Dear Shareholders,

A Tumultuous 2009

The Singapore economy had a challenging year in 2009. Being globalised and opened, it was affected by the fallout in the global financial crisis.
 
The economy was particularly weak in the first half, with two consecutive negative growth quarters. It recovered by the second half, and for the whole year, growth was at negative 2.1 per cent.

Overcoming the Crisis: Be Focused, Earn More, Be Different

Despite the global economic slowdown, United Engineers Limited (“the Group”) had a busy year partly due to the lag effect where contracts earlier secured in 2007 and 2008 created much on-site construction activities during the year. The commencement of construction for the Group’s property-development projects, Park Central @ AMK in Ang Mo Kio and Ascentia Sky in Alexandra Road, also boosted activity level.

Singapore’s construction demand in 2009 fell 41 per cent to $21 billion and competition for projects became keener. However, to maintain control on margins, the Group continued to be selective with new projects. As a result, gross profit percentage was maintained at 23.0 per cent.

During the year, the Group sold off most of its remaining residential development projects: The Rochester in one-north and Sui Generis in Balmoral Crescent were 100 per cent sold, and Park Central @ AMK 92 per cent. The Group will continue to identify other development projects in the next 12 to 18 months.

Strong Profit Growth Underpinned by Property Sales

For the year ended 31 December 2009, revenue increased 13 per cent to $703.7 million mainly due to the progressive recognition of property sales at The Rochester and Park Central @ AMK, as well as from an engineering contract for the Marina Bay Sands integrated resort. Arising from the increased revenue, gross profit rose 12 per cent to $162.0 million.

Other income increased 133 per cent to $10.6 million mainly due to fair value gains from the Group’s short-term investments.

Other expenses decreased 65 per cent to $17.7 million.

The Group’s attributable profit increased to $52.2 million as compared with $6.0 million in 2008.

Improved Balance Sheet and Gearing

The Group received gross listing proceeds of $128 million from the Rights Issue* in March and balance sale proceeds of US$60.4 million (of the total sale proceeds of US$85,367,662.51) in June arising from the disposal of 67 per cent shareholding interest in Anhui Hefei United Power Generation Company Limited in China.

As of an announcement dated 18 March 2010, $63.7 million of the Rights Issue proceeds was utilised for the Group’s property-development projects, general working capital, repayment of amounts outstanding under a five-year committed revolving credit facility, and partial payment for the purchase of office-and-factory premises.

As at 31 December 2009, the Group had a cash position of $318 million and gearing ratio of 0.51x**.

Cautious Expansion into China’s Waste Water Industry

Due to the global financial crisis, the Group held back its expansion plans into China’s waste water industry but made good progress with its existing projects.

During the year, the Group completed the civil works for its waste water treatment plant in Hengyang, Hunan Province. The plant is expected to complete in 2010 after equipment installation. Under a Build, Operate and Transfer (BOT) concession agreement, the plant will supply 30,000 ton per day of industrial water to the Songmu Industrial Park in the first phase.

The other BOT plant that the Group owns is in Liaocheng, Shandong Province. During the year, the plant passed an environmental inspection by the Provincial Environmental Protection Bureau and was granted an official operation licence. The waste water treatment plant will serve the economic development zone in Liaocheng and have a treatment capacity of 30,000 ton per day in the first phase.

Improving Workplace Safety and Health

The Group continues to strive towards improving workplace safety and health standards.

In 2009, the Group saw 17 per cent drop in total number of accidents to 19 cases - down from 23 in 2008. In particular, slip and fall accidents saw a drastic reduction of 86 per cent. This improved workplace safety and health performance is attributable to a heightened sense of awareness that has been cultivated over the years.

The year also saw United Engineers (B) Sdn Bhd OHSAS18001 certified. Currently, 21 of the Group’s subsidiaries in Singapore, Malaysia and Brunei have been certified to comply with OHSAS18001 standards. The certification seeks to integrate the Group’s safety programme into its existing management system, thereby improving overall performance and lowering risk liabilities.

Expecting Recovery, Remaining Cautious

The Group’s outlook for Singapore, where the bulk of its businesses are based, is of a faster economic recovery, although its pace will depend on the economic recovery in the other advanced economies.

As such, the Group will remain cautious in its overseas expansion plans and investments, but at the same time, capitalise on good business opportunities, particularly in water and property projects.

A Strengthened Board

The year saw the appointment of a new non-executive and independent director, Mr Norman Ip Ka Cheung. With Mr Ip’s appointment, the Board now has seven directors, five of whom are independent (more than two-thirds). We welcome Mr Ip, and particularly look forward to him contributing in the Board’s Development Committee.

We would like to thank our customers, unions, business partners and shareholders for their continued support.

Last but not least, we would also like to thank the Board members for their contribution to the Group and also the management and staff for their dedication and efforts during the year.