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First Quarter Results Financial Statement And Related Announcement 2018

Financials Archive

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Statements of Comprehensive Income

Statements of Financial Position

Overview

Review of Statement of Comprehensive Income

Breakdown by business segments

Three Months ended 31 March 2018 and 31 March 2017

Continuing Operations

Revenue

Total revenue for the Group declined by 30.6% or RM3.3 million from RM10.9 million in 1Q2017 to RM7.6 million in 1Q2018. The Mobile Natural Gas Sector ("MNGS") recorded a 28.9% decrease in revenue from RM9.2 million in 1Q2017 to RM6.5 million in 1Q2018, due mainly to the expiry of a few Gas Sales Agreements during FY2017. The Asset Integrity Management Sector ("AIMS", previously known as Offshore Engineering Sector) recorded a 39.5% decline in revenue from RM1.8 million in 1Q2017 to RM1.1 million in 1Q2018 due mainly to the prolonged downturn in the upstream oil and gas industry.

Gross Profit

The Group's gross profit for 1Q2018 decreased by 18.5% to RM0.7 million from RM0.8 million in 1Q2017. MNGS returned to a gross profit position of RM20,000 in 1Q2018 from a gross loss of RM0.5 million in 1Q2017, as the Group no longer incurred higher operating and delivery cost due to the closure of a major toll bridge for structural repairs in 1Q2017. Gross profit from AIMS decreased by 49.4% from RM1.3 million in 1Q2017 to RM0.7 million in 1Q2018, due mainly to the continued downturn in the upstream oil and gas industry.

The Group's gross profit margin for 1Q2018 marginally improved to 9.1% from 7.8% in 1Q2017, mainly due to the turnaround from a gross loss position for MNGS in 1Q2017 and offset by a decline in AIMS gross profit margin to 62.6% in 1Q2018 from 74.8% in 1Q2017. The lower AIMS gross profit margin is due to proportionately lower gross profit contribution from the Group's proprietary marine growth control products.

Other Operating Income

Other operating income was RM179 thousand in 1Q2018 compared to RM110 thousand in 1Q2017. Other operating income of the Group for 1Q2018 comprised mainly of rental and interest income, and writeback of impairment on property plant and equipment amounting to RM63 thousand.

Administrative Expenses

Administrative expenses in 1Q2018 were RM3.2 million which had decreased by 22.0% as compared to RM4.1 million in 1Q2017. The decrease in administrative expenses was a result of cost reduction initiatives that were undertaken by the Group including: (i) reducing manpower headcount and salary cuts; (ii) rental reduction such as the AIMS Batam supply base; and (iii) disposal of non-essential fixed assets to reduce depreciation expenses. Amortisation of intangible assets decreased by 38.3% to RM37 thousand in 1Q2018 from RM60 thousand in 1Q2017 mainly due to the full impairment of a licensed corrosion control technology no longer in use.

Exchange Gain

The Group recorded an exchange gain of RM0.2 million in 1Q2018 as compared to an exchange gain of RM0.8 million in 1Q2017. This exchange gain arose mainly from trade payables denominated in US Dollars which depreciated against the Malaysian Ringgit.

Other Operating Expenses

Other operating expenses of RM78 thousand for 1Q2018 was due to the write-off of inventory no longer in use. In comparison, there were no significant other operating expenses recorded for 1Q2017.

Share of Results of Associates

Share of results of associates for 1Q2018 recorded a loss of RM25 thousand compared to a loss of RM0.4 million for 1Q2017. These reduced losses reflect an increase in business activities of an AIMS associate for the period under review.

Finance Costs

Finance costs for 1Q2018 reduced by 16.4% to RM148 thousand from RM177 thousand for 1Q2017, which was mainly due to the full settlement of a third-party advance during 1Q2017 and the scheduled repayment of bank loans.

Loss Before Tax

For reasons set out above, the Group recorded a loss before tax of RM2.4 million for 1Q2018 as compared to a loss before tax of RM2.9 million for 1Q2017.

