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Third Quarter Results Financial Statement And Related Announcement

Financials Archive

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Income Statement


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Statement of Comprehensive Income


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Balance Sheet

Review Of Group Performance

Revenue

Group revenue of $84.1 million for the 3 months ended 31 March 2017 ("3Q FY2017") was $6.0 million (6.6%) lower compared to the corresponding period in FY2016 ("3Q FY2016"). For the 9 months ended 31 March 2017 ("9M FY2017"), the Group revenue was $1.2 million (0.5%) lower compared to the corresponding period ended 31 March 2016 ("9M FY2016").

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 3Q FY2017 increased marginally by $0.1 million (0.3%) compared to the corresponding quarter. The Group has delivered a total of 7 Tugs and 1 Barge in 9M FY2017 (two Tugs of which were in 3Q 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 are now likely to be lumpy.

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

Shiprepair and conversion revenue decreased by $6.1 million (32.4%) in 3Q FY2017 and $2.9 million (6.5%) in 9M FY2017 when compared to corresponding periods mainly due to there being less high value (>$0.2 million) shiprepair jobs undertaken in 3Q FY2017.

Shipchartering

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

Shipchartering revenue was 6.9% higher in 3Q FY2017 and 16.9% higher in 9M FY2017 mainly due to

  1. higher contributions from operation of Tug Boats and Barges with the commencement of large marine infrastructure projects in Singapore and South Asia in 4Q FY2016 (the "New Charter Contracts");

  2. contribution from operation of a Landing Craft acquired in 2Q FY2016 for an overseas infrastructure project commenced in end of 3Q FY2016;

  3. despite the off-hire of an Anchor Handling Tug ("AHT") from a long term charter contract since July 2016 and lower charter rate of an Anchor Handling Tug Supply vessel ("AHTS") since November 2016; and

  4. weaker contributions from operation of grab dredgers.

Total sales rose 22.1% due to a significant rise in bunker fuel sales. There were also significant ad hoc services rendered in conjunction with the New Charter Contracts mentioned above.

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 were lower in 3Q FY2017 mainly due to absence of revenue recognition from New Buildings and lower orders for spare parts and cutting/ coupling systems.

Gross profit and gross profit margin

The Group gross profit decreased by $5.2 million (40.0%) to $7.8 million in 3Q FY2017 and $8.4 million (21.4%) to $30.9 million in 9M FY2017 compared to the respective corresponding periods.

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

Shipbuilding

Gross profit decreased by $5.8 million (27.9%) for the 9M FY2017 compared to the corresponding FY2016 period. Whilst gross profit margin were also lower at 12.2% for the 9 months mainly due to costs overruns on the construction of certain OSV and Barges, which were near completion and the low margins derived from the construction of existing barges secured in 4Q FY2016. The higher gross profit and gross profit margin in 3Q FY2017 was contributed by the building of Tugs.

Shiprepair and conversion

In line with the decrease in revenue, gross profit reduced to $2.5 million with a gross profit margin of 19.3% in 3Q FY2017. The margin was lower due to the competitive pricing on the few major projects (amount above $1 million) undertaken.

Shipchartering

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

Despite higher charter revenue (excluding trade sales) recorded in 3Q FY2017, gross profit and gross profit margin was lower as compared with corresponding period. This was mainly due to:

  1. Off-hire of an Anchor Handling Tug ("AHT") from a long term charter contract since July 2016 coupled with reduced charter rate of an Anchor Handling Tug Supply vessel ("AHTS") since November 2016;
  2. Low profit contributions in 3Q FY2017 for Tug boats and Barges mainly attributed to the low activity level from the local marine infrastructure project. Under the contract of affreightment, the Group is require to keep its vessels on standby. The main standby cost is fuel and labour. The Group's revenues are based on tonnage carried. During the quarter under review, fuel prices rose ($0.43/litre in 3Q FY2016 to $0.66/litre in 3Q FY2017) resulting in higher fuel bill of $0.5 million. However, tonnage available for carry fell; and
  3. Lower utilisation rate from grab dredgers which decreased from 98% in 3Q FY2016 to 41% in 3Q FY2017;
  4. partially offset by

  5. Higher utilisation rate from Landing crafts which increased from 45% in 3Q FY2016 to 99% in 3Q FY2017 coupled with a new addition in 2Q FY2016 which commenced operation in end of 3Q FY2016.

