Investor Relations

Financials

Financial Statements and Dividend Announcement For The Year Ended 31 December 2015

Financials Archive

Combined Statements of Comprehensive Income

Combined Statements of Financial Position

Review of the Group's performance

Revenue

Revenue increased by approximately S$9.4 million or 11.1% from S$85.2 million in FY2014 to S$94.7 million in FY2015.

Revenue from the Interior Fit-Out Business increased by approximately S$11.2 million or 14.1% from S$79.6 million in FY2014 to S$90.8 million in FY2015. This was mainly attributable to:

  1. S$40.9 million was attributable to 15 projects which were carried over from FY2014 and which had higher levels of project activity in FY2015; and
  2. Partially offset by S$29.9 million attributable to 3 projects which was carried over from FY2014 but which had lower levels of project activity as they neared completion in FY2015.

Revenue from the Wholesale and Retail Furnishings Business decreased by approximately S$1.8 million or 32.1% from S$5.6 million in FY2014 to S$3.8 million in FY2015. This was mainly due to a decrease in sales to customers in the retail furnishings market due to softer market conditions.

Cost of sales

Cost of sales increased by approximately S$33.8 million or 45.6% from S$74.1 million in FY2014 to S$107.8 million in FY2015. This was mainly attributable to cost overruns for projects due mainly to an increase in labour sub-contracting costs of approximately S$12.7 million resulting from labour shortage and reworks undertaken, and additional direct costs incurred for defect rectifications of approximately S$7.5 million, as well as increase in provisions and write-off of overdue retention sums and claims for variation orders not approved of approximately S$8.3 million.

Gross (loss)/profit

Gross loss was S$13.2 million in FY2015 against a gross profit S$11.2 million in FY2014, a decline of approximately S$24.3 million due to the factors as discussed above.

Other income

Other income decreased by approximately S$1.9 million or 76.5%, from S$2.5 million in FY2014 to S$585,000 in FY2015. This was mainly due to absence in management fees charged to Sorrento Vietnam pursuant to the Management and Technical Consultancy Agreement of approximately S$1.1 million as a result of a one-off upfront payment payable by Sorrento Vietnam to the Group in FY2014 and the absence of trade rebates of approximately S$264,000 assigned by SI Import & Export Pte Ltd (“SI Import & Export”) and Wah Heng receivable from suppliers of furnishings products in relation to the Wholesale and Retail Furnishings Business for purchases made by SI Import & Export and Wah Heng on behalf of the Group, as a result of the discontinuation of such arrangements pursuant to the IPO and listing of the Company on Catalist. Please refer to the sections entitled “General and Statutory Information – Material Contracts” of the Offer Document for further details on the Management and Technical Consultancy Agreement, “Management’s Discussion and Analysis of Results of Operation and Financial Condition – Review of Results of Operations” and “Interested Person Transactions – Past Interested Person Transactions” for further details on the Group’s transactions with SI Import & Export and Wah Heng.

Selling and distribution costs

Selling and distribution costs remained relatively stable at approximately S$1.4 million in FY2014 and FY2015.

Administrative expenses

Administrative expenses increased by approximately S$918,000 or 22.0% from S$4.2 million in FY2014 to S$5.1 million in FY2015. This was mainly attributable to the increase in directors’ remuneration and directors’ fees payable in aggregate of approximately S$437,000, and lease rental charges of approximately S$316,000. The increase in directors’ remuneration and directors’ fees was in conjunction with the IPO. The increase in lease rental charges was due to the lease of motor vehicles by certain directors and employees of the Group on behalf of the Group.

Other expenses

Other expenses increased by approximately S$2.8 million or 107.7% from S$2.6 million in FY2014 to S$5.5 million in FY2015. This was mainly due to an increase in allowance for impairment loss on doubtful third parties trade and other receivables of approximately S$4.3 million, which was partially offset by a decrease in IPO expenses charges of approximately S$1.2 million and loss of disposal of Sorrento Vietnam of approximately S$661,000 in relation to the Restructuring Exercise which was incurred in FY2014.

