3. RISK FACTORS 3. RISK FACTORS IN EVALUATING AN INVESTMENT IN THE IPO SHARES, YOU SHOULD CAREFULLY CONSIDER ALL INFORMATION CONTAINED IN THIS PROSPECTUS INCLUDING BUT NOT LIMITED TO THE FOLLOWING GENERAL AND SPECIFIC RISKS. 3.1 RISKS RELATING TO OUR BUSINESS AND OPERATIONS 3.1.1 Our Business Is Project-based and There Are No Long-term Contracts We are primarily an engineering and construction company where our principal business is in piling and foundation works, and construction of bridges. We are normally awarded contracts on a project-by-project basis. There is no assurance of continuity from one project to the next project We have to b’ld competitively for every contract that we secure. There is a risk that we may not be successful in continually winning contracts. Any failure in winning sufficient contracts will affect the profitability, long term sustainability and growth of our business. In our industry, it is common for jobs to be awarded based on competitive bidding, especially for large projects as well as for pUblic sector Jobs. Since the commencement of our business in 1994, we have been operating under a project-based environment Between FYE 2011 and FYE 2014, our revenue grew by a CAGR of approximately 26.38%. This demonstrates our capability in sustaining as well as growing our business under a project-based business environment We serve a diverse customer base of private and public sector clients. For FYE 2014, we have a total of 21 customers which contributed to our Group’s total revenue. The diversity of customers provide us with opportunities to win contracts, while the number of customers indicate our capability in Winning contracts to sustain as well as to grow our business. However, depressed crude oil prices may have a negative impact on our Group. Gross domestic product (“GOP”) contribution of the oil and gas sector was apprOXimately 10% of Malaysia’s total GOP in 2013. As such, a prolonged low crude oil price would have a negative impact on the overall economic growth of the Malaysian economy. Amongst others, lower crude oil prices would adversely affect oil revenue received by the Malaysian Government (“Government”) as Malaysia is a net exporter of crude oil. In 2013, oil-related revenue contributed an estimated RM63 billion to the Government, comprising approximately RM36 billion in tax income and royalties, and approximately RM27 billion in dividends. This accounted for approximately 30% of the total Government revenue in 2013. Amidst the fall in global crude oil prices, Petroliam Nasional Bhd had announced its intention to cut capital expenditure by up to 20% and operating expenditure by up to 30%. This may cause the Government to cut or postpone development expenditure, which may in turn, delay the implementation of various mega projects for the construction sector that was announced during the BUdget 2015. For FYE 2014, the public sector projects accounted for approximately 50.02% of our Group’s total revenue. As such, our Group could be negatively impacted by lesser Government projects available for bidding. As at the LPO, our order book comprised contracts amounting to a total of approximately RM346 million as disclosed in Section 9.8 of this Prospectus. The order book includes public sector as well as private sector projects. As such, it is likely that the revenue of our Group would be sustainable up to mid-2016. Moreover, our Group is confident of replenishing our order book from projects tendered. As at the LPO, our Group’s tender book amounted to approximately RM3 billion for public and private sector projects. Based on the past four (4) financial years from the FYE 2011 to the FYE 2014, our average success rate from our tenders was approximately 6%. In addition, for the revised Budget 2015, it was announced that the development expenditure of RM48.5 billion will be maintained. Nevertheless, there is no assurance that projects from our order book may not be delayed or terminated, or we will continue to win sufficient projects to sustain and grow our business, which may have an adverse impact on the financial performance of our Group 3. RISK FACTORS (Cont’d)
3.1.2 We May Experience Cost Overruns for Our Projects Most of our order book comprises fixed-price contracts. There is a risk of one or more of the following events occurring. that will result in cost overruns for our projects:(a) underestimation of our costs;
(b) unanticipated increase in prices of raw materials and other input costs;
(c) unanticipated operating conditions that increase our operating costs, for example encountering unfavourable soil conditions; and
(d) delays in completion due to unforeseen circumstances including exceptional adverse weather conditions, breakdown in machinery and equipment, and insufficient human resources.
Any cost overruns will affect our profitability. During FYE 2011 to FYE 2014, we have experienced negative GP margin for a piling foundation works for Tabung Haji office complex in Putrajaya that commenced in the FYE 2011 and completed in the FYE 2013. This was mainly attributed to the soil conditions that required longer drilling time as well as due to an insufficient supply of labour. We make a conscious effort to avoid cost overruns at all times. Nevertheless, there is no assurance that we will be able to contain cost overruns for all our projects, which may have an adverse impact on the financial performance of our Group.
