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Operations Review

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(Extracted from Annual Report 2017)

OPERATING REVIEW

Business Segmental Breakdown

(i) Construction

Completed Construction Projects

During the year under review, there were two completed construction projects, which were secured since April 2014 and completed by January 2017.

The construction segment continued to be the major contributor to our Group's total revenue, contributing 66.9 per cent or $78.4 million in FY2017.

List of Completed Construction Projects

Ongoing Construction Projects

During the year, we secured three construction projects. Two of the contracts were awarded in June 2017 by JTC Corporation. One was for the construction of road and drains at North Coast Avenue, trunk sewer at Admiralty Road West and North Coast Avenue, and junction improvement at Attap Valley Road. The second was for advance works for Bulim infrastructure works. The third construction contract was for proposed sewers in Lim Chu Kang Area – Contract 2, awarded by the Public Utilities Board (PUB) in August 2017.

In 2017, we continued the execution of several ongoing construction projects, which had been secured since June 2014.

List of Ongoing Construction Projects

In addition to the above projects, a PUB contract for improvement to Bukit Timah first diversion canal Contract 3 (Holland Green to Clementi Road) was awarded to a joint venture, Chye Joo – Or Kim Peow JV, in May 2015. The results of Chye Joo – Or Kim Peow JV are accounted for in the Group's consolidated financial statement using the equity method.

(ii) Maintenance

Completed Maintenance Projects

We completed one maintenance project during the year under review. The project involved road-related facilities, road structure and road safety schemes in East Sector.

In addition to providing a stable and recurrent income stream for us, our maintenance segment is an important part of the services that we provide to our clients. This segment contributed $38.8 million, which constituted 33.1 per cent of our Group's total revenue in 2017.

List of Completed Maintenance Projects

Ongoing Maintenance Projects

We won one new maintenance contract in January 2018. The contract from the PUB is for improvement to roadside drains V Contract E5 (Yishun Avenue 1/6, Jalan Kembangan, Pasir Ris Estate and Hai Sing Estate areas).

Besides the new maintenance contracts, we are working on fi ve ongoing maintenance projects.

List of Ongoing Maintenance Projects

List of Ongoing Maintenance Project Secured After FY2017

Financial Review

Income Statement

Revenue

Our Group reported a 5.6 per cent or $6.2 million increase in revenue to $117.3 million for FY2017 as compared to $111.1 million for FY2016. The increase was due mainly to a 88.5 per cent increase in revenue from the maintenance segment to $38.8 million, partially off set by a 13.3 per cent decrease in revenue from the construction segment to $78.4 million.

The increase in revenue from the maintenance segment was due mainly to the higher percentage of revenue recognised from a number of both existing and newly awarded maintenance projects as they progressed to a more active phase in FY2017.

The decrease in revenue from the construction segment 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 as a result of a worksite incident at the Tampines Expressway to Pan-Island Expressway exit in FY2017.

The construction segment continued to be the major contributor to our Group's revenue. On a segmental basis, our core construction segment and maintenance segment accounted for 66.9 per cent (2016: 81.5 per cent) and 33.1 per cent (2016: 18.5 per cent) respectively of our Group's revenue for FY2017.

Cost of works

Our cost of works increased by 7.2 per cent or $6.4 million from $89.2 million for FY2016 to $95.6 million for FY2017. The increase in cost of works was due mainly to:

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

  2. an increase in labour costs due to salary adjustments;

  3. a penalty of $0.3 million paid for a worksite incident in September 2015;

  4. an increase in the cost of construction materials due to higher utilisation of materials as some of the projects progressed to a more active phase during FY2017;

  5. an additional cost of $3.2 million arising from a construction project at the Tampines Expressway to Pan-Island Expressway exit; and

  6. an increase in preliminary costs and overheads such as professional and legal fees, depreciation of property, plant and machinery, hiring costs and transportation costs during FY2017. The professional fees related to the engagement of consultants to design the construction methods for our ongoing projects. Hiring and transportation costs related to the rental of additional heavy equipment and machineries to support existing projects during FY2017.

