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Financial Summary

3Q2017 Results Ended 30 September 2017

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 third quarter ended 30 September 2017("3Q17"), the Group recorded a 19% decrease in revenue from continuing operations to S$9.9 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$1.3 million a year ago.

For the nine months ended 30 September 2017 ("9M17"), the Group recorded a 34% decrease in revenue from continuing operations to S$25.7 million and a net loss attributable to equity holders of S$4.4 million. This compares with a net profit attributable to equity holders of S$2 million a year ago. Profit from discontinued operations after tax in 9M16 of S$7.7 million relates to the post completion payment adjustment received from the acquirer Brenntag for the disposal of the Refine Petroleum Business segment.

As at 30 September 2017, the Group's total equity was S$211.5 million down from S$217.8 million as at 31 December 2016. The Group has cash and cash equivalent balance of S$59 million. The Group is in a net cash position with low debt-to-total equity ratio of 8.9%2.

2 Debt to total equty ratio is computed based on Group's total debts / total equity

Revenue from Continuing Operations


Revenue From Continuing Operations

The Group's revenue contracted 19% to S$ 9.9 million in 3Q17, compared with S$ 12.2 million in the previous corresponding period. For 9M17, the Group's revenue fell 34% to S$ 25.7million from S$ 38.8 million in 9M16.

CP segment

Revenue for CP segment tumbled 18% to S$3.1 million in 3Q17 from S$3.8 million in 3Q16. For 9M17, revenue decreased to S$8.4 million, from S$14.2 million in 9M16. The depressed marine, offshore, oil and gas sectors intensified in 3Q17 resulting in fewer demand for our CP services. At current levels, the CP operations in particular its factory operations is operating below breakeven utilization.

E&C (formerly known as Structure Steel & Engineering) segment

With the inclusion of the newly acquired modular construction business into the Group's steel engineering business the Group's Structural Steel & Engineering segment ("SSF") has been renamed Engineering & Construction ("EC") segment to better reflect the scope of works and services performed by this segment.

Revenue for the EC segment decreased 14% year-on-year to S$6.6 million in 3Q17 from S$7.7 million in 3Q16 and decreased 30% year-on-year in 9M17 from S$23.2 million to S$16.2 million due to timing as projects on hand for the structural steel business were delayed, adversely affecting the revenue to be recognized and pushed up its costs. Fewer orders as the Singapore construction sector slowed considerably also affected the segment's revenue. For the newly acquired modular construction business, as the projects currently on hand are a design and build contract, revenue is only recognized when the project is commissioned and fully handed over to the owners. These projects are currently still progressing in line with expected margins but as explained the contribution are not recognized in the income statement until the completion of the contracts.

Solar Energy segment

Revenue for the Group's new Solar Energy segment reflects the income contributed from for 2H17 has been delayed to 4Q17 or first half of 2018.

Gross Profit and Gross Margin

Gross Profit From Continuing Operations

Gross Profit From Continuing Operations

For 3Q17, the Group's gross profit decreased 79% year-on-year to S$0.77 million, compared with S$3.6 million in 3Q16. The decrease was mainly due to the lower revenue of both the CP and the E&C segments as discussed above and costs over-runs incurred in a couple of structural steel projects under the E&C segment. As a result, the Group's gross margin fell substantially from 29.9% in 3Q16 to 7.7% in 3Q17.

For 9M17, the Group's gross profit decreased by 53% to S$4.5 million from S$9.5 million. Gross margin decreases from 24.6% to 17.4% due to the depressed 3Q17 gross profit explained above.

CP segment

CP segment's gross profit dipped significantly to S$0.3 million in 3Q17 from S$1.2 million in 3Q16, on the back of the continuing slump in revenue and pricing pressures especially for the factory operations which are operating below breakeven utilization. For 9M17, gross profit decreased to S$1.1 million from S$4.1 million. The underutilization of the factory capacity and equipment and pricing pressures resulted in gross margin decreasing to 13.1% from 28.8% a year ago.

E&C segment

E&C segment's gross profit dipped significantly to S$0.5 million in 3Q17 from S$2.2 million in 3Q16 on the back of drop in revenue due to delay in timing of the delivery of projects, fewer projects from the lackluster construction sector and costs over-runs on a couple of structural steel projects. As a result, gross margin dipped significantly to 8.1% from 28.7% a year earlier. For 9M17, gross profit for E&C segment fell 33% to S$3.4m against S$5 million a year earlier driven by the dismal gross profit in 3Q17 explained above.

Solar Energy segment

The Solar Energy segment continues to report a gross loss as it is still at its development phase coupled with projects earlier secured had been delayed to 4Q17 and into 2018.

Other Income

Other income decreased by 9% to S$ 0.72 million in 3Q17 due to lower scrap income from the E&C segment. It decreased 35% year-on-year from S$ 2.1 million in 9M16 to S$ 1.3 million in 9M17 mainly due to lower scrap income from the E&C segment, lower dividend income from the absence of a one-off special dividend received from the EVIA Korean Fund investment in 2Q16 and exchange gain registered in 2016.

