The 2015-2016 fiscal year was one of the most transformative and memorable in your company’s history. On 25 March 2016 FMI became the first company to list on the Yangon Stock Exchange (YSX). This first listing was a great honor and a testament to the trust we’ve built with shareholders for more than two decades as well as a validation of our consistent performance over this long period.There are very few countries left in the world today without a stock exchange, so a first listing on YSX was truly a once in a lifetime event. The listing has already enabled our shareholders to trade their shares more conveniently, while at the same time increasing FMI’s national and international profile.
Along with being the first company to be listed, we also view the opening of the capital markets in Myanmar as an opportunity to show our leadership. Given that we have over two decades of experience in dealing with public shareholders, we know that we can be a valuable resource for the Yangon Stock Exchange and assist in creating a more viable and robust market. We will continue to work closely with YSX as the market develops and we look forward to more companies joining us on the Exchange.
Apart from providing shareholders with more liquidity, the stock exchange is also a convenient platform for foreign investment. When the Myanmar Companies Act is eventually revised, the introduction of foreign capital into local companies will be an important new phase in Myanmar’s economic development. Although some foreign investors already have operations in Myanmar, there are many others that would like to participate in the growth of our economy by investing in local companies. The most convenient way to do this is to invest in companies listed on the local stock exchange.
With a strong track record of corporate governance, transparency, and now a platform that makes it easy to buy and sell shares, FMI will be an attractive choice for foreign investors. Aside from their capital, foreign investors can also bring a range of expertise to our various business units. We will continue to monitor the changing regulations in this area and update shareholders in due course.
On the political front, the 2015 elections gave the NLD and Daw Aung San Suu Kyi a resounding mandate to lead our country for the next five years. The smooth transfer of power from U Thein Sein’s government to the NLD shows the growing strength of democracy in Myanmar, and has left me and our countrymen with a renewed sense of optimism. Although there is much work to be done, we are prepared to do our share of nation building in the areas of economic and private sector development.
As the NLD works to improve the economy, I am hopeful that one of their main focuses will be job creation. We need to create millions of jobs to improve the living standard of our people and alleviate poverty. This can best be done by formulating policies which will encourage industries that deploy vast amounts of labor in a sustainable way. The benefits of creating millions of new jobs for our population cannot be overemphasized. Job creation is the key to peace and growth at this stage of our economic development, and will solve a multitude of problems in the shortest period of time. Shifting our focus to an export-driven manufacturing economy would also allow us to obtain foreign currency and technology from global companies which would set a strong economic foundation for the future.
Another area that needs immediate attention is corruption. Corruption directly prevents investment because investors are reluctant to do business in an uncertain environment where privileges are extended to a select few, regardless of the law. Having to pay money to get projects approved also hurts the profitability of the project – a key consideration for investors. Eliminating corruption and graft and thus creating an even playing field with transparent rules would be a tremendous catalyst for economic growth.
Despite the numerous challenges facing the new administration, I am optimistic that it will enact sound economic policies and leverage the strengths of international and local experts to steer the country in the right direction.
On another front, the devastating nationwide floods in July and August 2015 were a reminder that we must always be ready to face and overcome adversity. FMI and the larger SPA Group were actively involved in providing relief to those affected by the floods, especially in Rakhine State. We were able to mobilize a variety of resources from our businesses to take a holistic approach to providing aid. For example, FMI Air provided transport of relief supplies, while Pun Hlaing Siloam Hospitals provided medical assessments and care. We also worked with local organizations that are best positioned to deploy resources quickly and effectively. Although the worst is over, we are committed to providing ongoing support to the more than 1.6 million people affected.
Significant Developments During the Year
Increase in Capital of Yoma Bank
Over the past two years, Yoma Bank has experienced exponential growth of its loan book and deposits. In accordance with current Central Bank regulations, fresh capital was injected into Yoma Bank in the sum of Ks. 18.75 billion. FMI therefore injected Ks. 9.56 billion into the bank, representing its 51% shareholding. This exercise was completed through a bank loan from Bangkok Bank Limited. This decision was based on being mindful of not diluting current shareholders and being able to obtain favorable bank financing terms. Management is of the view that our current gearing ratio at the Group level of approximately 13% provides us with a safe margin to assume a moderate amount of bank loans to fund our investments without subjecting the Company to undue risks.