Gross Profit And Gross Profit Margin

Our gross profit for FY2017 decreased marginally by 1 per cent or $0.2 million from $21.9 million for FY2016 to $21.7 million for FY2017.

Our gross profit margin decreased marginally from 19.7 per cent for FY2016 to 18.5 per cent for FY2017.

The lower gross profit margin for FY2017 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

Other Income

Other income decreased by $1.6 million or 64.3 per cent from $2.5 million for FY2016 to $0.9 million for FY2017. The decrease was largely attributable to:

  1. a technical management consultancy fee of $1.2 million received in relation to a piling project in Jakarta, Indonesia during FY2016, which did not recur in FY2017;

  2. a decrease in government grants of $0.2 million received which comprised wage credit payouts received from the Inland Revenue Authority of Singapore and incentives received from the Building and Construction Authority's Construction Engineering Capability Development Programme (CED Programme); and

  3. a loss of $0.3 million in foreign exchange resulting from the weakening of the US Dollar against the Singapore Dollar during FY2017,

  4. which were partially offset by:
  5. an increase in interest income received of $0.1 million due to higher interest earned from higher bank deposits during FY2017.

Administrative Expenses

Administrative expenses decreased by $0.8 million or 7.5 per cent from $10.8 million for FY2016 to $10.0 million for FY2017. The decrease was largely attributable to:

  1. lower directors' remuneration (including profit sharing) accrued as a result of the lower profit generated by the Group for FY2017; and

  2. a provision for impairment of non-trade receivable of $0.8 million during FY2016, which did not recur in FY2017. The provision for impairment of non-trade receivable related to a loan extended to an associated company, CS Amber Development Pte Ltd,

  3. which were partially offset by:
  4. an increase in staff costs due to salary adjustments during FY2017.

Finance Expenses

Finance expenses remained relatively constant at $77,000 and $72,000 in FY2017 and FY2016 respectively.

Share Of Results Of Associates And Joint Ventures (Net Of Tax)

  1. Share of profit of joint ventures
    The share of profit of joint ventures decreased by $0.7 million due mainly to:
    1. the $0.8 million decrease in the share of profits 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 ready for handover during FY2017,


    2. which was partially off set by:
    3. the $0.1 million increase in the share of profit from a construction project undertaken by Chye Joo – Or Kim Peow JV during FY2017.
  2. Share of profit of associated companies

    The $0.2 million increase in the share of profit of associated companies was due mainly to our associated company, United Singapore Builders Pte Ltd, recognising further profits for a construction project secured during FY2017.

Profit Before Income Tax

Profit before income tax decreased by $1.5 million or 9.2 per cent from $16.5 million for FY2016 to $15.0 million for FY2017. The decrease was due mainly to (1) the decrease in gross profit of $0.2 million, (2) the decrease in other income of $1.6 million and (3) the decrease in the share of profit of associated companies and joint ventures of $0.5 million. The decrease was partially off set by the decrease in administrative expenses of $0.8 million, as explained above.

Income Tax Credit/(Expense)

Income tax expense increased by $0.1 million or 4.7 per cent from $2.2 million in FY2016 to $2.3 million in FY2017 despite lower profit before income tax, as explained above.

The effective tax rates for FY2017 and FY2016 were 15.1 per cent and 13.1 per cent respectively.

The effective tax rate for FY2017 was lower than the statutory tax rate of 17 per cent 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 per cent on the corporate tax payable.

The effective tax rate for FY2016 was lower than the statutory tax rate of 17 per cent, due mainly to (1) enhanced tax deductions under the Productivity and Innovation Credit Scheme, (2) statutory stepped income tax exemption and (3) a tax rebate of 50 per cent on the corporate tax payable.

Net Profit

Our net profit decreased by $1.6 million or 11.3 per cent, from $14.3 million for FY2016 to $12.7 million for FY2017 due to the decrease in profit before income tax of $1.5 million coupled with the increase in income tax expense of $0.1 million, as explained above.

