United Engineers Limited

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Q3 2014 Financial Statement Announcement

Financials Archive

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Income Statement

Profit and loss

Comprehensive Income Statement

Comprehensive Income Statement

Statement of Financial Position

Balance Sheet

Review of Performance

Overview

The Group's major businesses comprise Property Development, Property Rental & Services, Engineering & Construction and the businesses of its 67.6% subsidiary WBL, which engages in Automotive, China Property, Technology and Engineering, Manufacturing & Distribution (EMD).

Q3 2014 compared with Q3 2013 performance

Revenue increased 7% to $786.3 million in Q3 2014 from $732.0 million in Q3 2013 mainly due to the progressive revenue recognition from the property sales at Eight Riversuites. Gross profit increased 36% to $127.4 million in Q3 2014 from $93.3 million in Q3 2013 mainly due to positive contribution by the Group's NASDAQ-listed subsidiary, Multi-Fineline Electronix, Inc. (MFLEX), in which the Group has a 43% effective interest. Accordingly, gross profit margin increased to 16.2% in Q3 2014 as compared with 12.8% in Q3 2013.

Other income decreased 85% to $2.3 million in Q3 2014 from $15.2 million in Q3 2013 mainly due to the absence of the gain from disposal of available-for-sale financial assets held by one of the subsidiaries in Q3 2013.

Other expenses increased 30% to $7.3 million in Q3 2014 from $5.6 million in Q3 2013 mainly due to an impairment charge of approximately $3.0 million made by the Group against its carrying value of an environmental engineering plant in China.

In Q3 2014, the Group recorded share of loss from equity-accounted associates and joint ventures of $1.0 million mainly from associates of the UE E&C Group. In Q3 2013, the Group recorded share of profit from equity-accounted associates and joint ventures of $6.7 million mainly due to profit recorded by joint ventures companies involved in property development.

Income tax expense increased 19% to $10.5 million in Q3 2014 from $8.8 million in Q3 2013 mainly due to higher taxable operating profit.

9 months 2014 (9M 2014) compared with 9 months 2013 (9M 2013) performance

(Note: 9M 2014 included consolidation of WBL Group's nine (9) months results from January to September 2014 whereas corresponding 9M 2013 only included consolidation of WBL Group's four (4) months results from June to September 20131.)

Revenue increased 134% to $2.74 billion in 9M 2014 from $1.17 billion in 9M 2013 mainly due to the full revenue recognition from the property sales at Austville Residences in accordance with the completion-ofconstruction accounting method. The progressive revenue recognition from the property sales at Eight Riversuites and the consolidation of WBL Group's revenue of approximately $1.57 billion (as compared with $722.5 million in 9M 2013) have also contributed to the higher revenue in 9M 2014.

In line with the increase in revenue, gross profit increased 87% to $364.2 million for 9M 2014. Gross profit margin, however, declined to 13.3% in 9M 2014 as compared with 16.6% in 9M 2013 which was mainly attributable to the losses incurred by MFLEX in the first half of 2014.

Other income decreased 35% to $32.3 million in 9M 2014 from $49.6 million in 9M 2013 mainly due to:

- Absence of the following which were recorded in 9M 2013

  • deemed disposal gain of approximately $21.4 million from available-for-sale financial assets arising from the acquisition of WBL;
  • disposal gain of approximately $12.3 million from available-for-sale financial assets;
  • disposal gain of approximately $3.0 million from the sale of a subsidiary in Hong Kong.
- Offset by
  • divestment and re-measurement gain of approximately $21.6 million from the disposal of a subsidiary in China which was recorded in 9M 2014.

Distribution costs increased 86% to $89.3 million in 9M 2014 from $48.0 million in 9M 2013 mainly due to inclusion of WBL Group's distribution costs of approximately $78.7 million for 9M 2014 compared with approximately $38.7 million in 9M 2013.

Administrative expenses increased 27% to $140.2 million in 9M 2014 from $110.3 million in 9M 2013 mainly due to the inclusion of WBL Group's expenses of approximately $64.0 million for 9M 2014 compared with approximately $25.4 million in 9M 2013. The absence of professional fee and related expenses incurred for the takeover offers for WBL and the consent fees paid to UEL's Multicurrency Medium Term Note bondholders provided partial offset to the increase in administrative expenses in 9M 2014.

Finance costs increased 40% to $33.1 million in 9M 2014 from $23.7 million in 9M 2013 mainly due to inclusion of WBL Group's finance costs of approximately $6.2 million for 9M 2014 compared with approximately $1.7 million in 9M 2013. The acquisition of UE BizHub WEST towards the end of 2013 has also contributed to the increase in financing costs in 9M 2014.

Other expenses increased 65% to $26.2 million in 9M 2014 from $15.9 million in 9M 2013 mainly due to inclusion of WBL Group's expenses of approximately $16.5 million for 9M 2014 compared with approximately $7.1 million in 9M 2013.

