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Operations Review

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(Extracted from Annual Report 2022)

BUSINESS REVIEW

(i) Construction

Completed Construction Projects

During the year under review, the Group completed two public sector construction projects. One was secured in May 2018 but due to the Covid-19 restrictions, the project's completion date was extended to April 2022. The other project commenced in October 2018 and its completion date was extended to May 2022.

The construction segment continued to be the major contributor to OKP's total revenue, contributing 69.7 per cent or $81.9 million in FY2022.

List of Completed Construction Projects

Ongoing Construction Projects

In 2022, we continued the execution of 10 ongoing construction projects, which had been secured since February 2015. We won one new construction project, the Commuter Infrastructure Enhancement contract, during the year under review.

List of Ongoing Construction Projects

(ii) Maintenance

Completed Maintenance Projects

Two maintenance projects were completed during the year under review.

List of Completed Maintenance Projects

In addition to providing a stable and recurrent income stream for the Group, our maintenance segment is a significant part of the services that we provide to our clients. This segment contributed $29.5 million, which constituted 25.0 per cent of OKP's total revenue, in FY2022.

Ongoing Maintenance Projects

We secured one new maintenance contract, a road maintenance contract for South East Sector, subsequent to FY2022.

We continued the execution of three ongoing maintenance projects, which had been secured since May 2020.

List of Ongoing Maintenance Projects

In addition to the above projects, two ongoing road maintenance contracts, comprising one for Expressway (TR310A) and another for North East Sector (TR310B), are being carried out by a joint venture partnership, Eng Lam – United E&P JV.

(iii) Rental Income

Rental income contributed $6.3 million or 5.3 per cent of our Group's total revenue for FY2022, down from $7.1 million in the previous year.

The decrease in rental income derived from investment properties was mainly attributed to the loss from foreign exchange translation arising from the rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia. This was due to the revaluation of Australian dollar to Singapore dollar.

Financial Review

Income Statement

Balance Sheet

Revenue

Our Group reported a 30.7% or $27.6 million increase in revenue to $117.6 million during the financial year ended 31 December 2022 (FY2022) as compared to $90.0 million during the financial year ended 31 December 2021 (FY2021). The increase was due mainly to a 44.8% increase in revenue from the construction segment to $81.9 million and a 11.6% increase in revenue from the maintenance segment to $29.5 million, partially offset by a 11.3% decrease in rental income.

The increase in revenue from both the construction and maintenance segments was due mainly to the temporary cessation of construction activities in compliance with the government's COVID-19 measures in FY2021 coupled with the higher percentage of revenue recognised from a number of existing and newly awarded construction and maintenance projects during FY2022.

The decrease in rental income generated from investment properties was mainly due to the loss from foreign exchange translation arising from the rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia due to the revaluation of Australian dollar to Singapore dollar.

Cost of Sales

Our cost of sales increased by 28.3% or $23.6 million from $83.2 million for FY2021 to $106.8 million for FY2022. The increase in cost of sales was due mainly to:

  1. an increase in subcontracting costs which were mainly costs incurred for premix works, signages, asphalt works, mechanical and electrical works, soil-testing, landscaping and metalworks which are usually subcontracted to external parties;

  2. an increase in the cost of construction materials due to higher utilisation of materials and increase in prices of construction materials;

  3. an increase in labour costs which was due to the increase in headcount coupled with salary adjustments; and

  4. an increase in overheads such as upkeep of machineries, worksite expenses and hiring costs related to the rental of additional heavy equipment and machineries to support existing projects,

during FY2022.

Gross Profit And Gross Profit Margin

Our gross profit for FY2022 increased by 59.2% or $4.0 million from $6.8 million for FY2021 to $10.8 million for FY2022.

The rental income segment demonstrated a decrease in contribution to gross profit of $0.8 million, from $4.7 million for FY2021 to $3.9 million for FY2022. However, there is an increase of $4.8 million in the gross profit of the construction and maintenance segments, from $2.1 million in FY2021 to $6.9 million in FY2022.

Our gross profit margin for the construction and maintenance segments increased from 2.5% for FY2021 to 6.2% for FY2022 The improvement in the gross profit margin was mainly attributed to the Group's ongoing initiatives to improve cost management, despite the higher material costs and rising manpower costs.

Other Gain, Net

Other gains decreased by $4.7 million or 61.6% from $7.7 million for FY2021 to $3.0 million for FY2022. The decrease was due mainly to:

  1. a decrease in receipt of payouts and rebates from the government by $2.1 million which aimed to provide wage support to employers, as part of the support measures for built environment firms affected by COVID-19;

  2. a decrease in fair value gain of $2.1 million arising from the revaluation of some of the investment properties; and

  3. an increase of $0.5 million in impairment loss on other receivables,

during FY2022.

Administrative Expenses

Administrative expenses increased by $3.1 million or 33.3% from $9.3 million for FY2021 to $12.4 million for FY2022. The increase was largely due to a oneoff increase of $3.6 million in legal fees incurred for arbitration proceedings during FY2022, which was partially offset by a decrease of $0.5 million in salary costs in FY2022.