The higher trade sales profit mainly derived from ad hoc services rendered in conjunction with the New Charter Contracts.

Engineering

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

Consequent to the lower revenue in 3Q FY2017, gross profit and gross profit margin decreased to $0.3 million and 8.4% respectively.

Other operating income

Details for other operating income are as follows:

The higher rental income was mainly derived from leasing of precast workshop, production and storage areas.

Administrative expenses

Administrative expenses increased by $3.3 million (57.1%) to $9.1 million in 3Q FY2017 and by $3.4 million (20.6%) to $20.1 million in 9M FY2017 when compared to corresponding periods mainly due to:

  1. one-off transaction costs of $3.7 million including consent fees, solicitation agent and legal and professional fees incurred in relation to the Consent Solicitation Exercise undertaken on extension of tenor of the Company's existing Notes and an addition of Club Term Loan facility obtained from the three local banks;
  2. partially offset by

  3. lower upkeep expenses and bank charges recorded in 3Q FY2017.

Other operating expenses

Other operating expenses comprised the following:

The net foreign exchange losses in 3Q FY2017 arose mainly due to the depreciation of USD against SGD on USD denominated assets; whereas the net foreign exchange losses in 9M FY2017 was mainly attributed from appreciation of USD and IDR against SGD on USD and IDR denominated liabilities.

Exchange rates for the respective reporting periods were as follows:

Finance costs

Finance costs decreased slightly by $0.1 million (2.6%) to $4.9 million in 3Q FY2017 and by $0.3 million (1.8%) to $14.1 million in 9M FY2017 when compared to corresponding periods.

Share of results of jointly-controlled entity and associates

The Group's share of results of jointly-controlled entity and associates comprised:

The share of loss from Sindo-Econ group of $1.6 million in 3Q FY2017 was attributed by low margin due to competitive market conditions from precast operation in Indonesia.

The share of loss from PT Hafar of $0.9 million in 3Q FY2017 was due to absence of charter income from its fleet of vessels.

The share of profit from PT CNI of $62,000 in 3Q FY2017 pertained to progressive recognition of the Group's proportionate interest of unrealised profits previously eliminated on sale of vessels to PT CNI. No further loss from PT CNI was recorded during the current reporting quarter as the Group has restricted its share of losses to its cost of investment.

(Loss)/ profit before tax

The Group recorded a loss before tax of $7.9 million in 9M FY2017 as compared to a profit before tax of $10.0 million in 9M FY2016. However, much of the loss arose from one-off events in 3Q FY2017:

Tax (expense)/credit

The Group's current period tax (expense)/credit comprised the following:

Despite the pre-tax loss position, the Group's current income tax expense was $2.5 million in 9M FY2017 mainly pertained to tax provided on profit of shipyard operations, which cannot be used to offset against losses recorded by the Company and other subsidiaries within the Group.

Non-controlling interests

Non-controlling interests' share of profit of $0.4 million for 3Q FY2017 and share of loss of $1.3 million for 9M FY2017 mainly pertains to the portion of results of its non-wholly owned subsidiaries in Indonesia and China.

Operating cash flow

3Q FY2017

The Group recorded a net cash outflow of $6.5 million from operating activities in 3Q FY2017 (3Q FY2016: cash inflow of $5.2 million) mainly due to higher payments made to suppliers.

