Extract from Annual Report 2016
The Group has stayed resilient despite the sedate pace in the building and construction industry in Singapore. Against a backdrop of tepid housing market condition and continued economic uncertainties, private sector construction demand is expected to soften. However, this is mitigated by the Building & Construction Authority's anticipated increase in public sector construction demand for most building types and civil engineering works in 2017.
Driven by an innovation-centric growth strategy, we are scalable to adapt to the changing tides of the business environment while geared to remain relevant in the future economy of tomorrow.
Armed with more than 20 years of excellent track record and a strong reputation, BBR is geared up for sustainable growth which encompasses not only strengthening our robust business model, but harnessing sustainable revenue growth. We remain focused and vigilant in strengthening our core competencies while staying invested in the technology of the future.
YEAR IN REVIEW
In financial year 2016 ("FY2016"), the Group reported $276.8 million in revenue, which is a 35% decrease compared to financial year 2015 ("FY2015"). General Construction and Specialised Engineering segments contributed 51.6% and 48.0% respectively to group revenue, with the remaining revenue from Green Technology.
The Singapore business units contributed $216.3 million or 78.2% of the total revenue while the Malaysia division generated $60.5 million or 21.8% of the total revenue.
The Group achieved higher revenue from its new businesses, namely Pre-fabricated Pre-finished Volumetric Construction ("PPVC") under the Specialised Engineering Segment and solar leasing projects under the Green Technology Segment. However, overall revenue for FY2016 was lower mainly due to lower general construction activities. There was no revenue from property development during the year as revenue for sold units from Bliss @Kovan had been fully recognised in FY2015 when Temporary Occupation Permit ("TOP") was obtained. The Group's current property development projects are undertaken through an associate and a joint-venture and hence do not contribute to the Group's revenue in FY2016.
Gross profit for FY2016 was lower at $13.4 million during the year compared to $25.2 million for FY2015 and this was mainly due to decrease in revenue and cost overruns incurred for certain general construction projects. As such, despite an improvement in profit margins for the Specialised Engineering Segment which included PPVC, overall gross margin for the current year was lower at 4.8% compared to 5.9% in FY2015.
Net profit attributable to equity holders of the Company was $1.1 million in the current financial year compared to $2.3 million in FY2015.
Share of results of associates rose to $9.4 million in FY2016 compared to $64,000 in FY2015. This contribution was from the Group's 35% equity interest in Lakehomes Pte Ltd ("Lakehomes"), the developer for Lake Life Executive Condominium in Jurong Lake district. TOP was obtained on 30 December 2016 and Lakehomes recognised revenue and profits for 296 sold units in FY2016 based on financial accounting standards for Executive Condominium development. Revenue and profits for the remaining 250 sold units will be recognised in financial year ending 31 December 2017.
INNOVATION BY INNOVATION
BBR seeks to keep abreast of the building and construction technology innovation curve by investing in PPVC through the acquisition of Moderna Homes Pte. Ltd. ("Moderna Homes") in September 2014. Previously a 75% owned subsidiary of BBR, it is currently a wholly-owned subsidiary after BBR acquired the remaining 25% shares in Moderna Homes from the non-controlling interests in April 2016.
PPVC technology is slated to be the key smart technology for boosting productivity in the building & construction sector. The recent spike in construction project tenders by government agencies in Singapore specifying PPVC applications attests to the upturn of the growth cycle for the adoption of PPVC construction technology.
Moderna Homes is proud to be one of first four selected companies which has been awarded In-Principle Acceptance Certificates for its PPVC design system by seven Singapore government agencies for use in local projects, through the Building Innovation Panel. In addition, the Building & Construction Authority has in 2016, issued to the company an In-Principle Acceptance for "In-Built Bathroom within the Modular Cube Design System" to be used in Singapore building projects. PPVC system has been recognised for its level of innovation and the expected 20% improvement in construction productivity. As the bulk of prefabrication works are moved to a controlled environment off-site within a factory, not only will there be reduced noise and dust pollution, site safety will also be improved.
Moderna Homes possesses the competence to design and assemble prefabricated buildings, and has carved a unique market leadership in the steel PPVC method which can deliver up to 40% improvement in labour productivity and shortened construction timeframe.
Since the first win in Hall of Residence in Nanyang Technological University ("NTU") for 1,213 PPVC modules, it was awarded another NTU residence hall construction project for supply of 717 modules. Subsequently, Moderna Homes was contracted to design and supply 756 PPVC modules to The Wisteria, a private condominium development. This is part of a mixed commercial and residential development along Yishun Avenue 4. The Wisteria is the first residential development under the Government Land Sale programme to adopt PPVC technology and prefabricated bathroom units. In July 2016, the Group secured yet another contract for the design, fabrication, delivery and installation of PPVC modular system for four blocks of housing at Upper Aljunied Road. The scope of works involves design, supply and installation of 1,900 modular units for 380 apartments.
