Engineered for Growth Annual Report 2006
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ENGINEERED FOR GROWTH ANNUAL REPORT 2006 Contents 1 Corporate Profile 2 CEO’s Message 4 Board of Directors 7 Corporate Information 8 Operations Review 12 5-Year Financial Profile 13 Financial Contents Profile Corporate Shaping the city skyline, adding structural and aesthetic value to buildings, laying solid foundations that give people the confidence to build upon – Yongnam aspires to be the name synonymous with such ideals. Steel is increasingly the material of choice for the construction of buildings and temporary support for deep excavations. The advantages of using steel over conventional material such as concrete for building construction are numerous. The higher speed of construction, superior material strength to volume ratio, flexibility in design and aesthetics are just some of the benefits of using steel. Yongnam excels in adding value Yongnam is an ISO-9001:2000, to steel. Its steel fabrication IQNet qualified company and experience has spanned more than accredited SI classification from 30 years. Together with production Singapore Structural Steel Society facilities in Malaysia, the Group (“SSSS”). Its Quality Management has a total production capacity of System takes a planned approach 45,000 tons of steel fabrication. Its towards continuous improvement of Singapore operations are housed our products, processes and services at its mega-site in Tuas. The Group to meet or exceed our customer’s utilizes latest steel technologies expectations at all times. to exploit innovative designs and methods. Yongnam’s technical The most cost-effective methods of and value engineering solutions for design, fabrication and installation are steel fabrication and erection have adopted in close consultation with resulted in increased productivity, our clients’ specific project needs, improved yield and lower costs. be it steel structures for buildings or Furthermore, our in-house pool of strutting systems for deep excavation experienced and qualified engineers, support requirements. The end technicians, welders, riggers, fitters results are steel structures that are and detailers are consistently meticulously designed, fabricated to adding value to our clients’ project exacting standards, and installed in requirements. the most safe and efficient manner, to the satisfaction of our clients. YONGNAM HOLDINGS LIMITED • Annual Report 2006 1 Message Improved earnings. Strengthened balance sheet. Strong order book. Positive outlook with Infrastructure and Construction boom. CEO’s CEO’s Poised for growth. I am delighted to present a very strong report card for Yongnam: Net profit for the year ended 31 December 2006 jumped almost nine-fold, from $599,000 to $5.3 million on the back of an 85% increase in group revenue from $81.4 million to $150.4 million. I am presenting this report as your CEO as our Chairman, Mr. Yap Foo Seong had decided to step down from the Board and management of Yongnam in early January this year. The Board would like to acknowledge its appreciation of Mr. Yap’s invaluable guidance and contribution for the past three-and-a-half years. We are in the process of identifying a non-executive chairman to lead the Board and will update shareholders when this is finalized. Meanwhile, we welcome Mr. Chia Sin Cheng to the Board as an Executive Director. Mr. Chia, who was Yongnam’s Finance Director in 2002/3 was instrumental in conceptualizing and implementing a restructuring plan for the Group. He has rejoined the Group as Finance Director to help the Group strengthen our capital structure and financial fundamentals as we move forward to take advantage of the very positive business conditions in Singapore and the region. YEAR UNDER REVIEW Key highlights from the three business divisions are as follows: Fusionpolis. Tanjung Bin. Novena Square (extension). Vivocity. Kallang Paya Lebar Expressway. MRT Circle Line. Structural Steelworks These are some of the major projects the Group had undertaken. Fusionpolis, Tanjung Bin’s fabricated steel structure, Novena Square extension and Vivocity have been completed and contributed to the 68.4% increase in revenue, from $37.4 million in FY2005 to $63.0 million in FY2006. New projects awarded in 2006 include the Sitronic Wafer Fab building, three units of High Efficiency Jack up Derrick Fabrication, the Alexandra Pedestrian Bridge and a link-way forming part of the canopy walk linking Kent Ridge to Mount Faber. These are expected to be completed in 2007 with the exception of 1 unit of Derrick Fabrication which will be completed in 2008. Specialist Civil Engineering Our Specialist Civil Engineering business also registered substantial improvement. This division saw an 84.4% increase in revenue of $69.3 million for FY2006 compared to $37.6 million the previous year. Revenue was mainly contributed by the Kallang Paya Lebar Expressway (KPE) and Circle Line projects. The KPE421, KPE423 and KPE424 contracts had been substantially completed in 2006 with remaining works scheduled for completion during 2007. Phase 3 C851A and C853A contracts for the Circle Line are nearly completed. Circle Line Phases 4 and 5 contracts are at various stages of completion - C854 (50% completed), C855 (35% completed) and C856 (32% completed). In all, the Group had secured approximately 80% of all specialist civil engineering (strutting) works with a total contract value of $107 million for Circle Line Phases 4 and 5. C854 is expected to be substantially completed by FY2007 and C855 and C856 by 2008. Mechanical Engineering Revenue for this division increased almost three-fold, from $6.5 million in FY2005 to $18.2 million in FY2006. This is mainly contributed by the Tanjung Bin Power Plant project in Malaysia, which was secured in 2004. 