Unaudited Financial Statements For the Third Quarter and Nine Months Ended 31 December 2017
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Review of Group Performance
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(a) Revenue, costs of sales and gross profit
The Group registered revenue of approximately US$53.64 million for the three (3) months ended 31 December 2017 ("3Q2017/18"), representing an increase of 29.6% or US$12.26 million when compared to the three (3) months ended 31 December 2016 ("3Q2016/17"). This was attributed mainly to contributions from commencement of new charter contracts with a key customer and completion of certain vessel management services.
For the nine (9) months ended 31 December 2017 ("9M2017/18"), Group revenue declined by 14.9% or approximately US$23.75 million to US$136.09 million from US$159.83 million for the nine (9) months ended 31 December 2016 ("9M2016/17"). The decrease was due mainly to the lower utilisation for certain vessels and completion of various one-time vessel management projects during 9M2016/17 which were partially offset by the commencement of new charter contracts in 9M2017/18.
For 9M2017/18, the chartering and brokerage services contributed 83% to the Group's revenue versus 86% in 9M2016/17. Chartering and brokerage revenue for 9M2017/18 softened to US$113.11 million from US$137.05 million in 9M2016/17. While the Group experienced lower utilisation for certain vessels, this was mitigated by the ongoing long-term charters in the Middle East as well as the commencement of new contracts with a key customer in the Middle East since 1Q2017/18.
Cost of sales for 3Q2017/18 increased 17.8% year-on-year to US$35.75 million in tandem with higher revenue. Gross profit margin in 3Q2017/18 expanded to 33.4% from 26.7% in 3Q2016/17. For 9M2017/18, cost of sales for 9M2017/18 declined by 19.5% to US$97.37 million from US$121.02 million in 9M2016/17 in line with the decrease in revenue. As a result, gross profit margin increased to 28.4% in 9M2017/18 compared to 24.2% in 9M2016/17. The improvement in gross profit margin was attributed mainly to lower depreciation expenses, as well as the Group's strategy to focus on its chartering and brokerage services business and reduce the revenue contribution from vessel management services which have historically commanded lower gross profit margin.
(b) Other income
The Group recorded other expenses of US$0.15 million in 3Q2017/18 compared to other income of US$3.62 million in 3Q2016/17 due mainly to an absence of a waiver of prior year charges from vendor. Other income of US$2.39 million in 9M2017/18 consisted mainly of insurance claim of approximately US$0.65 million, sale of scrap of US$0.63 million, and foreign exchange gain of US$0.29 million.
(c) Administrative and Other operating expenses
Administrative expenses, which comprise largely staff and travel related expenses, decreased 3.5% or US$0.14 million to US$3.75 million in 3Q2017/18 when compared to 3Q2016/17. For 9M2017/18, administrative expenses also decreased 18.1% or US$2.24 million to US$10.12 million from US$12.36 million in 9M2016/17. These reductions were the result of the on-going measures implemented by the Group to optimise its cost structure.
Other operating expenses in 3Q2017/18 decreased by 13.5% year-on-year to US$2.23 million. These expenses also declined 18.6% to US$2.45 million in 9M2017/18 from US$3.01 million in 9M2016/17. The reductions in other operating expenses were attributed mainly to foreign exchange loss in 3Q2016/17.
(d) Finance costs
Finance costs increased 9.8% or US$0.36 million to US$4.04 million in 3Q2017/18 from US$3.68 million in 3Q2016/17 due mainly to increase in cost of borrowing resulted from increased LIBOR rate. For 9M2017/18, the Group incurred finance costs of US$10.64 million, a decrease of 25.9% compared to US$14.37 million in 9M2016/17. The decline in finance costs was due mainly to the full redemption of Notes Payables on 22 November 2016. This was partially offset by higher interest expenses arising from new term loans for the acquisition of vessels.
