Financials
Unaudited Third Quarter Financial Statements for the Period Ended 31 March 2008
Balance Sheet
Review of Performance
9M FY2008 vs 9M FY2007
Revenue
The Group's revenue increased by 21.9% from $233.9 million for 9 months ended 31 March 2007 ("9M FY2007") to $285.1 million for 9 months ended 31 March 2008 ("9M FY2008"). The Group achieved higher revenue for all three segments.
Shipbuilding operations recorded higher revenue mainly due to the progressive recognition of more and higher value shipbuilding projects undertaken. Progressive recognition of shipbuilding revenue commences when the work-in-progress reaches the 10% recognition threshold.
Shiprepair operations recorded higher revenue mainly due to an increase in the number of higher value shiprepair and ship conversion jobs undertaken.
Shipchartering revenue was higher due to expanded fleet size for the Group's shipchartering operations. The Group's fleet size increased from 151 vessels (57 tugs, 1 anchor handling tug and 93 barges) as at 31 March 2007 to 175 vessels (61 tugs, 3 anchor handling tugs and 111 barges) as at 31 March 2008.
Gross profit and gross profit margin
The Group's gross profit was 50% higher with increased earnings from all three segments. The Group achieved a higher overall gross margin of 18.7% for 9M FY2008 as compared to 15.2% for 9M FY2007.
Shipbuilding operations recorded higher gross profit margin primarily attributed to progressive recognition of higher value projects undertaken.
Shiprepair operations recorded higher gross profit margin due to higher margin shiprepair jobs undertaken during the period and improved operating efficiency.
The Group's shipchartering operations recorded lower gross profit margin of 29.5% for 9M FY2008 mainly due to (i) lower vessel utilisation due to more of the Group's vessels under mandatory repair during the period; and (ii) a higher proportion of charter income under contract of affreightment which generally yields lower margin.
Other operating income
Other operating income increased by $1.7 million to $9.2 million.
Other operating income for 9M FY2008 mainly arose from a gain on disposal of plant and equipment of $4.8 million (9M FY2007: $6.6 million), miscellaneous income of $3.1 million (9M FY2007: $0.4 million) and interest income of $1.3 million (9M FY2007: $0.5 million). The gain on disposal of plant and equipment included the sale of 17 vessels (9M FY2007: 25 vessels) to third parties. The disposals were part of the Group's fleet renewal program. The miscellaneous income mainly comprised insurance claims of $1.3 million and profit from ad-hoc trade sale of vessels of $1.3m. The higher interest income was mainly due to an increase in fixed deposit placements for shipbuilding project accounts.
Administrative expenses
Administrative expenses increased by $1.0 million to $7.4 million. The increase was mainly attributed to higher manpower costs (increased by $0.4 million) as well as an increase in certain administrative expenses in line with higher business activities.
Other operating expenses
Other operating expenses decreased by $0.4 million to $1.4 million. The decrease was mainly due to write-back of allowance of doubtful trade receivables of $0.7 million as compared to allowance made for doubtful trade receivables of $0.4 millon in 9M FY2007 partially offset by plant and equipment written off of $0.7 million (9MFY2007: $16,000).
Finance costs
Finance costs increased by $0.6 million to $4.0 million mainly due to higher borrowings arising from the expansion of the Group's fleet size from 151 vessels as at 31 March 2007 to 175 vessels as at 31 March 2008.
Finance costs comprised mainly $3.8 million interest for term loans and $0.2 million interest for trust receipts and hire purchase obligations. Term loan interest increased by $0.6 million mainly due to increase in borrowings for fleet expansion for the shipchartering operations. The Group hedges against interest rate fluctuations on its long term borrowings by way of interest rate swaps.
Share of profit of jointly-controlled entities
Share of results of jointly-controlled entities, namely ASL Energy Pte Ltd and its subsidiaries ("ASL Energy group") and HKR-ASL Joint Venture Limited as well as share of result from an associate, Fastcoat Industries Pte.Ltd., amounted to a net loss of $0.1 million in 9M FY2008 as compared to a net profiit of $0.1 million in 9M FY2007.
The share of results from ASL Energy group was a net loss of $0.3 million in 9M FY2008 as compared to a net loss of $6,000 in 9M FY2007. ASL Energy group recorded higher losses in 9M FY2008 mainly attributed to higher foreign exchange loss and absence of share of profit contribution from Tabang coal concession. In addition, the Tabang coal concession incurred losses due to higher provision of royalties payable for coal sales and increase in coal mining operating costs in 9M FY2008.
Pursuant to the conditional agreement entered into by ASL Energy group in July 2007 to dispose of its entire interests in Tabang coal concession, the disposal has since been completed on 12 May 2008.
The share of results from HKR-ASL Joint Venture Limited was a net profit of $0.2 million in 9M FY2008 as compared to $0.1m in 9M FY2007.