Securities Account Opening
In preparation for our listing on YSX, FMI shares underwent a process of dematerialization this year, which meant that our physical share certificates were cancelled and our shares were transferred to YSX’s electronic trading platform. In order to make this transition seamless for shareholders, we teamed up with Myanmar Securities Exchange Centre Co., Ltd. (MSEC) and KBZ Stirling Coleman Securities (KBZSC) to help shareholders open securities accounts. On the day of listing more than 3,000 shareholders, holding over 95% of our outstanding shares, had opened accounts.
Since that time, an even greater number of shareholders have done so. If you have not yet opened an account, I would strongly encourage you to do so in order to easily buy and sell your shares and collect dividends. Shareholders can now choose between five licensed securities companies to open an account. In addition to MSEC and KBZSC, CB Securities, Aya Trust Securities and KTZ Ruby Hill Securities are now actively operating in the market.
Future Launch of Wave Money
The Company, Yoma Bank, and our joint venture partner Telenor are planning to launch the revolutionary Wave Money mobile payment platform. Wave Money allows customers to securely store and transfer money using just their mobile phones. After downloading the Wave Money mobile app, customers can visit a nearby Wave Shop to deposit or withdraw cash. Wave Shops include local grocery stores, mobile phone shops, teashops and convenience stores. Wave Money is available 24/7 on your phone, so there’s no need to wait for the bank to open to transfer money. Transactions are processed instantly, resulting in a fast, efficient service. I would encourage all FMI shareholders to download the app once it’s available and try out the service, I think you’ll be glad you did.
Opening of a New Pun Hlaing Siloam Clinic
On 11 December 2015, Pun Hlaing Siloam Hospitals (PHSH) turned a new page with the opening of its first facility outside of Yangon. PHSH’s Nyaung Shwe Clinic in Shan State offers out-patient services to the local population and tourists including ultrasound and electrocardiogram scans. The clinic also offers vaccination programs and maternity care. The new clinic is part of the hospital’s broader expansion strategy which aims to establish a nationwide network of hospitals over the next seven years. The network will provide the hospital with synergies across recruitment, training and procurement as well as providing referrals to the larger facility in Yangon. Construction is underway for the first Pun Hlaing Siloam Hospital in Mandalay scheduled to be in operation by the end of 2016.
Completion of FMI Air Divestment
As announced in last year’s annual report, we pared down our stake in FMI Air from 50% to 10% during the 2015-2016 fiscal year. Although we still believe that the aviation sector has solid long-term potential, our decision to divest FMI Air was based on the fact that it may not be profitable in the short-term, and its losses would bring down our overall financial performance. As a public company, we are continuously evaluating the performance of our investments and adjusting our portfolio to provide maximum benefit to our shareholders. If FMI Air’s performance improves, we have the option to repurchase our stake, which allows us to gauge the airline’s performance and act accordingly.
Closing of FMI Trading Centre
As announced on 3 May 2016, we are voluntarily winding up Yoma Thitsar Commercial Co., Ltd., a 100% owned subsidiary, which previously operated FMI Trading Centre (FTC). FTC has been operating for many years, enabling shareholders to trade our shares over the counter. Now that we are listed on the Yangon Stock Exchange and our shares have migrated to YSX’s electronic trading platform, FTC is no longer required. The winding up of Yoma Thitsar will have no material impact on our financial condition.
Employee Share Incentive Scheme
After receiving approval from shareholders at last year’s AGM, we implemented an Employee Share Incentive Scheme this year. On 30 July 2015, FMI issued 1 million shares to Yoma Myittar Development Co., Ltd., which will oversee the award of these shares to eligible employees of FMI and our Group companies.
On 25 March 2016, the day of our listing, we awarded 300,000 shares to 200 individuals in recognition of their contribution to our success and as an incentive for long-term employment. These shares have a minimum vesting period, which means that employees will only receive the shares if they continue to work for us over the period stipulated in the share grant.
We will continue to offer incentive shares in the future to enable us to attract and retain top talent. Yoma Myittar will retain full ownership of the shares until they are transferred to employees who meet the eligibility requirements. Any unvested shares can be reallocated to future employees. The Remuneration Committee has oversight of the management of Yoma Myittar under the guidance of the full Board.
