Unaudited Financial Statements And Dividend Announcement For The Second Quarter 30 June 2019
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Consolidated Statement Of Comprehensive Income
Review of Performance
REVIEW OF INCOME STATEMENT OF THE GROUP
HY2019 vs HY2018 and 2Q2019 vs 2Q2018
- Offshore & Engineering includes offshore structures, engineering, manufacturing, inspection and maintenance. This also includes rope access services.
- Marine includes stearngear manufacturing and refurbishment works, ship inspection, repair & maintenance services and engineering & fabrication works. This also includes diving services.
- With the proposed sale of Vac-Tech, the remaining business in Energy Services would comprise of waste treatment and recovery waste system. Capabilities of waste treatment plant include treatment of waste water, oily sludge, slope, mud oil, contaminated soil, solid wastes and filter cakes.
Overall, the Group generated a total revenue of $33.9 million in HY2019, 45% higher than the revenue of $23.3 million in HY2018. The increase was largely attributable to the Marine segment and Energy Services segment registering an increase in revenue of $11.7 million and $1.6 million respectively, but was mitigated by lower revenue of $2.7 million from the Offshore & Engineering segment.
Offshore & Engineering segment
The Offshore & Engineering segment remains affected by slow market sentiment with revenue declined by 35% or $2.7 million, from $7.8 million in HY2018 to $5.1 million in HY2019. The reduction in revenue was mainly due to lower work orders from its offshore structure and fabrication of $2.1 million and from precision engineering business of $0.8 million.
These also explain the lower revenue from Offshore & Engineering segment in 2Q2019 as compared to 2Q2018.
Revenue for the Marine segment rose by $11.7 million or 75% to $27.2 million in HY2019 which was attributable to:
- the dredging and reclamation business of 51%-owned Mencast-KSE Pte Ltd contributing a revenue of $12.0 million;
- increase in the number of deliveries of new built propellers posted a 21% increase in revenue from $5.7 million to $6.9 million; offset by
- decline in the segment’s MRO (maintenance, repairs and overhaul) services by $1.4 million to $6.0 million in HY2019; and
- lower volume activity of $0.1 million in diving services.
These also explain the higher revenue from Marine segment in 2Q2019 as compared to 2Q2018.
Energy Services segment
In light of the proposed sale of Vac-Tech (as announced on 28 June 2019), the remaining business of this segment comprise of waste treatment and recovery waste system.
Revenue from the waste treatment business in HY2019 increased from $5,000 in HY2018 to $1.6 million, due mainly to a larger customer base.
These also explained the fluctuation in revenue in 2Q2019 as compared to 2Q2018.
Cost of sales, gross profit and gross profit margin
Cost of sales increased by 48% or $10.1 million from $21.1 million in HY2018 to $31.2 million in HY2019, in line with the increase in Group’s revenue.
Gross profit in HY2019 increased by $0.5 million when compared to HY2018, due mainly to contributions from the dredging and reclamation business, offset by a decline in Offshore & Engineering segment and diving services.
Consequently, the gross profit margin declined by 1.5% to 7.9% in HY2019 mainly due to lower revenue from Offshore & Engineering segment and diving services which were not sufficient to cover its fixed running costs.
These also explained the fluctuations in cost of sales, gross profit and gross profit margin in 2Q2019 as compared to 2Q2018.
The Group’s administrative expenses decreased by approximately $800,000 from HY2018 of $6.5 million to $5.7 million in HY2019 mainly due to the following:
- reduction in depreciation of $218,000 in relation to a China property being disposed in 4Q2018;
- reduction in depreciation of $121,000 due mainly to assets being classified to disposal group in 4Q2018;
- decrease in professional and consultancy fees of $123,000; and
- effects of adoption of SFRS(I) 16 on the rental expense of leasehold land, offset with additional depreciation expenses and amortisation of finance expense.
The above also explained the decrease in administrative expenses in 2Q2019 as compared to 2Q2018.
Finance expenses increased by $1.3 million or 45% from $2.8 million in HY2018 to $4.1 million in HY2019, due mainly to the expensing of $0.8 million interest in connection to a construction loan for 42A Penjuru Road property as opposed to capitalising the said interest to property, plant and equipment in HY2018. Additional finance cost in respect of the amortisation of lease liability of $182,000 was also included in HY2019.
This also explained the increase in finance expenses in 2Q2019 as compared to 2Q2018.
The tax expense of the Group in HY2019 arose from the under-provision of current income tax in prior years.
Loss from continuing operations
As a result of the above, the Group recorded a loss from continuing operations of $5.0 million in HY2019 as compared to $5.2 million in HY2018. Loss for 2Q2019 was $893,000 as compared to $1.8 million in corresponding period last year.
