profit achieved, in line with higher revenue

In line with the higher consolidated revenue of S$23.9 million for 2021, a 11.8% gain on 2020 revenue results, absolute gross profit achieved for the year was higher compared to 2020.

Group gross profit for 2021 was S$11.6 million, up by S$0.4 million or 3.2% against what was recorded in 2020. Gross profit grew slower than revenue due to the sales mix achieved in 2020 - where the lower gross profit margin Unifiedcomms managed service contract revenues accounted for the majority of the improvement in group revenue. This, by extension, acted to reduce the overall gross profit margin earned on group consolidated revenue to 48.7% as compared to 52.8% achieved the year before.

Managed service contract average gross profit margin decreased to 44.3% in 2021 as compared to 50.4% achieved the year before. This was primarily due to higher third-party costs on certain Unifiedcomms managed service contracts. Meanwhile gross profit margin earned on system sales contract revenues was flat at 59.4%.

The sales mix of our group in 2021 meets our goal of having greater than fifty percent of group revenue being derived from managed service contracts. This year's managed service contract revenues accounted for 70.7% of group revenue, a decrease from 73.9% achieved in 2020.

Higher opex this year, before and after exceptional Items

Our group's operating expenditure for the year increased to S$9.5 million this year as compared to S$8.4 million last year.

This year, we had a fair value loss assessed on our group's investment property to take into our income statement. The fair value loss on our sole investment property had arisen following an open market valuation of the property at end-2021. Moreover, we continued to have a foreign exchange loss primarily due to the continually weakening of the Pakistan Rupee against the Singapore Dollar.

EEven after excluding the effect of exceptional items such as the fair value loss on our investment property, our opex for 2021 was higher at S$9.4 million compared to S$8.3 million in 2020. This increase was due to higher payroll cost coupled with lower COVID-19 related government subsidy allowances received in 2021.

Improved bottom line, both organic and from investment

2021 marks our fourteenth consecutive year of being in the black. Group net profit for the year, at S$9.5 million, is 127.5% higher than the S$4.2 million recorded in 2020. This substantial increase in our group's bottom line was largely attributable to a fair value gain on the remeasurement of the group's previously held interest in OOPA Pte Ltd ('OOPA'), and a negative goodwill arising on the step-up interest on the acquisition of OOPA. These exceptional gains amounting to S$6.1 million resulted in a significant increase in the fair value of our group's venture investment portfolio under Captii Ventures, but had no cash impact on our business.

When the bottom line numbers are examined more closely, to exclude exceptional gains such as the fair value gain and negative goodwill enjoyed on the acquisition of OOPA, and gains or losses such as those to do with fair value movements of the other Captii Ventures portfolio investments, the profit performance of Unifiedcomms and GlobeOSS is made more apparent. The 'adjusted' net profit generated by Unifiedcomms and GlobeOSS businesses have declined from S$2.5 million in 2017 to S$1.5million in 2021.

In terms of bottom line, our group recorded a net profit margin of 39.8% for 2021 versus 19.6% for 2020. If the effect of any fair value gain or loss is removed, our group net profit margin for 2021 decreased to 6.1% from the 10.7% achieved in 2020.

The flow-down effect of the changes in group net profit before and after exceptional items and fair value movements is clearly reflected in our EBITDA results for the year.

EBITDA improved to S$11.5 million in 2021, an increase of 92.1% in tandem with the 127.5% increase in net profit. A significant proportion of this EBITDA improvement is accounted for by the impact on group net profit of the fair value gain and negative goodwill enjoyed on the acquisition of OOPA. Removing the effect of non-cash items in 2021, the cash generation performance at our underlying business can be identified. EBITDA before exceptional items and fair value gain stood at S$3.6 million for 2021 - a decrease of 13.8% against what was achieved in 2020.

Because of the higher net profit delivered in 2021, our group's return on equity (ROE) for the year improved sharply to 19% from the 7.9% recorded in 2020. This double-digit outcome for 2021 was certainly a welcome result after several years of disappointing returns. Of course this positive outcome was aided by the outsized contribution from the fair value gain and negative goodwill on the Captii Ventures investment portfolio. Without the benefit of these gains our group would have had a much lower ROE for 2021.

