BH Global Corporation Ltd

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THIRD QUARTER FINANCIAL STATEMENTS ANNOUNCEMENT FOR THE PERIOD ENDED 30 SEPTEMBER 2016

Financials Archive

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Income Statement

Statement of Comprehensive Income

Balance Sheet
Review Of The Performance

Key changes in the Group's financials:

Oil & Gas Solutions Pte. Ltd. ("OGS") � Referring to the announcement on 4 September 2015, OGS has initiated creditors' voluntary liquidation proceedings, hence OGS is deconsolidated on 20 September 2015 and reclassified to Discontinued Operations in the income statement for FY2015.

PT. BH Marine & Offshore Engineering ("PTE") � The Board had decided to discontinue the operations of its engineering subsidiary in Batam as stated in the full year results announcement released on 2 March 2013. Despite ongoing negotiations with potential buyers, the Group has not been able to conclude the sale of all of the assets of its engineering subsidiary in Batam. In compliance with FRS105, the Group has reclassified all PTE's property, plant and equipment related expenses to Continuing Operations from 4Q2014 in the income statement; all other income and expenses are accounted for as Discontinued Operations given the fact that PTE has completely ceased operations. Notwithstanding the accounting and reporting changes, it remains the Group's intention to dispose of the assets and related liabilities of PTE.

Revenue

Supply Chain Management

Supply Chain Management division accounts for 96% of the Group's turnover in 3Q2016, of which marine cables and accessories contributed 77%, marine lighting equipment and accessories 13% and others 11%. Revenue from the division increased by 27% due mainly to delivery of a major order for marine cables from a new customer.

Security

Security division was set up in 2014. This division mainly provides security products and solutions relating to information technology. The division accounts for 4% of the Group's turnover in 3Q2016.

Revenue

Supply Chain Management

Supply Chain Management division accounts for 98% of the Group's turnover in 9M2016, of which marine cables and accessories contributed 73%, marine lighting equipment and accessories 16% and others 11%. Despite slowdown in activities in the marine and offshore sectors as a result of weak shipping markets and low oil prices, revenue from the Division decreased by only 2% due to delivery of a major order for marine cables from a new customer.

Security

Security division was set up in 2014. This division mainly provides security products and solutions relating to information technology. The division accounts for 2% of the Group's turnover in 9M2016.

3Q2016 vs 3Q2015

Geographical segment

Revenue derived from Singapore increased by $2.8 million or 32% from $8.7 million in 3Q2015 to $11.5 million in 3Q2016 due mainly to delivery of a major order for marine cables from a new customer. Revenue derived from overseas increased by $1 million or 29% from $3.3 million in 3Q2015 to $4.3 million in 3Q2016. This is due mainly to the Group's marketing effort to expand overseas.

Gross profit

The Group's overall gross profit increased by $0.8 million or 19% from $4 million in 3Q2015 to $4.8 million in 3Q2016 due to higher revenue. The gross margin decreased from 34% in 3Q2015 to 31% in 3Q2016 due to higher revenue from marine cables and accessories which command a lower gross margin.

Other operating expenses/ (income)

The Group incurred other operating expense in 3Q2016 compared to an income in 3Q2015 due mainly to a loss in disposal of fixed asset.

Operating expenses

The Group's operating expenses comprise mainly selling & distribution and administrative expense. Selling & distribution expense increased by 21% due mainly to higher revenue. Administrative expense increased by 61% due mainly to provision for liabilities in relation to the corporate guarantee given by the Company to a joint venture company.

Share of results in associated company

The Group's associated company, which includes mainly GL Lighting Holding Pte Ltd and its subsidiaries, registered a lower loss of 154k in 3Q2016. However, it still faces supplierrelated issues resulting in lower sales to major customers.

Interest on borrowing

The increase in interest on borrowings in 3Q2016 as compared to 3Q2015 is due mainly to higher usage of trade facilities by the Supply Chain Management division.

Depreciation

The decrease in depreciation in 3Q2016 as compared to 3Q2015 is due mainly to disposal of fixed assets in the Batam operation in 2H2015.