Discontinued Operations

Renewable Energy Sector ("RES")

The Vietnam Biomass Plant ("MK-1 Plant") had been maintaining a low level of briquette production due to the high price of rice husks arising from poor rice production in the Mekong delta throughout FY2017. Furthermore, a feasibility study on the commercialisation of rice husk silica and nano-silica in Vietnam has shown to be not commercially viable. As such the Group has decided to exit from the rice-husk biomass business in Vietnam. The MK-1 Plant is leased to a third party for a two-year period with an option to purchase at the end of the lease period. With the entering into a lease arrangement, the related building and equipment previously listed in property plant and equipment and long-term land use rights have been reclassified as finance lease receivable. The Group is currently in discussions with the BSB Investment and Development Co. Ltd. ("BSB") to effect the purchase and complete the transfer of the MK-1 Plant during FY2018.

During 1Q2018, the Group generated rental income of RM110 thousand from the lease of the MK-1 Plant, which was classified as other operating income.

Exploration and Production Sector ("EPS")

The prolonged low oil price has rendered the Pabuaran KSO commercially unviable. The Group had on 8 January 2018 received a letter from PT Pertamina EP ("PEP") terminating the Operations Cooperation Agreement ("Agreement") in the Pabuaran Operation Area effective 2 January 2018 and has made a claim on the disbursement of a bank guarantee amounting to US$2.34 million. The said letter was served on the basis of PT IEV Pabuaran KSO, a subsidiary of the Group not fulfilling certain conditions and obligations of the Agreement including to spend on a US$18.6 million work program by 11 December 2017. The Group has completed the process of handing over to PEP the Pabuaran Operation Area and its associated materials and documents. With the termination of the Agreement, the Group will exit from EPS. To date, EPS has not generated any revenue.

In aggregate RES and EPS has recorded a loss for 1Q2018 of RM0.2 million, compared to a loss of RM0.8 million for 1Q2017.

Review of Statement of Financial Position

Current Assets

Trade receivables decreased by RM2.8 million to RM15.0 million as at 31 March 2018, from RM17.8 million as at 31 December 2018, due mainly to the settlement of AIMS project invoices. The current portion of other receivables and prepayments increased to RM4.0 million as at 31 March 2018 from RM3.6 million as at 31 December 2017 due mainly to deposits and prepayments for the relocation of the Group's corporate office. Inventories as at 31 March 2018 reduced to RM2.9 million from RM3.1 million as at 31 December 2017 due mainly to a RM78 thousand write-off of marine growth control inventory no longer in use and a reduction of spare parts across various business operations.

Non-Current Assets

Net carrying value of property, plant and equipment decreased by RM0.9 million to RM6.4 million as at 31 March 2018 from RM7.2 million as at 31 December 2017. This was mainly due to depreciation charges of RM0.8 million for the period under review. Finance lease receivable reduced to RM4.8 million as at 31 March 2018 from RM5.1 million as at 31 December 2017 due mainly to currency translation differences as the Vietnam Dong source currency for the finance lease had depreciated against the Malaysia Ringgit during the period under review.

Capital and Reserves

Currency translation reserve reduced to RM0.1 million as at 31 March 2018 from RM0.4 million as at 31 December 2017, mainly due to the appreciation of the Malaysian Ringgit against the Vietnam Dong and Indonesia Rupiah during the period under review.

Accumulated losses for the Group increased by RM2.6 million to RM95.3 million as at 31 March 2018, from RM92.7 million as at 31 December 2017, due to the loss recorded for 1Q2018.

Non-Current Liabilities and Current Liabilities

Bank borrowings decreased by RM80 thousand to RM9.56 million as at 31 March 2018, from RM9.64 million as at 31 December 2017, due to scheduled repayments of bank loans. Finance leases (current and non-current portions) decreased to RM0.15 million as at 31 March 2018 from RM0.18 million as at December 2017 due to scheduled lease payments.

