The year had begun with a strong Q1 year-on-year construction sector growth of 145.2%, a significant improvement over the same period of the previous year. However, the financial crisis had caused the performance during subsequent quarters to experience significant fluctuations.

Although the growth in the local construction industry during 2008 was mainly attributed to increases in demand in the public sector, the private sector certified payments for the year as a whole had significantly outpaced those in the public sector (S$17.8 billion as compared to S$7.5 billion). As certified payments lag contracts awarded, shows that the flow through benefits from public sector growth will only be realised in 2009 and beyond.

With the surge in construction activities in 2006 and 2007, the prices of many basic construction materials (such as steel reinforcement bars, granite, cement, concreting sand and fuel) also rose strongly. However, in line with the current slowdown, prices of many basic construction materials have begun to soften. For example, prices of steel reinforcement bars saw an increase of some 78% during 1H 2008 as compared to the same period in 2007, have dropped by some 8% since September 2008 compared to the previous months. The prices of other basic construction materials have also displayed similar price movements. Manpower costs have also increased, mainly due to shortages created by the previous increase in construction demand.

In addition to these developments, the uncertainty of marine sand supply from neighbouring countries for reclamation remains and continues to delay reclamation activities in Singapore. This has adversely affected the performance of our 50% owned investment, KZ and certain projects of the Group.

In view of the above circumstances, the Board of Directors believes that the full year results of the Group, for the year ended 31 December 2008, should be considered more than satisfactory.

Our reputation within the local construction industry remains stalwart as we understand via feedbacks from our customers and project partners. This is reassuring, given our continual efforts in providing value for money engineering deliverables and services to our customers through the years.

Resignation of Independent Director and Non-executive Chairman of the Board

On 20 November 2008, Dr. Wang Kai Yuen resigned from the Company as Independent Director and Non-executive Chairman of the Board and also relinquished his positions within the various board committees of the Company, as he had taken on additional responsibilities elsewhere and anticipated having to spend more time on such activities.

We extend our thanks and gratitude to Dr. Wang for his invaluable contribution and wish him all the best in his endeavors.

With Dr. Wang's departure, I was invited by the Company to fill in the role of Independent Director and Non-executive Chairman of the Board, as the Board of Directors felt that my experiences will compliment the future growth of the Company. I will do my best to serve and contribute to the growth of the Group and it's stakeholders to the best of my abilities.

Group Rationalisation and Restructure

In July 2008, Mr Tan Thiam Hee was appointed as the new Managing Director and Chief Executive Officer of the Group. Under his leadership, he spearheaded the Group rationalisation exercise, thereby streamlining management, project management teams and strengthened costs controls.

On 31 December 2008, the ownership of Gems Marine and Entire Engineering were also transferred from Koon to Koon Holdings. The Group restructure was effected to streamline the reporting structure as well as for better risk management.

The keys to profitability in 2009 will be the sustainability of the state of growth of the civil engineering industry and the supply of marine sand. While there are indications that the state of growth will be sustainable, we remain modest in our expectations and will be enhancing our efforts in search of other business opportunities, such as offshore expansion and product/ service diversification.

On behalf of the Board, I would like to express my heartfelt appreciation to all our shareholders, employees and business partners, for their support which enabled our continued business achievements over the years.

We look forward to your continuing support as Koon Holdings moves ahead in 2009 and beyond.



Yao Chee Liew
Non-Executive Chairman and Independent Director