BH Global Corporation Ltd

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THIRD QUARTER FINANCIAL STATEMENTS ANNOUNCEMENT FOR THE PERIOD ENDED 30 SEPTEMBER 2018

Financials Archive

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Income Statement

Statement of Comprehensive Income

Balance Sheet
Review Of The Performance

Revenue

(3Q2018 Vs 3Q2017)

Supply Chain Management

Supply Chain Management Division accounts for 86% of the Group's turnover in 3Q2018, of which marine cables and accessories contributed 63%, marine lighting equipment and accessories 26% and others 11%. Revenue from the division increased by 80% due to increased business activities from customers.

Security

Security Division mainly provides security products and solutions relating to information technology. The division accounts for 13% of the Group's turnover in 3Q2018. Revenue from the division increased by 374% due to sales to new customers.

Engineering Services

Engineering Services Division accounts for 1% of the Group's turnover in 3Q2018. Revenue from Engineering Services Division decreased by 65% due mainly to termination of an engineering contract by a customer in 4Q2017. There is no other significant contract in 3Q2018.

Revenue

(9M2018 Vs 9M2017)

Supply Chain Management

Supply Chain Management Division accounts for 89% of the Group's turnover in 9M2018, of which marine cables and accessories contributed 57%, marine lighting equipment and accessories 30% and others 13%. Revenue from the division increased by 23% due to increased business activities from customers.

Security

Security Division mainly provides security products and solutions relating to information technology. The division accounts for 10% of the Group's turnover in 9M2018. Revenue from the division increased by 25% due to sales to new customers.

Engineering Services

Engineering Services Division accounts for 1% of the Group's turnover in 9M2018. Revenue from Engineering Services Division decreased by 92% due mainly to termination of an engineering contract by a customer in 4Q2017. There is no other significant contract in 9M2018.

3Q2018 vs 3Q2017

Geographical segment

Revenue derived from Singapore increased by $2.9 million or 78% from $3.7 million in 3Q2017 to $6.6 million in 3Q2018 due to increased business activities from customers and sales to new customers.

Revenue derived from overseas increased by $2.5 million or 95% from $2.7 million in 3Q2017 to $5.2 million in 3Q2018 due to increased business activities from customers and sales to new customers.

Gross profit

The Group's overall gross profit increased by $2.6 million or 193% from $1.4 million in 3Q2017 to $4.0 million in 3Q2018 was due mainly to higher revenue. The Group's overall gross margin increased by 13% from 21% in 3Q2017 to 34% in 3Q2018 due to higher revenue from Supply Chain Management where the gross margin is higher and write back of provision for claims and vendor costs by Engineering Division.

Other operating income/(expenses)

The Group recorded other operating income in 3Q2018 as compared to an expense in 3Q2017 was due mainly to lower foreign exchange loss.

Operating expenses

The Group's operating expenses comprise of mainly selling & distribution and administrative expenses. Selling & distribution expenses remain comparably unchanged. Administrative expenses increased by 12% to $1.5 million was due mainly to the set-up of the new Taiwan branch by Omnisense Systems Pte Ltd ("OMS").

Share of results of joint venture

The decrease in share of profit in joint venture was due mainly to lesser business activities in 3Q2018.

Share of results of associated companies

The Group's share of loss in associated companies is due mainly to the performance of GL Lighting Holding Pte Ltd ("GLH"). GLH's results was affected by supplier-related issues which disrupted production and the associate company's ability to meet its sales orders.

Interest on borrowings

The increase in interest on borrowings in 3Q2018 as compared to 3Q2017 was mainly due to increase in bank borrowings and shareholder's loan.

Provision for stock obsolescence

The provision for stock obsolescence decrease is due mainly to the sale of its obsolete stocks in 3Q2018.

Write back/(Provision) for doubtful debts

The write back for doubtful debts is due mainly to repayment from customers of $488k for debts previously provided, partially offset by addition provision of S$343k.

Net profit/(loss) for the period

The Group reported a net profit of $0.3 million in 3Q2018 as compared to a net loss of $2.4 million in 3Q2017 was due mainly to higher revenue, lower foreign exchange loss, write back for doubtful debts, partially offset by increase in interest on borrowings.

