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Chairman's Statement

(Extracted from Annual Report 2017)

Chairman

Dear Shareholders,

During the past financial year, the outlook for the global economy has brightened although there are uncertainties over protectionist and anti-globalisation sentiments, particularly with the current unpredictable United States administrationís trade policies. Such economic factors, plus political instability and potential environmental calamities, will continue to impact businesses operations worldwide including Singapore.

According to the Ministry of Trade and Industryís statistics announced on 14 February 2018, the Singapore economy grew by 3.6 per cent in 2017, a better showing over the 2.4 per cent growth in 2016.

However, it was not that rosy for the construction sector, which shrank by 8.4 per cent compared to the 1.9 per cent growth in 2016. Weak private sector construction demand, which dropped by 29.1 per cent, led to the decline in this sector.

Despite the challenges faced in the construction industry, OKP Holdings Limited (OKP) remains optimistic and confident that the Group can overcome these hiccups by staying focused on its vision to be a leading transport infrastructure and civil engineering company in Singapore, the region and beyond. Our vision will continue to be the key factor in moving OKP ahead as we seek to ride over the ups and downs of the business cycle and emerge stronger and better as a company with a sustainable future.

At OKP, we are dedicated in implementing our strategy to focus on our core competencies, broadening our presence in the oil and gas sector, exploring overseas business opportunities, and diversifying earnings through property development and other investments. We believe that this strategy will propel us to continuous business growth and boost our competitiveness.

The Group aims to uphold its leadership position in its core business of construction and maintenance in the public sector, while progressively growing its business in the private sector. During 2017, OKP was successful in winning three construction projects with a total value of $30.7 million.

We have placed ourselves on stronger foundations by widening our skills and knowledge through forming joint ventures to develop properties and bid for Mass Rapid Transit (MRT) projects. Our joint ventures to develop properties have shown much promise. To date, OKP has been involved in developing two property projects. These are Amber Skye, a condominium at Amber Road and LakeLife, an executive condominium at Yuan Ching Road/Tao Ching Road, in Singapore.

Furthermore, we are getting more involved in this area. In February 2018, the Group, together with Lian Soon Holdings Pte Ltd, won the bid to acquire the land parcel at Chong Kuo Road, Singapore. With HSB Holdings Pte. Ltd., the Group also acquired in February 2018 its first overseas property, a freehold modern offi ce complex, in Perth, Australia. These initiatives are in sync with our longterm strategy to diversify our earnings and build a recurrent income base.

Founded in 1966, the Group was listed on the Singapore Exchange in 2002. Since its founding, OKP has grown signifi cantly with its staff strength growing from 10 employees in 1967 to 409 in 2002 and 779 today. In facing the ups and downs of the business cycle while overcoming numerous challenges in establishing and operating an infrastructure and civil engineering business in Singapore and the region, the Group has matured to become a stable and steadfast business, inspired by its mission.

To be the first and preferred civil engineering contractor for the various industries, here and overseas is OKPís mission. We will continue to push ourselves forward in achieving this mission by progressively extending our skills, capabilities and outreach so as to stay ahead of our competitors. Through the years, the Groupís reputation has grown due to its many key advantages, which have fortifi ed its leadership position in the construction industry. These advantages include our long track record, solid expertise and experienced management team, and knowledgeable and skilled staff in civil and engineering projects.

We are of the view that sustainability means operating our business in a way that is not only profitable but also makes a positive impact on our stakeholders and the environment. We believe this is a strategic direction which leads to better management, greater efficiency and sound business performance. We take into account sustainability issues in the fomulation of our strategies. Since 2010, we have published a sustainability report and for the third year running, we are presenting a sustainability report based on the SGX Sustainability Reporting Guide and the Global Reporting Imitative (GRI) Standards.

Performance Review

The year 2017 was somewhat diffi cult and competitive for OKP as it continued to pursue its aim to be a stronger and better company with a stable and sustainable future. During the financial year ending 31 December 2017 (FY2017), the Group saw revenue of $117.3 million, up by 5.6 per cent compared to the previous year (FY2016).

