Financial Statements And Related Announcement - Third Quarter Results
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Profit & Loss
Consolidated Statement of Comprehensive Income
Review of Group Performance
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 (3Q2017 vs 3Q2016)
Revenue rose by RMB 68.2 million to RMB 369.5 million in 3Q2017 as (i) Ranken completed site preparation works and commenced the construction phase of several recently secured projects and (ii) a higher number of ongoing projects in China.
Given the higher revenue, gross profit rose by RMB 13.5 million to RMB 53.0 million. Overall gross profit margin in 3Q2017 was 14.4% compared to 13.1% in 3Q2016.
Other income, including Ranken’s project-related income of RMB 0.8 million, rose by RMB 2.4 million to RMB 5.7 million. This was due mainly to a foreign exchange gain of RMB 4.4 million, arising from reversal of translation differences relating to the accumulated losses of TJSB at historical exchange rates to RMB upon the completion of its disposal, as part of the Group’s corporate streamlining exercise. These were mitigated by lower government grants during the period under review.
Selling and distribution costs rose by RMB 1.4 million to RMB 2.6 million, due mainly to Ranken’s higher travelling expenses and project tendering costs, including costs for project assessment. Ranken has evaluated many more projects during the period in review and has selectively tendered for some of those under evaluation.
Administrative expenses rose by RMB 7.0 million to RMB 19.3 million due mainly to Ranken’s higher staff costs and professional fees incurred for new projects secured.
Other expenses fell by RMB 0.9 million to RMB 2.0 million due mainly to lower loss on disposal of equipment compared to the previous corresponding period.
Finance costs rose by RMB 5.6 million due mainly to higher refinancing costs during the period under review, specifically for the hire purchase refinancing facilities of RMB 66.3 million obtained in 2Q2017.
Income tax expense was RMB 8.3 million, attributable to provision for income tax on taxable profits for Ranken’s operations.
There were no results reported under Discontinued Operations for 3Q2017 following the Group’s completion of the disposal of its Mining Services Business (Discontinued Operations) (“Mancala” or the “Mining Services Business”) on 28 February 2017.
Given the above, net profit for 3Q2017 rose by 31.1% to RMB 17.6 million from RMB 13.4 million for 3Q2016, and net cash generated from operating activities rose to RMB 92.5 million for the current period.
Review of Financial Position (30 September 2017 vs 31 December 2016)
Total non-current assets rose by RMB 40.1 million due mainly to (i) recognition of a 19% stake in Mancala as available-for-sale financial assets (other investment) valued at RMB 14.2 million and (ii) additions of plant and equipment and site facilities by Ranken of RMB 30.4 million for recently secured projects, net of depreciation during the period under review.
Total current assets rose by RMB 103.9 million due mainly to (i) changes in current assets (excluding disposal group, Mancala), which rose by RMB 302.9 million as at 30 September 2017 and offset by (ii) the absence of assets held for sale of RMB 199.0 million following the completion of the disposal of the Mining Services Business. Significant changes (excluding those of the disposal group) during the period under review were:
- Other investments comprised quoted shares classified as financial assets at fair value of RMB 5.0 million.
- Inventories rose by RMB 29.6 million, including railway sleepers stock for the Meng Hua project.
- Contract work in progress, related to Ranken’s projects under construction, rose by RMB 151.9 million to RMB 550.8 million due to works completed in stages that have yet to be certified (and thus not invoiced and not recognised as revenue) during the period.
- Trade receivables related to Ranken’s projects fell by RMB 51.0 million to RMB 602.6 million. Trade debtor’s turnaround time improved to 193 days (31 December 2016: 221 days). Trade receivables included retention monies, build-and-transfer contracts and other guarantee sums, excluding which the trade receivables turnaround period would have been approximately 76 days as at 30 September 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 project owners (refundable on project completion), rose by RMB 101.5 million to RMB 206.9 million. The increase in other receivables was also due to the inclusion of RMB 34.7 million in net amount owing by Mancala, which was eliminated upon consolidation when Mancala was a subsidiary of the Group as at the last comparable date.
- Cash and cash equivalents for the Group increased by RMB 31.1 million to RMB 176.3 million as at 30 September 2017 due mainly to higher operating cash inflow. The cash positions for corporate function and Ranken as at 30 September 2017 were RMB 12.7 million and RMB 163.6 million, respectively.
Total non-current liabilities rose by RMB 94.8 million due mainly to refinancing of bank loans, bond proceeds and new finance lease liabilities, net of repayment during the year. Non-current financial liabilities comprised mainly (i) bank loans of RMB 49.0 million, (ii) RMB 33.8 million bonds for Ranken’s working capital purposes and (iii) finance lease liabilities of RMB 40.2 million.