Selling, Distribution, Administrative and Other Operating Expenses

Expenses and Finance Costs

Total operating expenses increased 22% in 3Q17 and increased 8% in 9M17. The increase in selling and distribution expenses for the quarter and nine months 2017 is due primarily to the inclusion of modular construction business acquired in early February 2017 whose projects are mainly in overseas markets. Administrative expenses increased 8% in 3Q17 due to the inclusion of the modular construction business. It decreased 5% in 9M17 despite the inclusion of the modular construction business due to the Group's continuing cost rationalization efforts during the year in the light of slow business activities of its CP and structural steel business. Other OPEX increased 37% in 3Q17 and increased 36% in 9M17 due to the inclusion of the modular construction business and foreign exchange loss incurred on the depreciating USD against the S$ for the overseas projects and the depreciating M$ against the S$ incurred by the E&C and Solar segments.

Share of Associates' Results

Share of loss of associated companies came in at S$52,000 in 3Q17 compared with a profit of S$35,000 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 9M2017 was S$315,000 against a profit of S$365,000 as the final 2 units from the Heron Bay project was disposed at a loss in 1Q17 as reported in earlier quarter.

Financial Position and Cash Flow Analysis

Non-current assets increased S$16.3 million from S$111.3 million as at 31 December 2016 to S$127.6 million as at 30 September 2017. This was mainly due to:

  1. Increase in fixed assets of S$23.8 million arising largely from the redevelopment of the Hetat plant at 19 Tuas Avenue 20; the consolidation of fixed assets of newly acquired TLC JSC Vietnam of S$5.1 million; addition of S$10.1 million from Solar segment for the progressively acquisition of land for the Bangladesh solar project less the depreciation of Property, plant and equipment charged to the income statement in the nine months of S$2.2 million;
  2. Increase of S$3.6 million in Goodwill arising from the acquisition of TLC JSC Vietnam in February 2017;
  3. Offset partially by decrease in Investment in Associate from dividend received for the Heron Bay Executive Condominium project of S$12 million less the investment of S$1.1 million in Yokomori Singapore Pte Ltd for a 30% equity interest.

Current assets decreased S$9.1 million from S$137.3 million as at 31 December 2016 to S$128.24 million as at 30 September 2017. This was mainly due to:

  1. Lower cash and cash equivalents of S$11.8 million from fixed assets increase of S$20.7 million arising from the redevelopment of the Hetat factory and acquisition of land for the solar project in Bangladesh partially financed from term loan increased of S$11.7 million ; acquisition of modular business of TLC JSC in Vietnam of $$5.8 million ; settlement of accrued expenses and payables of S$1.5 million and funding the year to date operating loss offset by improved collections from trade receivables; the receipt of S$10 million held previously in escrow from the sale of the RP business and S$12 million from dividend from associate company for the Heron Bay EC project;
  2. Lower trade receivables of S$9.2 million from collections of receivables and lower revenue for the 9M17;
  3. Higher other receivables of S$3.0 million from the receipt of escrow monies of $10 million previously held for the sale of the RP business and repayment of shareholder loans received from an associate company S$1.8 million less progress payments made for the Bangladesh solar project of S$15 million for solar panels acquired;
  4. Increase in stocks and work in progress of $9.9 million largely from the E&C segment in relation to the works in progress for the projects on hand.

Current liabilities of the Group increased S$3.3 million from S$22.7 million as at 31 December 2016 to S$26.0 million as at 30 September 2017. This was mainly due to:

  1. Lower trade payables and accruals of S$3.4 million from settlement of dues to subcontractors, trade creditors and payment of accrued expenses relating to year-end staff related expenses;
  2. Increase in other payables of S$1.9 million from the amount held in escrow for the profit warranty arising from the acquisition of the modular business and advance deposits from lease rental;
  3. Increase in term loan from the drawdown of revolving credit line to repay trust receipts due to banks and;
  4. Increase of amount due to Non-Controlling Interests of S$4 million for its share of the Bangladesh's solar project under development.

Non-current liabilities of the Group increased S$8.4 million as at 30 September 2017 due largely to secured term loans drawdown by the E&C segment of S$8.7 million in relation to the redevelopment of the Hetat factory.

Shareholders' equity decreased to S$211.5 million as at 30 September 2017 from S$217.8 million as at 31 December 2016. The decrease was largely attributed to the loss for the nine months in 2017.

Non-controlling interests of S$3.8 million relates to the minority interests portion of Solar Energy segment and the newly acquired subsidiary of TLC JSC Vietnam.

During 9M17, the Group recorded a net cash outflow inflow of S$9.7 million from operating activities after using S$10.4 million for changes in working capital largely driven by working capital used for the modular construction and solar projects currently in progress.

Net cash used in investing activities amounted to S$14.7 million in 9M17 mainly due to the construction in progress arising from the plant redevelopment of Hetat factory; the purchase of land in Bangladesh for the Solar Energy segment and the payment in relation to the acquisition of TLC JSC in Vietnam offset partially by the S$12 million dividend receive from its associate company for the Heron Bay EC project.

Net cash generated from financing activities in 9M17 was S$12.7 million derived from drawdown of bank loans for the redevelopment of Hetat factory. After taking into account net foreign currency translation adjustments, the Group recorded a net decrease in cash equivalents of S$11.8 million to S$59 million for 9M17.

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 have 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 the segment can only be seen in 2018 when 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 in the second half of 2018 and at the same time seek to secure new orders for roof-top solar projects.


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