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Financials

Full Year Results Financial Statement And Related Announcement 2017

Financials Archive

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Statements of Comprehensive Income

Statements of Financial Position

Overview

Review of Statement of Comprehensive Income

Breakdown of Revenue, Gross Profit and Gross Profit Margin by business sectors

Three Months ended 31 December 2017

Twelve Months ended 31 December 2017

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 net book value of the assets to be reclassified as at 31 December 2017 total RM5.8 million whereas the finance lease receivable is computed at RM5.2 million. There is thus a loss of approximately RM0.7 million arising from this finance lease reclassification and is recorded under other operating expenses.

RES revenue for 4Q2017 of RM30 thousand is a 96.4% decline compared to the 4Q2016 revenue of RM0.8 million. In addition, revenue for 12M2017 declined by 70.6% to RM0.4 million compared to RM1.4 million for 12M2016. With the ceasing of briquette production in FY2016, RES has been selling down its remaining stock of rice husk and briquette inventory over the course of FY2017.

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 commenced 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 the Exploration and Production Sector. To date, EPS has no generated revenue.

The termination of the Agreement necessitated the impairment of assets and liability provisioning totalling RM63.2 million, which is made up of: (i) RM46.9 million impairment of oil and gas properties; (ii) RM2.9 million impairment of intangible assets related to a KSO contractual signing bonus; (iii) RM5.4 million impairment of long term receivables related to VAT receivables; (iv) RM2.0 million bank guarantee pledged funds that are written off arising from the claim by PEP on a US$2.34 million bank guarantee; (v) RM0.5 million write-off of inventoriesthat are to be surrendered to PEP; (vi) a RM8.0 million provision for termination liabilities; and was partially offset by a RM2.5 million reversal of accrued payables. The termination of the Agreement also resulted in a write back of RM2.6 million initially provided for decommissioning of the KSO to other operating income.

The exit from RES and EPS has resulted in a loss from discontinued operations of RM62.0 million for 12M2017 compared to a loss of RM25.4 million for 12M2016.

Continuing Operations

Revenue from continuing operations

The Group's revenue for 4Q2017 increased to RM12.1 million from negative revenue of RM0.8 million from 4Q2016. The negative revenue recorded for Turnkey projects under OES for 4Q2016 was due to the reversal of over-accrued revenue for the Malikai Tension Leg Platform Installation turnkey project which was completed in 3Q2016. The Mobile Natural Gas Sector ("MNGS") saw a 7.7% increase in revenue to RM9.2 million for 4Q2017 from RM8.6 million in 4Q2016, due to an increase in CNG offtake by its customers during the period. Integrated Engineering Solutions ("IES") recorded a 142% increase in revenue for 4Q2017 of RM2.9 million compared RM1.2 million for 4Q2017. This increase in sales arose mainly from the Group's proprietary marine growth control products.

For 12M2017, total revenue for the Group decreased by 89.3% to RM39.6 million from RM368.9 million for 12M2016. The Malikai turnkey project contributed revenue of RM316.4 million for 12M2017 for which there was no comparable turnkey project revenue for 12M2017. IES recorded a decline in revenue of 62.0% from RM17.4 million in 12M2016 to RM6.6 million in 12M2017, which was in line with a downturn in the upstream oil and gas industry. MNGS revenue declined by 7.4% to RM32.6 million for 12M2017 from RM 35.1 million for 12M2016, mainly due to the expiry of several gas sales agreements during FY2017.

Gross Profit from continuing operations

The Group's gross profit for 4Q2017 declined by 41.1% to RM2.8 million from RM4.7 million for 4Q2016. This decline arose mainly from the Offshore Engineering Sector ("OES") which was in line with a slowdown in the upstream oil and gas industry. OES gross profit for 4Q2017 declined by 51.8% to RM2.2 million from RM4.6 million for 4Q2016. MNGS gross profit marginally increased to RM0.6 million for 4Q2017 from RM0.1 million for 4Q2016 mainly from the increase in CNG sales for the period under review.

The Group's gross profit for 12M2017 declined by 75.4% to RM4.8 million from RM19.5 million for 12M2016. MNGS had a gross loss of RM0.1 million for 12M2017 compared to a gross profit of RM2.8 million for 12M2016, due mainly to the closure of a major toll bridge for structural repairs which had forced the Group's CNG delivery vehicles to make a long detour resulting in higher operating costs during the first half of 2017. In order to maintain contracted service levels, the Group had to hire additional prime movers and outsource other services to ensure time delivery of CNG. Other factors contributing to the grosslossfor 12M2017 included the non-renewal ofseveral CNG supply contracts and overall reduced CNG pricing forretained contracts. OES gross profit for 12M2017 declined by 70.4% to RM4.9 million from RM16.7 million for 12M2016 due to reduced OES business activities and the absence of a similar Malikai turnkey project for 12M2017.

