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Second 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

6 months ended 28 February 2017 ("1H17")

Group's revenue increased by US$13.2 million (9%) for the six months ended 28 February 2017 ("1H17") when compared to the corresponding period for the six months ended 29 February 2016 ("1H16").

The increase was mainly due to:

  1. Contributions from two units of multi-purpose support vessels ("MPSVs"), three units of chemical tanker, four units of escort tugs, one unit of scientific research vessel and two units of oil tankers during the financial period; and
  2. Contribution from Strategic Marine Group for the construction of LNG powered aluminum catamarans ferries.

The increase was partially offset by absence of contribution from one unit of SEU – BH320 which was delivered during FY16, two units of SEU – M300/4 which were delivered during 2Q17 and lower contribution from three units of SEU which were at near completion stage as at end of 2Q17. Contributions from all these six units of SEU, collectively, were material during 1H16.

3 months ended 28 February 2017 ("2Q17")

No material change in 2Q17 from its comparative period.

Gross profit

The decrease in gross profit in 1H17 and 2Q17 from its comparative periods were mainly due to lower gross profit margins resulting from different mix of projects and competitive market environment.

Other expenses, net

Other expenses for 1H17 and 2Q17 were US$0.6 million and US$1.0 million respectively, as compared with US$0.6 million and US$0.7 million in 1H16 and 2Q16. These expenses were contributed mainly by foreign exchange loss.

Administrative expenses

Administrative expenses for 1H17 and 2Q17 decreased by US$0.7 million (5%) and US$1.3 million (19%) respectively, compared to 1H16 and 2Q16. The decreases were mainly due to lower personnel expenses incurred during the financial periods.

Allowance for doubtful receivables from related/affiliated entities of Ezra Holdings Limited

For prudence, the Group has made 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. The total amount of the allowance made was approximately US$8.4 million.

Financial expenses

Financial expenses for 1H17 and 2Q17 increased by US$1.0 million (45%) and US$0.5 million (43%) respectively, compared to 1H16 and 2Q16. 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 1H17 and 2Q17 was US$3.7 million and US$5.7 million respectively, compared to profit before tax for 1H16 and 2Q16 of US$12.9 million and US$5.9 million. The loss before tax was mainly due to allowance for doubtful receivables made as mentioned above.

However, if the allowance for doubtful receivables is excluded, the Group would have recorded profit before tax for 1H17 and 2Q17 of US$4.7 million and US$2.7 million respectively.

Tax

6 months ended 28 February 2017 ("1H17")

The decrease in tax expense was mainly due to loss before tax in 1H17 as compared to profit before tax in 1H16 and one-off adjustment for overprovison of tax payable in the prior year.

3 months ended 28 February 2017 ("2Q17")

No material change in 2Q17 from its comparative period.

Review of Statement of Financial Position and Cash Flows:

Non-current assets

The decrease in non-current assets was mainly due to depreciation charged during the financial period. 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. Decrease in amount due from related companies, mainly due to payment received and allowance for doubtful receivables made as explained above; and
  3. Decrease in cash and cash equivalents and 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 related companies in relation to services rendered to the Group; and
  3. Increase in amount due to related companies in relation to services rendered to the Group; and
  4. 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.

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$48.1 million in 1H17, mainly due to:

  1. Net increase in trade 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$24.8 million in 2Q17, mainly due to:

  1. Net increase in trade receivables, mainly due to progressive revenue recognised during the financial period; and
  2. 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 inventories and work-in-progress resulting from utilisation for the on-going projects; and
  2. Net increase in trade payables as a result of purchase of materials and equipment for the on-going projects.

Net cash from investing activities was US$7.0 million in 1H17, mainly due to decrease in cash pledged and proceeds from disposal of assets held for sale. This was offset by the purchase of operating equipment and upgrade of the facilities at two of the yards in Vietnam and purchase of intangible assets.

Net cash used in investing activities was US$0.9 million in 2Q17, mainly resulting from purchase of operating equipment and upgrade of the facilities at two of the yards in Vietnam, purchase of intangible assets and increase in cash pledged. This was partially offset by proceeds from disposal of assets held for sale.

Net cash from financing activities was US$38.2 million and US$23.0 million in 1H17 and 2Q17 respectively, as a result of net loan drawdown for working capital.

Financial ratios

The Group's net debt to equity ratio (defined as ratio of total external indebtedness (net of cash and cash equivalents) owing to bank and financial institutions to shareholders' equity) increased from 0.60 to 0.80 times, in 2Q17 compared to FY16. Approximately 98% of the Group borrowings as at 28 February 2017 relates to working capital financing.

Commentary

While the Oil and Gas ("O&G") Industry is still experiencing a challenging environment which induced stiff competition among the players within the industry, the Group has diversified its clientele base and expanded its product offerings beyond O&G related assets over the past 24 months. This resulted in new product lines being added to its orderbook, such as the chemical tanker, scientific research vessel, windfarm crew transfer vessel and LNG-powered aluminium catamaran. TRIYARDS' primary business segment remains focused on fabricating assets for the full O&G value chain – construction and production, as well as decommissioning, inspection and maintenance of offshore infrastructure servicing the existing offshore fields – thereby also enabling TRIYARDS' products to stay relevant in this difficult market. The Group continues to see interest in its offerings with its diversification strategy initiated despite the current challenging O&G environment.

As announced on 21 March 2017, the Company is currently seeking advice on the Ezra Chapter 11 Filing, as well as assessing the impact of such filing on the Group. For prudence, the Group has made 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. The total amount of the allowance made was approximately US$8.4 million.

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