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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 de-consolidated 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 had 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.
Supply Chain Management
Supply Chain Management Division accounts for 97% of the Group's turnover in 4Q2016, of which marine cables and accessories contributed 69%, marine lighting equipment, accessories 15% and others 16%. Revenue from the division decreased by 39% due to the severe slowdown in activities in the marine and offshore sectors as a result of weak global shipping markets and low oil prices.
Security division mainly provides security products and solutions relating to information technology. The division accounts for 3% of the Group's turnover in 4Q2016.
Supply Chain Management
Supply Chain Management Division accounts for 98% of the Group's turnover in FY2016, of which marine cables and accessories contributed 72%, marine lighting equipment and accessories 16% and others 12%. Revenue from the division decreased by 9% due to the severe slowdown in activities in the marine and offshore sectors as a result of weak global shipping markets and low oil prices.
Security division mainly provides security products and solutions relating to information technology. The division accounts for 2% of the Group's turnover in 2016.
4Q2016 vs 4Q2015
Revenue derived from Singapore decreased by $2.5 million or 30% from $8.3 million in 4Q2015 to $5.8 million in 4Q2016 due mainly to the slowdown in activities in the marine and offshore sectors.
Revenue derived from overseas decreased by $3.2 million or 48% from $6.6 million in 4Q2015 to $3.4 million in 4Q2016 due mainly to weak global shipping markets.
The Group's overall gross profit decreased by $2.0 million or 39% from $5.1 million in 4Q2015 to $3.1 million in 4Q2016 and the Group's overall gross margin decreased marginally from 34% in 4Q2015 to 33% in 4Q2016.
Other operating income
Other operating income decrease marginally by 3% from 679k in 4Q2015 to $658k in 4Q2016.
The Group's operating expenses comprise mainly selling & distribution and administrative expenses. The increase in selling & distribution expenses is due to consolidation of a new subsidiary and higher provision for doubtful debts. Administrative expenses increased by 112% due mainly to a provisions for losses in Gulf Specialty Steel Industries LLC ("GSSI') and provision for impairment in investment in GL Lighting Holding Pte. Ltd. ("GLH"). Otherwise, the administrative expenses would have remained comparably unchanged.
Share of results in associated companies
The Group's associated companies registered a loss of $127k in 4Q2016 due mainly to lower sales to major customers. In particular, the performance of GLH 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 4Q2016 as compared to 4Q2015 is due mainly to higher bank borrowings.
Tax credit of $321k in 4Q2016 is due mainly to prior years' tax discharge by IRAS.
The increase of $77k in depreciation in 4Q2016 as compared to 4Q2015 is due mainly to higher fixed assets purchased.
Foreign Exchange Gain
The Group reported a higher foreign exchange gain in 4Q2016 as compared to 4Q2015 due mainly to translation of US$ denominated receivables as a result of the strengthening of USD against SGD.
Provision for liabilities
The higher provision for losses in 4Q2016 arises principally from the Group's provision for losses in GSSI.
Provision for impairment in an associated company
The provision for impairment in an associated company is due to provision for impairment in GLH.
The Group recorded a gain of $686k in 4Q2016 from discontinued operations [relating to PTE and BOS Offshore & Marine Pte. Ltd. ("BOS")], net of tax, as stated in detail below:
Discontinued Operations registered a revenue of $955k in 4Q2016 mainly from progressive recognition of revenue of an existing project under BOS. The negative revenue in 4Q2015 is due to management's assessment on the presentation of revenue from provision of manpower services earned by a subsidiary of OGS and as determined in accordance to accounting standards, the subsidiary was acting in the capacity of an agent and accordingly should recognise revenue only on a net basis.
Discontinued Operations registered a gross profit of $179k in Q2016 as compared to a loss of $2.7 million in 4Q2015 due mainly to better project management.
Discontinued Operations registered a lower operating income in 4Q2016 as compared to 4Q2015 due mainly to an adjustment to reclassify part of the loss on de-consolidation of OGS to administrative expenses and higher foreign exchange gain as a result of appreciation of Indonesian Rupiah against SGD in 4Q2015
The lower selling & distribution expense in 4Q2016 is due mainly to a provision for doubtful debts of a receivable in PTE in 4Q2015. The lower administrative expense is due to the reclassification of part of the loss on de-consolidation of OGS to administrative expense in 4Q2015.
Balance Sheet and Cash Flow Analysis
(FY2016 vs FY2015)
Property, plant and equipment (PPE)
The decrease in PPE in FY2016 is due mainly to the ongoing disposal of yard facilities in Batam.
Investment in associated companies
The decrease in investment in associated companies is due mainly to the additional investment in GLH offset against the Group's share of results and provision of impairment in investment in GLH.
The increase in intangible assets is due mainly to goodwill and fair value of intangible assets such as the applied technology on products arising from the acquisition of a new subsidiary, Omnisense Systems Pte Ltd ("OMS") and the capitalization of development cost of products.
Purchase deposit to a supplier
The purchase deposit is paid to a main cable supplier which is offset from future purchases over a five-year period (refer to the Group's announcement on 9 June 2015 to the SGX). The decrease is due to a partial repayment from the supplier during the year.
Inventories decreased by $2.9 million from $30.1 million in FY2015 to $27.2 million in FY2016 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 decreased by $0.8 million from $16.2 million in FY2015 to $15.4 million in FY2016 corresponding to lower revenue.
The increase in other receivables of $3.2million is due mainly to an increase in deposit to supplier for project procurement by BOS.
The increase in non-current payable is due mainly to provision of contingent consideration payable arising from acquisition of OMS.
Due to customers on construction contracts
The increase in due to customers on construction contracts is due to advance billing of a project by BOS.
Trade payables decreased by $3.3 million due mainly to lower stock purchases in line with the management's intention to lower the inventory level.
The increase in other payables of $1.2 million is due mainly to deferred revenue billed in advance to customer.
The increase in provisions of $7.5 million is due mainly to additional provision for impairment losses on investment in GSSI.
The increase in bank borrowings by $4.4 million is to finance the increase in investment in GLH and acquisition of a new subsidiary OMS.
Net cash and cash equivalent increased by $1.5million in 4Q2016 compared to an increase of $455k in 4Q2015. The increase is due mainly to increase in provisions and decrease in receivables offset partly by acquisition of a subsidiary and net loss for 4Q2016.
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 both the shipping and oil and gas industries.
The core business, the Supply Chain Management division, faced difficult market conditions in the past year due to the continuing slowdown in the marine and offshore industries. This has severely affected the sales and profitability of the division. The Group will strive to strengthen its core business and is working on various initiatives to improve its performance.
The operations of 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 has started in 4Q2016 and is expected to complete in end 2017. The Group has made provision for impairment in investment in GLH after assessing the financial prospects and cash flow of GLH in the future years in 4Q2016.
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 further 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. Taking into account the continuing losses and tough market conditions, as well as management's assessment of the future financial prospects and cash flow of GSSI, the Group has made provision for losses in GSSI in 2016.
On its Engineering Services division (reported under Discontinued Operations), 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. The liquidation of OGS remains ongoing.
On its discontinued operations under PTE, the Group continues to search for potential buyers to dispose the land.