Sin Heng Heavy Machinery Limited

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Operations Review
Extracted from Annual Report 2016

FY2016 has been a challenging year as the global and regional economies continue to suffer in the aftermath of slower consumer demand, sharp fall in oil and commodities prices as well as volatilities and uncertainties surrounding foreign currencies movements and interest rates.

FINANCIAL RESULTS THROUGH CHALLENGING TIMES

The Group's revenue for FY2016 decreased by 48.2% to S$92.1 million as revenue from both rental segment and trading segment fell.

Revenue from equipment rental business decreased by 11.1% to S$41.4 million for FY2016. This was mainly attributable to the slowdown in construction and infrastructural activities in Singapore and regional countries such as Myanmar and Vietnam where we have rental operations. In addition, political uncertainties in some neighbouring countries also caused unplanned delays and budget reduction by project owners. These led to increased competition amongst equipment rental companies and consequently putting a downward pressure on rental rates. To overcome this, we have constantly sought out rental opportunities in the region and redeployed our equipment fleet accordingly. We have also rationalised certain under-utilised equipment and try to keep our fleet well-utilised.

Revenue from trading business decreased by 61.4% to S$50.7 million for FY2016. The decline was mainly due to the overall reduction in demand for equipment purchases as many customers delay or put off bigticket capital expenditures. This has caused the total quantity of equipment sold in FY2016 to decline as compared to previous years. Nevertheless, we continue to keenly pursue potential sales leads and deliver uncompromised solutions to cater to our customers' equipment needs.

The Group also swiftly implemented cost containment measures to alleviate the fall in profitability. These include managing staff costs through natural attrition, re-allocation of staff duties and remuneration freeze, as well as cutting operating expenditures. The measures delivered tangible results as selling and administrative expenses decreased by 32.6% and 12.2% to S$1.6 million and S$14.5 million respectively.

During FY2016, we also made a strategic decision, after having critically evaluated the growth opportunities, risk profiles and prevailing economic environment, to divest our minority stake in a non-core associate, Songcheon. Though the divestment resulted in the Group having to record a one-off accounting loss of S$1.6 million, it has enabled the Group to completely exit and monetise this passive investment.

As a result of the key factors detailed above, the Group registered a loss after tax of S$4.0 million for FY2016.

RESILIENT BALANCE SHEET POSITION

The Group's financial position remained strong and resilient. As at 30 June 2016, the Group has net assets of S$122.8 million, of which cash and bank balances amounted to S$33.4 million vis--vis total unsecured loans of S$15.3 million. The Group also maintained a healthy positive working capital of S$27.0 million.

As at 30 June 2016, total current assets amounted to S$93.2 million or 41.9% of our total assets. Current assets comprised mainly cash and bank balances, trade receivables and inventories. Total current assets decreased by S$9.2 million as compared to 30 June 2015 mainly due to the decrease in trade receivables and lower cash and bank balances, offset by the increase in inventories.

Non-current assets amounted to S$129.2 million or 58.1% of our total assets as at 30 June 2016. Non-current assets comprised predominantly fixed assets. Total non-current assets increased by S$4.0 million mainly as compared to 30 June 2015 due to the renewal and expansion of our equipment rental fleet, offset by the divestment of our investment in Songcheon.

As at 30 June 2016, the Group's current liabilities amounted to S$66.2 million or 66.5% of our total liabilities. Current liabilities comprised mostly bills payable, trade payables, other payables as well as the current portion of finance leases and bank loans. Total current liabilities decreased by S$5.5 million as compared to 30 June 2015, mainly due to the repayment of bills payable, offset by increases in finance leases and bank loans.

Non-current liabilities amounted to S$33.4 million or 33.5% of our total liabilities as at 30 June 2016. Non-current liabilities comprised non-current portion of finance leases and bank loans as well as deferred tax liabilities. Total non-current liabilities increased by S$9.7 million as compared to 30 June 2015, mainly due to the drawdown of finance leases and bank loans.

MOVING AHEAD

In view of the poor economic sentiments in Singapore and surrounding regional markets, we expect the operating environment to stay difficult and challenging in the coming financial year. Notwithstanding that, we continue to hold steadfast to our belief that the Group remains strong and resilient. Through focusing on our core competencies and careful management of our balance sheet, we are cautiously confident that the Group will ride out the current down cycle and is well-poised to capitalise on opportunities as markets recover.

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