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In 4Q2017, the Group’s revenue was generated mainly from its ship-design service, sale of vessels, shipbuilding construction service and shipbuilding project management and financing services. The Group’s revenue increased by RMB67.5 million or 60% to RMB179.5 million in 4Q2017 compared with 4Q2016. The increase was mainly due to: (1) Shipbuilding construction service revenue increasing by RMB20.6 million to RMB20.7 million due to a new shipbuilding contract for four vessels that commenced during the year; (2) Ship-design service revenue increasing by RMB21.3 million to RMB80.6 million; (3) Shipbuilding project financing income amounting to RMB10.9 million arising from provision of financing to related party shipyards for the construction of vessels; there was no such income in corresponding period of last year; and (4) Sale of vessels revenue amounting to RMB42.8 million in 4Q2017 compared to RMB0.8 million revenue recognized in 4Q2016.
The revenue increased 51% to RMB645.7million in FY2017 compared to FY2016, mainly attributed to increase in revenues from ship-design, shipbuilding project financing and shipbuilding construction service, and partially offset by decrease in shipbuilding project management service income.
Cost of sales and gross profit
Cost of sales increased RMB73.9 million or 310% to RMB97.7 million in 4Q2017, attributed mainly to the newly commenced shipbuilding contract. Gross profit decreased 7% to RMB81.8 million in 4Q2017. Revenue from sale of vessels, which increased by RMB42 million during 4Q2017, did not contribute significantly to gross profit.
For FY2017, gross profit increased 37% to RMB266.8 million and this was mainly due to contribution from the ship-design service as well as the revenue stream from shipbuilding project financing services. Gross profit margin was 41% in FY2017 compared to 46% in FY2016.
Other income consisted mainly of interest income and government grants. Other income registered a 6% decrease to RMB3.2 million in 4Q2017.
Other gains/(losses) - net
Other gains in 4Q2017 amounted to RMB1.2 million, compared to a loss of RMB17.4 million in 4Q2016, attributed mainly to foreign exchange gains arising from receivables denominated in SGD which had strengthened against the USD.
For FY2017, other gains amounted to RMB15.7 million, compared to a loss of RMB11.4 million in FY2016, due to the same reason stated above for 4Q2017.
Distribution and marketing expenses
Distribution and marketing expenses consisted mainly of sales and marketing department’s office rental, employee benefits expenses and travelling expenses.
Distribution and marketing expenses decreased RMB3.2 million, or 20%, due mainly to reclassification of certain staff expenses to 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 decreased RMB9.2 million or 20% to RMB36.1 million in 4Q2017. The decrease was mainly due to cost control measures taken.
For FY2017, however, administrative expenses increased by RMB8.7 million or 7% mainly due to reclassification of certain staff expenses as research and development expenses.
The depreciation charge for plant and equipment amounted to RMB0.9 million in 4Q2017. Amortisation of intangible assets amounted to RMB1.4 million in 4Q2017, mainly arising from the amortisation of software, technical knowhow and brand name from Deltamarin Group.
Finance expenses increased RMB11.9 million or 120% to RMB21.9 million in 4Q2017, 140% to RMB56.0 million in FY2017 due to increased borrowings.
Other expenses increased from RMB2.2 million in 4Q2016 to RMB22.9 million in 4Q2017. The increase was attributed mainly to allowance for doubtful debts, and an impairment charge on vessels held on inventory amounting to RMB16.1 million.
Share of (losses)/profit of associates
The share of loss from associates in 4Q2017 amounted to RMB0.2 million compared to a profit of RMB0.6 million in 4Q2016. In FY2017, the Group recorded a share of profit of associates RMB1.6 million compared to a profit of RMB0.6 million in FY2016.
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 RMB8.1 million to RMB1.5 million in 4Q2017, mainly due to the balance of distribution of the profit and loss from Group’s different business segments being allocated in different countries.
Profit/(Loss) for the period
After taking into account income tax expense and non-controlling interests, net loss attributable to shareholders for 4Q2017 was RMB6.1 million, as compared to net loss of RMB12.8 million in 4Q2016. In FY2017, net profit attributable to shareholders was RMB26.8 million, compared to net loss of RMB28.6 million in FY2016.
As at 31 December 2017, the Group’s cash and cash equivalents amounted to RMB135.0 million, representing a decrease of RMB49.8 million from RMB184.8 million as at 31 December 2016. As at 31 December 2017, all of the Group’s fixed deposits had matured and were not renewed. Cash pledged with bank decreased RMB66.0 million to RMB25.6 million as at 31 December 2017 and this was mainly due to release of payment for shipbuilding supplies.
