United Engineers Limited

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Q2 2015 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

With effect from 2015, the Group's main reporting segments are Property Rental & Services, Property Development, Engineering & Distribution, Technology & Manufacturing and Corporate Services & Others.

(Note: Q2 2014 and 6M 2014 included the results of Automotive and MFS Technology (S) Pte Ltd (MFSS) businesses. Q2 2015 and 6M 2015 did not include the results of Automotive and MFSS businesses as these businesses were divested towards the end of 2014.)

Q2 2015 compared with Q2 2014

Revenue decreased 59% to $468.2 million in Q2 2015 from $1.15 billion in Q2 2014, mainly due to the absence of revenue contribution from Austville Residences which was recorded in Q2 2014 based on the completion of construction method, and the absence of contributions from the divested Automotive and MFSS businesses.

As a result, gross profit decreased 40% to $75.6 million in Q2 2015. However, gross profit margin increased to 16.1% in Q2 2015 as compared with 11.1% in Q2 2014, mainly due to positive contribution from Multi-Fineline Electronix, Inc. (MFLEX).

Distribution costs decreased 57% to $11.4 million in Q2 2015 from $26.7 million in Q2 2014 and administrative expenses decreased 29% to $31.0 million in Q2 2015 from $43.5 million in Q2 2014 mainly due to the absence of the divested Automotive and MFSS businesses.

Finance costs decreased 31% to $8.0 million in Q2 2015 from $11.5 million in Q2 2014 mainly due to lower borrowings.

Other expenses decreased 42% to $6.6 million in Q2 2015 from $11.4 million in Q2 2014 mainly due to lower translation losses realised upon liquidation of overseas subsidiaries in Q2 2015. The decrease is also due to the absence of restructuring expenses recorded by certain overseas subsidiary in Q2 2014.

In Q2 2015, the Group recorded share of profit from equity-accounted associates and joint ventures of $6.5 million mainly due to higher contributions from a joint venture in Malaysia arising from the sale of a property. In Q2 2014, the Group recorded share of loss from equity-accounted associates and joint ventures of $0.3 million.

Income tax expense decreased 89% to $1.8 million in Q2 2015 from $16.6 million in Q2 2014. The lower income tax expense in Q2 2015 was mainly due to the write-back of over provision of prior years' income tax by certain overseas subsidiaries. The higher income tax expense in Q2 2014 was mainly due to higher taxable operating profit and non-availability for group relief of losses incurred by certain overseas subsidiaries.

6 months 2015 (6M 2015) compared with 6 months 2014 (6M 2014)

Revenue decreased 46% to $983.4 million in 6M 2015 from $1.82 billion in 6M 2014 mainly due to the absence of revenue contribution from Austville Residences which was recorded in 2014 based on the completion of construction method, and the absence of contributions from divested Automotive and MFSS businesses. The decrease was partially offset by higher revenue contribution from MFLEX.

As a result of the lower revenue, gross profit decreased 19% to $161.3 million in 6M 2015. The decrease was partially offset by positive contribution from MFLEX, which has turned around from a gross loss position in 6M 2014. However, gross profit margin increased to 16.4% in 6M 2015 as compared with 10.9% in 6M 2014, mainly due to positive contribution from MFLEX.

Other income decreased 53% to $13.6 million in 6M 2015 from $29.0 million in 6M 2014. In 6M 2015, other income included mainly a gain of $5.7 million from the disposal of a manufacturing facility in China and a net disposal gain of $3.0 million from the sale of subsidiaries. In 6M 2014, other income comprised primarily a divestment and remeasurement gain of approximately $21.8 million from the disposal of a subsidiary in China.

Distribution costs decreased 58% to $22.8 million in 6M 2015 from $54.3 million in 6M 2014 and administrative expenses decreased 20% to $69.2 million in 6M 2015 from $86.6 million in 6M 2014 mainly due to the absence of Automotive and MFSS businesses which were divested towards the end of 2014.

Finance costs decreased 17% to $18.8 million in 6M 2015 from $22.6 million in Q2 2014 mainly due to lower borrowings.

Other expenses decreased 46% to $8.9 million in 6M 2015 from $16.7 million in 6M 2014 mainly due to lower translation losses realised upon liquidation of subsidiaries in 6M 2015. The decrease is also due to the absence of restructuring expenses recorded by certain overseas subsidiary in 6M 2014.

Share of profit from equity-accounted associates and joint ventures was $5.8 million in 6M 2015 compared to $0.5 million in 6M 2014 mainly due to higher contribution from a joint venture in Malaysia arising from the sale of a property in 6M 2015.

