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Second Quarter Financial Statements For The Period Ended 30 November 2017

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Profit and Loss

Consolidated Statement of Comprehensive Income

A statement of financial position

Review of Performance

Income Statement

1H FY2018 vs 1H FY2017

The Group recorded a 52.4% increase in revenue to S$35.5 million for the six months ending 30 November 2017 ("1H FY18") from S$23.3 million for the six months ending 30 November 2016 ("1H FY17"). This was mainly due to the addition of port operations service provider, TNS Ocean Lines (S) Pte Ltd ("TNS"), and higher revenue contribution from ready-mix concrete manufacturing plant, Wuzhou Xing Jian Readymix Co., Ltd ("Wuzhou Xing Jian") as it ramped up production progressively since production commenced in June 2016. The increase was partially offset by the decrease in storage, handling and transportation revenue from the warehousing & logistics segment.

Cost of sales increased by 55.8% from S$18.9 million in 1H FY17 to S$29.4 million in 1H FY18 on the back of higher sales. The increase was mainly due to the additional expenses from the operations of TNS and Wuzhou Xing Jian.

Gross profit increased by 37.8% from S$4.4 million in 1H FY17 to S$6.1 million in 1H FY18. The Group's gross margin declined from 19.1% in 1H FY17 to 17.2% in 1H FY18, mainly due to lower gross margin from the warehousing & logistics segment.

Other income was higher at S$0.7 million in 1H FY18 as compared to S$0.4 million in 1H FY17. The increase was due to the gain on disposal of property, plant and equipment, and additional income including government's grants and insurance claims.

Marketing and distribution costs increased from $80,000 in 1H FY17 to S$125,000 in 1H FY18. This was mainly due to higher expenses incurred on marketing for Wuzhou Xing Jian and TNS.

Administrative expenses increased significantly from S$4.5 million in 1H FY17 to S$12.9 million in 1H FY18. This was mainly due to a S$6.2 million provision for impairment loss in the joint venture for the liquefied gas carrier vessel, Ocean Latitude Limited ("Ocean Latitude"), increase in staff costs with the addition of TNS and ramp up of production in Wuzhou Xing Jian as well as the increase in amortisation of intangible assets.

Finance costs increased marginally by 6.7% to S$0.8 million in 1H FY18 as a result of the addition of TNS and an increase in finance lease expenses at Wuzhou Xing Jian. This was partially offset by lower loan interest expense from refinancing of a property loan.

Other expenses in 1H FY18 was mainly due to net foreign exchange losses.

The share of loss from associates increased due to a drop in gross margins from the storage and shipment of metals and lower exchange gains.

The share of results of joint venture reversed from a profit of S$0.6 million in 1H FY17 to a loss of S$1.3 million in 1H FY18. This was due to the protracted slowdown in the oil and gas industry, which resulted in significantly lower chartering rates secured in 1H FY18 compared to that in the previous corresponding period in 1H FY17.

Taking into consideration the aforementioned, the Group recorded a net loss attributable to owners of the Company of S$9.1 million in 1H FY18 compare with a net loss of S$0.4 million in 1H FY17. The net loss was mainly due to the provision for impairment loss amounting to S$6.2 million, share of loss of joint venture amounting to S$1.3 million, the amortisation of customer relationship of S$0.7 million, and losses from the warehousing and logistics segment.

Other comprehensive income for foreign currency translation and share of foreign currency translation of associates was a result of the translation of the financial statements of the foreign subsidiaries and associates from its functional currencies.

2Q FY2018 vs 2Q FY2017

The Group's revenue grew 51.8% to S$18.1 million for the second quarter ended 30 November 2017 ("2Q FY18") from S$11.9 million for the second quarter ended 30 November 2016 ("2Q FY17"), This was mainly due to the addition of port operations TNS and higher revenue contributions from Marquis and Wuzhou Xing Jian.

Cost of sales in 2Q FY18 increased by 49.5% to S$15.2 million from S$10.1 million in 2Q FY17. The significant increase was due to the additional expenses from the operations of TNS, Marquis and Wuzhou Xing Jian.

For 2Q FY18, the Group's gross profit increased by 64.6% to S$3.0 million in 2Q FY18 from S$1.8 million in 2Q FY17. This was driven by higher revenue contribution. The composite gross margin slightly increased from 15.0% in 2Q FY17 to 16.3% in 2Q FY18.

Other income arising from interest income, grant income, and gain on disposal of fixed assets, decreased from S$0.4 million in 2Q FY17 to S$0.2 million in 2Q FY18.

Marketing and distribution costs increased from S$43,000 in 2Q FY17 to S$56,000 in 2Q FY18. This was mainly due to the higher expenses incurred on marketing by TNS and Wuzhou Xing Jian.

Administrative expenses increased by S$7.2 million to S$9.4 million in 2Q FY18 from S$2.3 million in 2Q FY17. This was mainly due to the provision for impairment loss in the joint venture for the liquefied gas carrier vessel, Ocean Latitude, of S$6.2 million, increase in staff costs with the addition of TNS and the ramp up of production at Wuzhou Xing Jian, as well as the increase in amortisation of intangible assets.

Finance costs increased from S$0.3 million in 2Q FY17 to S$0.4 million in 2Q FY18, with additional financing cost incurred by Wuzhou Xing Jian and TNS.

The share of results of associate reversed from a profit of S$42,000 in 2Q FY17 to a loss of S$0.1 million in 2Q FY18. This was mainly due to the decrease in gross margin from storage and shipment of metals and lower exchange gain.