Trade and other receivables comprised mainly advance payment on construction contracts, receivables arising from ship-design service, receivables arising from shipbuilding project services, non-trade receivables due from related corporations, rental deposit, tax recoverable and prepayments. Trade and other receivables increased RMB1,479.3 million to RMB2,342.2 million as at 31 December 2017, mainly due to an increased amount of RMB1,581.2 million receivables arising from shipbuilding project financing provided to related party shipyards, partially offset by decrease in receivables from others.
Finance lease receivables, amounting to RMB14.4 million as at 31 December 2017, arose from the sale of tug boats under a finance lease agreement.
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.
Available-for-sale financial assets represented investment shares held by the Deltamarin Group.
Intangible assets comprised software licenses, brand name and technical knowhow. Intangible assets amounted to RMB74.9 million as at 31 December 2017, a decrease of RMB0.1 million from FY2017. The decrease was due to amortisation, partially offset by a translation gain arising from the appreciation of Euro against the RMB.
The Group’s goodwill had arisen from the acquisition of the Deltamarin Group in FY2013. The goodwill amounted to RMB114.0 million as at 31 December 2017, RMB7.2 million higher than the RMB106.8 million as at 31 December 2016. 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 derived from the operating subsidiaries in China and Finland.
Non-current portion of finance lease receivables decreased RMB16.4 million to RMB34.1 million as at 31 December 2017 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 December 2017. Short-term loans totalled RMB1,918.7 million due to reclassification of long term loans to short term loans, and further bank loans obtained to finance working capital requirements.
Trade and other payables comprised mainly amount payable in business, advance receipts from ship owners, accruals and interest payables. Trade and other payables amounted to RMB313.2 million as at 31 December 2017 compared to RM563.8 million as at 31 December 2016. The decrease was mainly attributed to and the release of advance receipts from ship owners and decrease in amount due to related parties, both arising from the shipbuilding management services business.
Income tax payable decreased by RMB0.7 million from RMB19.2 million to RMB18.5 million as at 31 December 2017.
Long-term portion of loan represented that portion of the loans raised that were repayable after 12 months as at 31 December 2016. Long-term borrowings decreased by RMB91.2 million to RMB492.2 million as at 31 December 2016.
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 December 2017 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 4Q2017.
Net cash outflow from operating activities in 4Q2017 was RMB823.5 million compared to net cash outflow of RMB65.3 million in the corresponding quarter last year. The increased cash outflow was due to increase in deployment of working capital in shipbuilding project financing business.
In 4Q2017, net cash inflow from financing activities amounted to RMB740.5 million, compared to net cash inflow of RMB140.6 million in 4Q2016 and this was mainly due to increase in proceeds from borrowings to finance the increased shipbuilding project financing business.
The shipbuilding market started to recover gradually in 2017, after reaching a trough in 2016. The gradual recovery in global economy and international trade has helped to improve demands for shipping and shipbuilding services. Global new shipbuilding orders increased by 78.3% to 23.2 million CGT in 2017 compared to 2016. Overall, the business environment for shipbuilding industry has become more favourable, and the recovery for certain vessel categories, such as dry bulkers and tankers, was more evident.
In China, the ongoing consolidation in the shipbuilding industry will benefit companies with strong competitive edges. The Group will continue to implement its strategy to build up the capabilities in niche segments and specialized, high-tech and high value-added vessels, where demand is more resilient. In order to cope with the International Maritime Organization’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.
As of January 2018, AVIC Dingheng, a related company shipyard in the AVIC Group, had an outstanding order book of 21 chemical tanker vessels having an aggregate 349,085 DWT under construction. The shipyard was ranked No.1 in the world for construction for small-size chemical tankers1(30,000 tonne or less). AVIC Weihai, another related company shipyard in the AVIC Group, had an outstanding order book of 13 vessels having an aggregate 347,104 DWT under construction.
Deltamarin, the Group’s established ship-design arm, has continued to strengthen its leading position in the design of high-tech and green vessels in the world. The world’s first LNG-powered handysize bulker that Deltamarin designed was ranked No.5 in Great Ships 2017 List by Maritime Reporter & Engineering News2.In July 2017, Deltamarin entered into contracts with Xiamen Shipbuilding Industry Co., Ltd in China to provide basic and detailed design, engineering and construction support services for a ro-pax vessel to be built for a renowned Finnish customer. Together with the largest mega passenger vessel design contract received in 2016, Deltamarin will see high capacity utilization in 2018.