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Chairman's & CEO's Statement

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Dear Shareholders

In the last financial year ended 31 May 2019 (“FY2019”), the Group continued our efforts to refine our business focus and strengthened our core expertise in the warehousing & logistics and infrastructural materials & services business segments.

The ongoing trade dispute between China and the United States as well as geopolitical uncertainties, resulted in an overall economic slowdown and cast uncertainties to the business environment. The financial performance of the Group in FY2019 was mainly undermined by intense competition in the warehousing & logistics industry that saw supply outstripped demand, leading to competitive pricing for storage and logistics services.

The Group achieved another year of record revenue at S$88.2 million in FY2019, an increase of 23.3% year-on-year, up from S$71.5 million for the financial year ended 31 May 2018 (“FY2018”). The higher revenue was mainly driven by contributions from the Group's strategic investment in China, the whollyowned ready-mix concrete manufacturing plant, Wuzhou Xing Jian Readymix Co., Ltd. (“Wuzhou Xing Jian”) as well as warehousing and logistics services. However, the higher operating cost mainly attributed to the sale-and-leaseback of 30 Pioneer Road office cum warehouse property, offset the revenue growth. Continuous efforts to streamline our operations and divest non-performing businesses, saw the Group divested our 49% stake in GKE Metal Logistics Pte. Ltd. for a sale consideration of US$2.07 million (equivalent to approximately S$2.82 million based on an exchange rate of USD 1.00 : SGD 1.37) during FY2019. The Group recognised a net gain of approximately S$538,000 from this divestment. Without taking into account the loss of the discontinued operations of the liquefied gas carrier, which was divested in FY2018, the Group narrowed our net loss attributable to shareholders by 8.7% from S$2.3 million in FY2018 to S$2.1 million in FY2019.

Strengthening performing businesses, balancing growth

To consolidate our fundamental strengths, the Group continues to review and monitor our two business segments, namely (i) warehousing & logistics, and (ii) infrastructural materials and services. These two business segments are based in Singapore and China, respectively.

During FY2019, the Group continued to record growth in our core warehousing & logistics segment, where revenue increased from S$53.5 million in FY2018 to S$64.0 million in FY2019, amid intense competition and rising costs of operations. While the financial performance of the Singapore based warehousing & logistics segment faced cost pressures, the Group's strategic investment, Wuzhou Xing Jian, saw significant growth. Wuzhou Xing Jian recorded a more than two-fold increase in segmental profit (profit-before-tax) from S$2.1 million in FY2018 to S$4.8 million in FY2019 on the back of 34.6% increase in revenue from S$18.2 million in FY2018 to S$24.5 million in FY2019. The higher contribution was attributed to higher average selling prices of its ready-mix concrete as ongoing rural revitalisation plan continues to progress in Wuzhou City, China.

In view of the dynamics in the business landscape in both Singapore and China, the Group took the initiatives to tap on our success in Wuzhou Xing Jian to broaden its operations in the supply chain of the infrastructural materials and services in China through (i) construction of a new automated readymix concrete manufacturing plant in Cenxi City, (ii) establishment of a strategic joint venture, Cenxi Haoyi Recycling Co., Ltd., an initiative with Cenxi City government to construct and operate a recycling plant to recycle material waste from mining, construction, manufacturing and other related activities in Cenxi City, and (iii) establishment of a joint venture to participate in the mining and production of limestone products to monetise the mining rights Wuzhou Xing Jian obtained from the municipal land authority of Cangwu County, China.

China's urbanisation rate has increased from 17.9% to 58.5% in the four (4) decades of reform and opening-up1 . During this period, approximately 640 million people (equivalent to 46% of China’s population) migrated from the rural to urban areas. The Chinese government's continuous effort to improve people's lives and livelihoods has extended from key cities to rural areas over the years. The Group believes that our active participation, through our expertise in infrastructural materials and services in the rural revitalisation plans that are rolling out gradually, are potential catalysts for the Group to generate stable and sustainable income in the long term.

The investments in China will be financed through internal resources and funds raised from the share placement of 100 million new ordinary shares at an issue price of S$0.07 per share. The share placement was completed on 22 July 2019 and the total number of shares (excluding treasury shares) has increased from 688,531,890 shares to 788,531,890 shares.

In view of the economic headwinds, the Group stepped up efforts in streamlining our warehousing & logistics segment, particularly the non-performing businesses. On 18 June 2019, the Group divested our wholly-owned subsidiary, G-Chem Logistics Pte. Ltd. due to increasing losses and its net liabilities position. The Group will recognise a net gain of approximately S$291,000 from this divestment in the financial year ending 31 May 2020.

The Group believes that our strategy in strengthening our core expertise in our two broad business segments – (i) warehousing & logistics, and (ii) infrastructural materials & services, operating out of Singapore and China, respectively, creates a natural balance for the Group. When the infrastructural materials & services segment was at its initial stages of formation, the performance of the warehousing & logistics segment helped cushion the losses. The situation is currently reversed amid the macroeconomic headwinds. Nevertheless, the Group will continue to review and monitor the performance of the businesses in both segments, seizing opportunities to strengthen the fundamentals. The Group is hopeful to come out stronger with improved financial performances from these twin engines in the future.

Acknowledgments and Appreciation

On behalf of the Board, we thank the management and staff for their continued dedication and efforts. We would like to convey our appreciation to our fellow Directors for their support, particularly our former Board members – Mr. Er Kwong Wah and Mr. Liu Ji Chun, and we also extend our warm welcome to Mr. Loy Soo Chew and Mr. Wong Quee Quee, Jeffrey who joined the Board on 15 April 2019.

We are also thankful to our stakeholders, namely, our customers, bankers, business partners, and our shareholders, for your continued support and confidence. We are committed to strengthen our core businesses in Singapore and China to generate positive value for our shareholders in the years ahead.

1Source: https://en.wikipedia.org/wiki/UrbanizationinChina

CHEN YONG HUA
Executive Chairman and Executive Director

NEO CHEOW HUI
Chief Executive Officer and Executive Director