ISOTeam

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UNAUDITED FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE THIRD QUARTER AND NINE MONTHS ENDED 31 MARCH 2017

Financials Archive

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Consolidated Statement of Comprehensive Income

Combined Statements of Comprehensive Income

Statements of Financial Position

Combined Statements of Financial Statements

Review of Financial Performance

Review of Financial Performance

Revenue

3QFY2017 vs 3QFY2016

Group revenue decreased by $3.4 million or 17.3% from $19.9 million in 3QFY2016 to $16.5 million in 3QFY2017. Revenue from the Group's R&R business decreased by $3.7 million or 45.5% from $8.1 million in 3QFY2016 to $4.4 million in 3QFY2017, due to intense price competition in the industry. This was derived largely from projects awarded by Pasir Ris-Punggol Town Council, National Environment Agency, Housing & Development Board (HDB), National University of Singapore and Seah & Lim Construction Pte Ltd.

Revenue contribution from the Group's Addition and Alteration ("A&A") business segment increased by $0.9 million or 16.8% from $5.4 million in 3QFY2016 to $6.3 million in 3QFY2017. This was derived largely from projects awarded by Public Service Division, Ang Mo Kio Town Council, Nee Soon Town Council, Jurong-Clementi Town Council and private sector projects.

Revenue contribution from the Group's Coating and Painting ("C&P") business segment increased by $1.7 million or 131.7% from $1.4 million in 3QFY2016 to $3.1 million in 3QFY2017. This was derived largely from projects awarded by Tiong Seng Contractors (Pte) Ltd, Lend Lease Singapore Pte Ltd, SKK (S) Pte Ltd, San Keong Construction Pte Ltd and Hexacon Construction Pte Ltd.

Revenue contribution from the Group's others business segment decreased by $2.5 million or 48.9% from $5.1 million in 3QFY2016 to $2.6 million in 3QFY2017. This was derived largely from M&E works from Primetop Engineering Pte Ltd, ID works from Eindec Corporation Limited and residential projects, waterproofing works from Jalan Besar Town Council, landscaping works from Mao Sheng Quanji Construction Pte Ltd and rental income for leasing services.

9MFY2017 vs 9MFY2016

Group revenue decreased by $3.4 million or 5.2% from $64.6 million in 9MFY2016 to $61.2 million in 9MFY2017. Revenue from the Group's R&R business decreased by $17.2 million or 53.4% from $32.2 million in 9MFY2016 to $15.0 million in 9MFY2017, due to intense price competition in the industry. This was derived largely from projects awarded by Pasir Ris-Punggol Town Council, National Environment Agency, Housing & Development Board (HDB), National University of Singapore and Jurong Central Citizen's Consultative Committee.

Revenue contribution from the Group's Addition and Alteration ("A&A") business segment increased by $8.5 million or 55.9% from $15.1 million in 9MFY2016 to $23.6 million in 9MFY2017. This was derived largely from projects awarded by Public Service Division, Pasir Ris-Punggol Town Council, Nee Soon Town Council, Marine Parade Town Council and private sector projects.

Revenue contribution from the Group's Coating and Painting ("C&P") business segment increased by $5.2 million or 87.3% from $6.1 million in 9MFY2016 to $11.3 million in 9MFY2017. This was derived largely from projects awarded by Soil-Build Pte Ltd, Sato Kogyo (S) Pte Ltd, Singapore Piling & Civil Engineering Pte Ltd, Samsung C&T Corporation and Hexacon Construction Pte Ltd.

Revenue contribution from the Group's others business segment increased by $0.1 million or 1.0% from $11.2 million in 9MFY2016 to $11.3 million in 9MFY2017. This was derived largely from M&E works from Primetop Engineering Pte Ltd, ID works from Resorts World at Sentosa Pte Ltd and residential projects, waterproofing works from Ang Mo Kio Town Council, landscaping works from Mao Sheng Quanji Construction Pte Ltd and rental income for leasing services.

Gross profit and gross profit margin

3QFY2017 vs 3QFY2016

The Group's gross profit decreased by $1.1 million or 21.0% from $5.1 million in 3QFY2016 to $4.0 million in 3QFY2017 were mainly due to lower margin contributed by R&R and Others business segments.

9MFY2017 vs 9MFY2016

The Group's gross profit increased by $0.7 million or 4.1% from $16.0 million in 9MFY2016 to $16.7 million in 9MFY2017 were mainly due to higher margin contributed by A&A and C&P business segments.

