Full Year Results Financial Statement And Related Announcement 2019
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Statements of Comprehensive Income
Statements of Financial Position
Review of Statement of Comprehensive Income
Breakdown by business segments
Three Months ended 31 December 2019
Twelve Months ended 31 December 2019
The Group's revenue from the Asset Integrity Management Sector ("AIMS") for 4Q2019 increased by 61.1% to RM1.5 million from RM0.9 million in 4Q2018, due mainly to increased sales of the Group's proprietary marine growth control ("MGC") products. For 12M2019, the Group's revenue increased by 230% to RM9.8 million from RM3.0 million in 12M2018 due mainly to increased MGC sales, a completed Advanced Inspection Solution project and an on-going retrofitted corrosion control project.
The Group had, during 12M2019 diversified into the healthcare and wellness sector with the completion of acquisition of Lady Paradise Sdn Bhd, as announced by the Company on 15 December 2019. The Healthcare Sector recorded marginal revenue of RM28 thousand for 4Q2019 as the planned postpartum centres are currently undergoing renovations, not fully operational during FY2019, and are expected to be fully operational by 3Q2020.
The Group's gross profit for 4Q2019 increased by 61.0% to RM0.7 million from RM0.4 million for 4Q2018, due mainly to increased MGC sales activity. Similarly, the Group's gross profit for 12M2019 increased by 165.5% to RM4.4 million from RM1.7 million in 12M2018 due mainly to AIMS sales activities and in particular MGC sales.
The Group's gross profit margin remained generally stable at 46.2% in 4Q2019 and 47.1% in 4Q2018. Group gross profit margin for 12M2019 decreased to 45.1% compared to 56.0% in 12M2018 due mainly to increased business activities from non-proprietary products and services including an Advanced Inspection Solution project and a retrofitted corrosion control project which have lower gross profit margins compared to the sales of the Group's proprietary MGC products.
Other Operating Income
The Group's other operating income for 4Q2019 declined by 86.2% to RM0.4 million from RM2.7 million for 4Q2018 due mainly to a one-off reversal of accrued sales commission amounting to approximately RM2.5 million in 4Q2018 due to the expiry of an agency agreement. The Group's other operating income for 12M2019 declined by 83.7% to RM0.5 million from RM3.1 million in 12M2018, due mainly to (i) decline in rental income of RM145 thousand after the disposal of the Vietnam biomass plant; and (ii) a one-off reversal of accrued sales commission amounting to RM2.5 million in 12M2018 that was no longer required and offset by (i) a write-back of payables of RM0.1 million in relation to waivers by trade vendors and (ii) RM0.1 million write back of provision for slow moving stock in relation to MGC product components.
Administrative expenses in 4Q2019 increased by 28.6% to RM3.3 million from RM2.5 million in 4Q2018 due mainly to (i) RM0.5 million of administrative expenses incurred by the recently established Healthcare Sector of the Group including RM0.4 in depreciation of right-of-use assets arising from the adoption of SFRS(I)16 and (ii) an increase of RM0.3 million administrative expenses incurred by the Company for various corporate exercises during 12M2019 and an expanded board of directors.
Administrative expenses in 12M2019 reduced marginally to RM9.9 million from RM10.0 million in 12M2018. The AIM Sector undertook cost reduction measures that reduced administrative expenses by RM0.9 million including (i) reducing manpower headcount and salary cuts; (ii) disposal of non-essential fixed assets to reduce depreciation expenses (iii) reduced travel expenses and (iv) disposal of non-core loss-making subsidiaries in Vietnam and India. Such reduction of administrative expenses were mostly offset by (i) RM0.7 million of depreciation of right-of-use assets recorded due to the adoption of SFRS(I)16. The depreciation of right-of-use assets include mainly rental costs incurred for a postpartum centre and the Company's increased expenses of RM0.3 million for various corporate exercises and expansion of the its' Board of Directors during 12M2019.
Amortisation of intangible assets decreased by 59.4% from RM32 thousand in 4Q2018 to RM13 thousand in 4Q2019 and by 60.6% from RM137 thousand in 12M2018 to RM54 thousand in 12M2019; due mainly to the full impairment provision during FY2018 of a licensed corrosion control technology which is no longer in use.
Selling and Distribution Costs
Selling and distribution costs represent commissions payable to agents for AIMS sales made for the Group. Selling and distribution cost for 4Q2019 was nil compared to RM0.1 million for 4Q2018 as sales of the Group's proprietary MGC products were sold direct to Malaysia customers where no commissions were payable. For 12M2019, selling and distribution cost increased by 324.2% to RM0.7 million from RM0.16 million for 12M2018, which reflected increased international sales activity of MGC products during 12M2019 compared to 12M2018 which command a sales commission.