The Group's gross profit margin for 4Q2017 of 22.8% was driven by IES' gross profit margin of 76.9% arising from the Group's proprietary marine growth control products and moderated by MNGS gross profit margin of 6.1% and the discontinued RES gross loss margin of 30% for 4Q2017. For 12M2017, the Group's gross profit margin increased to 11.9% compared to 5.2% for 12M2016 due to (i) a higher proportion of contribution by the Group's proprietary marine growth control products; (ii) the absence of a similar Malikai turnkey project which typically generates low gross profit margin; and moderated by (iii) gross loss margin of 0.4% for MNGS from the loss of a key customer contract and higher transportation cost due to a highway closure; and (iv) gross loss margin of 25% from the discontinued RES sell-down of remaining rice husk and briquette inventory.

Other Operating Income from continuing operations

The Group's other operating income for 4Q2017 increased to RM0.6 million from RM0.5 million for 4Q2016 mainly due to increase in rental income of RM0.3 million for the lease of MNGS equipment and the write back on allowance for doubtful receivables of RM0.5 million which are partially offset by the absence of an insurance settlement amounting to RM0.3 million for a written-off prime mover for compressed natural gas transportation, which was involved in a road accident in 4Q2016.

The Group's other operating income for 12M2017 increased by RM1.6 million to RM2.7 million from RM1.1 million for 12M2016. Other operating income for 12M2017 was mainly contributed by (i) a reversal of vendor payables and accruals of RM1.2 million due to renegotiations of contract terms and close-out of projects with over-accruals; (ii) write back on allowance for doubtful receivables of RM0.7 million due to the settlement of long outstanding invoices; (iii) rental income of RM0.6 million; and (iv) RM0.1 million gain on disposal of property plant and equipment. In comparison other operating income for 12M2016 was contributed by an insurance settlement, interest and rental income, service fees and gain on disposal of property plant and equipment.

Exchange (Loss)/Gain from continuing operations

The Group recorded an exchange loss of RM0.5 million for 4Q2017 compared an exchange loss of RM0.9 million for 4Q2016. For 12M2017, the Group recorded an exchange gain of RM0.4 million compared to an exchange loss of RM0.5 million for 12M2016. The strengthening of the Malaysia Ringgit against the US Dollar during 4Q2017 was an acceleration of a steady strengthening trend of the Malaysia Ringgit during 9M2017. Sales during FY2017 from IES products and services that were denominated in US dollars account for a significant portion of the exchange loss recorded for the second half of FY2017. In contrast, exchange gains during the first half of FY2017 ("HY2017") were from the carrying balance of US dollar-denominated trade payables from FY2016 that were mostly settled during HY2017.

Administrative Expenses from continuing operations

Administrative expenses from continuing operations for 4Q2017 decreased by RM1.1 million or 22.2% to RM3.7 million from RM4.7 million for 4Q2016. For 12M2017 administrative expenses from continuing operations decreased by RM2.8 million or 15.6% to RM15.3 million from RM18.1 million for 12M2016. The lower administrative expenses were mainly due to: (i) cost reduction initiatives including reduced manpower headcount, salary cuts and reduction of leased properties such as EJ-1 CNG station and OES Batam supply base; (ii) disposal of non-essential fixed assets to reduce depreciation expenses; and (iii) non-reoccurrence of cost of business feasibility studies which resulted in lower consultancy fees in 12M2017.

Selling and Distribution Costs from continuing operations

Selling and distribution costs represent commissions payable to agents for OES sales made for the Group. Selling and distribution cost for 4Q2017 reduced by 92.0% to RM46,000 from RM0.6 million for 4Q2016. Similarly, selling and distribution costs for 12M2017 saw an 88.9% decline to RM0.2 million from RM1.9 million for 12M2016. The decreases were in line with reduced OES business activities of the Group in 4Q2017 and 12M2017 compared to 4Q2016 and 12M2016.

