United Engineers Limited

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Q3 2016 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

A. Discontinued operations

At an Extraordinary General Meeting held on 8 June 2016, the shareholders of the Company approved the proposed disposal (the "Proposed Transaction") of Multi-Fineline Electronix, Inc. ("MFLEX") and its subsidiaries to Suzhou Dongshan Precision Manufacturing Co., Ltd.. On 27 July 2016, the Group announced the completion of the Proposed Transaction and MFLEX and its subsidiaries have thereafter ceased to be subsidiaries of the Company.

On 13 May 2016, the Company announced that it and its wholly owned subsidiary, UE UMC Pte. Ltd. had entered into agreements with Giant Maze Limited in relation to the sale of UES Holdings Pte. Ltd. and its subsidiaries, UE Envirotech Pte Ltd and its subsidiaries, UE Asia Pacific (Beijing) Co., Ltd. and its subsidiary, and Hengyang City UE Songmu Water Co., Ltd. (collectively known as "EE Businesses"). The Group completed the sale of the EE Businesses as announced on 26 July 2016 and 28 September 2016.

In accordance with FRS 105, Non-current Assets Held for Sale and Discontinued Operations, the results of MFLEX and its subsidiaries and EE Businesses have been presented separately on the consolidated income statement as Discontinued Operations.

The Group recorded attributable profit of $112.1 million from discontinued operations in 9M 2016 including divestment gains of approximately $122.0 million.

B. Continuing operations

Q3 2016 compared with Q3 2015

Revenue decreased 43% to $101.7 million in Q3 2016 from $179.2 million in Q3 2015 mainly due to lower revenue from property development following the completion of Eight Riversuites in January 2016. As a result, gross profit decreased 12% to $45.0 million in Q3 2016.

Other income increased 89% to $11.0 million in Q3 2016 from $5.8 million in Q3 2015.

In Q3 2016, this included mainly:

  • $5.0 million of fidelity insurance compensation in relation to irregularities uncovered in certain subsidiaries as announced on 17 June 2015; and
  • $5.0 million reduction in the provision for development charge in relation to the divestment of the Group's Automotive business as this is no longer required.

In Q3 2015, this comprised $5.5 million from the disposal of an available-for-sale financial asset in Malaysia.

Distribution costs increased 8% to $7.4 million in Q3 2016 from $6.8 million in Q3 2015 mainly due to higher selling and marketing expenses for property development business in China.

Other expenses decreased 31% to $1.0 million in Q3 2016 from $1.4 million in Q3 2015 mainly due to lower foreign exchange losses recorded in Q3 2016.

Share of profit from equity-accounted associates and joint ventures was $0.7 million in Q3 2016 compared to a loss of $1.7 million in Q3 2015.

Income tax expense decreased 14% to $3.6 million in Q3 2016 from $4.2 million in Q3 2015. The lower income tax expense in Q3 2016 was mainly due to certain income not subject to tax.

9 months 2016 (9M 2016) compared with 9 months 2015 (9M 2015)

Revenue decreased 49% to $358.2 million in 9M 2016 from $704.9 million in 9M 2015 mainly due to lower revenue from property development following the completion of Eight Riversuites. As a result, gross profit decreased 10% to $142.8 million in 9M 2016.

Other income increased 36% to $17.4 million in Q3 2016 from $12.8 million in Q3 2015.

In 9M 2016, this included mainly:

  • $5.0 million of fidelity insurance compensation in relation to irregularities uncovered in certain subsidiaries;
  • $5.0 million reduction in the provision for development charge in relation to the divestment of the Group's Automotive business as this is no longer required; and
  • $3.9 million from the disposal of an available-for-sale financial asset in Singapore.

In 9M 2015, this included mainly:

  • $5.5 million from the disposal of an available-for-sale financial asset in Malaysia; and
  • $4.6 million from the sale of subsidiaries.

Distribution costs increased 12% to $21.6 million in 9M 2016 from $19.4 million in 9M 2015 mainly due to higher selling and marketing expenses for property development business in China.

Other expenses decreased 30% to $3.9 million in 9M 2016 from $5.5 million in 9M 2015 mainly due to lower foreign exchange losses and absence of impairment charges on intangible assets recorded in 9M 2015.

Share of profit from equity-accounted associates and joint ventures decreased 10% to $3.7 million in 9M 2016 from $4.1 million in 9M 2015.

Income tax expense decreased 30% to $5.2 million in 9M 2016 from $7.5 million in 9M 2015 mainly due to lower taxable operating profit.

The Group's attributable profit on continuing operations increased 10% to $11.7 million in Q3 2016 from $10.6 million in Q3 2015. For 9M 2016, attributable profit on continuing operations decreased 18% to $32.3 million in 9M 2016 from $39.3 million in 9M 2015.

