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Leeden’s Evolution Continues
In the Spotlight | 02 October 2009
By: Lai Wyai Kay
Articles (53) Profile

When a company goes through one too many names and a string of unspectacular ventures, sooner or later, it drops off investors’ radar screens.

Listed since 1975, its most recent incarnation was as Ace Dynamics. Before that, Causeway Investment. Back then, focus was definitely wanting and for a better part of the 90s, losses dogged the company; in 2004, substantial provisions made by its property division hit profit.

Well, the future belongs to those who survive their past. And current CEO, Steven Tham, who came on board in 2000, has progressively steered the company away from its unprofitable property projects and directed efforts towards developing its core industrial business.

From 2005-8, profit has grown at a CAGR of 156%, driven by turnover at its industrial division, which grew an average of 44% over the same period.

Following a rebranding exercise in 2007, it started life under a new corporate identity: Leeden Limited.

One-Stop Welding Shop
Leeden positions itself as an integration specialist for Welding, Gas and Safety – not the easiest of businesses for the layman investor to grasp. But according to Tham, all three are related. In a welding process, the right mixture of gases, use of appropriate electrodes as well as relevant safety equipment is integral.

Under its Gas division, a comprehensive range of industrial gases is supplied to the industrial sectors in infrastructure engineering and marine and offshore. Its Welding and Safety divisions also act as agents for several international brands in welding equipment as well as safety products, which includes the iconic Red Wing Shoes.

But Leeden prides itself as more than a mere distributor. As a solutions provider, the company also supplies integration expertise and consultancy services.

In large scale, complex industrial projects, Leeden will work with the customer to provide the optimum blend of equipment and materials for welding, which according to COO, Kelvin Lee, has to be specified in a tender.

This especially applies to contracts in the Offshore Oil and Gas sector – where the group derives 50% of its revenue from. As oil exploration goes into ever-deeper waters, products would have to cater to the harsher operating environment. Apart from this, the company also offers auxiliary services like gas systems design.

Fusing Synergies
However, to drive growth, the company is making a move towards establishing its own brand of welding equipment, targeted at the mid-tiered ranges. To facilitate this, the company has gone on an acquisition drive.

Currently, the company owns several of the welding and safety brands that are manufactured by its Malaysian subsidiaries, which it acquired last year.

It took a 55% stake in Eversafe Extinguisher, which specializes in fire protection products, and a 75% stake in another company across the causeway, Power Weld, to manufacture and distribute welding electrodes and wires.

The plan: to eventually consolidate these into a single identity, or in the company’s own words: all you need for welding, captured under the name – Auweld.

According to Tham, opportunities provided by this market segment had surfaced due to the need by customers to drive margin growth. And potentially, the market size for mid-tiered products is larger than for those at the higher end.

Leeden, with an intimate knowledge of this niche sector, is well placed to meet its customers’ needs. Moreover, it already has the required channels to operate from.

Thus, the decision to increase its stake in the National Industrial Gases Group (NIG), formerly an equal-sharing joint venture with leading Japanese industrial gas manufacturer, Taiyo Nippon Sanso Corporation, was strategic.

The move to bring it under its corporate umbrella was necessary – as Leeden intends to leverage on its established gas links to cross-sell its own products.

Leeden’s Story
In its latest half-year results ended June, profit was down 37%, due to lower progress revenue from the group’s property project at Paterson Linc, which Tham said would be its final one.

Performance at its core industrial division, which saw a 5% growth in bottomline was reasonable; margins were also better despite higher expenses incurred from the consolidation of NIG.

Still, with a positive outlook, an interim dividend of $0.01 a share was declared – and the possibility of a final dividend this year has not been ruled out.

Financially, short-term debt has increased, due to the acquisition of the gas business, which operates with a higher-geared structure. While about a quarter of it is from trade financing, a third comprises short term revolving credit – which gets renewed – that are used to fund the gas business’ working capital.

The management remains satisfied with its debt position; net gearing at 0.49x, is not excessive.

Since the market lows in March, Leeden’s stock has lagged valuations in the broader market (see table), but over three years, it outperformed the benchmark STI Index, having survived last year’s crash better.

The company’s thinly traded shares seem to necessitate a longer-term outlook. Still, as the largest downstream gas producer in the immediate region, Leeden offers exposure to Singapore’s industrial sector – while still sluggish – should see a revival as the economy recovers.

Geographically, South-East Asia, ex-Singapore, accounts for 52% of its total revenue, but Leeden intends to expand contributions from the region. Plans remain on track as it further cemented its presence in the region, upgrading its business facilities in Thailand.

Leeden’s evolution reads like an execution of Porter’s concept of competitive advantage. It has taken steps to revamp its value chain, from logistics to training – and control over the industry’s complements of Welding, Gas and Safety, executed correctly, could lead to lower selling and marketing costs, control over quality and improve buyer’s performance – just to name a few.

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