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Financial Statement And Dividend Announcement For the financial year and fourth quarter ended 31 August 2016

Financials Archive

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Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Review of Performance

The review of the performance of the Group is based on the financials prepared in accordance with the requirements of FRS 105 Non-current Assets Held for Sale and Discontinued Operations..

The Group's business segments are catagorised into the following:

  • Subsea Services Division: Predominantly made up of EMAS AMC Group, which was part of the discontinued operations, and Energy Services Division
    • EMAS AMC Group which is a now joint venture group of companies of the Group, EMAS CHIYODA Subsea, is a global EPCIC service provider of comprehensive subsea-to-surface solutions throughout the lifecycle of oil and gas projects.
    • Energy Services Division: Energy Services Division provides well intervention and drilling services both onshore and offshore, offering fully integrated solutions that combine its marine assets with state-of-the-art intervention equipment and services.
  • Offshore Support and Production Services Division: Predominantly EMAS Offshore Limited which
    • Manages and operates a young, versatile fleet of advanced offshore support vessels, offering an extensive range of maritime services that cater to the client's needs throughout a field's life cycle; and
    • Owns and operates cutting-edge FPSO (floating production, storage and offloading) facilities, offering services that support the post-exploration needs of offshore fields, such as FPSO conversion management.
  • Marine Services Division: Predominantly Triyards Holdings Limited which provides fabrication of SEUs (self-elevating, mobile offshore units). TRIYARDS provides its integrated engineering, ship construction and fabrication services out of yard facilities located in Singapore, Vietnam and the US.

Revenue

Financial year ended 31 August 2016 ("FY16")

The Group's revenue decreased by US$18.7 million (3%) for the financial year ended 31 August 2016 ("FY16") when compared to the corresponding period for the financial year ended 31 August 2015 ("FY15"). The decrease was due to a decrease in revenue of US$78.2 million from Offshore Support and Production Services Division and a decrease of US$19.3 million from Energy Services Division. The decrease was partially offset by an increase in revenue of US$78.8 million from Marine Services Division.

The decrease in revenue for FY16 when compared to FY15 from Offshore Support and Production Services Division was mainly due to general weakness in the offshore industry. The shallow water platform support vessels ("PSV") and anchor handling, towing and supply vessels ("AHTS") segment continues to remain weak.

The decrease in revenue for FY16 when compared to FY15 from Energy Services Division was mainly due to lower level of service requests from customers and lower project activity.

The increase in revenue in FY16 when compared to FY15 from Marine Services Division was mainly due to higher contribution from Triyards Group as there were more units of self-elevating units ("SEU") and vessels under construction in FY16 as compared to FY15 and higher contribution from engineering design work.

3 months ended 31 August 2016 ("4Q16")

The Group's revenue decreased by US$11.4 million (8%) for the three months ended 31 August 2016 ("4Q16") when compared to the corresponding period for the three months ended 31 August 2015 ("4Q15"). The decrease was due to a decrease of US$7.9 million from Energy Services Division and a decrease of US$6.7 million from Marine Services Division. The decrease was partially offset by an increase in revenue of US$3.2 million from Offshore Support and Production Services Division.

The increase in revenue for 4Q16 when compared to 4Q15 from Offshore Support and Production Services Division was mainly due to revenue contributed from vessels chartered to the Group's joint venture, EMAS CHIYODA Subsea, which were previously eliminated in 4Q15 as the revenue were part of intra-group transactions. However, this increase was partially offset by the general weakness in the offshore industry and the shallow water PSV and AHTS segment continues to remain weak.

The decrease in revenue for 4Q16 when compared to 4Q15 from Energy Services Division was mainly due to lower level of service requests from customers and lower project activity.

The decrease in revenue in 4Q16 when compared to 4Q15 from Marine Services Division was mainly due to lower engineering design work.

Gross (loss)/profit

Financial year ended 31 August 2016 ("FY16")

Gross profit deteriorated from US$90.3 million in FY15 to gross loss of US$14.9 million in FY16. The deterioration is mainly due to weakness in the Offshore Support and Production Services Division in FY16 when compared to FY15 which resulted in a gross loss from this Division in FY16 and provision for onerous contracts of US$26.1 million for certain leased-in vessels which did not occur in FY15.

3 months ended 31 August 2016 ("4Q16")

Gross profit deteriorated from US$16.0 million in 4Q15 to gross loss of US$29.9 million in 4Q16. The deterioration is mainly due to weakness in the Offshore Support and Production Services Division in 4Q16 when compared to 4Q15 which resulted in a gross loss from this Division in 4Q16 and provision for onerous contracts of US$26.1 million for certain leased-in vessels which did not occur in 4Q15.

