Extracted from Annual Report 2020
The year under review was a challenging one - the first half marked by slow, uncertain global economic recovery, while the outbreak of the coronavirus in late 2019, brought ongoing significant global economic disruptions, affecting business operations worldwide, and in Singapore.
Due to the many travel restrictions, aggravated global business environment and circuit breaker measures, Singapore's trade reliant economy contracted by 13.2% on a year-on-year basis in the second quarter of 2020 while the local construction sector, with activities grinding to a halt during the circuit breaker period, shrank by 59.3%. The industry has also had to grapple with manpower disruptions due to additional measures to curb the spread of the virus.
The Group started the financial year on a respectable note and registered two quarters of sound results with net profit of $7.0 million for the half year ended 31 December 2019. However, the Covid-19 pandemic has had severe ramifications on the construction, property and hospitality industry. In line with the Government's circuit breaker measures to combat the spread of the outbreak, Group operations were halted starting April 2020. With the phased easing of restrictions in mid-June 2020, work at our construction and development projects have resumed albeit not at pre-Covid levels due to constraints from nationwide Covid-Safe measures.
Against this backdrop of tougher industry and business conditions, the Group reported a loss attributable to shareholders of $2.1 million despite generating revenue of $322.7 million. The loss reported, notwithstanding an increase in revenue, was mainly due to the fair value loss arising from the valuations for our investment properties. The lower valuations for these properties were expected under the current pandemic.
To maintain balance sheet strength and prudent capital management through a period of uncertain global economic times, the Board has recommended to declare a lower dividend for FY2020. We will be declaring a 1.0 cents final dividend, which combined with the interim dividend of 0.3 cents paid out in March 2020, brings the total dividend for FY2020 to 1.3 cents.
Tekka Place, the Group's joint venture integrated redevelopment project at Serangoon Road received its TOP in November 2019. Leasing activities for the 69,000 square feet retail mall kicked off last year and current tenants include NTUC Fairprice, XinTekka foodhall, Starbucks, Guardian and Ya Kun Kaya Toast. To support our tenants during these difficult times, we have provided some rental reliefs and have committed to pass on any Government tax rebates.
Tekka Place's apart'hotel, Citadines Rochor Singapore, opened its doors in December 2019, but had to suspend operations when circuit breaker measures were imposed in April 2020. In line with Government efforts to contain the spread of Covid-19 in the community, Citadines Rochor has taken on the housing of returning residents serving quarantine or residents serving Stay-Home Notices since April.
Construction for the Group's prestigious residential project, One Tree Hill Collection, has resumed after the phased lifting of circuit breaker restrictions. The development comprising 12 semi-detached and two bungalows, is now expected to complete in the first half of 2021. To date, three semi-detached and 1 bungalow have been sold.
In Malaysia, no new units of Twin Palms, Sungai Long were launched during the financial year, and the Group had been actively marketing unsold units of Twin Palms before the Malaysian Government implemented the Movement Control Order in March 2020. Of the 444 units launched so far, 404 or 91% have been sold.
Overseas, the Group's divestment of its minority stake in Frankfurt's Main Airport Centre was completed in September 2019. Its commercial property, 130 Wood Street, located north of Cheapside in London, was also disposed for a consideration of approximately $98.71 million. Meanwhile, the serviced residences at Kelaty House is expected to complete in 2021.
Activities from the Group's Construction arm had been severely impacted due to the temporary suspension of work during the circuit breaker measures, which coincided with the last three months of FY2020. Despite that, the division still managed to record a 32% increase in revenue to $294.8 million compared to $222.8 million last year.
It secured a couple of notable projects in FY2020, strengthening its total order book from $1.3 billion at the end of the last financial year to $1.87 billion this financial year end. The new projects awarded are for the construction of an indoor attraction and a resort at the Mandai Rejuvenation Project, and a $155.5 million contract to refurbish the iconic former State Courts building, The Octagon, at Havelock Square. The contract includes structural and façade conservation works, and when completed, The Octagon is expected to house the Family Justice Courts.
The division obtained TOP for PSA Singapore's corporate headquarters at Pasir Panjang in March 2020. Despite approvals to restart work at our other projects on hand, Woodlands North Coast, Contract T315 and Contract N110, construction activities will still need some time to normalise and recover to pre-crisis levels.
LC Interior has also resumed work for its projects including additions and alterations at St James Power Station, and other ongoing architectural work contracts for the MRT projects T311, and T315.
Reaffirming the Group's commitment to workplace health and safety, we were once again lauded by the Royal Society for the Prevention of Accidents (RoSPA) with a Gold Award, for the sixth year running. Other awards garnered this year include the BCA Green Mark Platinum Award for Woodlands North Coast, PSA Liveable City and St James Power Station and the JTC Construction Safety Performance award for the Woodlands North Coast project.
The Company purchased 3,798,200 of its own shares during the financial year ended 30 June 2020.
The Ministry of Trade and Industry in a statement issued on 11 August 2020, had downgraded its full-year GDP growth forecast and now expects the Singapore economy to contract by 5% to 7% for the year 2020.
And while construction activity has gradually resumed, the Group is cognizant that the coronavirus pandemic will continue to impact our business into FY2021. Besides pre-existing competitive and manpower shortage issues, the industry now also faces unprecedented operational challenges. In addition, the BCA revised its projected construction demand for 2020 down to between $18 billion to $23 billion from the earlier range of $28 billion to $33 billion. It attributed the revision to a drop in private sector construction demand and the delay in the award of some public sector construction projects.
With the ongoing health crisis, volatile market environment and unresolved US-China trade tensions, the Group expects FY2021 to continue to be a challenging one, with construction progress and cost for all its projects affected.
That said, the Group will strive to exercise financial prudence and remain disciplined in capital management. We will continue to be selective with our investment bids and though we are well positioned to tender for more projects, will do so cautiously in view of the challenges ahead.
At the date of this letter, the coronavirus continues to impact our daily business and as circumstances continue to evolve, the Group is doing our part to keep our business associates, employees and project sites safe. We have enhanced our cleaning procedures, and enacted business continuity plans so that we can continue to serve our clients while protecting the well-being of our people.
On behalf of the Board, my thanks go out to our shareholders, clients and business associates for the confidence and support they have shown the Group over the years. To my fellow Board members, I would like to express my deepest appreciation for their guidance and wise counsel, and to our management team and staff, thank you for your dedication and commitment in these challenging times.
Before I conclude, I would also like to wish all good health and safety. Here's hoping that the worldwide coronavirus situation will be brought under control soon.
Raymond Lum Kwan Sung
17 September 2020