Financial Statements And Related Announcement - First Quarter Results
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Profit & Loss
Consolidated Statement of Comprehensive Income
Effect for the change of Functional Currency
The presentation of the Group's financial statements has been changed from Singapore dollars ("S$") to Chinese Renminbi ("RMB") based on the rationale explained in paragraph 5 of this announcement (the "Change in Presentation Currency"). Accordingly, the comparatives have been restated and presented in RMB.
Review of Financial Performance (1Q2017 vs 1Q2016)
Revenue fell by RMB 18.8 million to RMB 187.8 million in 1Q2017, as certain major infrastructure projects recently secured by Ranken were still in the initial stages of enabling works for construction during the period under review; as such, the value of work certified and revenue recognised at these stages were generally lower. Specifically, such initial works include site preparation and clearance works relating to demolition, geotechnical reviews, environmental protection, perimeter fencing, security provisions, utilities supply and other related activities. (Note: Ranken also procured materials on behalf of some project owners as part of its supply chain and these materials, as procured on cost-to-cost basis, were not included in the revenue).
Despite lower revenue, gross profit rose by RMB 2.0 million to RMB 26.8 million. Overall gross profit margin in 1Q2017 was 14.2% as compared to 12.0% in 1Q2016 due to improved cost control and clients' acceptance of variation orders.
Other income, including Ranken's project-related income of RMB 1.8 million, rose by RMB 3.0 million to RMB 8.3 million due mainly to a foreign exchange gain of RMB 4.5 million arising from reversal of translation differences relating to the accumulated losses of SMR at historical exchange rates to RMB upon completion of the disposal of SMR, as part of the Group's corporate streamlining exercise. These were mitigated by absence of exchange gain of RMB 1.7 million and lower rental income of RMB 0.2 million.
Selling and distribution costs rose by RMB 0.8 million to RMB 1.6 million, related mainly to Ranken's travelling expenses.
Administrative expenses rose by RMB 2.3 million to RMB 14.5 million due mainly to Ranken's higher staff costs.
Other expenses rose by RMB 1.2 million to RMB 3.2 million due mainly to accounting loss of RMB 1.6 million from the change in fair value of financial assets. The increase was mitigated by lower loss on disposal of fixed assets of RMB 0.4 million.
Finance costs remained relatively unchanged at RMB 3.0 million.
Income tax expense was RMB 3.5 million, attributable to provision for income tax on taxable profits for Ranken's operations.
Given the above, net profit for Continuing Operations for 1Q2017 rose by 5.7% to RMB 9.0 million from RMB 8.5 million for 1Q2016, net of non-controlling interest.
The results of Discontinued Operations included (i) net loss for Mancala Group (the Mining Services Business), which is presented as discontinued operations during the period under review pursuant to the Sale and Purchase Agreement ("SPA") announced on 30 December 2016 to dispose 81% of Mancala Group; and (ii) the Group's net gain on disposal of Mancala Group, the transaction of which was completed on 28 February 2017.
Amidst market volatility in the mining industry, revenue for Mining Service Business fell by RMB 36.6 million to RMB 8.7 million and gross profit fell by RMB 10.0 million to RMB 1.5 million. Despite cost-cutting measures resulting in lower administrative expenses (which fell by RMB 5.1 million to RMB 4.6 million), the mining services business made a net loss of RMB 3.2 million in 1Q2017 compared to net profit of RMB 1.1 million in 1Q2016. On completion of the disposal of Mancala Group, the Group recognised a gain on disposal of RMB 4.1 million, net of the loss incurred on partial settlement of amounts payable to the vendors of Mancala.
Review of Financial Position (31 March 2017 vs 31 December 2016)
Total non-current assets rose by RMB 15.7 million due mainly to the recognition of a 19% stake in Mancala as available-for-sale financial assets valued at RMB 14.1 million. Furthermore, there were additions of plant and equipment and site facilities by Ranken of RMB 8.6 million for recently-secured projects, net of depreciation during the period under review.
Total current assets fell by RMB 206.0 million due mainly to the absence of assets held for sale of RMB 199.0 million following the completion of the disposal of Mancala. Current assets (excluding disposal group, Mancala) fell from RMB 1,312.4 million to RMB 1,305.4 million as at 31 March 2017. Significant changes (excluding those of the disposal group) during the period under review were:
- Other investment, comprised of CVT shares classified as financial assets at fair value through profit or loss of RMB 5.8 million (net of settlement of amount payable to vendors in CVT shares).
- Contract work in progress related to Ranken's projects under construction rose by RMB 68.4 million to RMB 467.3 million due to works completed over stages but not yet certified (and thus not invoiced and not recognised as revenue) during the period.
- Trade receivables related to Ranken's projects fell by RMB 126.1 million to RMB 527.5 million. Trade debtor's turnaround time rose to 256 days as compared to 221 days as at 31 December 2016. Trade receivables included retention monies, Build-and-Transfer contract and other guarantee sums, excluding which the trade receivables turnaround period would have been approximately 89 days as at 31 March 2017 (31 December 2016: 90 days).
- Other receivables, deposits and prepayment, which comprised mainly (i) Ranken's materials procured on behalf of project owners and (ii) security deposits placed with the project owners (refundable on project completion) rose by RMB 49.7 million to RMB 155.1 million in total. The increase in other receivables was also due to the recognition of RMB 34.7 million due from Mancala, which was offset on a Group consolidation basis when Mancala was a subsidiary of the Group as at the last comparable date.
