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Financial Statements And Related Announcement - Full Yearly Results

Financials Archive

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Income Statement

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Consolidated Statement of comprehensive income

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Statements of Financial Position

Review of Performance

Our Business

OKP Holdings Limited is a home-grown infrastructure and civil engineering company in the region. We specialise in the construction of urban and arterial roads, expressways, vehicular bridges, flyovers, airport infrastructure and oil and gas-related infrastructure for petrochemical plants and oil storage terminals as well as the maintenance of roads and roadrelated facilities and building construction-related works. We tender for both public and private civil engineering and infrastructure construction projects. We have expanded our core business to include property development and investment.

We have three core business segments: Construction, Maintenance and Rental income from investment properties.

Income Statement Review (Current financial year ended 31 December 2018 vs previous financial year ended 31 December 2017)

Revenue

Our Group reported a 23.0% or $27.1 million decrease in revenue to $90.4 million for FY2018 as compared to $117.5 million for FY2017. The decrease was due mainly to a 41.3% decrease in revenue from the construction segment to $46.1 million, partially offset by (i) a 3.9% increase in revenue from the maintenance segment to $40.4 million and (ii) a 1,609.7% increase in rental income.

The decrease in revenue from the construction segment was largely attributable to (1) a lower percentage of revenue recognised from a few construction projects which were reaching completion, (2) a lower percentage of revenue recognised from a few newly-awarded construction projects as well as no revenue generated from a construction project at the PanIsland Expressway exit to Tampines Expressway following the mutual termination of the project, during FY2018.

The growth in revenue from the maintenance segment was due mainly to the higher percentage of revenue recognised from a few major maintenance projects which were in full swing in FY2018.

The increase in rental income generated from investment properties was due mainly to rental income generated from the newly purchased property at 6-8 Bennett Street, East Perth, Western Australia based on the current occupancy rate of approximately 68.0%.

Both the construction and maintenance segments are the major contributors to our Group's revenue. On a segmental basis, construction, maintenance and rental income accounted for 50.9% (FY2017: 66.7%), 44.6% (FY2017: 33.1%) and 4.5% (FY2017: 0.2%) of our Group's revenue respectively for FY2018.

Cost of sales

Our cost of sales decreased by 23.6% or $22.6 million from $95.7 million for FY2017 to $73.1 million for FY2018. The decrease in cost of sales was due mainly to:

  1. the decrease in sub-contracting costs which were mainly costs incurred for specialised works such as bored piling, asphalt works, mechanical and electrical works, soil-testing, landscaping and metalworks which are usually sub-contracted to external parties;

  2. the decrease in the cost of construction materials due to lesser utilisation of materials; and

  3. the decrease in labour costs,

  4. which were partially offset by:

  5. an additional cost arising from a construction project at the Pan-Island Expressway exit to Tampines Expressway following the mutual termination of the project; and

  6. the increase in depreciation of property, plant and machinery and right-of-use assets,

  7. during FY2018.

Gross profit and gross profit margin

Our gross profit for FY2018 decreased by 20.3% or $4.5 million from $21.9 million for FY2017 to $17.4 million for FY2018.

However, our gross profit margin improved marginally from 18.6% for FY2017 to 19.2% for FY2018.

The slight improvement in the gross profit margin for FY2018 was largely attributable to the completion of a few maintenance projects which had commanded better gross profit.

Other income

Other income increased by $1.1 million or 110.2% from $1.0 million for FY2017 to $2.1 million for FY2018. The increase was largely attributable to:

  1. an increase in government grants of $0.3 million received which comprised wage credit payouts received from the Inland Revenue Authority of Singapore (Temporary Employment Credit) and Ministry of Manpower (Special Employment Credit) and incentives received from the Building and Construction Authority for technology adoption and capability development;

  2. interest received from loan to a joint venture of $0.5 million;

  3. a gain on disposal of property, plant and equipment of $0.1 million; and

  4. an increase in interest income received of $0.2 million due to higher interest earned from bank deposits,

  5. during FY2018.