The lower net cash outflow of $5.0 million from investing activities in 3Q FY2017 as compared to $9.2 million in 3Q FY2016 was mainly attributed to lower acquisition of property, plant and equipment; partially offset by higher non-trade balances owing from related parties.

The net cash inflow from financing activities of $13.4 million (3Q FY2016: net cash outflow of $17.3 million) arose as the Group borrowed more money than it repaid. During the current quarter under review, the Group made a partial draw down of $37.1 million on its $99.9 million 5-year club term loan facility provided by the three local banks and has also obtained a Spring's Bridging Loan of $5 million for working capital usage.

9M FY2017

In 9MFY2017, the Group recorded a net cash inflow of $79.3 million from operating activities (9M FY2016: cash outflow of $58.2 million). The higher cash inflow was mainly due to lower purchase of inventories and construction costs incurred on projects, higher receipts from customers, partially offset by higher payments made to suppliers.

The lower net cash outflow of $27.4 million from investing activities in 9M FY2017 as compared to $58.4 million in 9M FY2016 was mainly due to lower acquisition of property, plant and equipment; partially offset by higher non-trade balances owing from related parties.

The net cash outflow from financing activities of $39.6 million in 9M FY2017 (9M FY2016: net cash inflow of $67.6 million) arose as the Group repaid more money than it borrowed.

REVIEW OF FINANCIAL POSITION AS AT 31 MARCH 2017

Non-current assets

Property, plant and equipment ("PPE") decreased by $15.8 million (2.6%) from $603.1 million as at 30 June 2016 to $587.3 million as at 31 March 2017.

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

The vessels acquired in 9M FY2017 were mainly tugs and barges that were deployed to support our customers in marine infrastructure project in South Asia.

Current assets

Current assets decreased by $13.9 million (2.2%) from $625.6 million as at 30 June 2016 to $611.7 million as at 31 March 2017 due to the decrease in trade and other receivables, partially offset by increase in amounts due from related parties and cash and bank balances.

Inventories comprised the following:

The increase in finished goods mainly relates to transfer of two platform supply vessels 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 during the period under review. Of the total trade receivables, $18.5 million was received subsequent to the period under review.

The increase in amounts due from related parties was mainly due to settlement on behalf of US$4.95 million owing under other receivables pursuant to a mutual agreement entered, payments on behalf and upward revaluation of balances denominated in USD as a result of appreciation of USD against SGD during the period under review.

Current liabilities

Current liabilities decreased by $137.9 million (23.1%) from $596.9 million as at 30 June 2016 to $459.0 million as at 31 March 2017. The decrease was mainly due to lower trade payables, trust receipts and interest-bearing loans and borrowings, partially offset by increase in other payables.

Trade and other payables comprised the following:

The decrease in trade payables was mainly due to higher payment and netting agreements entered with trade creditors. Other payables increased by $5.9 million (18.8%) 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 $1.4 million (1.4%) from $102.1 million as at 30 June 2016 to $103.5 million as at 31 March 2017.

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

The Group's total borrowings decreased by $31.4 million (5.3%) mainly due to repayment of long term loans and trust receipts of those shipbuilding projects completed during the period under review, partially offset by addition of working capital loans in 3Q FY2017. The working capital loans comprised:

  1. a partial draw down of $37.1 million on its $99.9 million 5-year club term loan facility provided by the three local banks; and

  2. a 6-year Spring's Bridging Loan of $5 million.

Non-current liabilities

Non-current liabilities increased by $86.1 million (33.9%) to $340.5 million as at 31 March 2017 mainly due to increase in

  1. non-current portion of the Group's total borrowings as a result of extension of the maturity dates of $100 million and $50 million notes originally due in March 2017 and October 2018 respectively for three years each and the drawdown of new working capital loans mentioned above; and

  2. other liabilities as a result of additional advance payments received for one of the New Charter Contracts.