3.1.3 We May Encounter Delays in the Completion of Our Projects All of our projects have agreed milestones and specific completion dates. There is a risk that we may encounter delays in completing our projects or meeting agreed milestones. Failure to complete our projects on time or meet agreed milestones may subject us to financial penalties and/or increase our overall costs, claims arising for liquidated damages by our customers, and thus reduce our profitability. For FYE 2011 to FYE 2014 and up to the LPD, we have experienced delays on project completion as follows:(a) The scheduled completion date for piling and foundation works for Tabung Haji office complex in Putrajaya was September 2012. However, its completion was delayed until February 2013, which was mainly contributed by soil conditions that required longer drilling time, as well as insufficient supply of labour. The delay in completion of this project incurred a liquidated damages cost of RM275,000, where provisions have already been made by uS accordingly as at the LPD. We had on 12 August 2014 appealed to the project owner to seek waiver in relation to the liquidated damages and the approval for the appeal is pending as at the LPD;
(b) The scheduled completion date for piling and foundation works for DAMen, USJ project was October 2012 However, its completion was delayed until June 2013, which was mainly contributed by soil conditions that required longer time to carry out additional soil stabilisation works. The delay in completion of this project incurred a liquidated damages cost of RM495,000 where provisions have already been made by us accordingly in FYE 2012. As at the LPD, we were in discussion with the project owner to seek waiver in relation to the liquidated damages; and
3. RISK FACTORS (Cont’d) (c) The revised completion date for piling and foundation works for stage 1 (Section 2) of Parcel D of the KL Eco City project was April 2014. However. the completion of stage 1 (Section 2) of this project was subsequently delayed, which was mainly contributed by the delay in the handover of the site by the project owner and halt in the construction work for a few months due to the detection of existing sewage and water piping at the site during the construction works. which was not spot out in the original design. SUbsequently, we also received variation orders to carry out additional construction works for the relocation of the sewage and water piping as well as additional structures to be constructed on-site. The delay in completion of this project incurred a liquidated damages cost of RM360,000, where provisions have already been made by us accordingly as at the LPD. As at the LPD, we were in discussion with the project owner to seek waiver in relation to the liqUidated damages. Some of the delays were due to extenuating circumstances beyond our control. Nevertheless, we make conscious efforts to minimise potential project delays through amongst others, prudent project scheduling using Microsoft Project and Primavera Project Planning Software to plan and monitor the progresses of projects, as well as leveraging from our experiences in similar past projects. We also have a wide range of machinery and equipment in-house to reduce dependency on external suppliers. Nevertheless, there is no assurance that we will be able to avoid delays in completing all of our projects or meeting all of our project milestones, which may have an adverse impact on the financial performance of our Group. 3.1.4 Our Business May Be Affected by Defects in Our Work As an engineering and construction company we are responsible for the work which we perform. Any defects in our works may compromise the safety of the structures. There is a risk that our works may be defective and directly or indirectly, cause property damage, injury or loss of lives. As such, we could, amongst others, be subjected to one or more of the following:(a) issued with stop-work order;
(b) suspension or revocation of our licences and permits;
(c) fined; and
(d) subjected to legal proceedings.
The occurrence of anyone or more of the above events may affect our business operations as well as financial performance For the past four (4) FYE 2011 to FYE 2014 and up to the LPD, we have not experienced any claims for defective works. We adopt the following procedures and processes to ensure at all times a high standard of product quality, performance and safety:(i) We have standard operating procedures and processes (SOPP) for all key aspects of our work. Our SOPP are constantly reviewed and improved; (i1) We have ISO 9001 :2008 Quality Management System in place to help us maintain a high standard of product quality. We are subjected to yearly audit for our ISO 9001 :2008 certification; (iii) We have qualified in-house professionals, including Engineers, to help ensure that our products meet various quality and performance standards and specifications; and 3. RISK FACTORS (Cont’d) (iv) Our works are also subjected to audit and quality check, and ultimately approval by our clients. Nevertheless, there can be no assurance that we will not encounter any product defects that may impact our operations or financial performance. 3.1.5 We Rely on Subcontractors for Our Projects We have used subcontractors to supply labour to us and to perform earthworks, excavation and disposal of excavated earth for our projects. We use subcontractors to complement our in-house resources particularly for labour-intensive functions, as well as to perform specialised works that are not part of our core competencies. There is a risk that our projects may be delayed, experience cost overruns or poor quality of work attributed to our subcontractors. Some of the possible negative factors attributable to subcontractors include, amongst others, the following:(a) insufficient availability of resources at the required time;
(b) poor skills level; and
(c) unanticipated cost escalation.
