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Operations Review

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(Extracted from Annual Report 2020)

BUSINESS REVIEW

(i) Construction

Completed Construction Projects

During the year under review, there were two completed public sector construction projects, of which one was secured in August 2017 and completed in February 2020, and the other secured in June 2019 and completed in December 2020.

The construction segment continued to be the major contributor to our Group's total revenue, contributing 66.2 per cent or $46.1 million in FY 2020.

List of Completed Construction Projects

Ongoing Construction Projects

In 2020, we continued the execution of several ongoing construction projects, which had been secured since February 2015.

All the construction projects have been given a universal extension of time of 122 days to be completed, in accordance with the Covid-19 (Temporary Measures) Act, which provide relief for the construction industry, which has been affected by the Covid-19 pandemic.

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 $17.2 million, which constituted 24.7 per cent of our Group's total revenue in FY2020.

Ongoing Maintenance Projects

We secured two new maintenance contracts from a public sector agency in FY2020. These two projects were:

In 2020, we continued the execution of several ongoing maintenance projects, which had been secured since January 2018.

All the maintenance projects have also been given a universal extension of time of 122 days to be completed.

List of Ongoing Maintenance Projects

In addition to the above projects, two road maintenance contracts comprising one for Expressway (TR310A) and another 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 $6.3 million or 9.1 per cent of our Group's total revenue for FY2020, up from 7.1 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, Australia, which was fully occupied as at the end of FY2020.

Financial Review

Income Statement

Balance Sheet

Revenue

Our Group reported a 14.5% or $11.7 million decrease in revenue to $69.6 million for the financial year ended 31 December 2020 (FY2020) as compared to $81.3 million for the financial year ended 31 December 2019 (FY2019). The decrease was due mainly to a 7.8% decrease in revenue from the construction segment to $46.1 million, and a 32.9% decrease in revenue from the maintenance segment to $17.2 million, partially offset by a 9.9% increase in rental income.

The decrease in revenue from both the construction and maintenance segments was due mainly to the lower percentage of revenue recognised from a number of existing and newly awarded construction projects during FY2020.

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 66.2% (FY2019: 61.4%), 24.7% (FY2019: 31.5%) and 9.1% (FY2019: 7.1%) of our Group's revenue respectively for FY2020.

Cost of Sales

Our cost of sales decreased by 11.8% or $8.3 million from $70.5 million for FY2019 to $62.2 million for FY2020. The decrease in cost of sales was due mainly to:

  1. the decrease in subcontracting costs which were mainly costs incurred for specialised works such as bored piling, asphalt works, mechanical and electrical works, soil-testing, landscaping and metalworks which are usually subcontracted to external parties;

  2. the decrease in the cost of construction materials due to lower utilisation of materials;

  3. the decrease in overheads such as upkeep of machineries and hiring costs related to the rental of additional heavy equipment and machineries to support existing projects; and

  4. the decrease in labour costs as a result of foreign worker levy waiver,

during FY2020.

Gross Profit And Gross Profit Margin

Our gross profit for FY2020 decreased by 32.0% or $3.4 million from $10.8 million for FY2019 to $7.4 million for FY2020.

While the rental income segment demonstrated an increase in contribution to gross profit of $0.4 million from $3.9 million for FY2019 to $4.3 million for FY2020, there is a decrease of $3.9 million in that of the construction and maintenance segments, from $6.9 million in FY2019 to $3.0 million in FY2020.

The lower gross profit margin for the construction and maintenance segments was due mainly to the temporary cessation of construction activities in compliance with the government's Covid-19 measures.

Overall, the negative impact from the Covid-19 situation on the construction and maintenance segments was cushioned by the finalisation of a few existing projects during FY2020.