Discontinued Operations

The Group recorded a profit from discontinued operations, net of tax, of $65k as stated in detail below:

Following the liquidation of OGS as well as cessation of business activity in Batam operation, Discontinued Operations registered a significantly lower revenue in 3Q2016.

Discontinued Operations registered a gross profit of $113k in 3Q2016 as compared to a loss of $354K in 3Q2015 due mainly to better project management.

Discontinued Operations registered an operating income in 3Q2016 as compared to a loss in 3Q2015 due mainly to a foreign exchange gain as a result of appreciation of Indonesian Rupiah against SGD in 3Q2016 as compared to 3Q2015 as its payables are denominated in SGD.

The lower selling & distribution and administrative expenses are lower in 3Q2016 due mainly to reduced business activity in Batam operations and de-consolidation of OGS.

Balance Sheet and Cash Flow Analysis

3Q2016 vs FY2015

Investment in associated companies

The increase in investment in associated company is due mainly to increase in investment in GL Lighting Holding Pte Ltd ("GLH") offset by share of loss in GLH and its subsidiaries.

Intangible assets

The increase in intangible assets is due mainly to goodwill and fair value of applied technology on the products arising from the acquisition of a new subsidiary, Omnisense Systems Pte Ltd ("OMS"), and capitalization of development cost of products.

Deferred tax liabilities

The increase in deferred tax liabilities is due mainly to recognition of fair value of deferred tax liabilities arising from acquisition of OMS.

Non-current payable

The increase in non-current payable is due mainly to provision of contingent consideration payable arising from acquisition of OMS.

Inventories

The decrease in inventories of $2.3 million is due to management's intention to reduce the Group's inventory level as a result of the slowdown in the marine and offshore sectors.

Trade receivables

The decrease in trade receivables of $1.9 million is due mainly to collection of a major order from a new customer.

Other receivables

The increase in other receivables of $3.8 million is due mainly to deposit paid to suppliers for project procurement.

Trade payables

Trade payables decreased by $1.4 million is due mainly to lower purchases which is in line with the management's intention to lower the inventory level.

Provisions

Increase in provision is due mainly to provision for contingent liabilities for a corporate guarantee to a joint venture for banking facilities taken up by the joint venture.

Banks borrowings

The increase in bank borrowings by $4.4 million is due mainly to increase in investment in an associate company and purchase of property, plant and equipment.

Cash flow

Net cash and cash equivalent increased by $2.9m in 3Q2016 as compared to an increase of $2.0m in 3Q2015. This is due mainly to decrease in inventories and receivables and increase in payables offset by repayment of bank borrowings and purchase of fixed assets.

Commentary

The Group remains focused on improving the overall health of our core business given the continuing weak shipping industry and low oil prices which have severely impacted the oil and gas industry.

The core business, the Supply Chain Management division, faced difficult market conditions in the past quarter due to the continuing slowdown in the marine and offshore industries. This has affected the sales and profitability of the division although it remains profitable. The Group will continue to strengthen its core business and is working on various initiatives to improve its performance.

The operations of GL Lighting Holding Pte Ltd ("GLH"), the Group's associated company, has been adversely affected due to supplier-related issues resulting in lower sales to major customers. The construction of the new factory is scheduled to start in 4Q2016 and complete in end 2017.

The performance of the Group's galvanized steel wire factory in Oman continues to be very challenging as production and sales volumes are still below breakeven levels. Besides lower sales, the business is affected by lower selling prices as a result of lower commodity prices, and high fixed costs. The Group continues to work closely with its Omani joint venture partner to improve operational performance and explore all possible options with regards to the viability of this business.

On its Engineering Services division, the Group has previously announced to the Singapore Exchange ("SGX") on 4 September 2015 that its subsidiary, Oil & Gas Solutions Pte. Ltd. ("OGS"), has initiated creditors' voluntary liquidation proceedings on the same day. The liquidation of OGS remains ongoing.

On its discontinued operations in Batam, the Group continues to be in discussion with potential buyers to dispose the land.