Other losses

Other losses increased by $2.3 million or 624.3% from $0.4 million for FY2017 to $2.7 million for FY2018. The increase was largely attributable to:

  1. an increase in fair value loss of $1.7 million arising from the revaluation of some of the investment properties; and

  2. an increase in loss from foreign exchange of $0.6 million resulting mainly from the weakening of the Australian dollar against the Singapore dollar,

  3. during FY2018.

Administrative expenses

Administrative expenses decreased by $1.0 million or 9.7% from $10.0 million for FY2017 to $9.0 million for FY2018. The decrease was largely attributable to:

  1. a decrease in directors' remuneration (including profit sharing) of $1.3 million as a result of the lower profit generated by the Group for FY2018; and

  2. a decrease in tender charges of $0.2 million due to tenders for lesser complex projects,

  3. which were partially offset by:

  4. an increase in staff costs of $0.3 million during 4Q2018; and

  5. foreign withholding tax of $0.2 million on loan interest paid in Australia.

Finance expenses

Finance expenses increased by $1.1 million or 1,371.4% from $77,000 for FY2017 to $1.1 million for FY2018. The increase was due to:

  1. interest from lease liabilities of $42,000 as a result of implementation of SFRS(I) 16;

  2. a notional interest on loan of $0.2 million resulting from fair value adjustment of loans from a minority shareholder; and

  3. interest expenses of $0.8 million incurred on a bank term loan for the purchase of an investment property at 6-8 Bennett Street, East Perth, Western Australia.

Share of results of associated companies and joint ventures

  1. Share of profit of joint ventures
    The share of profit of joint ventures decreased by $1.9 million due mainly to the decrease in share of profit of $1.8 million from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium, based on the recognition of profits from the few remaining units of the development which were handed over during FY2018. All the units have been fully sold and recognised in FY2018.

  2. Share of loss of associated companies
    The share of loss of associated companies was due mainly to the operating expenses incurred by the Group's 22.5% held associated company, Chong Kuo Development Pte Ltd, and decrease in share of profit of the Group's 25% held associated company, USB Holdings Pte Ltd,

  3. during FY2018.

Profit before income tax

Profit before income tax decreased by $8.4 million or 128.1% from $15.0 million for FY2017 to $6.6 million for FY2018. The decrease was due mainly to (1) the decrease in gross profit of $4.5 million, (2) the increase in other losses of $2.3 million, (3) the decrease in the share of profit of associated companies and joint ventures of $2.6 million and (4) the increase in finance expenses of $1.1 million. The decrease was partially offset by (1) the decrease in administrative expenses of $1.0 million and (2) the increase in other income of $1.1 million, as explained above.

Income tax expense

Income tax expense decreased by $1.3 million or 59.3% from $2.2 million in FY2017 to $0.9 million in FY2018 due to lower profit before income tax, as explained above.

The effective tax rates for FY2018 and FY2017 were 14.1% and 15.2% respectively.

The effective tax rate for FY2018 was lower than the statutory tax rate of 17.0% due mainly to (1) statutory stepped income tax exemption, and (2) a tax rebate of 20% on the corporate tax payable.

The effective tax rate for FY2017 was lower than the statutory tax rate of 17.0% due mainly to (1) the profit before income tax of $15.0 million comprising share of profit of associated companies and joint ventures of $2.6 million, which was already taxed at the associated company and joint venture levels, (2) statutory stepped income tax exemption and (3) a tax rebate of 20% on the corporate tax payable.

Non-controlling interests

Non-controlling interests of $0.8 million was due to losses from our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in FY2018. The loss was mainly due to the fair value loss of $2.5 million arising from the revaluation of the property at 6-8 Bennett Street, East Perth, Western Australia during 4Q2018.

Net profit

Our net profit decreased by $7.1 million or 55.6%, from $12.7 million for FY2017 to $5.7 million for FY2018 due to the decrease in profit before income tax of $8.2 million, which was partially offset by the decrease in income tax expense of $1.1 million, as explained above.

Our net profit margin decreased from 10.8% for FY2017 to 6.2% for FY2018.

Income Statement Review (Fourth Quarter ended 31 Dec 2018 vs Fourth Quarter ended 31 Dec 2017)

Revenue

Our Group's revenue was $18.4 million in 4Q2018 compared to $26.2 million in 4Q2017. The decrease in revenue from both the construction and maintenance segments was partially offset by an increase in rental income.

