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Third Quarter Financial Statements For The Period Ended 28 February 2017

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Profit and Loss

Consolidated Statement of Comprehensive Income

Balance Sheet

Review of Performance

Income Statement

Review of the performance

INCOME STATEMENT

Revenue

The Group recorded a 73.0% year-on-year increase in revenue to S$16.0 million for the third quarter ended 28 February 2017 (“3Q FY17”), compared with S$9.2 million in the third quarter ended 29 February 2016 (“3Q FY16”). This was mainly due to higher revenue contributions from the Group’s subsidiaries including chemical warehouse operator, Marquis Services Pte Ltd (“Marquis”), ready-mix concrete manufacturing plant, Wuzhou Xing Jian Readymix Co., Ltd (“Wuzhou Xing Jian”), and maiden contribution from port operations service provider, TNS Ocean Lines (S) Pte Ltd (“TNS”).

For the nine months ending 28 February 2017 (“9M FY17”), the Group’s revenue increased by 50.1% to S$39.3 million, up from S$26.2 million. The increase can be attributed to higher revenue contribution from Marquis, and maiden contributions from Wuzhou Xing Jian and newly acquired TNS.

Cost of sales

Cost of sales increased by 91.0% from S$6.7 million in 3Q FY16 to S$12.7 million in 3Q FY17, and by 62.9% from S$19.4 million in 9M FY16 to S$31.6 million in 9M FY17. The significant increase was due to additional operational expenses from Marquis, Wuzhou Xing Jian and TNS, as well as higher warehouse rental expenses.

Gross Profit and Gross Margin

The Group’s gross profit increased by 26.4% from S$2.6 million in 3Q FY16 to S$3.3 million in 3Q FY17, driven by higher revenue contribution. The composite gross margin declined from 27.8% in 3Q FY16 to 20.4% in 3Q FY17.

For 9M FY17, the Group’s gross profit increased by 13.6% to S$7.7 million, from S$6.8 million in the nine months ending 29 February 2016 ("9M FY16"). The increase was in tandem with the increase in revenue. Composite gross margin, which was partially negated by lower margin from the local warehousing & logistics segment, decreased from 25.9% in 9M FY16 to 19.6% in 9M FY17.

Other Income

Other income surged from S$14,000 in 3Q FY16 to S$0.1 million in 3Q FY17, mainly due to interest income, grant income, gain on disposal of property, plant and equipment and other miscellaneous income.

For 9M FY17, other income declined by 65.7% to S$0.5 million, down from S$1.6 million in 9M FY16. This was mainly due to the absence of the one-time gain of S$1.2 million on the disposal of Everflourish and Maoming, as well as higher gain on disposal of property, plant and equipment and net exchange gain recorded in 9M FY16.

Marketing and Distribution Expenses

Marketing and distribution expenses increased by S$94,000 to S$133,000 in 3Q FY17, mainly due to additional expenses incurred by Marquis, Wuzhou Xing Jian and TNS.

For 9M FY17, marketing and distribution expenses increased by 191.8% to S$0.2 million from $73,000 in 9M FY16. The increase was due to marketing expenses incurred by Wuzhou Xing Jian, Van Der Horst’s warehouse in Shanghai and Marquis, in order to drive sales.

Administrative Expenses

Administrative expenses increased by 45.3% from S$2.2 million in 3Q FY16 to S$3.2 million in 3Q FY17, mainly attributable to higher staff costs as a result of the acquisition of TNS during the quarter under review, ramped up of production in Wuzhou Xing Jian, and amortisation of intangible assets.

For 9M FY17, administrative expenses increased by 15.8% to S$7.7 million, as compared to S$6.6 million in 9M FY16. This was mainly attributable to the increase in staff cost with the addition of Marquis, TNS and ramp up of production in Wuzhou Xing Jian, as well as amortisation of intangible assets, which was partially offset by effective cost management in the third-party warehousing and logistics segment.

