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 logistics industry faced another challenging year amid weak economic conditions, manpower limitations and intense competition among industry players. We persevered in our efforts to strengthen our integrated logistics business by streamlining our operations and shaping up our strategic focus in our three core logistics segments – (i) third party logistics, (ii) shipping logistics, and (iii) infrastructural logistics.

The Group achieved revenue growth of 15.4% to S$36.2 million for the financial year ended 31 May 2015 ("FY2015"). Better cost management boosted gross profit by 44.6% to S$9.2 million for FY2015 and gross profit margin improved from 20.4% in FY2014 to 25.5% in FY2015. The Group remained in a loss-making position, but the net loss attributable to shareholders of S$3.8 million in FY2015 was significantly reduced from S$5.9 million in FY2014. This set of results mainly stemmed from our third party logistics segment, which generated higher revenue with contributions from our newly acquired and constructed warehouses at 6 Pioneer Walk and Yangshan, China, respectively.

In July 2014, the Group's wholly-owned subsidiary, Wuzhou Xing Jian Ready-mix Co., Ltd (梧州市星建混凝土有限公司) has successfully tendered the piece of 29,640 square metres land at Wuzhou City, Guangxi Autonomous Region in China. Construction of the planned cement mixing plant is underway and the Group expects completion and commercialisation of this plant by end 2015. Together with its associated company, Maoming City Hung Ji Construction Materials Co., Ltd. (茂名市宏基建材有限公司), the Group's infrastructural logistics segment is poised to be one of the leading suppliers that focuses on manufacturing environmentally-friendly lightweight bricks, building materials and cement products for the construction sector in China, on the back of continued urbanisation and long-term economic growth of China that will continue to support the demand for commercial and residential property developments across China.

During the year, the Group carried out a non-underwritten Rights Issue and raised the maximum net proceeds of S$12.6 million in this fund raising exercise. We are heartened by the overwhelming support from our shareholders.

Part of the net proceeds from the Rights Issue have been deployed to the construction of the 83,000m3 liquid natural gas ("LNG") carrier vessel through the Group's wholly-owned subsidiary, GKE Shipping Co., Ltd's 50-50 joint venture, Steadfast (HK) Co., Ltd. This LNG vessel due to be completed by 2016, is expected to drive growth in the shipping logistics segment with the potential demand for natural gas as a cleaner fuel for power generation. The Group is currently pursuing a chartering contract for this LNG vessel.

Whilst the Group expands across the logistics spectrum, it also looks into consolidating its existing operations to maximise efficiencies and profitability for the Group. During the year, it has ceased the operations of GKE & Mohseng Pte. Ltd. and disposed its 60% equity interest in GKE Air Logistics Pte. Ltd.

Balancing the Challenging Outlook

We expect the macro business conditions to remain difficult in the year ahead, with keen competition and weak global economic conditions to persist. Having streamlined our operations and improved operational efficiencies, we will continue to grow prudently in our integrated logistics solutions and services. We believe our earlier investments, in particular, the shipping logistics and infrastructural logistics segments are taking shape, and these logistics capabilities in these segments will further strengthened the Group as a significant player in the logistics related businesses in Asia Pacific. The Group is well-positioned to turn in an improved performance for FY2016, barring any unexpected developments or downturn in global economies.

In July 2015, we entered into a memorandum of understanding with Viva Industrial Trust Management Pte. Ltd. ("Viva Industrial Trust") for the proposed sale and leaseback of our existing headquarters cum warehouse property located at 30 Pioneer Road in Singapore. Upon completion of the legal and building due diligence in August 2015, the Group signed the agreement for the sale of the property. This proposed disposal will unlock cash of approximately S$45 million from our asset to allow the Group to pursue its expansion plan to develop its warehouse located at 39 Benoi Road, which is subject to approval from Jurong Town Corporation on the extension of the lease expiry to 2037.

As part of the agreement, the Group will lease back its 30 Pioneer Road property for five years. During the five-year tenure, Viva Industrial Trust will top up another S$3 million in the sale consideration when the Group completes the construction of a ramp to connect 30 Pioneer Road and 39 Benoi Road. We will update our shareholders on the developments as and when appropriate.

Pursuing Viable Strategic Investment Opportunities

We remain on the lookout for viable strategic investment opportunities to strengthen our Group.

We will continue to tap on the diverse knowledge, experience and expertise of our Board of Directors, for their guidance and connections to broaden our business segments, and create stable and sustainable income streams for the Group.

Acknowledgements and Appreciation

On behalf of the Board, we extend our sincere gratitude to our customers, vendors, business partners, bankers and dedicated employees for their strong support throughout the years.

We would also like to convey our sincere appreciation to the Board and on its behalf, thank the former Board members – Mr. Neo Kok Ching and Mr. Wang Jian Wen, for their commitments and invaluable contributions to the Group, in particular, our heartfelt thanks to our Founder, Mr. Neo Kok Ching, who has been instrumental to the growth of GKE Group since its inception in 1995. We also extend our welcome to Ms. Qian Wen Hua who joined the Board on 1st March 2015. Mr. Wang Jian Ping is reappointed as the alternate director to Ms. Qian Wen Hua on 1st March 2015.

Last but not least, we extend our warmest gratitude to our shareholders for their support and confidence in us, and we look forward to your continued support and faith as we strive to strengthen the Group and enhance shareholder value.