Our net profit margin decreased from 12.9 per cent for FY2016 to 10.8 per cent for FY2017.

Statement Of Financial Position

Current Assets

Current assets increased by $5.7 million, from $106.4 million as at 31 December 2016 to $112.1 million as at 31 December 2017. The increase was attributable to:

  1. an increase in cash and cash equivalents of $11.4 million. This was due mainly to the cash generated from operations for the financial year ended 31 December 2017 ("FY2017") of $17.4 million, which was partially off set by cash used in investing activities of $0.1 million, cash used in payment of dividends to shareholders of $4.6 million, and repayment of finance lease liabilities and servicing of interest payments of $1.3 million,

  2. which was partially off set by:
  3. a decrease in trade and other receivables of $5.7 million due to settlement of billings by a few customers during FY2017.

Non-current assets

Non-current assets decreased by $3.5 million, from $57.8 million as at 31 December 2016 to $54.3 million as at 31 December 2017. The decrease was attributable to:

  1. a decrease in financial assets, available-for-sale of $1.0 million resulting from the sale of a financial asset, available-for-sale; and

  2. a decrease in other receivables of $7.4 million arising from (1) reclassifi cation of a loan to a joint venture, Lakehomes Pte Ltd of $3.8 million to current assets as the loan will be repaid in one year or less, (2) the repayment of loan of $2.0 million and (3) a notional fair value adjustment of $1.6 million of the loan to an associated company, CS Amber Development Pte Ltd,

  3. which were partially offset by:
  4. an increase in investment properties of $2.1 million resulting from the purchase of the property at 7 Woodlands Industrial Park E2 Singapore 757450 for $2.2 million, which was partially off set by the fair value loss of $0.1 million arising from the revaluation of some investment properties in FY2017;

  5. an increase in property, plant and equipment of $0.6 million resulting from the purchase of new plant and equipment, which was partially off set by the disposal and depreciation of property, plant and equipment; and

  6. an increase in investments in associated companies of $2.2 million arising from (1) the share of profit of $0.5 million from an associated company, United Singapore Builders Pte Ltd and (2) a notional fair value adjustment of $1.6 million of the loan to an associated company, CS Amber Development Pte Ltd, during FY2017.
  7. Current liabilities

    Current liabilities decreased by $5.5 million, from $46.8 million as at 31 December 2016 to $41.3 million as at 31 December 2017. The decrease was due mainly to:

    1. a decrease in trade and other payables of $5.6 million arising from (1) lower accrued operating expenses related to project costs and (2) settlement of some major trade payables during FY2017; and

    2. a decrease in finance lease liabilities of $0.1 million as a result of repayment of finance lease liabilities,

    3. which were partially offset by:
    4. an increase in current income tax liabilities of $0.2 million due to certain non-deductible items added back for tax purposes during FY2017.

    Non-Current Liabilities

    Non-current liabilities decreased by $0.5 million, from $3.0 million as at 31 December 2016 to $2.5 million as at 31 December 2017. The decrease was due mainly to:

    1. a decrease in finance lease liabilities of $0.6 million as a result of repayment of finance lease liabilities during FY2017,


    2. which was partially off set by:
    3. an increase in deferred tax liabilities of $0.1 million which arose from deductible temporary diff erences between the carrying value of assets and value of assets for tax purposes in FY2017.


    Shareholders' Equity

    Shareholders' equity, comprising share capital, other reserves and retained profits, increased by $8.1 million, from $114.4 million as at 31 December 2016 to $122.5 million as at 31 December 2017. The increase was largely attributable to:

    1. the profit generated from operations of $12.7 million in FY2017,

    2. which was partially offset by:
    3. the dividend payment to shareholders of $4.6 million during FY2017.

    Statement of Financial Position

    Our Operating And Financial Review

    Group's Quarterly Results

    The first two quarters in FY2017 reported higher revenue as compared to their corresponding quarters in FY2016. The higher revenue was due mainly to the higher percentage of revenue recognised from a few key construction and maintenance projects that were in full swing during the half year ended 30 June 2017. The last two quarters in FY2017 reported lower revenue as compared to their corresponding quarters in FY2016. The lower revenue was due mainly to the lower percentage of revenue recognised from a number of few construction projects which were reaching completion, coupled with no revenue generated from a construction project as a result of a worksite incident at the Pan-Island Expresway exit to Tampines Expressway which occurred in 14 July 2017.

