Chairman's statement
Dear Shareholders,
Review of FY2008
Due to the global financial crisis triggered by the sub-prime problems in the US, the fiscal year ended 31 December 2008 (FY2008) was a year of sudden turbulence for Uni-Asia Finance Corporation.
The effect of the global financial crisis became prominently visible in September 2008, with the failure of the large financial institutions like Lehman Brothers, followed by consolidation and bailouts of some banks in US and Europe. These developments led to a critical liquidity problem in the international financial markets. The effects of financial crisis were not limited to the money market, but have trickled to the economies in US, Europe and Asia, with a fall in export figures and recession in many countries.
We started the year with an increase of our stake in our subsidiary Capital Advisers Co., Ltd. ("Capital Advisers") to 92.7%, as we aimed to expand our alternative investment platform to cover Japanese properties. The consolidation of Capital Advisers which has an asset management platform and hotel operation business, was expected to stabilise the group income structure by adding a variety of income sources.
However, the effect of US sub-prime crisis has hit the property market in Japan as well as our property investment / management business in Japan. Our property investment / management business relies on the external borrowing of funds for the acquisition of new properties. As these new acquisitions became increasingly difficult to complete without lenders for the year, it correspondingly led to a substantial reduction in the disposal gain and the one-off fee income of Capital Advisers. To cope with the tough business environment, we completed a cost rationalization programme to reduce operating expenses including employee benefits and management remuneration.
We also enhanced the hotel operation business which is expected to sustain the long term profitability of the Group. A re-organisation to enhance the business had also been conducted. I am pleased that the increase in the number of hotels under our operation has been achieving economies of scale and the earnings of hotel operations have improved during the year. However, our investment exposure to the property market was affected by the softened market conditions and we had to record fair value adjustment losses on our property investments, which hurt Capital Advisers' profit.
Our Maritime Investment / Management business has plans for further expansion of investment product varieties at the beginning of the year. However, the structured finance market was also affected by the soft financial market especially in the second half of the year. Hence, our fee income from structured finance has dropped from the year 2007, due to the postponement of expected new structured finance arrangements. Interest income from performance notes of ship investments has increased because of the increase in our investment size, but losses from the fair market valuation of our ship investments resulted in a decrease of total investment return.
As a result, we incurred a net loss of US$3.7 million, from a net profit of US$12.1 million in FY2007, although revenue increased from US$21.2 million in FY2007 to US$40.6 million in FY2008 mainly because of the consolidation of Capital Advisers.
Strategic Direction
In the long-run, there is no fundamental change to our direction of continuing the development of our alternative investment platform and increasing the variety of products for investors.
Since the global economy has entered a major downturn in the face of the most unprecendent and sudden shock to the financial system, we will adjust ourselves to the tough economic environment for the next few years by reducing operational costs including top management benefits. We will enhance our profit structure by reducing our break-even point. We will also continue to prudently manage our cash resources. On the other hand, we will cautiously seek new business opportunities in both our Maritime Investment / Management business and Property Investment / Management business segments in order to increase recurrent income that will strengthen our income structure. We believe that by taking the necessary steps to remain competitive in the midst of riding out this global downturn, we will be in a better position to capitalize on any opportunities arising from an economic recovery.
Maritime Investment / Management
We expect that the low levels of cargo traffic will remain for the year 2009 until a visible recovery of the global economy, and that the maritime industry will continue to face tough market conditions. Given these challenges, we will be much more selective about new investments while on the other hand, continue our efforts to materialise pipeline projects that were brought forward from last year. Our practice of securing charter contract during the ship building stage will help us to reduce ship investment risk. We will continue this practice as one of the risk management measures. We will also try to realise new business opportunities such as the sales-purchase of vessels at a deep discount, where we can act as an arranger and a manager.
Property Investment / Management
The major problem of the property market in Japan is a lack of available financing since the financial institutions are suffering from huge losses in relation to sub-prime products and the worsening economic situation. We expect tough market conditions to prevail throughout 2009. However, in order to cope with such a tough market situation, our first priority is to develop a stable profit structure by enhancing the hotel operation business even further, while reducing operating expenses for our Property Investment / Management business. Recently, we have had some business opportunities where we will be a replacement asset manager of other funds. We will also try to seize such new business opportunities and to expand our assets management business as a service provider, which do not require our new investment. Prudent cash resources management is also emphasized.
Our initial investment in office unit in Guangzhou, China has been successful, and we will try to develop our asset management property investment business there. Although the Chinese economy is expected to be one of the locomotives of the world economy in the global financial crisis, it is also showing signs of slowing down. However, as the demand is still expected to be high for industrial and logistics infrastructure, we are focusing on this sector to capture new business opportunities.
Looking Ahead
Under such tough market conditions in both the maritime industry and the property industry in Japan, we need to strengthen our profit structure by maintaining a lean cost structure and maximising our human resources capability.
As a strategic alternative investment company, we will continue to focus on our twin Maritime Investment / Management and Property Investment / Management business segments and cautiously seek new business opportunities. In this regard, our established track record, know-how and differentiated capabilities as an alternative investment platform will enable us to execute such a strategy. Even under the current economic circumstances, the Board and I will do our best to improve our corporate value using our alternative investment platform with a view to achieving sustainable future growth.
We thank you for your continued confidence in the company and its management as we prepare to realise the opportunities that arise amidst this time of crisis.
Mr. Kazuhiko Yoshida
Chairman and CEO
23 March 2009
