Unaudited Financial Statements And Dividend Announcement For The Third Quarter 30 September 2020
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Consolidated Statement Of Comprehensive Income
Review of Performance
REVIEW OF INCOME STATEMENT OF THE GROUP – CONTINUING OPERATIONS
3Q2020 vs 3Q2019 and 9M2020 vs 9M2019
- 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 sale of Vac-Tech, the remaining business in Energy Services 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 recorded a total revenue of $34.89 million during 9M2020, an increase of $4.01 million or 13% as compared to $30.88 million for 9M2019.The increase was mainly attributable to the Energy Services segment and Offshore & Engineering segment generating higher revenue of $5.63 million and $1.21 million respectively. This was, however, offset by a decrease in revenue in the Marine segment of $2.83 million.
Offshore & Engineering segment
The revenue from Offshore & Engineering segment (“O&E”) of $8.26 million in 9M2020 increased by $1.21 million or 17%, from $7.05 million in 9M2019, which was mainly due to:
- higher demands from customers in the precision engineering business resulting in an increase in revenue contribution of approximately 35% or $1.17 million, to $4.48 million in 9M2020 as compared to $3.31 million in 9M2019;
- increase in work orders from the rope access business by approximately $0.68 million; offset by
- lower work orders in the offshore structure and fabrication business of $0.82 million, from $3.02 million to $2.20 million as it remains affected by slow market sentiment.
3Q2020 revenue from O&E increased by $0.11 million, mainly due to:
- increase in revenue contribution from offshore structure and fabrication business and rope access business by $80,000 and $74,000 respectively; offset by
- decline in revenue from precision engineering business and heat exchange business of $24,000 and $21,000 respectively.
Revenue for the Marine segment declined by $2.83 million or 14%, from $20.02 million in 9M20219 to $17.19 million in 9M2020 due to the following:
- decline in the segment’s MRO (maintenance, repairs and overhaul) services by $1.47 million, from $8.29 million in 9M2019 to $6.82 million in 9M2020, due to lower work orders from customers;
- reduction in revenue of approximately $0.43 milion due to lower deliveries for new built propellers; and
- lower work orders from diving services of approximately $0.93 million.
3Q2020 revenue from Marine segment marginally decline by 1% or $0.29 million mainly due from decrease in volume of work orders from diving services and MRO services of approximately $0.45 million and $0.20 million respectively, offset by increases in the deliveries of new built propeller of approximately $0.36 million.
Energy Services segment
Revenue from waste management business continues to show volume growth for 9M2020, registering a 148% increase in revenue, from $3.81 million in 9M2019 to $9.44 million in 9M2020. The increase was mainly due to a larger customer base as well as higher demands from recurring customers.
These also explained the fluctuation in revenue in 3Q2020 as compared to 3Q2019.
Cost of sales, gross profit and gross profit margin
Cost of sales decreased by 14% or $3.97 million, from $29.27 million in 9M2019 to $25.30 million in 9M2020. Gross profit was up by approximately $7.98 million or 494%, from $1.61 million in 9M2019 to $9.59 million in 9M2020, due mainly to:
- higher gross profit margin/contribution from the Energy segment’s waste management business and from O&E segment’s precision engineering business and rope access services; mitigated by
- lower gross margin from the offshore structure and fabrication business.
Consequently, gross profit margin for 9M2020 increased by 22%, from 5% in 9M2019 to 27% in 9M2020.
These also explained the fluctuations in cost of sales, gross profit and gross profit margin in 3Q2020 as compared to 3Q2019.
Administrative expenses decreased by approximately $0.81 million or 9%, from $8.86 million in 9M2019 to $8.05 million in 9M2020 mainly due to:
- lower employees compensation of $0.34 million arising from natural attrition and a temporary pay-cut across the Group beginning June 2020;
- reduction in travelling and transportation expenses of approximately $0.17 million; and
- cost savings of approximately $0.35 million in relation to the divestment of one of the Group’s properties in 4Q2019.
The overall finance expenses of the Group declined by $1.45 million or 24%, from $6.04 million in 9M2019 to $4.59 million mainly due to lower interest expenses arising from a reduction in the Group’s borrowings ($165.99 million as at 9M2020 as compared to $184.32 million as at 9M2019), in line with the Group’s asset divestment exercises since 2019.
This also explained the decrease in finance expenses in 3Q2020 as compared to 3Q2019.
