Unaudited Financial Statements and Dividend Announcement for the Half Year Ended 30 June 2017 ("1H2017")
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Profit & Loss
Review of Performance
Review of results of operations
The Group’s revenue for 1H2017 decreased by 23.6% or US$2.5 million to US$8.2 million, from US$10.7 million for 1H2016. This was mainly due to a significant decrease in total revenue contribution by the Subsea, Subsurface and Wells and Facilities business segments of US$3.3 million. The decrease was partially offset by the increase in revenue from Renewables segment of US$0.8 million.
Gross profit and gross profit margin
The Group’s gross profit for 1H2017 decreased by 18.8% or US$0.5 million to US$2.2 million, from US$2.7 million for 1H2016. This was consistent with the overall decrease in revenue.
The Group’s gross profit margin remained relatively stable, increasing slightly by 1.6 percentage points, from 25.3% for 1H2016 to 26.9% for 1H2017.
The Group’s distribution expenses decreased by US$0.1 million or 37.3%, from US$0.3 million in 1H2016 to US$0.2 million in 1H2017. The decrease was mainly due to lower business development expenses and marketing costs incurred as a result of reduced business activities in selective geographical markets.
The Group’s administrative expenses decreased by US$0.5 million or 12.5%, from US$3.7 million in 1H2016 to US$3.2 million in 1H2017 mainly due to the reduction in overhead costs, particularly salaries and office related expenses as a result of the continued restructuring through reorganisation and implementation of certain cost cutting measures.
Other income decreased by US$0.4 million or 79.9%, from US$0.5 million in 1H2016 to US$0.1 million in 1H2017. The decrease was mainly due to a one-off write back of the FY2015 bonus provision in 1H2016.
Finance costs increased by US$0.2 million from US$0.1 million in 1H2016 to US$0.3 million in 1H2017. The significant increase in finance costs was mainly due to the interest arising from the drawdown of a term loan in 2H2016 in relation to the acquisition of freehold land and a production facility in Malaysia.
Income tax credit
The Group recorded an income tax credit of US$74,000 in 1H2016 due to the tax refund, as compared to Nil 1H2017.
Loss after tax
As a result of the above, the Group recorded a loss after tax of US$1.4 million in 1H2017, an increase of 69.9% or US$0.6 million as compared to a loss after tax of US$0.8 million in 1H2016.
Review of Consolidated Statement of Financial Position
The Group’s non-current assets increased by US$0.6 million, from US$10.3 million as at 31 December 2016 to US$10.9 million as at 30 June 2017. The increase was mainly due to the investment in joint venture of US$0.6 million pertaining to the production enhancement project in Block VIIB, West Georgia.
The Group’s current assets decreased by US$1.6 million, from US$15.7 million as at 31 December 2016 to US$14.1 million as at 30 June 2017. The decrease was mainly due to the following:
- a decrease in trade and other receivables of US$1.8 million due to the improved debt collection from project customers; and
- an increase in inventories of US$0.1 million
The Group’s non-current liabilities increased by US$0.9 million, from US$3.6 million as at 31 December 2016 to US$4.5 million as at 30 June 2017 mainly due to the increase in long term other payables of US$0.9 million.
The Group’s current liabilities decreased by US$0.4 million, from US$15.3 million as at 31 December 2016 to US$14.8 million as at 30 June 2017. The decrease was mainly due to the following:
- a decrease in liabilities for trade bills discounted with recourse of US$1.1 million as less projects are now funded under this credit facility arrangement;
- a decrease in bank loan and advances of US$0.5 million;
- an increase in trade and other payables of US$1.0 million; and
- an increase in loan from directors of US$0.2 million.
The Group reported a negative working capital of US$0.7 million as at 30 June 2017, as compared to a positive working capital of US$0.5 million as at 31 December 2016.
Based on the Group’s internal budget and cash flow planning, the board of directors (“Board”) of the Company believe that the Group will be able to meet its short-term obligations as and when they fall due. Barring unforeseen circumstances, the Board believes that the Group’s negative working capital position will be overcome in the longer term as the Group realises the benefits from the investment in the production enhancement project in Block VIIB, West Georgia and the cessation of losses from the Group’s subsidiary, AWT International Pty Ltd (“AWT”), following the appointment of an Administrator on 15 May 2017.
Review of cash flows
Net cash from operating activities in 1H2017 amounted to US$1.8 million as compared to US$0.2 million for 1H2016. The Group had a net cash outflow of US$0.7 million from its operating activities before changes in working capital. Working capital movement included a decrease in trade and other receivables of US$1.8 million, an increase in trade and other payables of US$2.2 million, a decrease in trade bills discounted with recourse of US$1.1 million and an increase in inventories of US$0.1 million.
Net cash used in investing activities in 1H2017 amounted to US$1.5 million due to additions of plant and equipment and intangible assets of US$0.8 million and US$0.1 million respectively. Furthermore, the Group invested US$0.6 million in the joint venture pertaining to the production enhancement project in Block VIIB, West Georgia.
Net cash used in financing activities for 1H2017 amounted to US$0.4 million mainly due to the repayment of bank borrowings of US$0.6 million which was partially offset by the loan from directors of US$0.2 million.
As a result of the above, the Group’s cash and cash equivalents decreased by US$0.1 million, from a deficit of US$0.3 million as of 31 December 2016 to a deficit of US$0.4 million as of 30 June 2017, net of fixed deposits pledged and bank overdrafts.
Commentary On Current Year Prospects
Oil price volatility continues to impact the sector as field activities are postponed pending pricing stability with many oil majors and operators undertaking extensive restructuring and numerous activities deferred. These have affected the Group, particularly the Subsurface and Wells and Facilities business segments. In May 2017 AWT, a 60.75% subsidiary of the Company, voluntarily appointed an administrator (“Voluntary Administration”). This reduces the possibility of future operating losses being recognised by the Group. In July 2017, the Company entered into a Deed of Company Arrangement to novate and settle certain obligations and receive certain assets of AWT. The Company does not expect any material impact on its operational performance and the consolidated net tangible assets per share and earnings per share of the Group for the current FY2017 as a result of the Voluntary Administration.
In response to prevailing challenging market conditions we restructured the Group through reorganisation and implementation of certain cost cutting measures. We have reduced our operational footprint in the Subsurface and Wells business segment, and focused on the Asia and Middle East markets. We have positively grown our revenue in the profitable Renewables segment by 350% from $0.2m in 1H2016 to $0.9m in 1H2017, being 11% of the Group’s revenue (1H2016: 2%). We have successfully streamlined certain support functions to be centrally managed by our Singapore headquarters, and this has significantly reduced administrative expenses. We now have the business structure appropriate to current market conditions.
In December 2016, we successfully acquired a 50% participating interest in Block VIIB production sharing contract in West Georgia. The acquisition allows the Group to strategically secure longer duration contracting opportunities and complimentary service offerings. During 1H2017, the transfer of the participating interest was completed and we have commenced initial field activities. Barring any unforeseen circumstances, it is expected that this project will make a material contribution to the Group’s revenue in FY2018.
Our business outlook is expected to remain challenging. In conjunction with our continued efforts to manage costs, we will continue to implement our growth strategy of marketing our expanded portfolio of services to existing clients and new markets as well as strengthening our offering of contracting services. Furthermore, the Company intends to actively increase our marketing activities to diversify our revenue base especially in the area of mature field production enhancement solutions, sustainable field abandonment and the renewable energy sector.