Other Gain, Net

Other gains increased by $8.2 million or 320.8% from $2.5 million for FY2019 to $10.7 million for FY2020. The increase was due mainly to:

  1. the receipt of payouts and rebates from the government of $8.6 million which aimed to provide wage support to employers, as part of the support measures for built environment firms affected by Covid-19;

  2. the one-off reversal of impairment allowance made of $1.2 million following the completion of the disposal of a former associated company, CS Amber Development Pte Ltd; and

  3. an increase in the gain on foreign exchange of $0.8 million largely due to the appreciation of Australian dollar against the Singapore dollar,

  4. which were partially offset by:

  5. a non-recurring technical management consultancy fee of $0.6 million in relation to a piling project in Jakarta, Indonesia which was earned in FY2019;

  6. an increase in net fair value loss of $1.3 million resulting from a fair value gain of $0.6 million in FY2019 to a fair value loss of $0.7 million in FY2020, arising from the revaluation of some of the investment properties; and

  7. a decrease in interest income from bank deposits of $0.5 million,

  8. during FY2020.

Administrative Expenses

Administrative expenses increased by $2.1 million or 20.9% from $10.0 million for FY2019 to $12.1 million for FY2020. The increase was largely due to legal fees incurred for an ongoing trial and provision for potential fines of a subsidiary corporation and two employees.

Finance Expenses

Finance expenses decreased by $0.1 million or 9.7% from $1.3 million for FY2019 to $1.2 million for FY2020. The decrease was due mainly to the decrease in interest expenses of $0.2 million incurred on a bank term loan for the purchase of an investment property at 6-8 Bennett Street, East Perth, Australia due to early repayment of principal, offset by an increase of $0.1 million in lease liabilities arising from the purchase of plant and machineries during FY2020.

Share of Results of Associated Companies And Joint Ventures

The share of results of associated companies and joint ventures increased by $0.6 million or 64.7% from a loss of $1.0 million for FY2019 to a loss of $0.4 million for FY2020. The increase was due mainly to:

  1. the share of profit of joint ventures mainly from the Group's 50%-owned joint venture partnership, Chye Joo - Or Kim Peow JV,

  2. which was partially offset by:

  3. the share of loss of associated companies due mainly to losses incurred by the Group's 25%-held associated company, USB Holdings Pte Ltd,

  4. during FY2020.

Profit Before Income Tax

Profit before income tax increased by $3.4 million or 326.3% from $1.0 million for FY2019 to $4.4 million for FY2020. The increase was due mainly to (1) the increase in other gains (net) of $8.2 million, (2) the decrease in share of loss of associated companies and joint ventures of $0.6 million, and (3) the decrease in finance expenses of $0.1 million. The increase was partially offset by (1) the decrease in gross profit of $3.4 million and (2) the increase in administrative expenses of $2.1 million, as explained above.

Income Tax Expense

Income tax expense increased by $0.1 million or 33.1% from $0.4 million in FY2019 to $0.5 million in FY2020 due mainly to higher profit before income tax, as explained above.

The effective tax rates for FY2020 and FY2019 were 10.8% and 34.5% respectively.

The effective tax rate for FY2020 was lower than the statutory tax rate of 17.0% due mainly to (1) statutory stepped income tax exemption, (2) a tax rebate of 25% on the corporate tax payable, capped at $15,000, (3) an overprovision of prior year income tax amounting to $0.1 million and (4) certain income being not subject to tax.

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

Non-Controlling Interests

Non-controlling interests of $0.7 million was due to the share of profit of our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in FY2020.

Net Profit

Overall, for FY2020, net profit increased by $3.3 million or 480.8%, from $0.7 million for FY2019 to $4.0 million for FY2020, following the increase in profit before income tax of $3.4 million, which was partially offset by the increase in income tax expense of $0.1 million, as explained above.

Our net profit margin increased from 0.8% for FY2019 to 5.7% for FY2020.

