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Operations Review

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(Extracted from Annual Report 2016)

OPERATING REVIEW

Business Segmental Breakdown

(i) Construction

Completed Construction Projects

During the year under review, there was one completed construction project, which was secured in October 2015 and completed in June 2016. The construction segment continued to be the major contributor to our Group's total revenue, contributing 81.5 per cent or $90.5 million in 2016.

List of Completed Construction Projects

Ongoing Construction Projects

During the year, we secured one construction project. In July 2016, we won a contract for the proposed infrastructure works at Punggol (Phase 1) from JTC Corporation.

In 2016, we continued the execution of several ongoing construction projects, which had been secured since April 2014.

List of Ongoing Construction Projects

In addition to the above projects, a Public Utilities Board (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 two maintenance projects during the year under review. These projects involved term contract ad hoc repairs and upgrading of roads, road-related facilities and road structure and improvements to roadside drains at Lorong 101-108 Changi Road/Langsat Road, Hillview Avenue and Thomson Road.

In addition to providing a steady 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 $20.7 million, which constituted 18.5 per cent of our Group's total revenue in 2016.

List of Completed Maintenance Projects

Ongoing Maintenance Projects

During the year under review, we won four new maintenance contracts. Two contracts are from the Public Utilities Board involving improvement to roadside drains at Penjuru, Jalan Sampurna, Pioneer Sector and Jalan Buroh areas and Lorong 22 to 22 Geylang areas.

The other two contracts are from the Land Transport Authority for road resurfacing works along PIE, AYE and other expressways, and along ECP, SLE, BKE, CTE and KPE.

Besides the new maintenance contracts, we are working on one ongoing maintenance project.

List of Ongoing Maintenance Projects

Financial Review

Income Statement

Revenue

Our Group reported a 7.6 per cent or $7.8 million increase in revenue to $111.1 million for FY2016 as compared to $103.3 million for FY2015. The increase was due mainly to a 16.7 per cent increase in revenue from the construction segment to $90.5 million, partially offset by a 19.9 per cent decrease in revenue from the maintenance segment to $20.6 million.

The increase in revenue from the construction segment was due mainly to the higher percentage of revenue recognised from a number of existing construction projects as they progressed to a more active phase in FY2016.

The decrease in revenue from the maintenance segment was largely attributable to the substantial completion of some existing maintenance projects in FY2016.

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 81.5 per cent (2015: 75.1 per cent) and 18.5 per cent (2015: 24.9 per cent) respectively of our Group's revenue for FY2016.

Cost of works

Our cost of works marginally decreased by 0.4 per cent or $0.3 million from $89.5 million for FY2015 to $89.2 million for FY2016. The decrease in cost of works was due mainly to:

  1. the decrease in the cost of construction materials due to lesser utilisation of materials resulting from the change in construction designs coupled with the decreases in the prices of some raw materials; and

  2. the decrease in preliminary costs and overheads such as professional fees, depreciation of property, plant and machinery, hiring costs and transportation costs during FY2016. The professional fees related to the engagement of consultants to design the construction methods of our on-going projects. Hiring and transportation costs related to the rental of additional heavy equipment and machineries to support existing projects,

  3. which were partially offset by:
  4. the 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 were usually subcontracted to external parties. Due to the nature of works, our current projects required a large portion of specialised works during FY2016; and
  5. an increase in labour costs largely due to the write-back of over-accrued labour costs in FY2015 which did not recur in FY2016.

Gross Profit And Gross Profit Margin

Consequently, our gross profit for FY2016 increased by 59.2 per cent or $8.1 million from $13.8 million for FY2015 to $21.9 million for FY2016.

Our gross profit margin increased from 13.3 per cent for FY2015 to 19.7 cent for FY2016.

The higher gross profit margin for FY2016 was largely attributable to the completion of a few maintenance projects which had commanded better gross profit and the recognition of variation orders for a construction project.

Other Income

Other income decreased by $0.3 million or 11.7 per cent from $2.8 million for FY2015 to $2.5 million for FY2016. The decrease was largely attributable to:

  1. a write-back of non-trade payables of $0.4 million during FY2015, which did not recur in FY2016. This write-back of non-trade payables was a one-time exercise, as a result of the acquisition of the remaining 45 per cent of the issued shares of a subsidiary corporation from the non-controlling shareholders;
  2. a fair value loss of $0.2 million arising from the revaluation of some of the investment properties in FY2016;
  3. a decrease of $0.2 million which was due mainly to the lower gain from foreign exchange resulting from the strengthening of the US dollar against the Singapore dollar; and
  4. decrease in sale of construction materials and equipment hiring income from the rental of equipment and machinery during FY2016,

  5. which were partially offset by:
  6. an increase in a technical management consultancy fee of $0.4 million received in relation to a piling project in Jakarta, Indonesia during FY2016;
  7. an increase in interest income received of $0.3 million due to higher interest earned from higher bank deposits during FY2016; and
  8. an increase in government grants of $0.2 million 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).

