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Unaudited Financial Statements And Dividend Announcement For The Second Quarter 30 June 2018
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Consolidated Statement Of Comprehensive Income
Review of Performance
REVIEW OF INCOME STATEMENT OF THE GROUP
HY2018 vs HY2017 and 2Q2018 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.
- Energy Services includes oil sludge and slop reclamation, hydro cleaning oil and gas tanks, encapsulation of wastes prior for landfill disposal and design and launch carbon footprint management initiatives and green initiatives.
Overall, revenue for HY2018 rose by 11% or $2.9 million to $30.5 million as compared to $27.6 million in HY2017. The 11% revenue growth was mainly attributable to stronger performance from Marine segment but was mitigated by lower revenue in Energy services segment while Offshore and Engineering segment remains resilient.
Offshore & Engineering segment
Revenue from the Offshore & Engineering segment increased by 4% or $291,000 to $7.8 million in HY2018.
For 2Q2018, this segment also recorded a $380,000 increase or 10% in its revenue when compared to $3.9 million revenue in 2Q2017 mainly due to higher demand.
Marine segment contributed 51% or $15.5 million to the Group's revenue in HY2018. On the whole, it recorded a revenue growth of 27% when compared to HY2017 revenue of $12.2 million.
Revenue from the segment's repairs and maintenance services grew approximately 46% or $2.3 million when compared to HY2017 of $5.0 million, due mainly to increased demand.
The growth was further driven by stronger demand for new built propellers which posted an increase in revenue of approximately 32% or $1.4 million to $5.7m in HY2018, from $4.3 million in HY2017.
Revenue for diving services was however down by 12%, from $2.8 million in HY2017 due to lower work volume from a major refinery.
These also explained the fluctuation in revenue in 2Q2018 as compared to 2Q2017.
Energy Services segment
Energy services segment revenue in HY2018 was lower at $7.2 million compared to $7.9 million in HY2017 mainly due to lower work orders from a major customer.
This also explained the fluctuation in revenue in 2Q2018 as compared to 2Q2017.
Cost of sales, gross profit and gross profit margin
On the back of stronger revenue and lower depreciation charges in HY2018 (a result of impairments undertaken in FY2017), the Group's gross profit and gross profit margin improved from $1.8 million and 6% in HY2017 to $4.5 million and 15% in HY2018 respectively.
This also explained the fluctuations in cost of sales and gross profit in 2Q2018 as compared to 2Q2017.
Other income increased by $1.1 million, from $0.8 million in HY2017 to $1.9 million in HY2018.
The above also explained the decrease in other income in 2Q2018 as compared to 2Q2017.
The Group's administrative expenses remained relatively similar for both reporting periods in HY2018 and HY2017.
Administrative expenses in 2Q2018 increased by $0.3 million to $3.8 million, from $3.5 million in 2Q2017, due mainly to higher expenses incurred in professional fees, travelling, upkeep of office buildings and office equipment among others.
Finance expense remained relatively similar for both reporting periods ended HY2018/HY2017 and 2Q2018/2Q2017.
The Group recognised a tax charge of $199,000 mainly due to provision of current income tax from its Energy segment.
Consequent to the revenue growth and increase in other income, the Group was able to reduce its net loss before tax by 48%, from $7.9 million loss in HY2017 to $4.1 million loss in HY2018.
Net loss attributable to equity holders of the Company in HY2018 dropped by 48% from $9.2 million in HY2017 to $4.8 million in HY2017.
These also explained the fluctuation in Group's net loss and net loss attributable to equity holders of the Company in 2Q2018 as compared to 2Q2017.
REVIEW OF FINANCIAL POSITION
Current assets increased by $1.2 million or 3% from $44.1 million as at 31 December 2017 to $45.3 million as at 30 June 2018, mainly attributable to reclassification of asset balances, amounting to $6.1 million, from non-current assets to current assets, which were mainly related to the leasehold land and building in Changshu Honghua. As previously announced, the Company through S &W Pte Ltd, its wholly owned subsidiary, entered into a Sale and Purchase Agreement ("SPA") for the disposal of the entire stake in Changshu Honghua for RMB49 million. The Group had in 2Q2018 recognised and reclassified the assets and liabilities directly associated with Changshu Honghua to current assets / liabilities as "Assets / Liabilities of disposal group classified as held for sale".
The increase was offset by a reduction in cash and cash equivalents of $5.5 million and trade and other receivables of $1.4 million, of which the details are highlighted in the Review of Statement of Cash Flows.
The decline in non-current assets of $10.3 million, from $215.5 million as at 31 December 2017 to $205.2 million as at 30 June 2018 was mainly due to the reclassification of leasehold land and building of approximately $6.1 million to current assets, as explained above. The balance $4.2 million was mainly due to depreciation charges of $6.7 million in HY2018, offset by purchases in property, plant and equipment of $1.7 million, arising mainly from rectification works in 42A Penjuru Road property.
Current liabilities reduced by $141.9 million or 67% from $210.9 million as at 31 December 2017 to $69.0 million as at 30 June 2018, mainly due to reclassifications of significant portion of current borrowings to non-current liabilities, as explained below.
Trade and other payables increased by $2.0 million or 12% to $18.3 million as at 30 June 2018 due mainly to the receipt of a non-refundable deposit of approximately $1.9 million from the proposed disposal of the entire issued and paid-up share capital of Changshu Honghua Equipment Co., Ltd. ("Changshu"), a wholly owned indirect subsidiary of the Company.
The liabilities directly associated with disposal group classified as held-for-sale stood at $6,000 being 3rd party payables.
Non-current liabilities rose by $138.1 million, from $8.6 million as at 31 December 2017 to $146.7 million as at 30 June 2018. The Company had on 8th May 2018 received by way of a letter from one of our principal bankers who responded to our waiver application on our non-compliance in financial covenants. The bank has accommodated the said breach on a one-off basis and the Company had reclassified approximately $139.1 million of its borrowings from current to non-current liabilities.
REVIEW OF STATEMENT OF CASH FLOWS
The Group reported a net cash inflow from operating activities of $5.1 million in HY2018 due mainly to its operating income before changes in working capital.
Net cash of $1.5 million was generated from investing activities as a result of the release of a $2.0 million fixed deposits pledged and net proceeds from disposal of fixed assets of $1.2 million, offset by purchases of fixed assets of $1.7 million.
Net cash used in financing activities of $10.1 million as at 30 June 2018 was mainly due to repayments of term loans, finance lease liabilities and payment of interests of approximately $17.1 million, offset by proceeds from bank borrowings of $7.9 million.
The Group reported increase in revenue for two consecutive quarters for the period ended 30 June 2018. Market sentiment had improved amid sign of increase in customer's enquiries.
Our Group has outstanding orders amounting to approximately $50.8 million as at 30 June 2018 ($15.5 million as at 31 December 2017), including orders from the recent joint venture with KSE Marine Works Pte Ltd. The deliveries for these orders are expected to spread within the next 24 months.
Notwithstanding the improved conditions, the Group's businesses serving largely the marine, oil and gas industries remain challenging as the recovery is still in its early stages.