In 9M 2014, the Group recorded share of loss from equity-accounted associates and joint ventures of $1.9 million mainly from associates of the UE E&C Group. In 9M 2013, the Group recorded share of profit from equity-accounted associates and joint ventures of $10.1 million mainly due to profit recorded by joint ventures companies involved in property development.

Income tax expense increased 189% to $51.0 million in 9M 2014 from $17.6 million in 9M 2013 mainly due to higher taxable operating profit, non-availability for group relief of losses incurred by certain overseas subsidiaries as well as a tax charge from the reversal of the deferred tax assets recorded by MFLEX.

The Group's attributable profit was $18.5 million in Q3 2014 compared with $12.5 million in Q3 2013. For 9M 2014 attributable profit was $66.9 million in 9M 2014 compared with $35.4 million in 9M 2013.

Earnings per ordinary stock unit (EPS) was 2.9 cents compared with 3.0 cents in Q3 2013. EPS for 9M 2014 and 9M 2013 was 10.5 cents and 10.3 cents respectively.

Net asset per ordinary stock unit stood at $2.83 as at 30 September 2014 compared with $2.84 as at 31 December 2013.

1 WBL became a subsidiary of the Group on 29 May 2013, and correspondingly, WBL Group was consolidated with the Group from the month of June 2013.

Financial position review

  • Properties held for sale declined by $476 million mainly due to the completion of Austville Residences project which has obtained its temporary occupation permit in April 2014. The divestment of the residential housing development project in Suzhou, China has also contributed to the decline. This project was held through JWHY which was partially divested as announced in Q1 2014. The decline was also partly attributable to the progress billing received on the sale of private residential properties in Singapore.
  • The increase in "Assets and Liabilities of disposal group classified as held for sale1" is mainly due to the reclassification of the respective assets and liabilities of certain disposal groups in connection to the following events:
    1. In March 2014, the Group announced the disposal of 78% shareholding interest in JWHY.
    2. In August 2014, the Group has announced the proposed disposal of WBL's Automotive Division for a consideration of $455.0 million on a debt-free, cash-free basis. The shareholders of WBL have approved the sale at the Extraordinary General Meeting on 14 November 2014.
    3. In August 2014, the Group has announced that its subsidiary, MFS Technology Ltd (MFS) has entered into a legally binding letter of offer with Novo Tellus PE Fund 1, L.P. and Navis Asia VII Management Company Limited for the sale of all assets and liabilities as identified on the MFS' balance sheet for an aggregate consideration of approximately $124.2 million. The shareholders of MFS have approved the sale at the Extraordinary General Meeting on 11 November 2014.
    The increase was partially offset by the completion of the disposal of UE Orchard Pte Ltd and UE Somerset Pte Ltd to a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited in Q3 2014.
  • Property, plant and equipment, inventories and trade and other receivables declined by $339 million, $172 million and $96 million respectively mainly due to the reclassification of assets relating to WBL's Automotive Division and MFS to assets of disposal group classified as held for sale. The reduction in trade and other receivables was partially offset by retention sums receivables for Austville Residences.
  • Trade and other payable declined by $430 million mainly due to the reclassification of liabilities relating to WBL's Automotive Division and MFS to liabilities of disposal group classified as held for sale. The decrease in trade and other payables was also due to the absence of the progress billing received in advance from apartment buyers, upon the completion of Austville Residences.
  • Borrowings decreased by $676 million mainly due to repayment of project loans following the completion of orchardgateway and Austville Residences.

Cash flow review

As at 30 September 2014, the Group had cash and cash equivalents of $703 million. During the 9 months 2014, the Group received the progress billings of $297 million mainly from Austville Residences and Eight Riversuites, and incurred total development expenditure of $268 million mainly for orchardgateway, Austville Residences, Eight Riversuites and WBL's China development projects. The Group also utilised $131 million for the delisting offers for WBL Group. In addition, the Group received $353 million from the repayment of loans extended for the orchardgateway project. The Group also utilised $592 million for repayment of loans and $55 million for dividends payments. Apart from the above, the Group's components of cash flow and changes in these components from 31 December 2013 to 30 September 2014 were the result of the Group's other ongoing operations.

1 Under Financial Reporting Standard 105 (FRS105), re-classification of the carrying value of assets and liabilities of disposal group as held for sale is required if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Such sale should be expected to qualify for recognition as a completed sale within 12 months from the date of such classification.

Segment review

Property Development

Revenue recorded in Q3 2014 of $74.0 million related to the progressive revenue recognition from the property sales at Eight Riversuites and in 9M 2014 of $718.3 million related mainly to the full revenue recognition for Austville Residences as well as progressive revenue recognition from the property sales at Eight Riversuites. Operating profit before interest increased to $4.7 million in Q3 2014 and $59.5 million in 9M 2014 compared with an operating loss before interest of $0.4 million in Q3 2013 and $0.4 million in 9M 2013 mainly due to the contribution from Austville Residences and Eight Riversuites.

