Profit & Loss
Cash Flow Statements
Review of Performance
Consolidated Statement of Comprehensive Income
In 1Q2018, the Group's revenue was generated mainly from its ship-design service, shipbuilding project management and project financing services, and shipbuilding construction service. The Group's revenue increased by RMB54.7 million or 64% to RMB140.8 million in 1Q2018 compared with 1Q2017. The increase was mainly due to: (1) ship-design service revenue increasing by RMB30.7 million to RMB87.6 million due to more high value ship-design contracts secured this quarter; (2) shipbuilding project financing income increasing by RMB18.2 million to RMB27.7 million arising from provision of financing to related party shipyards for the construction of vessels; and (3) shipbuilding construction service revenue amounting to RMB14.1 million in 1Q2018, while no such revenue was recognised in 1Q2017. The revenue increase was partially offset by the RMB7.5 million reduction in shipbuilding project management service revenue in 1Q201, as most of the project management service contracts have been delivered.
Cost of sales and gross profit
Cost of sales increased RMB30.8 million or 88% to RMB65.7 million in 1Q2018, attributed mainly to the cost incurred in shipbuilding contract in 1Q2018, while there were no such costs incurred in 1Q2017. Gross profit increased 47% in 1Q2018, due mainly to increased contributions from the shipbuilding project financing service and ship-design service.
Gross profit margin decreased from 59% to 53%, mainly attributed to the lower margin shipbuilding construction service.
Other income consisted mainly of interest income and gains arising from restructuring of a subsidiary. Other income increased from RMB1.7 million in 1Q2017 to RMB2.5 million in 1Q2018, of which RMB1.2 million gains were from the restructuring of a subsidiary.
Other gains - net
Other gains in 1Q2018 amounted to RMB2.3 million which was attributed mainly to foreign exchange gains arising from receivables denominated in SGD which had strengthened against the USD. In 1Q2017, other gains amounted to RMB8.2 million.
Distribution and marketing expenses
Distribution and marketing expenses consisted mainly of sales and marketing department's office rental, employee benefits expenses and travelling expenses.
For 1Q2018, the marketing and distribution expense increased slightly by RMB0.3 million or 5% to RMB7.6 million, mainly due to increase in expenditure for business development.
Operating lease expenses remained stable at RMB1.4 million in 1Q2018.
Administrative expenses comprised office rental and office expenses, depreciation expenses, amortisation expenses, professional fees incurred to maintain the Group's listing status, employee benefits and travelling expenses.
Administrative expenses increased RMB1.4 million or 5% to RMB30.3 million in 1Q2018, due mainly to an increase in business development.
Operating lease expenses remained stable at RMB3.0 million in 1Q2018.
The depreciation charge for plant and equipment amounted to RMB0.8 million in 1Q2018. Amortisation of intangible assets amounted to RMB1.4 million, mainly arising from the amortisation of software, technical knowhow and brand name from Deltamarin Group.
Finance expenses increased RMB10.2 million or 107% to RMB19.8 million in 1Q2018, mainly due to increased borrowings obtained by the Group from banks in China. The borrowings were used to fund the increasing level of project financing of shipbuilding construction undertaken by the Company's related shipyards.
Share of profit of associated companies
The share of profit from associated companies in 1Q2018 amounted to RMB0.3 million compared to RMB0.2 million in 1Q2017.
Income tax expense
The operating subsidiaries in China and Finland are subject to income tax rates of 25% and 20% respectively. Income tax expense increased RMB1.9 million to RMB5.2 million in 1Q2018. The increase was due to higher profits earned by the Group's subsidiaries in China and Finland during the period.
Profit for the period
After taking into account income tax expense and non-controlling interests, net profit attributable to shareholders for 1Q2018 was RMB14.0 million, an increase of 19% over the RMB11.8 million profit in 1Q2017.
Statement of Financial Position
As at 1Q2018, the Group's cash at bank and on hand balances amounted to RMB261.6 million, representing a increase of RMB126.6 million from RMB135.0 million as at 31 December 2017. Cash pledged with bank decreased RMB13.6 million to RMB12 million and this is mainly due to release of payment for shipbuilding supplies.
Trade and receivables decreased RMB106.9 million to RMB2,236.7 million as at 31 March 2018, comprising mainly: (1) RMB47.9 million due from customers on construction contracts, (2) RMB113 million arising from shipbuilding project management services and (3) RMB2,035 million arising from shipbuilding project financing service.
Inventories as at 31 March 2018 amounted to RMB134.6 million, compared to RMB139.9 million as at 31 December 2017.
Finance lease receivables as at 31 March 2018 amounted to RMB14 million, not materially different from that of RMB14.4 million as at 31 December 2017.
Property, plant and equipment comprised motor vehicles, computers and software, furniture and fixtures, and office equipment.
Investment in associated companies represented the total amount of investment in non-controlling entities held by the Deltamarin Group.
