Koon Holdings Ltd

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Chairman's Statement

Extracted from Annual Report 2017

For the financial year ended 31 December 2017 ("FY2017"), the Group continued to push forward despite the challenges faced. We achieved revenue of S$163.6 million. The Construction industry in FY2018 is expected to bottom out, as the Singapore property market recovers.


Dear Shareholders,

For the financial year ended 31 December 2017 ("FY2017"), the Group continued to push forward despite the challenges faced.

FY2017 revenue was S$163.6 million, 19.3% lower than the previous year. This was largely due to lower revenue recognition from the Construction division as the Group had substantially completed a number of projects during the year. Revenue from the Construction division also included that from projects such as improvement works to Sungei Pandan Kechil, sand mining work, rock works at caisson quay wall at Tuas Finger One, as well as the construction of roads, drains and sewers at Sengkang.

The decline in Group revenue was partially offset by higher sales of precast products from the Precast division and higher revenue from the Electric Power Generation division due to improved foreign exchange rates between the Australian dollar and the Singapore dollar.

Despite the decline in revenue, FY2017 gross profit was largely unchanged at S$20.4 million as the Group was able to record higher gross profits from the Construction and Electric Power Generation divisions.

The Group recorded higher other income from the higher gain on sale of property, plant and equipment, ad-hoc modification works and sale of scrap. Changes to a subcontract arrangement under the Precast division that took effect in the previous year resulted in a significant decrease in distribution costs, while effective cost management strategies helped lower administrative costs.

The Group's share of losses from joint ventures and associates amounted to S$7.6 million in FY2017, which mainly comprised its 50% share of losses from the precast operation at Batam, Indonesia, under Sindo-Econ Pte Ltd and its subsidiary PT. Sindomas Precas. The higher losses arose from lower selling prices of precast products owing to the competitive landscape.

BUSINESS OUTLOOK

The Construction industry in FY2018 is expected to bottom out, as the Singapore property market recovers. Nonetheless, construction demand will continue to be sustained by the public sector. The Building and Construction Authority estimated that total construction demand in 2018 is expected to be between S$26.0 billion and S$31.0 billion, higher than the value of contracts awarded in 2017, driven by the public sector. Of this amount, public sector projects are expected to account for about 60% of total demand.

The precast business will continue to benefit from government policies and projects where precast concrete components are used, such as Build-to- Order flats and MRT tunnelling works.

We believe our core competencies would allow the Group to ride out the challenging business environment. We will continue to improve our capabilities and manage our costs effectively. As at 31 December 2017, the Group's Construction and Precast divisions have outstanding order books of approximately S$170 million and S$94 million respectively.

NOTE OF APPRECIATION

We would like to take this opportunity to acknowledge the contributions of our Board of Directors, management and staff throughout the past year. On behalf of the Board, we would also like to extend our sincere appreciation to our customers, business associates and partners, for their continued support and confidence in the Group. We look forward to the year ahead, as we continue to work together to grow the business and enhance shareholder value.


Yours Sincerely,

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