Statement Of Financial Position

Current Assets

Current assets increased by $5.8 million, from $97.2 million as at 31 December 2019 to $103.0 million as at 31 December 2020. The increase was due mainly to:

  1. an increase in cash and cash equivalents of $14.4 million. This was due mainly to the cash provided by operating activities of $18.7 million and increase in effects of currency translation on cash and cash equivalents of $0.2 million, offset by cash used in investing activities of $0.3 million and cash used in financing activities of $4.2 million; and

  2. an increase in trade and other receivables of $2.6 million. This was due mainly to (1) an increase in trade receivables from a joint venture, (2) an increase in non-trade receivables from non-related parties arising mainly from government grant receivable, (3) an increase in advance to suppliers/subcontractors due to a portion of advance payment received from government agencies being passed down to the suppliers/subcontractors engaged by the Group, and (4) an increase in deposits arising from deposit paid for acquisition of an investment property, offset by a decrease in trade receivables from non-related parties and a decrease in non-trade receivables from a joint venture arising from capital reduction during FY2019,

  3. which was partially off set by:

  4. a decrease in contract assets of $1.4 million, due mainly to a decrease in construction contract due from customers arising from lower unbilled amounts expected to be collected from customers following the lower revenue recognised; and

  5. a decrease of $9.8 million in assets classified as held-for-sale following the completion of the disposal of a former associated company, CS Amber Development Pte Ltd,

during FY2020.

Non-current assets

Non-current assets increased by $11.0 million, from $83.0 million as at 31 December 2019 to $94.0 million as at 31 December 2020. The increase was due mainly to:

  1. an increase in investment properties of $2.5 million, resulting from an exchange realignment relating to the property at 6-8 Bennett Street, East Perth, Australia of $3.2 million due to appreciation of Australian dollar against the Singapore dollar, offset by a net fair value loss of $0.7 million arising from the revaluation of some investment properties;

  2. an increase in other receivables of $2.3 million due to advances extended to associated companies, USB Holdings Pte Ltd and Chong Kuo Development Pte Ltd; and

  3. an increase in property, plant and equipment of $7.5 million resulting mainly from the purchase of a freehold property at 32 Tagore Lane and plant and equipment, which was partially offset by disposal and depreciation of property, plant and equipment,

  4. which were partially offset by:

  5. a decrease in investments in joint ventures of $0.2 million arising from dividends received of $0.4 million and a capital reduction of a joint venture of $0.1 million, offset by the share of profit of $0.3 million;

  6. a decrease in investments in associated companies of $0.8 million arising from the notional fair value on loan and share of loss of an associated company; and

  7. a decrease in right-of-use assets of $0.3 million resulting from the early termination of a dormitory lease, offset by new plant and equipment acquired to support the new and existing projects and the use of state land,

during FY2020.

Current liabilities

Current liabilities increased by $16.1 million, from $22.4 million as at 31 December 2019 to $38.5 million as at 31 December 2020. The increase was due mainly to:

  1. an increase in trade and other payables of $2.6 million arising from (1) an increase in trade payables of $1.4 million, (2) advances from a non-controlling interest of $0.1 million, (3) deferred grant income of $0.5 million arising from the Job Support Scheme for Tier 1 Built Environment sector, and (4) higher accrued operating expenses related to project costs of $0.6 million;

  2. an increase in contract liabilities of $8.9 million from the receipt of advance payments for ongoing public sector projects arising from the support measures for built environment firms affected by Covid-19 during the circuit breaker and extended circuit breaker periods;

  3. an increase in bank borrowings of $4.5 million arising from bank borrowing of $4.5 million to finance the purchase of the freehold property at 32 Tagore Lane and exchange realignment of $0.1 million due to appreciation of Australian dollar against the Singapore dollar; and

  4. an increase in current income tax liabilities of $0.1 million due to higher tax provision resulting from higher profits generated,

  5. during FY2020.

