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Group revenue of $83.7 million for the 3 months ended 31 December 2016 ("2Q FY2017") was $16.0 million (16.1%) lower compared to the corresponding period in FY2016 ("2Q FY2016"). For the 6 months ended 31 December 2016 ("1H FY2017"), the Group revenue was $4.7 million higher compared to the corresponding period ended 31 December 2015 ("1H FY2016").
Details for revenue generated from each segment are as follows:
Recognition of shipbuilding revenue is calculated based on project value multiplied by the percentage of completion ("POC").
The breakdown of shipbuilding revenue generated and the number of units recognised under POC are as follows:
Shipbuilding revenue in 2Q FY2017 decreased by $26.4 million (43.1%) compared to the corresponding quarter due to lower POC achieved from the construction of OSV and decrease in number of Tugs and Barges constructed. The Group has delivered a total of 5 Tugs and 1 Barge in 1H FY2017, with one Tug being completed in 2Q FY2017.
Shiprepair and conversion projects are meant to be short term in nature, resulting in revenue recognised only upon completion. With several of our shiprepair jobs being partial conversions, which take far longer than historic jobs to complete (i.e. may not complete within a quarter), revenue from shiprepair and conversions are now likely to be lumpy.
The breakdown of revenue generated from the shiprepair and conversion segment are as follows:
Shiprepair and conversion revenue increased by $3.7 million (33.7%) in 2Q FY2017 and $3.2 million (12.4%) in 1H FY2017 when compared to corresponding periods mainly due to more projects completed in 2Q FY2017. The Group traded some steel plates amounting to $1.6 million during the quarter under review.
The breakdown of revenue generated from the shipchartering segment are as follows:
Shipchartering revenue was higher in 2Q FY2017 and 1H FY2017 mainly due to
Trade sales increased significantly in 2Q FY2017 and 1HFY2017 due to increase in bunker sales and ad hoc services rendered in conjunction with the New Charter Contracts mentioned above.
Similar to shipbuilding, revenue from New Buildings is calculated based on project value multiply by POC.
The breakdown by revenue generated from the engineering segment are as follows:
Engineering revenue were lower in 2Q FY2017 mainly due to absence of revenue recognition from New Buildings and lower POC achieved for cutting/coupling systems.
The Group gross profit decreased by $4.8 million (32.5%) to $10.1 million in 2Q FY2017 and $3.3 million (12.3%) to $23.1 million in 1H FY2017 compared to the respective corresponding periods.
The breakdown of gross profit and gross profit margin for each respective segment are as follows:
In line with the decrease in revenue, gross profit decreased by $4.3 million (50%) and gross profit margin reduced to 12.4% in 2Q FY2017 mainly due to overruns in subcontractor costs on construction of certain OSV and Barges.
Despite the increase in revenue in 2Q FY2017, gross profit reduced to $3.0 million with a gross profit margin of 20.2% due to absence of reversal of costs recorded in 2Q FY2016 on several repair projects completed in prior years.
The breakdown of gross profit and gross profit margin from shipchartering segment are as follows:
Despite higher charter revenue (excluding trade sales) recorded in 2Q FY2017, gross profit and gross profit margin was lower as compared with corresponding period. This was mainly due to:
The breakdown of gross profit and gross profit margin from engineering segment are as follows:
The higher gross profit margin recorded in components and spare parts segment was mainly due to cost savings from the reorganisation exercise undertaken in 4Q FY2016.
Details for other operating income are as follows:
The higher rental income recorded in 1H FY2017 mainly derived from leasing of precast workshops.
Administrative expenses decreased by $0.6 million (9.4%) to $5.4 million in 2Q FY2017 when compared to corresponding period mainly due to absence of facility fees incurred on bank financing recorded in 2Q FY2016 and lower upkeep and travelling expenses resulting from cost cutting measures, partially offset by compensation incurred from rationalisation of shipyard operation in China.
Administrative expenses increased by $0.1 million (1.1%) in 1H FY2017 mainly due to rationalisation expenses incurred, partially offset by lower upkeep and travelling expenses.
Other operating expenses comprised the following:
The foreign exchange losses in 1H FY2017 arose mainly due to the appreciation of USD against SGD on USD denominated liabilities.
Exchange rates for the respective reporting periods were as follows:
Finance costs decreased slightly by $0.2 million (3.2%) to $4.7 million in 2Q FY2017 and by $0.1 million (1.3%) to $9.2 million in 1H FY2017 when compared to corresponding periods due to repayment of long term loans.