Intangible assets comprised software licenses, brand name and technical knowhow. Intangible assets amounted to RMB74.0 million as at 31 March 2018, a decrease of RMB0.9 million. The decrease was mainly due to amortisation of RMB0.9 million, a translation loss of RMB0.7 million arising from the depreciation of Euro against the RMB, partially offset by RMB0.7 million increase of software licensing in Deltamarin Group.
The Group's goodwill had arisen from the acquisition of the Deltamarin Group in 2013 and the amount was recognised based on the purchase price allocation exercise performed previously in 2013. The goodwill amounted to RMB113.1 million as at 31 March 2018, RMB0.9 million lower than the RMB114.0 million as at 31 December 2017. The decrease was due to a translation loss arising from the depreciation of Euro against the RMB.
Deferred tax assets represented the timing differences between accounting and tax bases, and are mainly derived from the operating subsidiaries in China.
Non-current portion of finance lease receivables decreased RMB5.0 million to RMB29.1 million as at 31 March 2018 as a result of payment from the buyer of tug boats which were sold under a finance lease agreement.
Short-term loan and current portion of long-term loan represented that portion of the loans raised which were repayable within 12 months as at 31 March 2018. Short term loans totalled RMB1,990.2 million, RMB71.5 million higher than that as at 31 December 2017. The bank loans were used mainly to finance construction of vessels undertaken by the Company's related shipyards.
Trade and other payables amounted to RMB348.4 million as at 31 March 2018 compared to RMB313.2 million as at 31 December 2017. The increase was mainly attributed to RMB26.4 million advance payments received from clients under shipbuilding contracts.
Income tax payable increased by RMB4.1 million from RMB18.5 million to RMB22.6 million as at 31 March 2018 mainly due to increase in business tax payable during the financial period.
Long-term portion of loan represented that portion of the loans raised that were repayable after 12 months as at 31 March 2018. Long-term borrowings decreased by RMB137.8 million to RMB257.2 million as at 31 March 2018.
Deferred tax liabilities represented the tax liabilities for the timing differences arising from the recognition of the intangible assets, deferred ship-design fee income and fair valuation of the Deltamarin Group's assets.
The amount of capital reserve as at 31 March 2018 comprised a deemed contribution from the former immediate holding company as a result of initial recognition of shareholder's loan at fair value during the financial year ended 31 December 2012. There is no movement in capital reserve in 1Q2018.
Consolidated cash flow statements
Net cash inflow from operating activities in 1Q2018 was RMB164.8 million compared to net cash outflow of RMB451.0 million in the corresponding quarter last year. The increased cash inflow was due to the decrease of trade and other receivables following the completion and delivery of several vessels in 1Q2018.
Net cash used in investing activities was RMB2.0 million in this quarter compared to RMB1.9 million in the corresponding quarter of last year
In 1Q2018, net cash outflow from financing activities amounted to RMB27.9 million, compared to net cash inflow of RMB421.6 million in 1Q2017 and this was mainly due to decrease in new loans raised, partially offset by repayment of borrowings.
According to Clarksons Research, 211 new shipbuilding orders (18.4 million DWT) became effective globally in 1Q2018, compared to 241 new shipbuilding orders (7.2 million DWT) in 1Q2017. The strong order book momentum was supported by a healthy growth in international trade 1, ship owners' confidence in global economy and their long-term plans to buildup their fleets. Overall, the business environment has become more favourable, especially for dry bulkers and chemical tankers. In China, the ongoing consolidation in the shipbuilding industry will benefit companies with a strong competitive edge. However, market uncertainties remain in view of the risk of possible escalation of international trade disputes, which could have an adverse impact on the shipping and shipbuilding sectors.
The Group continues its strong working relationship with AVIC Dingheng Shipbuilding Co., Ltd and AVIC Weihai Shipyard Co., Ltd, both of which are related shipyards in the AVIC Group. The Group maintains close collaboration with the related shipyards in the AVIC Group in the design, shipbuilding management and construction of vessels. The related AVIC shipyards in the AVIC Group have extended their track record in vessel deliveries so far this year, including small containerships, chemical tankers and RORO (“Roll-on/Roll-off”) vessels. The successful vessel deliveries have built a strong foundation for order growth.
Deltamarin has continued to build up its ship design order book, strengthening its leading position in the design of high-tech and green vessels in the world. In March 2018, Deltamarin Ltd signed a contract with Chinese Guangzhou Shipyard International Co, Ltd for consultancy and engineering services for the DFDS (Det Forenede Dampskibs-Selskab) ro-pax ferries. Together with several major vessel design orders in its order book, including the largest mega passenger vessel design contract received in 2016, Deltamarin will see high capacity utilization in 2018 and 2019.
The Group will continue to strengthen its foothold in niche segments, such as small chemical tankers and RORO vessels, where demand is more resilient. In order to cope with the IMO's emission rules and the increasing demand for clean energy vessels, the Group will focus on enhancing R&D capabilities and introducing innovative products. It will also continue to optimize the management, operational and cost structures for efficiency improvement.