Balance Sheet and Cash Flow Analysis

Investment in associated companies

The decrease in investment in associated companies is due mainly to share of loss in GLH.

Intangible assets

Intangible assets remain comparably unchanged.

Inventories

Inventories decreased by $0.9 million from $24.8 million in FY2017 to $23.9 million in 3Q2018 is due mainly to higher sales in 3Q2018 by Supply Chain Management division, partially offset by increase in raw materials and work in progress by the Security divisions.

Trade receivables

Trade receivables increased by $2.2 million from $8.9 million in FY2017 to $11.1 million in 3Q2018 is due mainly to higher revenue.

Other receivables

The decrease in other receivables of $0.8 million is due mainly to deposit paid to suppliers upon receipts of such supplies, partially offset by higher progressive recognition of deferred cost.

Tax recoverable/payable

The decrease in tax recoverable/payable is due to the tax authority allowing a subsidiary to claim group relief which was previously disallowed. The tax authority has refunded substantially the tax recoverable amount to the subsidiary in 2Q2018.

Disposal group assets classified as held for sale

Asset held for sale in FY2017 relates to the Batam Land and the assets held by a subsidiary where the Group has disposed in 2Q2018.

Convertible loan notes

One of the Group's subsidiary, OMS and its shareholders entered into a convertible loan agreement ("CLA") dated 7 September 2017, pursuant to which its shareholders have agreed, subject to the terms of the CLA, to grant a convertible note of up to aggregate principle amount of up to $4 million to its shareholders at an interest rate at 6.0% per annum. Subscription of the convertible loan closed on 30th December 2017.

Trade payables

The higher trade payables is due mainly to higher purchases as a result of higher revenue.

Other payables

The increase in other payables of $154k was mainly due to higher deferred revenue billed in advance, partially offset by decrease in accruals.

Provisions

The decrease in provisions of $16.9 million was mainly due to settlement of provision for liabilities of GSSI.

Cash flow

Net cash from operating activities amounted to $1.2 million in 3Q2018 as compared to a net cash used in operating activities of $0.7 million in 3Q2017. Net cash and cash equivalent decreased by $4.1 million in 3Q2018 compared to an decrease of $2.5 million in 3Q2017. The decrease was mainly due to settlement of provision for liabilities, partially offset by increase in drawdown of bank borrowings and shareholder's loan.

Commentary

The Group's core business, the Supply Chain Management division, increased it's revenue for 3Q2018 as continued focus on enhancing business functions helped stabilise core revenue for the division. A steady recovery in oil prices also revived some upstream activities, which resulted in the Group winning a new project from an existing customer that is expected to extend into FY2019. The Group also continues to explore viable opportunities in the industrial, petro-chemical and related sectors.

The Security division continues to show potential, steadily growing with orders from both government agencies and private companies in Singapore. With a research and development facility set up in Taipei, the Group hopes to push out proprietary technologies alongside establishing more distributorships. Leveraging on recent partnerships, the Group aims to broaden the reach of its cybersecurity, enterprise IT operation management and sensing security products to regional markets.

The Group's associated company's, GLH, new factory in Kunshan is completed and pending approvals. The Group expects to move into its new facility in 4Q2018 and will focus on securing major customers which it could not serve due to restrictions of the current facility. Production is expected to commence in 1Q2019.

In 1Q2018, the Group entered into a non-binding Letter of Intent ("LOI") to dispose its 51% equity interest in GSSI. The disposal of operating assets was completed in 3Q2018, for a total consideration of OMR1.90 million (approximately S$6.71 million). The Group and itsjoint venture partner intend to wind-up GSSI and the Group will update on the progress accordingly.

On its Engineering Services division, the Group disposed the Batam Land in 2Q2018 with net proceeds of S$2.90 million while the liquidation of OGS remains ongoing. The termination of an engineering contract has resulted in a gap in revenue, however, the Group will continue to seek more distributorships as well as viable opportunities for electrical installation packages, especially in Japan.

On 28 September 2018, the Group announced the proposal to undertake a renounceable non-underwritten rights issue (the "Rights Issue") on the basis of three (3) Rights Shares for every two (2) existing ordinary shares in the issued and paid up capital of the Company ("Shares") held by Entitled Shareholders. The Group is processing the necessary and will update on the progress accordingly.