Third Quarter Financial Statements and Dividend Announcement for Financial Period Ended 30 September 2018
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Statement of Comprehensive Income
Review of Performance
Review of Performance
Acquisition of a subsidiary
On 4 September 2018, the Group's subsidiary, HG Metal Investments Pte Ltd ("HGM Investments"), acquired 51.04% of the issued share capital of First Fortune International Co. Ltd ("FFI"), a company incorporated in Myanmar under the Myanmar Investment Law with the approval from the Myanmar Investment Commission. Following the acquisition, FFI has become a subsidiary of the Group.
On 18 September 2018, HGM Investments together with its joint venture partners, Fortune Peak Investments Pte. Ltd. and YNJ Engineering Co. Ltd subscribed for 9,764, 5,540 and 3,827 shares of USD100 each respectively for an aggregate consideration of USD1,913,100. On 4 October 2018, the parties further subscribed for 9,765, 5,540 and 3,826 shares of USD100 each respectively for an aggregate consideration of USD1,913,100 towards the increase in the paid-up ordinary share capital of FFI.
As at date of this announcement, the issued and paid-up ordinary share capital of FFI is USD4,013,700, comprising 40,137 shares.
The Group has accounted for its investment in FFI in the financial statements for financial period ended 30 September 2018.
Results for 3Q2018 versus 3Q2017
Revenue and Gross Profit
The Group recorded revenue of S$37.6 million in 3Q2018 as compared to S$36.8 million in 3Q2017, representing a 2.2% increase in revenue. This was driven by a 20% increase in average selling price which more than compensated a 15% reduction in sales volume.
Despite higher revenue achieved in 3Q2018, the gross profit for 3Q2018 was S$2.3 million as compared to gross profit of S$2.6 million in 3Q2017 due to decline in gross profit margin to 6.0% in 3Q2018 from 7.0% in 3Q2017. The increase in weighted average cost of inventory and intense industry competition continued to add pressure on the profit margin.
Other Operating Income
Other operating income declined to S$1.4 million in 3Q2018 from S$1.9 million in 3Q2017 mainly due to the decline in warehousing and rental income.
Distribution, Administrative, Other Operating and Finance Expenses
There were no significant changes in administrative expenses and distribution expenses in 3Q2018 as compared to previous corresponding quarter.
Other operating expenses decreased significantly from S$13.4 million in 3Q2017 to S$2.1 million in 3Q2018, mainly due to the absence of exceptional items incurred in 3Q2017 on impairment of its investment in associates of S$10.9 million and fair value loss on foreign currency forward contracts and foreign exchange loss of S$0.6 million.
The increase of finance costs in 3Q2018 was due to higher borrowing cost incurred on trade financing.
The Group posted a net loss after tax of S$0.9 million in 3Q2018 compared to a net loss after tax of S$10.9 million in 3Q2017 due to reasons afore-mentioned.
Results for YTD 2018 versus YTD 2017
Revenue and Gross Profit
The Group achieved revenue of S$128.7 million in YTD2018 as compared to S$120.6 million in YTD2017, contributed by 21% increase in average selling price sales which more than compensated a 12% reduction in sales volume.
Gross profit increased to S$7.4 million in YTD2018 from S$6.9 million in YTD2017, driven by higher revenue registered in YTD2018.
Other Operating Income
Other operating income decreased from S$6.5 million in YTD2017 to S$5.2 million in YTD2018. This was mainly due to lower warehousing and rental income, reduced fair value gain on forward currency contracts and other miscellaneous income.
Distribution, Administrative Expenses, Other Operating and Finance Expenses
The Group's distribution expenses increased to S$0.6 million in YTD2018 from S$0.4 million in YTD2017. The increase was mainly attributed to higher demand for out-sourced logistics services to support volume growth for local sales in YTD2018.
There was no significant increase in administrative expenses as compared to previous corresponding period.
Other operating expenses reduced from S$18.9 million in YTD2017 to S$6.8 million in YTD2018, primarily due to the absence of extraordinary items incurred in 3Q2017.
The finance costs increased to S$0.06 million in YTD2018 due to higher borrowing on trade financing.
The Group recorded a net loss after tax of S$1.2 million in YTD2018, compared to a net loss after tax of S$12.1 million in YTD2017.
The Group's non-current assets increased to S$22.2 million as at 30 September 2018 compared to S$12.5 million as at 31 December 2017. The increase was mainly attributed to the investment in bonds of S$7.0 million and increase in property, plant and equipment, land use rights of S$2.7 million in total. The Group's investments in bonds issued by statutory board and government linked companies listed in SGX are pledged as security for trade facilities granted by a bank. The increase in property, plant and equipment, as well as land use rights mainly relate to the construction of a new steel fabrication facilities in Myanmar.
As at 30 September 2018, the Group's inventory on hand increased to S$33.5 million as compared to S$17.6 million as at 31 December 2017. This was mainly due to stock replenishment to support the projected growth in sales volume.
Trade and other receivables increased to S$50.1 million as at 30 September 2018 as compared to S$44.3 million as at 31 December 2017 in tandem with increase in revenue.
Trade and other payables increased to S$16.9 million as at 30 September 2018 compared to S$14.5 million as at 31 December 2017 in line with increase in inventory holdings.
Bank borrowings for trade financing increased to S$11.0 million as at 30 September 2018 in tandem with increase in inventory level and higher purchases towards period end.
Non-controlling interest increased to S$1.4 million as at 30 September 2018 on account of amount attributable to the minority shareholders of FFI.
Statement of Cash Flows
Net cash flows used in operating activities was S$22.5 million in YTD2018. This was mainly attributable to the increase in trade and other receivables and inventories of S$6.3 million and S$17.9 million respectively, offset by the increase in trade and other payables of S$2.1 million.
Net cash flows used in investing activities for YTD2018 was S$2.5 million, mainly due to the purchase of investment securities and property, plant and equipment of S$7.1 million and S$1.8 million respectively and partially offset by bank deposits withdrawn from banks of S$6.2 million.
Net cash flows generated from financing activities for YTD2018 was S$11.7 million. This relates mainly to net proceeds from bank borrowings of S$11.1 million and issuance of ordinary shares in a subsidiary of S$0.8 million.
The Group's cash and cash equivalents was S$15.5 million as at 30 September 2018 in comparison to S$21.4 million as at 30 September 2017.
The Group expects the operating environment for the steel industry to be increasing challenging. Based on the macroeconomic review released by the Monetary Authority of Singapore on 26 Oct 2018, the Singapore's economy is expected to expand at a slower pace for the rest of the year and in 2019 due to the negative spill overs from the trade friction between US-China.
The slow recovery of the construction sectors and the property cooling measures announced by the Government in July 2018 continue to dampen demand for steel products. This together with challenges that persist in the marine and offshore industry as well as intense competition among industry players are expected to pose challenges to the Group's business volume and profit margin for the current financial year.
Given the economic uncertainties and volatile industry conditions, the Group will focus on optimise its balance sheet and monitor the risk exposures faced by the business.
On 4 September 2018, the Group through its subsidiary, HG Metal Investments Pte Ltd ("HGM Investments") completed the acquisition of 51.04% of the issued share capital of First Fortune International Co. Ltd ("FFI") for the purpose of establishing a steel rebar cut & bend fabrication facility in Myanmar. The development of the steel fabrication facility is currently underway and progressing well as planned.