Investor Relations

Financial Summary

2Q2017 Results Ended 30 June 2017

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Profit & Loss

Statement of Comprehensive Income

Balance Sheet

Review of Performance

Overview

For the second quarter ended 30 June 2017 ("2Q17"), the Group recorded a 29% decrease in revenue from continuing operations to S$9.8 million and a net loss attributable to equity holders of S$926,000. This compares with a net profit attributable to equity holders of S$451,000 a year ago. Profit from discontinued operations after tax in 2Q16 of S$7.6 million relates to the post completion payment adjustment received from the acquirer, Brentag for the disposal of the Refined Petroleum Business.

For the first half ended 30 June 2017 ("1H17"), the Group recorded a 41% decrease in revenue from continuing operations to S$15.7 million and a net loss attributable to equity holders of S$2.2 million. This compares with a net profit attributable to equity holders of S$655,000 a year ago. Profit from discontinued operations after tax in 1H16 of S$7.6 million relates to the disposal of the Refined Petroleum Business as explained above.

As at 30 June 2017, the Group's total equity was S$213.9 million from S$217.8 million as at 31 December 2016. The Group has cash and cash equivalent balance of S$64.4 million. The Group is in a net cash position with low debt-to-total equity ratio of 8.5%.

Revenue from Continuing Operations

The Group's revenue contracted 29% to S$9.8 million in 2Q17, compared with S$13.7 million in the previous corresponding period. For 1H17, the Group's revenue fell 41% to S$15.7 million from S$26.6 million in 1H16.

CP segment

Revenue for CP segment tumbled 42% to S$3.2 million in 2Q16 from S$5.4 million in 2Q16. For 1H17, revenue decreased 49% to S$5.3 million, from S$10.4 million in 1H16. The depressed marine, offshore, oil and gas sectors resulted in few new builds of offshore rigs and vessels which the CP segment relies heavily on continues to adversely affect our CP business. Notwithstanding that 2Q17 revenue improved 49% above 1Q17, the business at current level is still operating at well below efficient plant and equipment capacity levels.

SSF segment

Revenue for SSF segment decreased 21% year-on-year to S$6.3 million in 2Q17 from S$7.9 million in 2Q16 and decreased 38% year-on-year in 1H17 from S$15.5 million to S$9.7 million due to timing as projects on hand were projected to be delivered in the second half of the financial year.

Solar Energy segment

Revenue for the Group's new Solar Energy segment reflects the income contributed from small projects as it is still in the business development stage.

Gross Profit and Gross Margin

Gross Profit From Continuing Operations

For 2Q17, the Group's gross profit decreased 37% year-on-year to S$2.1 million, compared with S$3.3 million in 2Q16. The decrease was mainly due to the significant drop in revenue of both the CP and the SSF segments as discussed above. The Group's gross margin fell from 23.9% in 2Q16 to 21.2% in 2Q17 caused by the dismal performance of the CP segment as it operates at well below the plant and equipment capacities.

For 1H17, the Group's gross profit decreased by 37% to S$3.7 million from S$5.9 million. However, gross margin increase from 22.1% to 23.4% due to higher margin in SSF's projects.

CP segment

CP segment's gross profit dipped significantly to S$0.7 million in 2Q17 from S$1.6 million in 2Q16, on the back of the slump in revenue although still a better performance than 1Q17. For 1H17, gross profit decreased to S$0.8 million from S$2.8 million. The underutilization of the factory capacity and equipment resulted in gross margin decreasing to 22% from 29% a year ago.

SSF segment

SSF segment's gross profit dipped to S$1.4 million in 2Q17 from S$1.7 million in 2Q16 on the back of drop in revenue due to timing of the delivery of projects as explained above. Notwithstanding the lower sales revenue, gross margin improved slightly from 21% in 2Q16 to 21.8% in 2Q17 from better cost and project management. For 1H17, gross profit for SSF segment remained unchanged at S$2.8 million but gross margin improved from 18.4% to 29.4%. This was mainly due to higher portfolio of smaller but higher margin projects and better cost and project management.

Solar Energy segment

Whilst revenue in 2Q17 and 1H17 was higher than 2Q16 and 1H16 respectively, a gross loss was incurred as the segment absorbed higher operating costs during the development phase of its entry in the solar energy market.

Other Income

Other income decreased by 54% year-on-year from S$0.7 million in 2Q16 to S$0.3 million in 2Q17 and decreased 51% year-on-year from S$1.3 million in 1H16 to S$0.6 million in 1H17 mainly due to lower interest income from lower yield and lower surplus cash placed in fixed deposits; lower scrap income from the SSF segment and lower dividend income from the absence of a one-off special dividend received from the EVIA Korean Fund investment in 2Q16.

Selling, Distribution, Administrative and Other Operating Expenses

Total operating expenses decreased marginally in 2Q17 by 2% and increased 2% in 1H17. The fall in selling and distribution expenses and administrative expenses is consistent with the drop in overall business activity and the Group's continuing cost rationalization efforts whilst the increased in other opex is due to the inclusion of the modular construction business acquired in early February 2017.