This year the contribution of system sale contracts was considerably higher, arising from growth in revenue performance of both Unifiedcomms and GlobeOSS. Managed service contracts showed steady revenue growth at Unifiedcomms. With the performance of our businesses being maintained if not improved further in 2022, we are optimistic of our being able to also further extend our dividend payout track record - to at minimum, maintain the dividend per share that was paid to all shareholders last year

Investing in (external) technology and innovation

As at end-2021, 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 2021, Captii Ventures persisted in identifying and evaluating many investment opportunities in the SEA region. As a direct result of these efforts by Venture Investment team, we have a total of fifteen investments in technology ventures and start-ups as at end-2021. Out of these fifteen investments, one was made during the year while an existing investment in OOPA which was subject to litigation proceedings throughout 2020 and 2021, secured good progress following a favourable judgement being awarded by the High Court of Singapore. This resulted in OOPA becoming a subsidiary of our group, and Telio becoming an indirect portfolio investee of significant value for Captii Ventures.

Reviewing our 2021 balance sheet positions

Now to turn to our group's balance sheet as at the end of the 2021 financial year: we ended 2021 with higher current assets of S$27.2 million, as compared to S$25.3 million as at end-2020. This was mainly attributable to the increase in trade and other receivables from S$9.7 million to S$11.4 million as a result of higher revenue achieved by our group in respect of major system sale contracts that were awarded to and billed by the GlobeOSS business late in 2021. After the repayment of borrowings, group cash and cash equivalents as at end-2021 was S$13.8 million as compared to S$13.1 million as at end-2020.

Our total non-current assets increased from S$30.7 million as at 31 December 2020 to S$44.1 million as at 31 December 2021, representing an increase of 43.6%. This was mainly due to increase in other financial assets as a result of the significant increase in the fair value and negative goodwill relating to acquisition of OOPA being reflected in the Captii Ventures investment portfolio.

Total liabilities of our group as at 31 December 2021 increased from S$7.1 million to S$8.7 million. This increase was mainly due to the higher cost of sales incurred related to the system sale contracts awarded in late 2021. This increase was partly offset by a reduction in borrowings and lease liabilities, following repayments in the reporting year.

Reviewing movements in group cash

Our group's net cash generated from operations for 2021 was S$3.7 million, a decrease of 34.4% as compared to the net cash generated from operations of S$5.6 million in the previous year. This decrease is mainly attributable to a less favourable working capital change of S$0.1 million for 2021, as compared to S$1.5 million for 2020. This decline was mainly due to lower collections of trade receivables for 2021 as compared to 2020.

Our group's net cash used in investing activities for 2021 amounted to S$0.4 million, a decrease of 27.2% as compared to the S$0.5 million invested in 2020. The lower net cash used in investing activities this year is attributable to the lower investment in plant and equipment invested for new managed service contracts.

The group's net cash used in financing activities for 2021 amounted to S$1.6 million, in line against what was recorded in 2020.

2021: a positive year overall but disappointing for some

We expected system sale market conditions to continue to be somewhat challenging for our group in 2021 and for our managed service contract portfolio to deliver significant growth. This proved not to be the case this year yet again as GlobeOSS managed to secure an increase in system sale contract revenues but experienced an offsetting decline in managed service contract revenues. Unifiedcomms meanwhile, achieved higher managed service contract revenues, with the outperformance of a new contract more than offseting the underperformance of certain existing managed service contract, at Unifiedcomms. However, this improvement in revenue performance came at the expense of thinning margins.

Although the growth in system sale business at GlobeOSS in 2021 had significantly augmented the slower than desired growth of our group's managed service contract portfolio, we do not expect this to be the trend that can readily be extended in the years ahead. 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 2021 and beyond

The COVID-19 pandemic continues to affect many countries in our group's regions of focus, though certain territories have relaxed movement and travel restrictions.

The impact of COVID-19 on Unifiedcomms and GlobeOSS operations in the current financial year has fortunately remained minimal. 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 current financial year, may be further deferred, or even abandoned entirely if macroeconomic and industry conditions do not improve quickly or significantly enough. Some managed service contracts of the group which have been impacted by government restrictions or directives arising from COVID-19 policy measures, may meanwhile continue to show weaker performance.

At Captii Ventures, our group's venture investment business, the climate for business development and funding has improved but continues to be challenging for certain start-ups in industries or business areas that remain significantly affected by COVID-19. As a result of the settlement achieved at OOPA in 2021, a significant fair value gain on our group's venture investment portfolio has been reflected in the results for the current financial year. A number of other investees continued to grow strongly through the year and contributed to the significant improvement in value of the Captii Ventures investment portfolio.

Against an improving 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 COVID-19 on group financial performance. The group continues to take an active and measured approach to managing risks to protect the group's people and assets, and will sustain these efforts until the pandemic truly resolves.

Wong Tze Leng Anton Syazi Ahmad Sebi
Executive Chairman Executive Director

15 March 2022