The Group recorded a marginal increase in exchange gain of RM0.2 million for 4Q2019 compared to an exchange gain of RM0.1 million for 4Q2018. For 12M2019, the Group recorded an exchange gain of RM0.2 million compared to an exchange loss of RM0.5 million for 12M2018. The exchange gain for both 4Q2019 and 12M2019 was mainly due to the depreciation of the Malaysian Ringgit against the US Dollar during the period of review and increased AIMS business activities which were denominated in US Dollars.
Other Operating Expenses
Other operating expenses for 4Q2019 decreased by 31.7% to RM1.4 million from RM2.1million in 4Q2018. Similarly, other operating expenses for 12M2019 decreased by 25.3% to RM1.7 million from RM2.2 million in 12M2018. The reduction was mainly due to a reduction in the following expenses in 12M2019 compared to 12M2018: (i) provision for slow moving stock of RM1.0 million, (ii) write off of an amount due from an associate of RM0.4 million; (iii) loss of RM0.2 million on disposal of an asset held for sale; and (iv) provision for doubtful receivables of RM0.1 million. This reduction was offset by an increase in the following expenses in 12M2019 compared to 12M2018: (i) impairment of property plant and equipment of RM0.8 million; (ii) impairment of corrosion control product inventory of RM0.2 million; and (iii) impairment of VAT receivable of RM0.3 million in relation to an Indonesian subsidiary that ceased operations.
Share of Results of Associate
Share of results of associate was nil for 4Q2019 compared to a gain of RM75 thousand for 4Q2018. For 12M2019, the share of results of associate was a loss of RM75 thousand compared to a gain of RM50 thousand for 12M2018. The nil result for 4Q2019 and loss for 12M2019 was due to low business activities of an AIMS associate, IEV (Malaysia) Sdn. Bhd. for the period under review.
Finance cost for 4Q2019 was 80.6% higher at RM121 thousand compared to RM67 thousand for 4Q2018, which was largely attributed to interest computation on lease contract obligations in accordance with the adoption of SFRS(I)16. Finance cost for 12M2019 decreased by 33.4% to RM337 thousand from RM506 thousand in 12M2018. The reduction in finance cost was attributed to the full settlement during 12M2018 of a mortgage attached to an office space and reduction of bank overdraft amounts, which was partially offset by interest computation on lease contract obligations.
Profit/ Loss Before Taxation from continuing operations
For reasons set out above, the Group reported a loss before taxation of RM3.6 million for 4Q2019, which was a 137.0% increase from the loss before taxation of RM1.5 million for 4Q2018. For 12M2019, the Group recorded a loss before taxation of RM7.6 million, which was a 12.4% decrease from the loss before taxation of RM8.6 million for 12M2018.
For 12M2019, a profit before tax of RM9.2 million from discontinued operations was recorded due mainly to a RM11.6 million reversal of provisions and liabilities as the Company commenced member's voluntary liquidation of PT IEV Pabuaran KSO, as announced on 13 September 2019. This gain was partially offset by RM0.4 million of administrative expenses and RM2.1 million of other operating expenses related to the closing and liquidation of various subsidiaries.
Review of Statement of Financial Position
Trade receivables decreased by RM6.9 million to RM7.2 million as at 31 December 2019 from RM14.2 million as at 31 December 2018, due mainly to (i) the removal of RM4.8 million of trade receivables related to creditor settlements with Swiber Offshore Construction Pte Ltd that is under judicial management and (ii) settlement of AIMS project invoices. The current portion of other receivables and prepayments decreased by RM3.6 million to RM1.1 million as at 31 December 2019 from RM4.6 million as at 31 December 2018 due mainly to (i) receipt of RM2.7 million as settlement sum for the disposal of the Vietnam biomass plant to BSB, (ii) a tax refund of RM0.3 million in relation to the disposal of a corporate office space, (iii) impairment of VAT receivables of RM0.3 million from an Indonesian subsidiary that has ceased operations; and (iv) expensing of RM0.3 million in prepayments.
Inventories decreased by RM0.5 million to RM1.0 million as at 31 December 2019 from RM1.5 million as at 31 December 2018, due mainly to (i) RM0.2 million impairment and write-down of Oxifree inventories; and (ii) RM0.3 million depletion of marine growth control products. Contract costs as at 31 December 2019 reduced to nil from RM1.0 million as at 31 December 2018 due to the net transfer of RM1.0 million in contract cost to cost of sales following the completion of an AIMS Advanced Inspection Solutions project during 12M2019.
