(Extracted from Annual Report 2019)
On behalf of the Board of Directors, it is my pleasure to present Mencast’s Annual Report for the financial year ended 31 December 2019 and update you on our business and strategy.
Our Transformation Journey
2019 was a pivotal year in which we largely completed the journey of reducing our reliance on the oil services sector. Against a backdrop of weak demand for oil services, we grew revenue from marine and energy services by 14% last year. These two segments now account for 85% of group revenue, up from 75% in the prior year.
Since the oil price crash of 2016, our priority has been to strengthen our balance sheet and restore profitability through refocussing our resources use and capital discipline. Much remains to be done, but much progress has also been made.
Last year, net debt was cut by over $20m, funded by asset disposals and cashflow from operations. Despite challenging market conditions, cashflow from operations grew 73% to $18.1 million in 2019, the fifth consecutive year of positive operating cashflow for our group.
2019 also marked our first full year of contribution from our dredging operations. As well as being synergistic to our existing marine MRO business, dredging is set to be a source of reliable revenue in the coming year.
The Next Step
Watching our team deliver a tremendous service in challenging conditions has fully convinced me that Mencast’s edge is our responsiveness to customers and industry changes. Even as we continue to invest in growing our marine and energy businesses, we intend to leverage this edge into new earnings streams through adding asset-light, technology driven businesses to our revenue mix.
These businesses have the potential to scale with minimal capex and will not divert us from our commitment towards prudent capital stewardship, debt repayment and strengthening our capital position.
Though our financial results do not reflect yet the fruits from these efforts, much strategic planning and efforts have been expended on to build up future earning streams.
An example is Mencast’s collaboration with Singapore Heavy Engineering, a rare breed start-up company that has the mission of leveraging hard science and heavy engineering to redefine the course of humanity. This collaboration has developed in record time VIRESTORM, a new technology for cleaning Coronavirus infected surfaces using advanced ozone technology.
VIRESTORM is designed to meet the needs of hospitality, healthcare, schools, travel, transportation and other industries of reducing the spread of Coronavirus and future viral outbreaks. Though not specifically tested on Coronavirus, substantial research supports ozone’s effectiveness against most pathogens, including the SARS coronavirus. Besides design and prototyping assistance, Mencast is using our manufacturing and marketing experience and capabilities to commercialise this product.
Another example of the type of business we are investing into is Phomi, which produces eco-building materials using proprietary processes from sustainable and recyclable materials. Leveraging on our manufacturing expertise and experience in recycling through our Energy Service division, Phomi’s products are extremely lightweight and can be used for interiors of rigs and ships, where we have a significant client base. We have also entered into distribution arrangements which will give us substantial reach into the residential, construction and industrial building sectors.
Mencast has also been busy with improving efficiency and reducing waste across all businesses. For example, we pioneered processes to 3D print propeller designs, allowing us to take advantage of process automation, dramatically reduce waste and greatly increase labour productivity.
The initiatives, along with the waste remediation business in the Energy division, strengthen our sustainability value proposition aligning with the growing prominence of this issue with the customers and the investment community.
The Year Ahead
As we transition to the first quarter, our business will experience its usual seasonal decline, caused by the Chinese New Year holiday break and shipping and docking patterns. The shock to oil prices from the failure of Russia and OPEC to agree production budgets in early-March 2020 may also have some impact on our results for the quarter. This will be mitigated by the substantial reduction in our exposure to oil and gas services as described earlier.
We look forward to 2020 with pragmatism and are under no misapprehension that our transformation will be easy. At 2.3%, global economic growth in 2019 was the lowest in a decade as geopolitical and trade tensions weighed on growth rates. Unfortunately, the global slowdown may even worsen as COVID-19 concerns have heightened considerably.
Appreciation and Thanks
Since inception, our Group's success has been driven by our ability to adapt and innovate to market demands. This is a credit to our management and staff and the Group's strong and united culture.
The past few years has been the biggest test in our 38 year history but we have used this time productively. Our skillset, footprint, team and culture are where we want them to be as we strive to emerge from the current malaise with a better mix of business for growth and stability than ever.
As we embark on our continuing journey to build shareholder value, we thank our bankers, shareholders, directors, staff and business partners for your continuing support and look forward to building our future together with you.
Sim Soon Ngee Glenndle
Executive Chairman and Chief Executive Officer