Other income

3QFY2017 vs 3QFY2016 & 9MFY2017 vs 9MFY2016

The Group's other income increased by $0.4 million or 98.3% from $0.3 million in 3QFY2016 to $0.7 million in 3QFY2017 and increased by $0.4 million or 23.6% from $1.4 million in 9MFY2016 to $1.8 million in 9MFY2017 were mainly due to increase in administrative charges and negative goodwill arising from acquisition of a subsidiary.

Marketing and distribution expenses

3QFY2017 vs 3QFY2016 & 9MFY2017 vs 9MFY2016

The Group's marketing and distribution expenses decreased by $0.2 million or 46.1% from $0.5 million in 3QFY2016 to $0.3 million in 3QFY2017 and decreased by $0.5 million or 39.8% from $1.3 million in 9MFY2016 to $0.8 million in 9MFY2017 were mainly due to decrease in depreciation and repair and upkeep expenses of motor vehicles.

General and administrative expenses

3QFY2017 vs 3QFY2016

The Group's general and administrative expenses increased by $0.6 million or 22.5% from $2.6 million in 3QFY2016 to $3.2 million in 3QFY2017. The increase was mainly attributable to increase in staff costs for the acquisition of a new subsidiary.

9MFY2017 vs 9MFY2016

The Group's general and administrative expenses increased by $2.7 million or 33.5% from $8.0 million in 9MFY2016 to $10.7 million in 9MFY2017. The increase was mainly attributable to increase in staff costs of $1.0 million for the acquisition of a subsidiary and incorporation of a subsidiary in Malaysia, allowance for doubtful receivables of $0.8 million and increase in overhead costs of $0.9 million, which is in line with the expansion of business and acquisition of a new subsidiary.

Finance costs

3QFY2017 vs 3QFY2016

There were no material changes in the Group's finance costs during the financial period under review.

9MFY2017 vs 9MFY2016

The Group's finance costs increased by $0.1 million or 41.1% from $0.3 million in 9MFY2016 to $0.4 million in 9MFY2017. The increase was mainly attributable to interest incurred for trust receipt and property loan.

Other operating expenses

3QFY2017 vs 3QFY2016 & 9MFY2017 vs 9MFY2016

The Group's other operating expenses decreased by $0.5 million or 85.3% from $0.6 million in 3QFY2016 to $0.1 million in 3QFY2017 and decreased by $0.7 million or 73.1% from $1.0 million in 9MFY2016 to $0.3 million in 9MFY2017 were mainly due to the decrease in amortisation of intangible assets.

Profit before tax

3QFY2017 vs 3QFY2016 & 9MFY2017 vs 9MFY2016

As a result of the above, the Group recorded a profit before tax of $1.1 million in 3QFY2017 and $6.3 million in 9MFY2017 as compared to a profit before tax of $1.6 million in 3QFY2016 and $6.9 million in 9MFY2016.

Tax expenses

3QFY2017 vs 3QFY2016 & 9MFY2017 vs 9MFY2016

The Group's tax expenses decreased by $0.8 million or 102.3% from tax expenses of $0.8 million in 3QFY2016 to tax credit of $0.02 million in 3QFY2017 and decreased by $0.5 million or 34.5% from tax expenses of $1.5 million in 9MFY2016 to $1.0 million in 9MFY2017 were mainly due to the decrease in deferred tax and income tax expenses after utilisation of tax subsidies schemes.

REVIEW OF FINANCIAL POSITION

Non-current assets

The Group's non-current assets increased by $3.3 million or 14.5% from $22.8 million as at 30 June 2016 to $26.1 million as at 31 March 2017, mainly due to acquisition of property, plant and equipment ("PPE") of $1.9 million, which was offset by the depreciation of PPE of $1.6 million and disposal of PPE of $0.4 million, PPE from newly acquired subsidiary of $0.6 million and intangible assets arising from the acquisition of a new subsidiary of $3.9 million and offset by amortisation of intangible assets of $1.1 million.

Current assets

The decrease in current assets of $7.3 million or 10.2% from $71.5 million as at 30 June 2016 to $64.2 million as at 31 March 2017 was attributed mainly due to the decrease in cash and bank balances of $14.7 million, which was offset by increase in trade and other receivables of $5.4 million and the increase in amounts due from customers for contract work-in-progress of $2.0 million.

Non-current liabilities

The increase in non-current liabilities of $1.2 million or 25.0% from $4.8 million as at 30 June 2016 to $6.0 million as at 31 March 2017 was attributed to the increase of deferred tax liabilities of $0.8 million, increase in other payables of $0.6 million, drawdown of finance lease facilities of $0.2 million and which was partially offset by the repayment of bank borrowings of $0.4 million.