Trade payables decreased by RM3.4 million to RM16.1 million as at 31 March 2018, from RM19.5 million as at 31 December 2017, due mainly to the settlement of AIMS project invoices during 1Q2018.

The Group has a negative working capital of RM7.9 million as at 31 March 2018, compared to a negative working capital of RM6.3 million as at 31 December 2017. This negative working capital position was due to the provision for termination liabilities of RM7.6 million arising from the discontinuation of the Pabuaran KSO recognized at the end of FY2017. Barring any unforeseen circumstances, the Group should be able to meet its working capital commitments for the next 12 months in view of the Group's estimated earnings for FY2018, proceeds from the sale of the corporate office unit in Malaysia and biomass plant in Vietnam, settlement negotiations of termination liabilities and potential corporate exercises.

Review of Statement of Cash Flows

The Group recorded net cash used in operating activities of RM1.0 million for 1Q2018. This was mainly due to: (i) an operating loss before working capital changes of RM1.6 million; (ii) a decrease in operating payables of RM1.0 million; and (iii) an increase in RM0.6 million amount due from an associate; which were partially offset by a decrease in operating receivables of RM2.2 million.

Net cash used in investing activities which amounted to RM0.2 million was mainly due to the net purchase of property, plant and equipment of RM0.2 million. Net cash used in financing activities of RM0.1 million was mainly for repayment of finance leases and bank borrowings.

As a result, after taking into account a currency translation difference of RM0.1 million, the cash and cash equivalents balance was RM2.4 million as at 31 March 2018, as compared to RM7.9 million as at 31 March 2017.

Commentary

Recently, oil price continues to rally due to a combination of continued oil production curbs by OPEC and its non-OPEC allies, growth in global oil demand, reduction in oil inventory, reinstatement of Iran sanctions and fall in oil production from Venezuela. Analysts have raised the forecast to above USD 70/bbl and oil price is currently at its highest level since November 2014.

The Group continues to actively divest all non-profitable assets and implement its new vision to create value through disruptive technologies and transformed the company into a technology-centric organisation that offers advanced technologies and integrated engineering solutions that offers time and cost savings to its customers worldwide. The core technologies developed by the Group for asset integrity management are being introduced to a number of downstream facilities around the region including petrochemical and refineries, which has started to generate major interests from potential customers.

BSB has recently offered to purchase MK-1 Biomass Plant in 2Q2018 as opposed to at the end of the 2-year lease. Negotiation for an earlier divestment is being finalised and will be announced when it materialises.

Asset Integrity Management Sector ("AIMS")

The Group is currently growing both its suite of disruptive technologies and global distribution network, the two most important elements of its new business vision. A number of strategic partnerships is being negotiated and will be announced as soon as they are materialised.

The Group has received a large number of enquiries related to asset integrity management from upstream, midstream and downstream customers as well as decommissioning of ageing assets. The target assets include crude oil storage tanks, offshore jackets, floating production and storage facilities and risers, pipelines and insulated piping and vessels.

The Group will also launch a suite of advanced concrete corrosion solutions and self-healing crack repairs which target the markets of marine and transport infrastructures in 2H2018 under its Infrastructure Integrity Management.

The commercialisation of disruptive technologies will first focus in the Asia Pacific and Middle East regions and will gradually be expanded to other countries in the Western hemisphere.

Mobile Natural Gas Sector ("MNGS")

With the recent change in Indonesian O&G regulations (Minister of Energy and Mineral Resources Regulation No. 4 of 2018 concerning Exploitation of Natural Gas in Downstream Oil and Gas Business Activities) and feed gas supply restrictions, the Group is considering all options to exit this business, given the uncertainties of feed gas supply source and risks associated with the new mobile natural gas landscape. Further news on this divestment will be announced as and when there is any material development.

On the value-added tax (VAT) dispute by PT IEV Gas with the tax authorities, the tax court hearings have been concluded. The parties are awaiting the decision from the panel of judges. Further information will be provided as and when there is any material development.