After our significant restructuring last year, this year our main focus was on our investments in the Financial Services, Real Estate and Healthcare sectors, our “Three Pillars”. For the first time in your company’s history, we passed Ks. 100 billion in revenue in FY 2015-2016. This significant milestone was the result of our “Three Pillar” strategy and especially our focus on Yoma Bank.
Approximately 86.6% of revenues came from Yoma Bank this year, which continued to grow its loan book and recorded impressive growth in deposits. The bank’s loan book grew by 74% to Ks. 722.8 billion, while its deposits grew to Ks. 1.1 trillion at the end of the fiscal year. Starting from zero just a few years ago, over 1 trillion in deposits is a truly remarkable feat.
Pun Hlaing Siloam Hospital also made a strong revenue contribution of Ks. 11.9 billion or about 10.8% of revenues.
Our gross margin declined from 38.8% in FY 2015 to 31.9% this year. This was mainly due to an increased cost of sales at Yoma Bank which experienced pressure on its net interest margin due to the competitive banking environment, as well as losses from FMI Air before deconsolidation.
Pun Hlaing Siloam Hospitals, on the other hand, experienced a solid gross margin improvement over last year due to a more efficient operation and better utilization of its facility in Hlaing Thayar.
Our administrative costs also increased Group wide this year. This increase was due in part to the professional expenses we incurred for the Yangon Stock Exchange listing, as well as higher employee compensation. While we are working diligently to reduce unnecessary expenses, we fully believe that investing in human capital will pay large dividends in the future. Having made a significant investment in our people this year, we are looking forward to seeing them produce tangible results for the Group in the coming years.
Our profit from associates, which is mainly driven by the profits of our Star City development, was significantly lower this year, dropping from Ks. 15.4 billion to Ks. 3.9 billion. Last year Star City recognized significant revenue from Zone C alongside continuing revenue from Buildings A3 and A4. Due to the generally softer real estate market ahead of the national elections during FY 2015-2016, we had lower revenues from Zone C this year. These factors led to a reduction in profits, a common phenomenon for the industry during the year. On the other hand, we experienced high occupancy for the leasing of Building A5 at Star City which boosted our recurring income from this sector.
This year we also recorded approximately Ks. 7.9 billion in profit from non-operating activities. These stem from our divestment of FMI Air and the cancellation of liabilities at PHSH.
Altogether, we had a solid year financially. Our net profit of Ks. 8.9 billion, despite the sharp drop in real estate revenues, was a further testament to our ability to withstand volatile market conditions through our diversified portfolio of investments.
With our listing on the Yangon Stock Exchange this year, your Company has entered a new stage of development. Shareholders now have an independent, transparent and liquid platform to buy and sell their shares. Alongside this new platform comes a shift in emphasis from the amount of dividends we pay to the fair market value of FMI’s shares. While YSX market prices may fluctuate daily, over time they will generally reflect the value of the Company.
The Board, together with Management, recognizes the importance of reinvesting our profits at this crucial stage in our development. To pay out large sums in dividends would starve our businesses of the capital they need to grow. It is our belief that patient, consistent investment in our operating companies will eventually produce superior results for shareholders.
With this in mind, your Board has recommended a cash dividend of Ks. 135 per share this year. We are confident that you will support our dividend policy and approve the dividend at the upcoming Annual General Meeting.
With our listing on the Yangon Stock Exchange and a clear business strategy focused on the “Three Pillars”, your company is in an excellent position to capitalize on the economic growth of the coming years. We have been steadily planting seeds in good businesses and good sectors over the past few years, and we are confident that the harvest, when it comes, will be bountiful.
Whatever happens in the political arena, and whatever new policies are enacted, we are confident in our ability to adapt and succeed. We believe we have the foresight to guide the Company to even greater heights, regardless of what happens in the larger macro environment. This shall be done without compromising our principles of good governance and good business practices, cardinal tenets that have received the unfailing support of our shareholders for more than two decades.
In closing, it is again to my honor to thank our shareholders, many of whom have recently purchased shares on the Yangon Stock Exchange. We truly appreciate your support and we look forward to exceeding your expectations in the years to come. To our Board of Directors, I would like to thank you for your wisdom and careful guidance as we navigated the complexities of the Yangon Stock Exchange listing. To the employees and customers of our Group businesses, we thank you for your loyalty and we ask you to join us in making FMI an even better company.
Theim Wai @ Serge Pun