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Management Q & A

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Dear Investors,

Thank you very much for the questions and the opportunities to clarify them. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue followed by our replies in black.

Rgds,
The Management Team
OKP Holdings Ltd

Dear Wu Huan Min, you wrote:

I notice the following facts:

(a) The profit after tax of company is $1.5 million. However the director's remuneration is $ 1.3 million. So do you think we pay too much to the directors. As a major shareholder the Or's family should get the money from dividends not at the minor shareholder's cost.

(b) Every year there are some related transaction between the company and Or's family. I think the minor investors may not like this. Please answer the question directly. Otherwise, I will post on the forum directly with my views. I will also raise such points during the AGM.

Hi, welcome back.

(a) The terms of the executive directors' remuneration have always been known to the public (disclosed in OKP's Prospectus in the year of listing). The terms were determined after taking into account an internal comparative study on remuneration terms for executive directors of a few listed companies operating in the same industries as ourselves. We have set the terms of the Service Agreement to be broadly in line with markets rates.

The remuneration of the executive directors was reviewed by OKP's Remuneration Committee ("RC") on a yearly basis. The RC which comprises entirely of independent directors, approved and endorsed the executive directors' remuneration taking consideration of OKP's financial performance to ensure they are equitable.

(b) Our Audit Committee ("AC") will review all related transaction between the Company and the Or Family to ensure that they are transacted on an arm's length basis, at normal commercial terms, and will not be prejudicial to our shareholders. Furthermore, our AC, which comprises of entire non-executive and independent directors, has adopted the following procedures when reviewing such transactions:

  1. when purchasing items from or engaging the services of an interested person, 2 other quotations from non-interested persons will be obtained for comparison, to ensure that the interest of minority shareholders are not disadvantaged.

  2. When selling items or supplying services to an interested person, the price or fee and terms of 2 other successful transactions of a similar nature with non-interested persons will be used for comparison, to ensure that the interest of minority shareholders are not disadvantaged.
Dear Mr Low, you wrote:

Hi, I have the following questions.
(a) Why is there a drop in road maintenance revenue?
(b) Why is the profit before taxation lesser than FY03 when the revenue increased?
(c) How will OKP be affected if the outlook for construction industry is expected to remain weak?
Thank you.

Thank you for your questions.

(a) The drop in road maintenance revenue was due to completion of a few road maintenance projects in second half of 2004.

(b) FY2004 profit before taxation recorded a 36.2% decline due to lower profit margin from some existing projects.

(c) Our core business in the civil engineering is subject to the cyclical nature of the local construction industry in Singapore. In particular, our revenue and profitability may be adversely affected if the public sector's civil engineering construction demand drops. In the event that the demand in civil engineering construction is not sustainable, there may be a reduction in the number and contract values of projects available for tender. Under these circumstances, our revenue and profitability may be adversely affected.

Nonetheless, OKP enjoys a good and solid reputation as a quality, reliable transport infrastructure builder, backed by more than 36 years track records. Thus, we believe that with our close working relationship with customers, suppliers and sub-contractors, experienced management team, good control and hands-on approach, we are able to tender competitively for projects. We have been able to grow our revenue yearly as reflected in our latest SGXNET results announcement. Moving forward, we will continue to compete aggressively and leverage on our competitive strengths.

Dear Kimberly Wee, you wrote:

Nice set of results.
(a) Is the company currently exploring other opportunities to further the business?
(b) What is your order book for going forward FY2005?
(c) Can you give an update on overseas expansion?

Thank you for providing this session.

Thank you for your questions.

(a) We will still be focus on our core business in the civil engineering industry in our home soil and tender primarily for governmental projects. Though, we remain focus on our core business, we are constantly exploring other business opportunities and will consider investing in other businesses when the right opportunity comes along. We do not rule out any possibilities of other higher margin businesses if they synergise and complement to our existing core business. We are confident of the prospects of the OKP and we believe that the investors will come to understand our business and value it accordingly. We want to ensure all our investors that we are in this for long-haul and we look forward to your continued support.

(b) OKP has a strong defensive order book of $155.5 million as at 31 December 2004, of which $62.3 million is expected to be recognised as revenue for FY2005 and thereafter.

(c) Let me provide you with an update of our recent overseas expansion plans:

Dear Mr Chu Han, you wrote:

Hi, I have the following questions.

(a) Can you highlight the growth drivers for year 2005 and 2006 please?
(b) From the statements, it shows that the gross margins have decreased significantly from around 12.69% to 7.5% for 2003 and 2004 respectively. In view of continuous drop in margins, what plans do you have for counter? Will cashflow drop further?
(c) I did not see any income or news about income generated from overseas.

Kindly update if I have missed out. Thanks!

Thank you for your questions.

(a) The main growth driver for OKP in FY2005 and FY2006 will still be construction industry in Singapore. We have successfully secured 8 new governmental contracts in FY2004 with a combined contract value of approximately $67.6 million. However, we are constantly exploring other business opportunities both locally and overseas and thus do not rule out such possibility when the opportunities arise.

(b) The profit erosion was due to lower profit margin of some existing projects. Nonetheless, we are constantly instituting additional controls in the cost control systems such as detailed reviews of our major projects, identify and implement various controls to reduce costs to improve operational efficiencies, look into ways to improve productivity and efficiency which will ultimately lead to cost reduction and improve profitability for the Group. Our priority remains to achieve consistent long term profitability by tendering for projects that yield reasonable profits.

On the other hand, we have generated strong and healthy cash flows with cash and cash equivalents at $11.9 million as at 31 December 2004. We have generated a net cash inflow of $4.2 million from operating activities, an increase of 32.6% from $3.2 million as at 31 December 2003 to $4.2 million as at 31 December 2004.

(c) Let me provide you with an update of our recent overseas expansion plans:

Dear Alfred Chong, you wrote:

Your current liabilities have increased by $7.5mil, however cash flow has not been improving the past year, can you kindly comment on the increase in liabilities?
And whether it would give any significant cash flow in future?

Thank you for your questions.

The increase in current liabilities was due mainly to :

  1. Increase in short term bank loans by approximately $1.0 million

  2. Increase of trade and other payables by approximately by $7.0 million which were in line with the higher revenue in FY2004

On the contrary, we continue to operate under a healthy cashflow position, generating a net cash inflow from operating activities of $4.2 million. For the full year ended 31 December 2004, the Group generated net cash inflow of $4.2 million from operating activities, an increase of 32.6% from $3.2 million as at 31 December 2003 to $4.2 million as at 31 December 2004. Cash and cash equivalents has increased from $10.4 million as at 31 December 2003 to $11.9 million as at 31 December 2004 which was mainly due to the increase in net cash generated from operating activities.

Dear Investors,

Thank you for all your questions and the interest in OKP Holdings Ltd. We have come to the end of this Q&A session.

We have enjoyed and learnt much from your questions and we hope that you have a better insight of our Company and know more about our operations.

Rgds,
The Management Team
OKP Holdings Ltd.