Finance Expenses

Finance expenses increased by $0.4 million or 37.9%, from $1.1 million for FY2021 to $1.5 million for FY2022. The increase was due mainly to higher borrowing costs arising from the increase in interest rate during FY2022.

Share of Results of Associated Companies And Joint Ventures

The share of results of associated companies and joint ventures increased by $0.3 million or 103.7% from $0.4 million for FY2021 to $0.7 million for FY2022. The increase was due mainly to the share of profit from the Group's joint venture, Eng Lam – United E&P JV, and 22.5%-held associated company, Chong Kuo Development Pte Ltd, during FY2022.

Profit Before Income Tax

Profit before income tax decreased by $3.9 million from $4.4 million for FY2021 to $0.5 million for FY2022. The decrease was due mainly to (1) the decrease in other gains of $4.7 million, (2) the increase of $3.1 million in administrative expenses, and (3) the increase in finance expenses of $0.4 million, which were partially offset by (1) the increase in gross profit of $4.0 million and (2) the increase in share of profit of $0.3 million, as explained above.

Income Tax Expense

Income tax expense increased by $0.1 million or 76.1% from $0.2 million in FY2021 to $0.3 million in FY2022 due mainly to initial recognition of deferred tax assets arising from Australian subsidiary corporation in FY2021.

The effective tax rates for FY2022 and FY2021 were 69.6% and 4.8% respectively.

The effective tax rate for FY2022 was higher than the statutory tax rate of 17.0% due mainly to (1) the relatively higher corporate tax rate of our Australian subsidiary corporation, (2) certain non-deductible items added back for tax purposes and (3) recognition of deferred tax liabilities in one of the subsidiary corporations.

Non-Controlling Interests

Non-controlling interests of $1.2 million was due to the share of profit of our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in FY2022.

Net Profit

Overall, net profit decreased by $4.0 million or 96.1%, from $4.2 million for FY2021 to $0.2 million for FY2022, following the decrease in profit before income tax and the increase in income tax expense, as explained above.

Our net profit margin decreased from 4.7% for FY2021 to 0.1% for FY2022.

Balance Sheet

Current Assets

Current assets decreased by $6.8 million, from $76.3 million as at 31 December 2021 to $69.5 million as at 31 December 2022. The decrease was due mainly to:

  1. a decrease in cash and cash equivalents of $25.0 million, due mainly to the cash used in operating activities of $6.6 million, cash used in investing activities of $9.7 million, cash used in financing activities of $8.6 million and currency translation loss of $0.1 million; and

  2. a decrease of $0.1 million in inventories, due to the utilisation of materials for existing construction and maintenance projects,

  3. which was partially offset by:

  4. an increase in contract assets of $8.4 million, due mainly to an increase in construction contract due from customers arising from higher unbilled amounts expected to be collected from customers following the higher revenue recognised; and

  5. aan increase in trade and other receivables of $9.9 million, due mainly to an increase in trade and non-trade receivables of $10.0 million from nonrelated parties and an increase of $0.6 million arising from deposits paid for the purchase of property, plant and equipment, offset by the settlement of billings of $0.4 million from a joint venture, receipt of government grant receivable of $0.1 million and recovery of advances to supplier of $0.2 million,

during FY2022.

Non-current assets

Non-current assets increased by $8.6 million, from $126.8 million as at 31 December 2021 to $135.4 million as at 31 December 2022. The increase was due mainly to:

  1. an increase in investments in associated companies of $0.6 million arising from the share of profit of an associated company of $0.7 million and a notional fair value adjustment arising from the extension of loan repayment period for loans extended to an associated company of $0.1 million;

  2. an increase in other receivables of $1.7 million, due to an advance extended to an associated company, USB Holdings Pte Ltd, of $2.1 million and a notional fair value adjustment of $0.1 million, which was partially offset by the impairment loss of $0.5 million;

  3. an increase in the other investments at amortised cost arising from the investment in structured deposit of $2.0 million;

  4. an increase in property, plant and equipment and right-of-use assets of $2.3 million and $1.6 million, respectively, resulting mainly from the purchase of new property, plant and equipment to support the new and existing projects, which was partially offset by disposal and depreciation; and

  5. an increase in deferred income tax assets of $0.4 million arising from the recognition of deferred income tax assets in one of the subsidiary corporations,

during FY2022.

Current liabilities

Current liabilities increased by $6.9 million, from $37.3 million as at 31 December 2021 to $44.2 million as at 31 December 2022. The increase was due mainly to:

  1. an increase in trade and other payables of $7.3 million arising from (1) an increase in trade payables of $6.4 million, and (2) higher accrued operating expenses related to project costs of $0.9 million; and

  2. an increase in lease liabilities of $0.9 million arising from the purchase of plant and machineries and use of state land, offset by the repayment of lease liabilities,

  3. which was partially offset by:

  4. a decrease in bank borrowings of $1.0 million due to repayment of existing borrowings; and

  5. a decrease in current income tax liabilities of $0.3 million due to lower tax provision,

during FY2022.