Non-Current Liabilities

Non-current liabilities decreased by $1.4 million, from $36.7 million as at 31 December 2019 to $35.3 million as at 31 December 2020. The decrease was due mainly to (1) a decrease in lease liabilities of $1.2 million arising from the early termination of a dormitory lease and repayment of lease liabilities, (2) repayment of bank borrowing of $1.6 million and (3) a decrease in deferred income tax liabilities of $0.2 million, which were partially offset by an increase in other payables of $1.6 million during FY2020.

Shareholders' Equity

Shareholders' equity, comprising share capital, treasury shares, other reserves, retained profits and non-controlling interests, increased by $2.0 million, from $121.2 million as at 31 December 2019 to $123.2 million as at 31 December 2020. The increase was due mainly to:

  1. the profits generated from operations of $3.3 million attributable to equity holders of the company and non-controlling interests of $0.7 million arising from the share of profit of Raffles Prestige Capital Pte Ltd; and

  2. other comprehensive income arising from currency translation reserve of $0.4 million;

  3. which were partially offset by:

  4. the purchase of treasury shares of $0.2 million; and

  5. the dividend payment to shareholders of $2.2 million,

during FY2020.

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 $18.7 million provided by operating activities in FY2020 as compared to net cash of $0.2 million used in FY2019. The $18.9 million increase in net cash provided by operating activities was due mainly to:

  1. an increase in net working capital inflow of $16.0 million;

  2. an increase in net cash provided by operating activities before working capital changes of $2.9 million; and

  3. a decrease in income tax paid of $0.5 million,

  4. which were partially offset by:

  5. a decrease in interest received of $0.5 million, during FY2020.

Net cash used in investing activites decreased by $2.9 mllion was due mainly to:

  1. proceeds from disposal of assets classified as held for sale of $11.0 million; and

  2. capital reduction of a joint venture of $0.1 million,

  3. which were partially offset by:

  4. an increase in cash used in the purchase of property, plant and equipment of $7.5 million;

  5. an increase in advances extended to an associated company of $0.5 million; and

  6. a decrease in dividend received from joint ventures of $0.2 million,

  7. during FY2020.

Net cash of $4.2 million was used in financing activities in FY2020. This was related to (1) dividend payments to shareholders of $2.2 million, (2) repayment of lease liabilities of $3.0 million, (3) interest payments of $0.8 million, (4) purchase of treasury shares of $0.2 million, and (5) repayment of borrowings of $3.2 million, during FY2020.

The outflow was partially offset by an advance from a non-controlling interest of $0.7 million and proceeds from borrowings of $4.5 million.

Overall, free cash and cash equivalents stood at $74.0 million as at 31 December 2020, an increase of $14.4 million, from $59.6 million as at 31 December 2019. This works out to cash of 24.1 cents per share as at 31 December 2020 as compared to 19.3 cents per share as at 31 December 2019 (based on 306,961,464 issued shares (excluding treasury shares) as at 31 December 2020 and 308,430,594 issued shares as at 31 December 2019).

The lease liabilities of $5.1 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 $26.5 million is secured by first legal mortgage over an investment property and a freehold property of the Group, certain bank deposits, charge over the Group's shares in a subsidiary corporation, assignment of rental proceeds from the property and corporate guarantee of the company and one of the Group's subsidiary corporations.

The increase in debt amount from $29.9 million as at FY2019 to $31.6 million as at FY2020 as a result of acquisition of a freehold property during FY2020.

Value Added Statement

Total value-added created by the Group in FY2020 amounted to $40.1 million (2019: $37.6 million) due to higher profits reported in FY2020.

In FY2020, about $29.8 million or 74.0 per cent of the value-added was paid to employees in the form of salaries and wages. $0.6 million or 1.0 per cent was paid to the government in the form of corporate and property taxes while $3.0 million or 7.0 per cent was paid as dividends and interests to financial institutions. Balance of $6.1 million was retained by the Group for its future growth.

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 and interests to financial institutions. Balance of $2.8 million was retained by the Group for its future growth.