    Higher EBITDA were recorded in first and second quarters in FY2017 as compared to their corresponding quarters in FY2016.

    The increase in profit before income tax for the first and second quarter in 2017 was due mainly to cost effi ciencies in certain construction projects which resulted in higher gross profit margin, as well as an increase in share of results of associated companies and joint ventures of of $2.1 million. The decrease in profit before income for the third and last quarter in 2017 was due to lower profit for new and some current projects as a result of a more competitive pricing envirnomnent and rising manpower costs and a $2.6 million decrease in share of results of associated companies and joint ventures.

    Higher profit before income tax led to higher profit attributable to shareholders for first and second quarters in F2017. On the other hand, lower profit before income tax led to lower profit attributable to shareholders for last two quarters in FY2017.

    Corporate Liquidity And Cash Resources

    We maintain a strong and healthy balance sheet and cash fl ow position which enable us to explore new infrastructure projects and property investments, either here or overseas.

    We reported net cash of $17.5 million generated from operating activities in FY2017 as compared to net cash generated from operating activities of $28.3 million in FY2016. The $10.8 million decrease in net cash generated from operating activities was due mainly to:

    1. a decrease in net cash generated from operating activities before working capital changes of $1.2 miliion;
    2. a decrease in net working capital infl ow of $8.2 million; and
    3. an increase in income tax paid of $1.5 million during FY2017,

      which were partillay offset by:

    4. an increase in interest received of $0.1 million during FY2017.

    Net cash used in investing activites of $0.1 million was due to:

    1. the purchase of new property, plant and equipment and intangible assets of $2.9 million; and
    2. the purchase of an investment property at 7 Woodlands Industrial Park E2 Singapore 757450 for $2.2 million during FY2017,


    3. which were partially offset by:
    4. the repayment of loan by a joint venture, Lakehomes Pte Ltd, of $2.0 million;
    5. the proceeds received from the disposal of financial asset, available-for-sale of $1.0 million; and
    6. dividends of $2.0 million received form a joint venture, Forte Builder Pte Ltd during FY2017.

    Net cash of $5.9 million used in fi nancing activities in FY2017 included dividend payments to shareholders amountibg to $4.6 million, repayment of finance lease liabilities of $1.2 million and interest payments of $0.1 million.

    Overall, free cash and cash equivalents stood at $81.5 million as at 31 December 2017, an increase of $11.4 million, from $70.1 million as at 31 December 2016. This works out to cash of 26.4 cents per share as at 31 December 2017 as compared to 22.7 cents per share as at 31 December 2016. (based on 308,430,594 issued shares as at 31 December 2017 and 31 December 2016).

    The finance lease liabilities are secured by way of corporate guarantees issued by the Company and charged over the property, plant and equipment under the finance leases.

    The decrease in debt amount from $3.1 million as at FY2016 to $2.5 million as at FY2017 as a result of repayment of finance lease liabilities in FY2017.

    Value Added Statement

    Total value-added created by the Group in FY2017 amounted to $56.5 million (2016: $58.5 million) due to lower profits reported in Y2017.

    In FY2017, about $33.8 million or 60 per cent of the value-added was paid to employees in the form of salaries and wages. $2.4 million or 4 per cent was paid to the government in the form of corporate and property taxes while $4.7 million or 8 per cent was paid as dividends and interests to financial institutions. Balance of $15.5 million was retained by the Group for its future growth.

    In FY2016, about $33.5 million or 57 per cent of the value-added was paid to employees in the form of salaries and wages. $2.3 million or 4 per cent was paid to the government in the form of corporate and property taxes while $4.7 million or 8 per cent was paid as dividends and interests to financial institutions. Balance of $17.2 million was retained by the Group for its future growth.