With its consistently strong returns and high dividends, the Armed Forces Superannuation Fund puts other government-linked funds in the shade.
THE Armed Forces Superannuation Fund, or better known as Lembaga Tabung Angkatan Tentera (LTAT), was first featured on the cover of Malaysian Business on Nov 16, 1994. LTAT had then just listed its financial arm, Affin Holdings Bhd, and was expanding its flagship company, Boustead Holdings Bhd.
We again ran a cover story on LTAT and its group managing director Tan Sri Lodin Wok Kamaruddin in our Aug 16, 2002 issue. By this time, the LTAT group was already being seen as an emerging powerhouse in the Malaysian corporate scene.
Today, the fund boasts a string of diversified businesses, most of them profitable, including six listed entities, and an asset base of nearly RM60 billion. Most importantly, LTAT has through the years delivered consistently good dividends to its contributors, fulfilling its duty admirably as the custodian of the nation's Armed Forces investment fund.
LTAT, which was established in August 1972 by an Act of Parliament, has outperformed other government-linked funds such as the Employees Provident Fund (EPF). Over the last 38 years, LTAT paid out dividends at an impressive rate of 10.5% per annum on average. In the last 10 years, the payout ratio averaged over 13% per annum.
Lodin attributes LTAT's strong performance to proper planning and strategising. `We currently have in place a seven-year investment programme for 2007-2013. We're pleased with the returns we're getting from our investments, which in turn enable us to give good returns to our contributors,' he says.
Last year, LTAT registered a record pre-tax profit of RM751 million, while at group level, pre-tax profit touched RM1.7 billion.
`The bottomline drives me,' says the man who has been helming LTAT for almost three decades and Boustead for almost two. According to Lodin, there is a constant review and assessment on all LTAT investments and it has no qualms `letting go' of unprofitable ones it cannot turn around. `We cannot be sentimental,' he stresses.
LTAT currently manages a fund size of RM7.6 billion. As it manages only the funds of members of the Armed Forces (see box story on How the LTAT Fund Works), LTAT's fund size does not grow exponentially through contributions like funds such as the EPF. As a case in point, it received a total of RM617 million in contributions last year but paid out RM670 million.
As required by law, at least 70% of LTAT's total funds are invested in trustee investments. They include investment into fixed deposits, Bursa Malaysia-quoted shares, and land and property. The balance 30% is invested into private companies.
LTAT's listed flagship Boustead Holdings is a diversified conglomerate. Its other listed entities are financial arm Affin Holdings, Boustead Heavy Industries Corp Bhd, UAC Bhd, the Al- Hadharah Boustead REIT, and its most recent addition, drugmaker Pharmaniaga Bhd.
Within its stables are also two previously listed companies - Boustead Properties Bhd and Johan Ceramics Bhd - which were taken private on Aug 8, 2008 and April 13, 2007, respectively.
DIVERSIFICATION THE KEY
As a group, LTAT seems to have a finger in just about every pie, with interests in plantations, finance, heavy industries, property, hotel management, travel, shipbuilding, helicopter services, pharmaceuticals, education, paint, fast-moving consumer goods (FMCG), and more.
Within its stables are also a few business brands that people do not usually associate it with. For example, Boustead has a 45% stake in Kao (M) Sdn Bhd, 25% in Cadbury Confectionery Malaysia Sdn Bhd, 70% in Boustead Sissons Paints Sdn Bhd, and 66% in The University of Nottingham in Malaysia Sdn Bhd.
Of its many associate companies such as Kao and Cadbury, Lodin says: `They are just investments. If someone comes around and wants to take over our stakes, we are prepared to discuss. We've sold our interest in Riche Monde (Sdn Bhd), a very profitable company but not halal. We've sold some of our oil bulking companies. We've even sold our 80%-owned general insurance company BH Insurance (M) Bhd because we also have an interest in Axa-Affin General Insurance Bhd through Affin Holdings and we decided to rationalise.'
LTAT/Boustead has made good profits from the sales and will continue to identify non-core companies with a view to disposing of them for the right consideration, Lodin says, adding that `we are talking to a few interested parties' for the sale of `half a dozen or so' non-core entities.
He does not say which companies they are but it is quite certain The University of Nottingham in Malaysia (in which Boustead owns a 66% stake) is not on the platter.
`I view our participation in Nottingham University partly as a means to add value to the education business in Malaysia. I also view Nottingham University as adding value to our landbank in Semenyih. We own about 1,200 acres in Semenyih and 100 acres is put aside for the university,' he says.
Nottingham University Malaysia is the first British university to be set up in Malaysia and the first campus of the university to be set up outside of the United Kingdom. It had hosted many important dignitaries from the UK, including Prince Andrew and the British Minister of Education. The university currently has some 3,700 students, of which 60% hail from 60 countries. `It is something we are proud of,' says Lodin.
He reiterates that the reason for having such a diversified portfolio is to enable LTAT group to weather any economic condition and to ensure a balance in the flow of income.
`So far in the last 38 years, LTAT has been able to pay contributors dividend at the rate of 10.5% per year on average. That's an indication of our performance and the benefit of having such a diversified portfolio,' he reasons.
Boustead groups its portfolio under six core divisions - plantations, property development, financial services & investment, manufacturing & trading, heavy industries and pharmaceuticals.
Its interest in oil & gas (O&G) is currently parked under `financial services & investment' as its stake in the sector is `still small'. In March, Boustead invested RM100 million for a controlling 51% stake in MHS Aviation Sdn Bhd, strengthening its involvement in the sector. The helicopter and aircraft services company, which serves the O&G industry, was recently awarded a 10- year RM3 billion contract, with the option to extend for another five years, from Petronas Carigali Sdn Bhd.
Lodin asserts that though the contract may only be 30% of what MHS used to get in its heyday, it is nonetheless `still quite attractive'.
`There is potential for MHS to expand not just within Malaysia but also in the region. What is key to the successful operation of this business is the expertise and for it to give the best possible service. As the same time, we can use this to generate employment for retired military personnel. It would fit in nicely with our CSR (corporate social responsibility) role,' Lodin says.
LTAT hires quite a number of ex-servicemen in its businesses, mostly in Boustead Heavy Industries Corp, which operates three shipyards in Malaysia.
HEALING A BRUISED REPUTATION
Pharmaceutical became a new core business for Boustead following its acquisition of Pharmaniaga. But the generic drugmaker, though profitable, has a slight reputation issue. A few years back, there were allegations that it was overcharging the government (it has a concession to supply drugs to government hospitals).
More recently in March last year, its manufacturing licence was revoked by the Health Ministry due to several non-compliance issues following a routine audit of its facility in Bangi, which resulted in the closure of the plant. While it got back its licence five days later after a satisfactory follow-up, the damage was already done.
Lodin hopes Pharmaniaga's operations would improve under Boustead's management but declines to comment on its past. `Whatever it is, under our group we believe in operating our companies in the most transparent way. We make sure they operate on good corporate governance practices. Only in this way can we win the confidence and trust of the public and our customers.'
Author: Yvonne Chong
