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Financials Results

Unaudited Second Quarter Results Financial Statement And Related Announcement For The Period Ended 30 September 2018

Financials Archive

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Consolidated Income Statements

Income Statement

Consolidated Statements of Comprehensive Income

Statements of Comprehensive Income

Statements of Financial Position

Statements of Financial Position

Review of the Group's Performance

Revenue

Revenue

HY FY2019 vs HY FY2018

For the six months ended 30 September 2018 ("HY FY2019"), the Group's revenue was S$31.6 million with a decrease of S$5.8 million or 15.5% compared to S$37.5 million for the corresponding period ended 30 September 2017 ("HY FY2018"). S$4.2 million of this reduction was in the rigging and lifting segment, largely due to completion of projects and underperformance in the Middle East and a decrease of S$1.6 million in the marine supply segment due to strategic realignment with marine customers.

2Q FY2019 vs 2Q FY2018

For second quarter ended 30 Sep 2018 ("2Q FY2019"), the Group's revenue was S$16.5 million with a decrease of S$2.6 million or 13.6% compared to S$19.1 million for the corresponding period ended 30 September 2017 ("2Q FY2018"). S$2.2 million of the decrease was from the rigging and lifting segment due to completion of projects and underperformance in the Middle East.

Gross profit

HY FY2019 vs HY FY2018

Gross profit decreased by S$3.3 million or 50.3% from S$6.5 million in HY FY2018 to S$3.2 million in HY FY2019. The corresponding gross profit margin decreased from 17.3% to 10.2%. The decrease was mainly contributed to underperformance in the Middle East, the short-term tighter margins to enhance the Group's competitiveness and the sale of some slow-moving stock back to suppliers as the inventory is being right-sized.

2Q FY2019 vs 2Q FY2018

Gross profit decreased by S$2.2 million or 75.0% from S$3.0 million in 2Q FY2018 to S$0.8 million in 2Q FY2019. The corresponding gross profit margin decreased from 15.6% to 4.5%. The decrease was mainly contributed to underperformance in the Middle East, the short-term tighter margins to enhance the Group's competitiveness and the sale of some slow-moving stock back to suppliers as the inventory is being right-sized.

Other operating (expenses) income

HY FY2019 vs HY FY2018

Other operating (expenses) income increased by S$1.0 million in HY FY2019 compared to HY FY2018 mainly due to (i) decrease in foreign exchange loss of S$0.6 million, and (ii) gain on disposal of PPE of S$0.4 million in HY FY2019.

2Q FY2019 vs 2Q FY2018

Other operating expenses in 2Q FY2019 decreased by S$0.2 million mainly due to decrease in foreign exchange loss of S$0.2 million.

Distribution costs

HY FY2019 vs HY FY2018

Distribution costs in HY FY2019 decreased by S$0.2 million compared to S$2.3 million in HY FY2018 mainly due to decrease in marketing expenses.

2Q FY2019 vs 2Q FY2018

Distribution costs in 2Q FY2019 did not vary significantly from that of 2Q FY 2018.

Administrative expenses

HY FY2019 vs HY FY2018

Administrative expenses in HY FY2019 increased by S$0.7 million compared to S$6.6 million in HY FY2018 mainly due to increase in professional fees.

2Q FY2019 vs 2Q FY2018

Administrative expenses in 2Q FY2019 increased by S$0.7 million compared to S$3.2 million in 2Q FY2018 mainly due to increase in professional fees.

Finance cost

HY FY2019 vs HY FY2018

Finance cost in HY FY2019 decreased by S$0.4 million compared to HY FY2018 mainly due to lower interest of S$0.4 million resulting from the repayment of bank borrowings.

2Q FY2019 vs 2Q FY2018

Finance cost in 2Q FY2019 decreased by S$0.2 million compared to 2Q FY2018 mainly due to lower interest of S$0.2 million resulting from the repayment of bank borrowings.

Loss before income tax

As a result of the above reasons, loss before income tax was S$6.7 million for HY FY2019.

Review of statement of financial position and cash flows

Current assets

The current assets decreased by S$23.0 million from S$150.2million as at 31 March 2018 to S$127.2 million as at 30 September 2018. The decrease was mainly due to: (i) a decrease in cash and cash equivalents of S$18.0 million resulting from repayment of bank borrowing and loan and (ii) a decrease in inventories by S$8.0 million due to inventories sales during the normal course of business, offset by (i) an increase in trade receivables by S$2.6 million mainly due to higher sales in Sep 2018, and (ii) an increase in other receivables by S$0.3 million mainly arising from the prepayment and deposit.

Non-current assets

The non-current assets decreased by S$1.3million from S$32.2 million as at 31 March 2018 to S$30.9million as at 30 September 2018. The decrease was mainly due to a drop in PPE by S$1.3 million (mainly due to depreciation of S$1.9 million in HY FY2019 and net additions of PPE of S$0.6 million).

Current liabilities

The current liabilities decreased by S$8.0 million from S$24.5 million as at 31 March 2018 to S$16.5 million as at 30 September 2018. The decrease was mainly due to (i) repayment of bank borrowings and finance leases of S$4.7 million (ii) decrease in other payables of S$2.2 million mainly due to repayment of loan from a third party of S$2.0 million, (iii) decrease in provision of restructuring cost of S$0.5 million due to repayment, and (iv) decrease in trade payables of S$0.4 million.

