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Profit & Loss

Profit & Loss 3Q2018

N/M - Not meaningful

when differences +/- greater than 1000%

Balance Sheet

Balance Sheet 3Q2018

Cash Flow Statements

Cash Flow Statements 3Q2018

Review of Performance

Consolidated Statement of Comprehensive Income

Revenue

In 3Q2018, the Group's revenue was generated mainly from its ship-design service, shipbuilding project management and project financing services. The Group's revenue decreased by RMB73.3 million or 35% to RMB134.8 million in 3Q2018 compared with RMB208.2 million 3Q2017. The decrease was mainly due to: (1) shipbuilding construction service revenue decreasing by RMB42.2 million to RMB0.04 million due to the completion of Fiji project, and (2) revenue from sale of vessels declining by RMB76.3 million to nil as there was no vessel sale in 3Q18. However, the revenue decrease was partially offset by: (1) RMB26.9 million increase in ship-design service revenue to RMB 90.2 million, and (2) shipbuilding project financing income increasing by RMB19.5 million to RMB32.7 million arising from provision of financing to related party shipyards for the construction of vessels.

Cost of sales and gross profit

Cost of sales decreased by RMB100.7 million or 65% to RMB54.4 million in 3Q2018 compared to RMB155.2 million in 3Q2017, attributed mainly to the significant decrease in shipbuilding construction work in 3Q2018. Gross profit increased 52% in 3Q2018, due mainly to increased contributions from the shipbuilding project financing service and ship-design service. As a result, gross profit margin increased from 25% to 60%, mainly attributed to increased contribution from higher margin ship-design and shipbuilding project financing service.

Other income

Other income consisted mainly of interest income and government grants. Other income increased from RMB1.9 million in 3Q2017 to RMB4.3 million in 3Q2018, mainly due to higher government grants received.

Other gains/(losses) - net

Other gains in 3Q2018 amounted to RMB0.6 million, compared to RMB2.4 million in 3Q2017, attributed mainly to foreign exchange gain arising from the movement of SGD against the USD.

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 3Q2018, the marketing and distribution expense increased by RMB3.0 million or 32% to RMB12.3 million, mainly due to reclassification of staff bonus arising during the period.

Operating lease expenses amounted to RMB3.0 million in 3Q2018.

Administrative expenses

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 RMB6.0 million or 20% from RMB30.0 million in 3Q2017 to RMB36.0 million in 3Q2018, mainly due to increase of R&D expenditure and overall headcounts in China. The Administrative expenses in 3Q2017 included reversal of impairment on receivables amounting to RMB4.0 million.

Operating lease expenses amounted to RMB2.9 million in 3Q2018.

The depreciation charge for plant and equipment amounted to RMB1.0 million in 3Q2018. Amortisation of intangible assets amounted to RMB1.5 million, mainly arising from the amortisation of software, technical knowhow and brand name from Deltamarin Group.

Finance expenses

Finance expenses increased RMB13.9 million or 112% to RMB26.3 million in 3Q2018, mainly due to increased borrowings obtained by the Group from banks in China 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 3Q2018 amounted to RMB0.3 million compared to RMB1.6 million in 3Q2017.

Income tax expense

The operating subsidiaries in China and Finland are subject to income tax rates of 25% and 20% respectively. Income tax expenses increased RMB2.2 million to RMB2.7 million in 3Q2018. The increase was due to higher profits generated from business during the period.

Profit for the period

After taking into account income tax expenses and non-controlling interests, net profit attributable to shareholders for 3Q2018 was RMB 5.2 million, a increase of 284% from the RMB 1.3 million profits attributable in 3Q2017.

Statement of Financial Position

Current assets

As at 30 September 2018, the Group's cash at bank and on hand balances amounted to RMB321.8 million, an increase of RMB186.8 million over the RMB135.0 million as at 31 December 2017. Cash pledged with bank increased RMB43.5 million to RMB69 million and this was mainly due to deposits made for shipbuilding bank guarantee.

Trade and other receivables increased RMB87.5 million to RMB2,429.7 million as at 30 September 2018, comprising mainly: (1) RMB49.7 million due from customers on construction contracts, (2) RMB90.5 million arising from shipbuilding project management services and (3) RMB2,289.4 million arising from shipbuilding project financing service.

Inventories as at 30 September 2018 amounted to RMB151.2 million, compared to RMB139.9 million as at 31 December 2017.

Finance lease receivables as at 30 September 2018 amounted to RMB19.1 million, an increase of RMB4.7 million from RMB14.4 million as at 31 December 2017.

Non-current assets

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 million as at 30 September 2018, a decrease of RMB0.9 million.

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 in 2013. The goodwill amounted to RMB117.1 million as at 30 September 2018, RMB3.1 million higher than the RMB114.0 million as at 31 December 2017. The increase was due to a translation gain arising from the appreciation of Euro against the RMB.