Finance costs

Finance costs increased by approximately S$1.4 million or 39.4% from S$3.6 million in FY2014 to S$5.0 million in FY2015 mainly due to interest expenses and bank charges payable in relation to loan and credit facilities for general working capital purposes of approximately S$1.2 million.

Income tax expense

Income tax expenses decreased by approximately S$805,000 or 97.4% from S$826,000 in FY2014 to S$21,000 in FY2015. This was mainly attributable to the loss incurred by the Group in FY2015.

Loss for the financial year

As a result of the above, the Group incurred a loss of approximately S$29.5 million for FY2015, as compared to a profit of approximately S$1.1 million in FY2014.

Review of Financial Position

Non-current assets

Non-current assets increased by approximately S$3.8 million from S$10.1 million as at 31 December 2014 to S$14.0 million as at 31 December 2015. The increase in non-current assets was mainly due to the acquisition of 16 Sungei Kadut Way Singapore 728793 (the “New Property”) of approximately S$4.9 million (excluding goods and services tax), partially offset by the net decrease in property, plant and equipment of S$1.3 million primarily attributable to depreciation charges.

Current assets

Current assets decreased by approximately S$3.4 million from S$101.1 million as at 31 December 2014 to S$97.7 million as at 31 December 2015. The decrease in current assets was mainly due to the decrease in trade and other receivables of approximately S$2.4 million which was mainly due to the increase in allowance for impairment loss on doubtful third parties trade and other receivables of approximately S$4.3 million, partially offset by the increase in trade receivables of approximately S$1.9 million arising from sales made on credit terms to the Group’s customers. These was also a decrease in amounts due from contract customers of approximately S$1.8 million mainly due to an increase in amounts due from contract customers, retention sum and variation orders written off and provisions for retention receivables in aggregate of approximately S$8.3 million in aggregate which was partially offset by an increase in amounts due from contract customers of approximately S$6.5 million as a result of the higher volume of unbilled interior fit-out work-in-progress arising from increased levels of project activity in FY2015. Cash and cash equivalents was higher by approximately S$926,000 as at 31 December 2015./p>

Non-current liabilities

Non-current liabilities decreased by approximately S$814,000 from S$2.3 million as at 31 December 2014 to S$1.5 million as at 31 December 2015. The decrease was mainly due to repayment of finance lease and bank borrowings of approximately S$503,000 and S$300,000 respectively.

Current liabilities

Current liabilities increased by approximately S$22.4 million from S$82.4 million as at 31 December 2014 to S$104.8 million as at 31 December 2015. The increase in current liabilities was mainly due to the increase in trade payables which consisted primarily of amounts payable to the Group’s suppliers and sub-contractors for purchases made on credit for raw materials and accessories, and accrued expenses for interior fit-out works performed by the Group’s sub-contractors in aggregate of approximately S$11.4 million, as well as an increase in loan and credit-facilities of approximately S$9.3 million for general working capital purposes.

Equity attributable to owners of the Company

The decrease in equity attributable to owners of the Company from S$26.5 million as at 31 December 2014 to S$5.4 million as at 31 December 2015 was mainly due to the loss for FY2015 of approximately S$29.5 million, which was partially offset by the increase in share capital of approximately S$8.2 million pursuant to the Rights Issue.

Review of the Group's cashflows

Net cash used in operating activities

In FY2015, net cash used in operating activities of approximately S$3.9 million consisted of operating cash outflow before working capital changes of S$9.8 million, net of working capital inflow of S$6.9 million and income tax paid of S$940,000. The net working capital inflow arose mainly due to:

  1. an increase in trade and other payables of approximately S$15.6 million mainly due to an increase in trade purchases made on credit by the Group of approximately S$7.2 million, and accrued payables to sub-contractors of approximately S$4.2 million;
  2. partially offset by an increase in amounts due from contract customers of approximately S$6.9 million mainly due to the higher volume of unbilled interior fit-out work-in-progress arising from increased levels of project activity in FY2015; and
  3. an increase in trade and other receivables of approximately S$1.9 million mainly due to higher sales made on credit terms to trade customers.