Net carrying value of property, plant and equipment ("PPE") decreased by RM1.4 million to RM0.2 million as at 31 December 2019 from RM1.6 million as at 31 December 2018. The decrease was mainly due to (i) RM0.9 million impairment of PPE mainly relating to corrosion control equipment and office renovation, (ii) RM0.6 million of depreciation charges and (ii) a RM0.1 million write off. These decreases were partially offset by (i) the acquisition of PPE of RM0.1 million and (ii) the addition of RM0.1 million of PPE arising from the acquisition of a subsidiary. Right-of-use assets of RM12.7 million as at 31 December 2019 was due to the adoption of SFRS(I)16 Leases, effective 1 January 2019 for (i) lease of an office space with a carrying value of RM0.3 million and (ii) lease of a property for a postpartum centre with a carrying value of RM12.3 million. Net book value of intangible assets decreased to RM33 thousand as at 31 December 2019 from RM87 thousand as at 31 December 2018 due to amortisation charges during 12M2019.
Other long-term receivables and prepayments increased to RM5.7 million as at 31 December 2019 from RM33 thousand as at 31 December 2018 due mainly to deposits and progress payments for renovation works related to a postpartum centre.
Goodwill of RM7.4 million as at 31 December 2019 relates to the acquisition of Lady Paradise Sdn Bhd, for which 46,151,962 ordinary shares in the Company were issued on 17 December 2019 with fair value of S$0.05 per ordinary share, as consideration for the acquisition. The fair value was referenced to the closing trade price of Company's shares on 17 December 2019. After accounting for the fair value of assets and liabilities being acquired in Lady Paradise, the balance of the fair value of consideration shares is allocated to goodwill.
Capital and Reserves
Share capital of the Company and the Group increased to RM107.7 million as at 31 December 2019 from RM98.3 million as at 31 December 2019 due to (i) the allotment and issuance of 80,000,000 new ordinary shares in the Company at an issue price of S$0.025 per ordinary share pursuant to a placement exercise; and (ii) the allotment and issuance of 46,161,962 new ordinary shares in the Company at an issue price of S$0.025 per ordinary share to the vendors of Lady Paradise Sdn Bhd.
Currency translation reserves increased to RM1.7 million as at 31 December 2019 from RM1.5 million as at 31 December 2018 mainly due to (i) the strengthening of the Malaysian Ringgit against the US Dollar during 12M2019; and (ii) the deconsolidation effects from the disposal of two AIMS subsidiaries in Vietnam and India.
Capital reserves have increased from a debit balance of RM0.4 million as at 31 December 2018 to a credit balance of RM3.5 million due to (i) the difference between the issuance price of S$0.025 per ordinary share for the issuance of 46,161,962 new ordinary shares to the vendors of Lady Paradise Sdn Bhd and the fair value of S$0.05 per ordinary share of the shares that were issued having referenced to the end of trading day closing price for the Company's shares; and (ii) the transfer of the RM0.4 million debit balance as at 31 December 2018 to accumulated losses upon the liquidation of a subsidiary.
Accumulated losses had decreased by RM1.5 million to RM108.1 million as at 31 December 2019 from RM109.6 million as at 31 December 2018, mainly due to the reasons as explained above.
Non-Current Liabilities and Current Liabilities
Bank borrowings (current and non-current portions) decreased to RM2.3 million million as at 31 December 2019 from RM3.0 million as at 31 December 2018 due mainly to repayment of bank overdraft balances. Current and non-current lease liabilities totalling RM12.7 million is due to the adoption of SFRS(I)16 Leases for the lease of an office space and a commercial property for a postpartum centre.
Advances from a related party of RM0.4 million as at 31 December 2019 is in relation to working capital support for the AIM Sector. Trade payables decreased by RM6.8 million to RM6.6 million as at 31 December 2019 from RM13.4 million as at 31 December 2018, due mainly to (i) removal of RM4.8 million of trade payables related to creditor settlements with Swiber Offshore Construction Pte Ltd that is under judicial management; and (ii) settlement of AIMS project invoices of RM2.0 million.
Other payables and provisions decreased by RM3.7 million to RM11.5 million as at 31 December 2019 from RM15.2 million as at 31 December 2018, mainly due to: (i) RM11.6 million net reversal of provisions and payables in relation to a members' voluntary liquidation of PT IEV Pabuaran KSO. This was offset by (i) the inclusion of RM7.1 million of payables from the Healthcare Sector for renovation costs owing to contractors and overhead accruals and (ii) increase in amounts due to an associate of RM0.7 million. Contract liability of RM2.7 million as at 31 December 2018 was reduced to nil as at 31 December 2019 due to the recognition of revenue from an AIMS Advanced Inspection Solutions project during 12M2019.
The Group has a negative working capital of RM13.8 million as at 31 December 2019 as compared to a negative working capital of RM11.9 million as at 31 December 2018, due mainly to (i) RM7.1 million of renovations cost commitments and accruals from the Healthcare Sector and (ii) current lease liabilities of RM5.2 million primarily from the leased commercial property for a postpartum centre. Barring any unforeseen circumstances, the Group should be able to meet its working capital commitments for the next 12 months in view of (i) a recently concluded subscription of 76,000,000 new ordinary shares in the Company at an issue price of S$0.05 per ordinary share, raising gross proceeds of S$3.8 million (approximately RM11.5 million); (ii) potential additional corporate fund raising exercises; and (iii) the Group's estimated revenue from the AIM and Healthcare sectors for FY2020.
