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Extracted from Annual Report 2016

Chairman

Dear Shareholders,

The challenging business environment that we experienced in FY2015 continued into FY2016. While the Group's revenue increased by 19.2% to $321.4 million for FY2016, it incurred a gross loss of $13.8 million and a net loss after tax of $31.6 million. A key factor leading to the gross loss was unabsorbed overheads which resulted from the low level of project activities in Singapore and Hong Kong. Additionally, cost overruns in the Senoko Food Hub project, as well as provisions made in anticipation of lower values of variation orders for certain projects in Singapore and Hong Kong, aggravated the gross loss. As at December 31, 2016, the Group's order book stood at $274 million, which are expected to be substantially completed in FY2017.

The Building and Construction Authority (“BCA”) expects public sector construction demand to be between $20.0 billion and $24.0 billion in the current year. Upcoming mega public sector infrastructure projects in FY2017 include various major contracts for the Deep Tunnel Sewerage System (DTSS phase 2), North-South Corridor and MRT Circle Line 6. The Singapore government has also announced in its Budget 2017 plans to bring forward $700 million worth of public sector infrastructure projects to start in FY2017 and FY2018, which include the upgrading of community clubs and sports facilities.

Going forward, the government will continue to make significant investments in critical economic infrastructure. Mega projects announced include Changi Airport Terminal 5, the Kuala Lumpur-Singapore High Speed Rail and the Tuas Terminal. Public transport infrastructure will also continue to be enhanced with the Jurong Regional Line and Cross Island Line, as part of the Government's plans to double the MRT network by 2030.

Backed by our strong track record and expertise as a steel specialist accumulated over the years, Yongnam will continue to focus on opportunities in Singapore and the region. The Group is currently in active pursuit of $1.5 billion worth of new infrastructural and commercial projects in Singapore, Hong Kong, Malaysia and the Middle East. These include the North-South Corridor and MRT Circle Line 6 in Singapore, and Route 6 (running from West Kowloon through Kai Tak Development Area and to Tseung Kwan O) in Hong Kong, for our Specialist Civil Engineering business. For Structural Steelwork, we are targeting several commercial developments in Singapore's central business district.

Still, the Group expects our business environment to remain highly challenging in FY2017. With the tailing down of existing projects, the Group's overheads may not be fully absorbed in the current year. While the Group is actively pursuing several projects in Singapore and the region, most of the potential projects will only contribute from the fourth quarter of 2017 onwards even if they are awarded to the Group this year.

In parallel with our efforts to secure projects, the Group is also continuing to review our overall cost structure to better manage it and achieve greater efficiencies. In particular, we are focusing on the rationalization of our organization structure and headcount. We have reorganized our Engineering Department to ensure that engineering traverses our projects, from pre-sales to project completion. This reorganization promotes further coordination and communication with clients, and will be particularly useful in resolving engineering issues as soon as possible during our projects' early stages, hence reducing the risks of abortive or corrective works which would bear pressure on our profit margins. The Group is also raising productivity by promoting multi-tasking and minimizing lower value-add operations from the organization.

To further enhance cost competitiveness and operation efficiency, the Group will be relocating part of our factory operations in Singapore to a new site in Johor, Malaysia, in 2018. This will enable the Group to realize cost savings in terms of lower foreign worker levies, lower fabrication labour cost as well as ancillary staff cost such as accommodation and transportation. The Singapore factory will focus on furthering automation in our fabrication processes, and will strive to achieve similar levels of fabrication outputs but with lower headcount.

The Group, as part of a consortium comprising JGC Corporation and Changi Airports International Pte Ltd, was named as the Preferred Bidder for the Hanthawaddy International Airport (“HIA”) project in Myanmar, which will be partially funded by the Official Development Assistance (ODA) loan from the Japanese government. A framework agreement with the Myanmar authorities for the HIA project was signed on 30 January 2016. Following the change in government in Myanmar last year, negotiations for the concession agreement have recently begun in January 2017, and we will keep shareholders updated of any substantial developments.

Mr. Tan Tin Nam, founder of Yongnam Group, stepped down as Non-Executive & Non-Independent Director on 13 July 2016. On behalf of the Board of Directors, I would like to take this opportunity to thank Mr. Tan for his invaluable contributions and guidance over the years.

I would also like to extend our appreciation to our staff, clients, bankers, suppliers and subcontractors for their dedication and hard work; and our shareholders for their support.

Chairman

Seow Soon Yong
Chief Executive Officer

 
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