Other (expenses)/income, net

Financial year ended 31 August 2016 ("FY16")

The change in other (expenses)/income, net from income to expenses was mainly due to:-

  1. Loss on disposal of fixed assets of US$20.2 million in FY16 as compared to gain of US$30.5 million in FY15;
  2. Impairment loss on fixed assets of US$119.6 million in FY16 as compared to US$10.0 million in FY15;
  3. Impairment loss on assets held for sale of US$76.3 million in FY16 which did not occur in FY15;
  4. Impairment loss on investments in associated companies and joint venture companies of US$90.9 million and US$82.0 million respectively in FY16 which did not occur in FY15;
  5. Net realised loss on derivative instruments of US$13.8 million in FY16 as compared to US$9.6 million in FY15;
  6. Fair value changes in respect of derivative instruments, net of US$21.3 million in FY16 which did not occur in FY15;
  7. Loss on disposal of disposal group classified as held for sale of US$181.3 million which did not occur in FY15;
  8. Deterioration of foreign exchange gain from US$26.5 million in FY15 to loss of US$2.1 million in FY16; and
  9. Absence of non-recurring gain on bargain purchase from the acquisition of subsidiaries of US$118.0 million in FY15.

The carrying value of certain fixed assets, assets held for sale, associated companies and joint venture companies were negatively impacted due to the depressed conditions and reduced activity in the offshore support sector.

The above was partially offset by absence of non-recurring loss on step up of associated and joint venture companies to subsidiaries of US$42.3 million in FY15.

3 months ended 31 August 2016 ("4Q16")

The deterioration in other expenses, net was mainly due to:-

  1. Loss on disposal of fixed assets of US$0.3 million compared to gain of US$29.3 million in 4Q15;
  2. Impairment loss on fixed assets of US$59.1 million in 4Q16 which did not occur in 4Q15;
  3. Impairment loss on assets held for sale of US$76.3 million in 4Q16 which did not occur in 4Q15;
  4. Impairment loss on investments in associated companies and joint venture companies of US$90.9 million and US$43.7 million respectively in 4Q16 which did not occur in 4Q15;
  5. Fair value changes in respect of derivative instruments, net of US$20.8 million in 4Q16 which did not occur in 4Q15;
  6. Deterioration of foreign exchange gain from US$4.5 million in 4Q15 to loss of US$1.0 million; and
  7. Absence of non-recurring gain on bargain purchase from the acquisition of subsidiaries of US$11.7 million in FY15.

Administrative expenses

Financial year ended 31 August 2016 ("FY16")

The increase in administrative expenses for FY16 when compared to FY15 was mainly due to:-

  1. Allowance for doubtful debts and bad debts written off of US$126.1 million made in FY16 compared to an allowance for doubtful debts and bad debts of US$9.0 million in FY15;
  2. Fixed assets written-off and provision for inventory obsolescence of US$15.6 million and US$7.7 million respectively; and
  3. Expenses incurred in restructuring and consent solicitation exercises carried out in FY16 which did not occur in FY15.

The increase in allowance for doubtful debts is mainly due to allowance for long outstanding receivables in view of the depressed conditions in the offshore sector.

3 months ended 31 August 2016 ("4Q16")

The increase in administrative expenses for 4Q16 when compared to 4Q15 was mainly due to:-

  1. Allowance for doubtful debts and bad debts written off of US$30.1 million made in 4Q16 compared to an allowance for doubtful debts and bad debts of US$8.8 million in 4Q15; and
  2. Fixed assets written-off and provision for inventory obsolescence of US$15.6 million and US$7.7 million respectively.

Depreciation of fixed assets

Financial year ended 31 August 2016 ("FY16")

The increase in depreciation of fixed assets for FY16 when compared to FY15 was mainly due to consolidation of 12 months of depreciation in FY16 as compared to 11 months in FY15 from EOL Group and the additional depreciation charge from newly acquired fixed assets which were put into operation.

3 months ended 31 August 2016 ("4Q16")

The increase in depreciation of fixed assets for 4Q16 when compared to 4Q15 respectively was mainly due to the additional depreciation charge from newly acquired fixed assets which were put into operation.

Share of profit/(loss) of associated companies

Financial year ended 31 August 2016 ("FY16")

The deterioration in share of profit/(loss) of associated companies for FY16 when compared to FY15 respectively was mainly due to the Group's share of losses (including impairment on fixed assets) from an associated company, Perisai Petroleum Teknologi Bhd and absence of share of profits from an associated company which equity accounting have ceased in 3Q16 as the investment has been fully reclassified to assets held for sale.