Other Operating Expenses from continuing operations

Other operating expenses for 4Q2017 and 12M2017 were RM10.3 million and RM10.4 million respectively which mainly comprised of (i) RM8.2 million impairment of property plant and equipment related to MNGS and office renovation; (ii) RM0.8 million provision for slow moving stock in relation to MNGS inventory, subsea services and manufacturing inventory; (iii) RM0.6 million allowance for doubtful receivables; (iv) RM0.5 million impairment on a licensed technology no longer in use; and (v) RM0.1 million for inventories written off.

In comparison, other operating expenses of RM4.2 million for 4Q2016 and RM4.9 million for 12M2016 mainly comprised of (i) RM2.6 million allowance for doubtful receivables mainly from OES operating receivables; and (ii) write-off of RM2.3 million property plant and equipment due to the closure of MNGS EJ1 CNG mother station and cancellation of mobile natural gas projects in Indonesia.

Share of Results of Associates

Share of results of associates was a loss of RM0.3 million for 4Q2017 as compared to a loss of RM1.2 million for 4Q2016. For 12M2017 share of results of associates of RM0.8 million as compared to a loss of RM1.8 million for 12M2016. The losses were recorded by (i) an OES associate which was in line with a slowdown in upstream oil and gas business and (ii) Gas Malaysia IEV Sdn Bhd which suffered losses in i12M2017 was mainly due to delayed ramp-up of commercial operations. In view of the continuing losses of Gas Malaysia IEV Sdn Bhd, the Group had on 3 November 2017 had entered into a Share Sale Agreement to dispose of its shareholding to Gas Malaysia Berhad.

Finance Costs from continuing operations

Finance cost for 4Q2017 was marginally lower at RM0.15 million compared to RM0.19 million for 4Q2016, mainly due to the full settlement of a third-party advance. For mainly the same reason finance cost for 12M2017 declined to RM0.6 million from RM0.9 million for 12M2016.

Profit/ Loss Before Taxation from continuing operations

For reasons set out above, the Group reported a loss before taxation of RM11.6 million for 4Q2017, compared to a loss before taxation of RM6.7 million for 4Q2016. For 12M2017, the Group recorded a loss before taxation of RM19.3 million, which is a 156.4% increase from the loss before taxation of RM7.5 million for 12M2016.

Review of Statement of Financial Position

Current Assets

Trade receivables decreased by RM39.9 million to RM17.8 million as at 31 December 2017, from RM57.7 million as at 31 December 2016, due mainly to the settlement of OES project invoices and in particular the Malikai turnkey project. The current portion of other receivables and prepayments, which comprised project related advances, third-party recoverable expenses and prepaid operating expenses decreased by RM3.5 million to RM4.4 million as at 31 December 2017, from RM7.9 million as at 31 December 2016, due mainly to settlement of third-party recoverable expenses and depletion of prepaid operating expenses. Inventories decreased by RM1.8 million to RM3.1 million as at 31 December 2017 from RM4.9 million as at 31 December 2016, due mainly to (i) RM0.8 million provision for slow moving stock; (ii) RM0.6 million write-down and write-off of inventories values; and (iii) the depletion of rice husk briquettes inventories and CNG stock. The Group had entered into a Sales and Purchase Agreement to dispose of a RM9.1 million leasehold building and hasreclassified it as an asset held for sale. The Group's cash and bank balances decreased by RM18.2 million from RM22.1 million to RM3.9 million for reasons explained below.

Non-Current Assets

Net book value of property, plant and equipment decreased by RM26.0 million to RM7.2 million as at 31 December 2017 from RM33.2 million as at 31 December 2016. The decrease was mainly due to (i) depreciation charge of RM4.5 million for 12M2017; (ii) RM8.2 million impairment of property plant and equipment related to MNGS and office renovation; (iii) RM0.5 million impairment on a licensed technology no longer in use; (iv) RM9.1 million leasehold building reclassified as asset held for sale; and (v) reclassification of the RM3.9 million Vietnam biomass factory to finance lease receivable.

Net book value of intangible assets decreased to RM0.3 million as at 31 December 2017 from RM4.4 million as at 31 December 2016 due mainly to: (i) amortisation of intangible assets of RM0.5 million; (ii) RM2.9 million impairment on Pabuaran KSO related intangible assets due to termination of the KSO; (iii) RM0.5 million write-down of technology licencing fee that is no longer in use and (iv) currency translation differencesfor US Dollar denominated intangible assets.

In view of the termination of Pabuaran KSO and the Group's exit from EPS, oil and gas properties of RM46.9 million as at 31 December 2017 is completely written off.

