See Hup Seng

SHS Holdings Ltd

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Full Year Results Ended 31 December 2019

Financials Archive

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Profit & Loss

Profit & Loss

Statement of Comprehensive Income

Statement of Comprehensive Income/(Expense)

Balance Sheet

Balance Sheet

Review of Performance

Overview

For the fourth quarter ended 31 December 2019 (“4Q19”), the Group recorded a 11% increase in revenue from continuing operations to S$9.4 million from S$8.5 million and a net loss attributable to equity holders from continuing operations of S$1.2 million as compared with that of S$2.4 million in the previous corresponding year.

For the 12 months ended 31 December 2019 (“FY19”), the Group achieved revenue from continuing operations of S$26.4 million, a decrease of 34% from FY18. Net loss attributable to equity holders from continuing operations in FY19 was S$4.8 million.

As at 31 December 2019, the Group's total equity attributable to shareholders stood at S$178.3 million compared to S$188.3 million as at 31 December 2018. At 31 December 2019, the Group has cash and cash equivalent balance of S$31.1 million, a net cash position with low debt-to-total equity ratio of 10.5%.

Revenue from Continuing Operations


Revenue From Continuing Operations

The Group's revenue improved by 11% to S$9.4 million in 4Q19, compared with S$8.5 million in the corresponding period last year. This was mainly due to increase in project revenue of E&C segment and CP segment in 4Q19.

For FY19, revenue declined by 34% to S$26.4 million. This was mainly due to lower contracts secured in E&C segment and Solar segment for the first half of the year but offset by some improvement in CP segment.

Corrosion Prevention ("CP") segment

Revenue from the CP segment increased by 21% to S$4.8 million, largely driven by increase in orders from plant operations and site operations for the quarter. Similarly, revenue increased by 3% driven by more orders executed from the plant operations more than offset lesser works from site operations for the financial year. The increase in orders came from the marine and offshore sectors and construction sectors, in particular new vessel builds and MRT tracks are keeping our plant operations busy.

Engineering & Construction ("E&C") segment

Revenue for the E&C segment increased by 18% to S$3.5 million in 4Q19 from S$3.0 million with the return of order books in steel engineering business. For full year 2019, revenue decreased by 50% year-on-year to S$8.9 million, pulled down by fewer orders for the steel engineering business in the earlier part of the year.

Solar Energy segment

Revenue for the Solar Energy segment declined to S$0.9 million in 4Q19 from S$1.4 million in 4Q18 and sank to S$1.6 million in FY19 from S$6.9 million in FY18 as no significant projects in 2019 was secured in the first half of the year.

Gross Profit and Gross Profit Margin

Gross Profit from Continuing Operations

Gross Profit From Continuing Operations

For 4Q19, the Group recorded a gross profit of S$2.9 million against a profit of S$1.2 million for the corresponding period last year. The increase came from the steel engineering business and CP business with the increase in business volume in Q419.

However, the Group's gross profit decreased by 17% from S$7.0 million in FY18 to S$5.8 million in FY19, in line with the lower sales for the year.

CP segment

CP segment's 4Q19 gross profit climbed to S$1.5 million from S$0.9 million in 4Q18 and increased to S$4.0 million in FY19 from S$3.7 million in FY18 on the back of more CP services delivered by the plant operations and improvement from the site operations throughout 2019. The increased orders improve utilization of the factory capacity and equipment resulting a better gross margin of 26%.

E&C segment

Gross profit for E&C segment improved from a profit of S$0.2 in 4Q18 to a profit of S$1.1 million in 4Q19. This is driven by several high value projects commenced in Q419 which generated better margin as compared to the previous period.

However, gross profit for E&C segment fell to S$1.5 million against S$2.1 million in FY18 as there was no significant project in first half of the year from steel engineering businesses.

Solar Energy segment

For 4Q19, improvement in gross profit margin driven by new jobs secured in FY2019 with higher margin and contributions from diversification into inverter distribution business. FY19 registered a gross profit of S$86,000 against that of S$0.9 million in the previous year.

Other Income

Other income decreased by 63% year-on-year from S$1.7 million in 4Q18 to S$0.6 million in 4Q19 mainly due to the absence of a one off write-back of provision of S$1.2 million for the two years profit warranty unmet by the vendors in the acquisition of 60% of TLC Modular Construction business in 2016 in 4Q18. For the same reason above, Other income decreased by 43% from S$3.7 million in FY18 to S$2.1 million in FY19 and coupled with lower income from supply of labor from the E&C segment and lower interest income earned due to lower surplus cash placed in fixed deposits.

Selling, Distribution, Administrative and Other Operating Expenses

Expenses and Finance Costs

Total OPEX in 4Q19 and FY19 was 4% and 6% lower respectively.

Total OPEX decreased year-on-year from S$5.1 million in 4Q18 to S$4.9 million in 4Q18 from lower administrative expenses largely due to the revision of key management costs in FY19.

Total OPEX decreased from S$12.8 million in FY18 to S$12.0 million in FY19 for the same reason above for administrative expenses and also without one off impairment charge of S$1.6 million for the value of land acquired in the Gold Coast for development in the previous year.