For FYE 2011 to FYE 2014, we have not experienced any material impact from our reliance on subcontractors that caused us to pay liquidated damages cost It is also common for operators in our industry to use subcontractors to supplement their in-house resources and skills base. We adopt the following procedures in our selection and use of subcontractors:(i) Our preference is to use subcontractors that have a track record of quality, timely and reliable service working with us;
(ii) Part of oUr selection criteria includes checks on the subcontractors’ registration with CIOB;
(iii) We adopt a selection process which includes checks on financial strengths, appropriate skills base, availability of human resources, track record, market reputation and work references before we engage the subcontractor; We commonly have multiple subcontractors for anyone category of requirements to mitigate overdependence; and (iv) We have contractual agreements with our subcontractors with appropriate penalty clauses for failure in the provision of agreed services in a timely manner. Nevertheless, there is no assurance that we will be able to avoid adverse impact from the use of subcontractors. Failure by subcontractors to perform according to contractual agreements and expectations may have an adverse impact on the financial performance of our Group. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 28 3. RISK FACTORS (Cont’d)
3.1.6 We Are Dependent on Foreign Workers We use many foreign workers directly and indirectly for our projects. As at the LPO, we have 372 foreign workers that we hire directly. Our subcontractors also use a large number of foreign workers in the performance of work for our projects. There is a risk that our dependency on foreign workers may adversely affect our financial performance under the following circumstances, amongst others:(a) insufficient general and skilled labour to complete our projects on time;
(b) increase in the cost of foreign workers, which directly affects our overall project cost;
(c) drop in quality of work due to inadequate training and high worker turnover; and
(d) changes in government policies and regulations affecting the supply and cost of hiring foreign workers.
Save as disclosed in Section 3.1.3(a) for the impact of insufficient supply of labour which resulted in delay in the completion of our project, we have not experienced other material negative effect from our dependency on foreign workers during the FYE 2011 to FYE 2014 and up to the LPO We use a combination of direct hire of foreign workers and mUltiple sources of supply of foreign workers from third party agencies and subcontractors to minimise situations where we are short of foreign workers. In addition, foreign workers hired directly by us undergo a period of training and are constantly supervised at the work site to ensure compliance to our quality standards, procedures and expectations. Nevertheless, there is no assurance that we will continue to have adequate supply of foreign workers or that the quality of work performed by foreign workers is in compliance to our client’s standard of quality and expectation. Any failure in quality of work and timely completion of projects may have an adverse impact on the financial performance of our Group. 3.1.7 Our Insurance Coverage May Be Inadequate As at the LPO, we have insurance coverage including:(a) Contractor’s all risk insurance for our ongoing projects, where required, other than those projects for which such insurance has already been provided fori obtained by the relevant project owners or main contractors;
(b) Workmen compensation insurance for our ongoing projects, where required, other than those projects for which such insurance has already been provided fori obtained by the relevant project owners or main contractors;
(c) Medicall surgical insurance for all of our staff;
(d) Personal accident insurance for all of our staff;
(e) Fire insurance for our office buildings;
(f) Comprehensive car insurance for our motor vehicles;
(g) Equipment all risk for our machineries;
3. RISK FACTORS (Cont’d) (h) Foreign Workers Compensation Scheme for our foreign workers; and
(i) Medical insurance for our foreign workers.
