United Engineers Limited

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Q2 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

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.

In accordance with FRS 105, Non-current Assets Held for Sale and Discontinued Operations, the results of MFLEX and its subsidiaries have been presented separately on the consolidated income statement as Discontinued Operation. As a result, the Group’s Manufacturing division now principally comprises the precision engineering and electronic manufacturing services businesses in China.

Q2 2016 compared with Q2 2015

Revenue decreased 46% to $142.2 million in Q2 2016 from $263.0 million in Q2 2015. This was mainly due to lower revenue from property development arising from the completion of Eight Riversuites. As a result, gross profit decreased 11% to $45.3 million in Q2 2016.

Other income increased to $5.8 million in Q2 2016 from $1.7 million in Q2 2015 mainly due to a gain of $3.9 million from the disposal of an available-for-sale financial asset.

Distribution costs increased 13% to $7.1 million in Q2 2016 from $6.3 million in Q2 2015 mainly due to higher selling and marketing expenses for property development in China.

Finance costs increased 16% to $9.1 million in Q2 2016 from $7.9 million in Q2 2015 mainly due to higher interest rates.

Other expenses decreased 25% to $2.5 million in Q2 2016 from $3.3 million in Q2 2015 mainly due to absence of impairment charges on intangible assets of $0.8 million recorded in Q2 2015.

Share of profit from equity-accounted associates and joint ventures decreased 78% to $1.4 million in Q2 2016 from $6.5 million in Q2 2015. The higher share of profit in Q2 2015 was mainly due to a disposal gain recorded by a joint venture in Malaysia.

Income tax expense decreased 88% to $0.5 million in Q2 2016 from $3.9 million in Q2 2015 mainly due to lower taxable operating profit.

6 months 2016 (6M 2016) compared with 6 months 2015 (6M 2015)

Revenue decreased 42% to $333.7 million in 6M 2016 from $576.0 million in 6M 2015 mainly due to lower revenue from property development arising from the completion of Eight Riversuites. As a result, gross profit decreased 8% to $101.3 million in 6M 2016.

Distribution costs increased 15% to $14.2 million in 6M 2016 from $12.3 million in 6M 2015 mainly due to higher selling and marketing expenses for property development in China.

Administrative expenses decreased 10% to $52.2 million in 6M 2016 from $57.9 million in 6M 2015 mainly due to lower staff and related costs.

Other expenses decreased 10% to $4.4 million in 6M 2016 from $4.9 million in 6M 2015 mainly due to absence of impairment charges on intangible assets recorded in 6M 2015.

Share of profit from equity-accounted associates and joint ventures decreased 36% to $3.7 million in 6M 2016 from $5.8 million in 6M 2015. The higher share of profit in 6M 2015 was mainly due to a disposal gain recorded by a joint venture in Malaysia.

Income tax expense decreased 41% to $2.1 million in 6M 2016 from $3.6 million in 6M 2015 mainly due to lower taxable operating profit.

The Group’s attributable profit on continuing operations decreased 25% to $8.0 million in Q2 2016 from $10.7 million in Q2 2015. For 6M 2016, attributable profit on continuing operations decreased 26% to $20.6 million in 6M 2016 from $27.9 million in 6M 2015.

The Group recorded attributable comprehensive loss of $12.3 million in Q2 2016 and $28.7 million in 6M 2016 mainly due to the unrealised foreign exchange losses arising from the translation of its net investment in foreign subsidiaries because of the unfavourable movement of US Dollars and Renminbi against Singapore Dollars.

Financial position review

  • Property, plant and equipment, intangible assets, deferred tax assets, inventories and bank balance and deposits declined by $196 million, $26 million, $23 million, $82 million and $363 million respectively mainly due to the reclassification of assets relating to MFLEX and its subsidiaries as well as the environmental engineering businesses in China to assets of disposal group classified as held for sale.
  • The increase in “Assets and Liabilities of disposal group classified as held for sale” is mainly due to the reclassification of the respective assets and liabilities of certain disposal groups arising from the Group’s announcements of the disposals of interests in the environmental engineering businesses in China as well as MFLEX and its subsidiaries.
  • Properties held for sale decreased by $377 million mainly due to the completion of the Eight Riversuites.
  • Other reserves decreased by $41 million mainly due to translation loss from net investment in foreign operations.

Cash flow review

As at 30 June 2016, the Group had cash and cash equivalents of $462 million. In 6M 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 $326 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 June 2016 were mainly the result of the Group’s other ongoing operations.

Operation review

Property Rental & Services

Revenue decreased 4% to $33.3 million in Q2 2016 from $34.7 million in Q2 2015 and 2% to $67.2 million in 6M 2016 from $68.6 million in 6M 2015. Operating profit before interest decreased 8% to $17.6 million in Q2 2016 from $19.2 million in Q2 2015. The higher operating profit in Q2 2015 was mainly due to the write-back of excess provision for staff and related costs. Operating profit before interest increased 6% to $35.8 million in 6M 2016 from $33.8 million in 6M 2015 mainly due to lower staff and related costs in 6M 2016.

Property Development

Revenue decreased 94% to $7.6 million in Q2 2016 from $119.0 million in Q2 2015 and 82% to $51.3 million in 6M 2016 from $292.8 million in 6M 2015, mainly due to lower revenue recognition from the property sales at Eight Riversuites. Operating loss before interest was $3.6 million in Q2 2016 and $4.0 million in 6M 2016 compared with operating profit of $2.8 million in Q2 2015 and $9.8 million in 6M 2015 respectively mainly due lower revenue and higher operating expenses incurred by the China operations.

Engineering & Distribution

Revenue decreased 4% to $64.1 million in Q2 2016 from $67.0 million in Q2 2015 but increased 13% to $141.3 million in 6M 2015 from $124.8 million in 6M 2015 mainly due to higher contribution from the environmental engineering business. Operating loss before interest reduced to $0.6 million in Q2 2016 from $1.3 million in Q2 2015. Operating profit before interest increased 65% to $4.3 million in 6M 2016 from $2.6 million in 6M 2015 mainly due to improved contribution from the distribution businesses.

Manufacturing

Revenue decreased 11% to $22.1 million in Q2 2016 from $24.9 million in Q2 2015 and 11% to $44.5 million in 6M 2016 from $49.9 million in 6M 2015. Operating profit before interest was $1.9 million in Q2 2016 and $3.7 million in 6M 2016 compared with operating loss of $0.8 million in Q2 2015 and $1.9 million in 6M 2015 mainly due to improved manufacturing efficiency and cost control in its operations in China.

Commentary

The global economic slowdown and the weaker economic prospects 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 is likely to continue to face challenging operating conditions against the backdrop of slower economic growth and patchy demand 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 some downward pressure on rental income in Singapore given the growing supply of office, industrial and retail space amid softening demand.