Current liabilities

The decrease in current liabilities of $9.1 million or 25.5% from $35.7 million as at 30 June 2016 to $26.6 million as at 31 March 2017 was attributed mainly to the decrease in amounts due to customers for contract work-in-progress of $4.1 million, decrease in trade and other payables of $6.0 million, which was partially offset by drawdown of bank borrowings of $0.8 million and finance lease liabilities of $0.2 million.

REVIEW OF STATEMENT OF CASH FLOWS

Net cash used in operating activities

3QFY2017

The Group generated a net cash of $1.9 million from operating activities before changes in working capital. Net working capital outflows amounted to $6.1 million. This was mainly due to increase in contract work-in-progress of $0.4 million, increase in trade and other receivables of $2.9 million and decrease in trade and other payables of $2.8 million. After payment of income tax of $0.5 million and interest paid of $0.1 million, the net cash used in operating activities amounted to approximately $4.8 million.

9MFY2017

The Group generated a net cash of $9.7 million from operating activities before changes in working capital. Net working capital outflows amounted to $14.8 million. This was mainly due to increase in contract work-in-progress of $4.3 million, increase in trade and other receivables of $2.4 million and decrease in trade and other payables of $8.1 million. After payment of income tax of $1.1 million and interest of $0.3 million after offsetting with interest received of $0.2 million, the net cash used in operating activities amounted to approximately $6.3 million.

Net cash used in investing activities

3QFY2017

Net cash used in investing activities amounted to $4.6 million, which was mainly attributable to the purchase of plant and equipment of $0.5 million which is offset with the proceeds from disposal of property, plant and equipment of $0.2 million, deposit paid of $1.0 million pursuant to acquisition of property and net cash outflow on acquisition of a subsidiary of $3.3 million.

9MFY2017

Net cash used in investing activities amounted to $4.9 million, which was mainly attributable to the purchase of plant and equipment of $1.1 million which is offset with the proceeds from disposal of property, plant and equipment of $0.5 million, deposit paid of $1.0 million pursuant to acquisition of property and net cash outflow on acquisition of a subsidiary of $3.3 million.

Net cash used in financing activities

3QFY2017

Net cash used in financing activities of $1.0 million was mainly due to repayment of finance lease of $0.3 million and repayment of bank borrowing of $0.7 million.

9MFY2017

Net cash used in financing activities of $3.0 million was mainly due to dividend payment of $2.1 million, purchase of treasury shares of $1.4 million and repayment of finance lease of $0.7 million which were offset by drawdown of bank borrowing of $0.4 million, capital contributed by non-controlling interest of $0.3 million and fixed deposit released from pledge of $0.5 million.

Commentary

The Group believes that revenue will continue to be driven by awarded projects and potential projects in the pipeline. It expects to tap opportunities in the public sector and private sector through its various subsidiaries which have a longstanding and strong network of business relationships in these sectors.

With rising price competition and labour cost, the Group expects market conditions in the next 12 months to remain challenging. Notwithstanding this, the Group believes its strong suits such as its established track record and multi-disciplinary capabilities in the built environment put ISOTeam in a strong competitive position.

As part of its plans, the Group intends to expand its operations organically by maximising the utilisation of capabilities and expertise of its subsidiaries as well as inorganically through strategic acquisitions. The Group is also exploring business collaborations among its subsidiaries in the form of sharing resources and expertise so as to offer a complete suite of building-related services to its customers. While Singapore is its main market, the Group is also focused on exporting its expertise and skill sets to the region. As of to-date, the Group has acquired six subsidiaries and incorporated two overseas subsidiaries in Myanmar and Malaysia, and is working to fully unlock and maximise synergies from these units.

Looking ahead, the Singapore government continues to invest in the renewal and rejuvenation of older estates through schemes such as the Estate Upgrading Programme and Home Improvement Programme. In addition, renewable energy is fast becoming a reality with the government's SolarNova Programme which calls for 350 MWp of solar power in Singapore by 2020.

One of the wholly owned subsidiaries of the Group, ITG-Green Technologies Pte Ltd recently launched a product jointly developed with E-Organic Solutions Pte Ltd. called Cockroaches, Mosquitoes and Odour (CMO) Remover. It is a water-based treatment that uses enzymes from edible plants to destroy pathogenic organism that resides in cockroaches, thereby killing such pests. Tampines Town Council will be the first Town Council to use this product. The Group expects other Town Councils to also use the product following the successful launch in Tampines estates.

The Group believes that it is well-positioned to tap into opportunities arising from these initiatives given its proven track record in public sector projects, multi-disciplinary capabilities in the built environment as well as rapidly growing portfolio of renewable energy installation projects.

The Group's order book as at 30 April 2017 stood at $94.7 million which will be progressively delivered over the next two years.