(e) Operating profit from ordinary activities before share of results of associate and joint ventures
The Group recorded operating profit from ordinary activities before share of results of associate and joint ventures of US$7.73 million in 3Q2017/18, an increase of 71.1% compared to US$4.52 million in 3Q2016/17. The improvement was attributed mainly to higher gross profit, which was offset partially by lower other income. For 9M2017/18, operating profit amounted to U$17.89 million, an increase of 30.9% from US$13.67 million in 9M2016/17, attributed mainly to lower operating and finance expenses.
(f) Share of results of associate and joint ventures
The share of results of associate and joint venture in 3Q2017/2018 was immaterial as compared to a loss of US$1.05 million in 3Q2016/17 which was incurred by its 49%-owned associate company in Indonesia, PT Vallianz Offshore Maritime. For 9M2017/18, the Group's share of results of associate and joint ventures was a profit of US$0.12 million compared to a loss of US$1.00 million in 9M2016/17.
(g) Exceptional Item
The Group recorded an exceptional expense of US$5.93 million in 3Q2017/18 and 9M2017/18, due to a bad debt writtenoff under its 49%-owned subsidiary in Mexico, Vallianz Marine Mexico S.A De C.V which was long overdue. The exceptional item of US$1.62 million recorded in 9M2016/17 was related to an impairment of goodwill.
(h) Net profit
The Group's net profit for 3Q2017/18 decreased by 43.0% to US$1.74 million compared to US$3.05 million in 3Q2016/17, due mainly to the exceptional item of US$5.93 million. Notwithstanding this exceptional item, the Group's net profit for 9M2017/18 increased by 16.3% to US$11.74 million from US$10.09 million in 9M2016/17, driven by higher operating profit.
Profit attributable to the owners of the Company ("PATMI") increased 26.2% to US$5.88 million in 3Q2017/18 from US$4.66 million in 3Q2016/17. PATMI for 9M2017/2018 also increased 64.3% to US$15.4 million from US$9.4 million in 9M2017/18. Such increases were due to improved operating profits despite the Group's proportionate share of the losses from the exceptional item and the sale of vessel incurred by its 49%-owned subsidiary in Mexico with the remaining 51% of the losses borne by the non-controlling interest.
Based on the weighted average number of shares, the Group recorded basic earnings per share of 0.13 US cents and 0.34 US cents for 3Q2017/18 and 9M2017/18 respectively.
Statements of Financial Position
(i) Trade receivables
Trade receivables decreased from US$91.89 million as at 31 March 2017 to US$41.05 million as at 31 December 2017. The decrease was attributable to decrease in Swiber group balance as a result of the set-off and settlement agreement with Swiber group ("SHL SOSA").
(j) Other receivables
Other receivables increased from US$124.92 million as at 31 March 2017 to US$172.84 million as at 31 December 2017. The increase was attributable to the increase of amount due from associate as the associate's payable due to the Swiber group was assigned to the Group pursuant to the SHL SOSA, and decrease in Swiber group balance as a result of the SHL SOSA.
(k) Available-for-sale investments
As at 31 December 2017, there has been no redemption by the issuer of the unquoted preference shares. Accordingly, the balance remained the same when compared to 31 March 2017.
(l) Property, plant and equipment
Property, plant and equipment decreased from US$372.23 million as at 31 March 2017 to US$269.06 million as at 31 December 2017. The decrease was due primarily to the disposal of 2 vessels and the transfer of a specialised vessel to Rawabi Vallianz International Company Limited ("RVIC"), which is a 50%-owned joint-venture company in the Middle East, during 3Q2017/18.
(m) Joint ventures
The increase in the joint ventures of US$12.66 million is the result of quasi-equity contribution of approximately US$12.54 million from the Group to RVIC in 3Q2017/18 and the share of results from this joint venture.
(n) Total current and non-current borrowings
Total current and non-current borrowings for the Group include term loans, working lines and finance lease.
Total current and non-current term borrowings, which comprised largely of bank borrowings for vessels, reduced from US$340.82 million as at 31 March 2017 to US$238.62 million as at 31 December 2017. This is mainly due to repayments of loan principals for the vessels that were disposed and transferred during the current financial period.
