Closure of construction sites for several months in FY2020 have expectedly impacted the on-going developments’ construction milestones, and in turn affected revenue recognition as well as progressive payments from property buyers.
Chip Eng Seng expects to report a net loss for FY2020 compared to its $32.6 million net profit for FY2019, due to the COVID-19 pandemic’s adverse impact on the group’s businesses.
In a profit warning issued on Monday (11 January), the group revealed that it expects the net loss for the whole FY2020 to be wider than the $25.7 million net loss reported for the first half of 2020.
For its property segment, the group’s on-going development projects Grandeur Park Residences, Parc Komo, Kopar at Newton and Park Colonial failed to achieve their construction milestone due to the closure of their construction sites for several months in FY2020. This affected revenue recognition as well as progressive payments from property buyers.
“While construction works for Kopar at Newton commenced after the end of the circuit breaker period, the construction progress was very much in the initial stages. Accordingly, there was negligible revenue recognition for this development project in FY2020,” it said.
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Despite this, the group still expects to meet the stipulated deadlines for completing and delivering its development projects since it has built sufficient buffer into its project timelines.
Revenue recognition from Chip Eng Seng’s construction segment has also been adversely affected due to delays in project schedules as well as increased project costs following the stoppage and subsequent slow resumption of work.
The order book of its construction business segment stood at around $1.3 billion as at end-2020.
“The group expects that its construction business segment will continue to face a challenging landscape in the near-term as profit margins (if any) will remain slim due to increased costs presented by the shortage of manpower and compliance requirements to maintain safe management measures at the work sites,” it said.
“Any resurgence of rampant COVID-19 infections in the foreign worker dormitories in Singapore as well as disruptions in the global supply chain for raw materials will also severely impact this business segment.”
For its hospitality segment, the group said its hotels in Singapore, Maldives and Australia have yet to witness a significant recovery in occupancy rates and revenue due to stringent travel restrictions and low demand for international travel.
“The adverse impact of the COVID-19 pandemic on the group’s hotel operations has also affected the valuation of the group’s hotel properties. Consequently, significant impairment losses will be recorded in the group’s consolidated financial statements for FY2020 with respect to its hotel properties.”
For its education segment, the pandemic has partly delayed the licensing and completion of renovation for its new schools, such as Invictus-branded international schools in Singapore (Centrium Square campus), Cambodia (Phnom Penh campus) and Hong Kong (Tai Tam campus).
As such, revenue contribution from these schools were negligible in FY2020, while expenses and operating costs were incurred during such period.
Overall, Chip Eng Seng said it will “continue to closely monitor its operations and the COVID-19 situation in order to adjust its measures and strategies accordingly, and will provide updates as and when any material developments arise”.