The higher revenue was largely due to an increase in revenue contribution from OKPís maintenance segment, which jumped by 88.5 per cent to $38.8 million. However, the total revenue was aff ected by the construction segment, whose revenue declined by 13.3 per cent to $78.4 million.

The main contributor to the Groupís revenue was the construction segment, accounting for 66.9 per cent (2016: 81.5 per cent) of total revenue for the financial year. The maintenance segment accounted for 33.1 per cent (2016: 18.5 per cent) of our Groupís overall revenue.

The rise in the maintenance segmentís revenue was mainly driven by the higher percentage of revenue recognised from a number of both existing and newly awarded maintenance projects as they advanced to a more active phase in FY2017. In the case of the construction segment, the drop in revenue was largely attributable to a lower percentage of revenue recognised from a few construction projects, which were reaching completion, coupled with reduced revenue generated from a construction project at the Tampines Expressway to Pan- Island Expressway exit.

Gross profit dropped slightly by 1 per cent to $21.7 million compared to the previous yearís $21.9 million while gross profit margin decreased marginally to 18.5 per cent compared to 19.7 per cent a year ago. The lower gross profit margin was largely attributable to lower profit margins for new and some current maintenance projects as a result of a more competitive pricing environment and rising manpower costs.

Overall, the higher Group revenue was largely due to a rise in revenue contribution from the maintenance segment. However, the 7.2 per cent increase in cost of works resulted in a marginal decrease in gross profit to $21.7 million, compared to $21.9 million a year ago. The lower gross profit was partially off set by the 7.5 per cent decrease in administrative expenses to $10.0 million. However, OKP recorded a 64.3 per cent decline in other income, coupled with a 16.8 per cent decrease in contribution from share of results of associated companies and joint ventures to $2.5 million, bringing the net profit attributable to equity holders to $12.7 million, down from $14.3 million in the previous year. Correspondingly, basic earnings per share decreased marginally by 11.4 per cent to 4.1 cents compared to 4.7 cents a year ago.

The Groupís balance sheet remained strong. With a healthy cash position which increased to $86.1 million, its net tangible assets went up by 7.2 per cent to $120.8 million as of 31 December 2017. This was equivalent to 39.2 cents per share, a rise compared to 36.5 cents per share a year ago.

In appreciation of the loyal support from OKPís shareholders through the past decades, the Board of Directors has proposed a final dividend of 0.7 cent per share and a special dividend of 1.3 cents per share. The total dividends of 2.0 cents per share represent a dividend yield of 5.9 per cent and a dividend payout ratio of 48.8 per cent for FY2017, based on OKPís closing share price of 34.0 cents on 31 December 2017.

Emerging Stronger And Better

The Groupís determined efforts and capable skills have been well acknowledged in the industry as OKP received many accolades through the decades. In 2017, we won one award - a Safety Recognition Award from Changi Airport Group for our commitment in achieving Zero Safety Infringement for works at Seletar Airport - the only contractor under Airside Project to be rewarded with such award.

During the year under review, OKP continued to emerge stronger and better as a company by winning three construction projects. The Group has completed two construction projects and one maintenance project, which were handed over successfully to the clients. We continued the execution of eight ongoing construction projects and five maintenance projects, which had been secured since June 2014.

Currently, our net order book remains healthy at $268.0 million, with contracts, extending till 2021.

Staying Optimistic For The Future

In the near future, the construction industry remains optimistic with a steady stream of projects in the pipeline.

The Building and Construction Authority has projected that the total value of construction contracts to be awarded in in 2018 will range between $26.0 billion and $31.0 billion, an increase from the $24.5 billion awarded in 2017. About 60 per cent of the contracts will be driven by the public sector, due to an anticipated increase in demand for institutional and other buildings such as healthcare facilities and several smaller government projects that have been brought forward in response to the slowdown in the previous years.