Associates decreased by RM0.9 million to RM35,000 as at 31 December 2017 from RM0.94 million as at 31 December 2016. This decrease reflects: (i) operational losses experienced by an OES associate in line with a slowdown in the upstream oil and gas industry and (ii) operational losses from a slow commercial ramp-up of Gas Malaysia IEV Sdn Bhd during 12M2017 and the eventual disposal of this associate to Gas Malaysia Bhd for RM141,000.

Other long-term receivables and prepayments declined to RM0.4 million as at 31 December 2017 from RM8.8 million as at 31 December 2016 due mainly to: (i) a write-off of RM5.4 million VAT receivables arising from the termination of Pabuaran KSO and the Group's exit from EPS; (ii) reclassification of RM1.9 million of land use rights for the Vietnam biomass factory into a finance lease receivable; ; (iii) RM0.5 million amortisation of prepaid lease rental and land use rights; (iv) currency translations difference of RM0.3 million in relation to the aforementioned VAT receivables, which are denominated in US Dollars; and (v) impairment of RM0.2 million for other receivables.

Current and non-current finance lease receivable totalling RM5.2 million represent the reclassification of the Vietnam biomass factory comprising property, plant & equipment and long-term land use rights into the present value of a future stream of finance lease receipts and a final transfer receipt at the end of the 2-year lease period.

Deferred tax assets as at 31 December 2017 has reduced by RM1.4 million to RM0.2 million from RM1.6 million as at 31 December 2016 mainly due to a reversal of a RM1.3 million deferred tax asset for PT IEV Gas. It was assessed that this subsidiary would not be able to utilise this deferred tax asset due to its lower business activities.

Capital and Reserves

Currency translation reserves decreased to RM4.7 million as at 31 December 2017 from RM9.1 million as at 31 December 2016 mainly due to the strengthening of the Malaysian Ringgit against the US Dollar during 12M2017.

Accumulated losses had increased to RM97.3 million as at 31 December 2017 from RM12.9 million as at 31 December 2016 due to the Group's loss from continuing operations of RM20.4 million and loss from discontinued operations of RM64.1 million for 12M2017.

Liabilities

Bank borrowings (current and non-current portions) increased to RM9.6 million as at 31 December 2017 from RM9.5 million as at 31 December 2016 due to an overdraft drawdown of RM0.5 million and partially offset by scheduled repayment of loan facilities. Advances from a third party of RM2.5 million as at 31 December 2016 had been fully settled during 12M2017.

Trade payables decreased by RM44.8 million to RM19.5 million as at 31 December 2017 from RM64.3 million as at 31 December 2016, mainly due to the settlement of OES project invoices particularly for the Malikai turnkey project.

Other payables increased by RM2.1 million to RM14.8 million as at 31 December 2017 from RM12.7 million as at 31 December 2016, mainly due to: (i) a RM7.6 million provision for Pabuaran KSO termination liabilities; and (ii) a RM0.2 million increase in amounts due to an associate; which are offset by: (i) RM2.9 million settlement of accruals and amounts owing to sub-contractors; and (ii) RM2.5 million reversal of accrued payables in relation to well workover activities at the Pabuaran KSO in Jawa, Indonesia; and (iii) RM0.3 million reduction in sales and GST tax payable.

The provision for decommissioning of RM2.6 million as at 31 December 2016 has been reversed out as at 31 December 2017 as a result of the termination of the Pabuaran KSO.

The Group has a negative working capital of RM5.5 million as at 31 December 2017 as compared to a positive working capital of RM12.3 million as at 31 December 2016, mainly due to termination liabilities 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, commencement of settlement negotiations for termination liabilities and potential corporate fund raising exercises.

Review of Statement of Cash Flows

For 4Q2017 the Group recorded net cash used in operating activities of RM0.3 million. This was mainly due to: (i) operating loss before working capital changes of RM0.8 million; and (ii) decrease in operating payables of RM0.8 million which were offset by decrease in receivables, long term other receivables and prepayment and amount due from associate of RM1.3 million. Net cash generated from investing activities of RM0.2 million during 4Q2017 was from proceeds from disposal of an associate and disposal of property plant and equipment totalling RM0.3 million which were offset by increase in oil and gas properties of RM0.1 million. Net cash used in financing activities of RM0.1 million for 4Q2017 was mainly for the servicing of bank borrowing and finance leases of the Group.

