Chairman's & CEO's Statement

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Mr Neo Cheow Hui, Mr Chen Yong Hua

Mr Neo Cheow Hui
Chief Executive Officer
and Executive Director

Mr Chen Yong Hua Executive Chairman
and Executive Director

Dear Shareholders

The last financial year had been challenging and yet fruitful.

Over the last few years, we have planned and implemented our two-pronged growth strategy progressively to broaden and strengthen our earnings base, focusing on developing our core warehousing & logistics and strategic investment platforms. We have taken initiatives to streamline our less-performing businesses and expanded prudently to strengthen our fundamentals for long term sustainable growth.

Back On The Profitable Track

We are pleased to update our Shareholders that the Group is back on track to profitability as our earlier efforts are bearing fruit.

The Group reversed its loss-making position for the financial year ended 31 May 2016 ("FY2016") and achieved a net profit attributable to shareholders of S$5.7 million, on the back of a marginal increase in revenue to S$36.9 million amid weaker economic conditions. The Group's EBITDA has also improved significantly from $5.7m for financial year ended 31 May 2015 ("FY2015") to $16.5m in FY2016. This set of uplifting results mainly stemmed from the Group's warehousing & logistics segment, which generated higher revenue with maiden contribution from its newly acquired chemical warehouse & logistics operator, Marquis Services Pte Ltd ("Marquis"); as well as the aggregate net gains amounting to S$14.9 million from (i) divestment of a 40% stake in an associated company, Maoming City Hung Ji Construction Materials Co., Ltd. (茂名市宏基建材有限公司); and (ii) sale and leaseback of its warehouse cum office building located at 30 Pioneer Road to Viva Industrial Real Estate Investment Trust ("VIREIT") during the financial year. The net profit attributable to shareholders was partially offset by an impairment charge of $3.9m for its associate company, GKE Metal Logistics Pte Ltd as well as additional tax provision in relation to the disposal of the 30 Pioneer Road property.

Strengthening Fundamentals

In line with GKE's commitment to deliver stable and sustainable earnings growth in the long term, the Group will continue to focus on strengthening its fundamentals by broadening its earnings base amidst the challenging business environment and economic uncertainties. The acquisition of Marquis and monetising its 30 Pioneer Road property for the asset enhancement initiative to redevelop 39 Benoi Road property, as well as the strategic investments - (i) liquefied gas carrier vessel and (ii) readymix concrete manufacturing plant in Wuzhou, China, have come to fruition.

Building on our foundation of warehousing and logistics segment, GKE continues to chart expansion opportunities to enhance the Group's competence and platform as a warehouse operator and logistics solutions provider to pursue business opportunities in both existing and new industries. The acquisition of 70% stake in Marquis in December 2015 allows GKE to expand laterally, and leapfrogged GKE into the specialised area of chemicals warehousing and logistics services. Marquis has been performing well and made its maiden half-year contribution to the Group in FY2016. The performance of Marquis is within the Group's expectation on the profit guarantee of not less than S$2.8 million in aggregate for two years, from 1 December 2015 to 30 November 2017. We are confident that the amalgamation of GKE and Marquis will further strengthen the Group's capabilities in broadening our third party warehousing and logistics solutions and services to diverse industries.

During the financial year, the Group also took the opportunity to unlock the asset value of its 30 Pioneer Road property for a sale consideration of S$45 million in cash and embarked on the redevelopment of 39 Benoi Road warehouse facilities, an adjoining property. The redevelopment of the new warehouse cum office is an asset enhancement initiative, expanding the warehousing space by an additional 200,000 sqft, and bringing the total warehousing space to 400,000 sqft with open yard storage space of approximately 130,000 sqft. This warehouse shall be equipped with capabilities of safe storage of chemicals and dangerous goods, which will give the Group additional headroom for growth in the niche specialty chemicals and marine coatings sector. The redevelopment of this property is expected to complete by end July 2017 and upon completion, the Group will operate approximately 900,000 sqft of warehouse storage space in Singapore.

The two strategic investments which the Group has undertaken over the last few years, will be contributing positively to the Group from FY2017 onwards.

