Extracted from Annual Report 2015
On behalf of the Board of Directors, I would like to present to you the annual report of BH Global Corporation Limited ("BH Global" or the "Group") for the financial year ended 31 December 2015 ("FY2015").
No doubt, 2015 has been one of the most challenging years for BH Global. The marine and shipping industries remain weak with little signs of recovery, while the oil and gas industry has been hit hard by record low oil prices. This has resulted in substantial budget cuts by companies operating in the oil and gas industry where projects are either put on hold or cancelled completely. Many companies are facing serious cash flow and financing issues, and the outlook remains highly uncertain. The Group is not immune to the challenges plaguing the marine and offshore industries but I am heartened to report that we are somewhat less affected. This is a testament to the resilience of the Group and its core businesses.
Despite the downturn, the SCM division, which is our core business, performed admirably. Compared to the previous year, the sales for this division in 2015 dropped only 6%. This has helped to cushion the negative impact of the downturn on the Group's overall results.
In 2015, we focussed more of our resources on the core SCM division. As an example, in June 2015, we entered into a Distribution and Representation Agreement with our key cable supplier, the Seoul Electric Cables Group ("SEC"), whereby we are appointed by SEC as the exclusive selling representative and distributor of their cables in territories of Southeast Asia, India, Middle East and China. In addition, we entered into a complementary Prepayment Agreement with SEC for the prepayment of US$5 million to them as payment in advance towards accounts payable owed by our Group to SEC. These two agreements will fortify our partnership with this important supplier and strengthen our core SCM division amidst the continuing industry headwinds.
Over the past year, we also embarked on various initiatives to improve the performance of the core SCM division. We are working to improve on our logistics and inventory management and exploring projects such as RFID tracking, new warehousing management system, better fleet management for deliveries. This should help to improve manpower productivity, reduce overall inventory and obsolete stock levels, and provide better service to customers. We also launched a cost management exercise throughout the company and managed to achieve cost savings in excess of $1 million in areas such as procurement, manpower and utilities.
We continue to invest in areas where there is growth potential and tangible returns. We launched our online store for the SCM division (www.bh-estore.com) to tap on this new sales channel with huge growth potential. Customers are able to view the comprehensive range of products we offer online. We are excited about this online store and will develop it further to make it easier and more convenient for customers to purchase online. We also continue our marketing and promotional efforts by taking part in various trade exhibitions such as Sea Asia, ISSA, IMPA, INMEX-SMM India and Marintec China in 2015.
The Manufacturing division comprises two main businesses - LED lighting with operations primarily in China, and galvanized steel wire with its factory in Oman. For LED lighting, the performance has been affected over the past year by various factors such as the relocation of the factory from Shanghai to Kunshan, implementation of a new ERP system and postponement of projects by major customers. Nevertheless, the Group remain positive on the long-term prospects of the LED lighting industry as more companies and consumers switch to LED lighting products for its higher energy efficiency and cost savings.
In 2015, we have invested further into GL Holding Pte Ltd ("GLH") where our shareholding in this associate company has increased to 39.32%. Ultimately, our shareholding in GLH will increase to 43% as previously announced. GLH has obtained its Kunshan land title in 2015 and is currently preparing for the construction of a new factory which will significantly boost its manufacturing capacity for LED lighting products. Construction is expected to take place progressively over 2016 and the new factory is expected to be completed in 2017.
The Group's other manufacturing operation is the galvanized steel wire plant in Oman. While the performance of this business has improved in 2015 compared to 2014, it is still below expectations and yet to achieve the targeted breakeven production and sales volumes. Hence the operation continues to incur losses and efforts to turn it around remain challenging. The Group is currently working closely with our Omani joint venture partner, Takamul Investment Company SAOC, to explore various options with regards to this galvanized steel wire business.
Despite efforts to rationalize the operations and costs of the Engineering Services division, it continued to suffer losses arising from the effects of the drastic fall in oil prices and is unable to pay its debts as they fall due. In view of the continuing uncertainty that the oil and gas industry is facing, the directors of Oil & Gas Solutions Pte Ltd ("OGS") took the difficult decision to liquidate OGS. Key management of OGS have also stepped down.
Going forward, the activities of this division will be carried out by our subsidiary, BOS Offshore & Marine Pte Ltd. They are currently handling a major engineering and procurement project for a Japanese customer. Learning from the lessons of OGS, we will monitor closely the progress of this project to avoid future project delays and cost overruns.
In 2015, we also made progress in winding down our engineering operations in Batam; we sold all remaining equipment and stocks. It remains the Group's intention to dispose of the remaining shipyard.
In view of the growing security challenges facing countries, communities and corporates worldwide, we decided to form a Security division to capture these new opportunities. The activities of this division will be carried out by our joint venture company, Athena Dynamics Pte Ltd ("ADL"). ADL focuses on Cyber Security and Enterprise IT Operation Management products that have already done well in their countries of origin but have yet to establish a foothold in Singapore and neighbouring countries. Though small, the company has already won orders in 2015 and we are hopeful that it will do even better in 2016.
2015 has been a tough year for the marine and offshore industries we operate in. But I would like to emphasize the resilience of our Group, our core businesses and our valued employees which will help us tide through this difficult period. As the saying goes, "This too will pass". The dark clouds hanging over our markets will eventually be lifted, and we should position ourselves to capture the opportunities when the market recovers. I believe that we will emerge stronger from this storm. Lastly, I would like to thank everyone who has stood by BH Global in good times or bad, including our customers, suppliers, bankers, employees, Board of Directors and shareholders. Your support means a lot to us. Let's all look forward to a better 2016!
Alvin Lim Hwee Hong