Deferred tax assets represented the timing differences between accounting and tax bases, and were mainly derived from the operating subsidiaries in China.

Non-current portion of finance lease receivables decreased RMB10.5 million to RMB23.6 million as at 30 September 2018 as a result of payments received from the buyer of tug boats which were sold under a finance lease agreement.

Current liabilities

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 30 September 2018. Short term loans totalled RMB1,508.7 million, RMB410 million lower 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 RMB1,160.1 million as at 30 September 2018 compared to RMB316 million as at 31 December 2017. The increase was mainly attributed to non-trade payable to parent company under shipbuilding contracts arising from the receipt of bridging loans from the parent company amounting to RMB904.6 million at 30 September 2018, compared to RMB2.8 million as at 31 December 2018, pending the completion of refinancing from banks in China.

Income tax payable increased by RMB3.2 million from RMB18.5 million to RMB21.7 million as at 30 September 2018 mainly due to increase in business tax payable during the financial period.

Non-current liabilities

Long-term portion of loan represented that portion of the loans raised that were repayable after 12 months as at 30 September 2018. Long-term borrowings decreased by RMB136.8 million to RMB258.2 million as at 30 September 2018.

Deferred tax liabilities represented the tax liabilities due to timing differences arising from the recognition of the intangible assets, deferred ship-design fee income and fair valuation of the Deltamarin Group's assets.

Capital reserve

The amount of capital reserve as at 30 September 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 was no movement in capital reserve in 3Q2018.

Consolidated cash flow statements

Net cash outflow from operating activities in 3Q2018 was RMB109.6 million compared to net cash outflow of RMB356.7 million in the corresponding quarter last year. The decreased cash outflow was due to a smaller increase in trade and other receivables and a slight increase in trade and other payables in 3Q2018, as compared to 3Q2017.

Net cash used in investing activities was RMB3.0 million in this quarter compared to net cash outflow RMB0.4 million in the corresponding quarter of last year. The net cash used in 3Q2018 was mainly investments in associate company.

In 3Q2018, net cash inflow from financing activities amounted to RMB237.7 million, compared to net cash inflow of RMB20.6 million in 3Q2017 and this was mainly due to increase in new loans raised, partially offset by repayment of borrowings.

Commentary

As of September 2018, the global shipbuilding industry has secured 623 newbuild vessel orders for the year, amounting to US$40 billion in contract value, 7% lower compared to a year ago, raising the global shipping industry‟s orderbook to fleet ratio to 10%, a relative benign level compared to history years1.

The Group continues its strong working relationship with AVIC Dingheng Shipbuilding Co., Ltd and AVIC Weihai Shipyard Co., Ltd, both being related shipyards in the AVIC Group. In 3Q2018, AVIC Dingheng successfully delivered its 8th Dual-Fuel ship, which fully meets the latest environmental protection regulations of the IMO NOx Tier III requirements, and also held naming ceremony for two of its 7999-ton chemical tankers built for Swedish shipowners, SIRIUS Shipping. In the same quarter, AVIC Weihai also successfully piloted the 880-passenger RORO (“Roll-on/Roll-off”) vessel built for Jiaodong Shipping Co., Ltd, marking the significant progress made by AVIC Weihai in the construction of RORO vessels.

Working in cooperation with these shipyards, the Group will continue to enhance its foothold in the niche market of producing containerships, small chemical tankers and RORO vessels which meet new and increasingly stringent environmental protection regulations.

Deltamarin has a strong order book and continues to mantain a leading position in the design of hightech and green vessels. Deltamarin has entered into a contract with MV Werften in Germany to provide basic and detail design as well as site assistance services for a Global Class mega cruise ship. The value of the Contract is approximately Euro 16.5 million and the services are to be rendered over an estimated period of three years. Together with the several major vessel design orders in its order book, Deltamarin will see high capacity utilization through to 2020.

In October 2018, the Company announced that its controlling shareholder ,AVIC International Holdings Limited (“AIHL”, listed on Hong Kong Stock Exchange, stock code: 00161), which directly holds 73.78% of the shareholding interest in the capital of the Company, has informed the Company that it is in preliminary discussion with potential investors in relation to a possible disposal of AIHL‟s ship business (“Potential Transaction”), which if consummated may include the disposal of AIHL‟s entire shareholding interest in the Company to such potential investors. The discussions are on-going and no definitive agreements have been agreed upon between the parties. There is no certainty or assurance that (i) any definitive agreement will be entered into or (ii) the Potential Transaction will be proceeded with. The Board will make the appropriate announcements when there is further material development regarding the Potential Transaction accordingly in compliance with the relevant provisions of the Rules of Catalist of the Singapore Exchange Securities Trading Limited.

1https://crucialperspective.com/usd40-billion-newbuild-vessel-orders/