SINGAPORE (Apr 3): Listed on Singapore Exchange since 1999, CSE Global is a global technologies company with an international presence spanning the Americas, Asia Pacific, Europe, Middle East and Africa. The group has more than 1,500 employees worldwide and operates a network of 41 offices across the globe.
What are CSE Global’s main business segments and how do they contribute to the group’s revenue?
CSE Global is a systems integrator and engineering company providing process controls as well as communications and security solutions for its customers. We have geographical presence in 12 countries serving customers in three segments: Oil & Gas (O&G): Both offshore and onshore; Infrastructure which includes transportation, power utilities and water/ wastewater utilities; Mineral & Mining (M&M) which includes minerals like coal, gold, iron, copper, nickel and molybdenum.
How different is the group today than it was five years ago?
CSE Global has undergone significant transformation in recent years. Five years ago, our revenue stream was lumpy and inconsistent as we were dependent on large and capital-intensive O&G greenfield projects. Today, about 95% of CSE Global’s total revenues are from flow revenues.
This comprises small greenfield projects, system enhancements and upgrades, and maintenance contracts, all of which are recurring in nature.
The group is also more diversified now to combat the headwinds in the O&G segment. We will continue to capitalise on opportunities in the infrastructure and M&M sectors. Order wins rose 52.1% y-o-y to $578.8 million in FY2019 — the highest in five years. This was driven by new orders from major greenfield projects and supported by a strong growth in flow orders and supplemented partially by earnings-accretive acquisitions made during the year.
Could you elaborate on the CSE Global’s financial performance in recent years?
In FY2019, group revenue grew 21% y-o-y to $451.8 million while net profit grew by 19.6% y-o-y to $24.1 million. Geographically, the Americas saw strong revenue growth of 17.1% y-o-y to $279.4 million, which was partially attributed to the inclusion of newly acquired subsidiaries, Volta, LLC and Volta Properties. Our Infrastructure segment generally contributes the highest Ebit margins at approximately 10% to 14% of revenues, while O&G Ebit margins are around 5–7%.
What are some of CSE Global’s future growth drivers and strategic priorities?
Looking ahead, we will continue to leverage on our engineering expertise to grow our business organically and build on the existing foundations in the O&G and infrastructure segments to explore value accretive and strategic acquisitions.
We expect further opportunities in the coming years when the replacement cycle comes around with older oil fields and platforms maturing.
Meanwhile, the group will continue to grow service capacity and expand product offerings for our clients through organic acquisitions.
For the infrastructure segment, we will continue to expand our footprint in the Australia & New Zealand region through strategic acquisitions and replicate our success in bigger markets. In Singapore, CSE Global has a good track record and expertise in providing solutions for public infrastructure, like the ERP system.
CSE Global was awarded a large security contract in late 2018 from the Singapore government. We believe that as Singapore pursues smart nation initiatives, further opportunities in the automation and security sector will be created.
What are some of the key challenges and how does CSE Global mitigate or manage these?
Over the last few years, CSE Global has successfully grown our onshore O&G business to reduce the dependency on the offshore O&G segment, which now accounts for 50% of its revenues in the Americas region. As a group, CSE Global has also mitigated the risk of concentration by diversifying our revenue streams into the Infrastructure sector.
About 95% of our revenues are generated from flow orders, while the other 5% are from large greenfield projects. Thus, we do not heavily rely on capex spending on large greenfield projects to support revenues. The flow business is resilient and less susceptible to short-term volatilities in the O&G market.
The group also devotes substantial resources to ensure the continuity of its core engineering team through incentive and retention plans, and skills development to provide the best of class services to our customers.
Can you elaborate on your acquisition strategy? What are some selection criteria when acquiring/assessing potential businesses and assets?
The strategic fit of the target company to CSE Global’s business or strategy is the most important criteria. Our long-term strategy generally follows two prongs, with the acquisition either expanding our geographical presence or our range of services in the value chain to increase product offerings for our clients. Other key considerations also include fair valuation and strategic alignment of the management team of the target business. The acquisitions would need to be earnings accretive and generate good cash flow.
Can you share more about your recent acquisitions?
The group made several strategic acquisitions in 2019 to ensure a diversified and sustainable income stream.
We made an accretive acquisition of Volta in August 2019 to complement our O&G business. Volta is a US firm that develops, designs, manufactures, and services custom-engineered electrical equipment centres (EEC). The acquisition combines CSE Global’s engineering and automation capabilities with Volta’s expertise in designing and fabricating large-scale EECs. This will allow the group to provide full-stream offerings for our customers and enhance our position in the midstream O&G market. In January 2019, the group also acquired BlackstarServices, successfully expanding our capabilities to the design and development of water treatment and disposal technology for our O&G segment.
In the infrastructure segment in July 2019, the group acquired Chatterbox, which provides radio communication solutions in the UK.
With the acquisition, the group hopes to replicate our success in Australia and expand geographically beyond Asia Pacific. The UK provides ample opportunities for the group with a communications industry that is much larger than Australia. In March 2019, the group also acquired RCS Telecommunications to allow us to expand our radio business to the Queensland region of Australia.
What is CSE Global’s competitive edge?
We view ourselves as a people business and our key strength lies in our strong engineering expertise and extensive domain knowledge. We maintain close and long-standing relationships with our customers and strive to consistently deliver quality and cost-effective solutions — even on tight schedules. CSE Global’s technical capabilities and ability to remain nimble allows us to compete among the likes of industry giants.
CSE Global has geographical presence in various locations globally. Who are the major customers that you serve?
The group’s clientele is well-diversified across industries and geographical regions with no client accounts exceeding 10% of the group’s total revenue.
In the O&G sector, large independent players such as BP, Shell, Chevron and ExxonMobil have been our loyal customers since the beginning.
On the Infrastructure end, the Singapore government remains one of our key clients, providing a stable and high recurring revenue stream. In Australia, some of the group’s major customers include government agencies, utilities, ports, railways and airports.
What is the group’s dividend policy? Does the group intend to switch to a fixed pay-out policy?
We believe that our stable revenue, high customer retention rate and strong operating cash flows, will support consistent dividend payouts.
Before FY2014, the group paid dividends at 40% of net profit. Since then, dividend per share has been maintained at 2.75 cents per annum (5% yield based on share price of $0.55 as of Dec 31, 2019). In future, the group may potentially revert to paying dividends based on a percentage of net profit, conditional on the group achieving a certain predetermined profit level.
