Financial Statements And Related Announcement - Third Quarter Results
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Profit & Loss
Consolidated Statement of Comprehensive Income
Review of Group Performance
Overview for 3Q2016
On 1 October 2015, the Group completed the acquisition of the entire equity of Ranken Infrastructure Limited ("Ranken"), an Engineering, Procurement and Construction ("EPC") business specialising in design, construction and project consultation in China's rail transit sector ("Infrastructure Business"). As such, the Group's financial performance for 3Q2016 includes that of Ranken whereas the comparatives for 3Q2015 do not.
Review of Financial Performance (3Q2016 vs 3Q2015)
Note: Significant changes in revenue, cost of sales and operating expenses during the period under review were mainly attributed to the consolidation of Ranken's financial performance in 3Q2016.
Total revenue rose by $54.8 million to $68.0 million in 3Q2016, boosted by the contribution of Ranken's results for the quarter under review. Ranken contributed $61.9 million on the back of revenue recognition for several projects based on their stage of completion, making it the Group's largest revenue contributor in 3Q2016. (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 as Revenues). Revenue from our Australia-based mining services business, Mancala Holdings Pty Ltd ("Mancala"), fell by $7.1 million in 3Q2016 to $6.1 million amid weak market sentiment in the mining industry and weak commodity prices.
Given higher revenues, total gross profit rose by $6.1 million to $9.6 million. Overall gross profit margin in 3Q2016, including that of mining services business, was 14.1% as compared to 26.1% in 3Q2015.
Other income fell by $0.5 million to $0.9 million in 3Q2016 in the absence of interest income relating to redemption of the bond upon completion of disposal of the Steel Business in the last corresponding quarter. Other income included a third-party rental income in relation to the leases of Ranken's commercial building and interest income.
Selling and distribution costs of $0.2 million relates mainly to Ranken's travelling and transport costs for marketing purposes.
Administrative expenses rose by $1.4 million to $4.4 million, due mainly to the inclusion of $2.0 million in administrative expenses incurred by Ranken on consolidation of its results.
Other expenses rose by $0.7 million to $0.8 million, due mainly to higher depreciation of property, plant and equipment and investment properties on consolidation of Ranken's results, as well as loss on disposal/write-off of plant and equipment upon completion of certain Ranken's projects.
Finance costs rose by $0.7 million to $0.9 million due mainly to the inclusion of $0.7 million interest expense incurred by Ranken for its working capital borrowings. Interest cover ratio improved substantially given higher operating profits contributed by Ranken.
Income tax expense was $1.3 million, attributable to provision for income tax on taxable profits for Ranken's operations.
Given the above,
- Profit attributable to Owners of the Company ("Net Profit") for 3Q2016 rose to $2.8 million from $1.6 million for 3Q2015. Net Profit for 9M2016 rose to $7.5 million from $2.4 million for 9M2015.
- Operating Profits before Working Capital or "Cash Profit" rose to $7.1 million for 3Q2016 from $1.4 million for 3Q2015. "Cash Profit" rose to $23.4 million for 9M2016 from $5.0 million for 9M2015.
Review of Financial Position (30 September 2016 vs 31 December 2015)
Total non-current assets fell by $4.1 million, due mainly to the depreciation of property, plant and equipment and investment properties, offset mainly by additions of property, plant and equipment by Ranken and Mancala of $10.2 million and $0.3 million respectively. Total non-current assets for Ranken and Mancala were $42.5 million and $22.3 million respectively.
Total current assets increased by $21.1 million. Significant changes during the period under review were:
- Contract work in progress related to Ranken's projects under construction rose by $43.5 million to $98.4 million due to works completed over stages but not yet certified (and thus not invoiced and not recognized as revenues) during the period.
- Trade receivables fell by $12.5 million to $112.1 million, comprising:
- $107.8 million in trade receivables from Ranken, which fell by $9.8 million despite higher revenues. Trade debtors' turnaround time improved to 193 days as at 30 September 2016 from 223 days as at 30 June 2016; and
- $4.3 million in Mancala's trade receivables, a decline of $2.7 million, which represented a trade debtors' turnaround time of 52 days as compared to 74 days as at 30 June 2016.
- Other receivables, which comprised mainly Ranken's materials procured on behalf of project owners and security deposits placed with the project owners (refundable on project completion), rose by $4.4 million on the back of higher orders. Other receivables, deposits and prepayments for Ranken and Mancala were $29.4 million and $4.4 million, respectively, as at 30 September 2016.
