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Third Quarter Results Financial Statement And Related Announcement 2017

Financials Archive

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Consolidated Income Statement

Consolidated Statement Of Comprehensive Income

Balance Sheet

Review of Performance

Revenue

Group's revenue decreased by US$37.9 million (16%) for the nine months ended 31 May 2017 ("9M17") and US$51.1 million (62%) for the three months ended 31 May 2017 ("3Q17") respectively, when compared to the corresponding periods for the nine months ended 31 May 2016 ("9M16") and three months ended 31 May 2016 ("3Q16").

The decreases were mainly due to:

  1. Absence of contribution from one unit of self-elevating unit ("SEU") – BH320 which was delivered during FY16 and two units of SEU – M300/4 which were delivered during the first half of FY17;
  2. Lower contribution from four units of SEU, of which three units were essentially completed by the end of 3Q17. As a result, there was minimal contribution during 9M17 whereas contribution from these three units were significant in 9M16; and
  3. Lower contribution from Strategic Marine Group for the construction of aluminum vessel projects.

The decreases were partially offset by contributions from two units of multi-purpose support vessel, three units of chemical tanker, four units of escort tugs, one unit of scientific research vessel, two units of oil tankers and one unit of floating dock during the financial periods.

Gross (loss)/profit

9 months ended 31 May 2017 ("9M17")

Gross profit decreased by US$32.0 million (74%) in 9M17 from its comparative period was mainly due to cost overruns from certain projects, in addition to lower gross profit margins mainly due to competitive market environment.

3 months ended 31 May 2017 ("3Q17")

Gross loss for 3Q17 was US$10.3 million, as compared with gross profit of US$13.9 million in 3Q16. Gross loss in 3Q17 was mainly attributable to cost overruns from certain projects and lower gross profit margins amidst competitive market environment.

Other income/(expenses), net

9 months ended 31 May 2017 ("9M17")

Other expenses for 9M17 was US$0.2 million as compared with US$0.3 million in 9M16. These expenses in 9M17 and 9M16 were mainly related to foreign exchange loss and loss on disposal of one of the properties in Houston respectively.

3 months ended 31 May 2017 ("3Q17")

Other income increased by US$0.1 million (25%) in 9M17 from its comparative period was mainly due to fair value gain on derivative instruments.

Administrative expenses

No material changes in 9M17 and 3Q17 from its comparative periods.

Allowance for impairment of assets

Due to the prolonged depressed state of oil & gas industry as well as the extremely competitive market environment, the carrying value of certain assets was negatively impacted. As a result after due consideration, the Group has made an allowance amounting to US$45.1 million for impairment of these assets in 3Q17.

The Group had provided US$8.3 million in second quarter of FY2017 for the allowance for doubtful receivables from related/affiliated entities of Ezra Holdings Limited which either face a potential going concern issue or have filed for Chapter 11 of the United States Bankruptcy Code as at the date of this announcement.

Financial expenses

Financial expenses for 9M17 and 3Q17 increased by US$1.4 million (35%) and US$0.4 million (23%) respectively, compared to 9M16 and 3Q16. The increases were mainly as a result of higher amount of borrowings to finance the working capital for the on-going projects.

(Loss)/profit before tax

Loss before tax for 9M17 and 3Q17 was US$68.7 million and US$65.0 million respectively, compared to profit before tax for 9M16 and 3Q16 of US$17.8 million and US$4.9 million respectively. The loss before tax for 9M17 and 3Q17 were mainly due to lower gross profit/gross loss and allowance for impairment of assets as mentioned above.

Tax

Tax credit for 9M17 and 3Q17 was US$1.2 million and US$1.7 million respectively, compared to tax expense for 9M16 and 3Q16 of US$2.3 million and US$0.8 million respectively. The tax credit for 9M17 and 3Q17 were in line with the loss before tax incurred during the financial periods.

Review of Statement of Financial Position and Cash Flows:

Non-current assets

The decrease in non-current assets was mainly due to depreciation charge during the financial period and allowance for impairment of certain fixed and intangible assets as mentioned above. The decrease was partially offset by purchase of operating equipment and upgrade of facilities at two of the yards in Vietnam and additions of the development cost of intangible assets.