Non-Current Liabilities

Non-current liabilities decreased by $3.5 million, from $40.5 million as at 31 December 2021 to $37.0 million as at 31 December 2022. The decrease was due mainly to:

  1. a decrease in other payables of $0.2 million arising from translation gain from amount due to a non-controlling shareholder, which is denominated in AUD; and


  2. repayment of bank borrowings of $3.9 million,


  3. which were partially offset by:

  4. an increase in lease liabilities of $0.4 million arising from the purchase of plant and machineries to support the existing projects offset by the repayment of lease liabilities; and

  5. an increase in deferred income tax liabilities of $0.2 million,

during FY2022.

Shareholders' Equity

Shareholders' equity, comprising share capital, treasury shares, other reserves, retained profits and non-controlling interests, decreased by $1.6 million, from $125.3 million as at 31 December 2021 to $123.7 million as at 31 December 2022. The increase was due mainly to:

  1. non-controlling interests of $1.4 million arising from the share of profit of Raffles Prestige Capital Pte Ltd; and

  2. other comprehensive income arising from currency translation reserve of $0.3 million,

  3. which were partially offset by:

  4. the losses from operations of $1.0 million attributable to equity holders of the Company and non-controlling interests of $0.2 million arising from share of other comprehensive loss of Raffles Prestige Capital Pte Ltd; and

  5. the dividend payment to shareholders of $2.1 million,

during FY2022.

Our Operating And Financial Review

Corporate Liquidity And Cash Resources

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

We reported net cash of $6.6 million used in operating activities in FY2022, an increase of $0.6 million from net cash used in operating activities of $6.0 million in FY2021. The increase was due mainly to:

  1. a decrease in net cash generated from operating activities before working capital changes of $1.0 million;

  2. which was partially offset by:

  3. a decrease in net working capital outflow of $0.2 million;

  4. an increase in interest received of $0.1 million; and

  5. a decrease in income tax paid of $0.1 million,
during FY2022.

Net cash used in investing activites decreased by $20.9 mllion from $30.6 million in FY2021 to $9.7 million in FY2022. The decrease was due mainly to:

  1. a decrease in cash used in the purchase of investment properties of $24.4 million, which was used for the purchase of investment properties in FY2021; and

  2. a decrease in advance extended to an associated company of $0.9 million,

  3. which were partially offset by:

  4. an increase in cash used in the purchase of property, plant and equipment of $2.4 million; and

  5. purchase of other investment at amortised cost of $2.0 million,

  6. during FY2022.

Net cash provided by financing activities decreased by $17.2 million, from net cash provided by financing activities of $8.6 million in FY2021 to net cash used in financing activities of $8.6 million in FY2022. The decrease was due mainly to:

  1. a decrease in advance from a non-controlling shareholder of $5.6 million;

  2. a decrease in proceeds from bank borrowings of $11.7 million; and

  3. a decrease in repayment of lease liabilities of $0.8 million,

  4. which were partially offset by:

  5. an increase in repayment of borrowings of $0.4 million;

  6. an increase in interest paid of $0.4 million; and

  7. an increase in bank deposit pledged of $0.1 million,

during FY2022.

Overall, free cash and cash equivalents stood at $20.8 million as at 31 December 2022, a decrease of $25.0 million from $45.8 million as at 31 December 2021. This works out to cash of 6.8 cents per share as at 31 December 2022 as compared to 14.9 cents per share as at 31 December 2021 (based on 306,961,494 issued shares).

The lease liabilities of $5.9 million (FY2021: $5.6 million) are secured by way of corporate guarantees issued by the Company and charges over the property, plant and equipment under the leases.

The bank borrowings of $29.0 million (FY2021: $34.0 million) is secured by first legal mortgage over investment properties and a freehold property of the Group, certain bank deposits, the Group's shares in a subsidiary corporation and corporate guarantee of the Company.

The decrease in debt amount from $40.4 million as at FY2021 to $36.7 million as at FY2022 as a result of repayment of lease labilities and bank borrowings during FY2022.

Value Added Statement

Total value-added created by the Group in FY2022 amounted to $44.3 million (2021: $42.4 million) due to higher profits reported in FY2022.

In FY2022, about $37.4 million or 85.0 per cent of the value-added was paid to employees in the form of salaries and wages. $0.5 million or 1.0 per cent was paid to the government in the form of corporate and property taxes while $3.3 million or 7.0 per cent was paid as dividends and interests to financial institutions.

Balance of $4.8 million was retained by the Group for its future growth.

In FY2021, about $35.1 million or 83.0 per cent of the value-added was paid to employees in the form of salaries and wages. $0.3 million or 1.0 per cent was paid to the government in the form of corporate and property taxes while $2.9 million or 7.0 per cent was paid as dividends and interests to financial institutions. Balance of $8.5 million was retained by the Group for its future growth.