Extract from Annual Report 2017
2017 has been a challenging year for the BBR Group with economic uncertainties and a competitive business environment. The tepid building and construction scene in the private sector is fortunately mitigated by the Building and Construction Authority's announcement of an increase in public sector construction demand for infrastructure and civil engineering works.
The enbloc fever has sparked off a competitive race for land banks by many large property developers. In September 2017, in spite of the odds, BBR Group has been successful in acquiring its latest property development project, Goh & Goh Building, next to Beauty World Station at Upper Bukit Timah.
Our growth strategy is driven by innovation and being futureready for the economy of tomorrow. With more than 20 years of good track record and an established reputation, BBR is geared up for sustainable growth while remaining focused in strengthening our core competencies and investing in future technologies.
The Group has recorded revenue of $172.1 million in the financial year ended 31 December 2017 ("FY2017"). Despite a lower revenue, gross profit increased by 97.1% to $26.4 million in FY2017 compared to $13.4 million in the financial year ended 2016 ("FY2016"). Net profit attributable to equity holders of the Company rose by 528% to $7.1 million in FY2017 compared to $1.1 million in FY2016.
Group revenue decreased 37.8% from $276.8 million in FY2016 to $172.1 million in FY2017 with the decline in revenue arising from both the General Construction Segment and Specialised Engineering Segment.
General Construction Segment registered lower sales due to lower construction activities in the current financial year as a number of projects were completed since the end of the last financial year, whilst lower demand for construction work and more competitive environments led to fewer projects being secured in FY2017. On the other hand, revenue from the Property Development Segment increased as revenue was recorded for the sale of all the remaining condominium units at Bliss@ Kovan.
Although overall revenue had dipped, the Group managed to improve on its gross profit margin from 4.8% to 15.3%. This was achieved with a better project mix of construction projects in FY2017 and better profit margin for a number of specialised engineering projects in Malaysia that were completed in the current financial year.
Following the acquisition of the remaining 20% shareholding in BBR Construction Systems (M) Sdn. Bhd. ("BBRM") during the year, BBRM is now a wholly owned subsidiary of the Group. Revenue contribution from Malaysia had increased to 26.5% of the Group's revenue in FY2017 compared to 21.8% in FY2016, and the division has also turned in decent margins for the Group.
Property Development has also reaped in good returns. The mixed development in Yishun, The Wisteria, which is currently under development under joint venture arrangement, has generated $2.5 million of profits for the Group as the joint venture progressively recognises income from the sale of the entire 216 units.
Lake Life Executive Condominium which was developed by the Group's associate, brought in profits of $6.2 million for the Group in FY2017 as profits were recognised profit from the sale of 247 condominium units according to financial accounting standards for executive condominium development.
Amid the challenging environment, BBR has delivered a set of commendable results with profit attributable to equity holders of the Company for FY2017 with profit attributable to equity holders of $7.1 million, representing a more than 500% increase from $1.1 million in FY2016. Correspondingly the earnings per share jump to 2.23 cents from 0.37 cents a year ago.
The Group's balance sheet remained strong with a net asset value of $138.2 million, up from $130.8 million as at 31 December 2016. This was equivalent to 42.85 cents per share compared to 42.48 cents per share at the end of last year.
As at 31 December 2017, the Group has an order book of approximately $199 million in respect of construction projects, predominantly in Singapore and Malaysia.
INNOVATE TO GROW
As projected by the Building and Construction Authority, the construction demand to be awarded this year will be in the range of $26.0 billion to $31.0 billion, up from the $24.5 billion awarded in 2017. The projected higher demand is due to an anticipated increase in the public sector construction demand, which is expected to grow from $15.5 billion recorded in 2017. The private sector's construction sector demand is similarly expected to improve modestly from $9 billion to $10-12 billion, on the back of the strengthened overall economic outlook and the upturn in the property market sentiments1.
With the Singapore Government push to improve construction productivity and quality, projects prescribing Design for Manufacturing and Assembly ("DfMA") technologies have become more prevalent in recent years. Game-changing technologies that adopt DfMA include Prefabricated Pre-finished Volumetric Construction ("PPVC"). The number of DfMA projects to be put up for tenders is expected to increase in 2019 as more of these projects are firmed up.
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, in 2016, the Building and Construction Authority 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 offsite 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 PPVC technology which can deliver up to 40% improvement in labour productivity and shortened construction timeframe.
The Group completed two PPVC projects for student hostels at Nanyang Technological University delivering a total of 1,930 modules. There are two ongoing PPVC projects currently, the first of which is to design and supply 756 PPVC modules for the residential units at The Wisteria, a private 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. The second project is a 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.
STRENGTHENING CORE COMPETENCIES
We have been continuously strengthening our core competencies in general construction, specialised engineering and green technology segments through ongoing investments in infrastructure like our PPVC holding yard in Sungei Kadut and adopting technology to enhance work processes and productivity, as well as upgrading the skillset of our employees.
BBR not only complies with all mandatory labour laws and training requirements stipulated by the Singapore Ministry of Manpower ("MOM") and the Building and Construction Authority "BCA", we also take steps to meet prevailing industry standards and plan ahead to meet future needs.