There is a risk that in the event of a mishap, we may not have adequate or appropnate insurance coverage to compensate us for any subsequent losses due to the mishap. If this situation arises, it will have an impact on our financial performance. For the FYE 2011, FYE 2012 and FYE 2014 we received insurance payout related to our construction work and machinery as set out below:(i) For FYE 2011, we received insurance payout of approximately RM111,OOO due to repair work caused by an accident in relation to the Paradigm Mall, Kelana Jaya project;
(ii) For FYE 2012, we received insurance payout of approximately RM261,OOO in relation to the overturning of our piling machine used for the Tabung Haji office complex project in Putrajaya; and
(iii) For FYE 2014, we received insurance payout of approximately RM34,000 in relation to the loss of our machinery due to theft. There was no insurance payout received by us for the FYE 2013. We review the adequacy of our insurance requirements for our plant and machinery as and when required. In addition, we continue to review our other insurance policies to ensure that the relevant plant and machinery, and projects are insured and covered, such as contractors’ all risk insurance, fire insurance, workers’ insurance and public liability insurance to manage any losses which may arise. Nevertheless, there can be no assurance that our insurance coverage is adequate and appropriate, and that any mishaps will not have a material impact on our business performance. 3.1.8 We May Suffer Financial Distress Resulting from Our Borrowings and Financing Instruments Our bank and trade facilities consist of hire purchase facilities, bank overdrafts, term loans, banker acceptances, trust receipts and factoring For the FYE 2014, our total borrowings consist of hire purchase facilities, bank overdrafts, term loans, banker acceptances, trust receipts and factoring amounted to a total of approximately RM77.20 million All our borrowings are interest bearing, denominated in RM and borrowed from locally-based financial institutions. In addition, our finance costs mainly comprised interest charged on bank and trade facilities increased from approximately RM1.25 million for FYE 2011 to approximately RM5.28 million for FYE 2014. There is a risk that we may not be able to meet our borroWing commitments or breach covenants imposed by the financial institutions. In addition, the interest rates of our borroWings may increase. If any of these circumstances occurs, we may not be able to meet our borrowing commitments or our financial performance may be affected. For the past four (4) FYE 2011 to FYE 2014, we paid overdue interests which were of negligible amounts and represented less than 1% of our Group’s total finance costs. 3. RISK FACTORS (Cont’d) In July 2014, BNM increased the Overnight Policy Rate by 25 basis points, which subsequently caused our borrowings based on floating rates to increase by the same amount. In the scenario of a further interest rate hike, most businesses would be affected by higher borrOWing costs. including the construction sector. As at 31 December 2014, our Group’s gearing ratio stood at approximately 0.72 times. Out of approximately RM77.20 million of the total outstanding bank borrowings of our Group as at 31 December 2014, approximately RM50.S9 million were floating rate borrowings. As such, our Group’s financial position, cash flow and profitability could be negatively impacted by any increase in the costs of borrowing as a result of an interest rate hike. We aim to reduce our gearing ratio by reducing borrowings relative to shareholders’ equity. Amongst others, we aim to use part of our Public Issue proceeds to reduce some of our bank borrowings. Our Group has set aside RM12.0 million of the Public Issue proceeds to pare down part of our Group’s existing bank borrowings. This would effectively reduce our Group’s gearing ratio as at 31 December 2014 from approximately 0.80 times to approximately 0.40 times. In addition, our Company will be able to access funds from the local equity market subsequent to our Listing. Funding from the equity market is not based on interest, thus mitigating any interest rate hikes. However, it is our business strategy to continue to use borrowings, amongst other sources of funds. for our operations as well as for business development and growth. Nevertheless, there can be no assurance that our borroWing obligations will not cause us to suffer financial distress or adversely affect our financial performance. 3.1.9 We Are Subjected to Early Termination of Our Contracts All of our projects are based on contractual agreements. There may be risks in early termination of our contracts as a result of one or more of the following situations, amongst others:(a) Suspension or scrapping of the entire project affecting our portion of the work to be done;
(b) Termination of the services of the main contractor where we are part of its pool of subcontractors; and
(c) We are in breach of certain aspects of our work performance or contractual agreement.
Any early termination of our contracts may have an impact on our financial performance as we may have committed resources to the project or are unable to obtain compensation for the work we have performed. For the FYE 2011 to FYE 2014 and up to the LPD, we have not encountered early or abnormal termination of our contracts. Our contracts would normally state conditions for early termination and the compensation due to us under the respective conditions. In addition, we adopt the following procedures to minimise occurrence of early termination of our contracts:(i) We work with reputable main contractors and project owners;
(ii) We undertake our own due diligence on customers that we have not worked with before; and
(iii) We comply with the scope of work set out in each of our contracts and put in place procedures and safeguards to avoid any breach of contract. Nevertheless, there can be no assurance that we may not experience early termination of our contracts which will affect our financial performance. 3. RISK FACTORS (Cont’d) 3.1.10 We Are Reliant on Our Directors and Key Management Personnel We are reliant on our Directors and key management personnel for the smooth operation of our business as well as to further develop and grow our business. There is a risk that the departure of one or more Directors and key management personnel will affect our business operations and future growth. In mitigation, we have in place contingencies and succession planning, where each of the following key positions has one or more successor-in-training:(a) Group Managing Director;
(b) Chief Financial Officer;
(c) Head of Plant Division;
(d) Senior Project Manager; and.