3 months ended 31 August 2016 ("4Q16")

The deterioration in share of profit/(loss) of associated companies was mainly due to absence of share of profits from an associated company which equity accounting have ceased since 3Q16 as the investment have been fully reclassified to assets held for sale.

Share of (loss)/profit of joint venture companies

Financial year ended 31 August 2016 ("FY16")
3 months ended 31 August 2016 ("4Q16")

The decrease in share of (loss)/profit of joint venture companies in FY16 and 4Q16 was mainly due to the equity accounting for losses of two joint venture companies and lower contribution from the other joint ventures. The Group's main joint venture companies have also been negatively impacted by the depressed conditions and reduced activity in the oil and gas sector.

(Loss)/profit before tax from continuing operations

Financial year ended 31 August 2016 ("FY16")

(Loss)/profit before tax from continuing operations deteriorated from a profit of US$120.5 million in FY15 to loss of US$919.9 million in FY16. The deterioration was mainly due to lower gross profit, deterioration of other income, net to other expenses, net (see "Other (expenses)/income, net" above), higher administrative expenses and deterioration of share of profit of associated companies to loss and lower share of profit of joint venture companies.

3 months ended 31 August 2016 ("4Q16")

(Loss)/profit before tax from continuing operations deteriorated from a profit of US$26.1 million in 4Q15 to loss of US$416.5 million in 4Q16. The deterioration was mainly due to deterioration of gross profit to gross loss, deterioration of other income, net to other expenses, net (see "Other (expenses)/income, net" above), higher administrative expenses and deterioration of share of profit of joint venture companies to loss.

Tax

The lower tax expense for FY16 and 4Q16 when compared to FY15 and 4Q15 respectively is due to the overall lower activities and profitability from taxable entities.

Charter income derived from Singapore and certain foreign flagged vessels which operate in international waters continue to remain tax exempt under Section 13 of the Singapore Income Tax Act and Maritime Sector Incentive - Approved International Shipping Enterprise Scheme.

Loss from discontinued operations, net of tax

Subsequent to the re-presentation of the consolidated income statement, the contribution from Subsea Services Division from certain subsea entities was reclassified to "Loss from discontinued operations, net of tax". Summarised items of the income statement relating to the discontinued operations are presented as below:

* Summarised items of the income statement relating to the discontinued operations for the 12 months ended 31 August 2016 comprises of the financial performance for the period from September 2015 to March 2016.

On 31 March 2016, the proposed joint venture was completed and the Group has disposed 50% of the Group's interest in those subsidiaries and associated companies (the "New JV entities") which have been classified as discontinued operations. Subsequently, the Group will account for the remaining interest in the New JV entities as investment in a joint venture company

Financial year ended 31 August 2016 ("FY16")

The increase in loss from discontinued operations, net of tax in FY16 when compared to FY15 is mainly due to:-

  1. Lower utilisation of subsea construction assets, costs associated with the return of a vessel to her owner and lower than expected margins in existing projects resulting in lower margin;
  2. Deterioration of foreign exchange from gain in FY15 to loss in FY16;
  3. Higher share of losses from an associated company due to loss suffered on a project; and
  4. Higher interest expenses as the interest expense relating to Lewek Constellation, is being expensed off instead of capitalised, upon her completion in the fourth quarter of financial year ended 31 August 2015.

This is partially offset by lower administrative expenses for the period from September 2015 to March 2016 when compared to the corresponding period as the Division continues to exercise continuous cost savings measures.

3 months ended 31 August 2016 ("4Q16")

After the disposal of 50% of the Group's interest in New JV entities on 31 March 2016, the results of the New JV entities are being equity-accounted for instead of being presented as "Loss from discontinued operations, net of tax".

Review Of Statement Of Financial Position And Cash Flows:

Non-current assets

The decrease in non-current assets was mainly due to

  1. Decrease in fixed assets due to impairment, write-offs and depreciation and the decrease is partially offset by additions of vessels via finance lease arrangements;
  2. Decrease in investment in associated companies resulting from sharing of losses for the financial year ended 31 August 2016, reclassification of the investment in an associated company to asset held for sale and impairment loss on investment in associated companies; and
  3. Decrease in long-term trade receivable due to impairment.

The decrease is partially offset by:-

  1. Increase in investment in joint venture companies as a result of the completion of the proposed joint venture, EMAS CHIYODA Subsea, and the increase is partially offset by impairment loss on investment in joint venture companies; and
  2. Increase in non-current other receivables following the sellers' credit resulting from the sale and leaseback of another four vessels.

