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N/M - Not meaningful when differences +/- greater than 1000%
In 2Q2018, 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 decreased by RMB19.3 million or 11% to RMB152.6 million in 2Q2018 compared with 2Q2017. The decrease was mainly due to: (1) shipbuilding construction service revenue decreasing by RMB47.1 million to RMB10.2 million due to the completion stage of Fiji project, and (2) shipbuilding project management service revenue decreasing by RMB2.6 million to RMB12.5 million in 2Q2018. However, the revenue decrease was partially offset by: (1) RMB23.3 million increase in ship-design service revenue to RMB 97.2 million, and (2) shipbuilding project financing income increasing by RMB6.8 million to RMB30.1 million arising from provision of financing to related party shipyards for the construction of vessels.
Cost of sales and gross profit
the significant decrease in the value of shipbuilding construction work recognisedin 2Q2018. Gross profit increased 16% in 2Q2018, due mainly to increased contributions from the shipbuilding project financing service and ship-design service. As a result, gross profit margin increased from 47% to 61%, mainly attributed to the decreasing contribution from lower margin shipbuilding construction service.
Other income consisted mainly of interest income and government grants. Other income decreased from RMB9.1 million in 2Q2017 to RMB2.3 million in 2Q2018, mainly due to lower government grants received.
Other gains/(losses) - net
Other losses in 2Q2018 amounted to RMB4.3 million which was attributed mainly to foreign exchange losses amounting to RMB5.5 million arising from receivables denominated in SGD which had weakened against the USD. In 2Q2017, foreign exchange gains amounted to RMB3.9 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 2Q2018, the marketing and distribution expense decreased by RMB3.8 million or 33% to RMB7.7 million, mainly due to downsizing of the Group’s Beijing office space.
Operating lease expenses amounted to RMB2.1 million in 2Q2018.
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 RMB1.3 million or 3% to RMB42.9 million in 2Q2018, due mainly to increase of R&D expenditure and overall headcounts in China.
Operating lease expenses amounted to RMB6.2 million in 2Q2018.
The depreciation charge for plant and equipment amounted to RMB0.9 million in 2Q2018. 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 RMB8.5 million or 70% to RMB20.6 million in 2Q2018, 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 2Q2018 amounted to RMB0.2 million compared to RMB0.1 million in 2Q2017.
Income tax expense
The operating subsidiaries in China and Finland are subject to income tax rates of 25% and 20% respectively. Income tax expense decreased RMB0.8 million to RMB9.5 million in 2Q2018. The decrease was due to lower profits in shipbuilding construction service earned by the Group’s subsidiaries in China during the period.
Profit for the period
After taking into account income tax expense and non-controlling interests, net profit attributable to shareholders for 2Q2018 was RMB8.1 million, a decrease of 59% from the RMB19.8 million profits in 2Q2017.
As at 30 June 2018, the Group’s cash at bank and on hand balances amounted to RMB187.6 million, an increase of RMB52.5 million over the RMB135.0 million as at 31 December 2017. Cash pledged with bank decreased RMB9.5 million to RMB16 million and this is mainly due to release of payments for shipbuilding supplies.
Trade and receivables decreased RMB53.8 million to RMB2,288.4 million as at 30 June 2018, comprising mainly: (1) RMB44.0 million due from customers on construction contracts, (2) RMB128 million arising from shipbuilding project management services and (3) RMB2,116.5 million arising from shipbuilding project financing service.
Inventories as at 30 June 2018 amounted to RMB145.0 million, compared to RMB139.9 million as at 31 December 2017.
Finance lease receivables as at 30 June 2018 amounted to RMB20.2 million, an increase of RMB5.8 million from 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 RMB71.7 million as at 30 June 2018, a decrease of RMB3.2 million. The decrease was mainly due to amortisation of RMB2.8 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 previously in 2013. The goodwill amounted to RMB111.8 million as at 30 June 2018, RMB2.2 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 RMB7.3 million to RMB26.8 million as at 30 June 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 30 June 2018. Short term loans totalled RMB2,156.7 million, RMB238.0 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 RMB286.9 million as at 30 June 2018 compared to RMB313.2 million as at 31 December 2017. The decrease was mainly attributed to trade payable to third parties under shipbuilding contracts declining from RMB71.2 million as at 31 December 2017 to RMB43.0 million as at 30 June 2018.
Income tax payable increased by RMB7.7 million from RMB18.5 million to RMB26.3 million as at 30 June 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 30 June 2018. Long-term borrowings decreased by RMB252.3 million to RMB142.7 million as at 30 June 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.
The amount of capital reserve as at 30 June 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 2Q2018.
Net cash outflow from operating activities in 2Q2018 was RMB49.2 million compared to net cash inflow of RMB92.7 million in the corresponding quarter last year. The increased cash outflow was due to the increase of trade and other receivables, and the decrease of trade and other payables following the completion and delivery of several vessels in 2Q2018.
Net cash used in investing activities was RMB1.2 million in this quarter compared to net cash inflow RMB1.5 million in the corresponding quarter of last year, mainly due to acquire of new property, plant and equipment this quarter.
In 2Q2018, net cash outflow from financing activities amounted to RMB17.2 million, compared to net cash outflow of RMB6.2 million in 2Q2017 and this was mainly due to increase in new loans raised, partially offset by repayment of borrowings.
According to Clarksons Research, 472 new shipbuilding orders (35.2 million DWT) became effective globally in 1H2018, compared to 602 new shipbuilding orders (30.0 million DWT) in 1H20171. The shipbuilding market is still on a recovery phase from the downturn, and the business environment has become more favourable, especially for dry bulkers and chemical tankers. Globally, the demand for high-tech and clean-energy-ready vessels remains more promising, due to environmental protection concerns. Against these positive macro factors, the continuing trade tensions could cause some uncertainties to the industry outlook..
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. The Group maintains close collaboration with these shipyards in shipbuilding design and the provision of maritime management and consultancy services, including shipbuilding project financing and management services. In collaboration with these shipyards, a number of vessels had been completed and delivered, , including small containerships, chemical tankers and RO-PAX vessels.
Deltamarin has continued to build up its ship design order book, upholding a 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 RO-PAX 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.