Commentary

Market and industry outlook

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

2017 and 2018 continues to look challenging for vessels directly related to global trade. Sizeable scheduled newbuild vessel deliveries suggest another 2 years of industry oversupply. However, global trade by tonnage continues to recover and, according to the World Trade Organization, in Q4 2016 continued to trend upwards.

On the other hand, the factors affecting the oil prices remain dynamic. This has caused oil and gas producers to continually reassess their capital and exploration spending. In general they remain cautious. We only expect meaningful improvement in the operating environment for the offshore & marine sector when upstream activities pick up significantly. Only after the upstream activities pick up, will the demand for oil rigs increase, and only thereafter the demand for offshore service vessels and related conversion and repair work will have a chance to recover.

Infrastructure spending in select Asia region has increased. Especially in the Indian Ocean due to China's one belt one road, India's continued 6.5% to 7% GDP growth and Myanmar's revival. Whilst off shore demand for such work is strong, competition is also very keen.

Given the above, we do not foresee the operating environment for our businesses improving significantly in the next 12 months. Meaning the demand for shipbuilding and shipchartering is likely to remain weak and price-sensitive. However with careful cost control, committed management and increased financial flexibility from our recent financial restructuring plan, the Company will continue to seek cash flow positive business opportunities for our various business segments.

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

Singapore's mega infrastructure program in Tuas is making good progress. Given the master plan for the next few years and the amount of construction work required, our fleet, with a good proportion of barges and tugs, is expected to benefit from the potential increase in demand.

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.

On the 5-year large local infrastructure project secured in 4Q FY2016 which was chartered under the contract of affreightment, revenue has decreased since November 2016 due to low volume of excavated materials being transported as a result of reduction in earth works, excavation and tunnelling related projects in Singapore. Upon consultation with main contractors and our customers, we have been led to believe that the volume of excavated materials should gradually pick up from September 2017 until early 2018 to the expected volume.

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 March 2017, the Group's shipchartering operations have an outstanding delivery order of 6 tugs worth approximately $4.9 million. With the exception of 3 tugs with a total worth of $1.9 million, the rest of the vessels are being built internally by the Group.

Engineering

Our engineering division (VOSTA LMG) engages primarily in the infrastructure and construction industry which is less affected by the weak oil price. However, due to sluggish demand for dredging in Europe, we expect the revenue of our engineering division to stay flat for FY2017.

Share of results of jointly-controlled entity and associates

With respect to Sindo Econ group, we have been informed by our partners that there is a significant amount of work being tendered for, as a result, they expect Sindo Econ group to perform better in 2018.

With respect to our Indonesia associates, recent political developments in Jakarta and continued subdued economic activities in Indonesia, suggested that the accumulated losses are unlikely to be reversed in the immediate future.

Order Book

As at 31 March 2017, the Group had an outstanding shipbuilding order book from external customers of approximately $107 million for the building of 15 vessels with progressive deliveries up to 4Q FY2018. The order book comprises OSV, harbour tugs, barges and tankers. Barring any unforeseen circumstances, approximately 29% of the order book is expected to be recognised in 4Q FY2017.

The Group's shipchartering revenue consists of mainly short-term and ad-hoc contracts. Approximately 33% of shipchartering revenue in 9M FY2017 was attributed to long-term chartering contracts (meaning contracts with a duration of more than one year). As at 31 March 2017, the Group had an outstanding chartering order book of approximately $127 million with respect to long-term contracts.

Funding Arrangements

The Company has on 19 December 2016 pursuant to its Rights Issue exercise, allotted and issued 209,755,647 Rights Shares and raised a total gross proceeds of $25.2 million.

On 20 January 2017, the Company 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 another three years each.

In March 2017, the Company has partially drawn down $37.1 million from its $99.9 million 5-year club term loan facility provided by the three local banks. The loan will be further drawn down in tranches according to the Group's working capital needs and availability of security.

The Group has also recently obtained approval from the principal lenders to re-profile its existing term loans, generally based on a 10-year profile with 4 years repayment term.