Subsequent to the completion of the proposed joint venture, EMAS CHIYODA Subsea, the Group's retained interest of 50% in the disposal group is reclassified from assets and liabilities included in disposal group classified as held for sale from both current assets and current liabilities, to investment in joint venture companies re-measured at its fair value upon reclassification.

Current assets

The decrease in current assets was mainly due to:-

  1. Decrease in assets included in disposal group classified as held for sale as a result of the completion of the proposed joint venture, EMAS CHIYODA Subsea, and as further explained in the increase in the investment in joint venture companies above;
  2. Decrease in trade receivables mainly due to impairment and receipts from customers;
  3. Decrease in other receivables due to impairment and settlement of the amounts due from the sale of vessels; and
  4. Decrease in cash and cash equivalents and cash pledged mainly due to repayment of perpetual securities and S$225 million Notes in September 2015.

The decrease is partially offset by an increase in assets held for sale due to the reclassification of the investment in an associated company and part of an interest in a joint venture company to assets held for sale. The increase is partially offset by impairment loss on the investment in an associated company which is classified as assets held for sale.

The decrease noted in trade receivables is partially offset by an increase in trade receivables from build up of unbilled receivables from the Marine Services Division due to timing difference between contracted milestone billing and the recognition of unbilled receivables for construction projects under the percentage of completion method.

Current liabilities

The decrease in current liabilities was mainly due to:-

  1. Decrease in liabilities included in disposal group classified as a result of the completion of the proposed joint venture, EMAS CHIYODA Subsea, and as further explained in the increase in the investment in joint venture companies above;
  2. Decrease in other payables due to de-recognition in connection with the restructuring of sale and leaseback transaction;
  3. Decrease in progress billings in excess in work-in-progress due to lower advanced billings;
  4. Decrease in derivative financial instruments due to settlement of derivative instruments on maturity; and
  5. Decrease in perpetual securities and notes payable as a result of repayment in September 2015 and March 2016.

The decrease in current liabilities was partially offset by

  1. Increase in bills payable mainly for working capital use;
  2. Increase in lease obligations as a result of addition of five leased-in vessels which were accounted for as finance lease and the non-current portion of these lease liabilities have also been reclassified to current (see below);
  3. Increase in bank term loans and notes payable due to reclassification of the non-current portion of bank term loan and notes payable to current (see below);
  4. Increase in provision for onerous contracts which is classified as part of "Other payables"; and
  5. Increase in deferred income.

Please see non-current liabilities below for further explanation on the increase in deferred income.

As at 31 August 2016, the Group has breached certain of its financial covenants and as a result, non-current portion of these bank term loans and lease obligations and the notes payable which are subject to these financial covenants have became reclassified as current liabilities. As at announcement date, the Group has rectified the breaches by way of obtaining covenant waivers.

Non-current liabilities

The decrease in non-current liabilities was mainly due to decrease in bank term loans and lease obligations as a result of the reclassification of these balances to current as explained above.

The decrease is partially offset by an increase in deferred income as a result of the five leased vessels as mentioned in the lease liability above as the excess of sales proceeds over the carrying amounts of the vessels was deferred and would be amortised over the lease term.

Equity

The decrease in total equity was mainly due to deterioration of the accumulated profits to losses and decrease in the non-controlling interests which was largely caused by the losses for the financial year ended 31 August 2016.

The decrease was partially offset by decrease in the deficit of the hedging reserve due to the losses on derivative instruments designated as hedged instruments being adjusted to profit and loss on maturity.

Cash flows

Financial ended 31 August 2016 ("FY16")

Net cash from operating activities changed from an inflow of US$142.5 million in FY15 to an outflow of US$51.0 million. The deterioration was mainly due to:-

  1. Decrease in operating profit before working capital changes from US$111.4 million in FY15 to US$10.4 million as a result of the deterioration in the Group's profit and loss; and
  2. Lower working capital changes in FY16 which was mainly due to lower collection from trade receivables due to the cessation of contribution from the discontinued operations with effect from April 2016 as well as more repayment to creditors and lower advanced billings.

The Group is closely monitoring its operating activities and appropriate measures will be taken to mitigate operational risk.