Review of Statement of Cash Flows
For 4Q2019, the Group's operating activities generated a net cash of RM0.6 million. This was mainly due to (i) increase in operating payables of RM7.0 million; (ii) decrease in operating receivables of RM1.9 million; and (iii) decrease in contract costs of RM0.2 million. These were partially offset by (i) an operating loss before working capital changes of RM1.5 million; (ii) increase in other receivables and prepayments of RM5.7 million; (iii) increase in amount due from an associate of RM1.1 million; and (iv) increase in progress billings of RM0.2 million. Investing activities for 4Q2019 generated a net cash of RM0.4 million due mainly to (i) liquidation of a subsidiary generating RM0.3 million and (ii) disposal of subsidiaries generating RM0.1 million. Financing activities in 4Q2019 included an advance of RM0.4 million from a related party which was offset by the payment of finance lease obligations of RM0.4 million.
For 12M2019, the Group's operating activities used a net cash of RM3.4 million. This was mainly due to (i) operating loss before working capital changes of RM5.0 million; (ii) increase in other receivables and prepayments of RM5.7 million; (iii) increase in progress billings of RM2.7 million; (iv) increase in amount due from an associate of RM1.3 million; and (v) interest payments of RM0.3 million. These were partially offset by (i) increase in operating payables of RM6.7 million; (ii) decrease in operating receivables RM3.5 million; (iii) decrease in contract costs RM1.0 million; (iv) decrease in inventories of RM0.3 million; and (v) tax refunds of RM0.3 million. Investing activities in 12M2019 generated net cash of RM0.4 million from (i) cash proceeds of RM0.3 million from the liquidation of a subsidiary and (ii) net cash of RM0.1 million from disposal of subsidiaries. Financing activities for 12M2019 generated RM5.6 million in net cash from (i) RM5.8 million in net proceeds from the subscription of 80,000,000 new ordinary shares; and (ii) an advance of RM0.4 million from a related party; which were partially offset by the payment of finance lease obligations of RM0.6 million.
As a result of the above the cash and bank balance was RM3.0 million as at 31 December 2019, as compared to RM1.1 million as at 31 December 2018.
Asset Integrity Management Sector
Oil price has dropped by 20% since the start of the novel Coronavirus (Covid-19) that has caused a widespread shutdown in China's economy. Oil demand is expected to contract in 1Q2020, the first quarterly contract in more than 10 years1. This has prompted OPEC and its non-OPEC allies to consider additional cuts on top of the 1.7 mb/d already pledged2. Although the Energy Information Agency (EIA) still forecasts average oil price for 2020 at USD 55.71/bbl, the full impact of Covid-19 on the global economy and oil demand is still uncertain until the outbreak can be controlled.
Despite the sharp drop in oil price, the Group is cautiously optimistic about its performance in the Engineering Business Division as over the past few years, the Group has transformed its business into a centre of disruptive technologies for the brownfield market segment, focusing on advanced technologies that offer cost savings to customers. Malaysia, Vietnam and India remain the focused countries of the Engineering Business Division. Since January 2020, a number of new strategic alliance agreements have been signed with technology providers from Australia, Singapore and Russia in the fields of Advanced Inspection Solutions and Corrosion Control Solutions, which further consolidate the Group's position as a regional platform to channel disruptive technologies to customers in both upstream and downstream sectors in Asia.
Subsequent to the EGM of 16 October 2019, apart from the acquisition of Lady Paradise (M) Sdn Bhd, which currently operates the postpartum care centre at SS2 Petaling Jaya, Selangor, the Healthcare Division has also been actively seeking out and negotiating to set up postpartum care centres, one each in Malaysia and Singapore. The Singapore centre is situated at 49 and 49A Hendon Road and is currently undergoing renovation and refurbishment works. The Singapore centre is expected to commence operations in 2Q2020. The Malaysia centre is situated at Level 2, Pacific Star Business Hub, Section 13, Petaling Jaya, Selangor and is expected to commence operations in 3Q2020.
In mid-January 2020, the Group organised a ground breaking event for the Malaysia centre and marked the launching of our postpartum care centres' name, NADORA, which is a combination of NASCIO, being the Greek goddess of birth and protector of infants, and DORO which means Gift in Greek.
In the midst of the COVID-19 outbreak, we are proceeding with the construction and renovation of our postpartum centres, mindful of the capital expenditure. Barring any unforeseen circumstance, we are cautiously optimistic on the future of the Healthcare Sector.