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Third Quarter Financial Statement And Dividend Announcement For The Nine Months Ended 30 September 2020

Financials Archive

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Income statement

Profit and Loss

Statement of comprehensive income for three months ended 30 September 2020

comprehensive income

Statement of financial position

Balance Sheet

Review Of Performance

INCOME STATEMENT REVIEW

3Q20 vs 3Q19

The Group's revenue for the three months ended 30 September 2020 ("3Q20") decreased by US$19.5 million (79.0%) to US$5.2 million as compared to the corresponding three months ended 30 September 2019 ("3Q19"). The decrease in revenue was mainly due to:

  1. decrease in units owned, utilisation and charter rates for the Group's jack-up rigs; and
  2. decrease in utilisation rates of liftboats resulting from continued delays in re-deployment of the Group's assets.

The continued delay in re-deployment is due to the following:

  1. COVID-19 pandemic has affected over 150 countries, resulting in partial or full lockdowns in many such affected countries. This has resulted in the disruption in various international and domestic supply chains and has created a significant strain on demand across various industries including the oil and gas industry. Demand for the Group's assets was severely impacted by this and this has contributed to the decrease in utilisation and charter rates across the Group's fleet;
  2. working capital constraints arising mainly from limited available financing options since lenders remain adverse to lending to our sector as the Group is also undergoing corporate restructuring; and
  3. in the consultations and discussions that the Group has had with its secured lenders leading up to the period, the secured lenders have indicated their preference for the Group to refocus its business to vessel management with an asset-light structure by divesting its vessels and rigs in an orderly fashion.

The cost of sales and servicing for 3Q20 decreased by US$9.6 million (42.0%) to US$13.2 million as compared to 3Q19, mainly due to lower depreciation expense; and lower operating costs due to lower activities from the Group's liftboats and jack-up rigs.

As a result of the above, the Group recorded a gross loss of US$8.0 million in 3Q20 compared with a gross profit of US$1.9 million in 3Q19.

The increase in other income for 3Q20 was mainly due to the gain of US$6.3 million from the disposal of plant and equipment and assets held for sale during the quarter offset by foreign exchange losses of US$1.8 million arising from the Group's Singapore Dollar denominated borrowings and Singapore Dollar denominated debt securities as the US Dollar depreciated against the Singapore Dollar during this period.

The decrease in administrative expenses in 3Q20 as compared to 3Q19 was mainly due to lower staff costs as a result of corporate restructuring and cost-cutting measures, including salary reductions taken by management and staff.

The COVID-19 pandemic and the plunge in oil prices have however severely impacted the demand of the Group's vessels and rigs, contributing to decrease in utilisation and charter rates of the Group's vessels and rigs, which affect the contracts due for renewal post period-end. Furthermore, in the consultations and discussions that the Group has had with its secured lenders leading up to the period, the secured lenders have indicated their preference for the Group to refocus its business to vessel management with an asset-light structure by divesting its vessels in an orderly fashion. Hence, the Group has updated its impairment assessment in 3Q20 and recognised net impairment losses of US$214.4 million in 3Q20. The breakdown of the net impairment losses are as follows:

Review

Finance income has decreased in 3Q20 mainly due to decrease in interest income from loans to joint ventures.

Finance costs have decreased in 3Q20 mainly due to absence of amortisation of of the fair value recognised on the Debt Securities and term loans as the amortisation was fully accelerated in 4Q2019.

The share of profits of associates and jointly controlled entities in 3Q20 was contributed by operating profit generated by the Group's joint venture, which operates in the windfarm industry in China.

The Group generated loss before income tax of US$224.4 million in 3Q20 as a result of all the above.

Charter income derived from Singapore flagged vessels are exempted from tax under Section 13A of the Income Tax Act of Singapore. Current period income tax credit of US$37,000 relates to the corporate tax expense and withholding tax expense incurred by vessels operating in certain overseas waters.

9M20 vs 9M19

The Group's revenue for the nine months ended 30 September 2020 ("9M20") decreased by US$53.0 million (68.7%) to US$24.1 million as compared to the corresponding nine months ended 30 September 2019 ("9M90"). The decrease in revenue was mainly due to:

  1. decrease in units owned, utilisation and charter rates for the Group's jack-up rigs; and
  2. decrease in utilisation rates of liftboats resulting from continued delays in re-deployment of the Group's assets.

The continued delay in re-deployment is due to the following:

  1. the COVID-19 pandemic that has affected over 150 countries, resulting in partial or full lockdowns in many such affected countries. This has resulted in the disruption in various international and domestic supply chains and has created a significant strain on demand across various industries including the oil and gas industry. Demand for the Group's assets was severely impacted by this and this has contributed to the decrease in utilisation and charter rates across the Group's fleet;
  2. working capital constraints arising mainly from limited available financing options since lenders remain adverse to lending to our sector as the Group is also undergoing corporate restructuring; and
  3. in the consultations and discussions that the Group has had with its secured lenders leading up to the period, the secured lenders have indicated their preference for the Group to refocus its business to vessel management with an asset-light structure by divesting its vessels and rigs in an orderly fashion.

The cost of sales and servicing for 9M20 decreased by US$30.8 million (42.4%) to US$41.9 million as compared to 9M19, mainly due to lower depreciation expenses on plant and equipment and lower operating costs due to lower activities from the Group's jack-up rigs.

As a result of the above, the Group recorded a gross loss of US$17.8 million in 9M20 compared with gross profit of US$4.4 million in 9M19.