Selling and distribution expenses increased by 57% to S$101,000 in 4Q19 and decreased by 8% to S$350,000 in FY19 due to more travelling in 4Q19 for solar segment.

Administrative expenses decreased by 15% to S$1.5 million in 4Q19 due to reason stated above. For the same reasons, administrative expenses in FY19 decreased by 9% to S$5.9 million.

Other operating expenses in 4Q19 and 4Q18 remained unchanged at S$3.2 million. Other operating expenses decreased by 5% in FY19 mainly due to absence of one off impairment charge of S$1.6 million for the value of land acquired in the Gold Coast for development but offset by increased foreign exchange loss and provision for doubtful debts in E&C segments.

Finance Costs

Finance costs were higher at S$0.3 million in 4Q19 and S$1.2 million in FY19 largely due to higher bank borrowings for re-development of the Hetat factory and office building of the E&C segment.

Share of Associates' Results

For 4Q19 and FY19, share of profit from associate companies was S$257,000 against the loss of S$197,000 reported in FY18. The improvement was mainly due to the contribution from associated company Yokomori's improved result.

Financial Position and Cash Flow Analysis

Non-current assets decreased mainly due to reclassification of S$39 million to Asset held for sales in current year for assets of TLC and Solar development but offset with S$4.8 mil Right of use asset recognized in this year.

Decrease in value of Associate companies from capital reduction by S$270,000 from the Heron Bay project but offset with share of result of Yokomori with the equivalent amount. The decrease in financial assets of S$278,000 due to fair value adjustment of Energy Drilling and capital reduction of EVIA Korean Fund.

Current assets increased by S$41.0 million from S$88.6 million as at 31 December 2018 to S$129.2 million as at 31 December 2019. This was largely attributed to:

  1. Reclassified PPE to Asset held for sales of S$39 million which consisted of S$14 million relates to modular construction assets and solar development projects of S$25 million.
  2. Increase in contract asset and trade receivable in CP division of S$2.5 million but offset with reduced cash balance for day to day operation expenses.
  3. Increase in cash balance mainly due to net refund of S$11 million for cancellation of order placed for solar panel, collection of S$5.9 million from deposit from customer but offset with further funding in E & C segment of S$8.2 million and solar project of S$2.7 million.

Current liabilities of the Group increased by S$5.6million from S$33.2 million as at 31 December 2018 to S$40 million as at 31 December 2019. This was mainly due to:

  1. 1st tranche of payment received from the disposal of solar project in Vietnam of S$5.9 million;
  2. Offset by settlement of trust receipts of S$1.3million and loan drawdown of S$1 million largely from E&C segment;

Non-current liabilities increased from S$16.6 million to S$19.7 million mainly due to recognition of lease liabilities of $4.9 million in accordance with FRS116 but offset with repayment of term loan of S$1.3 million.

Shareholders' equity decreased by S$12.9 million to S$178.29 million as at 31 December 2019 from S$188.3 million as at 31 December 2018. The decrease was largely attributed to the loss for the Group for the year.

During FY19, the Group recorded a net cash inflow of S$1.2 million.

S$3.6 million was collected to fund the operating activities with the change in working capital of S$4.9 million and the collection was mainly come from Solar development.

Net cash used in investing activities amounted to S$1.3 million in FY19 mainly due to the capital expenditures for the E&C segment offset partially by collection from Heron Bay Project, EVIA Korean fund and proceed from disposal of motor vehicle.

Net cash used in financing activities in FY19 was mainly for repayment of term loan and trust receipts of S$1.1 million.

After taking into account the above net cash outflows and net foreign currency translation adjustments, the Group's cash and cash equivalents as at 31 December 2019 stood at a healthy sum of S$31.1 million.

Commentary

As guided in the 2018 Annual Report, 2019 is expected to be challenging for SHS as it embarks to regroup and right fit the business strategies against the resources and competencies of the Group especially for the E&C and the Solar Energy segments.

For the E&C segment, though the steel engineering business was facing low business volumes for earlier part of the year 2019, it witnessed some picking up in business activities towards the end of 2019. We remain optimistic on our steel engineering business for the next 12 months as we are likely to garner more order books. As for the modular construction business segment comprising TLC Group, differences between the Company and stakeholders of TLC Group over management thereof, coupled with other management issues led to substantial losses. Nevertheless, we are working towards a resolution including divestment is a possible option.

For the Solar Energy segment, amidst the competitive environment, the low business volumes for its roof-top solar projects in the current quarter is expected to see some improvements in next 12 months with more orders expected from overseas barring unforeseen circumstances. For our Bangladesh solar project, as per our announcement, we have obtained further extension from the relevant government body to complete the project until 30 June 2020.

For the CP segment, business volumes are also expected to pick up in the next 12 months as we are receiving more work orders from major shipyards in the marine and offshore sector. At the same time, it will continue its cost rationalisation exercise and enhance productivity to maintain an appropriate and efficient cost structure while it focuses on diversifying its customer base.