Unaudited Financial Statements And Dividend Announcement For The Full Year Ended 31 December 2020
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Consolidated Statement Of Comprehensive Income
"NM" denotes not meaningful.
Review of Performance
REVIEW OF INCOME STATEMENT OF THE GROUP – CONTINUING OPERATIONS
4Q2020 vs 4Q2019 and FY2020 vs FY2019
- 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.
The overall increase in Group’s revenue of $3.92 million or 9% for FY2020 is mainly attributable from Energy Services segment and Offshore & Engineering segment with an increase of $8.68 million and $1.07 million in FY2020 respectively. This was, however, offset by a decrease in revenue in the Marine segment of $5.83 million.
Offshore & Engineering segment
The revenue from Offshore & Engineering segment (“O&E”) of $10.34 million in FY2020 increased by $1.07 million or 11%, from $9.27 million in FY2019, which was mainly due to:
- higher demands from customers in the precision engineering business resulting to 14% increase in revenue contribution or approximately $0.65 million, from $4.72 million in FY2019 to $5.37 million in FY2020;
- increase in work orders from the rope access business by approximately $0.57 million;
- higher revenue from heat exchanger business by $0.42 million; offset by
- lower work orders in the offshore structure and fabrication business of $0.57 million, from $3.65 million to $3.08 million as it remains affected by slow market sentiment.
4Q2020 revenue from O&E declined by $0.15 million, mainly due to:
- decrease in revenue from precision engineering business and rope access business of $0.53 million and $0.12 million respectively; offset by
- increase in revenue contribution from offshore structure and fabrication business and heat exchanger business by $0.25 million each.
Revenue for the Marine segment declined by $5.82 million or 21%, from $27.78 million in FY20219 to $21.96 million in FY2020 due to the following:
- decrease in MRO (maintenance, repairs and overhaul) services by $3.06 million, from $11.73 million in FY2019 to $8.67 million in FY2020. Demand for MRO services were affected by Covid-19 related movement controls which resulted in slow-downs and delays;
- reduction in revenue of approximately $1.69 milion due to lower deliveries for new built propellers; and
- lower work orders from diving services of approximately $1.07 million.
These also explained the fluctuation in revenue in 4Q2020 as compared to 4Q2019.
Energy Services segment
Revenue from waste management business continues to record volume growth for FY2020 with a 147% increase in revenue, from $5.89 million in FY2019 to $14.58 million in FY2020. The increase was mainly due to the segment’s continuous efforts in capacity expansion enabling the Group to accept higher demands from recurring customers.
These also explained the fluctuation in revenue in 4Q2020 as compared to 4Q2019.
Cost of sales, gross profit and gross profit margin
Cost of sales of $34.26 million in FY2020 decreased by 13% or $4.96 million, from $39.22 million in FY2019. Gross profit of $12.62 million in FY2020 was up by 238% or approximately $8.89 million from $3.73 million in FY2019, due mainly to:
- healthy contribution in gross profit margin from Energy segment’s waste management business in line with the increase in revenue;
- higher gross profit contribution from O&E segment’s precision engineering business and rope access services; mitigated by
- lower gross margin from marine segment and from the offshore structure and fabrication business.
Consequently, gross profit margin for FY2020 increased by 18%, from 9% in FY2019 to 27% in FY2020.
These also explained the fluctuations in cost of sales, gross profit and gross profit margin in 4Q2020 as compared to 4Q2019.
Administrative expenses of the Group decreased by $905,000 or 7% in FY2020 from $12.34 million in FY2019 to $11.43 million in FY2020 mainly due to:
- lower employees compensation of $0.54 million arising from natural attrition and temporary pay-cut across the Group beginning June 2020;
- reduction in travelling and transportation expenses of approximately $0.22 million; and
- the absence of property related expenses of approximately $0.35 million in relation to the divestment of one of the Group’s properties in 4Q2019.
The finance expenses of the Group declined by 31% or $2.51 million from $8.22 million in FY2019 to $5.70 million in FY2020 was mainly due to lower interest rates charged on certain Group’s borrowings, as well as a reduction in the Group’s borrowings, in line with the Group’s asset divestment exercises since 2019.
This also explained the decrease in finance expenses in 4Q2020 as compared to 4Q2019.
Share of profit of Associated company
The Group recognised a lower share of profit of associated company of $0.26 million in FY2020 as compared to $0.31 million in FY2019 mainly due to a reduction in profit contributions from its associated company.
The Group recognised a marginal increase in its share of profits in 4Q2020 as compared to 4Q2019.
Profit from continuing operations
Consequent to the above, the Group recorded a profit of $5.88 million for FY2020 as compared to a loss from continuing operation of $8.07 million for FY2019.
REVIEW OF FINANCIAL POSITION
The Group’s current assets decreased by $1.87 million or 2% from $114.98 million as at 31 December 2019 to $113.12 million as at 31 December 2020 was mainly due to the following:
- deconsolidation of MKSE’s current assets of approximately $2.12 million in 4Q2020 mainly composed of contract assets of $1.39 million and trade and other receivables of $0.61 million;
- the balance reduction in contract assets of $0.61 million was a result of higher billings to customers where the right to payment had been unconditional. These billings were mainly related to diving business;
- decrease in asset of disposal group classified as held-for-sale was due to write down of fair values of the property for $3.5 million;
- decrease in cash and cash equivalents of $2.71 million; offset with
- increase in trade and other receivables of $5.44 million was mainly due to receivables from Energy services segment as shown from the increase in its revenue;
- increase in inventories of $0.9 million was mainly due to higher finished goods inventories for new built propellers under the Marine segment.