PROPELLED BY GREEN TECHNOLOGY
With the current prevailing lows in oil prices globally, the outlook of the green technology segment has momentarily been dampened by the lowered tariff surcharge rates for solar energy. We hold steadfast the long term view that renewable energy will increasingly be the alternative source to fossil fuels in Singapore and will continue to seek new solar integration projects.
We have successfully completed the design and installation of a 6 MW peak grid-tied solar photovoltaic ("PV") system on the rooftops of 80 HDB flats. All installations have been commissioned in 2016 and in a Power Purchase Agreement signed with Ang Mo Kio Town Council, electricity generated from these solar panels over the next 20 years will be translated to leasing revenue earned, commencing progressively with flats commissioned from the last quarter of 2015.
This year, BBR is among one of the nine consortia which had successfully deployed ten floating PV systems at Tengeh reservoir, each with a capacity of around 100 kW peak in a joint pilot project by Singapore Economic Development Board and the Public Utilities Board.
The PV test-bed project at Tengeh reservoir will allow companies to develop, test and evaluate the economic and technical feasibility of installing floating solar PV systems on water surfaces, as an alternative to deploying solar systems on rooftops.
The financial position of the Group continues to be stable. Net assets stood at $130.8 million as at 31 December 2016, as compared to $132.8 million as at 31 December 2015. Net asset value per share stands at 42.48 cents.
Due to the increase in cash generated from operating activities during the year, cash and bank balances and pledged deposits rose to $63.4 million as at 31 December 2016. This compares favourably with $29.2 million as at 31 December 2015. The improvement in cash flow from operating activities was mainly due to collections from trade receivables from sold units at Bliss @Kovan upon expiry of defects liability period and the increase in amount due to customers for workin-progress (net). The improvement in the Group's cash position was in spite of repayments for bank borrowings and capital expenditure for a solar leasing plant in the current year.
Over the years, BBR has consistently delivered good returns to our shareholders. In view of the improved cash position, the Board of Directors recommends an additional tax-exempt one-tier first and final special dividend of 0.2 cents per share over and above the ordinary first and final dividend of 0.4 cents per share for the year, subject to approval by shareholders at the forthcoming Annual General Meeting to be convened. The total dividend of 0.6 cents per share represents a dividend growth of 50 per cent compared to the previous year.
BUSINESS OUTLOOK FOR 2017
On 17 February 2017, the Ministry of Trade and Industry announced that the Singapore economy grew by 2.9 per cent on a year-on-year basis in the fourth quarter of 2016, faster than the 1.2 per cent growth in the previous quarter. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 12.3 per cent, a reversal from the 0.4 per cent contraction in the preceding quarter. For the whole of 2016, the economy grew by 2.0 per cent.
The construction sector contracted by 2.8 per cent on a year-on-year basis in the fourth quarter, extending the 2.2 per cent decline in the previous quarter. The contraction was largely due to the decline in private sector construction activities. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector expanded by 0.8 per cent, a reversal from the 12.6 per cent contraction in the preceding quarter. However, based on the 2017 Budget, the Singapore government has announced that $700 million worth of infrastructure projects, mainly upgrading works, will be brought forward.
The industry outlook remains challenging in the next 12 months with increasing competition amid a weaker construction market and increase in labour cost due to short supply of foreign workers. The Group will continue to focus on its core business by leveraging its strong track record in building construction and civil engineering to secure more projects as well as enhancing cost effectiveness and efficiency optimisation in the management of on-going projects. BBR will also continue to conduct feasibility studies to undertake new property development projects.
Our ongoing projects in Malaysia are progressing well and current order book is healthy. The outlook for the construction industry in Malaysia has improved with the government's strong emphasis on infrastructure projects to stimulate the economy with the implementation of infrastructure projects such as Mass Rapid Transport 2 ("MRT2"), West Coast Expressway ("WCE") and East Coast Rail Link. Apart from securing two out of the ten MRT2 projects, other works for WCE have also been awarded to our subsidiary, BBR Construction Systems (M) Sdn Bhd. The latter aims to secure further spin-off works from these infrastructure projects.
A NOTE OF APPRECIATION
On behalf of the Board, I would like to express my deepest appreciation to all stakeholders who have been instrumental in BBR's success over the past years – customers, business associates, management team, staff and shareholders.
Geared up for sustainable growth, BBR is ready for the new opportunities and challenges which the future holds. We will grow from strength to strength in building our market leadership in the construction industry to meet the urbanisation needs of Singapore and beyond.
Prof. Yong Kwet Yew