2 YONGNAM HOLDINGS LIMITED • Annual Report 2006 STRENGTHENED BALANCE SHEET Earlier this year, on 23 January 2007, the Group placed out 123 million new ordinary shares at $0.161 mainly to institutional investors, including Legg Mason International Equities (S) Ltd and JF Asset Management Limited, increasing its issued and paid-up share capital by approximately $19 million. Based on Yongnam’s consolidated balance sheet at 31 December 2006, the issue of these new ordinary shares has increased the net asset value per share by 2.54 cents to 3.53 cents. From the proceeds raised, a $2 million bridging facility provided by United Overseas Bank Limited has been fully repaid and approximately $6.5 million out of $8 million has been utilized to purchase strutting assets. Message PROSPECTS Positive outlook with Infrastructure and Construction boom. Poised for growth. In view of the on-going infrastructure developments in Singapore, particularly the new MRT downtown line, Integrated Resorts, Business and Financial Centre in Marina Bay and developments along Orchard Road, outlook for the Group CEO’s CEO’s looks promising. Going forward, to capitalize on these business opportunities, the Group will concentrate on further strengthening its core competencies and resources for Structural Steelworks and Specialist Civil Engineering which will also provide better margins. Our proprietary modular strutting system continues to give the Group a strong competitive edge in meeting increasingly more stringent design and project requirements in infrastructural and construction projects. We have captured the lion’s share of the current ongoing works at KPE (C-421, C-423, and C-424) and the Circle Line (C825, C851A, C853A, C854, C855 and C856). Most consultants, contractors and authorities in Singapore recognize the proven efficiency, safety and cost effectiveness of our strutting system. The successful full-scale load test conducted on our strutting system in November 2006 will further enhance our competitive position. We will continue to capitalize on our market leadership and dominance in the specialist civil engineering market, not only in Singapore but also in the region. The Group has already started to actively pursue new business opportunities in the Middle East. CHALLENGES The recent ban on the export of sand by the Indonesian Government has not affected our works directly though it has had some impact on main contractors’ progress of works. The Singapore Government is actively working with the industry and trade bodies to look into more sustainable modes of construction to alleviate the sand shortage. Going forward, we expect this could present additional business opportunities for the Group as more construction projects shift towards using steel structures instead of concrete based buildings. With increased business activities, the Group will be more exposed to steel price. For contracts that include the supply of steel, the Group will hedge our risks through forward purchases. In labour-tight Singapore, all companies face with the issue of escalating labour costs. Similarly, Yongnam will face this issue, especially with skilled labour associated with the erection of steel. ORDER BOOK AND OUTLOOK The Group’s order book as at 31 December 2006 amounted to $147 million, compared to $130 million at the end of 2005. Notwithstanding the challenges ahead, the Board is optimistic that Yongnam will deliver improved earnings in FY2007, compared to FY2006. ACKNOWLEDGEMENTS I would like to acknowledge with thanks the contributions of our Directors, the dedication shown by the employees of the Group and the support given by our major banker, UOB. With enhancements to our risk management procedures and strong underlying business fundamentals, we believe the Group had weathered the storms and challenges of past years and are confident that Yongnam is poised to deliver better returns and enhanced shareholder value in the years ahead. SEOW SOON YONG Chief Executive Officer YONGNAM HOLDINGS LIMITED • Annual Report 2006 3 Directors Seow Soon Yong Tan Tin Nam Siau Sun King Seow Soon Hee Board of Board SEOW SOON YONG,Chief Executive Officer Appointed to the Board as Managing Director and Chief Executive Officer on 19 October 1994, Mr. Seow is a member of the Nominating Committee. Mr. Seow joined the Company in 1978. Since then, he has diverse experiences within the Yongnam Group as Site Manager, Marketing Manager, Project Director and General Manager.