| Temasek Review 2011
From Our Chairman
The world economy stabilised in 2010. This recovery from the global financial crisis of 2008/2009 was due to the unprecedented and massive response by various governments.
Asia rebounded swiftly. The USA and Eurozone – about half of the global economy – continued to contend with their rising debt burdens. The monetary stimulus from the USA and elsewhere flowed into the global markets and seeded inflation risks for the medium term.
Geopolitical events and a spate of natural disasters – including the March earthquake in Japan – continued to test the resilience of the economic recovery. Political upheaval has troubled the Middle East. Isolated local or regional events assumed a wider prominence as the world became more connected.
Against this backdrop, Temasek continued its steady investment pace, closing the financial year with a net cash position in anticipation of opportunities ahead.
As at 31 March 2011, our portfolio value was S$193 billion, an increase of S$7 billion from S$186 billion a year earlier.
Asia accounted for 77% of our underlying portfolio exposure. This included Singapore at 32%. Latin America and the non-Asia growth regions were a growing 3% of our portfolio exposure, while North America & Europe plus Australia & New Zealand were a steady 20%.
Group net profit was S$13 billion, up 176% or S$8 billion from a year earlier. Higher contributions came from both Temasek investment activities and the improved profits from our portfolio companies.
One-year Total Shareholder Return (TSR) by market value was 4.60%.
Five-year and 10-year compounded TSRs were 7% and 9% respectively, while 20-year TSR remained robust at 15%.
TSR since our inception in 1974 was just under 17%.
Our portfolio return for the year fell short of our internal risk-adjusted hurdle by S$8.8 billion.
Investing for Sustainable Returns
We invested and divested steadily, as we continued to shape our portfolio for resilience and sustainable risk-adjusted returns for the long term.
We supported our portfolio companies through their rights issues, and stepped up investments in energy and resources as well as in new markets such as Latin America.
We made S$13 billion of investments and S$9 billion of divestments.
China remained our largest investment destination. Investments during the year included a further S$2 billion in China Construction Bank. Investments post March 2011 included Shanghai Pharmaceuticals, one of China’s largest integrated pharmaceutical companies.
In the energy and resources space, we invested an initial S$500 million in Odebrecht Oil & Gas, a leading Brazilian offshore oilfield services company.
In the USA, we invested S$700 million in Chesapeake Energy Corporation, a prominent oil and gas producer. This was followed post March 2011 by our participation in a consortium that bought a majority stake in Frac Tech, a US-based oilfield service company.
In Singapore, we were a cornerstone investor in the IPO of Hutchison Port Holdings Trust, investing over S$100 million in the first container port business trust listed on the Singapore Exchange.
Key divestments during the year included Fraser and Neave, Hana Financial Group and Fortescue Metals Group.
Building our Stakeholder Base
We steadily expanded our stakeholder base over the years as part of our commitment to foster good governance and long term institutional discipline.
In 2004, our 30th anniversary year, we initiated the publication of our annual Temasek Review to share our key financial highlights, as well as our overall investment performance. Credit ratings by Standard & Poor’s and Moody’s in 2004 were the prelude to our maiden 10-year Temasek Bond in 2005. This was followed by a series of Temasek Bonds over the last two years to build out our long end debt maturity curve.
In all, we have issued S$10 billion1 of Temasek Bonds in Singapore dollars, US dollars and British pounds sterling. Our groundbreaking 40-year Singapore Dollar Temasek Bond in late 2010 extended our debt maturity to 2050. This gave us an average debt maturity of about 16 years. Our Bond Programme and the Temasek Bonds are all triple-A rated.
In February 2011, we established a US$5 billion Euro-commercial Paper (ECP) Programme to cover the short end of our debt maturity curve. Together, the ECP and Bond Programmes form the major building blocks of our financing framework.
The annual Temasek Review, our credit ratings and Temasek Bonds are not just public markers of our credit quality. They also anchor our institutional framework for financial discipline over the longer term, and help us expand our stakeholder base.
Contributing to our Communities
We launched two philanthropic foundations last August with S$165 million of endowment commitments. The Temasek International Foundation promotes international scholarship and fellowship, while the Temasek Education Foundation focuses on nurturing talent in Singapore. We have since added a further S$35 million to support two Singapore orchestras and music education.
Overall community commitment has exceeded S$1 billion since Temasek’s inception in 1974.
Looking Ahead
Medium term global recovery is clouded by deep structural issues and imbalances.
In this section:
- Investing for Sustainable Returns
- Building our Stakeholder Base
- Contributing to our Communities
- Looking Ahead
- Strengthening the Institution
- Appreciation and Thanks
Portfolio value
Group net profit
Ten-year TSR
Five-year TSR
Investments
Divestments
Cumulative community commitment
Longer term, we remain bullish on Asia, despite medium term inflationary and other pressures in various parts of the world.
Mid-sized cities in growing markets are projected to deliver almost 40% of global growth by 20252. We continue to see the rising middle income populations driving rapid urbanisation and housing demands. Innovation will spur demand for new services.
In Latin America, economic growth is bolstered by the demand for commodities and other natural resources.
In the decade ahead, we expect our four investment themes to serve us well:
- Transforming Economies
- Growing Middle Income Populations
- Deepening Comparative Advantages
- Emerging Champions
These are our guideposts as we focus on our core purpose as a responsible investor to deliver sustainable long term value for our stakeholders.
Strengthening the Institution
While we continued our steady reshaping of our portfolio amidst a rapidly changing world, we remained focused on building our people, capabilities and capacities for the future.
Our leadership bench strength was deepened during the financial year – Hsieh Fu Hua was appointed Executive Director & President; Gregory Curl as President; Dilhan Pillay Sandrasegara as Head of Portfolio Management and concurrently Co-Head of Singapore; and Ding Wei as Head of China to anchor Temasek’s active long term presence in China.
Our management continues to forge a partnership culture with an ownership mindset among our people. Integral to this ownership ethos is our value system and incentive philosophy that puts the institution above self, emphasises long term over short term, and aligns employee interests with long term shareholder value.
Appreciation and Thanks
I would like to thank Koh Boon Hwee who retired from the Board last October, for his 14 years of insightful counsel to our leadership. He has brought significant experience and thoughtful views into our Board deliberations.
Simon Israel retired as Executive Director & President effective 1 July 2011. Since joining us in 2006, he has contributed much to Temasek’s growth as an international investor. We are fortunate that he will remain actively engaged in his individual capacity as a director on the boards of some of our portfolio companies.
Ng Yat Chung was recruited by Neptune Orient Lines Ltd to take up a leadership position in the company on 1 May. As part of Temasek’s senior leadership, his invaluable contributions ranged from our international outreach to the building of internal systems and platforms.
We wish Boon Hwee, Simon and Yat Chung every success in their new endeavours.
I would also like to thank past and present members of the Temasek International Panel (TIP) and Temasek Advisory Panel, and TIP emeritus members for the tremendous value that they have added to our perspective and understanding of major trends and developments.
To the past and present board members, management and staff of Temasek and our portfolio companies, I express my deepest appreciation for your dedication to building Temasek as a sustainable institution for the long term – not just for ourselves, but for our shared future with the wider community and for the benefit of tomorrow’s generations.
Finally, I wish to thank all our stakeholders, including our shareholder, bondholders, business partners, advisers, investors, regulators, philanthropic organisations, friends and the broader public, for their strong and continued support.
S DHANABALAN
Chairman
July 2011
- 1 Exchange rates as at 31 March 2011.
- 2 Urban world: Mapping the economic power of cities, McKinsey Global Institute, March 2011.