Tong Junior gave a good summary for the OPMI, as they normally always do. Investing in politically sensitive infrastructure assets in "emerging economies" are always high risk due to (lack of) rule of law - it is always easier to have the rich foreigner to absorb the losses. A good lesson for all of us to (re)learn.
AGM 2022 MoM
1. The bulk of consolidated earnings are from Taiga. Although Taiga did well in FY2021 and FY2022, it decided not to declare any dividend. Taiga is a wholesale distributor of building materials, especially lumber. Lumber prices are highly volatile, they went from US$300-plus to over US$1,600, and now back to US$400 per thousand board feet. Anticipating higher interest rates and a liquidity crunch, Taiga decided against relying on bank credit. The risk to the industry and the supply-chain ecosystem will intensify – with opportunities and resilience to those that are not leveraged.
2. The second cashflow is from the IPP in Myanmar. While we steer through 2022, we are less confident of the operating cashflow for 2023 and beyond. There is no shortage of demand for power, but Myanmar is experiencing a shortage of natural gas, which is necessary to run the IPPs. Consequently, our sales of power to the Myanmar Government fell behind the contractual PPA. This negatively affects our future cashflow and added a level of unpredictability.
3. Finally, our paper plant in Selangor, Malaysia performed badly in 2022, incurring large loss and negative operating cashflow. Selling prices were largely stagnant, but costs rose sharply. The large competitors from China entering the industry had impacted significantly.
4. Meanwhile, Avarga, excluding Taiga, had S$24 million of bank borrowings in Singapore, some of which need to be repaid at the end of the year. Yes, we are not in any dire situation as we can easily meet our obligations, and we have plenty of undrawn bank facilities. But given our expectations of negative economic outlook, higher interest rates for a longer period, a stickier inflationary environment, the decoupling of global supply chains and de-globalisation, we believe a conservative approach to greater corporate resilience and sustainability is the right decision for the Company.
5. Our immediate focus is to stabilise the paper business, turnaround from losses. We have implemented a new strategy on products and operations, after extensive research and review. The past advantages of low energy costs (electricity and gas) are gone and the next key step would be on sustainability. For our power plant in Myanmar, we expect more challenges ahead. It will not get better in the near term. Our options are limited, and we have to be prepared for many scenarios. Taiga wants to, and needs to, further entrench its position in the building materials supply chain ecosystem, as demand for its products is expected to fall with a slower housing market in North America.
6. These account for the decision to preserve capital and to reinvest for growth and resilience.
https://links.sgx.com/FileOpen/AGM_Minut...eID=760412