Investor relations

Chairman's Statement

DEAR SHAREHOLDERS

2018 was a challenging year for the construction industry with the construction sector shrinking 3.4 per cent. Coupled with increasing operation costs, escalating competition, stricter regulatory controls and manpower shortages, analysts have predicted that the construction industry will continue to shrink in 2019 by 3.5 per cent.

FINANCIAL PERFORMANCE

The Group recorded revenue of S$328.8 million for the financial year ended 31 December 2018 (“FY2018”), a marginal decrease of 1% from S$331.1 million for the financial year ended 31 December 2017 (“FY2017”). The decrease of S$2.3 million was mainly due to lower contribution from the Engineering and Construction division. The Engineering and Construction division recorded a marginal decrease in revenue to S$301.5 million in FY2018 from S$309.6 million in FY2017. However, the Group was able to maintain Group revenue due to the steady increase in revenue from the Bio-Refinery and Bio-Energy division of S$5.9 million from S$21.4 million in FY2017 to S$27.3 million in FY2018. Other gains increased to S$2.9 million in FY2018 as a result of the gain on disposal of property, plant and equipment, coupled with net foreign exchange gain.

The Group’s gross profit decreased by 28% from S$20.3 million in FY2017 to S$14.6 million in FY2018 as a result of lower gross profit margins. Profit before income tax decreased by 23% from S$9.1 million in FY2017 to S$7.0 million in FY2018. As a result, the Group’s net profit attributable to shareholders decreased by 31% to S$5.6 million in FY2018.

The Group’s construction order book remains strong, standing at S$682.8 million as at 31 December 2018, with the Group being involved in the remaining package for Runway 3 awarded by Changi Airport Group, a subcontract work for Singapore’s fourth desalination plant at Marina East awarded by Keppel Seghlers Pte Ltd, Circle Line 6 for the construction of cut-and-cover tunnels and other structures from the east of the planned Prince Edward Station to the existing Marina Bay Station, the Deep Tunnel Sewerage System (DTSS) Phase 2 project from PUB, Singapore’s National Water Agency, through its 35%-owned POKB JV and the Woodlands Health Campus through a 20%-owned SDK Consortium. Our order book will provide a steady flow of activities through the next few years.

Further, the Group has S$184.0 million worth of current assets thereby maintaining a healthy balance sheet with an overall current asset to current liability ratio of 1.2 times. As of 31 December 2018, the Group’s net asset value attributable to shareholders stands at S$90.4 million, a marked increase from S$62.9 million as at 31 December 2017. The Group’s balance sheet remains robust with cash and bank balances of S$20.6 million.

FINANCIAL EXERCISES AND PROPOSED DIVIDENDS

Shareholders of the Company have continued to support the Company’s growth and vision. In June 2018, the Group proposed a renounceable non-underwritten rights cum warrants issue exercise (the “Rights Issue”). Pursuant to the Rights Issue, shareholders could subscribe for a rights share at S$0.045 each for every two existing shares held. Free detachable warrants were also issued with every one rights share validly subscribed for by shareholders, at an exercise price of S$0.05. Upon the completion of the Rights Issue, an aggregate of 517,492,846 new shares and 517,492,846 new warrants were listed on the Catalist of Singapore Exchange in 28 September 2018 with the total net proceeds from the Rights Issue was S$23.03 million and was fully utilised for business expansion, and general working capital purposes.

We are pleased to announce that the Group has proposed a final cash dividend for FY2018 of 0.10 Singapore cent per share, payable after approval by shareholders at the forthcoming Annual General Meeting.

FUTURE PROSPECTS

The external demand outlook for the Singapore Economy is expected to be weaker in 2019 as compared to that in 2018, with the Ministry of Trade and Industry predicting that the Singapore economy will only grow by 1.5 to 3.5 percent. In particular, economists have predicted that the construction industry will shrink at a pace of 3.5%.

The Building and Construction Authority expects the value of construction contracts to be awarded in 2019 to be in the range of S$27 billion and S$32 billion, comparable to the approximately S$30.5 billion awarded in 2018. This is due largely to the steady demand for public sector construction, with the value of construction contracts to be awarded for public sector construction ranging from S$16.5 billion and S$19.5 billion in 2019. The BCA has also opined that the public sector construction will continue to contribute S$16 billion to S$20 billion per year from 2020 to 2023, owing to large infrastructure projects such as the Cross Island Line, developments at Jurong Lake District and Changi Airport Terminal 5 coming onstream.

Our construction subsidiary, Koh Brothers Building & Civil Engineering Contractor (Pte.) Ltd. is accredited with BCA Class A1 grading for Construction and Civil Engineering Projects. The Group is therefore able to tender for such projects of unlimited value and thus benefit from the increase in larger public sector construction projects. In addition, the Group will continue to focus on building on our core competencies and delivering on existing projects to maintain the Group’s performance.

The Group also remains optimistic about the long-term growth of Oiltek Sdn Bhd. Oiltek continues to develop new and innovative technology in the oil refining process. This gives Oiltek its competitive edge and will allow Oiltek to offer bespoke and tailored solutions to its clients.

CONCLUSION & APPRECIATION

The Group is only as strong as its staff and management. We would like to take this opportunity to express our heartfelt appreciation to the staff and management team, whose dedication and hard work have allowed for the Group to navigate these difficult times. To our clients, business associates and shareholders, we thank you for your unwavering support in us as we continue to weather these difficult times.

Koh Keng Siang (Francis) Non-Executive and Non-Independent Chairman

Shin Yong Seub (Paul) Executive Director and Chief Executive Officer