Ensuring consistency and stability to take Nordic forward

Nordic Group executive chairman Chang Yeh Hong focused on building alternative income streams and removing key risks when the firm was not doing well in 2011. Its current market capitalisation is about $165 million.
Nordic Group executive chairman Chang Yeh Hong focused on building alternative income streams and removing key risks when the firm was not doing well in 2011. Its current market capitalisation is about $165 million.PHOTO: NORDIC GROUP

Veteran banker Chang Yeh Hong, the executive chairman of Nordic Group, is an unflinching voice of prudence and objectivity.

His focus on discipline and risk management - a skill honed by nearly two decades in the financial industry - has played a pivotal role in the development of Singapore Exchange (SGX)-listed Nordic.

The group provides systems integration, precision engineering, scaffolding solutions, insulation and mechanical services to the oil and gas, petrochemical, pharmaceutical and infrastructure industries.

"Because of my banking background, I've seen many companies rise or fall on management decisions. At Nordic, every decision is calculated to build an organisation that can sustain a consistent and steady performance."

Between 1984 and 2002, Mr Chang held various banking roles, including regional managing director of the Asia-Pacific with Citibank, and the global head of a product group with Standard Chartered Bank.

The Bachelor of Arts in Economics graduate from the National University of Singapore completed the business financial management programme with the UK's Manchester Business School in 1995, and the international executive management programme at France's Insead Fontainebleau in 1998.

In 2004, he took on an executive role in Nordic and was appointed to the board of directors six years later. Between 2002 and the present, he also held directorships in Technics Oil & Gas, Union Steel Holdings, Jackspeed Corporation and System Access, which was subsequently acquired by SunGard.

Fast-forward to today, where numerous marine, oil and gas players continue to grapple with the energy sector's worst downturn in at least three decades and Mr Chang said: "We're still growing despite the current crisis in the market."


Nordic has a current market capitalisation of about $165 million. In the 2017 year to date, its shares have generated a total return of 71.3 per cent, outperforming the benchmark Straits Times Index's 16.9 per cent and the broader FTSE ST All-Share Index's 16.1 per cent.

Between financial years 2012 and 2016, the company was able to grow its net profits at a compounded annual rate of 48 per cent, largely because it diversified its geographical and currency exposure risks.

"Back in 2011, we foresaw the downturn in the oil and gas sector. The company was not in good shape then - 80 per cent of our revenue came from Chinese shipyards and we had a very high exposure to the US dollar," Mr Chang recalled. "That was a double whammy."

He focused on building alternative income streams and removing key risks.

In 2011, Nordic acquired a scaffolding company - Multiheight Scaffolding - that gave it a foothold in the petrochemical sector. "Oil majors like Exxon, Chevron and Shell use scaffolding structures for their petrochemical complexes on Jurong Island, and entry barriers are naturally high because safety concerns are always paramount," he said.

Nordic continued its acquisition spree to lay the foundation for growth. In 2015, it bought the Austin Energy Group, an insulation and fireproofing services specialist. This marked its entry into pharmaceuticals, a new industry segment.

Earlier this year, it added Ensure Engineering to its stable, cementing its expertise in the petrochemicals sector and opening up new revenue streams from Singapore's National Environment Agency and PUB, the national water agency.

The acquisition of the engineering services firm will also provide Nordic with a more stable income source as almost all its revenue is derived from recurrent maintenance contracts that typically span one to five years. Nordic's acquisitions have contributed profits from Day One.

Integrating the group's acquisitions properly is also a priority to reduce future risks.


No cash, no purchase is another mantra. Every dollar Nordic borrows is backed by a dollar of cash on its balance sheet to prevent the group from overleveraging.

As at March 31, Nordic's cash and cash equivalents stood at $32.7 million, up from $32.3 million as at Dec 31 last year. Total borrowings, excluding finance leases, amounted to $25.6 million as at end-March.

"A lot can be said about management vision but vision without action just conjures up big dreams," Mr Chang said. "When you run a company, each strategy needs to be fleshed out carefully and systematically."

Looking ahead, the oil and gas industry will likely be mired in the doldrums for the foreseeable future.

"Many of the big boys are still going belly up, and there's a long road ahead in terms of any recovery," Mr Chang said.

While the United States Energy Information Administration has forecast crude prices to average US$53 a barrel this year given significant oil inventories, it remains hopeful the supply glut may ease sufficiently next year for oil prices to stage a meaningful recovery.

"Only when market demand and supply reach an equilibrium, and oil prices return to a level where key players are willing to invest again, will we see a rebound in the upstream cycle," said Mr Chang.

In the meantime, downstream players are in a more stable position. "For these companies, their raw material is crude, and given the relatively low oil prices, their margins are strong. Industrial demand for downstream products is also robust," he said.

In other words, Nordic is in a relatively good place. "Our growth from the downstream segment is strong and mitigates our upstream exposure. We have also right-sized our organisation and diversified our income sources by moving into different end markets."

As at April 30, its order book - which does not include maintenance contracts - stood at $35.7 million, while its latest contract win in May to provide scaffolding and equipment insulation work for customers in the petrochemical industry totalled $38.9 million.

The group's risk profile has changed. It now derives 45 per cent of its revenues from maintenance contracts for petrochemical clients, with the remaining 55 per cent coming from projects, said Mr Chang.

"Maintenance contracts typically have a two- to three-year duration, and provide stable, recurring income. Previously, our revenues were all project-driven and extremely lumpy."


With these building blocks in place to ensure sustainable expansion over the medium term, Mr Chang and the management team have set their sights on boosting market capitalisation and profits.

"We hope to double our market cap again in the next five years," he said.

Management will also maintain its internal target to grow the group's earnings by 20 per cent annually. Nordic, which moved to a semi-annual dividend distribution in 2015, is also maintaining its policy to pay out 40 per cent of net profits as dividends.

The 57-year-old Mr Chang is a bundle of energy, eschewing golf for a game of football twice a week with school alumni and friends.

Not surprisingly, the father of a daughter, 22, believes in pushing boundaries and persevering to the end. "That's how I grew up - I didn't come from a well-to-do family but I was willing to work hard to achieve my goals."

•This is an excerpt from Singapore Exchange's kopi-C: the Company brew, a regular column featuring C-level executives of SGX-listed companies. Previous editions can be found on SGX's My Gateway website www.sgx.com/mygateway

A version of this article appeared in the print edition of The Straits Times on August 21, 2017, with the headline 'Ensuring consistency and stability to take Nordic forward'. Print Edition | Subscribe