- Cash and cash equivalents for the Group, after accounting for operating cash inflows for the current period, fell by $13.9 million to $21.1 million as at 30 September 2016; due mainly to (i) cash investments in plant and equipment and site facilities of $10.6 million mainly for Ranken's recently-secured new projects, and (ii) net repayment of bank loans, finance lease liabilities, interest expense and loan from previous shareholder of Ranken's subsidiary amounting to $21.4 million. More specifically, the cash position for corporate function, Ranken and Mancala were $0.6 million, $16.1 million and $4.4 million, respectively as at 30 September 2016. Total cash of $5.5 million was pledged as fixed deposits for Ranken's secured bank borrowings.
Total non-current liabilities fell by $5.3 million, due mainly to (i) repayments of working capital borrowings and finance lease obligations and (ii) partial repayment of amounts due to previous shareholders of Ranken's subsidiary, which were extended to Ranken prior to acquisition by the Group. Total non-current liabilities for Ranken and Mancala were $7.8 million and $3.3 million, respectively.
Total current liabilities rose by $19.5 million. Significant changes during the period under review were:
- Trade payables rose by $40.6 million to $115.0 million due mainly to higher purchases and longer credit terms (for goods and services from suppliers and contractors). Trade payables for Ranken and Mancala were $108.3 million and $6.7 million respectively as at 30 September 2016.
- Other payables and accruals fell by $1.9 million to $69.3 million due mainly to recognition of advance deposits received from clients as revenues, when completed works are progressively invoiced. Other payables and accruals for Ranken and Mancala were $45.4 million and $9.5 million respectively, as at 30 September 2016. Other payables and accruals for Ranken comprised deposits received from clients and security deposits from sub-contractors, VAT payables and accruals of operating expenses. Other payables of the Company (corporate) comprised mainly the estimated purchase consideration payable to Mancala's vendors which is still subject to adjustments and conditions. Other payables for Mancala comprised mainly withholding tax in Australia and Vietnam to meet employees' personal obligations and accrued operating expenses.
- Current financial liabilities fell by $17.1 million to $49.7 million as Ranken and Mancala Australia continued to pay down working capital borrowings and finance lease obligations.
Despite higher earnings of $7.5 million during the nine months under review, total equity attributable to owners of the Company or Shareholders' Equity only increased by $2.7 million to $93.3 million, due mainly to a non-cash or accounting translation loss of $5.0 million in relation to translating financial statements of foreign subsidiaries to S$ as a result of (i) weakening of both RMB and A$ against S$ and (ii) the weakening of the Vietnam Dong against A$.
Review of Cash Flows (3Q2016)
Operating cash inflow for 3Q2016 rose to $8.6 million after taking into account profit before income tax of $4.2 million.
Cash flows used in investing activities for 3Q2016 was $3.7 million, due mainly to Ranken's investment in equipment and site facilities for its recently secured projects.
Cash flows used in financing activities for 3Q2016 was $0.8 million, due mainly to proceeds from bank loans of $7.5 million, offset by repayment of bank loans, finance lease liabilities, interest expense and loan from previous shareholder of Ranken's subsidiary amounting to $8.3 million. Given the above, cash and cash equivalents increased by $4.0 million to $15.4 million (net of fixed deposits pledged of $5.5 million and bank overdraft of $0.3 million).
Rail Engineering and Infrastructure
China is projected to invest substantially in transport infrastructure over the next five years, a continued trend since 2015. Rail remains a vital means of mass transportation in China and spending for this sector is thus expected to remain buoyant under the current economic policies. Meanwhile, China continues to extend its One-Belt-One-Road initiative overseas, where Chinese operators are expected to benefit from opportunities to offer infrastructure expertise.
Ranken has a strong track record due to its operational capabilities and significant industrial experience. It continues to gain credibility and trust with partners and clients in China and in the South Asia where it has secured consultancy works. Following the completion of the acquisition of Ranken in October 2015, the Group has announced a cumulative RMB2.6 billion ($532 million) worth of new contracts secured, thereby bringing the current order book to RMB2.8 billion ($573 million). Metro and urban rail transit infrastructure remains the main focus of Ranken as it looks to progressively scale up its production capacity to meet the increase in orders.
With an existing track record in Bangladesh, a market in which Ranken is expanding, the Group is also exploring and looking to secure more construction management as well as project consultancy contracts specifically in Qeshm, Sri Lanka and Nepal.
As previously announced, the Company is in discussions with various strategic investors who are mining specialist funds and/or engaged in mining-focused businesses (the "Investors"), which may eventually lead to a dilution in the Group's shareholding in Mancala. The Group has been in discussions with these investors which include private sophisticated investors and public listed companies. The discussions with some of these investors are progressing well and the Group will provide an update on these developments soon.
Given the above, the Group expects to report higher net profit in FY2016 compared to FY2015, barring unforeseen circumstances.