Profit before taxation
In line wiith revenue growth and higher gross profits, the Group's profit before taxation of $49.5 million for 9M FY2008 was $18.1 million or 57.5% higher as compared to 9M FY2007.
Income tax expense
The Group's taxation charge rose by $4.1 million to $7.6 million in 9M FY2008 of which $0.7 million was due to an adjustment for prior year deferred tax expense. The Group's effective tax rate of 13.3% for 9M FY2008 was higher than the 12.4% recorded for 9M FY2007 mainly attributed to lower proportion of exempt shipping profits in 9M FY2008.
Minority interests
Minority shareholders' share of losses amounted to $0.2 million in 9M FY2008, consequently the Group's profit attributable to equity holders for the period was $42.1 million. The reasons for the losses incurred by non-wholly owned foreign subsidiaries were due to higher foreign exchange losses, allowance for doubtful debts and initial start up costs.
Operating cash flow
Net cash inflow from operating activities of $133.7 million in 9M FY2008 was $107.9 million higher as compared to 9M FY2007. The increase was mainly attributed to payments received from customers for initial milestone and progress billings for shipbuilding projects as well as higher earnings recorded in 9M FY2008. The Group funded its vessel fleet expansion mainly through its positive operating cash flows, external borrowings and proceeds from issuance of shares due to conversion of warrants.
3Q FY 2008 vs 3Q FY 2007
The Group's business segments are subject to different degree of seasonality, with highest impact being experienced by the shipchartering operations. The quarter on quarter results may not be an indicative of overall trend of the results for the financial year.
Revenue
The Group's revenue of $91.7 million for 3 months ended 31 March 2008 ("3Q FY2008") was 18.3% higher as compared to revenue of $77.5 million for 3 months ended 31 March 2007 ("3Q FY2007"). The Group recorded higher revenue for all three segments of shipbuilding, shiprepair and ship conversion as well as shipchartering with an expanded fleet size of 175 vessels as at 31 March 2008 (151 vessels as at 31 March 2007).
Gross profit and gross profit margin
The Group's gross profit was 53.3% higher with increased earnings in all three segments. Both shipbuilding and shiprepair operations recorded higher gross profit margins in 3Q FY2008. The shipchartering operations however recorded lower gross profit margin mainly due to higher charter costs of third party's vessels to meet demand, higher repair and maintainance costs incurred and shorter operating period for Singapore water operations.
Other operating income
Other operating income was $0.7 million lower mainly due to lower gain on disposal of plant and equipment partially offset by higher miscellaneous income and interest income. The increase in miscellaneous income was mainly due to higher insurance claims and profit from ad-hoc trade sale of vessels.
Administrative expenses
Administrative expenses was $0.4 million higher mainly attributed to higher manpower costs and certain administrative expenses.
Other operating expenses
Other operating expenses was $0.7 million lower mainly due to lower foreign exchange loss and allowance made for doubtful trade receivables.
Finance costs
Finance costs of $1.4 million was marginally higher as compared to 3Q FY2007.
Share of results of jointly-controlled entities and associate
Share of results of jointly-controlled entities and associate amounted to a loss of $0.2 million in 3Q FY2008 as compared to a net profiit of $0.1 million in 3Q FY2007.
The share of results from ASL Energy group was a net loss of $0.5 million in 3Q FY2008 as compared to a profit of $0.1 million in 3Q FY2007. The losses were mainly attributed to the Tabang coal concession due to increase in the provision of royalties payable for coal sales and higher coal mining operating costs incurred in 3Q FY2008.
The share of results from HKR-ASL Joint Venture Limited was a net profit of $0.3 million in 3Q FY2008 as compared to $22,000 in 3Q FY2007 mainly due to commencement of a new shipchartering project during the period.
Profit before taxation
The Group's profit before taxation of $17.0 million for 3Q FY2008 was $5.2 million or 44.1% higher as compared to 3Q FY2007.
Income tax expense
The Group's taxation charge increased by $1.7 million mainly due to higher earnings made in 9M FY2008. The taxation charge for 3Q FY2007 was lower mainly due to adjustment for overprovisions made mainly with respect of earnings for 1H FY2007.
Operating cash flow
Net cash inflow from operating activities of $55.3 million in 3Q FY2008 was $45.0 million higher as compared to 3Q FY2007. The increase was mainly attributed to higher earnings as well as payments received from customers for initial milestone and progress billings for shipbuilding projects.
REVIEW OF FINANCIAL POSITIONS AS AT 31 MARCH 2008
Non-current assets
Property, plant and equipment increased by $36.6 million from $216.4 million as at 30 June 2007 to $253.0 million as at 31 March 2008. The increase was mainly due to acquisition of plant and equipment of $76.1 million (inclusive of $52.2 million for vessels and $6.6 million for plant and machinery) partially offset by disposal of plant and equipment of net book value totalling $21.5 million, depreciation charge of $15.6 million and others (including the write-off of plant and equipment) of $2.4 million.
