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Extracted from Annual Report 2016

On behalf of the Board of Directors of HOCK SENG LEE BERHAD (HSL), I am honoured to present our Annual Report and the Audited Financial Statements for the year ended 31 December 2016.

As well as accomplishing sound financial performances each quarter, 2016 was a year of unprecedented procurement success and record order book levels setting us up for several busy years to come.

Financial Performance

For the financial year ended 31 December 2016, HSL Group revenue reached RM498.55 million with net profit before tax at RM75.17 million.

Results for the year ended 31 December 2015 saw revenue at RM654.74 million while net profit before tax was at RM101.24 million.

These are commendable outcomes given the early stages of our new mega-projects and the outgoings needed to get them off the ground. As physical work advances and as we move into the drier middle months of the year, we anticipate substantial progress payments on the new contracts.

At around 15 percent, our pre-tax margins have held at a level similar to last year and remain above the industry average. This is in spite of increased costs for labour, plant and equipment and the impact of the declining ringgit. Consequently, HSL can claim to have managed a range of exigencies successfully.

Additional testimony to our efficiency in project execution and our sound financial management was recognition at The Edge Billion Ringgit Club Awards for 2016. HSL won for the Highest Return On Equity Over Three Years (Construction Sector). This translates to HSL being a desirable investment stock. We also won the same award in 2014. Indeed over the years HSL has been a regular winner of many shareholder value and other awards.

Furthermore, in celebrating the 20-year anniversary of our 1996 listing on Bursa Malaysia, HSL Group can boast an unbroken sequence of reporting profitability every quarter.

Attractive returns

We are always committed to sharing our earnings achievements with our loyal shareholders. As such, the Board has recommended a final single-tier tax exempt dividend of 7 percent per ordinary share pending approval at the Annual General Meeting (AGM) on 25 May 2017.

Added to the interim single-tier tax exempt dividend of 5 percent paid in October 2016, the cash dividend for 2016 will total 12 percent. The final dividend shall be payable on 23 June 2017 with the entitlement date set for 9 June 2017, pending approval at the AGM.

With our dividend payout ratios averaging around 20 percent, HSL is a reliable and appealing investment choice. The stock is predominantly institutionally owned with Permodalan Nasional Berhad, in its various forms, a substantial long term shareholder.

Corporate Governance a priority

HSL Group adheres to the highest standards of corporate governance, firmly believing that business sustainability is built on ethical business practices. Our prosperity is only meaningful when shared with our investors and our community. The Malaysian Code of Corporate Governance underpins all that we do, with transparency in decision making and accountability apparent at every level. The Board of Directors is dedicated to ensuring governance frameworks are effective and drive Group performance.

We are fortunate that HSL's Board has the varied expertise and extensive experience that leads to fruitful deliberations and sound decision-making. Moreover, by separating the role of the Chairman (I am an Independent Non-executive Director) and the Managing Director, there is a balance of power on HSL's Board. Our team of nine members includes four Executive Directors and five Non-executive Directors, three of whom are Independent Directors.

To enhance efficiency, the HSL Group Board has several subcommittees reporting to it. These are the Audit Committee, Management Committee, Remuneration Committee and Nomination Committee.

Managing the financial performance of the Group is a central priority of the Board and it reviews the approved Annual Business Plan each quarter. It makes sure appropriate internal controls and risk management systems are in place to safeguard assets and mitigate the challenges inherent in the industry.

HSL's Charter, Code of Ethics and Sustainability statements remain fundamental to all our operations and key to our impeccable reputation. Our statement on Corporate Governance on pages 18 to 22 includes details on how we manage our operations, finances, risks, resources, accountability and communication to optimise outcomes for all our stakeholders.

AGM / Investor relations

HSL's Annual General Meeting (AGM), which in 2016 was held on 19 May, is an opportunity for Directors and senior management to engage with our valued shareholders and respond to their feedback.

This Annual Report is also a means of communicating with investors. In it we review the year's activities and indicate the direction and prospects for the future.

HSL welcomes enquiries and visits from analysts and fund managers and places a high priority on investor relations. Major investment banks have tracked our stock since its listing and have been unwavering in their positive consensus. They recognise our niche market expertise across the spectrum of marine engineering and infrastructure activities, our continuous profitability and the vibrant development of Sarawak as the context in which our business operates.

Appreciation

Like any thriving corporate entity, HSL is the product of the talent and efforts of its people. Across all our operations, from the Board down, there is a strong work ethic and deep sense of loyalty that elicits exceptional productivity at HSL. I thank all the staff and my esteemed fellow Board members for their commitment over the year.

We also appreciate our professional consultants and associates, sub-contractors, specialist suppliers, bankers and advisors; all of whom are vital to our success. We similarly acknowledge the invaluable guidance and service of the various government departments, councils and agencies.

To our shareholders, who have been savvy enough to invest and enjoy our good results, I express our gratitude for your support and belief in us.

In our vast home state of Sarawak, we are fortunate to enjoy political and economic stability. We are thankful to our astute leadership for the progressive policies that enable business prosperity and create higher standards of living for the rakyat.

Looking ahead

With the value of our projects in hand higher than ever, we are rising to the challenge of ensuring timely and successful project execution and seeing a corresponding reflection in our bottom line. While acknowledging that the scope and duration of the current mega projects mean greater lead times before we are able to enjoy substantial progress payments, nonetheless, earnings visibility is high for the next several years.

Overall, the local construction industry has reason to feel bullish about its prospects in Sarawak. The state is experiencing dynamic growth underpinned by the booming SCORE area and the advent of the Pan-Borneo highway mega-project. With an emphasis on enhancing the socioeconomic outlook for rural communities as well as coping with the pressures of urbanisation in the cities, there will be a continual flow of infrastructure projects ahead. HSL is well placed to be a key participant.

Dato' Haji Idris Bin Buang
Chairman