Kingsmen Creatives FY2016 AGM - Notes
CEO Presentation
1. Kingsmen is venturing into new sectors, with high end luxury being in a downtrend currently. He cited a few examples:
a) Exhibitions/Thematic/Museums: This sector has growth potential. Previous work include ArtStage, Louis Vuitton pop-up store, BMW M Festival, Disney Shanghai theme park. Museum and gallery exhibits need to keep evolving now.
b) Alternative marketing: Glass house in front of Robinsons. It is embedded with analytics which can collect information like age group, the category of items the consumers looked at.
c) A new concept: Retail-tainment. CEO showed an optical wear shop in China which looked more like an art museum. There wasn't much display area for eyewear. Retail will now have a greater focus on experience.
2. The company is also looking overseas. They have done many MICE (meetings, incentives, conferences, exhibitions) events in regional countries.
3. New building at Changi South will improve efficiency and collaboration. It is on a 30 year lease.
4. With Asian aviation industry set to grow, the team also has opportunities in airport retail and VIP lounges.
5. The design industry is evolving. Kingsmen will look to participate in the future trends.
Q&A:
Chairman Mr Benedict Soh addressed all the attendees before taking any questions. He also got everyone on the board to introduce themselves:
- The industry has low barriers to entry, making it competitive.
- Design will always be needed.
- Kingsmen has invested for the future: by purchasing a Johor plant and the new building at Changi South.
- 2016 results are not favourable, and are "a blip."
- Order book is improving, which will be shown in 1Q results.
There were many questions about profit margins and why a specific segment experienced a drop in revenue or had low margins. Here are some of the answers:
- The business is "lumpy." Revenue is recognised progressively at various stages of completion of the project.
- Limited retail opportunities in FY16.
- Their supply chain (vendors and subcontractors) has been fixed, transitioning to new areas leads to lower efficiency and lower margins due to change of skillset. Entering new industry segments also leads to lower margins in order to remain competitive.
- Kingsmen maintains relationships with clients in good and bad times; they are willing to have lower margins when their clients are experiencing the bad times last year, hence the lower margins. Some of their longtime (more than 20 years) clients include FJ Benjamin, Robinsons, Hour Glass.
- The spike in exhibitions segment revenue in FY15 was due to revenue from Disneyland Shanghai.
- Profit margin target: 6 to 8%
- Research & Design segment has the best margin but lowest turnover.
- Exhibitions has the highest gross margins; they are looking to expand to China following the Disney Shanghai project.
- Margins depend on the basis of the project.
- The business of the Korean associate is lumpy, they have consolidated by shifting to more central location and diversifying client base. (A shareholder queried the loss incurred by associates)
- Other income: is derived from sub contract work in Johor Bahru, rental income, corporate fees and government grant.
On the Performance Share Scheme (PSS):
PSS is awarded based on profit margin. The target margin is more than 7%. If the margin is more than 5%, shares can be bought at a discounted price.
On Formula 1 Singapore:
F1 event gives $17 million in revenue per year, will look to other sporting events such as the WTA Finals in case F1 is not continued.
On the capital expenditure (capex) of the new building at Changi South:
$35mil (includes land cost of $7 mil)
On whether Kingsmen will consider paying more dividends with their cash balance: (their cash and cash equivalents makes up about half of the market capitalisation)
The cash balance is used for capex of building, capex for new businesses, and is also spread out across all the offices regionally. It is also used to pay the suppliers promptly.
On the Marvel's Avengers exhibition rights held by Cityneon:
Kingsmen was approached as well but they did not feel the partners were right.
On leadership succession:
Being listed was done in order to create leadership succession. Founders Mr Benedict Soh and Mr Simon Ong will still be with the company. (They handed over executive management last year)
On the memorandum of understanding(MOU) to develop a resort in Sarawak, Malaysia:
The MOU lapsed recently. After further investigation, the management found that the realised opportunity was not worthwhile. MOU is a first stage process only. Kingsmen would only design and build the resort.
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Thanks for the solid agm write-up.
ReplyDeleteThank you B!
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