The Group's share of results of jointly-controlled entity and associates comprised:
The share of loss from Sindo-Econ group of $0.4 million in 2Q FY2017 was attributed by low margin due to competitive market conditions from precast operation in Indonesia.
The higher share of profit from PT Hafar of $0.3 million in 2Q FY2017 was due to reversal of tax overprovided in prior years and higher exchange gain; partially offset by lower profit from charter of vessels.
The lower share of loss from PT CNI in 2Q FY2017 as compared to the corresponding period was due to higher utilisation of vessels.
Despite an overall decrease in gross profit by $4.8 million (32.5%) in 2Q FY2017, the Group's profit before tax decreased by $0.7 million (45.0%) to $0.8 million (2Q FY2016: $1.5 million). This was mainly due to the decrease in foreign exchange loss by $2.2 million, lower share of losses of joint ventures and associates by $1.5 million and lower administrative expenses by $0.6 million.
The Group recorded a lower profit before tax of $4.6 million in 1H FY2017 mainly due to an overall decrease in gross profit by $3.3 million (12.3%) and higher share of losses of joint ventures and associates of $2.1 million; partially offset by lower foreign exchange loss of $0.8 million.
The Group's current period tax (expense)/credit comprised the following:
The Group's current income tax expense was $0.5 million and $1.6 million higher in 2Q FY2017 and 1H FY2017 respectively compared to the corresponding periods mainly due to higher tax provision attributed to shipyard operations which cannot be offset against losses recorded by other subsidiaries within the Group.
Non-controlling interests' share of loss of $0.3 million for 2Q FY2017 and $1.7m for 1H FY2017 mainly pertains to the portion of results of its non-wholly owned subsidiaries in Indonesia and China.
The Group recorded a net cash inflow of $41.3 million from operating activities in 2Q FY2017 (2Q FY2016: cash outflow of $17.9 million) mainly due to lower construction costs incurred on projects and higher receipts from customers.
The lower net cash outflow of $8.5 million from investing activities in 2Q FY2017 as compared to $36.8 million in 2Q FY2016 was mainly attributed to lower acquisition of property, plant and equipment during the current quarter.
The net cash outflow from financing activities of $28.9 million (2Q FY2016: net cash inflow of $56.6 million) arose as the Group repaid more money than it borrowed.
In 1HFY2017, the Group recorded a net cash inflow of $85.8 million from operating activities (1H FY2016: cash outflow of $63.5 million). The higher cash inflow was mainly due to lower purchase of inventories and construction costs incurred on projects, higher receipts from customers and lower payments made to suppliers.
The lower net cash outflow of $22.4 million from investing activities in 1H FY2017 as compared to $49.2 million in 1H FY2016 was due to lower acquisition of property, plant and equipment and higher non-trade balances owing from related parties.
The net cash outflow from financing activities of $52.9 million in 1H FY2017 (1H FY2016: net cash inflow of $85.0 million) arose as the Group repaid more money than it borrowed.
Property, plant and equipment ("PPE") increased marginally by $1.8 million (0.3%) from $603.1 million as at 30 June 2016 to $604.9 million as at 31 December 2016.
Movement in PPE during the period under review is as follows:
The vessels acquired in 2Q FY2017 were mainly tugs and barges that were deployed to support our customers in marine infrastructure project in South Asia.
Current assets decreased by $7.4 million (1.2%) from $625.6 million as at 30 June 2016 to $618.2 million as at 31 December 2016 due to the decrease in trade receivables, partially offset by increase in inventories, construction work-in-progress, amounts due from related parties and cash and bank balances.
Inventories comprised the following:
The increase in finished goods mainly relates to transfer of a platform supply vessel from work-in-progress to finished goods upon completion.
Trade and other receivables comprised the following:
The decrease in trade receivables was mainly due to receipt of milestone billings from shipbuilding projects; increased focus on trade debt collection; and netting agreements entered with trade creditors during the period under review. Of the total trade receivables, $17.0 million was received subsequent to the period under review.
The increase in amounts due from related parties was mainly due to sale of assets, payments on behalf and upward revaluation of balances denominated in USD as a result of appreciation of USD against SGD during the period.
Current liabilities decreased by $17.7 million (3.0%) from $596.9 million as at 30 June 2016 to $579.2 million as at 31 December 2016. The decrease was mainly due to lower trade payables and repayment of trust receipts; partially offset by increase in other payables and interest-bearing loans and borrowings.
Trade and other payables comprised the following:
Other payables increased by $7.8 million (24.7%) mainly due to payables for the purchase of cranes and additional advance payments received from customer for one of the New Charter Contracts.