(e) Senior Contracts Manager.
As part of our contingency and succession planning, we also have in place on-the-job training, in-house training and external training. Nevertheless, there can be no assurance that despite our contingency and succession planning, the departure of one or more Directors or key management personnel would not materially affect our business operation and development, and financial performance. 3.1.11 We Face Competition from Other Piling Contractors We face competition from other piling contractors in the industry. As at 30 April 2015, there were approximately 5,709 operators registered with CIDB under the category of Piling Works for Civil Engineering Construction of which 2,211 operators were registered with grade G7. Furthermore, there were approximately 996 operators registered with CIDB under the category of Piling Works for Building Construction of which 372 operators are registered with grade G7. Generally, competition among piling contractors will be somewhat moderated by operators with competitive advantages inclUding a high degree of integration in terms of evaluation, design, construction, engineering consultancy and engineering services to facilitate better quality and cost control. (Source: Independent Assessment of the Piling, Foundation and Construction Industry for Infrastructure and BUildings in Malaysia prepared by Vital Factor) Despite the numerous operators that increase the intensity of competition, we are able to leverage on our competitive strengths as specialists in bore piling supported by our in-house design and engineering capabilities, our experience in the engineering and construction business for approximately 20 years, our own fleet of machinery and equipment, our qualified and experienced management and technical team as well as our quality management systems and our safety track record in place Whilst we strive to remain competitive, there can be no assurance that any change in the competitive environment would not have a material and adverse impact on our operational and financial performance. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 3. RISK FACTORS (Cont’d) 3.1.12 Our Operations May Be Affected by the Risk of Relocations Our Group currently operates from two (2) of our own properties that are not in compliance with the relevant laws, regulations, rules and requirements as set out below:No. Address Existing Use Submission to Address (a) Nos. 35, 37 & 39 Jalan PJU 1N41 B Pusat Dagangan NZX Ara Jaya, PJU 1A 47301 Petaling Jaya Selangor Darul Ehsan Our Group’s head office Storage and maintenance area for our Group’s construction materials and equipment for our ongoing construction activities before they are transferred to our respective working sites Submilted an application to Majlis Bandaraya Petaling Jaya to obtain approval for the extension and renovation on 4 July 2014 and as at the LPD, the approval is still pending. Please refer to note (1) in Section 4.14.2 of this Prospectus for further details Submilted an application to Majlis Daerah Kuala Langat to obtain planning approval for the temporary building on 24 October 2014 and as at the LPD, the approval is still pending. Please refer to note (2) in Section 4.14.2 of this Prospectus for further details (b) Lot 4907, Jalan Segenting Batu 11, Kuala Langa! 42500 Teluk Panglima Garang Selangor Darul Ehsan
Our appointed architecU consultant had submitted applications on our behalf to the relevant authorities to obtain the necessary approvals and to address the non-compliances as disclosed above. The details of the non-compliances, the status of approvals from the relevant authorities and the expected timeline to obtain the approvals are disclosed in notes (1) and (2) of Section 4.14.2 of this Prospectus There can be no assurance that we would be able to obtain the necessary approvals for these properties despite our efforts to ensure that the applications meet all the necessary requirements of the relevant authorities. In the event that we are unable to obtain the necessary approvals from the relevant authorities, our Group intends to temporarily shift our head office (as disclosed in Section 3.1.12(a) of this Prospectus} and our storage and maintenance area for construction materials and equipment (as disclosed in Section 3.1.12(b) of this Prospectus} to new locations to be identified for the necessary rectification works to be performed on the properties until all relevant laws, regulations, rules and requirements are fully complied with. We will ensure to the extent possible, that the premises identified for the aforementioned relocations have all the relevant approvals in place incompliance with the relevant laws, regulations, rules and requirements. As such, our Group is susceptible to relocation risk if our Group IS not able to obtain the necessary approvals from the relevant authorities. In the event of relocations, additional costs will be incurred by our Group in relation to the relocations and rentals, and we may encounter disruptions in our administrative and business operations for approximately two (2) months during the relocation period. