Chairman's Statement

DEAR SHAREHOLDERS,

The Group that you see today – generating numerous multimillion-dollar revenue streams on an annual basis – traces its roots to a sole proprietorship in 1966.

From such humble beginnings, we have grown to become an established brand that commands top-of-mind awareness in construction and civil engineering, enjoying a sterling track record that includes the groundbreaking Marina Barrage and other landmark infrastructures.

Over the decades, we have staunchly adopted a strategy of diversification: in addition to honing and growing our core expertise, we have continually kept a lookout for opportunities in new sectors, and meticulously engineered synergies among new and existing businesses.

This tested strategy – which has seen much success in implementation – will continue to guide our approach going forward.

DIVERSIFICATION FOR GROWTH & RISK MITIGATION

The acquisition of Koh Brothers Eco Engineering Limited (“KBE”) to enter the water and wastewater treatment, and hydro-engineering industry is a case in point. We subsequently injected our flagship construction business – then known as Koh Brothers Building & Civil Engineering Contractor (Pte.) Ltd. – into KBE as a bold move to integrate synergistic businesses along the supply chain.

As a result, we realised greater synergy and was able to furnish more compelling value propositions to the market. Soon after restructuring, KBE clinched two new projects that require the combined capabilities of the Group – a subcontract from Keppel Seghers for civil structural, piping, marine works and architectural landscaping works relating to Singapore’s fourth desalination plant at Marina East; and a S$31.3 million contract from PUB for the Wet Weather Facility as part of the Changi Water Reclamation Plant, Phase 2 Expansion. This is a strong testament of the effectiveness of our restructuring exercise that has sharpened our competitive edge.

In addition, we were awarded the Kallang Waterway project worth S$86.3 million by the PUB. This again is a strong testament of our capabilities and track record in building and civil engineering works. The project will transform Kallang River into a scenic park by the canal.

Given the current geopolitical uncertainties and the economic headwinds they entail, FY2017 is anticipated to be muted, with GDP growth forecast to come in at a modest 1% – 2%. Additionally, the economy is also undergoing a restructuring arising from digitisation and other disruptive technologies.

The manufacturing sector has performed relatively well while other industries, such as real estate (which the Group has substantial interests in), has showed resilience, showing healthy demand and stabilising prices.

Amid a challenging landscape, the Group saw a decline in revenue and also a corresponding slide in profits. Overall revenue recorded a 19.1% decrease, down from last financial year’s S$427.3 million to S$345.7 million in FY2016. The gross profit margin for FY2016 was 8.4%, down from 12.9% in FY2015.

It is nonetheless heartening to see our Construction and Building Material division step to the forefront, with contract revenues of S$262.9 million, up 57.6% from last fi nancial year’s S$166.8 million. Our construction order book was lifted by a S$1.12 billion joint venture project clinched in FY2015 from Changi Airport Group for the development of a three-runway system at Changi Airport – marking our largest contract win to date. We will continue to pursue such large-scale projects to strengthen our order book for sustainable growth. Hence, the importance of developing a diverse portfolio of businesses is again demonstrated – diversity shields the Group from over-exposure to any single industry or single source of risk.

The Group maintained a strong balance sheet with an overall liability to asset ratio of 0.55 time, an improvement over FY2015’s 0.60 time, and enjoyed substantial liquidity with S$43.2 million of cash and bank balances as well as S$318.4 million worth of current assets.

GOING FORWARD

Though the Trans-Pacific Partnership (TPP) has been upended by the Trump administration, the United States’ “Pivot to Asia” foreign policy is likely to persist. In short, we anticipate continued American presence and the capital that could potentially flow into the region.

The landscape that is about to unfold requires a setup that is highly innovative, nimble and responsive to change, and very importantly, willing to change, so as to adapt. In this regard, I am glad to note that our proven leadership team helmed by Managing Director and Group CEO Francis Koh is right on track with a dynamic and highly-progressive management philosophy. Francis in fact clinched the “Real Estate Personality of the Year” award at the prestigious South East Asia Property Awards 2016 – a well-deserved accolade for his contribution to the industry.

PROPOSED DIVIDENDS

It has been another successful year for us. I am therefore pleased to report that we are proposing a tax-exempt, one-tier final dividend of 0.35 cent, payable on 15 June 2017 after approval by shareholders at the forthcoming Annual General Meeting.

In commemoration of our 50th anniversary and to allow shareholders to participate directly in KBE’s growth, we have also executed a dividend in specie exercise following the restructuring exercise, where shareholders received 0.1 ordinary KBE share for each ordinary Koh Brothers share held.

APPRECIATION

We have come thus far because of the people who have supported and believed in us. I would therefore like to convey my deepest appreciation to our clients, business associates and shareholders for their unwavering support over the years. To the management team and staff – thanks for your dedication and hard work that have steered the Group through five good decades.