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Chairman's Statement

Extracted from Annual Report 2016

Dear Shareholders,

The financial year ended 31 December 2016 ("FY2016") had been challenging, amid global economic uncertainties and a slowdown in Singapore's economy.

The Group's revenue of S$202.7 million in FY2016 was 14.2% lower as compared with S$236.3 million in the previous financial year. The decline in revenue was due to lower revenue recognition from the Construction division, lower sales of precast products from the Precast division and marginally lower revenue from the Electric Power Generation division owing to a lower reserve capacity price per MW as set by the Independent Market Operator of Western Australia. Taking into account lower operating expenses and the Group's share of losses from joint ventures and associate, the Group recorded lower net profit attributable to shareholders of S$1.9 million in FY2016.

Revenue recognition under the Construction division included the on-going land preparation works for airport development project secured under the Group's joint venture with Penta-Ocean Construction Company Ltd.

Owing to lower revenue, particularly from the Precast division, the Group's gross profit declined 43.2% to S$20.4 million in FY2016.

Overall distribution costs declined in FY2016 mainly due to lower sales of precast products. The decline was partly attributed to a change in subcontract arrangement during the year which resulted in some transportation costs of the Precast division being recorded under the Group's 50% joint venture company, Sindo-Econ Pte. Ltd. The absence of an impairment of goodwill that was recorded in FY2015 for the Electric Power Generation division, along with the Group's continual cost management efforts, helped lower administrative expenses for the year.

The Group recorded higher other income of S$2.5 million in FY2016 while the Group's share of losses from joint ventures and associate amounted to S$1.5 million in FY2016. The latter comprised the Group's 50% share of loss from its precast operations at Batam, Indonesia under Sindo-Econ Pte. Ltd. and its subsidiary, PT Sindomas Precas as well as the Group's share of start-up losses from a new joint venture, PT Koon Construction Indonesia.

BUSINESS OUTLOOK

The general operating environment is expected to remain challenging, as global economic uncertainties remain and Singapore's economy faces a slowdown. Construction demand will continue to be sustained by the public sector going forward. The Building and Construction Authority estimated that total construction demand in 2017 is expected to be between S$28 billion and S$35 billion, higher than that achieved in 2016. Of this amount, public sector projects are expected to account for about 70% of total demand.

The precast business remains a beneficiary of government policies and projects where precast concrete components are used, such as Build-to-Order flats and MRT tunnelling works. Amidst competitive market conditions, the Group's Precast division has consolidated its operations at the precast yard in Batam and enhanced its focus on productivity enhancement.

We believe our core competencies would allow the Group to ride out the challenging business environment. As at 31 December 2016, the Group's Construction and Precast divisions have outstanding order books of approximately S$134 million and S$90 million respectively.


Construction demand will continue to be sustained by the public sector going forward. As at 31 December 2016, the Group's Construction and Precast divisions have outstanding order books of approximately S$134 million and S$90 million respectively.


NOTE OF APPRECIATION

We would like to convey our appreciation to our Board of Directors, for their invaluable advice and guidance throughout the year. On behalf of the Board, we would also like to thank our customers, business associates and partners, for their continued support towards the Group as we work together to strengthen our fundamentals and enhance shareholder value. Our appreciation also goes out to our management and staff, for their dedication during the year.

Yours Sincerely,

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