Property Rental & Services

Revenue increased 14% to $59.2 million in Q3 2014 from $52.0 million in Q3 2013 and 17% to $176.2 million in 9M 2014 from $150.0 million in 9M 2013 mainly due to rental contribution from UE BizHub WEST which was acquired in Q4 2013. Operating profit before interest increased 24% to $19.1 million in Q3 2014 from $15.4 million in Q3 2013 and 44% to $63.4 million in 9M 2014 from $44.0 million in 9M 2013 mainly due to higher revenue.

Engineering & Construction

Revenue decreased 14% to $107.0 million in Q3 2014 from $125.0 million in Q3 2013 mainly due to lower contribution from the Group's listed subsidiary UE E&C Ltd. Revenue declined 3% to $328.9 million in 9M 2014 from $339.3 million in 9M 2013 mainly due to lower contribution from the Group's listed subsidiary UE E&C Ltd. which was partially offset by higher contribution from the Group's environmental engineering projects. Operating profit before interest decreased 19% to $12.1 million in Q3 2014 from $15.0 million in Q3 2013 and increase 3% to $36.9 million in 9M 2014 from $35.7 million in 9M 2013 mainly due to higher profit contribution from certain completed projects in 9M 2014.

WBL Group

Revenue contribution was primarily from WBL Group's Automotive and Technology businesses. Operating profit before interest for WBL Group in Q3 2014 was mainly due to the restructuring effort undertaken by MFLEX to return the company to profitability. Operating loss before interest in 9M 2014 was mainly due to excess manufacturing capacity by MFLEX in the first half of 2014 due to lower net sales, as well as losses from the overseas property development projects in China due to lower sales as a result of the cooling measures implemented by the Chinese Government. These losses were partially offset by profits from its other business divisions.

Contributions by the various business divisions within WBL Group are as follows:

Review

(1): Consist of four (4) months (i.e. June 2013 to September 2013) results. WBL became a subsidiary of the Group on 29 May 2013, and correspondingly, WBL Group was consolidated with the Group from the month of June 2013.

(2): Include MFLEX and MFS Technology Ltd group of companies.

(3): This relate to gain/(loss) arising from dissolution/divestment of subsidiaries, associates and joint ventures as well as disposal of available-for-sale investment.
EI in Q3 2014 mainly relate to losses incurred in relation to dissolution of subsidiaries.
EI in Q3 2013 mainly relate to gain from the disposal of investment in Amlogic Inc.
EI in 9M 2014 mainly relate to divestment and re-measurement gain on disposal of WBL's investment in Suzhou Industrial Park Jian Wu Heng Ye Property Development Co., Ltd.
EI in 9M 2013 mainly relate to gain from the disposal of investment in Amlogic Inc.

Commentary

The ongoing property cooling measures implemented by the Singapore and Chinese Governments continue to weigh on the sentiment of home buyers. The progress of property development projects of the Group are on track. The accounting treatment on revenue recognition for certain projects using the completion-of-construction method will result in volatility in the recognition of revenues and profits. Nevertheless, the Group's expanded portfolio of investment properties will help to reduce this volatility.

On 7 November 2014, MFLEX has announced that it intends to focus on continued customers and product diversification, maintaining solid relationship with its current customers and to continue with cost management to support recovery in profitability.

As part of the Group's ongoing strategic review of its operations and portfolio of businesses, the Group will continue to explore and capitalise on opportunities to further enhance and unlock shareholder value.

Other Matters

On 21 August 2014, UEL announced that its controlling shareholders, Oversea-Chinese Banking Corporation Limited ("OCBC") and Great Eastern Holdings Limited ("GEH") have been approached by a party in connection with a possible transaction relating to their combined stakes in the Company and WBL Corporation Limited ("WBL"), which may or may not lead to an offer for the shares of the Company and WBL (the "Possible Transaction"). On 27 August 2014, UEL announced that OCBC and GEH have entered into an exclusivity agreement with TCC Top Enterprise Limited ("TCC") in relation to the Possible Transaction and the period of exclusivity will expire on the date falling six weeks from the date that due diligence access on the Group is granted to TCC and its representatives/advisers.

On 3 October 2014, the Group announced that it has entered into a binding term sheet with Universal EC Investments Pte. Ltd. ("UECI") and Southern Capital Group Private Limited pursuant to which UECI has agreed that subject to the fulfilment of certain pre-conditions, it shall make a voluntary conditional offer (the "UE E&C Offer") to acquire UE E&C Ltd ("UE E&C") and the Group has undertaken to accept the UE E&C Offer in respect of its entire 68.2% equity interest in UE E&C for a consideration of approximately $230.2 million. It was announced on 15 October 2014 that the due diligence pre-condition has been satisfied and subject to the satisfaction of the remaining pre-condition, being the approval of the shareholders of the Company to be obtained at an extraordinary general meeting to be held on 28 November 2014, UECI will make the UE E&C Offer.