REVIEW OF FINANCIAL POSITION
The Group’s current assets as at 30 June 2019 amounted to $146.3 million, increased by 15% or $19.0 million as compared to $127.3 million as at 31 December 2018. The increase was mainly attributable to the following:
- increase in asset of disposal group classified as held-for-sale of $32.0 million arising from:
- recognition of right-of-use assets on leasehold land of $9.8 million for certain properties that have been identified to be disposed of;
- reclassification of Vac-tech’s current and non-current assets of $7.5 million and $9.8 million respectively in connection to the proposed sale of Vac-Tech;
- reclassification of intangible asset of $4.9 million from non-current assets, which was related to goodwill recognised by the Group arising from acquisition of Vac-Tech in prior years; offset with
- decrease in cash and cash equivalents of $3.6 million;
- decrease in trade and other receivables and contract assets of $6.3 million was mainly related to Vac-Tech being reclassified to disposal group classified as held-for-sale;
- decrease in inventories of $4.0 million or 51% was mainly due to deliveries of new built propellers to customers in 2Q2019 under the Marine segment.
Property, plant and equipment increased by $4.9 million, from $120.0 million to $124.9 million was mainly due to:
- following the adoption of SFRS(1) 16 Leases on 1 January 2019, most of the leases where the Group is the lessee was brought into the balance sheet as right-of-use assets valued at $17.7 million as at 30 June 2019;
- additions in property, plant and equipment of $1.9 million mainly arising from the dredging and reclamation business; offset by
- reclassification of Vac-Tech’s fixed assets and deposits for the purchase of PPE of $9.8 million to assets of disposal group classified as held-for-sale; and
- depreciation expense on property,plant and equipment and ROU assets (hire purchase) of $4.9 million.
Intangible assets decreased by $4.9 million, from $9.7 million to $4.8 million as at 30 June 2019, mainly due to the reclassification of goodwill to disposal group classified as held-for-sale under current assets. This goodwill relates to the Group’s acquisition of Vac-Tech in prior years.
As at 30 June 2019, current liabilities increased by $8.8 million or 4% to $226.6 million, as compared to $217.9 million as at 31 December 2018, mainly due to:
- increase in lease liabilities of $10.6 million arising from the adoption of SFRS(I) 16, of which approximately $9.5 million is related to those properties owned by the Group which were identified for sale and thus accounted for in liabilities directly associated with disposal group classified as held-for-sale. The balance amount of $1.1 million was classified under current borrowings;
- reclassification of non-current liabilities of $1.2 million to current liabilities, being classified as disposal group held-for-sale in relation to the proposed sale of Vac-Tech as announced on 28 June 2019; partially offset with
- reduction in current bank borrowings upon settlement of IFS loan of $1.6 million.
Non-current liabilities increased by $14.5 million from $6.3 million as at 31 December 2018 to $20.9 million as at 30 June 2019. The increase was mainly due to the recognition of lease liabilities of $16.6 million upon adoption of SFRS(I) 16 Leases, offset with the reclassification of non-current liabilities of $1.2 million to disposal group classified as held-for-sale in connection to the proposed sale of Vac-Tech as explained above.
REVIEW OF STATEMENT OF CASH FLOWS
The Group’s cash and cash equivalents as at 30 June 2019 were approximately $13.1 million including cash and bank balances of Vac-Tech classified as held-for-sale of $1.1 million. The Group reported a net cash inflow from operating activities of $9.2 million in HY2019 due mainly to its operating income before changes in working capital of $8.1 million and decrease in inventories for new built propellers delivered during the current period.
Net cash used in investing activities was $2.9 million for HY2019 mainly arose from the purchase of property, plant and equipment:
- dredging and reclamation business of approximately $1.4 million;
- deposits amounting to $1.0 million were paid for the purchase of certain equipment;
- asset enhancement of waste treatment plant of $0.3 million.
Net cash used in financing activities of $8.5 million during HY2019 was mainly a result of repayments of term loans, lease liabilities and payment of interests of approximately $10.0 million and dividend payment of $1.5 million, offset by proceeds from bank borrowings of $3.0 million.
DISCONTINUED OPERATIONS AND SUBSIDIARY CLASSIFIED AS HELD-FOR-SALE
As announced on 28 June 2019, the Company’s 70%-owned subsidiary, Mencast Energy, had entered into a sale and purchase agreement for the disposal of its 50% equity interest in Vac-Tech Engineering Pte Ltd (“Vac-Tech”) represented by 1.5 million shares in Vac-Tech.
Following the Group’s decision to sell Vac-Tech and in compliance with SFRS(I) 5 Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities of Vac-Tech including the goodwill arising from its consolidation were classified as Assets of disposal group classified as held-for-sale and Liabilities directly associated with disposal group classified as held-for-sale respectively on the consolidated balance sheet. Its financial results have been reclassfied to “Discontinued Operations” for the current financial period reported on and the prior period financial results have been restated to reflect this change in presentation in the Consolidated Statement of Comprehensive Income. The change in classification and presentation has no effect to the profit or loss after tax and net asset value of the Group.
The summarised net profit for HY2019 and HY2018 from Discontinued Operations are presented as follows:
Summarised Balance Sheet of a subsidiary classified as held-for-sale
The Group reported improved results in the current quarter and year-to-date reporting periods in terms of revenue, gross profits, operating cash flows as well as reduced losses in comparison to previous year same quarter / half year results.
Notwithstanding the improved conditions and an encouraging increase in customer enquiries, the Group expects market conditions to remain challenging for the next twelve months with a high market uncertainty.