Financial position review

During the nine months ended 30 September 2016, the Group disposed of the following subsidiaries and associates:

  • 42.2% effective interest in Multi-Fineline Electronix, Inc. (MFLEX);
  • 62.6% effective interest in Suzhou Speedling Co., Ltd.;
  • 100% interest in UES Holdings Pte. Ltd.and its subsidiaries and associates;
  • 100% interest in UE Envirotech Pte. Ltd. and its subsidiaries;
  • 100% interest in UE Asia Pacific (Beijing) Co., Ltd. and its subsidiary; and
  • 100% interest in Hengyang City UE Songmu Water Co., Ltd.

(collectively known as "Disposal of Subsidiaries and Associates".)

  • Non-current assets such as property, plant and equipment, intangible assets, interests in associates and deferred tax assets declined by $196 million, $25 million, $12 million and $23 million respectively and Current assets such as inventories declined by $79 million mainly due to the Disposal of Subsidiaries and Associates.
  • Trade and other payable declined by $145 million mainly due to the Disposal of Subsidiaries and Associates, partially offset by dividend payment by one of its subsidiaries to non-controlling interests.
  • Properties held for sale decreased by $365 million mainly due to the completion of the Eight Riversuites.
  • Net borrowings decreased by $377 million mainly due to repayment of external bank borrowings. As a result, the Group's net debt to equity ratio improved from 0.49 times to 0.28 times.
  • Other reserves decreased by $42 million mainly due to translation loss from net investment in foreign operations mainly arising from unfavourable movement of Malaysian Ringgit and Chinese Renminbi against Singapore Dollars.

Cash flow review

As at 30 September 2016, the Group had cash and cash equivalents of $666 million. In 9M 2016, the Company issued a $150 million note pursuant to the $1 billion Multicurrency Term Note Programme. Separately, the Group utilised $68 million for dividends payments and $419 million for the repayment of external bank borrowings. Apart from the above, the Group's components of cash flow and changes in these components from 31 December 2015 to 30 September 2016 were mainly the result of the Group's other ongoing operations.

Operation review

Property Rental & Services

Revenue decreased 3% to $34.7 million in Q3 2016 from $35.8 million in Q3 2015 and 3% to $101.9 million in 9M 2016 from $104.6 million in 9M 2015. Operating profit before interest increased 31% to $23.1 million in Q3 2016 from $17.6 million in Q3 2015 and increased 17% to $62.8 million in 9M 2016 from $53.8 million in 9M 2015 mainly due to $5.0 million of fidelity insurance compensation in relation to irregularities uncovered in certain subsidiaries.

Property Development

Revenue decreased 94% to $4.5 million in Q3 2016 from $79.0 million in Q3 2015 and 85% to $55.8 million in 9M 2016 from $371.8 million in 9M 2015, mainly due to lower revenue recognition from the property sales at Eight Riversuites. Operating loss before interest was $3.2 million in Q3 2016 and $7.2 million in 9M 2016 compared with operating profit before interest of $2.5 million in Q3 2015 and $12.3 million in 9M 2015 respectively, mainly due lower revenue and profit in Singapore and higher operating expenses incurred by the China operations.

Engineering & Distribution

Revenue increased slightly to $35.5 million in Q3 2016 from $34.9 million in Q3 2015. Revenue decreased 8% to $99.6 million in 9M 2016 from $107.9 million in 9M 2015 mainly due to lower contribution from the systems integration unit, O'Connor's. Operating profit before interest decreased 76% to $0.9 million in Q3 2016 from $3.7 million in Q3 2015 and decreased 14% to $5.6 million in 9M 2016 from $6.5 million in 9M 2015 mainly due to reduced margins for certain on-going engineering projects.

Manufacturing

Revenue decreased 5% to $20.3 million in Q3 2016 from $21.3 million in Q3 2015 and 9% to $64.7 million in 9M 2016 from $71.2 million in 9M 2015. Operating profit before interest was $1.3 million in Q3 2016 and $5.0 million in 9M 2016 compared with operating loss of $0.2 million in Q3 2015 and $2.2 million in 9M 2015 mainly due to improved manufacturing efficiency and cost control in its operations in China.

Commentary

The global economic slowdown and the weaker economic outlook in Singapore coupled with the sustained impact of the property cooling measures will continue to weigh on the sentiment of the property markets in Singapore. The Group's China Property division continues to face challenging operating conditions against the backdrop of slower economic growth and patchy recovery in the property market in China. 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. Rental income from the Group's portfolio of investment properties will help reduce this volatility but the Group is likely to face downward pressure on rental income in Singapore given the growing supply of office, industrial and retail space amid softening demand.