Material Adjustments To The Financial Statements and Dividend Announcement for Quarter Ended 30 September 2017
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Statement of Comprehensive Income
Review of Performance
Review of Performance
Results for 3Q2017 versus 3Q2016
The Group's revenue increased 116% from S$17.1 million in 3Q2016 to S$36.8 million in 3Q2017 mainly contributed by 58% increase in sales volume and 36% increase in average selling price in 3Q2017, led by the change in sales mix and increase in steel prices as well as increase in export sales volume.
Gross profit went up to S$2.6 million in 3Q2017 compared to S$0.5 million in 3Q2016 contributed by the increase in sales volume and improvement in gross profit margin to 7% in 3Q2017 as compared to 3.1% achieved in 3Q2016.
Other Operating Income
Other operating income decreased from S$2.7 million in 3Q2016 to S$1.9 million in 3Q2017. This was mainly due to the decline in warehousing and rental income of S$0.3 million and reduced foreign exchange gain of S$0.5 million.
Distribution, Administrative, Other Operating and Finance Expenses
The Group's distribution expenses increased in tandem with the increase in sales volume in 3Q2017.
There were no significant changes in administrative expenses compared to previous corresponding quarter.
Other operating expenses increased from S$2.1 million in 3Q2016 to S$13.2 million in 3Q2017, mainly due to expenses incurred in relation to the following extraordinary items:
- On 9 September 2017, the Company announced that it had entered into a conditional agreement with Esteel Enterprise Pte. Ltd. ("Purchaser") to dispose of all 42,145,518 ordinary shares held by its subsidiary, HG Metal Pte Ltd in the issued and paid-up share capital of BRC Asia Limited ("BRC") at the consideration of S$0.925 per BRC Share. In view of the intended disposal, the Group recognised an impairment loss of S$9.9 million in 3Q2017 in respect of the remaining carrying value of its investment in BRC and the expected proceeds from the disposal. The disposal was duly approved by the Company's shareholders at the extraordinary general meeting ("EGM") held on 25 October 2017. Pursuant to the disposal, BRC has ceased to be an associated company of the Group.
- In line with the proposed disposal of the BRC shares, the currency translation reserve and fair value reserve of S$0.8 million previously recorded in other comprehensive income were reclassified to other operating expenses upon reclassification of the investment in associate to investment held for sale.
The Group posted a net loss after tax of S$10.9 million in 3Q2017 as compared to a net loss after tax of S$0.2 million in 3Q2016 mainly due to reasons explained above.
Results for YTD 2017 versus YTD 2016
Revenue and Gross Profit
The Group achieved revenue of S$120.6 million in YTD2017 as compared to S$72.7 million in YTD2016, contributed by 23% increase in sales volume and 35% increase in average selling price in YTD2017.
Gross profit increased to S$6.9 million in YTD2017 from S$4.1 million in YTD2016, driven by higher revenue registered in YTD2017.
Other Operating Income
Other operating income decreased from S$7.1 million in YTD2016 to S$6.5 million in YTD2017. This was mainly due to lower warehousing and rental income, reduced gain from disposal of fixed assets and other miscellaneous income amounting to S$1.0 million. These reductions were partially offset by the increase in fair value gain on forward currency contracts of S$0.4million.
Distribution, Administrative Expenses, Other Operating and Finance Expenses
The Group's distribution expenses went up to S$0.4 million in YTD2017 from S$0.2 million in YTD2016, in tandem with the increase in sales volume in YTD2017.
There was no significant increase in administrative expenses as compared to previous corresponding period.
Other operating expenses increased from S$6.6 million in YTD2016 to S$18.7 million in YTD2017, primarily due to the impairment loss and reclassification of currency translation reserve and fair value reserve arising from the proposed disposal of the investment in BRC amounting to S$10.7 million as mentioned above, as well as an increase in foreign exchange loss in current period. The weakening of the US Dollar against the Singapore Dollar has contributed to the foreign exchange loss for current period as the Group is at net USD asset position.
The Group made full repayment of certain bank loans in last financial year. This led to the decline in finance expenses in YTD2017 as compared to YTD2016.
The Group posted a net loss after tax of S$12.1 million in YTD2017, compared to a net profit after tax of S$0.1 million in YTD2016, mainly due to the impairment loss for the proposed disposal of its equity interest in an associated company, BRC.
As at 30 September 2017, the Group's inventory on hand increased to S$18.1 million as compared to S$14.2 million as at 31 December 2016 in view of stock replenishments in YTD2017 to support the increase in business volume.
Trade and other receivables increased in line with higher revenue to S$40.9 million as at 30 September 2017 as compared to S$34.8 million as at 31 December 2016.
Trade and other payables increased to S$17.9 million as at 30 September 2017 compared to S$14.0 million as at 31 December 2016.
There were no outstanding bank borrowings as at 30 September 2017.
Statement of Cash Flows
The net cash flows used in operating activities was S$7.3 million in YTD2017 as compared to net cash flows used in operating activities of S$3.7 million in YTD2016. This was mainly attributable to the increase in trade and other receivables and inventories of S$7.4 million and S$3.9 million respectively, offset by increase in trade and other payables of S$4.0 million.
Net cash flows generated from investing activities for YTD2017 was S$0.8 million, mainly derived from dividends received from a quoted investment.
Net cash flows used in financing activities for YTD2017 was S$3.0 million, primarily for dividend payment of S$0.6 million and net repayment of bank borrowings of S$2.0 million.
The Group's cash and cash equivalents was S$21.4 million as at 30 September 2017 in comparison to S$33.6million as at 30 September 2016.
The global and Singapore economies continue to show signs of improvement. According to the advance estimates released by the Ministry of Trade and Industry on 13 Oct 2017, Singapore economy grew by 4.6% on a year-on-year basis in the 3rd quarter of 2017, higher than the 2.9% achieved in 2Q 2017. This was driven mainly by the growth in the manufacturing output and improvement in services sector. However, the performance of marine and offshore engineering as well as the construction sectors remained weak. The construction sector continued its downward trend with contraction of 6.3% on a year-on-year basis, extending the 6.8% decline in the previous quarter.
Meanwhile, the latest data released by the Building and Construction Authority(BCA) indicated that the value of construction contracts awarded to-date remains lagging behind the total value of construction contracts of $28 billion to S$35 billion per year forecasted by BCA for 2017.
Against this external backdrop, the Group expects the operating environment for the steel industry to remain challenging as the demand from various industry sectors remain subdued. The volatility in US Dollar and international steel prices, intensifying local competition are factors that will continue to pose challenges to the businesses of the Group.
With the divestment of the two investment in associates, namely BRC Asia Limited and Pos-Sea Pte Ltd as announced on 9 September 2017 and 4 October 2017 respectively, the Group will remain focused in growing its core businesses in steel trading and related value added services while continue to rationalise its business operations and optimise its inventory holding.
The Group will continue to seek growth opportunities, locally or overseas.