Finance Costs

Finance costs decreased by 34.9% from S$0.6 million in 3Q FY16 to S$0.4 million in 3Q FY17. This was mainly due to the repayment of borrowings and lower property loan interest as a result of refinancing, which was partially offset by the interest expense incurred on hire purchase of equipment for Wuzhou Xing Jian and loan for the acquisition of the 7 Kwong Min Road property for Marquis.

Finance costs was S$1.1 million in 9M FY17, a decrease of 28.1% from S$1.6 million in 9M FY16. The reduction was mainly due to the repayment of borrowings undertaken for working capital purposes, partially offset by the interest expense incurred on hire purchase of ready-mix concrete mixer trucks for Wuzhou Xing Jian and loan for the acquisition of 7 Kwong Min Road property for Marquis.

Other Expenses

Other expenses in 3Q FY17 and 9M FY17 were mainly due to net foreign exchange losses.

Share of Results of Associate

The share of results of associate reversed from a loss of S$0.2 million in 3Q FY16 to a profit of S$0.1 million, on the back of improved occupancy for the storage of metals under GKE Metal Logistics Pte Ltd (“GKE Metal”).

The Group recorded a profit of S$20,000 from its share of results of associate in 9M FY17, compared to a loss of S$0.4 million in 9M FY16. This was due to the gradual improvement in occupancy for the storage of metal in the third quarter that lifted the performance of GKE Metal

Share of Results of Joint Venture

Due to the global economic slowdown, the chartering contract for the liquefied gas carrier vessel was renewed at a significantly lower charter rate from October 2016, resulting in a loss of S$0.5 million from its share of results of joint venture in 3Q FY17.

For 9M FY17, the share of results of joint venture was a profit of S$58,000 in 9M FY17, which was attributable to the chartering of the liquefied gas carrier vessel, Gas Aries, from the fourth quarter of FY16.

Net Loss Attributable to Owners of the Company

As a result of the above, the Group recorded a net loss attributable to owners of the Company S$0.9 million in 3Q FY17, as compared to a net loss attributable to owners of the Company S$0.7 million in 3Q FY16.

The Group recorded a net loss attributable to owners of the Company S$1.4 million in 9M FY17, an increase from the net loss attributable to owners of the Company of S$0.4 million in 9M FY16.

Other comprehensive loss for foreign currency translation and share of foreign currency translation of associates was a result of translating the financial statements of the foreign subsidiaries and associates from their functional currencies into Singapore Dollar as at the balance sheet date, for the period under review. The movement was mainly due to fluctuations of functional currencies against the Singapore Dollar.

Statement of Financial Position

Non-current assets increased by S$19.3 million or 17.2% from S$112.0 million as at 31 May 2016 to S$131.2 million as at 28 February 2017. This was largely due to (i) the increase in property, plant and equipment arising from the redevelopment of the 39 Benoi Road property, and the purchase of fixed assets for the operations in Singapore and the ready-mix concrete manufacturing plant in Wuzhou, China, (ii) the increase in intangible assets due to additional goodwill arose from the acquisition TNS. The increase was partially offset by the decrease in investment in associate as a result of the dividend received from GKE Metal and its share of translation losses.

Current assets decreased by S$9.8 million from S$43.7 million as at 31 May 2016 to S$33.9 million as at 28 February 2017. The decline was mainly attributable to the decrease in cash and cash equivalents from S$30.8 million as at 31 May 2016 to S$13.2 million as at 28 February 2017, which can be attributed to (i) the redevelopment of 39 Benoi Road property, (ii) the purchase of fixed assets, (iii) the payment of dividends, (iv) the acquisition of TNS, and (v) the repayment of borrowings and finance leases. The decrease was partially offset by the increase in trade and other receivables resulting from the acquisition of TNS and the commencement of operations in Wuzhou Xing Jian during the period under review.