Since January 2017, MOM requires all construction firms to have at least 10% of their work permit holders ("WPHs") to be qualified as "Higher Skilled" R1 workers. As of December 2016, through a programme of continuous training and development, 58% of WPHs are "Higher Skilled" R1. Foreign workers in this category are given a monthly skills incentive allowance of $100, thereby encouraging their co-workers to be upgraded as well. In 2017, we have exceeded the set target for the training for WPHs to be qualified as "Higher Skilled" R1 workers to 76% overall, an increase of 18%.
On 21 June 2017, Mr Voon Yok Lin joined the Board as an Executive Director together with Mr Voon Chet Chie acting as his alternate. Given his extensive experience in general construction, post-tensioning and cable-stay bridge construction, the Board will tap this experience and knowledge to source and secure business opportunities in these areas in the region. Hence, beyond Singapore and Malaysia, we are geared up for the regional expansion through our 49% owned subsidiary, Siam BBR Systems Co., Ltd ("SBBRS"), a newly incorporated company in Thailand. Through collaboration with our Thai business partners, SBBRS will focus on posttensioning and bridge works in Thailand.
NEW CATALYST FOR PROPERTY DEVELOPMENT
The acquisition of Goh & Goh Building in September 2017 makes this our latest property development project.
Since our first property development in 8 Nassim Hill, followed by Lush on Holland Hill, Bliss@Kovan, Lake Life Executive Condominium and The Wisteria & Wisteria Mall, our property segment has been delivering commendable results, and is a consistent revenue generator due to our prudent and well-conceived approach in targeting only prime locations and identifying the optimal project design according to the target buyers' profile.
Moving forward, the acquisition of Goh & Goh Building which is situated next to the Beauty World Station at Upper Bukit Timah Road will provide a new impetus for our property development business. We are progressing on track to re-develop the 2,868.3 sqm freehold property into a mixed commercial and residential development project. After the completion of the purchase of Goh & Goh Building, the Group is in discussions with the relevant authorities to optimise the potential of the development site.
The Wisteria & Wisteria Mall, a mixed development project under a joint venture arrangement, is expected to obtain its Temporary Occupancy Permit ("TOP") in mid-2018, and the joint venture will operate and manage The Wisteria Mall after its TOP. The Group is also looking into the business of property management and consultancy through a newly set up associate company, Trendsteq Pte Ltd.
On 14 February 2018, the Ministry of Trade and Industry announced that the Singapore economy grew by 3.6 per cent on a year-on-year basis in the fourth quarter of 2017, easing from the 5.5 per cent growth in the third quarter. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 2.1 per cent, a moderation from the 11.2 per cent growth in the preceding quarter. The construction sector contracted by 5.0 per cent year-on-year in the fourth quarter, following the 9.3 per cent contraction in the third quarter, primarily due to weakness in private sector construction works. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector contracted by 0.2 per cent, after posting a decline of 2.4 per cent decline in the third quarter.
For the whole of 2017, the economy grew by 3.6 per cent. The construction sector contracted by 8.4 per cent in 2017, a reversal of the 1.9 per cent growth in 2016. Output in the sector was primarily weighed down by the weakness in private sector construction works, which contracted by 29.1 per cent on the back of a decline in private residential and private industrial works. The performance of the construction sector is likely to remain lacklustre in 2018 as the earlier weakness in construction demand, particularly from the private sector, continues to weigh on construction activities in the sector2.
The industry outlook remains challenging in the next 12 months with rising business costs, labour shortages and stiffer regulatory controls. Although the construction demand is expected to improve due to the anticipated increase in public sector projects, the construction sector remains weak. The Group is faced with intense competition and more construction firms are bidding on projects with thin margins to sustain their business. This may in turn drive down the overall profit margins for the construction industry.
The Group will continue to focus on its core businesses 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.
The Group will continue to explore for business opportunities both locally and in the region to maintain and sustain its long term growth.
Over the years, BBR has consistently delivered good returns to our shareholders. In view of the improved Group's performance, the Board of Directors is pleased to recommend a first and final dividend of 0.4 cents per share and a special dividend of 0.2 cents per share for the year, subject to approval by shareholders at the forthcoming Annual General Meeting to be convened. This translates to a payout of approximately 27% of its profits while maintaining sufficient cash reserve to invest in strategic opportunities.
A NOTE OF APPRECIATION
On behalf of the Board, I would like to express my heartfelt appreciation to our shareholders, customers, business associates, management and staff for the continuing and unwavering support through the years. With your firm backing, we are motivated to strive for greater achievements and growth.
BBR is well prepared for new opportunities and challenges and we will grow from strength to strength in building our market leadership in the construction industry to meet the urbanisation and infrastructure needs of Singapore and beyond.
Prof. Yong Kwet Yew
1 Building and Construction Authority media release “Public Sector Construction Demand is Expected to Strengthen this Year” published on 11 January 2018
2 Ministry of Trade and Industry press release “MTI Expects GDP Growth in 2018 to Moderate but Remain Firm” published on 14 February 2018