Non-current assets decreased by $16.09 million or 13% from $127.58 million as at 31 December 2019 to $111.49 million as at 31 December 2020. The reduction was mainly related to property, plant and equipment as explained below:
- disposal of MKSE with fixed assets of approximately $8.28 million;
- depreciation charge on property, plant and equipment and ROU assets of $9.95 million;
- impairment of a vessel of $2.16 million under the offshore & engineering segment;
- disposal of certain vessels and machinery with a net book value of $3.43 million; offset by
- additions in property, plant and equipment of approximately $8.00 million mainly due to machinery and equipment procurement by the Energy services and Marine segment to enhance its capacity requirements.
Current liabilities dropped sharply by $114.59 million or 57%, from $202.72 million as at 31 December 2019 to $88.13 million as at 31 December 2020 mainly due to:
- reclassification of approximately $92.19 million of current 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 principal repayment is scheduled to commence in March 2020;
- net repayment of borrowings of approximately $6.04 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 proceeds were utilised to pay down a secured loan with a financial institution; and
- the balance amount of $3.29 million was related to settlement of invoice financing due.
- decrease in trade and other payables of $14.07 million was mainly due to:
- the reversal of creditor balances of $8.63 million pertaining to retention sum and insurance bond, and
- deconsolidation of trade and other payables of approximately $12.51 million in relation to the disposal of MKSE; and
- reduction in contract liabilities of $1.94 million 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
- deconsolidation of $0.19 million related to the disposal of 51% equity interest in MKSE.
The non-current liabilities of the Group increased by $91.21 million or 447% from $20.40 million as at 31 December 2019 to $111.62 million as at 31 December 2020 mainly due to reclassification of current borrowings to non-current liabilities, as explained above in the note to current liabilities.
REVIEW OF STATEMENT OF CASH FLOWS
The cash and cash equivalents of the Group as at 31 December 2020 were approximately $14.80 million. Overall, the cash and cash equivalents decreased by $2.72 million. The Group has a net cash inflow from operating activities of $14.65 million during FY2020 mainly from its operating income before changes in working capital of $16.64 million, offset with a net decrease in working capital of approximately $1.99 million.
Net cash used in investing activities was $4.19 million for FY2020 mainly arose from capital investments in the Marine and Energy services segments.
Net cash used in financing activities of $13.18 million during FY2020 was mainly a result of repayments of term loans, lease liabilities and payment of interests of approximately $15.98 million, offset by proceeds from bank borrowings of $2.79 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 Non-current 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.
The completion of the proposed disposal of MKSE has taken place on 12 November 2020 and resulted to a gain on disposal of non-current assets held-for-sale of $1.73 million.
(B) Disposal of 50% equity interest in Vac-Tech
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 FY2020 and FY2019 from Discontinued Operations are presented as follows:
As earlier announced, the Group had successfully completed the Group’s debt restructuring exercise on 26 August 2020. This allows Mencast Group to embark on a steadier platform, going forward.
In spite of the COVID-19 situation and uncertain business conditions, the Group’s continuing operations achieved a 9.1% increase in revenue, from $42.95 million last year to $46.87 million in FY2020. For the first time in 5 years, the Group’s continuing operations also reported its net profit before tax of $5.90 million in FY2020, a significant reversal from a net loss before tax of $8.35 million in FY2019.
Excluding non-recurring gains and non-cash allowances for impairment on property, plant & equipment and disposal group classified as held for sale, the Group’s continuing operations would have recorded an adjusted net profit before tax of $3.33 million, inclusive support from government grants (FY2019: adjusted loss before tax of $13.44 million). Excluding COVID-19 government related grants such as job support scheme, foreign workers levy and property tax rebates of approximately $3.28 million, the Group would have attained a breakeven position of $53,000 profit before tax as compared to an adjusted loss before tax of $13.44 million last year. Our adjusted net profit before tax for FY2020 would have been even better if not for the COVID-19 situation where the business activities of our customers were affected by the circuit breaker measures, movement control or lockdown in Singapore.
The Group also ended the reporting year with an EBITDA and cash position of $18.1 million and $15.6 million, respectively. These positive developments reflect the effectiveness of management’s intensive effort in executing the Group’s turnaround roadmap for the last 3 years.
With the completion of the debt restructuring exercise, a stronger balance sheet and a net profit position, the Group is cautiously optimistic that it will continue its momentum in 2021.
We will continue to focus on the development and enhancement of its waste management business under the Energy segment by ways of increasing its capacity, developing new revenue stream, business collaborations to diversify its customer and market base.
The Group remains committed to execute its turnaround strategies, to rationalise and reduce operating costs across its business segments as well as continue to drive growth by exploring viable opportunities both in Singapore and overseas, and to seek out strategic partners and potential investments.