United Engineers Limited

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Q2 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 67.5%# subsidiary WBL, which engages in Automotive, China Property, Technology and Engineering, Manufacturing & Distribution (EMD).

Q2 2014 compared with Q2 2013 performance

Revenue increased 302% to $1.22 billion in Q2 2014 from $303.4 million in Q2 2013 mainly due to the full revenue recognition from the property sales at Austville Residences (which obtained temporary occupation permit in April 2014) in accordance with the completion-of-construction accounting method. The progressive revenue recognition from the property sales at Eight Riversuites and the consolidation of WBL Group's full quarter revenue of approximately $520.2 million (as compared with one (1) month1 contribution in Q2 2013) have also contributed to the higher revenue in Q2 2014. In line with the increase in revenue, gross profit increased 164% to $157.8 million in Q2 2014. Gross profit margin dropped to 12.9% in Q2 2014 as compared with 19.7% in Q2 2013 which was mainly attributable to the losses of $9.0 million incurred by the Group's NASDAQ-listed subsidiary, Multi-Fineline Electronix, Inc. (MFLEX), in which the Group has an effective interest of 43%.

Other income decreased 84% to $5.0 million in Q2 2014 from $31.6 million in Q2 2013 mainly due to the absence of the deemed disposal gain of approximately $21.4 million from available-for-sale financial assets recognised in Q2 2013 arising from the acquisition of WBL. The Group also recorded a gain of approximately $3.0 million on the sale of a non-core subsidiary in Hong Kong in Q2 2013.

Distribution costs increased 109% to $29.3 million in Q2 2014 from $14.1 million in Q2 2013 mainly due to inclusion of WBL Group's full quarter distribution costs of approximately $26.0 million for Q2 2014 compared with one (1) month1 distribution costs of approximately $10.9 million in Q2 2013.

Administrative expenses increased 36% to $47.2 million in Q2 2014 from $34.7 million in Q2 2013 mainly due to inclusion of WBL Group's full quarter expenses of approximately $21.7 million for Q2 2014 compared with one (1) month1 expenses of approximately $2.7 million in Q2 2013. The absence of professional fee and related expenses incurred for the takeover offers for WBL and consent fees paid to UEL's Multicurrency Medium Term Note bondholders provided partial offset to the increase in administrative expenses in Q2 2014.

Finance costs increased 44% to $11.9 million in Q2 2014 from $8.3 million in Q2 2013 mainly due to inclusion of WBL Group's full quarter finance costs of approximately $3.2 million for Q2 2014 compared with one (1) month1 finance costs of approximately $0.7 million in Q2 2013. The acquisition of UE BizHub WEST towards the end of 2013 has also contributed to the increase in financing costs.

Other expenses increased 52% to $12.8 million in Q2 2014 from $8.4 million in Q2 2013 mainly due to inclusion of WBL Group's full quarter expenses of approximately $10.2 million for Q2 2014 compared with one (1) month1 expenses of approximately $4.6 million in Q2 2013.

Income tax expense increased 215% to $19.7 million in Q2 2014 from $6.3 million in Q2 2013 mainly due to higher taxable operating profit and non-availability for group relief of losses incurred by certain overseas subsidiaries.

H1 2014 compared with H1 2013 performance

Revenue increased 345% to $1.96 billion in H1 2014 from $440.0 million in H1 2013 mainly due to the full revenue recognition from the property sales at Austville Residences (which obtained temporary occupation permit in April 2014) in accordance with the completion-of-construction accounting method. The progressive revenue recognition from the property sales at Eight Riversuites and the consolidation of WBL Group's half year revenue of approximately $1.02 billion (as compared with one (1) month1 in H1 2013) have also contributed to the higher revenue in H1 2014. In line with the increase in revenue, gross profit increased 134% to $236.8 million in H1 2014. Gross profit margin dropped to 12.1% in H1 2014 as compared with 23.0% in H1 2013 which was mainly attributable to the losses of $25.5 million incurred by MFLEX, in which the Group has an effective interest of 43%.

Other income decreased 13% to $30.0 million in H1 2014 from $34.4 million in H1 2013 mainly due to the absence of the deemed disposal gain of approximately $21.4 million from available-for-sale financial assets recognised in H1 2013 arising from the acquisition of WBL. The Group also recorded a gain of approximately $3.0 million on the sale of a non-core subsidiary in Hong Kong in H1 2013. The decrease was partially offset by divestment and re-measurement gain of approximately $21.8 million from the disposal of a subsidiary in China recorded in H1 2014.

Distribution costs increased 245% to $59.7 million in H1 2014 from $17.3 million in H1 2013 mainly due to inclusion of WBL Group's half year distribution costs of approximately $52.8 million for H1 2014 compared with one (1) month1 distribution costs of approximately $10.9 million in H1 2013.

Administrative expenses increased 56% to $94.1 million in H1 2014 from $60.3 million in H1 2013 mainly due to inclusion of WBL Group's half year expenses of approximately $43.4 million for H1 2014 compared with one (1) month1 expenses of approximately $2.7 million in H1 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 H1 2014.

Finance costs increased 80% to $23.3 million in H1 2014 from $12.9 million in H1 2013 mainly due to inclusion of WBL Group's half year finance costs of approximately $5.3 million for H1 2014 compared with one (1) month1 finance costs of approximately $0.7 million in H1 2013. The acquisition of UE BizHub WEST towards the end of 2013 has also contributed to the increase in financing costs.

