Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.
Review of Statement of Comprehensive Income
Breakdown of Revenue, Gross Profit and Gross Profit Margin by business segments
Revenue decreased by RM57.1 million or 81.5%, from RM70.1 million in 1Q2012 to RM13.0 million in 1Q2013, due to a decrease in revenue contribution of RM58.9 million from the Offshore Engineering Sector partly offset by an increase in revenue contribution of RM1.8 million from the Mobile Natural Gas Sector.
Revenue from the Offshore Engineering Sector ("OES") decreased by 91.3% as revenue for the current financial period were contributed by the provision of integrated engineering services or "IES" only compared with the corresponding financial period in which the Group's revenue were predominantly contributed by two major turnkey contracts; i.e. the "Provision for Decommissioning SM-4 and SMV-A Platforms Project" and "Supply, Delivery, Installation and Commissioning of Refurbished Wellhead Platform, Pipeline and Host Tie-Ins at D35 for D21 Project" (collectively, the "Projects"). The Projects, in aggregate, contributed revenue of RM55.2 million in 1Q2012. For this current financial year, the revenue from turnkey engineering projects is expected to come in from 2Q2013.
Revenue from the Mobile Natural Gas Sector increased by 31.9% due mainly to the increase in prices and the sales volume of compressed natural gas ("CNG"). The volume of CNG supplied increased by 6.9% in 1Q2013.
Gross profit decreased by RM4.7 million or 52.2%, from RM9.0 million in 1Q2012 to RM4.3 million in 1Q2013. The decrease was due mainly to decrease in contribution from the Offshore Engineering Sector of RM6.0 million partly offset by an increase in contribution of RM1.3 million from the Mobile Natural Gas Sector.
Notwithstanding the decrease in gross profit, the Group's gross profit margin increased from 12.9% in 1Q2012 to 33.3% in 1Q2013. Gross profit margin from the Offshore Engineering Sector increased by 21.4% as comparatively, IES typically contributes higher gross profit margin as opposed to turnkey services.
Gross profit margin from the Mobile Natural Gas Sector increased by 14.3% due mainly to the increase in the supply of CNG on a Take & Pay basis, as opposed to a Throughput basis. As between the two, the Take & Pay basis contributes a higher gross profit margin.
Other Operating Income
Other operating income increased by approximately RM0.2 million or 42.8%, from RM0.4 million in 1Q2012 to RM0.5 million in 1Q2013 due mainly to forfeiture of deposits from an external party.
An exchange gain of RM0.3 million arose from predominantly trade transactions in 1Q2013 compared to an exchange gain of RM0.2 million recorded in 1Q2012. The exchange gain as observed in 1Q2013 reflected the strengthening of the US dollar against the Ringgit Malaysia which had a positive impact on the Group's US dollar denominated receipts.
Administrative expenses increased by RM0.9 million or 20.4%, from RM4.5 million in 1Q2012 to RM5.4 million in 1Q2013 due mainly to increase in employee costs of RM0.6 million and corporate expenses of RM0.3 million. The increase in employee costs is due to the redeployment of staff from projects to general staff. The increase in corporate expenses was predominantly due to legal and stamping fees associated with the acquisition of the Group's property for use as its headquarters in 1Q2013.
Selling and distribution costs
Selling and distribution costs represent commissions payable to agents for sales made for the Group. Selling and distribution costs of RM0.2 million and RM0.1 million was recorded for 1Q2013 and 1Q2012 respectively.
Share of Associated Companies' Results, Net of Tax
Share of associated companies' profits, net of tax decreased by RM0.2 million or 21.4%, from RM1.1 million in 1Q2012 to RM0.9 million in 1Q2013 as a result of a slight decrease in profit contribution from CNG Vietnam Joint Stock Company.
Finance costs increased from RM0.1 million in 1Q2012 to RM0.3 million in 1Q2013 mainly due to the increase in bank borrowings for the financing of the D21 Project, the acquisition of capital assets for the Group's Mobile Natural Gas Sector and mortgage finance of the Group's newly acquired property for use as its headquarters.
