BUSINESS REVIEW
(i) Construction
Completed Construction Projects
During the year under review, there was one completed public sector construction project, which was secured in June 2017 and completed in February 2019
The construction segment continued to be one of the major contributors to our Group's total revenue, contributing 61.4 per cent or $50.0 million in FY2019.
List of Completed Construction Projects
Ongoing Construction Projects
During the year, we secured three construction projects from various public sector agencies. These three projects were:
In 2019, we continued the execution of several ongoing construction projects, which had been secured since February 2015.
List of Ongoing Construction Projects
(ii) Maintenance
Completed Maintenance Projects
No maintenance project was completed during the year under review.
In addition to providing a stable and recurrent income stream for the Group, our maintenance segment is an important part of the services that we provide to our clients. This segment contributed $25.7 million, which constituted 31.5 per cent of our Group's total revenue in FY2019.
Ongoing Maintenance Projects
We secured one new maintenance contract in FY2019. The new maintenance project involved improvement to roadside drains and watermain replacement works under Estate Upgrading Programme batch 9 - contract 1 (Clover and Thomson Faber Island Gardens Estates).
In 2019, we continued the execution of several ongoing maintenance projects, which had been secured since January 2018.
List of Ongoing Maintenance Projects
In addition to the above projects, one road maintenance contract for Expressway (TR310A) and another road maintenance contract for North East Sector (TR310B) were awarded to a joint venture partnership, Eng Lam – United E&P JV, in April 2019.
(iii) Rental Income
Rental income contributed $5.7 million or 7.1 per cent of our Group's total revenue for FY2019, up from 4.5 per cent in the previous year.
The increase in rental income, derived from investment properties, was mainly attributed to rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia based on the occupancy rate of 100.0 per cent as at the end of FY2019 compared to the occupancy rate of 68.0 per cent a year ago.
Financial Review
Income Statement
Balance Sheet
Revenue
Our Group reported a 10.0% or $9.0 million decrease in revenue to $81.4 million for FY2019 as compared to $90.4 million for FY2018. The decrease was due mainly to a 36.4% decrease in revenue from the maintenance segment to $25.7 million, partially offset by (i) an 8.5% increase in revenue from the construction segment to $50.0 million and (ii) a 42.4% increase in rental income.
The increase in revenue from the construction segment was due mainly to the higher percentage of revenue recognised from a number of existing and newly awarded construction projects as they progressed to a more active phase in FY2019.
The decrease in revenue from the maintenance segment was due mainly to a lower percentage of revenue recognised from a few newly-awarded maintenance projects in FY2019.
The increase in rental income generated from investment properties was due mainly to rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia which has been fully occupied since the second quarter ended 30 June 2019.
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 61.4% (FY2018: 50.9%), 31.5% (FY2018: 44.6%) and 7.1% (FY2018: 4.5%) of our Group's revenue respectively for FY2019.
Cost of Sales
Our cost of sales decreased by 2.7% or $1.9 million from $72.5 million for FY2018 to $70.6 million for FY2019. The decrease in cost of sales was due mainly to:
during FY2019.
Gross Profit And Gross Profit Margin
Our gross profit for FY2019 decreased by 39.5% or $7.1 million from $17.9 million for FY2018 to $10.8 million for FY2019.
The lower gross profit margin in FY2019 was due mainly to lower profit margins for new and some current construction projects as a result of a more competitive pricing environment and rising manpower cost.
Other Gain/(Losses),Net
Other gains increased by $3.1 million or 550.1% from a net loss of $0.6 million for FY2018 to a net gain of $2.5 million for FY2019. The increase was due mainly to (1) a technical management consultancy fee of $0.5 million in relation to a piling project in Jakarta, Indonesia, (2) an increase in net fair value gain of $2.5 million resulting from a fair value loss of $1.9 million in FY2018 to a fair value gain of $0.6 million in FY2019, arising from the revaluation of some of the investment properties and (3) an increase of $0.1 million in miscellaneous income arising from the sale of construction materials during FY2019.
