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 was a memorable year for the Group which saw us embarked on new phases of growth, amidst the challenging business environment.

Reinvestment of Resources for Future Growth

The resources unlocked from the disposal of the Group’s assets – (i) Maoming City Hung Ji Construction Materials Co., Ltd. (“Maoming”) and (ii) 30 Pioneer Road warehouse cum office property (“Pioneer Road Property”) in the previous financial year ending 31 May 2016, gave the Group the opportunities to reinvest for future growth.

The investments undertaken during the financial year ending 31 May 2017 (“FY2017”) to broaden the Group’s earnings base, include (i) investment in Wuzhou Xing Jian Readymix Co., Ltd (“Wuzhou Xing Jian”) which commenced commercial production in June 2016, (ii) the redevelopment of the 39 Benoi Road warehouse cum office property (“Benoi Road Property”), an adjoining property to the Pioneer Road Property in July 2016, as well as (iii) the strategic acquisition of TNS Ocean Lines (S) Pte Ltd (“TNS”) in late November 2016.

Wuzhou Xing Jian, a wholly-owned subsidiary of the Group, which houses an automated ready-mix concrete manufacturing plant with an annual production capacity of 800,000m3 in Wuzhou, China, is a strategic investment to ride on the urbanisation plans for the city. It commenced commercial production upon obtaining the product quality testing and certification from the Ministry of Housing and Urban-Rural Development of China in early June 2016. Throughout the financial year, it has been ramping up sales and production progressively, in tandem with the infrastructural and property developments in the Wuzhou City.

The Group is expecting its warehousing space to increase by an additional 200,000 sqft with the completion of the Benoi Road Property, bringing the total storage space for this property to 400,000 sqft and open yard storage space of approximately 130,000 sqft by end August 2017. The redeveloped warehouse comes with a dedicated level for safe storage of hazardous chemicals and dangerous goods, which would allow the Group to further expand its niche specialty chemicals and marine coatings storage and services beyond its current storage capacity. In addition, automated racking systems will be implemented in this new warehouse, allowing an increase of storage space by 30% and reducing manpower by 20%. With this new development coming on stream, the Group will able to reduce the cost of renting additional storage space from external parties and manage its warehousing business more effectively.

The strategic acquisition of TNS further extends GKE’s core warehousing and logistics services platform to maritime logistics, particularly, port operations. This lateral expansion strengthens GKE’s competitive edge in providing seamless solutions and services in the supply chain management.

Overcoming Adversities Through Effective Business Alignments

Over the past financial year, the Group overcame adversities to ensure its core warehousing and logistics division including Marquis Services Pte Ltd (“Marquis”) and TNS, and its strategic investments continue to perform well amid the subdued economic growth and rising cost of operations.

The Group achieved a record revenue of S$56.1 million for FY2017, an increase of 52.2% from S$36.9 million in FY2016, on the back of contributions from Marquis, Wuzhou Xing Jian, and newly acquired TNS. Gross profit grew in tandem with higher revenue, increasing by 17.5% from S$9.7 million in FY2016 to S$11.4 million in FY2017. The composite gross margin, however, decreased from 26.3% in FY2016 to 20.3% in FY2017. This was undermined by lower margin experienced by the local warehousing and logistics division, particularly on higher rental cost from the sale and leaseback of the Pioneer Road Property.

The absence of one-off gains of S$1.2 million arising from the disposals of Everflourish and Maoming, and S$13.7 million from the disposal of the Pioneer Road Property, higher operating expenses from the expanded operations, and fair value loss on contingent consideration amounting to S$0.5 million arising from the re-measurement of contingent shares issuing due to acquisition of Marquis, resulted in a reversal from net profit attributable to shareholders of S$5.7 million in FY2016 to a net loss attributable to shareholders of S$2.3 million in FY2017.

However, excluding the one-off gains from disposal of assets in both financial years, the impairment loss of S$3.9 million relating to the investment in GKE Metal Logistics Pte Ltd that was recognised in FY2016, as well as the fair value loss on contingent consideration of S$0.5 million recognised in FY2017, the Group would have narrowed its loss before tax from S$3.8 million in FY2016 to S$1.6 million in FY2017. This would have been an improvement of 57.9% on the back of an expanded portfolio of businesses within the core warehousing and logistics division which include Marquis and TNS, and the strategic investments – Wuzhou Xing Jian and the 50% joint venture in the liquefied gas carrier vessel.

Driving Synergies to Build Sustainable Growth

The Group is mindful of the additional operating costs arising from the expanded portfolio of businesses and strategic investments. We will continue to fine tune the integration and operations within the core warehousing and logistics division as well as that of our strategic investments.

As part of the redevelopment plan, Viva Industrial Real Estate Investment Trust (“Viva Industrial REIT”) is entitled to construct a vehicular link to connect the 40-footer ramp from Benoi Road Property to the Pioneer Road Property. This would enable ingress and egress of 40-footer container trucks to and from the Pioneer Road Property via the ramp and the link. When these are completed, Viva Industrial REIT shall pay the Group S$3.0 million and a monthly maintenance and repair cost of the ramp.

The Group has been working tirelessly in driving demand for the upcoming additional storage space in the redeveloped Benoi Road Property, which is expected to be operational by end of August 2017. The lease expiry for the Benoi Road Property has also been extended to 2037. We believe that the redevelopment of the Benoi Road Property has not only enhanced the asset value of the property, but also allow the Group to build sustainable growth for the long term through effective business alignments among our subsidiaries as well as attracting a wider base of customers.

Acknowledgments and Appreciation

On behalf of the Board, we would like to extend our deepest gratitude to all members of the Group for their dedication and commitment toward the success of GKE. We would also like to acknowledge our fellow Board Directors for their invaluable advice and support throughout the year.

Moving forward, we remain committed in our relentless pursuit to expand our business portfolio while driving synergies among the subsidiaries within our core warehousing and logistics division. We are appreciative of our shareholders’ support and confidence in us, and we look forward to your continued support and faith as we overcome adversities and strengthen the Group to enhance shareholder value.