Construction group Tiong Seng announced that it has made a loss of $44.0 million for the 1HFY2022 ended June period, compared to earnings of $1.4 million in the same period a year ago. The group has attributed its loss to rising labour, material and subcontracting costs.
Alongside the group's loss in this period, its revenue has declined by 16.8% y-o-y to $148.7 million, mainly due to a decrease in construction work for the engineering solutions segment for finished products such as mass engineered timber and prefabricated prefinished volumetric construction (PPVC), as well as a reversal of over-recognised revenue from the engineering solutions segment of approximately $8.0 million in aggregate from the prior reporting periods.
The group noted that the flow of labour remained restrictive until the entry requirements were streamlined in June this year, this allowed it to access more workers in 2QFY2022 compared to the previous quarter.
The shortage of labour contributed to the slower progress of construction activities and lower revenue. The bright side is construction activities started to pick up in 2QFY2022, especially with the easing of labor shortages since June, the group's construction revenue has increased by $37.8 million to $118.1 million, as compared to 2HFY2021.
With the fall in revenue, a net loss was recorded due to a higher cost of construction contracts and engineering solutions, coupled with provisions made during the period for $17.5 million. Cost of construction contracts and engineering solutions relative to revenue increased to 118.4% from 92.7% in 1HFY2021 due to higher labour, material and subcontracting costs.
Provisions were largely for onerous contracts secured pre-Covid, where costs had increased past the prices considered at contract dates These pre-Covid-19 projects were hence doubly affected as supply chains issues before 2022 were not fully resolved and disruptions from the geopolitical crisis early this year further increase the costs.
On the other hand, other expenses increased significantly to $10.5 million from $4.0 million a year ago, mainly due to provision of impairment on contract assets of $5.0 million as well as higher repair and maintenance and operating lease expenses.
Against this backdrop, the group reported a loss.
As at end-June, the group's cash and cash equivalents stood at $67.4 million.
On the outlook, the group is concerned about current geopolitical issues, the slow recovery of the construction sector, the price in raw material prices, as well as inflation. While labour is still an issue, the group notes that productivity is increasing as workers acclimatise back to the pace of work and skill levels required.
Moving forward, the group will continue to bid for suitable contracts while monitoring prices of materials and labour.
Shares in Tiong Seng closed at 10 cents on Sept 13.
Photo: Tiong Seng