Net cash outflow from investing activities turnaround from an outflow of US$255.2 million in FY15 to an inflow of US$93.6 million in FY16 and was mainly due to:-

  1. Decrease in amount spent on capital expenditure as the construction of Lewek Constellation has been completed;
  2. Net decrease in cash pledged which are used for partial repayment of bank loans;
  3. Increase in proceeds from disposal of fixed assets from sale of higher value assets;
  4. Decrease in interest paid and capitalised as fixed assets as the construction of Lewek Constellation has been completed;
  5. Proceeds from the disposal of the disposal group classified as held for sale; and
  6. Repayment of shareholders' loan by an associated company to the Group.

The inflow was partially offset by the absence of proceeds from disposal of assets held for sale, dividend received from an associated company and net cash inflow from acquisition of subsidiaries in FY15.

Net cash from financing activities changed from an inflow of US$369.7 million in FY15 to an outflow of US$436.6 million in FY16 and was mainly due to:-

  1. Repayment of the perpetual securities and S$225 million notes in September 2015 and S$95 million notes in March 2016;
  2. Settlement of matured derivative instruments used for hedging of the note payables;
  3. Net repayment of bank borrowings in FY16 compared to net inflow from bank borrowings in FY15 due to repayment with the proceeds from the disposal of the disposal group classified as held for sale and pledged cash; and
  4. Absence of non-recurring proceeds from issuance of new ordinary shares by the Company and its subsidiaries in FY15.

The net outflow from financing activities was partially offset by non-recurring payment for perpetual securities distribution.

3 months ended 31 August 2016 ("4Q16")

Net cash inflow from operating activities decreased from US$38.0 million in 4Q15 when compared to US$35.9 million in 4Q16.

Operating profit before working capital decreased from US$16.2 million in 4Q15 to US$5.4 million as a result of the deterioration in the Group's profit and loss.

Net cash flow from investing activities turnaround from an outflow of US$60.4 million in 4Q15 to an inflow of US$13.6 million in 4Q16 and was mainly due to decrease in amount spent on capital expenditure and net decrease in cash pledged which are used for partial repayment of bank loans.

Net cash from financing activities changed from an inflow of US$272.2 million in 4Q15 to an outflow of US$60.1 million in 4Q16 and was mainly due to:-

  1. Net repayment of bank borrowings in 4Q16 compared to net inflow from bank borrowings in 4Q15 due to lower drawdown of new loans and partial repayment of existing loans with the pledged cash; and
  2. Absence of non-recurring proceeds from issuance of new ordinary shares by the Company in 4Q15.

Financial ratios

The Group's net debt to equity ratio (defined as ratio of total external indebtedness (net of cash and cash equivalents and cash pledged in relation to term loans) owing to bank and financial institutions to total equity) increased to 3.05 times as at the end FY16 as compared to 0.77 times at end of FY15.

Commentary

Outlook

Global economic environment continues to remain uncertain, particularly the Oil & Gas (O&G) industry. Hence, the Group expects to face an extremely challenging outlook for the financial year ending 31 August 2017.

Due to the continued challenging environment in the O&G industry, major oil players have scaled down or delayed investing in new capital expenditure, resulting in fewer project awards. This trend is expected to continue and will have a negative impact on the Group's financial performance and executable order book in the near term.

Significant Developments

a) EMAS Offshore Limited

On 18 November 2016, the Group made an announcement that its associated company, Perisai Petroleum Teknologi Berhad ("Perisai") made an application to Malaysia's Corporate Debt Restructuring Committee ("CDRC"). Based on its website, CDRC is intended to provide a platform for corporate borrowers and their creditors to work out feasible debt resolutions without having to resort to legal proceedings.

As a result of Perisai's application to CDRC, it is understood that all affected lenders of Perisai are required with immediate effect to observe an informal standstill, and withhold proceedings against Perisai and its subsidiaries. This includes SJR Marine (L) Ltd, EMAS Victoria (L) Bhd and Intan Offshore (L) Ltd, which are either associated or joint venture companies of the Group.

EMAS Offshore Limited has previously reached in-principle agreements with its bankers and was in the process of finalising its refinancing exercise and obtaining additional working capital facilities from the banks. As a result of the uncertainties surrounding Perisai's developments, the completion of the refinancing exercise and obtaining additional working capital facilities have been delayed.

b) The Group

The Group is in discussion with various stakeholders and consolidating its funding requirements. In the event that this effort does not achieve a favourable and timely outcome, the Group will be faced with a going concern issue.

In addition, due to the challenging market conditions, the Group is currently negotiating with certain vendors with a view of cancelling certain procurement contracts to conserve cash and the Group will assess if further impairment is required for the assets. The above issues will affect the extent of recognition of liabilities and impairments losses which may further impact the financial statements.

Statement of Financial Position