For 12M2017, the Group recorded net cash used in operating activities of RM11.0 million. This was mainly due to: (i) operating loss before working capital changes of RM7.0 million; (ii) decrease in operating payables of RM44.3 million as a result of the completion of the Malikai turnkey project in FY2016; (iii) post-employment benefit paid of RM0.6 million; and (iv) interest paid of RM0.6 million; which were partially offset by (i) decrease in receivables and other receivables of RM7.3 million; (ii) decrease in amount due from associate of RM34.0 million; and (iii) decrease in inventories of RM0.2 million. Net cash used in investing activities of RM2.1 million during 12M2017 was mainly for: (i) net purchase of property plant and equipment of RM1.1 million; and (ii) an increase in oil and gas properties of RM1.2 million. Net cash used in financing activities of RM0.7 million was mainly for: (i) repayment of advances from a third party of RM2.5 million; and (ii) servicing bank borrowings and finance leases of the Group of RM0.3 million; which were partially offset by (i) release of pledged deposits of RM1.7 million; and (ii) drawdown of bank facilities and finance leases of RM0.5 million.

As a result of the above and after taking into account currency translation deficit, the cash and cash equivalent balance was RM3.8 million as at 31 December 2017, as compared to RM18.2 million as at 31 December 2016.

Commentary

A mild oil price recovery is expected by most analysts with EIA forecasting WTI oil price to average at USD 58 per barrel in 2018 whilst Brent oil price is forecasted between USD 62 and USD 70 per barrel by major banks. Whilst the rise in oil price is fueled by growth of world economies and production cuts by OPEC and its non-OPEC allies, it remains volatile due the booming US shale oil production and increase in oil inventories.

Despite the modest gain in oil prices, the Group has actively executed its plan to divest all non-profitable assets and units, as per the recent announcements and practice lean management. Concurrently, the Group has implemented 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 challenge conventional engineering practices in order to provide time and cost savings to its customers worldwide. The core technologies developed by the Group can support not only customers in the oil and gas industry but also other industries who are also continuously sourcing new technologies to face their ongoing challenge in asset integrity management.

From Offshore Engineering Sector ("OES") to Asset Integrity Management Sector ("AIMS")

The Group is currently launching a comprehensive suite of disruptive technologies under a new sector named Asset Integrity Management Sector, which replaces the Offshore Engineering Sector, as the technologies and engineering solutions offered can be employed in both offshore and onshore markets. Four (4) business divisions are formed under AIMS include: 1) Structural Integrity Solutions, 2) Corrosion Control Solutions, 3) Advanced Inspection Solutions and 4) Subsea Engineering Solutions. The technologies can be provided individually or combined under four (4) separate integrated engineering solutions including Structural Integrity Management, Pipeline integrity Management, Corrosion Under Insulation Management and Infrastructure Management.

The technologies are either proprietary, licensed or co-developed under strategic alliance partnerships and/or future joint venture companies. A number of new technologies are under research and development program or techno-commercial due diligence and will be rolled out as and when they are ready for commercialisation, as part of the future pipeline of technologies.

Besides the oil and gas industry, the Group also serves the petrochemical, fertiliser, chemical, power industries, as most have assets that require inspection, repair, maintenance and life extension.

The technologies commercialized by the Group are at different levelsin their technology life adoption cycle. Technologies such as "Ocean-powered" Marine Growth Preventers and Oxifree have been successfully commercialized for many years and reached the early majority market, while newly launched technologies are still in the early phase of commercialisation, where much effort must be spent to educate the market and pilot projects have to be run to demonstrate their innovative features and capabilities before entering into the commercial stage. Some technologies developed by our strategic alliance partners, which have been successfully commercialized outside Asia, are also being introduced into the region by IEV under specific collaboration agreements.

Mobile Natural Gas Sector ("MNGS")

The potential sale of the CNG supply chain in Indonesia to a third party has not materialised. Accordingly, the Group continues to operate the CNG supply chain in Indonesia whilst exploring other options and opportunities.

Exploration and Production Sector ("EPS")

There will be no further report on this sector as the Group has made the strategic decision to discontinue its activities in exploration and production, given the uncertainties and risks associated with this business under the new low oil price norm.

Renewable Energy Sector ("RES")

There will be no further report on this sector as the Group has decided to discontinue its activities in production of rice-husk briquettes and entered into an agreement with BSB Investment and Development Co. Ltd. ("BSB") to lease the MK-1 Biomass Plant and its related assets located in Thot Not District, Vietnam for a 2-year lease period and also to grant BSB an option to purchase the MK-1 Biomass Plant at the end of the said lease period.

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