Koon Holdings Ltd

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Chairman's Statement

Extracted from Annual Report 2014

Dear Shareholders,

The financial year ended 31 December 2014 ("FY2014") has been an encouraging year for the Group. We continued to forge ahead and focused on our core competencies. The Group recorded revenue of S$163.9 million in FY2014 as compared with S$220.0 million in the previous financial year ("FY2013"). Despite the decrease in revenue, the Group has turnaround to achieve a net profit attributable to shareholders of S$5.8 million in FY2014 as compared to our loss making position in FY2013.

The improvement in the Group's earnings in FY2014 was mainly attributed to the profitability from both the Construction and Precast divisions, higher other income and contributions from joint ventures, as well as lower income tax expenses.

Leveraging on our core competencies, we continued to secure new construction and precast contracts and improved on project costs management. The Construction division had fewer loss making projects in FY2014. We were also able to achieve better efficiency in our precast yards, which also contributed to higher gross profits. The improved gross profits from the Construction and Precast divisions were partially offset by lower profit from the Electric Power Generation division due to lower revenue amid a weak Australian dollar against the Singapore dollar.

Other income had increased from S$1.9 million to S$3.8 million in FY2014 mainly due to a dividend income of S$1.5 million from Koon Zinkcon Pte Ltd.

Following shareholders' approval at last year's Annual General Meeting held on 29 April 2014 for the Group's joint venture arrangements with ASL Marine Holdings Ltd to establish a plant in Batam, Indonesia for the manufacture of precast concrete components, the Group's share of profit from joint ventures under Sindo- Econ Pte Ltd and its Indonesia subsidiary PT Sindomas Precas had increased to S$1.0 million in FY2014.

As announced in November 2014, a joint venture between the Group's wholly owned subsidiary, Koon Construction & Transport Co. Pte Ltd and Penta-Ocean Construction Company Ltd was awarded a S$1.1 billion contract by the Ministry of Transport to carry out land preparation works for the expansion of Singapore Changi Airport. The Group has a 20% stake in this joint venture. Works for this project will be carried out in several phases over the next few years.

BUSINESS OUTLOOK

According to figures released in January 2015 by the Building and Construction Authority, the total construction demand for public and private construction contracts is projected to be between S$29 billion and S$36 billion in 2015, with majority from the public sector. The precast business will remain a beneficiary of government policies, as public housing projects and MRT tunneling projects continue to adopt precast concrete components.

Despite the positive outlook, companies in the construction industry continue to face challenges against the backdrop of rising competition, higher manpower and material costs and tighter labour. The Group will continue to adopt a prudent and selective stance towards new projects, with a key focus on maintaining profitability.

As at 31 December 2014, our Construction and Precast divisions had outstanding order book of approximately S$368 million and S$80 million respectively. Subsequent to FY2014, the Precast division has secured additional new contracts worth approximately S$20 million for the supply of precast concrete segments for cable tunnel and MRT tunnel construction projects.

NOTE OF APPRECIATION

We would like to express our appreciation to our Board of Directors, for their invaluable guidance and support. We would also like to thank our management and staff for their commitment and hard work; and our shareholders, customers, suppliers and partners for their continuing support. Through our partnership, we can continue to achieve new heights.

Yours Sincerely,

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