(o) Trade payables
The Group's trade payables increased by approximately US$2.15 million to US$64.64 million as at 31 December 2017 from US$62.49 million as at 31 March 2017. The slight increase is a net impact of an increase in normal trade working capital, offset by decrease in Swiber group balance as a result of the SHL SOSA.
(p) Other payables
The Group's other payables decreased by approximately US$76.78 million from US$136.92 million as at 31 March 2017 to US$60.15 million as at 31 December 2017. The significant decrease was mainly the result of the decrease in trade accrual and decrease in Swiber group balance as a result of the SHL SOSA.
Consolidated Statement of Cash Flows
Cash and cash equivalents decreased by US$24.46 million from US$45.57 million as at 31 March 2017 to US$21.11 million as at 31 December 2017.
(q) Cash flow from operating activities
The Group generated net cash from operating activities of US$37.19 million and US$44.11 million for 3Q2017/18 and 9M2017/18.
(r) Cash flow used in investing activities
Net cash generated from investing activities of US$68.53 million and US$66.39 million for 3Q2017/18 and 9M2017/18 mainly contributed by proceeds from disposal of three vessels.
(s) Cash flow from financing activities
Net cash used in financing activities in 3Q2017/18 and 9M2017/18 amounted to US$95.09 million and US$134.95 million respectively. The significant cash outflow in 9M2017/18 was attributed to an advance to a joint venture of US$28.42 million and the repayment of loan principal and interest of approximately US$102.02 million and partially offset by proceed from the issuance of Rights shares.
Crude oil prices have recovered in recent months as the strategies by OPEC and Russia to curb crude oil production has led to a tighter demand-supply situation. Notwithstanding the improved conditions in the global oil and gas industry, the offshore support vessel ("OSV") segment continues to face a challenging operating environment. Due to an overhang in vessel capacity amid slow demand, competition in the OSV segment remains intense which continues to depress vessel utilisation rates and exert pressure on charter rates.
In 3Q2017/18, the Group's operating profit before exceptional items increased 122% to US$7.72 million from the corresponding quarter in the previous financial year. This was the Group's fifth consecutive quarter of higher operating profit since 2Q2016/17 which can be attributed to its existing long-term vessel charters and commencement of a new vessel charter contract in the Middle East, as well as several initiatives implemented to optimise its expense structure. Despite the impact of a one-off exceptional expense, the Group's PATMI also increased 26.2% to US$5.88 million in 3Q2017/18 from US$4.66 million in 3Q2016/17 while PATMI for 9M2017/2018 jumped 64.3% to US$15.4 million from US$9.4 million in 9M2017/17.
The Group's core vessel chartering business is driven mainly by its long-term charter contracts in the Middle East region. Its resilient business model has enabled the Group to withstand the adverse market conditions in the OSV sector and continue delivering operating profits. As at 31 December 2017, the Group maintained a robust chartering services order book with total value of approximately US$900 million, comprising mainly long term charter contracts that stretch up to 2025 inclusive of 2- year extension options.
The Group is one of the largest OSV players in the Middle East and works closely with a key National Oil Company customer which is a major player in the region's offshore oil and gas production. The Group also secured new vessel charter contracts in Egypt and Turkmenistan during 2017 and intends to continue pursuing opportunities in new target markets.
In addition to business development efforts, the Group is also working to strengthen its operating capabilities and service quality, improve cost and operational efficiencies, and expand and differentiate its fleet to meet customers' requirements.
Following the completion of a Rights Cum Warrants Issue in December 2017, Vallianz's strategic partner Rawabi Holding has emerged as the Group's largest shareholder with a stake of 57.67% as at the date of this announcement. With its partnership and strong support from Rawabi Holding, the Group will be seeking opportunities to further expand its business by leveraging its superior market position in the Middle East.
In addition, the Group has appointed ADS Securities LLC, a financial services firm head-quartered in Abu Dhabi with offices in London, Singapore and Hong Kong, to advise on raising new capital of up to US$100 million from investors and/or financial institutions via a combination of debt and equity.