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CEO's Message

chairman

Dear Shareholders,

We closed the financial year ended 31 March 2019 ("FY19") with revenue of $323.1 million, compared to $338.8 million in FY18. Amid a competitive environment, we managed to sustain a healthy order book.

Our strict discipline in cost and operations management, along with the stability in tender prices in the latter half of FY19, helped to boost our gross profit and gross margins for the financial year. In this regard, gross profit for FY19 improved 34.1% to $15.0 million, from the prior financial year's ("FY18") $11.2 million; while gross margin rose to 4.6% in FY19, versus 3.3% in FY18.

Operating expenses rose 26.1% to $31.6 million in FY19, from $25.1 million in the previous year. The rise factored in higher legal fees incurred to recover outstanding debts due to us, as well as higher staff costs from a headcount increase. It also took into account impairment and expected credit losses that were recognised on trade and other receivables and contract assets. The expected credit losses were recognised in compliance with new accounting standards.

Net finance expenses increased 11.2% to $2.0 million, compared to $1.8 million in FY18, as short-term borrowings, drawn down for working capital, increased.

Taking into account the factors above, net loss before tax for FY19 was $16.7 million, compared to 12.8 million in FY18. Net loss after tax for FY19 thus amounted to $18.0 million, compared to $13.5 million in FY18. Excluding a provision for foreseeable loss of $1.0 million and the $1.1 million expected credit losses due to accounting adjustment, net loss before tax would have been $14.6 million in FY19.

As at 31 March 2019, net assets per ordinary share amounted to 6.1 cents, compared to 7.2 cents a year ago. We took on more debt during the year for use as working capital, which led to higher total borrowings of $102.7 million, compared to $80.4 million a year ago. Debt-toequity ratio thus rose to 0.72 as at 31 March 2019, compared to 0.50 in the preceding year.

Operations Review

In FY19, government infrastructure and residential projects formed the bulk of our order book, which also includes commercial and industrial projects in Singapore. Competition remained keen but we were able to leverage our capabilities in foundation and geotechnical engineering and our strong project track record to build out our order book, with close to $190 million worth of projects secured in FY19. Some of these projects include:

Infrastructure projects

  • Part of the Deep Tunnel Sewerage System Phase 2 Project - Contract T11 (Singapore)
  • Soil improvement works for the airside road connection tunnel as part of the Singapore Changi Airport Package 3 (Singapore)
  • Ground anchor installation for the New National Cancer Centre facility at the Outram Medical Campus (Singapore)
  • Polyclinic and senior care centre at Chin Cheng Avenue (Singapore)
  • Nursing home at Potong Pasir (Singapore)

Residential projects

  • Public housing developments at Woodlands, Kallang Whampoa, Punggol North, Geylang and other townships (Singapore)
  • South Avenue Residences at Silat Avenue and Riverfront Residences at Hougang Avenue 7 (Singapore)
  • Platinum OUG Residence, Emerald Hills Lakefront Condominium, the GEMS and other private residential developments in Klang Valley (Malaysia)
  • Vista Harmoni Apartment in Kuala Lumpur (Malaysia)

Industrial projects

  • Neste Singapore expansion project at Tuas South Lane (Singapore)
  • Siltronic Singapore factory at Tampines Industrial Avenue 5 (Singapore)
  • JTC Corporation service corridor pipe rack construction project on Jurong Island (Singapore)
  • Partial installation of base grouted bored piles at Micron Semiconductor's wafer fabrication facility at North Coast Drive (Singapore)

Commercial projects

  • A commercial redevelopment at Claymore Road (Singapore)

Our operations in FY19 were partially hampered by a sizeable project, which faced issues not within our control that led to delays in the delivery of the project and cost overrun for us. Due to the scale of the project, we had deployed significant resources to it, and the delays meant that we were then unable to take on more projects.

Our investment in Railway Street Hertford Limited ("RSHL"), in which we hold an effective 8.4% stake, is making progress. As at the close of FY19, RSHL has completed the development of a 0.7 acre freehold land in Hertford, Herfordshire in the United Kingdom into a property comprising 28 residential units and one commercial space. Sale of these units is currently ongoing. This investment has yielded us $0.6 million thus far.

The past 12 months saw some major players in Singapore capitulating under the weight of heavy competition and pricing pressure. Our ability to withstand such adversity bears testimony to the importance of our efforts in cash and cost management. Apart from keeping a tight rein on our expenditure, we have been able to maintain a favourable cash flow position through securing suitable projects and managing our project margins. This, along with our focus on maximising efficiency in our operations and asset utilisation, has served us well in withstanding the onslaught of difficult industry challenges.

Looking Ahead

The Singapore construction sector was able to log its first quarter of year-onyear expansion after 10 consecutive quarters of decline. Total construction demand for 2019 is expected to be between $27 billion and $32 billion, according to the Building and Construction Authority. While indications point to light at the end of the tunnel for the sector, the Group is mindful of factors at play that could yet tip the scale. Externally, there are indications that 2019 as a whole could be more challenging, with Singapore’s economic outlook potentially clouded by the cascading effects of rising world trade tensions, which could yet dampen construction demand. Within the construction sector, we will face strong competition from other players who have built up an appetite coming off the period of decline.

In the year ahead, local construction demand will continue to be buttressed by ongoing government spending in public infrastructure projects, such as the North-South Corridor and Changi Airport Terminal 5, along with other industrial and commercial construction activities. Additionally, the announcement in April 2019 by the operators of the two integrated resorts in Singapore to commit an estimated $9 billion in expanding the respective resorts should translate into construction demand for the next several years. On the other hand, the residential sector has been seeing growth easing as demand for private developments weakened in the wake of property cooling measures introduced in 2018.

We have survived the industry downturn and outlasted our competition. Our focus this current financial year is to continue to strengthen our competitiveness and maintain economic sustainability. To that end, we will continue our efforts to secure more projects, at reasonable margins, to build a healthy order book. We are also keeping up with our approach to maximise asset utilisation and optimise cost and operational efficiencies.

Acknowledgements

Amid a challenging operating environment, we have to be able to remain responsive and willing to adapt to industry changes to maintain our competitiveness. I am thus thankful that our team at CSC have been able to step up and show their commitment.

I would also like to extend my appreciation to our Board members for their guidance of the Group.

To all our shareholders, we thank you for your support.


See Yen Tarn

Chief Executive Officer