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 3. RISK FACTORS (Cont’d) 3.2 RISKS RELATING TO THE INDUSTRY IN WHICH OUR GROUP OPERATES 3.2.1 Fluctuation in Prices of Major Building and Construction Materials Our business and financial performance are subject to fluctuation in the prices of building and construction materials. For the FYE 2014, building and construction materials accounted for approximately 49.52% of our Group’s purchases of materials, con sum abies and services. The major building and construction materials are cement and concrete materials, as well as iron and steel materials. As these building and construction materials are commodities, their prices are subjected to the fluctuation in global market prices. In the event of a sustained increase in the prices of these building and construction materials, there is a risk that we may not be able to pass such price increases to our customers without adversely affecting our price competitiveness. Under such scenarios, price increases for major building materials may adversely affect our financial performance. However, operators who are able to enter into long-term or fixed-price contracts with their key suppliers are in a better position to mitigate against any risk of price increases for major building and construction materials. Operators who are financially strong may be able to purchase and maintain stocks of key raw materials to cushion against price fluctuation. Nevertheless, as these building and construction materials are commodities and therefore are subjected to world prices, all operators using these materials are equally affected by price fluctuation. 3.2.2 Property Overhang Our business is dependent on factors affecting the property market, including the risk of a property overhang situation Property overhang is commonly due to an oversupply of new launches relative to the demand for new property. A persistently high level of unsold property or an increase in property overhang will have an impact on property developments where there may be a decrease in demand for properties. This in turn may indirectly have an impact on the operators within the Piling, Foundation and Construction Industry. The Malaysian Government had implemented measures to ensure stability in housing prices and to control speculative activity in the property development sector These measures that are applicable to residential and commercial properties include, amongst others, the upward revision of the Real Property Gains Tax, tightening of the lending policies, prohibition on property developers from implementing projects that have features of Developers Interest Bearing Scheme (DIBS) and increase in the minimum price of property that can be purchased by foreign individuals and companies. Nevertheless, between 2010 and 2014, the number of residential property and shop units overhang in Malaysia decreased at a compound annual rate of 155% and 6.0% respectively This indicates that the property overhang situation has been improving. (Source: Independent Assessment of the Piling, Foundation and Construction Industry for Infrastructure and BUildings in Malaysia prepared by Vital Factor) [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 3. RISK FACTORS (Cont’d) 3.2.3 Implementation of Goods and Services Tax Our Group may be affected by the impending implementation of Goods and Services Tax (“GST”). In the Budget 2014, the Government announced that the existing sales tax and service tax will be abolished and will be replaced by GST which was effective from 1 April 2015 onwards. The Malaysian Goods and Services Tax Act 2014 was gazetted on 19 June 2014. The GST will be applied to all goods and services unless they are not within the scope of GST. For the construction sector, the implementation of GST may impact on the selling price of the constructed products (Source: Independent Assessment of the Piling, Foundalion and Construction Industry for Infraslructure and Buildings in Malaysia prepared by Vital Factor) Subsequent to the implementation of GST in April 2015, all the input components of our Group’s construction cost have been subjected to the 6% tax rate. For the FYE 2014, approximately 50% of our Group’s construction cost was subjected to the existing 10% sales and service tax (“SST”). Hence, the SST imposed on our Group’s total construction cost was effectively 5%. As such, the tax amount for GST at a rate of 6% would be higher by 1% than the existing average SST imposed, hence marginally impacting our Group. The GST is however a broad base tax and all operators in the Piling, Foundation and Construction Industry will be equally affected. In addition, it is likely that operators will be able to pass the cost on to project owners and/or main contractors by incorporating the GST cost into their contracts. Nevertheless, there can be no assurance that the implementation of GST will not materially impact our future business and financial performance. 3.2.4 Political, Economic and Regulatory Uncertainties Our Group’s business is primarily subject to prevailing economic, political and regulatory conditions. Any adverse developments in the political, economic and regulatory environment including prolonged and/or widespread economic slowdown in Malaysia would affect our business and profitability. Any uncertainty in the global and local economies would have an effect on the level of investments in the private sector, which will correspondingly have a negative impact on construction activities in Malaysia. We may be affected by any change in the political leadership and/or regulatory and government policies relating to the construction industry in Malaysia. Such political and/or regulatory changes and uncertainties include, but are not limited to, the introduction of new or revised laws and regulations which may impact and/or impose restrictions on the construction industry, political developments, risk of war, expropriation, nationalisation, financial and banking policies and guidelines, and renegotiation or nullifying of contracts. Similarly, any widespread and/or prolonged economic slowdown would affect business and consumer confidence, and subsequently affect the tendency to spend, either from the public or private sector. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]