Profit Before Taxation
Profit before taxation decreased by RM5.8 million or 96.8%, from RM6.0 million in 1Q2012 to RM0.2 million in 1Q2013 due mainly to (i) lower revenue, (ii) higher administrative expenses, (iii) higher selling and distribution costs, and (iv) lower share of associated companies' profits net of tax, partially offset by higher gross margins, higher other operating income and exchange gain.
Review of Statement of Financial Position
Net book value of intangible assets remained substantially the same at RM 5.3 million between 31 December 2012 and 31 March 2013. Amortisation charges for 1Q2013 of RM0.1 million was offset by exchange gain of RM0.1 million.
Net carrying value of property, plant and equipment increased by RM8.9 million to RM32.0 million as at 31 March 2013. The increase was mainly due to the Group's acquisition of a property for its new headquarters in 1Q2013, which amounted to approximately RM10.0 million, partially offset by a disposal of property, plant and equipment amounting to RM0.3 million, and the reclassification of RM0.2 million of equipment to inventories for disposal.
Net book value of associated companies increased by RM0.9 million to RM19.2 million as at 31 March 2013 from RM18.3 million as at 31 December 2012. The increase was due to current period's share of associated companies' results.
The non-current fixed deposits of RM1.5 million relates to fixed deposits pledged for the issuance of guarantee bond for a gas project in Indonesia.
Inventories increased marginally by RM0.1 million to RM1.4 million as at 31 March 2013 from RM1.3 million as at 31 December 2012.
Work-in-progress, which is mainly related to feasibility studies in connection to the exploration and production activities of stranded gas as at 31 March 2013 was RM0.9 million, as compared to RM0.1 million as at 31 December 2012 due to unbilled services rendered and the amount yet to be collected from customers for the project work performed to-date.
Trade and other receivables decreased by RM9.7 million to RM78.0 million as at 31 March 2013 from RM87.7 million as at 31 December 2012, due mainly to the lower volume of offshore engineering services activities undertaken by the Group in 1Q2013.
Prepayments which comprised prepaid operating expenses of RM3.8 million as at 31 December 2012 was fully expensed out during 1Q2013.
Fixed deposits increased by RM3.9 million as at 31 March 2013 from approximately RM47k as at 31 December 2012. The increase was mainly due to the fixed deposits pledged for the issuance of a guarantee bond for the D21 Project.
Capital and Reserves
Exchange translation reserve increased by RM0.2 million to (RM2.0) million as at 31 March 2013 from (RM2.2) million as at 31 December 2012 mainly due to appreciation of the US dollar against the Ringgit Malaysia which had a positive impact on the Group's US dollar denominated revenue.
Retained profits increased by RM0.2 million to RM7.1 million as at 31 March 2013 from RM6.9 million as at 31 December 2012 due to profits generated from operating activities during the current financial period.
Non-Current Liabilities and Current Liabilities
Bank borrowings (including non-current portion) increased by RM3.2 million to RM20.0 million as at 31 March 2013 from RM16.8 million as at 31 December 2012 due to additional bank borrowings obtained for the (i) the acquisition of capital assets for the Group's Mobile Natural Gas Sector; and (ii) acquisition of the Group's new headquarters during 1Q2013 for the total amount of RM8.2 million, and partially offset by the repayment of bank borrowings of RM5.0 million.
Trade and other payables (including non-current portion) decreased by RM7.6 million to RM79.3 million as at 31 March 2013 from RM86.9 million as at 31 December 2012, which was in line with the decrease in the volume offshore engineering services activities undertaken by the Group in 1Q2013.
Current tax payable decreased by approximately RM0.4 million to RM0.1 million as at 31 March 2013 from RM0.5 million as at 31 December 2012, due to lower provision for taxation for 1Q2013 and tax paid in respect of previous financial year's provision for taxation.