Total current liabilities rose by RMB 18.7 million due mainly to (i) higher current liabilities (excluding disposal group, Mancala), which increased by RMB 117.1 million, and offset by (ii) the absence of liabilities held for sale of RMB 98.4 million following the disposal of Mancala. Significant changes (excluding those of the disposal group) during the period under review were:
- Trade payables related to Ranken’s projects rose by RMB 57.4 million to RMB 583.7 million.
- Progress billings in excess of construction work in progress fell by RMB 54.2 million due mainly to lower amount of advance billings made to project owners.
- Other payables and accruals rose by RMB 136.3 million to RMB 493.4 million due mainly to (i) higher cash advances from clients as new projects commence the construction phase; and (ii) offset by settlement of consideration payable to Mancala’s vendor and the remaining of which is expected to be settled in this financial year ending 2017. Other payables and accruals for Ranken and the Company (corporate) as at 30 September 2017 were RMB 470.3 million and RMB 23.1 million, respectively. Other payables and accruals for Ranken comprised mainly the advances from the clients, deposits from clients and security deposits from sub-contractors, VAT payables and accruals of operating expenses.
- Current financial liabilities fell by RMB 16.9 million to RMB 142.7 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 29.5 million to RMB 492.9 million due to (i) current period earnings of RMB 38.0 million and (ii) issuance of shares net of expenses under Shares Award Scheme of RMB 0.4 million, (iii) offset by net movements in foreign currency translation reserve of RMB 8.9 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 (3Q2017 vs 3Q2016)
Operating cash flow from continuing operations for 3Q2017 rose by RMB 66.3 million to RMB 92.5 million after accounting for operating profit before working capital changes of RMB 48.9 million and net working capital changes of RMB 46.0 million, net of tax payment of RMB 2.4 million (mainly for FY2016 tax obligation).
Cash flows used in investing activities from continuing operations for 3Q2017 were RMB 26.0 million, due mainly to Ranken’s investment in equipment and site facilities for its recently secured projects.
Cash flows generated from financing activities of continuing operations for 3Q2017 were RMB 0.9 million, due mainly to bank loan proceeds of RMB 64.0 million for refinancing of Ranken’s working capital, offset by repayment of bank loans, finance lease liabilities and interest expense, and loan from previous shareholder of Ranken’s subsidiary amounting to RMB 63.1 million.
Given the above, cash and cash equivalents rose by RMB 67.4 million to RMB 176.2 million (net of fixed deposits pledged of RMB 20,000) during 3Q2017.
In China, investments in major rail and road infrastructure – as funded largely by debts – remain aggressive. The increasingly higher infrastructure spending at this macro level explains Ranken’s consistently healthy order book, which most recently rose to RMB 3.4 billion (S$705 million) – a record high since its acquisition by Sapphire in 2015. It also secured RMB 1.9 billion (S$385 million) worth of projects in the year to date, surpassing RMB 1.7 billion (S$349 million) for the entire financial year ended 31 December 2016.
Against this positive industry development and in view of China’s economic reforms, some forms of competitive pressure can be expected from state-owned enterprises going forward. It is therefore of operational importance for Ranken to gain efficiency and scale in order to sustain margins. To further improve Ranken’s ability in bidding for larger-scale projects, it needs large strategic partners in China.
On 18 October 2017, Sapphire announced that two of its largest shareholders, Ou Rui Limited (“Ou Rui”) and Best Feast Limited (“Best Feast”) are swapping their stakes with Hong Kong-listed Hong Kong International Construction Investment Management Group Co., Limited (“HKICIM”). This will see HKICIM, a subsidiary of China’s HNA Holdings Group Co., emerge as a 27.96% shareholder of Sapphire upon completion of the share swap deal (“Shares Swap Deal”). If completed, this deal may open more doors for Ranken in China.
In anticipation of the completion of the Shares Swap Deal, the existing Board of Directors has indicated that they intend to voluntarily step down to facilitate board renewal. Under the leadership of the Group CEO, Mr Teh Wing Kwan, the existing Board has helped Sapphire build strong business fundamentals over the last few years after executing a major restructuring exercise and turnaround strategies. In a recent interview with The Edge Singapore, Mr Teh stated that Sapphire is well positioned for faster growth ahead and expressed confidence that post-turnaround Sapphire will continue to thrive even in the event of board changes in future.
Barring unforeseen circumstances, the Group expects to be profitable for the current financial year ending 31 December 2017 (“FY2017”).