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First Quarter Results Financial Statement And Related Announcement

Financials Archive

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Income Statement


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* Adjusted EBITDA is computed based on earnings before interests, tax, depreciation, amortisation, and after adjusted for/ add back of allowance for impairment of doubtful debts, impairments, write-offs and any other non-cashflow items.

Statement of Comprehensive Income


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Balance Sheet

Review Of Group Performance

Revenue

Group revenue of $72.3 million for the 3 months ended 30 September 2017 ("1Q FY2018") was $24.4 million (25.3%) lower compared to the corresponding period in FY2017 ("1Q FY2017").

Details for revenue generated from each segment are as follows:

Shipbuilding

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 1Q FY2018 decreased by 60.2% compared to 1Q FY2017 mainly due to:

  1. lower POC achieved from the construction of 8 tugs. 2 units were completed; 1 unit was partly completed and 5 units (newly secured projects in 1QFY2018) were at the inception stage with minimal POC recognised in 1Q FY2018; partially offset by

  2. higher POC recognised on 7 barges in 1Q FY2018. 3 barges out of 5 barges were at inception stage with minimal POC recognised in 1Q FY2017.

Shiprepair and conversion

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 can now be lumpy.

The breakdown of revenue generated from the shiprepair and conversion segment are as follows:

Shiprepair and conversion revenue increased by $11.4 million (80.5%) to $25.5 million in 1Q FY2018 mainly due to there being more high value (>$1.0 million) shiprepair jobs completed in 1Q FY2018.

Shipchartering

The breakdown of revenue generated from the shipchartering segment are as follows:

Shipchartering revenue fell by $1.9 million (8.4%) to $21.0 million in 1Q FY2018 mainly due to

  1. Reduction in charter rates and low utilisation rates from the OSVs. The utilisation of the OSVs remains low. It decreased from 38% in 1Q FY2017 to 35% in 1Q FY2018;

  2. Weaker contribution from operation of Grab Dredgers (classified under Barges). The utilisation rate of Grab Dredgers have fallen from 95% in 1Q FY2017 to 16% in 1Q FY2018 due to off-hire from a local marine infrastructure project;

    partially offset by

  3. Higher freight income from Landing Crafts for precast shipments from Batam to Singapore.

Trade sales decreased in 1Q FY2018 due to lower bunker sales and absence of ad hoc services rendered at inception for one of the large marine infrastructure projects in South Asia which commenced in 4Q FY2016.

Engineering

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 was lower in 1Q FY2018 mainly due to lower orders for spare parts and cutting/coupling systems.

Gross profit and gross profit margin

The breakdown of gross profit and gross profit margin for each respective segment are as follows:

Shipbuilding

In line with the decrease in revenue, gross profit reduced to $1.0 million with a gross profit margin of 5.4% recorded in 1Q FY2018. The gross profit margin was lower mainly due to low margins secured on the construction of existing Tugs and Barges.

Shiprepair and conversion

Despite increase in revenue, gross profit increased marginally by $0.3 million with a lower gross profit margin of 13.5% mainly due to competitive pricing for high value shiprepair jobs undertaken, and higher manpower overhead allocated to shiprepair jobs.

Shipchartering

The breakdown of gross profit and gross profit margin from shipchartering segment are as follows:

Gross profit and gross profit margin was lower in 1Q FY2018 as compared to the corresponding quarter, this was mainly due to:

  1. Negative contribution from OSV as a result of lower utilisation and charter rate; and compensation for late delivery of two AHTS to charterer in South Asia;

  2. In spite of lower utilisation of Grab Dredgers, the operating costs of maintaining these vessels such as crew salaries and upkeep expenses remained high;

    partially offset by

  3. Full utilisation of Landing crafts in 1Q FY2018 (1Q FY2017: 80%).

Engineering

The breakdown of gross profit and gross profit margin from engineering segment are as follows:

The higher gross profit margin of 31.8% in 1Q FY2018 was mainly due to reversal of warranty costs.

Other operating income

Details for other operating income are as follows:

Administrative expenses

Administrative expenses decreased by $0.5 million (8.8%) to $5.1 million in 1Q FY2018 when compared to corresponding quarter mainly due to lower staff costs, partially offset by higher legal and professional fees incurred on legal actions taken in recovery of debts.

