final output

Prior to 1 April 1998, we recognised revenue upon completion of 25% of the estimated cost to
completion for the project (“Completion”). However, with effect from 1 April 1998, we increased the
revenue recognition threshold to 50% of Completion. Our management is of the view that as the size
and number of projects increased, the unanticipated costs to completion can be more accurately
estimated at the 50% stage of Completion. By increasing the threshold of revenue recognition, our
management believes that it would better reflect the matching of our project revenues and costs, so
as to have a better assessment of our project profits earned. The impact of the change in recognition
threshold is set out on page 42 of this Prospectus.
The value of our contracts would have taken into consideration our estimated cost to completion of
the project and our anticipated profits which would in turn depend on several factors such as the
complexity of the project, the level of skills required, the types of materials used and the estimated
total man hours for completion.
The key factors that affect our revenue include:-
(a) State of economy in the Singapore Construction Industry
Our turnover is dependent on the performance of the construction industry in Singapore. Fewer
projects would be available following a contraction in the Singapore construction industry. At
such times, contract values may be lower due to increased competition among main contractors
and subcontractors such as ourselves due to the lack of supply of new projects. Ongoing
projects may extend their dates of completion as developers maximise their cash flows and
delay the sale of their residential units. To date, we have not experienced any major extension
of completion dates in our projects by the developers or main contractors except as discussed
on page 48 of this Prospectus. Such delays would result in a delay in recognition of our project
revenue.
(b) Number of invited tenders and awarded
All our projects are awarded based on the invited tender basis. Main contractors competing for
new projects may invite us to provide quotations on the M&E works of the project. After the
main contractor is awarded the project, we may be invited to negotiate for the M&E contract
sum with the main contractor. Our business volume depends on the number of invited tenders
we receive and our ability to secure these projects.
The number of invited tenders we receive depends on the number of referrals we receive from
our customers or independent M&E consultants. In addition, our track record and past business
dealings with existing customers would also affect the number of invited tenders we receive.
Our Costs
Our costs can be categorised into cost of sales and general and administrative expenses. Our costs
of sales comprise mainly of labour costs, construction materials costs and depreciation costs of
construction equipment and mobile toilets. General and administrative expenses comprise salaries
and related expenses and depreciation on furniture, leasehold buildings and properties.
Cost of Sales
Our M&E cost of sales is predominantly labour costs and construction materials costs that in aggregate
contribute to 97% of our M&E cost of sales for the last three financial years. The remaining 3% of
our M&E cost of sales comprise of depreciation on construction machinery and transportation costs.
As M&E installation is labour intensive, we require a large workforce of skilled and unskilled foreign
workers. To ensure that the quality of work performed by these workers is consistent with our level
of quality requirements, our project managers or site managers would visit each work site regularly
to check on the progress and the quality of work. Labour costs accounts for 59.6% of our M&E cost
of sales in the last three financial years. Our labour costs vary according to the complexity of the
project. If a project requires high installation skills or requires more man hours for installation, our
labour costs would increase.
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