The Group's total depreciation charge of $15.1 million in 9M FY2008 was $4.6 million higher as compared to 9M FY2007 mainly attributed to increase in fleet size from 151 vessels as at 31 March 2007 to 175 vessels as at 31 March 2008.
Current assets
Current assets increased by $76.1 million from $201.6 million as at 30 June 2007 to $277.7 million as at 31 March 2008. The increase was mainly due to higher inventories, construction work-in-progress, derivative financial instruments and cash and cash equivalents offset by decrease in trade and other receivables.
Inventories increased by $15.0 million mainly due to raw material (mainly steel) purchased for shipbuilding projects.
The increase in derivative financial instruments assets pertained to mark-to-market gains derived mainly from foreign exchange forward contracts entered to hedge against foreign exchange rate fluctuations for trade receivables and bank borrowings. The Group entered into "plain vanilla" forward contracts to hedge against foreign currency fluctuations.
Cash and cash equivalents increased by $73.2 million to $120.9 million which comprised payments received from customers for initial milestone and progress billings for shipbuilding projects.
Trade and other receivables of $66.0 million comprised trade receivables of $42.9 million and other receivables of $23.1 million. Average debtors turnover was 45 days as at 31 March 2008 as compared to 84 days as at 30 June 2007.
Current liabilities
Current liabilities increased by $46.3 million from $218.4 million as at 30 June 2007 to $264.7 million as at 31 March 2008.
Trade payables and other payables increased by $19.0 million mainly due to increase in trade payables of $22.5 million offset by decrease in othe payables by $3.5 million. The increase in trade payables was in line with the increased level of business activities.
Trust receipts decreased by $19.4 million due to repayment made during the period.
The decrease in current portion of interest-bearing liabilities of $5.0 million was mainly due to lower short term loan borrowings partially offset by an increase in current portion of long term loan borrowings mainly for acquisition of vessels.
The increase of derivative financial instruments liabilities was mainly due to higher markto- market losses derived mainly from foreign exchange forward contracts entered to hedge against foreign exchange rate fluctuations for trade receivables, trade payables and bank borrowings.
Net current liabilities
The net current assets of $13.0 million as at 31 March 2008 and net current liabilities of $16.8 million as at 30 June 2007 included net progress billings in excess of construction work-in-progress of $74.7 million and $34.7 million respectively. The increase in net progress billings in excess of construction work-in-progress were mainly attributed to initial milestone and progress billings received for shipbuilding projects. There were 50 projects as at 31 March 2008 ( 30 June 2007 : 45 projects).
Excluding the construction work-in-progress and progress billings in excess of construction work-in-progress, the Group's net current assets as at 31 March 2008 and 30 June 2007 was $87.7 million and $17.9 million respectively.
Non-current liabilities
Non-current liabilities increased by $5.5 million to $74.5 million as at 31 March 2008. The increase was mainly due to higher interest bearing liabilities and deferred tax liabilities.
While non-current interest bearing liabilities rose by $2.1m, total interest-bearing liabilities (including current and non-current interest bearing liabilities) decreased by $2.9 million from $100.5 million to $97.6 million as at 31 March 2008. During the period, the Group draw down new term loans of $62.3 million while redemption and repayment of loans amounted to $65.2 million.
Deferred tax rose by a net $3.1 million to $8.7 million as at 31 March 2008.
Commentary On Current Year Prospects
Shipbuilding and Shiprepair Operations
As at 31 March 2008, the Group had an outstanding order book for shipbuilding of approximately $750 million from external customers for the building of 50 vessels including offshore support vessels, tugs, barges, water injection dredger, self-propelled cutter suction dredger and other vessels.
Progressive recognition of shipbuilding revenue commences when the work-in-progress reaches the 10% recognition threshold. The Group expects revenue from shipbuilding operations for the fourth quarter of FY 2008 (“4Q FY2008”) to be higher than 3Q FY2008.
The demand for shiprepair and conversion services has been healthy and the Group expects the demand for the 4Q FY2008 to remain healthy.
Shipchartering Operations
The Group's shipchartering revenue consists of mainly short-term and ad-hoc contracts, with approximately 16% contribution from long term chartering contracts (meaning contracts with a duration of more than one year). As at 31 March 2008, the Group had an outstanding order book of approximately $14 million with respect to long term shipchartering contracts.
The shipchartering operations are however affected by various short term factors such as mandatory survey of vessels and timing of contracts. The factors affecting the shipchartering operations in the 3Q FY2008 are expected to continue in the 4Q FY2008.
As at 31 March 2008, the Group has plans to increase its shipchartering fleet by taking delivery of 22 vessels worth approximately $48 million including towing tugs, Straight Supply vessel, Anchor Handling Towing/ Supply vessel and Anchor Handling tug (of which 11 vessels worth approximately $23 million are to be built internally).