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Financials

SECOND QUARTER FINANCIAL STATEMENTS ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2018

Financials Archive

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Income Statement

Statement of Comprehensive Income

Balance Sheet
Review Of The Performance

Revenue

(2Q2018 Vs 2Q2017)

Supply Chain Management

Supply Chain Management Division accounts for 90% of the Group's turnover in 2Q2018, of which marine cables and accessories contributed 52%, marine lighting equipment and accessories 36% and others 12%. Revenue from the division increased by 21% due to sales to an new overseas customer.

Security

Security Division mainly provides security products and solutions relating to information technology. The division accounts for 9% of the Group's turnover in 2Q2018.

Engineering Services

Engineering Services Division accounts for 1% of the Group's turnover in 2Q2018. Revenue from Engineering Services Division decreased by 90% due mainly to termination of an engineering contract by a customer in 4Q2017. There is no other significant contract in 2Q2018.

Revenue

(1H2018 Vs 1H2017)

Supply Chain Management

Supply Chain Management Division accounts for 92% of the Group's turnover in 1H2018, of which marine cables and accessories contributed 54%, marine lighting equipment and accessories 20% and others 6%.Revenue increased marginally as a result of higher sales to an new overseas customer.

Security

Security Division mainly provides security products and solutions relating to information technology. The division accounts for 5% of the Group's turnover in 1H2018.

Engineering Services

Engineering Services Division accounts for 1% of the Group's turnover in 1H2018. Revenue from Engineering Services Division decreased by 97% due mainly to termination of an engineering contract by a customer in 4Q2017. There is no other significant contract in 1H2018.

2Q2018 vs 2Q2017

Geographical segment

Revenue derived from Singapore decreased marginally by $0.6 million or 12% from $5.7 million in 2Q2017 to $5.1 million in 2Q2018.

Revenue derived from overseas increased by $1.1 million or 35% from $3.1 million in 2Q2017 to $4.2 million in 2Q2018 due mainly to sales to an new overseas customer.

Gross profit

The Group's overall gross profit increased by $0.5 million or 18% from $3.0 million in 2Q2017 to $3.5 million in 2Q2018 due to higher revenue. The Group's overall gross margin increased marginally by 4% from 34% in 2Q2017 to 38% in 2Q2018 due to product mix.

Other operating income

Other operating income increased by $1.6 million from $0.4 million in 2Q2017 to $2.0 million in 2Q2018 due mainly to a higher foreign exchange gain and gain on disposal of a subsidiary.

Operating expenses

The Group's operating expenses comprise of mainly selling & distribution and administrative expenses. Selling & distribution expenses increased by 28% to $2.6 million due to higher provision for doubtful debts and stock obsolescence. Administrative expenses increased by 208% to $3.9 million due mainly to higher provision for liabilities.

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 2Q2018 as compared to 2Q2017 is due mainly to increase in bank borrowings and shareholder's loan.

Gain on disposal of a subsidiary

The gain on disposal of a subsidiary arose from disposal of PT. Dwiutama Mandiri Sukses which owns the Batam yard (refer to point 5 for further explanation).

Provision for liabilities

The Group has provided additional provision for liabilities as a result of additional estimated losses of Gul Specialty Steel Industries LLC ("GSSI").

Foreign exchange gain

The Group reported a foreign exchange gain of $369k is due mainly to translation of US$ denominated bank balances and receivables as a result of strengthening of US$ against S$.

Provision for stock obsolescence

The higher provision for stock obsolescence is in accordance to the Group's stock policy.

Provision for doubtful debts

In view of the weak marine and offshore markets where payment from customers are slower coupled with poor performance announced by certain customers, the Group has provided a higher provision for doubtful debts.

Net (loss)/profit for the period

The Group registered a net loss of $1.31 million in 2Q2018 as compared to a net profit of $0.23 million in 2Q2017 due mainly to higher provision for liabilities, doubtful debts and stock obsolescence offset by a gain on disposal of a subsidiary.

Balance Sheet and Cash Flow Analysis

Investment in associated companies

The increase in investment in associated companies is due mainly to a loan to GLH offset by the share of loss in GLH.

Intangible assets

Intangible assets remain comparably unchanged.

Purchase deposit to a supplier

The purchase deposit is paid to a main cable supplier which will be offset from future purchases over a fiveyear period (for details please refer to the Group's announcement on 9 June 2015). The increase is due to the strengthening of US$ against S$ as the purchase deposit is denominated in US$.

Inventories

Inventories increased by $410k from $24.7 million in FY2017 to $25.2 million in 2Q2018 is due mainly to purchase of raw materials and work in progress by the Security and Engineering Services divisions respectively.

Trade receivables

Trade receivables increased by $392k from $8.9 million in FY2017 to $9.3 million in 2Q2018 due mainly to higher revenue.

Other receivables

The decrease in other receivables of $145k is due mainly to offsetting of deposit paid to suppliers upon receipts of such supplies and 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, Omnisense Systems Pte Ltd ("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 $236k is due mainly to higher deferred revenue billed in advance to and deposits from customers.

Provisions

The decrease in provisions of $3.7 million is due mainly to partial repayment of provision for liabilities offset by additional estimated losses of GSSI.

Cash flow

Net cash generated from operating activities amounted to $1.1 million in 2Q2018 as compared to a net cash used in operating activities of $0.5 million in 2Q2017. Net cash and cash equivalent increased by $5.4 million in 2Q2018 compared to an increase of $0.8 million in 2Q2017. The increase is due mainly to net cash inflow on disposal of a subsidiary and drawdown of bank borrowings.

Commentary

The Group's core business, the Supply Chain Management division, saw an increase in revenue for 2Q2018 as the Group continued to focus on enhancing its business functions and maintaining a lean operating structure to help stabilize and subsequently bolster performance in the long run. The Group also continues to explore viable opportunities in the industrial, petro-chemical and related sectors.

The Security division was formed in 2Q2016 and focuses on cybersecurity, enterprise IT operation management and sensing security products for both public and private sectors in Singapore and the region. This division remains a valuable prospect for the Group, with orders from both government agencies and private companies. The Group aims to build on the partnerships forged and further its exposure in regional markets.

The Group's associated company, GLH, continues to face headwinds in the form of supplier-related issues, affecting production and resulting in lower sales to major customers. The Group will focus on ramping up production and sales once the factory is operational by 4Q2018.

In 1Q2018, the Group has entered into a non-binding Letter of Intent ("LOI") to dispose its 51% equity interest in GSSI, its galvanized steel wire factory in Oman, subject to fulfillment of certain terms and conditions outlined in the LOI. However, subsequently in 2Q2018, with its shareholders' approval, GSSI has entered into an assets sale agreement to dispose its operating assets to the same buyer instead, after further discussion between GSSI's shareholders and the buyer. The proposed disposal is expected to be completed within 2 months from the end of 2Q2018. The Group and its joint venture partner also intend to wind-up GSSI after the disposal. The Group will announce the progress of the disposal and winding-up accordingly at a later date.

On its Engineering Services division, the liquidation of OGS remains ongoing. On PTE, the Group has disposed the Batam Land in 2Q2018 as announced on SGXNet on 4 May 2018 and 9 May 2018.

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