Finance Costs

Finance costs were higher in 2Q17 and 1H17 due to longer tenor of trust receipts placed and the inclusion of the modular construction business acquired in early February 2017.

Share of Associates' Results

Share of loss of associated companies came in at S$77,000 in 2Q17 compared with a profit of S$37,000 a year ago as gains from the Heron Bay project was recognized largely in 2015 and 2016 and the mini-hydro power projects of Aenergy is still at its development stage. Share of loss of associated companies for 1H2017 was S$263,000 against a profit of S$330,000 as the final 2 units from the Heron Bay project was disposed at a loss in 1Q17.

Financial Position and Cash Flow Analysis

Non-current assets increased S$22.6m from S$111.3 million as at 31 December 2016 to S$133.9 million as at 30 June 2017. This was mainly due to increase in fixed assets of $19.2 million arising largely from the redevelopment of the current SSF plant at 19 Tuas Avenue 20, the consolidation of fixed assets of newly acquired TLC JSC Vietnam of S$5 million and S$5.3 million from Solar segment for the progressively acquisition of land for the Bangladesh solar project offset partially by depreciation of Property, plant and equipment charged to the income statement in the quarter of S$1.4 million and; goodwill increase of S$3.6 million arising from the acquisition of TLC JSC Vietnam in February 2017.

Current assets decreased S$18.2 million from $137.3 million as at 31 December 2016 to S$119.2 million as at 30 June 2017. This was mainly due to:

1. Lower cash and cash equivalents of $6.4 million from fixed assets increase of S$15.1 million arising from the redevelopment of SSF factory and acquisition of land for the solar project in Bangladesh partially financed from term loan increased of S$8.7 million ; acquisition of modular business of TLC JSC in Vietnam of $$5.8 million and settlement of accrued expenses and payables of S$2.9 million offset by improved collections from trade receivables and the receipt of S$10 million held previously in escrow from the sale of the RP business;
2. Lower trade receivables of S$6.9 million from collections of receivables and lower revenue in the first half;
3. Lower other receivables of S$9.3 million from the receipt of escrow monies of $10 million previously held for the sale of the RP business;
4. Offset by increase in stocks and work in progress of $4.4 million largely from SSF segment in relation to ongoing steel fabrication projects (S$1 million) and the consolidation of the modular construction business acquired in February 2017 (S$3.1 million).

Current liabilities of the Group decreased $2.1 million from S$22.7 million as at 31 December 2016 to S$20.6 million as at 30 June 2017. This is mainly due to lower trade payables and accruals of $4.5 million from settlement of dues to subcontractors, trade creditors and payment of accrued expenses relating to year-end staff related expenses offset by increase in other payables of S$1.6 million.

Non-current liabilities of the Group increased S$8.4 million as at 30 June 2017 due largely to secure term loans drawdown by SSF of S$8.7 million in relation to the redevelopment of factory.

Shareholders' equity decreased to S$213.9 million as at 30 June 2017 from S$217.8 million as at 31 December 2016. The decrease was largely attributed to the loss in 1H17.

Non-controlling interests of S$4.2 million relates to the minority interests portion of Solar Energy segment and the newly acquired subsidiary of TLC JSC Vietnam.

During 1H17, the Group recorded a net cash inflow of S$6.1 million from operating activities after adding S$5.8 million for changes in working capital largely driven by the receipt of the $10 million held in escrow from the sale of the RP business.

Net cash used in investing activities amounted to S$21.1 million in 1H17, mainly due to the construction in progress arising from the plant redevelopment of SSF factory and the purchase of land in Bangladesh for the Solar Energy segment and the payment in relation to the acquisition of TLC JSC in Vietnam.

Net cash generated from financing activities in 1H17 was S$8.9 million derived from drawdown of bank loans for the redevelopment of SSF factory. After taking into account net foreign currency translation adjustments, the Group recorded a net decrease in cash equivalents of S$6.4 million to S$64.4 million for 1H17.

Commentary

As earlier guided in previous announcements, the business landscape for FY17 continues to remain challenging in the face of domestic and global economic volatility, heightening competition and depressed oil prices that will continue to impact the Group's operating performance.

On the back of a weakened prospect of the construction sector, the Group's construction and infrastructure segment is facing margin pressure in an increasingly competitive industry. Management continues to take appropriate action to stay efficient and remain nimble in this difficult trading condition and taking steps to move into modular construction and explore overseas for growth in this segment. Whilst management sees potential in the modular construction segment and significant efforts have been made to develop its competencies in this segment, the results of this exciting segment can only be seen in the latter part of this financial year and 2018 where the modular products are being delivered.

Management expects that the current marine, offshore and oil & gas sector to remain depressed. This had and will continue to impact on the Group's corrosion prevention business. The Group will continue its cost rationalisation exercise and enhance productivity to maintain an appropriate and efficient cost structure while it focuses on expanding and diversifying its customer base.

For the Group's solar energy segment, the Group will focus on developing the 50MW Bangladesh project and target to commission the project by the second quarter of 2018 and at the same time seek to secure new orders for roof-top solar projects.