Administrative Expenses

Administrative expenses increased by $1.8 million or 20.1 per cent from $9.0 million for FY2015 to $10.8 million for FY2016. The increase was largely attributable to (1) higher directors' remuneration (including profit sharing) accrued as a result of the higher profit generated by the Group for FY2016, and (2) an increase in staff costs due to salary adjustments during FY2016.

Finance Expenses

Finance expenses increased marginally by $10,000 due mainly to an increase in finance lease liabilities arising from additional plant and equipment acquired to support new projects during FY2016.

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 increased by $2.7 million due mainly to:
    1. the recognition of profit of $2.6 million from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium, based on the recognition of profits from units of the development which are ready for handover; and


    2. the recognition of profit of $88,000 for a construction project undertaken by Chye Joo – Or Kim Peow JV during FY2016.
  2. Share of profit of joint ventures
    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 FY2016.

Profit Before Income Tax

Profit before income tax increased by $8.9 million or 117.0 per cent from $7.6 million for FY2015 to $16.5 million for FY2016. The increase was due mainly to (1) the increase in gross profit of $8.1 million and (2) the increase in the share of profit of associated companies and joint ventures of $2.9 million. The increase was partially offset by (1) the increase in administrative expenses of $1.8 million and (2) the decrease in other income of $0.3 million, as explained above.

Income Tax Credit/(Expense)

Income tax expense increased by $1.6 million or 260.3 per cent from $0.6 million in FY2015 to $2.2 million in FY2016 due mainly to higher profit before income tax, as explained above.

The effective tax rates for FY2016 and FY2015 were 13.1 per cent and 7.9 per cent respectively.

The effective tax rate for FY2016 was lower than the statutory tax rate of 17.0 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.

Due to the utilisation of capital allowances carried forward from prior years, the effective tax rate of 7.9 per cent for FY2015 was lower than the statutory tax rate of 17.0 per cent.

Net Profit

Overall, our net profit increased by $7.3 million or 104.7 per cent, from $7.0 million for FY2015 to $14.3 million for FY2016, following the increase in profit before income tax of $8.9 million which was partially offset by the increase in income tax expense of $1.6 million, as explained above.

Our net profit margin increased from 6.8 per cent for FY2015 to 12.9 per cent for FY2016.

Statement Of Financial Position

Current Assets

Current assets increased by $23.0 million, from $83.4 million as at 31 December 2015 to $106.4 million as at 31 December 2016. The increase was attributable to:

  1. an increase in cash and cash equivalents of $20.0 million. This was due mainly to the cash generated from operations for the financial year ended 31 December 2016 ("FY2016") of $28.2 million, which was partially offset by cash used in investing activities of $2.0 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 $1.6 million; and

  2. an increase in trade and other receivables of $5.7 million following higher revenue recognised for FY2016 coupled with higher amount of deposits made to suppliers and advances made to subcontractors during FY2016,


  3. which was partially offset by:

  4. a decrease in construction contract work-in-progress of $2.7 million due mainly to lower unbilled amounts expected to be collected from customers for contract work performed up till 31 December 2016 as compared to 31 December 2015.

Non-current assets

Non-current assets increased by $3.4 million, from $54.4 million as at 31 December 2015 to $57.8 million as at 31 December 2016. The increase was attributable to:

  1. an increase in property, plant and equipment of $1.2 million resulting from the purchase of new plant and equipment, which was partially offset by the disposal and depreciation of property, plant and equipment;

  2. an increase in investments in joint ventures of $2.6 million due mainly to the share of profit from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium, based on the recognition of profits from units of the development which are ready for handover, and

  3. an increase in investments in associated companies of $0.3 million arising from the share of profit of an associated company, United Singapore Builders Pte Ltd,

  4. which were partially offset by:
  5. a decrease in other receivables of $0.5 million arising from an allowance for impairment of $0.8 million made in relation to a loan extended to an associated company, CS Amber Development Pte Ltd, which was partially offset by a notional fair value adjustment of $0.3 million of the remaining loan to a joint venture, Lakehomes Pte Ltd, during FY2016; and

  6. the fair value loss of $0.2 million arising from the revaluation of some of the investment properties in FY2016.
  7. Current liabilities

    Current liabilities increased by $16.0 million, from $30.8 million as at 31 December 2015 to $46.8 million as at 31 December 2016. The increase was due mainly to:

    1. an increase in trade and other payables of $14.4 million arising from (1) an advance of $2.0 million received from a customer for an on-going project and (2) billings received from sub-contractors and suppliers for work done and materials supplied towards the end of December 2016;

    2. an increase in current income tax liabilities of $1.4 million due to higher tax provision resulting from higher profits generated during FY2016; and
    3. an increase in finance lease liabilities of $0.2 million as a result of purchase of plant and machinery to support new projects during FY2016.