The Group achieved a milestone for its marine & shipping logistics segment when its 50-50 joint venture company, Ocean Latitude Limited, which the Group invested to construct the 83,000m3 liquefied gas carrier vessel, was delivered earlier than expected. The Group has entered into a six months chartering contract from mid-April 2016 with an option to extend for an additional six months. The confirmed charter contract at a gross rate of US$33,000 per day is deployed to the Middle East and Far East regions, and has since started generating a steady stream of recurrent income for the Group. We are cautiously optimistic in securing a longer term chartering contract against the backdrop of global economic uncertainties and depressed oil prices despite the rising environmental concern that could potentially lead to increasing demand for liquefied gas globally.

The Group recorded yet another breakthrough with its wholly-owned subsidiary, Wuzhou Xing Jian Readymix Co., Ltd (梧州市星建混凝土有限公司) ("Wuzhou Xing Jian") which completed the construction of Phase 1 of its ready-mix concrete manufacturing plant with an annual production capacity of 800,000m3 in late 2015. This automated manufacturing facility is built with the state-of-the-art technology which improves operational efficiencies and it is environmental friendly. Wuzhou Xing Jian also owns a fleet of 25 cement mixer trucks to support the logistics requirements of supplying ready-mix concrete products to its customers within the Wuzhou City.

It took Wuzhou Xing Jian about six months to achieve the product quality testing and certification from the Ministry of Housing and Urban-rural Development of China on 29 May 2016. Obtaining this certification allows Wuzhou Xing Jian to sell its ready-mix concrete products, negotiate effectively for offtake supply contracts and to ramp up its production capacity progressively with the demand. As Wuzhou City is one of the cities in China that has the mandatory requirement for property developers and public infrastructural works departments to purchase ready-mix concrete from certified ready-mix concrete manufacturers, we are confident to garner market share as the approved urbanisation plans in Wuzhou City progresses.

We expect the infrastructural materials and services segment to contribute positively to the Group's earnings from FY2017 onwards.

Rewarding Shareholders

As an appreciation to our supportive shareholders, the Board has recommended a first and final one-tier taxexempt cash dividend of S$0.006 per ordinary share, subject to approval of shareholders at the Annual General Meeting on 28 September 2016.

Balancing Expansion With Assurance

We will continue to review and monitor our business portfolio, and focus on strengthening our fundamentals for sustainable growth in the long term. When presented with opportunities in this challenging business environment, the Group will look to unlock resources from its less-performing assets and business units.

We will also continue to tap on the diverse knowledge, experience and expertise of our Board of Directors, for their advice and guidance to pursue viable strategic investment opportunities with growth potential to expand the Group's earnings base which could enhance value for the shareholders.

The Group has entered into a binding Memorandum of Understanding to acquire 100% stake in TNS Ocean Lines Pte Ltd ("TNS"), an established port operations and logistics provider on 28 July 2016. This proposed acquisition is a strategic lateral expansion to GKE's logistics division, in particular, as port operations is the first and last landing points of imports and exports of goods. We believe that the long-term business working relationship of TNS with PSA Singapore, can be further broadened and deepened with the support from GKE's warehousing & logistics platform.

The proposed acquisition is earnings accretive with TNS providing a profit guarantee of not less than S$3.5 million in aggregate for three years. This will not only give an immediate boost to the Group's earning base, but also allows the Group to create synergies between TNS and GKE's warehousing and logistics segment to generate more business activities in the long term. The purchase consideration for the proposed acquisition is S$9.0 million, which would be satisfied with 30% in cash and remaining with issuance of ordinary shares at S$0.12 per share. We will update out shareholders on the developments as and when appropriate.

Acknowledgements and Appreciation

We would like to convey our appreciation to our fellow Board Directors for their invaluable advice and guidance, and the Management and staff for their dedication and commitment for the past year, and thank our former Board members - Mr. Mahtani Bhagwandas and Ms. Angelic Cheah Yee Ping, for their commitments and invaluable contributions to the Group. We also extend our welcome to Mr. Ho Ying Ming and Mr. Andrew Chua Thiam Chwee who joined the Board on 30 September 2015.

On 4 August 2016, the Board has announced the appointment of Mr. Er Kwong Wah as the Lead Independent Director of the Group as well as the resignation of Mr. Wang Jian Ping, the Alternate Director to Ms. Qian Wen Hua. We would like to thank Mr. Wang for his invaluable contribution to the Group.

On behalf of the Board, we would like to express our heartfelt appreciation to our shareholders, customers, business associates and partners, for their trust and continued support for the Group.