The increase in other income for 9M20 was mainly due to the foreign exchange gain arising of US$6.8 million from the Group's Singapore Dollar denominated borrowings and Singapore Dollar denominated debt securities as the US Dollar appreciated against the Singapore Dollar during this period. In addition, the increase in other income was contributed by the gain on disposal of plant and equipment, assets held for-sale and subsidiaries of US$8.9 million during the quarter.

The decrease in administrative expenses in 9M20 as compared to 9M19 was mainly due to lower staff costs as a result of corporate restructuring and cost-cutting measures, including salary reductions taken by management and staff.

The COVID-19 pandemic and the plunge in oil prices have however severely impacted the demand of the Group's vessels and rigs, contributing to decrease in utilisation and charter rates of the Group's vessels and rigs, which affect the contracts due for renewal post period-end. Furthermore, in the consultations and discussions that the Group has had with its secured lenders leading up to the period, the secured lenders have indicated their preference for the Group to refocus its business to vessel management with an asset-light structure by divesting its vessels in an orderly fashion. Hence, the Group has updated its impairment assessment and recognised net impairment losses of US$438.7 million for 9M20. The breakdown of the net impairment losses are as follows:

Review

Finance income has decreased in 9M20 mainly due to decrease in interest income from loans to joint ventures.

Finance costs have decreased in 9M20 mainly due to absence of amortisation of of the fair value recognised on the Debt Securities and term loans as the amortisation was fully accelerated in 4Q2019.

The share of profits of associates and jointly controlled entities in 9M20 was contributed by operating profit generated by the Group's joint venture, which operates in the windfarm industry in China.

The Group generated loss before income tax of US$462.3 million in 9M20 as a result of all the above.

Charter income derived from Singapore flagged vessels are exempted from tax under Section 13A of the Income Tax Act of Singapore. Current period income tax expense of US$0.3 million relates to the corporate tax expense and withholding tax expense incurred by vessels operating in certain overseas waters.

STATEMENT OF FINANCIAL POSITION REVIEW

Non-current Assets

The Group's Non-current Assets amounted to US$222.9 million as at 30 September 2020. The decrease in Noncurrent Assets was mainly due to impairment losses made on loans to joint ventures and plant and equipment; and reclassification of plant and equipment to assets held for sale during the 3Q20 which amounted to US$46.3 million.

Current Assets

The Group's Current Assets amounted to US$168.3 million as at 30 September 2020. The decrease as compared to the Group's Current Assets as at 31 December 2019 was mainly due to: the impairment of other current assets of US$44.1 million during the period; decrease in trade receivables of US$36.6 million; offset by increase in cash and cash equivalents of US$20.0 million and the reclassification of plant and equipment to assets held for sale during the period which amounted to US$46.3 million.

Total Liabilities

The Group's Total Liabilities amounted to US$1,726.8 million as at 30 September 2020. The decrease in Total Liabilities was mainly due to repayment of bank loans and other payables; and downward revaluation of Singapore Dollar denominated bank loans and Debt Securities as the US Dollar has appreciated against the Singapore Dollar during this period. This is offset by drawdown of loan of US$22.3 million during the period.

Total Equity

The decrease in Total Equity was attributable mainly due to the loss generated for the period, offset by issuance of new ordinary shares.

Going concern

The ability of the Group to maintain as a going concern is highly dependent upon:

  1. the successful restructuring of the Group's business and capital structure into one which is asset-light, with a focus on provision of vessel management and operating services; and
  2. the continuing support of the Group's lenders, including its secured lenders, noteholders and perpetual securityholders, to support and vote for a potential restructuring plan which would include or involve a debt to equity conversion of the loans outstanding to the lenders after the orderly disposal of the Group's assets.

STATEMENT OF CASH FLOWS REVIEW

Cash Flow from Operating Activities

The Group's net cash inflow from operating activities was US$17.9 million. This was mainly due to the net cash generated by the operations of the Group.

Cash Flow from Investing Activities

The Group's net cash from investing activities was US$9.9 million. This was mainly due to proceeds from sale of asset held for sale and plant and equipment; the recovery of loans from joint ventures; offset by deployment of funds towards the vessels and assets under construction.

Cash Flow from Financing Activities

The Group's net cash used in financing activities was US$8.0 million. This was due to the repayment of bank loans and payment of interest, offset by drawdown of loan of US$36.7 million during the period.

Commentary

With the COVID-19 outbreak impacting many countries worldwide, many governments had imposed international travel restrictions, and national level lockdowns. This had resulted in an unprecedented decrease in local and international travel, which has greatly affected the demand for crude oil and its relevant processed products.

In response to the decrease in demand for crude oil which has also significantly affected the price of crude oil, the customers of the Group which include national oil companies and international oil majors have largely put in place aggressive cost cutting measures, and delayed several projects and maintenance programs previously planned.

This has severely affected companies in the marine and offshore oil and gas sector, especially in terms of charter rates and utilization. This is further exacerbated by the general difficulty of the entire sector to access credit from financial institutions, due to the generally cautious sentiment of such institutions towards the marine and offshore sector.

In addition, efforts to obtain new business streams have been hampered by the international travel restrictions, as end customers in this industry are mainly national oil or energy companies and international oil and energy majors, all of which are headquartered outside Singapore.

The utilization of the Group's fleet of vessels has likewise been severely impacted as reflected in the Group's 9M20 financial performance. The global slowdown in the industry will further impact the Group's future utilisation and charter rates and impede the transition of the Group into a vessel and project management company.

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