The Group had a positive working capital of approximately RM21.9 million as at 31 March 2013 as compared with approximately RM24.2 million as at 31 December 2012.
Review of Statement of Cash Flows
The net cash generated from operating activities for 1Q2013 was RM5.2 million. This was mainly due to the decrease in operating receivables of RM12.7 million, partially offset by the decrease in operating payables of RM6.8 million and the increase in work-in-progress of RM0.8 million. The net cash used in investing activities which amounted to RM10.6 million was mainly due to the acquisition of the Group's new headquarters. The net cash generated from financing activities was mainly due to the RM8.2 million bank borrowings obtained by the Group, partially offset by the repayment of bank borrowings amounting to RM5.0 million.
As a result, after taking into account the currency translation difference of RM19k the cash and cash equivalents was RM24.5 million as at 31 March 2013 compared to cash and cash equivalents of RM11.6 million as at 31 March 2012.
The factors that may significantly affect the industry in the next 12 months are as follows:
Barring any unforeseen circumstances, the Directors are optimistic that the outlook of the oil and gas industry is positive for the next 12 months, particularly in the Asian region.
a) Offshore Engineering Sector
The Directors are of the view that the oil and gas industry will likely continue to be vibrant with a significant number of new projects currently under development throughout the Asian region, as local governments are pushing for oil exploration & production to slow down the production decline from mature oil fields. Similarly, investment in gas fields is also being accelerated as LNG demand and the resultant LNG prices are expected to continue to climb. Domestic piped gas prices have reached new heights as natural gas prices from domestic sources have to be gradually brought up to Asian LNG price level. In Malaysia, Petronas is accelerating the development of marginal fields and has embarked on Enhanced Oil Recovery programs to increase the extraction rate of hydrocarbons from existing fields. In India, ONGC has commenced revamp programs for their ageing assets offshore Mumbai. The Group also enjoyed the benefits of the current wave of new field developments in Myanmar through the provision of services under its Jacket and Pipeline Installation Solutions ("JPIS"). During 1Q2013, the Group has seen an increase in contract awards for its IES activities and barring any unforeseen circumstances, this trend is expected to continue in 2Q2013.
The Group is entering into several strategic alliances to grow its IES business, which includes tapping into underwater dry welding technology from Russia for the repair of damaged structures and a subsea excavation technology from the UK for pipeline trenching and post burial needs. The Company intends to build on this momentum and will continue to identify and build strategic relationships with industry partners to provide innovative and cost effective services to the oil and gas industry in the region.
The Group is executing the balance of work in the D21 Project and the tie-in of all wells was completed in 1Q2013. The current offshore campaign is scheduled to start in May 2013 to complete the balance of Hook Up and Commissioning work and close out the project. The Group continues to work with Petronas Carigali Sdn Bhd. and its subcontractor to recover costs related to the additional works, standby time and materials replacement costs incurred in the D21 Project. The Group will provide timely updates as and when there are further material developments and/or financial impact pursuant to the aforesaid cost recovery exercise. Meanwhile, engineering work has already started since receipt of the letter of award for the Malikai Project (as announced on SGXNET on 1 March 2013) and the official contract is scheduled to be signed at end of May 2013.
b) Petroleum Sector
The approval from Pertamina for the drilling of twin well at CLS1, workover at PBN-1 and reprocessing of data has made way for the tenders for services to start. Barring unforeseen circumstances, both oil and gas production testing are expected in 4Q 2013, from the two structures where discoveries were previously made.
The Group also continues to work towards securing its stranded gas sources to increase the sales volume of CNG and the profitability of its Mobile Natural Gas business in West Java. Sales of CNG by the Group are expected to further increase due to higher demand from both existing and new customers.
c) Renewable Sector
The application for the licence of the first biomass plant in Vietnam is ongoing and is expected to be completed in 2Q2013. Plant fabrication is expected to start, as soon as the licence is issued by the local authorities.
The order book of the Group amounted to approximately USD126 million as at the date of this announcement.