- Cash and cash equivalents for the Group fell by RMB 39.9 million to RMB 105.3 million due mainly to (i) operating cash outflow of RMB 44.6 million as a result of a higher amount of works completed over various stages but not yet certified and billed (resulting in progress payments lagging behind cost payments) and (ii) cash investments in plant and equipment and site facilities of RMB 8.6 million mainly for Ranken's recently-secured new projects; offset by (i) net cash inflow from disposal of subsidiaries of RMB 13.6 million and (ii) proceeds from bond (net of repayment of bank loans, finance lease liabilities, interest expense and loans from previous shareholders of Ranken's subsidiary). More specifically, the cash positions for corporate function and Ranken as at 31 March 2017 were RMB 18.3 million and RMB 87.0 million, respectively. Total cash of RMB 0.7 million was pledged as fixed deposits for Ranken's secured bank borrowings.
Total non-current liabilities comprised a RMB 33.2 million bond for Ranken's working capital purposes.
Total current liabilities fell by RMB 230.7 million due mainly to the absence of liabilities held for sale of RMB 98.4 million following the completion of the disposal of Mancala. Current liabilities (excluding disposal group, Mancala) fell from RMB 1,149.2 million to RMB 1,016.9 million as at 31 March 2017. Significant changes (excluding those of the disposal group) during the period under review were:
- Trade payables related to Ranken's projects fell by RMB 76.4 million to RMB 449.9 million due mainly to payment to suppliers and contractors during the period.
- Progress billings in excess of construction work in progress fell by RMB 30.0 million due mainly to lower advances from project owners.
- Other payables and accruals fell by RMB 12.4 million to RMB 344.7 million due mainly to settlement of consideration payable to vendor of RMB 25.4 million in CVT shares. Other payables and accruals for Ranken and the Company (corporate) as at 31 March 2017 were RMB 312.0 million and RMB 32.7 million, respectively. Other payables and accruals for Ranken comprised mainly the deposits received from clients and security deposits from sub-contractors, VAT payables and accruals of operating expenses.
- Current financial liabilities fell by RMB 16.7 million to RMB 142.9 million as Ranken continued to pay down its working capital borrowings and finance lease obligations.
Total equity attributable to owners of the Company or Shareholders' Equity rose by RMB 6.8 million to RMB 470.2 million due to (i) current period earnings of RMB 9.9 million and (ii) net movements of foreign currency translation reserve of RMB 3.1 million after taking into account of translation effects on disposal of foreign subsidiaries and translation of non-RMB denominated financial statements to RMB.
Review of Cash Flows (1Q2017 vs 1Q2016)
Operating cash outflow from continuing operations for 1Q2017 rose by RMB 32.8 million to RMB 44.6 million after accounting for operating profit before working capital changes (or "Cash Profit") of RMB 20.4 million and net working capital investments of RMB 65.0 million, as a result of higher amounts of completed works pending for billings during the period under review (and thus progress payments lagged behind cost payments).
Cash flows used in investing activities from continuing operations for 1Q2017 were RMB 15.9 million, due mainly to Ranken's investment in equipment and site facilities for its recently secured projects and refund of deposit to other third parties in relation to the disposal group.
Cash flows generated from financing activities of continuing operations for 1Q2017 were RMB 10.4 million, due mainly to proceeds from bond borrowings of RMB 33.2 million for Ranken's working capital purposes, offset by repayment of bank loans, finance lease liabilities, interest expense and loan from previous shareholder of Ranken's subsidiary amounting to RMB 22.8 million.
The discontinued operations (Mining Services Business) recorded net cash used in operating and financing activities of RMB 5.1 million and RMB 2.3 million respectively. The discontinued operations' net cash from investing activities was mainly from the net cash inflow for the Group from disposal of subsidiaries.
Given the above, cash and cash equivalents fell by RMB 44.4 million to RMB 104.7 million (net of fixed deposits pledged of RMB 0.7 million).
China's One Belt, One Road initiative, together with structural reform in its recent economic growth policies, has resulted in increasingly higher infrastructure spending budgets in China, which benefit the Group's core infrastructure business.
Operationally, certain major projects which Ranken has recently won (which form part of the existing orders book of RMB 2.5 billion as at 31 March 2017) are expected to enter the final stage of enabling works for construction and site preparation (see Note 8 for details) in the next few quarters. Ranken will thus need to manage its resources judiciously - including working capital funding and refinancing alternatives - and monitor the targeted stages of completion very closely as these projects progressively enter the mid-term of their respective delivery timetables. Specifically, direct cost control and production efficiency during these mid-term stages are particularly important in sustaining margins.
Meanwhile, the Group is continuing discussions with other strategic partners, including state-owned enterprises in China, to explore investment opportunities in relation to other infrastructure projects in China, which could financially and operationally be structured under Public-Private Partnership ("PPP") models. However, it should be noted that, despite the Group's proactive approach in evaluating these opportunities, there is no certainty that the Group will be able to secure major projects under the proposed PPP models. The Group will provide an update in due course.
Following the Group's completion of its disposal of the 81% stake in Mancala Group in February 2017, the Group does not have direct exposure to the mining services business amid ongoing volatility in the mining industry, and will no longer be consolidating Mancala's results.
Barring unforeseen circumstances, the Group expects to be profitable in the current financial year ending 31 December 2017 ("FY2017").