    Non-Current Liabilities

    Non-current liabilities increased by $0.7 million, from $2.3 million as at 31 December 2015 to $3.0 million as at 31 December 2016. The increase was due mainly to:

    1. an increase in finance lease liabilities of $0.4 million as a result of purchase of plant and machinery to support new projects during FY2016; and


    2. an increase in deferred tax liabilities of $0.3 million which arose from deductible temporary differences between the carrying value of assets and value of assets for tax purposes in FY2016.


    Shareholders' Equity

    Shareholders' equity, comprising share capital, other reserves and retained profits, increased by $9.7 million, from $104.7 million as at 31 December 2015 to $114.4 million as at 31 December 2016. The increase was largely attributable to:

    1. the profit generated from operations of $14.3 million in FY2016,

    2. which was partially offset by:

    3. the dividend payment to shareholders of $4.6 million during FY2016.

    Statement Of Financial Position

    Our Operating And Financial Review

    Group's Quarterly Results

    The first two quarters in FY2016 reported lower revenue as compared to their corresponding quarters in FY2015. The lower revenue was due mainly to the lower percentage of revenue recognised from several maintenance projects that were near completion during the half year ended 30 June 2016. The last two quarters in FY2016 reported higher revenue as compared to their corresponding quarters in FY2015. The higher revenue was due mainly to the higher percentage of revenue recognised from a number of existing key construction projects as they progressed to a more active phase during the last two quarters.

    Higher EBITDA were recorded in first, third and last quarters in FY2016 as compared to their corresponding quarters in FY2015.

    All the quarters except the second quarters in FY2016 registered higher profit before income tax as compared to the corresponding quarters in FY2015. The increase in profit before income tax was due mainly to the completion of several maintenance projects which commanded higher margins, as well as the recognition of variation orders for a construction project in FY2016. The increase in the profit before income tax in the last quarter of 2016 was mainly due to an increase in share of results of associated companies and joint ventures of $2.9 million.

    Better profit before income tax led to higher profit attributable to shareholders for first, third and last quarters in 2016.

    Corporate Liquidity And Cash Resources

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

    We reported net cash of $28.2 million generated from operating activities in FY2016 as compared to net cash generated from operating activities of $20.3 million in FY2015. The $7.9 million increase in net cash generated from operating activities was due mainly to:

    1. an increase in net cash generated from operating activities before working capital changes of $5.8 miliion;
    2. an increase in net working capital infl ow of $2.1 million; and
    3. an increase in interest received of $0.3 million,

      which were partillay offset by:


    4. an increase in income tax paid of $0.3 million during FY2016.

    Net cash used in investing activites of $2.0 million was due to:

    1. the purchase of new property, plant and equipment and intangible assets of $2.0 million; and
    2. an advance of $0.16 million granted to joint venture, Lakehomes Pte Ltd, during FY2016,

      which were partially offset by:


    3. the proceeds received from the disposal of property, plant and equipment and interest income from the financial asset, available-for-sale during FY2016.

    Net cash of $5.6 million used in financing activities in FY2016 included repayment of finance lease liabilities of $1.5 million, interest payments of $0.1 million and dividend payments to shareholders amounting to $4.6 million. The $6.2 million outfl ow was partially offset by a decrease in pledged deposit of $0.6 million as a result of the cancellation of a bank facility during FY2016.

    Overall, free cash and cash equivalents stood at $70.1 million as at 31 December 2016, an increase of $20.6 million, from $49.5 million as at 31 December 2015. This works out to cash of 22.7 cents per share as at 31 December 2016 as compared to 16.1 cents per share as at 31 December 2015. (based on 308,430,594 issued shares as at 31 December 2016 and 31 December 2015).

    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 increase in debt amount from $2.6 million as at FY2015 to $3.1 million as at FY2016 as a result of purchase of plant and equipment to support new and existing projects in FY2016.

    Value Added Statement

    Total value-added created by the Group in FY2016 amounted to $58.5 million (2015: $41.6 million) due to higher profits reported in FY2016.

    In FY2016, about $33.5 million or 57.0 per cent of the value-added was paid to employees in the form of salaries and wages. $2.3 million or 4.0 per cent was paid to the government in the form of corporate and property taxes while $4.7 million or 8.0 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.

    In FY2015, about $29.8 million or 72.0 per cent of the value-added was paid to employees in the form of salaries and wages. $0.7 million or 2.0 per cent was paid to the government in the form of corporate and property taxes while $0.7 million or 2.0 per cent was paid as dividends and interests to financial institutions. Balance of $10.2 million was retained by the Group for its future growth.