Finance Expenses
Finance expenses increased by $0.1 million or 13.7% from $1.1 million for FY2018 to $1.2 million for FY2019. The increase was due mainly to:
Administrative expenses
Administrative expenses increased by $0.5 million or 5.1% from $9.5 million for FY2018 to $10.0 million for FY2019. The increase was largely due to an increase in legal fees incurred for an ongoing trial, partially offset by a decrease in directors' remuneration as a result of the loss before income tax (excluding non-controlling interests) of the Group for FY2019.
Share of Results of Associated Companies And Joint Ventures
The share of loss of associated companies was due mainly to losses incurred by the Group's 22.5% held associated company, Chong Kuo Development Pte Ltd, and the Group's 25% held associated company, USB Holdings Pte Ltd, during FY2019.
Profit Before Income Tax
Profit before income tax decreased by $5.5 million or 84.2% from $6.5 million for FY2018 to $1.0 million for FY2019. The decrease was due mainly to (1) the decrease in gross profit of $7.1 million, (2) the increase in administrative expenses of $0.5 million, (3) the increase in finance expenses of $0.1 million and (4) the increase in share of loss of associated companies and joint ventures of $0.9 million. The decrease was partially offset by the increase in other gains (net) of $3.1 million, as explained above.
Income Tax Expense
Income tax expense decreased by $0.6 million or 61.2% from $0.9 million in FY2018 to $0.3 million in FY2019 due mainly to lower profit before income tax, as explained above.
The effective tax rates for FY2019 and FY2018 were 34.5% and 14.1% respectively.
The effective tax rate for FY2019 was higher than the statutory tax rate of 17.0%, due mainly to (1) to the profit before income tax of $1.0 million which took into account the share of loss of associated companies and joint ventures of $1.0 million, which was not tax deductible, (2) the relatively higher corporate tax rate of our Australian subsidiary corporation, and (3) certain non-deductible items added back for tax purposes.
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.
Non-Controlling Interests
Non-controlling interests of $1.0 million was due to the share of profit of our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in FY2019.
Net Profit
Overall, for FY2019, net profit decreased by $4.9 million or 87.9%, from $5.6 million for FY2018 to $0.7 million for FY2019, following the decrease in profit before income tax of $5.5 million which was partially offset by the decrease in income tax expense of $0.6 million, as explained above.
Our net profit margin decreased from 6.2% for FY2018 to 0.8% for FY2019.
Balance Sheet
Current Assets
Current assets increased by $0.8 million, from $96.4 million as at 31 December 2018 to $97.2 million as at 31 December 2019. The increase was due mainly to:
during FY2019.
Non-current assets
Non-current assets decreased by $7.2 million, from $90.2 million as at 31 December 2018 to $83.0 million as at 31 December 2019. The decrease was due mainly to:
during FY2019.
Current liabilities
Current liabilities decreased by $5.2 million, from $27.6 million as at 31 December 2018 to $22.4 million as at 31 December 2019. The decrease was due mainly to:
during FY2019.
Non-Current Liabilities
Non-current liabilities increased by $1.3 million, from $35.4 million as at 31 December 2018 to $36.7 million as at 31 December 2019. The increase was due mainly to (1) an increase in lease liabilities of $2.2 million arising from the purchase of plant and machineries to support the existing projects and (2) a net increase of $0.2 million in non-trade payables arising from a foreign exchange realignment due to depreciation of Australian dollar against the Singapore dollar, which were partially offset by repayment of bank borrowing of $1.1 million during FY2019.
Shareholders' Equity
Shareholders' equity, comprising share capital, other reserves, retained profits and non-controlling interests, decreased by $2.5 million, from $123.6 million as at 31 December 2018 to $121.1 million as at 31 December 2019. The decrease was due mainly to:
during FY2019.
Our Operating And Financial Review
Group's Quarterly Results
All quarters in FY2019 reported lower revenue as compared to their corresponding quarters in FY2018 except for the fourth quarter. The lower revenue was due mainly to the lower percentage of revenue recognised from a few newlyawarded maintenance projects. The decrease in revenue from the maintenance segment was partially offset by an increase in the construction segment and rental income generated from investment properties due mainly to a higher percentage of recenue recognised from a number of existing construction projects and newly awarded projects which progressed to a more active phase in FY2019, and rental income from the property at 6-8 Bennett Street, East Perth, Western Australia. The higher revenue in the fourth quarter of FY2019 as compared to the corresponding quarter in FY2018 is due mainly to the higher percentage of revenue recognised from a number of existing and newly awarded construction projects as they progressed to a more active phase in 4Q2019 as well as a higher percentage of revenue recognised from a number of existing maintenance projects as they progressed to a more active phase during 4Q2019.