The share of results of joint venture was a loss of S$0.6 million in 2Q FY18 as the chartering rate for the liquefied gas carrier vessel was renewed at a significantly lower level in 2Q FY18 as compared to 2Q FY17.

As a result of the above, the Group recorded a net loss attributable to owners of the Company of S$7.9 million in 2Q FY18 as compared to a net loss of S$0.6 million in 2Q FY17. This was mainly due to the provision for impairment loss of S$6.2 million, share of loss of joint venture amounting to S$0.6 million, the amortisation of customer relationship of S$0.3 million, and losses from the warehousing and logistics segment.

Statement of Financial Position

Non-current assets increased S$4.7 million from S$137.3 million as at 31 May 2017 to S$142.0 million as at 30 November 2017. The improvement was mainly due to an increase in property, plant and equipment arising from the redevelopment of the 39 Benoi Road property, the purchase of fixed assets for the operations in Wuzhou Xing Jian and for the warehousing & logistics division in Singapore. The increase was partially offset by (i) the decrease in investment in joint venture due to the impairment loss of S$6.2 million and the share of loss for the period under review, and (ii) the decrease in land use rights and intangible assets due to amortisation.

Current assets increased S$1.6 million from S$32.8 million as at 31 May 2017 to S$34.4 million as at 30 November 2017. This was mainly due to the increase in trade and other receivables resulting from (i) higher trade receivables from Wuzhou Xing Jian due to higher revenue, and (ii) an additional loan of S$1.4 million due to the Group from Gas Aries Limited ("Gas Aries"), a subsidiary of Ocean Latitude. The increase was partially offset by the decline in cash and cash equivalents from S$10.6 million as at 31 May 2017 to S$6.2 million as at 30 November 2017, which was attributed to the redevelopment of the 39 Benoi Road property and the purchase of fixed assets.

Non-current liabilities decreased from S$53.8 million as at 31 May 2017 to S$46.1 million as at 30 November 2017. This was mainly due to the reclassification of the final instalment of a term loan to current borrowings, as well as the repayment of borrowings and finance lease liabilities. The decrease was partially offset by additional loans undertaken for the redevelopment of 39 Benoi Road property.

Current liabilities increased by S$22.5 million from S$28.0 million as at 31 May 2017 to S$50.5 million as at 30 November 2017. The increase was mainly due to (i) the reclassification of a non-current term loan due for renewal within the next twelve months, and additional loans undertaken for working capital purposes in Wuzhou Xing Jian and local subsidiaries, (ii) the increase in trade and other payables arose from Wuzhou Xing Jian, and (iii) higher payables due to the builder on the redevelopment of 39 Benoi Road property. This was offset by (i) the decrease in other liabilities due to payment of bonus accrued in the previous year, and (ii) the repayment of borrowings and finance lease liabilities.

Shareholder's equity decreased from S$88.3 million as at 31 May 2017 to S$79.9 million as at 30 November 2017. The decrease was mainly due to the losses for the period under review.

Statement of Cash Flows

1H FY2018 vs 1H FY2017

During 1H FY18, the Group's net cash generated from operating activities was S$5.7 million. This comprised positive operating cash flows before changes in working capital of S$3.3 million, adjusted by net working capital inflow of S$2.8 million and income tax paid of S$0.4 million.

Net cash used in investing activities was S$15.7 million in 1H FY18. This was mainly due to the cash outlay for the redevelopment of 39 Benoi Road property, and the purchase of fixed assets during the period under review.

Net cash generated from financing activities was S$5.6 million in 1H FY18. This was mainly due to the proceeds from bank borrowings of S$9.7 million for the redevelopment of 39 Benoi Road property, working capital purposes in Wu Zhou Xing Jian and Gas Aries, which was partially offset by the repayment of loans, finance leases and interest expenses.

2Q FY2018 vs 2Q FY2017

The Group's net cash generated from operating activities for 2Q FY18 was S$10.8 million. This comprised positive operating cash flows before changes in working capital of S$1.5 million, adjusted by net working capital inflow of S$9.5 million and income tax paid S$0.3 million.

Net cash used in investing activities of S$11.4 million in 2Q FY18 was mainly due to the cash outlay for the redevelopment of 39 Benoi Road property, and the purchase of fixed assets.

Net cash used in financing activities of S$1.4 million in 2Q FY18 was mainly attributed to repayment of loans and finance leases, and interest paid.

Commentary

The redevelopment of the 39 Benoi Road warehouse cum office property has been completed, and the Group began managing the storage space in late 2017. The construction of the vehicular link to connect the 40-foot container ramp from 39 Benoi Road warehouse property to that of 30 Pioneer Road warehouse property will be completed by the third quarter of financial year 2018. On completion of the vehicular link, Viva Industrial Real Estate Investment Trust shall pay the Group S$3 million and share the maintenance and repair costs of the ramp.

As the focus is on operating businesses with good growth potential, the Group will be seeking shareholders’ approval in the upcoming extraordinary general meeting, for the proposed divestment of its 50% stake in the joint venture, Ocean Latitude Limited, which owns the liquefied gas carrier vessel.

In late December 2017, the Group invested in a joint venture, G-Chem Logistics Pte. Ltd., to carry out hazardous chemicals warehousing and logistics services for packed products, laden ISO Tanks and chemical drumming. The Group believes that the horizontal expansion within the specialized chemicals space will augment growth in its core warehousing and logistics business.