The construction segment contributed $11.2 million to our Group's revenue in 4Q2018, compared to $17.8 million in 4Q2017. The decrease in revenue from the construction segment was largely attributable to a lower percentage of revenue recognised from (1) a few construction projects which were reaching completion and (2) a few newly-awarded construction projects during 4Q2018.

The decrease in revenue from the maintenance segment was largely attributable to a lower percentage of revenue recognised from (1) a few maintenance projects which were reaching completion and (2) a few newly-awarded maintenance projects during 4Q2018.

The increase in rental income generated from investment properties was due mainly to rental income from the newly purchased property at 6-8 Bennett Street, East Perth, Western Australia.

Cost of sales

Our cost of sales decreased by 43.8% or $9.2 million from $21.1 million for 4Q2017 to $11.8 million for 4Q2018. The decrease in cost of sales was due mainly to:

  1. the decrease in sub-contracting costs which were mainly costs incurred for specialised works such as bored piling, asphalt works, mechanical and electrical works, soil-testing, landscaping and metalworks which are usually sub-contracted to external parties;

  2. the decrease in the cost of construction materials due to lesser utilisation of materials; and

  3. the decrease in labour costs,

  4. during 4Q2018.

Gross profit and gross profit margin

Our gross profit for 4Q2018 increased by $1.4 million or 26.7% from $5.1 million for 4Q2017 to $6.5 million for 4Q2018.

Our gross profit margin increased from 19.6% in 4Q2017 to 35.5% in 4Q2018.

The higher gross profit margin was largely attributable to the completion of a few projects which had commanded better gross profit margin during 4Q2018.

Other income

Other income increased by $0.6 million or 235.4% from $0.3 million for 4Q2017 to $0.9 million for 4Q2018. The increase was due mainly to:

  1. interest received from loan to a joint venture of $0.5 million; and

  2. a gain on disposal of property, plant and equipment of $0.1 million,

  3. in 4Q2018.

Other losses

Other losses increased by $2.1 million or 1,090.7% from $0.2 million for 4Q2017 to $2.3 million for 4Q2018. The increase was largely attributable to:

  1. an increase in fair value loss of $1.7 million arising from the revaluation of some of the investment properties; and

  2. an increase in loss from foreign exchange of $0.4 million resulting mainly from the weakening of the Australian dollar against the Singapore dollar,

  3. during FY2018.

Administrative expenses

Administrative expenses remained at $2.6 million for 4Q2017 and 4Q2018.

Finance expenses

Finance expenses increased by $0.5 million due mainly to:

  1. interest expenses of $0.3 million incurred on a bank term loan for the purchase of an investment property at 6-8 Bennett Street, East Perth, Western Australia;

  2. a notional interest on loan of $0.2 million resulting from fair value adjustment of loans from a minority shareholder; and

  3. interest from lease liabilities of $35,000 as a result of implementation of SFRS(I) 16,

  4. during 4Q2018.

Share of results of associated companies and joint ventures

The increase in share of losses of associated companies and joint ventures of $0.2 million was due mainly to:

  1. a reduced share of profit from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium; and

  2. an increase in share of operating expenses incurred by the Group's 22.5% held associated company, Chong Kuo Development Pte Ltd,

  3. during 4Q2018.

Profit before income tax

Profit before income tax decreased by $0.8 million or 34.3% from $2.5 million in 4Q2017 to $1.7 million in 4Q2018. The decrease was due mainly to (a) the increase in other losses of $2.1 million, (b) the increase in finance costs of $0.5 million and (c) the increase in share of losses of associated companies and joint ventures of $0.2 million. The decrease was partially offset by (a) the increase in gross profit of $1.4 million and (b) the increase in other income of $0.6 million, as explained above.

Income tax expense

Income tax expense decreased by $0.3 million or 65.8% from $0.5 million in 4Q2017 to $0.2 million in 4Q2018.

The effective tax rate for 4Q2018 was lower than the statutory tax rate of 17.0% due mainly to (1) statutory stepped income tax exemption, and (2) a tax rebate of 20% on the corporate tax payable.