Other operating expenses

Other operating expenses of $1.6 million in 1Q FY2017 comprised foreign exchange loss, of which unrealised loss of $0.8 million was mainly due to the appreciation of USD and IDR against SGD on USD and IDR denominated liabilities.

Finance costs

Finance costs increased by $1.1 million (24.7%) to $5.6 million in 1Q FY2018 mainly due to i) progressive drawdown of loans under the committed $99.9 million 5-year club term loan facility (the “CTL Facility”) and ii) stepped up interest rate payable under the fixed rate bonds which became effective from 1 April 2017.

Share of results of joint ventures and associates

The Group’s share of results of joint ventures and associates comprised:

The loss of $1.3 million recorded by Sindo-Econ group in 1Q FY2018 was due to lower margin of precast products attributed to competitive market condition. The Group has restricted its share of losses to its cost of investment.

The share of loss from PT Hafar of $0.8 million in 1Q FY2018 was due to the absence of charter income from its fleet of vessels during the quarter.

The share of profit from PT CNI of $0.1 million in 1Q FY2018 mainly pertained to progressive recognition of the Group’s proportionate interest of unrealised profits previously eliminated on sale of vessels to PT CNI. The required accounting policy restricts the Group share of losses to its cost of investment.

Loss before tax

The Group recorded a loss before tax of $6.8 million in 1Q FY2018 mainly due to an overall decrease in gross profit coupled with higher share of losses of jointly-controlled entity and associates.

Tax expense

Despite the pre-tax loss position, the Group’s current income tax expense was $0.5 million in 1Q FY2018 mainly pertained to tax provided on profit of shipyard operation, which cannot be used to offset against losses recorded by the other subsidiaries within the Group.

Non-controlling interests

Non-controlling interests’ share of loss of $0.4 million for 1Q FY2018 mainly pertains to the portion of results of its non-wholly owned subsidiaries in Indonesia and China.

Operating cash flow

The Group recorded a lower net cash inflow of $25.4 million from operating activities in 1Q FY2018 (1Q FY2017: $44.5 million) mainly due to comparatively lower earnings, lower receipts from shipbuilding progressive billings and higher payment to suppliers.

The lower net cash outflow of $7.6 million from investing activities in 1Q FY2018 as compared to $13.8 million in 1Q FY2017 was mainly attributed to lower acquisition of property, plant and equipment, partially offset by lower proceeds from disposal of property, plant and equipment.

The lower net cash outflow from financing activities of $10.8 million (1Q FY2017: $24.0 million) was mainly due to lower repayments on trust receipts and interest-bearing loans and borrowings, coupled with progressive draw down of CTL Facility.

REVIEW OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017

Non-current assets

Property, plant and equipment (“PPE”) increased by $2.1 million (0.3%) from $611.9 million as at 30 June 2017 to $614.0 million as at 30 September 2017.

Movement in PPE during the period under review is as follows:

The vessels acquired in 1Q FY2018 were mainly tugs and barges that will be deployed to support our customers in marine infrastructure project in Singapore, Indonesia and South Asia.

Current assets

Current assets decreased by $8.4 million (1.7%) from $491.6 million as at 30 June 2017 to $483.2 million as at 30 September 2017. The decrease was mainly from lower construction work-in-progress, partially offset by higher cash and bank balances.

Inventories comprised the following:

Bulk of the raw materials and consumables are inventories meant for ongoing shipbuilding and shiprepair projects.

Trade and other receivables comprised the following:

Increase in other receivables and prepayment was mainly due to recoverables from several regular customers and higher prepaid insurance expenses.

Of the total trade receivables, $17.4 million was received subsequent to the quarter under review.

Current liabilities

Current liabilities increased by $14.6 million (3.4%) from $427.8 million as at 30 June 2017 to $442.4 million as at 30 September 2017. The increase was mainly due to draw down of $12.8 million on the CTL Facility, partially offset by lower trade payables and amounts due to related parties..

Trade and other payables comprised the following:

Other payables increased by $2.6 million mainly due to higher deposits received from shipchartering customers, partially offset by recognition of deferred income.