Lower EBITDA were recorded in the first quarter and the last two quarters in FY2019 as compared to their corresponding quarters in FY2018.
The decrease in profit before income tax for the first quarter in FY2019 was due mainly to lower profit margins for new and some current projects as a result of a more competitive pricing environment and rising manpower costs, an increase in share of losses of associated companies, as well as an increase in finance expenses. The decrease was partially offset by a decrease in administrative expenses due mainly to lower directors' remuneration (including profit sharing), and an increase in other gains (net) of $0.5 million arising from strengthening of the Australian dollar against the Singapore dollar. The increase in profit before income tax for the second quarter in FY2019 was due mainly to an increase in gross profit which was largely attributable to the higher contribution from the rental income segment as well as a few construction projects which had commanded better gross profit in the second quarter ended 30 June 2019. The decrease in profit before income tax for the third quarter in FY2019 was largely due to lower profit margins for some current construction projects as a result of a more competitive pricing environment and rising manpower costs and an increase in share of losses of associated companies and joint ventures of $0.4 million. The decrease in profit before income tax for the fourth quarter in FY2019 was due to lower profit margins for new and some current construction projects as a result of a more competitive pricing environment and rising manpower cost, an increase in finance expenses and an increase in share of loss of associated companies. The decrease was partially offset by an increase in other gains (net) arising from the revaluation of some of the investment properties.
Lower profit before income tax led to lower profit attributable to shareholders for the first, third and fourth quarters in FY2019.
Higher profit before income tax led to higher profit attributable to shareholders for the second quarter in FY2019.
Corporate Liquidity And Cash Resources
We maintained a strong and healthy balance sheet and cash flow position which enabled us to explore new infrastructure projects and property investments, either here or overseas.
We reported net cash of $0.2 million used in operating activities in FY2019 as compared to $2.5 million in FY2018. The $2.3 million decrease in net cash used in operating activities was due mainly to
Net cash used in investing activites decreased by $33.7 mllion due mainly to
Net cash of $6.2 million was used in financing activities in FY2019. This was due mainly to (1) dividend payments to shareholders of $3.1 million, (2) repayment of lease liabilities of $1.3 million, (3) interest payments of $1.0 million, and (4) repayment of borrowings of $0.8 million, during FY2019.
Overall, free cash and cash equivalents stood at $59.5 million as at 31 December 2019, a decrease of $9.7 million, from $69.2 million as at 31 December 2018. This works out to cash of 19.3 cents per share as at 31 December 2019 as compared to 22.4 cents per share as at 31 December 2018 (based on 308,430,594 issued shares as at 31 December 2019 and 31 December 2018).
The lease liabilities of $6.4 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 $23.5 million is secured by first legal mortgage over an investment property of the Group, certain bank deposits, the Group's shares in a subsidiary corporation and corporate guarantee of the Company.
The increase in debt amount from $28.1 million as at FY2018 to $29.9 million as at FY2019 is largely due to acquisitions of property, plant and equipment to support the exising projects.
Value Added Statement
Total value-added created by the Group in FY2019 amounted to $37.6 million (2018: $49.3 million) due to lower profits reported in Y2019.
In FY2019, about $30.9 million or 82.0 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 $4.1 million or 11.0 per cent was paid as dividends to shareholders and interests to financial institutions. Balance of $2.8 million was retained by the Group for its future growth.
In FY2018, about $30.8 million or 62.0 per cent of the value-added was paid to employees in the form of salaries and wages. $1.0 million or 2.0 per cent was paid to the government in the form of corporate and property taxes while $7.1 million or 14.0 per cent was paid as dividends to shareholders and interests to financial institutions. Balance of $8.6 million was retained by the Group for its future growth.
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