The effective tax rate for 4Q2017 were higher than the statutory tax rate of 17% due mainly to certain non-deductible items added back for tax purposes.

Non-controlling interests

Non-controlling interests of $1.3 million was due to losses from our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in 4Q2018. The loss was due to the fair value loss of $2.5 million arising from the revaluation of the property at 6-8 Bennett Street, East Perth, Western Australia during 4Q2018.

Net profit

For 4Q2018, net profit decreased by $0.5 million or 25.2% to $1.5 million as compared to $2.0 million for 4Q2017 due to the decrease in profit before income tax of $0.6 million, which was partially offset by the decrease in income tax expense of $0.1 million, as explained above.

However, our net profit margin increased from 7.5% for 4Q2017 to 8.0% for 4Q2018.

Commentary

Economic Outlook

Advance estimates from the Ministry of Trade and Industry (“MTI”) showed that the Singapore economy grew by 1.9% on a year-on-year (“y-o-y”) basis in 4Q2018, easing slightly from the 2.4% growth from the preceding quarter. Overall, the economy grew by 3.2% in 2018.

Industry Outlook

The construction sector contracted by 1.0% y-o-y, a more gradual decline compared to the 2.3% contraction in the previous quarter, mainly due to weakness in the public sector construction demand. In 2019, the Building and Construction Authority (“BCA”) projects the total construction demand to remain steady, ranging between $27.0 billion and $32.0 billion, comparable to the $30.5 billion of construction contracts awarded in 2018.

This projected outlook is largely attributable to the sustained public sector demand, which is expected to reach between $16.5 billion and $19.5 billion, boosted by major infrastructure and pipeline industrial building projects. Private sector demand is expected to be between $10.5 billion and $12.5 billion, supported by new industrial developments and redevelopment of past en-bloc sale sites.

Over the medium term, BCA expects the construction demand to steadily improve, with a projection of between $27.0 billion and $34.0 billion per year for the period of 2020 to 2021 and could pick up to between $28.0 billion and $35.0 billion annually for the period of 2022 to 2023.

In the residential development segment, the market saw an increase in private home prices by 7.9% for the whole of 2018, compared with the 1.1% increase in 2017, according to Urban Redevelopment Authority's (“URA”) 4th Quarter 2018 real estate statistics. Growth for the property segment had slowed down moderately after the property market cooling measures in July 2018, as private home prices decreased by 0.1% in 4Q2018, as compared to the 0.5% increase in the previous quarter.

Company Outlook And Order Book Update

Despite the challenging macroeconomic environment, the Group's business remains fundamentally sound.

On the property development front, the Group is on track with visible progress in its two new residential developments at Chong Kuo Road and Phoenix Heights.

The Group will be launching the 84-unit development at Chong Kuo Road, The Essence, which is located in an established private residential estate at Chong Kuo in March 2019.

The residential project at Phoenix Heights in Bukit Panjang has received approval for development of a condominium with 79 units. The Group has also received an in-principle approval from the Singapore Land Authority for the grant of a fresh 99-year lease.

As part of its ongoing efforts to diversify earnings and build recurrent income, the Group has extended its geographical reach to Perth, Australia, through the strategic acquisition of a freehold office complex at 6-8 Bennett Street. The acquisition was completed on 9 April 2018.

In the construction segment, the Group remains cautiously optimistic of near-term prospects, having successfully clinched a number of new public sector contracts in FY2018. The Group continues to be supported by a clear pipeline of projects targeted for completion up to 2023.

As at 31 December 2018, the Group's net construction order book stood at $265.8 million, with projects extending till 2023.

On 6 July 2018, the Group entered into a mutual agreement to terminate the contract for the construction of the viaduct from Tampines Expressway (TPE) to Pan Island Expressway (PIE) (Westbound) and Upper Changi Road East, following the construction incident.

Moving forward, the Group will continue to remain focused on its core business and leverage on its solid track record by strengthening its civil engineering expertise. The Group will also continue to seek suitable opportunities in property development and investment through strategic partnerships, expanding its business and presence both locally and overseas.