Share of profit of Associated company
Following the completion of the disposal of 50% equity interest in Vac-Tech in previous year, the Group recognised a share of profit of associated company of $93,000/$17,000 for the period ended 3Q2020/9M2020 from its 20% retained investment as compared to profit from discontinued operations of Vac-Tech of $0.94 million/$3.11 million as of 3Q2020/9M2020.
The tax expense of the Group in 9M2020 arose from the under-provision of current income tax in prior years from a Malaysian subsidiary.
There was no provision for current income tax in 3Q2020/9M2020 as the Group has unrecognised tax losses and capital allowance as at balance sheet date that can be carried forward and utilised to offset future taxable income subject to meeting certain statutory requirements.
Profit from continuing operations
Consequent to the above, the Group recorded a profit of $11.28 million for 9M2020 as compared to a loss from continuing operation of $8.47 million for 9M2019.
Excluding the non-recurring gain(net) of $8.23 million, profit from continuing operations for 9M2020 would have been $3.05 million, a result of the Group’s continuous efforts in expanding the capability and capacity of its waste management business, divestment of non-core assets and restructuring of under-performing operations and businesses.
The Group incurred a loss from continuing operations of $0.18 million for 3Q2020. Excluding the non-recurring payment for a full and final settlement of $0.40 million for all claims in relation to a legal suit the Group would have generated a profit from continuing operations of $0.22 million for 3Q2020.
REVIEW OF FINANCIAL POSITION
The increase in current assets of $5.73 million or 5% from $114.98 million as at 31 December 2019 to $120.71 million as at 30 September 2020 was mainly due to the following:
- increase in assets of disposal group classified as held-for-sale of $10.33 million arising from the reclassification of MKSE’s current and non-current assets of $2.00 million and $8.33 million respectively in connection with the proposed disposal of MKSE;
- increase in inventories of $0.42 million or 9% mainly due to higher work-in-progress inventories for new built propellers under the Marine segment; offset with
- decrease in cash and cash equivalents of $2.66 million;
- decrease in trade and other receivables of $0.94 million was mainly due to reclassification of $0.48 million to assets of disposal group classified as held-for-sale and utilisation of deposits and prepayments of approximately $0.41 million; and
- decrease in contract assets of $1.41 million was mainly related to MKSE being reclassified to assets of disposal group classified as subsidiaries held-for-sale of $1.39 million.
The Group’s non-current assets of $116.29 million as at 30 September 2020 was down by 9% or approximately $11.29 million as compared to $127.58 million as at 31 December 2019 due to the movement in property, plant and equipment as explained below:
- reclassification of MKSE’s fixed assets of $8.33 million to assets of disposal group classified as held-for-sale;
- depreciation expense on property, plant and equipment and ROU assets of $7.48 million and $0.40 million from continuing and discontinued operations respectively;
- disposal during 9M2020 of certain vessel and machinery with a net book value of $1.43 million; offset by
- additions in property, plant and equipment of $6.51 million mainly arising from the dredging and reclamation business and Energy Services.
As at 30 September 2020 the current liabilities of $97.42 million declined significantly by $105.30 million or 52% as compared to $202.72 million as at 31 December 2019, mainly due to:
- reclassification of approximately $91.13 million of borrowings to non-current liabilities after taking into consideration the Amended Debt Restructuring Agreement (“Amended DRA”) executed on 26 August 2020, whereby borrowings under the Amended DRA were reprofiled with repayment terms that varies from 48 months to 120 months (calculated on the basis of a 240-month period with a final bullet repayment of the balance due and after taking into any adjustments from divestments of certain identified assets in the 120th month). The monthly repayment of principal is scheduled to commence on March 2020;
- net repayment of borrowings during 9M2020 of approximately $3.37 million mainly due to:
- full settlement of a term loan of $1.36 million for the dredging and reclamation business;
- partial settlement of a term loan of $1.20 million arising from the sale of a vessel to which the proceed was utilised to pay down a secured loan with a financial institution; and
- the balance amount of $0.81 million was related to net settlement of invoice financing due.
- decrease in trade and other payables of $15.87 million was mainly due to:
- the reversal of creditor balances of $8.63 million pertaining to retention sum and insurance bond, and
- reclassification of trade and other payables related to MKSE to disposal group classified as held-for-sale of approximately $7.29 million;
- the reduction in contract liabilities of $1.89 million was mainly related to:
- the reversal of advance payments received from customers upon the delivery of finished goods and completion of work orders for the Marine segment and Offshore & Engineering segment respectively; and
- reclassification of $0.19 million to liabilities directly associated with disposal group classified as held-for-sale in relation to proposed disposal of MKSE; offset with
- the increase in liabilities directly associated with disposal group classified as held-forsale amounted to $7.11 million, mainly due to reclassifications from the trade and other payables and contract liabilities balances of MKSE.