Income tax expense decreased 90% to $3.5 million in 6M 2015 from $36.1 million in 6M 2014. The lower income tax expense in 6M 2015 was mainly due to the write-back of over provision of prior years' income tax by certain overseas subsidiaries. The higher income tax expense in 6M 2014 was mainly due to higher taxable operating profit, non-availability for group relief of losses incurred by certain overseas subsidiaries and a tax charge from the reversal of the deferred tax assets recorded by certain overseas subsidiaries.

The Group's attributable profit on continuing operations decreased 27% to $17.6 million in Q2 2015 from $24.2 million in Q2 2014. For 6M 2015, attributable profit on continuing operations increased 32% to $42.5 million in 6M 2015 from $32.1 million in 6M 2014.

Financial position review

  • Inventories decreased by $12 million mainly due to planned seasonal scale-back of production to reduce inventories by the Group's Technology business.
  • The decrease in assets and liabilities of disposal group classified as held for sale is mainly due to the completion of the disposals of UE Managed Solutions Pte. Ltd. (UEMS), UE ServiceCorp (Taiwan) Limited and Tangshan UE Shengxing Renewable Resources Co., Ltd in 2015.
  • Current trade and other payables declined by $110 million mainly due to the drop of trade payables in the Group's Technology business.

Cash flow review

As at 30 June 2015, the Group had cash and cash equivalents of $442 million. In 6M 2015, the Group incurred total development expenditure of $107 million mainly for Eight Riversuites and the Group's China property development projects. In addition, the Group also utilised $115 million for dividends payments. Apart from the above, the Group's components of cash flow and changes in these components from 31 December 2014 to 30 June 2015 were mainly the result of the Group's other ongoing operations.

Segment review

Review

Property Rental & Services

Revenue decreased 10% to $34.7 million in Q2 2015 from $38.6 million in Q2 2014 and 5% to $68.6 million in 6M 2015 from $72.5 million in 6M 2014. Operating profit before interest decreased 15% to $19.2 million in Q2 2015 from $22.6 million in Q2 2014 and 18% to $33.8 million in 6M 2015 from $41.4 million in 6M 2014 mainly due to the absence of project management fees.

Property Development

Revenue decreased 78% to $119.0 million in Q2 2015 from $549.9 million in Q2 2014 and 55% to $292.8 million in 6M 2015 from $657.0 million in 6M 2014, mainly due to the absence of revenue contribution at Austville Residences which was recorded in Q2 2014 based on the completion-of-construction method. As a result, operating profit before interest decreased 94% to $2.8 million in Q2 2015 from $43.9 million in Q2 2014 and 79% to $9.8 million in 6M 2015 from $46.7 million in 6M 2014.

Engineering & Distribution

Revenue increased 5% to $67.0 million in Q2 2015 from $63.7 million in Q2 2014 and marginally to $124.8 million in 6M 2015 from $123.9 million in 6M 2014 mainly due to higher contribution from the Group's environmental engineering projects. The increase was partially offset by lower revenue contribution from the liquefied petroleum gas distribution business. Operating loss before interest was $1.3 million in Q2 2015 compared with operating profit of $3.0 million in Q2 2014 mainly due to reduced margins recorded for certain ongoing environmental engineering projects. Operating profit before interest decreased 51% to $2.6 million in 6M 2015 from $5.3 million in 6M 2014.

Technology & Manufacturing

Revenue increased 26% to $230.0 million in Q2 2015 from $182.0 million in Q2 2014 and 31% to $457.3 million in 6M 2015 from $349.4 million in 6M 2014 mainly due to higher contribution from MFLEX. Operating profit before interest was $12.7 million in Q2 2015 compared with an operating loss of $24.7 million in Q2 2014 and operating profit before interest was $29.4 million in 6M 2015 compared with an operating loss of $51.5 million in 6M 2014 mainly due to the turnaround and positive contribution by MFLEX.

Commentary

The persisting impact of the property cooling measures implemented by the Singapore Government against the backdrop of a likely rise in interest rates and near-term global economic uncertainties coupled with the supply of new residential and commercial developments continues to weigh on the sentiment of the property market in Singapore. 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 progressive revenue recognition of Eight Riversuites using the percentage-of-completion method and the revenue generated from the Group's portfolio of investment properties will help to reduce this volatility.

MFLEX has achieved fourth consecutive profitable quarter under its new operating model. It expects new product ramps across its customer base going forward.