|ISOTeam yesterday shared in some detail the state of its business in response to shareholder questions at its FY2020 AGM. (While town councils count as key customers of ISOTeam, it has a diverse clientele that include, amongst others, various government bodies and private sector building owners.)|
Q: It is likely that as legal moratoriums, rental rebates and postponement of rental obligations lapse in 2021, there are likely to be more bankruptcies.
Construction industry is likely to be one of the industries which will be affected, especially the weaker sub-contractors.
Although ISOTeam operates in a slightly different industry, please provide insight on the following:
|a. How does the Company bolster its balance sheet, cash flows and credit lines to operate in this postCOVID-19 environment?
b. How does the Company protect itself from weak sub-contractors / weak customers etc?
a. The Singapore Government has introduced and enhanced various support measures to help the built environment firms cope with challenges from the COVID-19 outbreak1.
The Group is actively tapping on these measures including manpower levies, grants for business development and aid with construction and supply contracts to facilitate its cash flow management.
In addition, the Group has also secured temporary bridging loans from several banks and continues to exercise prudence in its cost control and balance sheet management.
As at the date of this announcement, the Company wishes to assure shareholders that the Group has sufficient working capital to meet its operational needs and financial commitments.
b. The Group has in place a robust credit management system to address payment and credit risk exposures from its sub-contractors and customers.
In addition, approximately 65% of the Group’s customers are from the public sector where payment and default risks are lower. Nevertheless, the Group constantly reviews the credibility of all its customers, and will take the appropriate measures when necessary.
Q: Costs are likely to rise in this post-COVID-19 environment.
a. There has been a 3% to 5% rise in costs due to the COVID-19 pandemic and the Group expects margins for some projects to be under pressure.
Nevertheless, the Group has factored in the cost hike when tendering for such projects and these projects which the Company has secured remain profitable albeit at lower margins.
b. Due to the confidential and commercial sensitivities associated with contract matters, the Company is unable to provide any comments at this point in time. However, as mentioned above, the Group will factor in the rise in costs when tendering for projects.
c. The Group secured approximately $53.4 million in new contracts between June 2020 and August 2020, representing approximately 32% of its order book of $165.7 million as at 30 September 2020.
d. While gross profit margins may vary from segment to segment, the Group is generally able to maintain a relatively stable overall gross profit margin.
This is because costs are mostly locked-in with vendors for pre-Circuit Breaker projects while the higher costs are factored into post-Circuit Breaker tenders.
For the remaining Q&A, see ISOTeam's announcement here.