Other expenses increased 84% to $19.0 million in H1 2014 from $10.3 million in H1 2013 mainly due to inclusion of WBL Group's half year expenses of approximately $14.6 million for H1 2014 compared with one (1) month1 expenses of approximately $4.6 million in H1 2013.

Income tax expense increased 360% to $40.5 million in H1 2014 from $8.8 million in H1 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 increased to $40.8 million in Q2 2014 compared with $15.4 million in Q2 2013. For H1 2014 attributable profit was $48.5 million in H1 2014 compared with $22.9 million in H1 2013.

Earnings per ordinary stock unit (EPS) increased to 6.4 cents in Q2 2014 compared with 4.1 cents (restated*) in Q2 2013. EPS for the half-year ended 30 June 2014 and 30 June 2013 were 7.6 cents and 6.1 cents (restated*) respectively.

Net asset per ordinary stock unit stood at $2.79 as at 30 June 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.

* Restated for the effect of the Rights Issue by the Company which was completed in September 2013.

# As at 30 June 2014

Financial position review

  • Properties held for sale declined by $510 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. The 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.
  • Assets of disposal group classified as held for sale1 increased by $195 million mainly due to additional development costs incurred for the orchardgateway project. The increase was also due to the reclassification of the assets of JWHY to assets of disposal group held for sale, the disposal of which is expected to be completed by Q3 2014.
  • Current trade and other payables decreased by $348 million mainly due to a decline in the progress billing received in advance from buyers of Austville Residences, following the revenue recognition in line with the completion-of-construction accounting method. The decline in trade payables was also driven by WBL's Technology businesses due to lower level of activities.

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

Cash flow review

As at 30 June 2014, the Group had cash and cash equivalents of $714 million. In H1 2014, the Group received the progress billings of $271 million mainly from Austville Residences and Eight Riversuites, and incurred total development expenditure of $202 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, $164 million was utilised for repayment of loans and $55 million was utlised 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 June 2014 were the result of the Group's other ongoing operations.

Segment review

Property Development

Revenue recorded in Q2 2014 of $546.8 million and in H1 2014 of $644.4 million related mainly to the full revenue recognition for Austville Residences (which obtained temporary occupation permit in April 2014) in accordance with the completion-of-construction accounting method. The progressive revenue recognition from the property sales at Eight Riversuites also contributed to the higher revenue in Q2 2014 and H1 2014. Operating profit before interest increased to $49.0 million in Q2 2014 and $54.8 million in H1 2014 compared with a marginal loss before interest in Q2 2013 and H1 2013 mainly due to the contribution from Austville Residences and Eight Riversuites.

Property Rental & Services

Revenue increased 20% to $60.8 million in Q2 2014 from $50.6 million in Q2 2013 and 19% to $117.0 million in H1 2014 from $98 million in H1 2013 mainly due to rental contribution from UE BizHub WEST. Operating profit before interest increased 56% to $24.0 million in Q2 2014 from $15.4 million in Q2 2013 and 55% to $44.3 million in H1 2014 from $28.5 million in H1 2013 mainly due to higher revenue.

Engineering & Construction

Revenue increased 13% to $130.1 million in Q2 2014 from $115.7 million in Q2 2013 and 4% to $221.9 million in H1 2014 from $214.3 million in H1 2013 mainly due to higher contribution from the Group's environmental engineering projects. Operating profit before interest increased 38% to $23.7 million in Q2 2014 from $17.2 million in Q2 2013 and 19% to $24.8 million in H1 2014 from $20.9 million in H1 2013 mainly due to higher profit contribution from certain completed projects in H1 2014.

WBL Group

Revenue contribution was primarily from WBL Group's Automotive and Technology businesses. Operating loss before interest was mainly due to excess manufacturing capacity by MFLEX as a result of lower net sales as well as losses from the overseas property 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 one (1) month (i.e. June 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.
EI in Q2 2014 mainly relate to losses incurred in relation to dissolution of a subsidiary in Hong Kong.
EI in H1 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.

Commentary

The on-going 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. The Group's expanded portfolio of investment properties will help to reduce this volatility.

The Group remains optimistic about its engineering and construction businesses as the construction demand in Singapore for 2014 is expected to remain relatively strong. With the tight foreign labour policies implemented by the Singapore Government, the Group will continue to strive to raise productivity through improving its work processes and introducing new technology in its operations and project execution.

Against a backdrop of the impact of policy changes in the automotive industry in Singapore, the Group is cautiously optimistic that there will be sustained demand for WBL's luxury and premium marques across its diverse portfolio of brands. The Automotive division will continue to focus on growing its businesses in Singapore and the Asia-Pacific region.

On 5 August 2014, the Group's subsidiary, MFS Technology Ltd (MFS) in which the Group has an effective interest of 57%, announced that it has entered into a legally binding letter of offer with Novo Tellus PE Fund 1, L.P. and Navis Asia VII Management Company Limited (on behalf of Navis Asia Fund VII, L.P.) for the sale of all assets and liabilities as identified on the MFS' balance sheet for an aggregate consideration of S$124,152,000 to be satisfied in cash. Details of the proposed transaction can be found in SGX-ST.

On 8 August 2014, the Group's NASDAQ listed subsidiary, MFLEX (in which the Group has an effective interest of 43%) has announced that its capacity consolidation and restructuring exercise has substantially completed as at 30 June 2014, and the expected cost savings from the restructuring plan is on track. The improved cost structure is expected to continue to support recovery in profitability.

As part of the Group's on-going 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.