See Hup Seng

SHS Holdings Ltd

Print This Chairman's Statement

Dear Shareholders,

The volatility in the global economy, exacerbated by the highly competitive business landscape and the protracted downturn of the marine, oil and gas sectors, continued to challenge the Group's core businesses during the year in review.

Our Corrosion Prevention (CP) segment, which is dependent on a buoyant marine and offshore oil & gas industry, has been impacted by the severe downturn in the sector brought about by the volatility of crude oil prices globally. Revenue for the full year was down by 24% to S$17.6 million. However, the Group's efforts to rationalize its cost structure, while expanding and diversifying its customer base, have helped to soften the negative impact and helped the CP segment to remain marginally profitable in FY2016.

Our Structural Steel and Facade (SSF) business faced heightened competition, coupled with the loss of a production line due to the redevelopment of its plant in Tuas, led to revenue decline of 12% to S$34.2 million. Notwithstanding the sales decline, it registered a significant improvement in profits boosted by improved margins from better project and cost management, as well as the absence of bad debts provided in FY2015.

Revving up our new growth engines

To transform the Group to higher value-added businesses, we have developed new capabilities that are providing the new engines of growth for the Group – specifically, our renewable energy business, and the Pre-fabrication, Pre-finished Volumetric Construction ("PPVC"), or commonly known as modular construction.

In FY2016, our Solar Energy segment achieved revenue of S$3.3 million in its first year of operations, thanks to the completion of a 4MW grid-tiered solar photovoltaic system on the rooftop of SATS Airfreight Terminals 5 and 6 at Changi Airport.

On 19 October 2016, the Group through its subsidiary HDFC SinPower Limited ("HDFC"), made significant progress in its Bangladesh solar power plant project with the signing of the Power Purchase and Implementation Agreements with the Bangladesh Power Development Board and the Government of the People's Republic of Bangladesh and the Power Grid Company of Bangladesh Ltd respectively. Tariff for all electric energy purchases was fixed at US$0.17/kWh for 20 years. The construction of the Plant, estimated to be between US$70-80 million, is to be completed within 18 months.

We have made a giant leap in acquiring yet another new capability in modular construction to power our future growth. We are pleased to report that our acquisition of 60% interest in TLC Modular Construction Joint Stock Company (TLC), an established company based in Vietnam, was completed on 7 February 2017, and TLC has become a subsidiary of the Group.

Meanwhile, our subsidiary, TLC Modular Pte. Ltd., is using modular construction technology to develop a new hotel in New Zealand, a new apartment complex in Perth, Australia and prefabricated bathroom units (PBUs) for projects in Vietnam and Singapore.

Rewarding Shareholders

As a gesture of our appreciation for your support, the Directors have proposed a final dividend of 0.25 Singapore cents per ordinary share, which represents a dividend payout of 38% from its net profit attributable to shareholder from continuing operations in FY2016. This is subject to shareholders' approval at the forthcoming Annual General Meeting to be held on 27 April 2017.

Business Prospects

Looking ahead for FY2017, we expect the business outlook to remain challenging for our existing core businesses. Our CP business will continue to be impacted by the industry pressures, but we will forge ahead with our cost rationalization and productivity enhancing strategies to mitigate the impact while expanding and diversifying our customer base.

Our SSF business has secured a stable order book for FY2017, and its new modular construction segment will provide the necessary boost as it contributes positively in the current fiscal year. We shall endeavor to deliver on-time the steel engineering projects that we have on hand, and accelerate the development of our modular construction business in the key markets of Australia, New Zealand, Vietnam and Singapore.

For our renewable energy business, we will focus on constructing the 50MW solar plant in Bangladesh to be ready by the end of the second quarter of 2018. By then, the project should provide a steady income stream to the Group.

Acknowledgement

SHS is just beginning to rev up its new growth engines, and the momentum generated holds much promise. However, headwinds looming ahead may provide some resistance but we are determined, more than ever, to deliver more value to our shareholders.

These are challenging times, which require us to think out of the box and be nimble and adaptable. Extraordinary times require extraordinary effort, and this is the time for all business units in SHS to rally together, and make things work excellently. We need to work even closer together and harder than ever before.

We would like to take this opportunity to thank our colleagues on the Board for their counsel and cooperation, our management and staff for their dedication and hard diligence, and to our shareholders – thank you all for your support. We look forward to meeting you again at the upcoming Annual General Meeting on 27 April 2017. Have a wonderful year ahead!


MR CHEW HOE SOON

Independent Chairman


MR NG HAN KOK, HENRY

Group Chief Executive Officer