Current assets

The increase in current assets was mainly due to increase in trade and other receivables, as a result of progressive revenue recognised on the on-going projects and higher amount of value added tax claimable for purchase of materials and equipment in Vietnam.

The above increases were partially offset by:

  1. Completion of the transaction for assets held for sale during the financial period;
  2. Allowance for impairment of assets as explained above;
  3. Decrease in amount due from related companies, mainly due to payment received and allowance for doubtful receivables as explained above; and
  4. Decrease in cash and cash equivalents (including cash pledged to financial institutions).

Current liabilities

The increase in current liabilities was mainly due to:

  1. Increase in trade payables as a result of purchase of materials and equipment for the on-going projects;
  2. Increase in amount due to ultimate holding company and related companies in relation to services rendered to the Group; and
  3. Increase in bills payable to banks and bank term loans to fund working capital for the on-going shipbuilding and fabrication projects.

The above increases were partially offset by decrease in other payables, resulting from lower advance billings to customers and accrual for project related expenses as well as lower provision for tax.

Following by the net loss incurred during the financial period, the Group anticipated that certain financial covenants of certain loan agreements would be in breach by the end of FY17. The Group will engage with the relevant banks for further action as it would be required by the banks. All the related bank borrowings has been classified under current liabilities.

Non-current liabilities

The decrease in non-current liabilities was mainly due to reclassification from non-current liabilities to current liabilities for bank term loans during the financial period.

Equity

The decrease in shareholders' equity was mainly due to net loss incurred during the financial period.

Cash flows

The Group recorded net cash outflow from operating activities of US$52.2 million in 9M17, mainly due to:

  1. Net increase in trade receivables and other receivables, mainly due to progressive revenue recognised during the financial period; and
  2. Net decrease in other payables resulting from lower amount of advance billings to customers and accrual for project related expenses.

The above were partially offset by:

  1. Net decrease in amount due from related companies, mainly due to payment received; and
  2. Net increase in trade payables as a result of purchase of materials and equipment for the on-going projects.

The Group recorded net cash outflow from operating activities of US$4.1 million in 3Q17, mainly due to net decrease in other payables resulting from lower amount of accrual for project related expenses.

The above were partially offset by:

  1. Net decrease in trade receivables resulting from receipts from customers; and
  2. Net increase in trade payables as a result of purchase of materials and equipment for the on-going projects.

Net cash used in investing activities was US$2.4 million in 9M17, mainly due to purchase of certain operating equipment and upgrade of the facilities at two of the yards in Vietnam and purchase of intangible assets. This was partially offset by proceeds from disposal of assets held for sale.

Net cash used in investing activities was US$2.5 million in 3Q17, mainly resulting from purchase of certain operating equipment and upgrade of the facilities at two of the yards in Vietnam and purchase of intangible assets.

Net cash from financing activities was US$42.1 million in 9M17, as a result of net loan drawdown for working capital and decrease in cash pledged.

Net cash used in financing activities was US$3.1 million in 3Q17, mainly due to net loan repayment and increase in cash pledged.

Financial ratios

The Group's net debt to equity ratio (defined as ratio of total external indebtedness (net of cash and cash equivalents including cash pledged) owing to bank and financial institutions to shareholders' equity) increased from 0.50 to 1.07 times, in 3Q17 compared to FY16. Approximately 98% of the Group borrowings as at 31 May 2017 relates to working capital financing.

Commentary

The Marine, Shipping as well as Oil and Gas ("O&G") Industries continues to be in a prolonged depressed and uncertain business environment. This coupled with related/affiliated entities of Ezra Holdings Limited which either face a potential going concern issue or have filed Chapter 11 of the United States Bankruptcy Code, the Group foresees that in next 12 months it will be extremely challenging in terms of business environment which would result in margin compression as well as difficulty in gaining access to new sources of liquidity. Meantime, the Group has undertaken certain measures with an aim to control cost and improve operational efficiency.

In view of the above, the Group has undertaken an exercise to rationalize and reassess the carrying value of certain assets of the Group. These assets were acquired or developed by the Group previously with plans and intentions to deploy for new projects or business ventures. Full or appropriate impairment allowance have been made to reflect the fair position of the Group using the existing operations and projects. The Group will continue to monitor its projects and assets.

In the event that any material changes occur in relation to any of the existing banking facilities of the Group, the Company will review and assess its ability to continue as a going concern.