Unaudited Financial Statements For the First Quarter and Three Months Ended 30 June 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$41.22 million for the three (3) months ended 30 June 2017 ("1Q2017/18"), representing a decline of 35.2% or US$22.44 million when compared to the three (3) months ended 30 June 2016 ("1Q2016/17"). This was due mainly to the completion of various one-time vessel management projects in in the second half of 2016 negated by the effect from the commencement of new contracts with a key customer in 1Q2017/18.
The Group's core chartering & brokerage services accounted for 94% of Group revenue in 1Q2017/18 compared to 68% in 1Q2016/17. 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 during 1Q2017/18.
Cost of sales for 1Q2017/18 declined 36.1% to US$30.55 million when compared to 1Q2016/17. The Group's gross profit margin in 1Q2017/18 held steady at 25.9% compared to 25.0% in 1Q2016/17 despite lower revenue. This was attributed mainly to the decline in revenue contribution from vessel management services which have historically commanded lower gross profit margin, as well as a reduction in depreciation expenses following the write-downs at the end of FY2017.
(b) Administrative expenses
Administrative expenses comprise largely of staff and travel related expenses. Administrative expenses decreased by 32.4% or US$1.54 million to US$3.22 million in 1Q2017/18 when compared to 1Q2016/17. This decline was largely attributed to the Group's concerted efforts to optimise its cost structure since late 2015 and downsizing certain of its non-core business operations in 2016.
(c) Finance costs
Finance costs for the Group decreased by US$2.74 million to US$3.00 million in 1Q2017/18 from US$5.74 million in the 1Q2016/17. This significant savings in finance costs was attributed to the full redemption of Notes Payable of S$100.00 million in April 2016 and S$60.00 million in November 2016.
(d) Operating profit from ordinary activities before share of results of associate and joint ventures
The Group recorded operating profit from ordinary activities of around US$4.94 million in 1Q2017/18, compared to US$5.22 million in 1Q2016/17. The decline in operating profit was offset by reductions in administrative expenses and finance costs.
(e) Share of results of associate and joint ventures
The Group recorded a profit of US$4,000 from share of results of associate and joint ventures in 1Q2017/18 opposed to a profit of US$0.82 million in 1Q2016/17.
(f) Net profit
The Group posted a net profit of US$4.71 million in 1Q2017/18, which represents an increase from US$3.99 million in 1Q2016/17. This was due mainly to an absence of an impairment charge of US$1.62 million that was recorded in 1Q2016/17.
Based on the weighted average number of shares, the Group recorded earnings per share of 0.10 US cents for 1Q2017/18 and 0.11 US cents for 1Q2016/17.
Statements of Financial Position
(g) Trade and other receivables
Trade and other receivables increased from US$216.81 million as at 31 March 2017 to US$261.06 million as at 30 June 2017. This was mainly due to an increase in advance of US$28.42 million made to a joint venture and in prepayments made to certain vendors during 1Q2017/18.
(h) Available-for-sale investments
As at 30 June 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. The classification under current asset since 31 March 2017 represents the intention of management to dispose these preference shares when appropriate.
(i) Property, plant and equipment
Property, plant and equipment decreased from US$372.23 million as at 31 March 2017 to US$368.67 million as at 30 June 2017 mainly due to depreciation expenses.
(j) Joint ventures
The change of approximately US$4,000 in the carrying value of the joint ventures is attributed from the recognition of the Group's share of results in the joint ventures for 1Q2017/18.
As at 31 March 2017, the Group fully impaired the carrying amount of its investment in associate to US$Nil.
(l) 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$338.18 million as at 30 June 2017.
(m) Trade and other payables
The Group's trade and other payables decreased by approximately US$1.55 million from US$199.41 million as at 31 March 2017 to US$197.86 million as at 30 June 2017. The decline mainly resulted from the settlement of amounts owing to certain third party creditors through the issue of new ordinary shares in the Company.
Consolidated Statement of Cash Flows
Cash and cash equivalents decreased from US$45.57 million as at 31 March 2017 to US$8.32 million as at 30 June 2017.
(n) Cash flow from operating activities
The Group used approximately US$3.45 million in its operating activities in 1Q2017/18 as compared to US$36.33 million used in 1Q2016/17.
(o) Cash flow from investing activities
Net cash generated from investing activities of US$0.25 million in 1Q2017/18 arose from proceeds received from the sale of property, plant and equipment in the current financial period.
(p) Cash flow used in financing activities
Net cash used in financing activities in 1Q2017/18 amounted to US$34.05 million. The significant cash outflow was attributed by an advance to a joint venture of US$28.42 million and the repayment of loan principal and interest of approximately US$5.58 million.
The offshore support vessel ("OSV") sector continues to face challenges as it remains mired in a situation of excess capacity against lower global demand. This has led to intense competition which exerted significant pressure on vessel utilisation rates and charter rates.
Despite the harsh market conditions, the Group registered higher revenue in the quarter ended 30 June 2017 compared to the preceding quarter ended 31 March 2017, attributed mainly to the commencement of new vessel charter contracts in the Middle East.
The Group's core vessel chartering business is driven mainly by the long-term charter contracts that it has secured in the Middle East region. This business model has allowed the Group to endure the oil and gas downturn, and continue delivering operating profits. The Group's chartering services order book remained robust, with a total value of approximately US$990 million as at 30 June 2017. This order book comprises mainly long term charter contracts that stretch up to 2025, including 2-year extension options.
Following the series of cost rationalisation, operations streamlining and restructuring activities, as well as an asset write-down exercise undertaken in the last financial year, the Group believes it is better positioned to deal with current market challenges and focus on building the Group's future.
In partnership with its strategic shareholder and partner Rawabi Holding, the Group will continue to build on its strengths to solidify existing customer relationships and increase penetration in target markets in the Middle East and other regions.
The Group has a superior market position in Middle East as it ranks as the second largest OSV player in that region. The Group will work closely with a key National Oil Company customer who continues to actively invest in offshore oil production and exploration of natural gas. The Group has also made headway in its strategy to penetrate new target markets with the start of new vessel charters in Egypt and Turkmenistan in May 2017.
As part its ongoing strategies, the Group will continue to raise its operational capabilities and service quality, while expanding and differentiating its fleet as appropriate to meet customers' requirements. The Group will also focus on ensuring cost and operational efficiencies.