Non-current liabilities increased by S$4.5 million from S$47.1 million as at 31 May 2016 to S$51.6 million as at 28 February 2017. This can be attributed to (i) the increase in borrowings to finance the redevelopment of 39 Benoi Road property and loans undertaken for working capital purposes in Wuzhou Xing Jian, (ii) the increase in other liabilities resulting from higher construction retention for 39 Benoi Road property, and (iii) the increase in finance lease liabilities for the hire purchase of equipment in Wuzhou Xing Jian, which was partially offset by the repayment of borrowings and finance lease liabilities.

Current liabilities increased by S$5.4 million from S$18.6 million as at 31 May 2016 to S$24.1 million as at 28 February 2017. This was mainly due to (i) the increase in trade and other payables as a result of the acquisition of TNS, the commencement of operations in Wuzhou Xing Jian, and amount due to the builder on the redevelopment of 39 Benoi Road property, (ii) the increase in borrowings undertaken for working capital purposes in Wuzhou Xing Jian, and (iii) the increase in finance lease liabilities for the hire purchase of equipment and motor vehicles for the operations in Wuzhou Xing Jian and operations in Singapore. The increase was partially offset by (i) the decrease in other liabilities due to the payment of bonus accrued in the previous year, and (ii) the repayment of borrowings and finance lease liabilities.

Shareholder's equity decreased from S$85.0 million as at 31 May 2016 to S$84.3 million as at 28 February 2017. The decrease was mainly due to the payment of dividends and loss for the period, which was partially offset by the issuance of new shares and reissuance of treasury shares for the acquisition of TNS.

Statement of Cash Flows

3Q FY2017 vs 3Q FY2016

The Group’s net cash generated from operating activities for 3Q FY17 was S$4.5 million. This comprised positive operating cash flows before changes in working capital of S$1.8 million, adjusted by an increase in net working capital outflow of S$3.2 million, interest received and income tax paid of S$13,000 and S$0.5 million, respectively.

Net cash used in investing activities of S$11.6 million in 3Q FY17 was mainly due to the cash outlay for the redevelopment of 39 Benoi Road property and the purchase of fixed assets including motor vehicles during the quarter.

Net cash generated from financing activities for 3Q FY17 was S$3.4 million. This was attributable to the increase in borrowings of S$5.5 million for the redevelopment of 39 Benoi Road property and working capital purposes in Wuzhou Xing Jian, which was partially offset by repayment of loans and finance leases, and interest paid.

9M FY2017 vs 9M FY2016
The Group’s net cash generated from operating activities in 9M FY17 was S$4.0 million. This comprised of positive operating cash flows before changes in working capital of S$5.1 million, adjusted by net working capital outflow of S$0.2 million and interest received and income tax paid of S$46,000 and S$1.0 million respectively.

Net cash used in investing activities was S$17.2 million in 9M FY17. This was mainly due to the cash outlay for (i) the redevelopment of 39 Benoi Road property, (ii) the acquisition of TNS and (iii) the purchase of fixed assets, which was partially offset by the receipt of a dividend income from associate of S$0.3 million.

Net cash used in financing activities was S$4.4 million in 9M FY17. This was mainly due to (i) the payment of dividends of S$3.8 million, (ii) the fixed deposit charged with the bank of S$2.2 million, and (iii) the repayment of loans and finance leases of $4.4 million, which was partially offset by the increase in bank borrowings of S$7.2 million for the redevelopment of 39 Benoi Road property and working capital purposes in Wuzhou Xing Jian.

Commentary

The Group expects the macro business environment to continue to be challenging amid economic slowdown in both the domestic and global economies, as well as geopolitical uncertainties.

The redevelopment of the 39 Benoi Road warehouse cum office property is progressing on schedule and is expected to be completed by end August 2017.

The Group continues to be prudent in pursuing strategic opportunities to enhance its core businesses, while it continues to monitor its current portfolio to achieve stable and sustainable earnings growth in the long term.