Net construction work-in-progress in excess of progress billings decreased by $16.6 million (19.8%) from $83.9 million as at 30 June 2017 to $67.3 million as at 30 September 2017, mainly attributed to completion of jobs during the quarter.

The breakdown of the Group’s total borrowings are as follows:

The Group’s total borrowings increased by $0.4 million (0.1%) to $549.9 million as at 30 September 2017 mainly arose from partial draw down of $12.8 million on the CTL Facility and additions to finance lease liabilities for acquisition of vessels, partially offset by repayment of long term loans during the quarter under review

Non-current liabilities

Non-current liabilities decreased by $15.2 million (4.5%) to $323.2 million as at 30 September 2017 mainly due to decrease in non-current portion of the Group’s total borrowings due to repayments.

Commentary

Market and industry outlook

As our businesses are primarily affected by the market conditions in the shipbuilding, shipping, oil & gas and offshore & marine industries, the main macroeconomic variables we are sensitive to include (but not exclusively) global trade, oil prices and infrastructure spending in Asia.

As the major economies are showing signs of moderate recovery, the outlook for international trade has improved. The World Trade Organization has revised up its forecast for the 2017 trade expansion following a sharp acceleration in global trade growth in the first half of the year, from 2.4% to 3.6%. The growth is expected to continue in 2018, although at a slightly slower rate of 3.2%. The healthy trade volume is expected to help increase the utilisation rate for existing fleet and support the chartering and ship repair and conversion businesses. In addition, as the oversupply of vessels being resolved gradually, the shipbuilding industry may slowly recover, especially in the commercial vessel segment.

In terms of oil prices, despite its recent recovery, the consensus forecast for oil prices is for it to remain at current level (chart). Given this, oil majors are unlikely to spend on mega projects as they used to, meaning there is only an outside chance of an outright recovery in downstream businesses. As such, we don’t expect any meaningful improvement in the operating environment for the offshore & marine sector in the near term.

Infrastructure spending in select Asia region, on the other hand, has increased, stimulated by China’s Belt and Road Initiative. India has maintained 6.5% to 7% GDP growth, and Indochina countries, especially Vietnam and Myanmar, have reported strong economic growth too. Whilst offshore demand for infrastructure-related work is strong, competition is also very keen.

Business segments

Shipbuilding and Shiprepair

In shipbuilding, we will continue to seek orders for non-OSV vessels such as tanker, tugs and barges, improve our operational efficiency and tighten cost control to ensure our competitiveness, and stimulate shiprepair and conversion business by offering maintenance services at the enhanced facilities in Batam.

Shipchartering

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 management has been actively working on increasing utilisation of fleet.

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 30 September 2017, the Group's shipchartering operations have an outstanding delivery order of 3 tugs and 2 barges worth approximately $8.2 million. With the exception of 2 barges with a total worth of $5.2 million, the rest of the vessels are being built internally by the Group. 2 of these vessels are for charter already secured.

Engineering

Our engineering division (VOSTA LMG) engages primarily in the infrastructure and construction industry which is less affected by the weak oil price. The main growth drivers of the global dredging market include: i) more land and coastal areas has to be reclaimed and protected due to population growth and global warming; ii) expansion of ports due to increasing seaborne trade and growing size of container vessels. The Group is working closely with suppliers and seek to expand production capability in different regional markets to drive down costs.

Order Book

As at 30 September 2017, the Group had an outstanding shipbuilding order book from external customers of approximately $54 million for the building of 15 vessels with progressive deliveries up to financial period ending 31 December 2018 (“2H FY2019”). The order book comprises OSV, harbour tugs, barges and tankers.

The Group's shipchartering revenue consists of mainly short-term and ad-hoc contracts. Approximately 32% of shipchartering revenue in 1Q FY2018 was attributed to long-term chartering contracts (meaning contracts with a duration of more than one year). As at 30 September 2017, the Group had an outstanding chartering order book of approximately $129 million with respect to long-term contracts.

While the Management is actively seeking for new orders, the Board expects the Group’s revenue to be lower for the financial year ending 30 June 2018.

Funding Arrangements

The Group continues to classify the non-current portion of $64.7 million of the CTL Facility as current liabilities. Waivers have been granted for the past quarters from the lenders of CTL Facility. While the Group continues to strive to meet the covenant, it will be seeking waiver post the results announcement.