Higher Battersea cost due to building envelope

KUALA LUMPUR (Aug 18): S P Setia Bhd has confirmed that the second phase of the Battersea Power Station project in London has seen rising construction costs due to a push-up for the building envelope, changes in design and inflation.

The building envelope is the separator between the interior and exterior of a building. Its typical components include walls, floors, roofs, the fenestration and doors.

“To mitigate some of the cost increases, we have changed the procurement strategy from a design-and-build contract to a construction management contract in both the second and third phases,” said Datuk Wong Tuck Wai, deputy president and chief operating officer of S P Setia.

Speaking at a media briefing on the release of the property developer’s second-quarter financial results yesterday, he added that S P Setia, together with Sime Darby Bhd and the Employees Provident Fund as the consortium that owns the project, is also looking at value engineering to keep costs down.

However, Wong declined to reveal the consortium’s updated budget for the second phase, although he confirmed that 40% of the phase had already been contracted out. It is expected to be completed in four years’ time, he said.

Wong noted that inflation and changes in the exchange rate had made cost adjustments necessary as the initial budget was developed in 2012.

Recent news reports suggested that the bill for Battersea may double to £1.5 billion (RM8.3 billion) as the costs of rebuilding chimneys and removing asbestos had risen.

Rob Tincknell, chief executive officer (CEO) of Battersea Power Station Development Company, was quoted by Building, a UK construction magazine, as saying that Sime Darby and S P Setia have increased their equity contribution to the project.

Meanwhile, the first phase of the Battersea development had already seen some 50% of units handed over to buyers, with the remaining units expected to be handed over by end-September, Wong said.

This contributed to the 8.38% rise in S P Setia’s net profit to RM136.32 million for the second financial quarter ended June 30, 2017 (2QFY17), from RM125.78 million in 2QFY16.

S P Setia also attributed the improved earnings to higher units of residential properties being completed compared with the preceding quarter. Its board recommended an interim dividend of four sen per share in respect of FY17.

Quarterly revenue, however, dropped 21.57% from RM1.01 billion to RM794.71 million, on lower income from its property development, construction and other operations.

For the first half of FY17 (1HFY17), S P Setia’s net profit slid 3.08% year-on-year to RM241.5 million from RM249.17 million, as revenue retreated 9.72% to RM1.73 billion from RM1.92 billion.

Total sales in 1HFY17 stood at RM 2.07 billion. Local sales contributed 51.9% or RM1.08 billion of that, while the remaining 48.1% or RM996.5 million came from international projects.

Moving into 2HFY17, S P Setia president and CEO Datuk Khor Chap Jen said he is confident that the group will achieve its sales target of RM4 billion for the year, and that the group will focus more on launches of its local projects.

“The worst is over [in terms of weak market sentiment] and we do see it growing stronger, although how much stronger is yet to be seen,” Khor said.

“We target 20% [to come] from international [projects]. If you look at our half-year results, the international [segment] has already met the target. That’s why in the second half of the year, we are going to concentrate more on local [projects],” he said.

For 2HFY17, Khor said the company will have a series of new project launches in the Klang Valley and Johor, as well as a 37-unit apartment project in the suburbs of Melbourne, Australia, with an expected total gross development value of RM2.94 billion.

This article first appeared in The Edge Financial Daily, on Aug 18, 2017.

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