Non-current liabilities

Non-current liabilities decreased by S$10.0 million from S$48.5 million as at 31 March 2018 to S$38.5million as at 30 September 2018. The decrease was mainly due to repayment of bank borrowings amounting to S$9.9 million and repayment of finance lease of S$0.1 million.

Capital, reserves and non-controlling interests

The decrease in shareholder's equity of S$6.4 million was mainly due to a loss of S$6.6 million during the period offset by the increase in translation reserve of S$0.3 million.

Review of statement of Cash Flows

HY FY2019 ended 30 September 2018

Net cash used in operating activities

In HY FY2019, we had operating cash outflows of S$4.4 million from operating activities before changes in working capital.

Our net working capital outflow amounted to S$2.1 million. This was mainly due to: (i) bank bills paid off of S$6.2 million, (ii) an increase in trade receivables by S$2.4 million, (iii) decrease in trade and other payables of S$0.8 million, (iv) repayment of provision of S$0.5 million, and (v) an increase in other receivables by S$0.2 million, offset by a decrease in inventories by S$8.0 million resulting from sales during the normal course of business.

We paid interest for bank bills and income tax of S$0.1 million in total.

Overall, our net cash generated used in operating activities amounted to S$6.6 million.

Net cash from investing activities

Net cash from investing activities amounted to S$0.1 million in HY FY2019 mainly due to proceeds from net disposal of PPE of S$0.5 million, offset by the payment for acquisition of PPE of S$0.4 million.

Net cash used in financing activities

Net cash used in financing activities amounted to S$12.9 million in HY FY2019. This was mainly due to: (i) the repayment of bank borrowings and related interest of S$9.1million, (ii) repayment of other payables of S$2.0 million, (iii) the repayment of obligations under finance leases of S$0.3 million, and (iv) restricted cash of S$1.5 million due to covenant agreement with bank.

2Q FY2019 ended 30 September 2018

Net cash used in operating activities

In 2Q FY2019, we had operating cash outflows of S$3.6 million from operating activities before changes in working capital.

Our net working capital ouflow amounted to S$3.4 million. This was mainly due to: (i) bank bills paid off of S$1.9 million, (ii) decrease in trade payables of S$0.9million, and (iii) repayment of provision of S$0.3 million, offset by (i) a decrease in inventories by S$5.7 million result from sales during the normal course of business, and (ii) an increase in other payables by S$0.8 million.

We paid interest for bank bills and income tax of S$0.1 million in total.

Overall, our net cash generated used in operating activities amounted to S$0.2 million.

Net cash from investing activities

Net cash from investing activities amounted to S$0.1 million in 2Q FY2019 mainly due to proceeds from net disposal of PPE of S$0.2 million, offset by the payment for acquisition of PPE of S$0.1 million.

Net cash used in financing activities

Net cash used in financing activities amounted to S$6.2 million in 2Q FY2019. This was mainly due to: (i) the repayment of bank borrowings and related interest of S$5.1 million, (ii) the repayment of obligations under finance leases of S$0.2 million, and (iii) restricted cash of S$0.9 million due to covenant agreement with bank.

Commentary

Gaylin's business is in transition. During this period of continued oil price volatility, the new management is executing on its business strategies in a controlled and deliberate manner. HY costs for the total Group (below the gross profit line) have been reduced by 10% compared to prior year. In fact, reported EBITDA includes S$0.8 million of non-recurring professional, consultancy and legal costs attributable to certain corporate exercises such as the acquisition of Amos International Holdings Pte. Ltd.

The key focus areas to realign its cost base and identify targeted activities to promote the sale of slow moving and aged inventory have started to gain momentum. Following the inventory impairment at the end of FY2018, the new management have improved HY sales in Singapore by 25% and improved gross profit by 37% compared to prior year. As planned, property rentals in Singapore have been reduced and revenue from technical services in Southeast Asia have increased. The marine supplies business in Singapore has also produced improved year-on-year results.

Rigging and lifting activities in Vietnam are delivering improved year-on-year results, however the Company's Middle East operations are still going through an intense restructuring program which is negatively impacting results in the short term. A new Regional Director, based in Dubai, has now joined Gaylin to lead its business growth opportunities in the European and Middle East markets. The teams in both these markets are also being strengthened to drive regional business diversification.

Gaylin completed the acquisition of AMOS International Holdings Pte. Ltd. on 18 October 2018. AMOS is principally engaged in the provision of supplies, services and logistics solutions to the marine transportation sector. The acquisition creates revenue growth potential through cross-selling opportunities, and the expansion of client network and geographical reach. We expect that economies of scale will lead to cost savings on procurement, operations and financing. The Company's integration plan to realize the synergistic values of both revenue and cost is now underway.

In addition, and as a key component of the management's revitalization strategies, on 29 October 2018, Gaylin completed a refinancing exercise with E.Sun Commercial Bank. The Group will take advantage of the associated financing cost savings from November 2018 onwards.

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