Public sector construction demand is expected to grow to between $16.0 billion and $19.0 billion in 2018, up from the $15.5 billion in 2017. In the case of the private sector, construction demand is expected to pick up from $9.0 billion in 2017 to between $10.0 billion and $12.0 billion in 2018. This is because of a sunnier overall economic outlook and the upturn in property market sentiment.

Looking further ahead to 2019 to 2022, public sector construction demand is projected to be between $18.0 billion and $23.0 billion per year, with similar demand coming from building projects and civil engineering works. Thus, beyond 2018, civil engineering construction demand is expected to remain optimistic.

Although the construction industry is keenly competitive, the Group is confident of securing more sustainable business as OKP is an experienced player, especially for public sector projects. The BCAís projections of higher construction demand particularly from the public sector and for civil engineering works in 2018 spell good news for infrastructure and civil engineering companies such as OKP. The Group has a good reputation in the public sector, and will continue OKP is involved in advance works for Bulim infrastructure works. to do its best to secure new contracts from both the private and public sector in the coming year. To stay ahead of the tough competition, the Group has been widening its expertise and strengthening its capabilities by undertaking new and related areas of business and extending its presence overseas.

At OKP, we constantly explore new business opportunities, such as the large and exciting infrastructure projects in Singapore, and property developments locally and overseas.

Currently, the Group is involved in two property projects. One is the 109-unit freehold Amber Skye at Amber Road, which was launched in September 2014, and obtained the Temporary Occupational Permit on 27 April 2017. With the progressive recovery of the property market, OKP will step up its marketing efforts to sell the remaining units after having sold about 75 per cent of the development. The other is a 546-unit executive condominium, LakeLife, at Yuan Ching Road/Tao Ching Road in Singapore, which has sold almost all its units and obtained the Temporary Occupation Permit on 30 December 2016.

We are embarking on another property development now after clinching the tender to acquire the land parcel at Chong Kuo Road for $43.9 million in early 2018, together with our partner, Lian Soon Holdings Pte Ltd. Our plan is to develop this 99-year leasehold land into a residential condominium of about 85 units, after obtaining the required approvals from relevant authorities.

The Group is also extending its property business overseas. Jointly with HSB Holdings Pte. Ltd., we acquired our first overseas property, a freehold modern offi ce complex in Perth, Australia in February 2018 for A$43.5 million.

At OKP, the focus will continue to be on its civil engineering business, where we have established our decades-long track record and substantial expertise as the preferred civil engineering contractor for various industries, locally and overseas. Nevertheless, we are also pragmatic and expect the operating environment in the construction industry to remain challenging. This is due to rising business costs, a tough labour market, and shortage of experienced and skilled manpower, as a consequence of the prevailing government policies and legislation involving foreign workersí employment.

To tackle these issues, the Group has streamlined its operations and productivity through various measures. These include the adoption of advanced technologies and training programmes.

Our Group will continue to tender for new projects, both locally and overseas and explore new businesses, through acquisitions, joint ventures and/or strategic alliances, that could complement our construction and maintenance business. These will enable us to move into new markets and acquire new potential clients.

A Note Of Thanks

On behalf of the Board, I would like to express my deepest gratitude for the continuing and steadfast support of our shareholders, clients, business associates and suppliers through the decades. I would like to convey my heartfelt appreciation to the management team and staff for your capable leadership, good efforts and solid team work. As we look to the future, I will continue to depend on all of you for your best efforts to help the Group grow stronger and better in order to have a sustainable future.

I would also like to thank our Board of Directors for their invaluable counsel and helpful contributions, which they have given generously from their long years of experience. All of you have dedicated your time, efforts and investments to make OKP what it is today Ė and I truly appreciate all this valuable assistance.

I am confident that with all the combined hard work and commitment together as a team, we can build a strong and better company and achieve our vision to be one of the leading infrastructure and civil engineering companies in Singapore and the region now and in the future.

Chairman

Or Kim Peow
Group Chairman


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