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Extracted from Annual Report 2017

Chairman

Dear Shareholders,

The Group's FY2017 revenue declined marginally by 4.6%. However, with improvements in gross margins in certain projects achieved through stringent project management, we managed to reduce our gross loss to $3.6 million, compared to $13.8 million a year ago. The improvement would have been higher if not for a provision made for the Senoko Food Hub project, as we lowered our expectations of the value of negotiated variation orders. Net loss after tax for FY2017 narrowed to $20.2 million, compared to $32.8 million in FY2016.

The Group has weathered four years of losses, due largely to the difficult business environment which resulted in fewer projects in the market, and thin margins as competitors vied for a smaller pie. Against this backdrop, the capacity of the Group's facilities continued to be under-utilized which led to under-absorption of its overheads. The Group's order book as at the end of FY2017 stood at $151.7 million, of which a substantial proportion is expected to be completed in FY2018.

The outlook for the construction industry has started to look more positive with the launch of tenders for mega infrastructure projects from the second half of FY2017, such as the MRT Circle Line 6 and North-South Corridor. Implementation of these projects, if awarded, is expected to commence from the second half of this year. Other mega infrastructure projects such as the Jurong Regional Line, Cross Island Line, the Kuala Lumpur-Singapore High Speed Rail and various infrastructure developments for Changi Airport Terminal 5 will continue to support public sector demand for construction works in Singapore over the medium term.

Regionally, governments are continuing to spend on infrastructure construction and upgrading works. Hong Kong's budget for 2018-19 has projected a capital expenditure for infrastructure of HK$85.6 billion. Major capital projects estimated to begin in 2018-19 include Cross Bay Link, Tseung Kwan O and Kai Tak development. The Macau S.A.R. government has articulated its vision of building Macau into a world tourism and leisure centre in the final version of its official five-year development plan covering 2016 to 2020. In India, up to US$786.02 billion worth of investments in infrastructure have been targeted by the Indian government, with the objective of increasing India's GDP growth as well as connect and integrate the country's transport network within the period of 2018 2019. In the Middle East, projects such as airport expansion, rail network, waste management plants, metro and other infrastructure projects will continue to provide the Group with opportunities.

The Group has also stepped up efforts to seek projects in Indonesia, Thailand, the Philippines, as well as Australia. The Singapore government's initiative to set up an Infrastructure Office in 2018 to bring together local and international firms from across the value chain to develop, finance and execute infrastructure projects in the region might well provide fresh opportunities for the Group to enhance its presence in the region.

The Group remains focused on its strategy to leverage on its strong track record and expertise as a steel specialist contractor, in its pursuit for $1.2 billion worth of new infrastructure and commercial projects in Singapore and overseas.

Notwithstanding the prospect of an upswing in the market where more projects are being launched in Singapore and the region, the Group continues to be vigilant about its overall cost structure to remain relevant and competitive. We have reduced our headcount by about 16% in FY2017, and will continue to rationalize our operations including manpower strength. Reorganization of our Engineering Department has also produced results, wherein communication and coordination with clients have improved resulting in more timely resolution of engineering problems.

To capitalize on the lower staff costs in Malaysia, the Group has allocated more fabrication works to its facility at Nusajaya. In FY2015 and FY2016, the Group acquired six plots of industrial land in the Ulu Choh area, Johor, with the objective of expanding our fabrication facilities in Malaysia, as well as storage of strutting assets to counter the much higher land costs in Singapore. However, it now appears that the Kuala Lumpur-Singapore High Speed Rail will be constructing a depot in the Ulu Choh area, and the depot would encroach on our land. The Group is studying the impact of the potential encroachment and preparing itself for eventual negotiation with the authorities for compensation, as well as looking at alternatives to the planned expansion of fabrication facilities and storage of strutting assets.

With brighter prospects ahead, the Group will work hard at achieving better results for the coming years. Finally, I would like to extend our appreciation to our staff, clients, bankers, suppliers and subcontractors for their dedication and hard work; and our shareholders for their continued support.

Chairman

Seow Soon Yong
Chief Executive Officer

 
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