The non-current liabilities of the Group increased by $90.39 million or 443% from $20.40 million as at 31 December 2019 to $110.80 million as at 30 September 2020 mainly due to reclassification of current borrowings to non-current liabilities, as explained in the note to current liabilities.
REVIEW OF STATEMENT OF CASH FLOWS
The Group’s cash and cash equivalents as at 30 September 2020 were approximately $14.96 million which include the cash balances of MKSE of $0.12 million that was reclassified to assets of disposal group classified as held-for-sale. Overall, the cash and cash equivalents decreased by $2.56 million. The Group registered a net cash inflow from operating activities of $11.95 million during 9M2020 mainly from its operating income before changes in working capital of $13.21 million, offset with a net decrease in working capital of approximately $1.32 million.
Net cash used in investing activities was $5.29 million for 9M2020 mainly arose from capital investments in the dredging and reclamation business and Energy services segment.
Net cash used in financing activities of $9.22 million during 9M2020 was mainly a result of repayments of term loans, lease liabilities and payment of interests of approximately $11.13 million, offset by proceeds from bank borrowings of $1.91 million.
DISCONTINUED OPERATIONS AND DISPOSAL OF SUBSIDIARIES CLASSIFIED AS HELD-FOR-SALE
(A) Disposal of 51% Equity Interest in MKSE
As announced on 02 October 2020, Mencast Investment Holdings Pte. Ltd., a wholly owned subsidiary of the Company, had entered into a Sale and Purchase agreement (“SPA”) for the disposal of 51% equity interest in MKSE, represented by 153,000 shares in MKSE.
Following the Group’s decision to sell MKSE and in compliance with SFRS(I) 5 Noncurrent Assets Held-for-Sale and Discontinued Operations, the assets and liabilities of MKSE 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 as at 30 September 2020. Its financial results have been reclassified to “Discontinued Operations” as of 30 September and its prior periods’ financial results have been restated to reflect this change in presentation in the Consolidated Statement of Comprehensive Income. As announced on 12 November 2020, the completion of the proposed disposal of MKSE has taken place on the same date.
(B) Disposal of 50% equity interest in Vac-Tech
As announced on 28 June 2019, Mencast Energy Pte. Ltd., a 70% subsidiary of the Company, entered into a SPA for the disposal of 50% equity interest in Vac-Tech, represented by 1,500,000 shares in Vac-Tech. Prior to disposal, Mencast Energy holds 2.1 million shares in Vac-Tech representing 70% of its existing issued and paid-up share capital.
On 1 July 2019, the control over the subsidiary has been transferred to the purchaser in accordance with the SPA.
The transfer of share certificate signifying the legal completion of the disposal of its 50% equity interest in Vac-Tech took place on 24 September 2019, as announced on the same date.
The disposal of Vac-Tech resulted to gain on re-measurement of retained investment of $1,456,000 and gain on disposal of a subsidiary classified as held-for-sale of $943,000.
The summarised net profit for 9M2020 and 9M2019 from Discontinued Operations are presented as follows:
The Group expects the operating environment to remain challenging and uncertain. The circuit breaker measures have eased from lockdown, but movement control and Safe Management Measures are still in place. In addition, our businesses in the marine, offshore, and energy industries have inevitably been affected by reduced global economic activity and lower oil prices.
Slower activity in the Group’s Offshore & Engineering and Marine business segments are expected leading to fewer business enquiries, deferment of deliveries and a slow-down in work orders for maintenance, repairs and overhaul services.
This is, however, expected to be partially mitigated by the Group’s waste management business under the Energy business segment which has been growing quarter-onquarter since late 2019. The Group will continue to focus on developing and enhance the capabilities of this segment by ways of increasing its capacity, developing new revenue stream, business collaborations to expand its customer base which will serve to reduce the Group’s reliance on the marine, offshore and O&G industry that it operates in.
In terms of operating cash flows, the Group was able to generate a postive cash flows of approximately $11.9 million for both reporting periods. Amidst the unprecedented COVID-19 situation and uncertain business conditions, the Group will continue to exercise prudence in managing operational costs while selectively investing in growing markets.