Unaudited Financial Statements For the First Quarter and Three Months Ended 30 June 2018
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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$42.50 million for the three months ended 30 June 2018 (“1QFY2019”), up 3.1% from US$41.22 million in the previous corresponding period (“1QFY2018”).
Revenue from the Group’s core chartering and brokerage business in 1QFY2019 was US$38.97 million, which was stable compared to US$38.44 million in 1QFY2018. During 1QFY2019, the Group’s key customer in the Middle East extended the charter contracts for 16 vessels for another year, albeit at lower charter rates. This impact was mitigated by a full quarter of revenue contribution in 1QFY2019 from new charter contracts with this key customer that commenced in the latter half of fourth quarter of FY2018.
Chartering and brokerage services accounted for approximately 93% of Group revenue in 1QFY2019, similar to 1QFY2018. The remaining 7% of Group revenue was derived from the provision of vessel management services.
Gross profit in 1QFY2019 decreased 16.4% to US$8.92 million from US$10.67 million in 1QFY2018. Gross profit margin softened to 21.0% in 1QFY2019 from 25.9% previously. The decline was attributed partly to lower charter rates for the contracts that were extended, and leasing expenses for a specialized vessel which was transferred to the Group’s 50%-owned joint venture company Rawabi Vallianz International Company Limited (“RVIC”) during third quarter of FY2018. The gross profit margin in 1QFY2019 was also affected by higher personnel costs which rose in tandem with the growth in the Group’s vessel operations in the Middle East.
(b) Other income
The Group recorded other income of US$0.14 million in 1QFY2019 compared to US$0.77 million in 1QFY2018. The decline was attributed mainly to the absence of gain on disposal of plant, property and equipment, and lower other miscellaneous income.
(c) Administrative expenses
Administrative expenses, which comprise largely personnel and travel related expenses, decreased 28.6% to US$2.30 million in 1QFY2019 when compared to 1QFY2018. The reduction was attributed mainly to reduced rental expense, lower professional fees and the on-going cost control measures implemented by the Group.
(d) Other operating expenses
Other operating expenses in 1QFY2019 were largely unchanged at US$0.30 million when compared to 1QFY2018.
(e) Finance costs
Finance costs increased 13.8% to US$3.41 million in 1QFY2019 from US$3.00 million in 1QFY2018. This was attributed to higher cost of borrowing in tandem with the rise in LIBOR rate.
(f) Share of results of associate and joint venture
The Group recorded a loss of US$10,000 from its share of results of associate and joint ventures in 1QFY2019 which was attributed to RVIC.
(g) Net profit attributable to owners of the Company
The Group registered net profit attributable to owners of the Company of US$4.23 million in 1QFY2019 which was stable compared to US$4.26 million in 1QFY2018. Based on the weighted average number of shares, the Group recorded basic earnings per share of 0.03 US cents for 1QFY2019.
Statements of Financial Position
(h) Trade and other receivables
Trade receivables increased to US$43.65 million as at 30 June 2018 from US$34.0 million as at 31 March 2018, in line with higher revenue. Other receivables also increased to US$199.60 million from US$174.86 million as at 31 March 2018 due mainly to an increase in amount due from joint venture.
(i) Property, plant and equipment
Property, plant and equipment increased slightly to US$273.70 million as at 30 June 2018 from US$272.2 million as at 31 March 2018, due to the increase in construction in progress, which was offset partially by depreciation expenses.
(j) Joint ventures
Investment in joint ventures decreased slightly to US$65.32 million as at 30 June 2018 from US$65.33 million as at 31 March 2018. The decline was due mainly to the share of results from RVIC.
(k) 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, increased to US$275.69 million as at 30 June 2018 from US$246.21 million as at 31 March 2018. This was due mainly to a new drawdown of a term loan facility, offset partially by repayment of revolving facilities.
(l) Trade and other payables
The Group’s trade payables increased slightly to US$34.49 million as at 30 June 2018 from US$33.04 million as at 31 March 2018. Other payables also rose to US$67.20 million from US$65.16 million as at 31 March 2018. The increases were attributed mainly to higher payables to third-parties and trade accruals in relation to the Group’s business activities.
Consolidated Statement of Cash Flows
Cash and cash equivalents decreased by US$0.38 million to US$7.19 million as at 30 June 2018 from US$7.57 million as at 31 March 2018.
(m) Cash flow from operating activities
The Group used net cash of US$6.61 million for operating activities in 1QFY2019.
(n) Cash flow used in investing activities
Net cash used in investing activities of US$4.45 million for 1QFY2019 was attributed mainly to increase in construction in progress.
(o) Cash flow from financing activities
Net cash generated from financing activities in 1QFY2019 amounted to US$10.67 million. This was attributed mainly to drawdown of a new term loan facility, offset partially by repayment of revolving facilities, advance to joint venture and payment of interest.
Crude oil prices have risen steadily since the beginning of 2018 which is leading to a more favourable outlook for the global oil and gas (O&G) industry. If oil prices remain stable around current levels, it is expected that O&G companies will gradually increase capital expenditures, raise their activities in the exploration sector and commence development of new oil and gas fields.
Despite the improving outlook for the O&G industry, the operating environment for the offshore support vessel (“OSV”) sector remains challenging as the persistent oversupply of OSVs amid soft demand conditions has continued to exert downward pressure on vessel utilisation rates and charter rates.
The Group has established itself as one of the largest OSV providers in the Middle East which remains as the world’s largest oil producer and the second largest gas producer. According to oil major BP, the region is expected to account for over 34% of global liquids production and 20% of gas production by 2040. BP also forecasts conventional oil production to reach 29 million barrels per day (Mb/d) by 2040 from 26 Mb/d in 2016, and for natural gas production to increase by 60% from 62 billion cubic feet per day (Bcf/d) in 2016 to 98 Bcf/d in 2040, led mainly by Iran, Qatar and Saudi Arabia (Source: BP Energy Outlook, Country and Regional Insights – Middle East).
The Group’s core vessel chartering business is driven mainly by long-term charter contracts secured with a key National Oil Company (“NOC”) customer in the Middle East which is a major player in the region’s offshore oil and gas production. This business model has enabled the Group to continue reporting operating profits despite the challenging market conditions in the OSV sector over the last few years. To capitalise on the vast opportunities in the Middle East market, the Group is working closely with its NOC customer to develop innovative solutions for the customer’s offshore support requirements beyond the traditional OSV business.
During 1QFY2019, the Group’s key NOC customer extended the charter contract for 16 vessels that are currently deployed in the Middle East for another year, albeit at lower charter rates. The lower charter rates have been reflected in the Group’s chartering services order book which, as at 30 June 2018, had total value of approximately US$700 million. This comprises mainly long term charter contracts that stretch up to 2025 inclusive of extension options of up to 2 years.
To broaden its revenue base, the Group is pursuing opportunities to widen the scope of its operations in the region to new target markets in Egypt and Kuwait. The Group is also working continuously to strengthen its operating capabilities and service quality, improve cost and operational efficiencies, and expand and differentiate its fleet to meet customers’ requirements.
Leveraging on the local knowledge and expertise of its strategic partner and controlling shareholder Rawabi Holding Company Limited, the Group is seeking opportunities to strengthen its market position in the Middle East.