Net construction work-in-progress in excess of progress billings increased marginally by $0.4 million (0.4%) from $102.1 million as at 30 June 2016 to $101.7 million as at 31 December 2016.
The breakdown of the Group's total borrowings are as follows:
The Group's total borrowings decreased by $48.2 million (8.1%) mainly due to repayment of long term loans and trust receipts on shipbuilding projects completed during the period under review.
Non-current liabilities decreased by $20.0 million (7.9%) to $234.4 million as at 31 December 2016 mainly due to decrease in the non-current portion of the Group's total borrowings as a result of repayment; partially offset by the increase in other liabilities as a result of additional advance payments received for one of the New Charter Contracts.
While oil prices have started to stabilize in recent months and are expected to mildly recover in 2017, the prospects for the oil and gas industry remains uncertain. These uncertainties come from various geopolitical events, including the execution of the OPEC's initiative to cut oil production, and any new policies that might be introduced by the new U.S. administration.
In addition, the recovery for the offshore oil and gas support industry is expected to lag the recovery of the oil prices. Only after the upstream activities pick up, will the demand for oil rigs increases, and only then thereafter the demand for offshore service vessels and related conversion and repair work will have a chance to recover gradually.
Hence, we do not foresee the operating environment for our businesses improving significantly in the next 12 months. The demand for shipbuilding and shipchartering remain weak and price-sensitive, and the credit tightening in the industry continue to be a challenge for many industry players.
In an effort to deal with the financial challenges, the Company has proposed a detailed financial restructuring plan. The noteholders approved a 3-year extension for the Series 006 and Series 007 notes in January 2017 and the $99.9 million club loan facility by the three local banks have set the stage for us to regain increased financial flexibility to meet new business working capital needs. This is vital for the Company's survival and preservation of our assets and expertise in such difficult times. With careful cost management and committed management, the Company will continue to seek suitable business opportunities for our various business segments.
In shipbuilding, we are making efforts to increase shipbuilding order books on vessels such as tanker, tugs and barges, improve operational efficiency and continue to tighten cost control to ensure we remain competitive, stimulate shiprepair and conversion business by offering maintenance services at our enhanced Batam facilities.
With the commencement of the large infrastructure projects in Singapore and South Asia in 4QFY2016, the overall utilization of our tugs and barges have improved from 47% for 1H FY2016 to 61% for 1H FY2017. The diversified vessel types in our fleet, especially the non-OSV vessels are expected to lend support to our chartering business in the current low-oil-price environment. However, due to market competition, the Group expects continued pressure on charter rates.
The transportation of precast concrete products from the precast yard in Batam to Singapore by our landing crafts will continue to provide a steady flow of income to our shipchartering operations.
As at 31 December 2016, the Group's shipchartering operations have an outstanding delivery order of 10 vessels worth approximately $8.9 million, comprising tugs and barges. With the exception of 3 vessel with a total worth of $1.9 million, the rest of the vessels are being built internally by the Group.
Our engineering division (VOSTA LMG) engages primarily in the infrastructure and construction industry which is less affected by the weak oil price. Due to sluggish economic condition in Europe, we expect the revenue of our engineering division to stay flat for FY2017. However, the reorganization exercise conducted in May 2016 is expected to reduce our cost and hence, improve our bottom line.
As at 31 December 2016, the Group had an outstanding shipbuilding order book from external customers of approximately $146 million for the building of 17 vessels with progressive deliveries up to 4Q FY2018. The order book comprises OSV, harbour tugs, barges and tankers. Barring any unforeseen circumstances, approximately 28% of the order book is expected to be recognised in 2H FY2017.
The Group's shipchartering revenue consists of mainly short-term and ad-hoc contracts. Approximately 35% of shipchartering revenue in 1H FY2017 was attributed to long-term chartering contracts (meaning contracts with a duration of more than one year). As at 31 December 2016, the Group had an outstanding chartering order book of approximately $136 million with respect to long-term contracts.
Pursuant to the Rights Issue exercise, the Company has on 19 December 2016, allotted and issued 209,755,647 Rights Shares and raised a total gross proceeds of $25.2 million.
On 20 January 2017, the Company has received approval from noteholders to extend the maturity dates of its $100 million and $50 million notes originally due in March 2017 and October 2018 respectively for three years each. With this approval, the Company has fulfilled a major condition to drawdown the 5-year club term loan facility of up to $99.9 million (the "Club Term Loan Facility") provided by three local banks. The Company is currently in the process of completing the legal documentation for drawing down on the Club Term Loan Facility by tranches.