Net cash used in investing activities

Net cash used in investing activities amounted to approximately S$501,000 in FY2015 mainly due to:

  1. payment in part for the acquisition of the New Property of approximately S$1.3 million; and
  2. partially offset by the sale proceeds from disposal of motor vehicles and office equipment of approximately S$832,000.

Net cash from financing activities

Net cash used in financing activities amounted to approximately S$1.2 million in FY2015 mainly due to:

  1. repayment of bank borrowings of approximately S$98.2 million;
  2. interest paid of approximately S$5.0 million;
  3. repayment of loans from a corporate shareholder of approximately S$5.5 million;
  4. repayment of loans from a third party of approximately S$500,000;
  5. repayment of finance leases of approximately S$907,000;
  6. increase in fixed deposits pledged of approximately S$652,000;
  7. Rights Issue expenses paid of approximately S$340,000;
  8. offset by proceeds from bank borrowings of approximately S$93.8 million primarily in relation to term loans and trust receipts to finance the working capital of the Group’s interior fit-out projects;
  9. net proceeds from the Rights Issue of approximately S$7.3 million;
  10. loans from a corporate shareholder of approximately S$5.5 million; and
  11. loans from a third party of approximately S$500,000.

Commentary

The Group recently acquired new production facilities, warehouse management system and machinery for the Interior Fit-Out Business which had been installed at its premises located at 49 Sungei Kadut Loop Singapore 729492 and the New Property. This is expected to further enhance the Group’s product and service offerings to customers and improve the productivity, cost efficiency as well as support its growing retail home renovation business segment in Singapore.

In addition, with the soft opening of the Group’s Serrano Experience Centre, the New Property and its two new showrooms for furnishings products for Wholesale and Retail Furnishing Business at the New Property and 18 Tampines Industrial Crescent The Space @Tampines, the Group believes that this would further enhance its market penetration into retail home renovation business as well as the Interior Fit-Out business for the commercial and hospitality sectors in Singapore.

The Group has a total order book of approximately S$52.3 million as at 31 December 2015 including a significant interior decorative project for office and residential building from Shwe Taung Development Co., Ltd which is one of the largest property developers in Myanmar. The Directors believe that the Company’s public-listed status will stand the Group in good stead as it continues to explore new interior fit-out project opportunities locally and in other emerging Southeast Asian markets, in particular, Myanmar, Vietnam, Cambodia and Thailand. The Group will also seek to leverage on its track record and capabilities to secure more interior fit-out projects not only in the residential sector, but also in the commercial, hospitality and retail home sectors.

The Group’s operating environment is expected to remain challenging given weakened demand for residential property market in Singapore arising from the property cooling measures implemented by the Singapore government, as well as the tightening in supply of foreign workers. The Group's losses in FY2015 are primarily attributable to:

  1. cost overruns for projects due mainly to an increase in labour sub-contracting costs resulting from labour shortage and reworks undertaken as well as additional cost incurred for defect rectifications; and
  2. write-off of overdue retention sums and claims for variation orders not approved.

As alluded to in the Company’s announcement on 30 December 2015, the Group has breached certain covenants in its credit facility agreements and is currently continuing with its discussions with the relevant financial institutions to resolve these breaches including obtaining waivers and/or accommodation from the relevant financial institutions regarding the aforementioned breaches.

The Company is currently reviewing the Group’s operations including operational policies and processes and resource allocation to enhance its effectiveness and efficiency. The Company is also reviewing the financial position of the Group on how best to strengthen it. Toward these, the Company may consider engaging an external consultant to perform an independent review and to submit its recommendations.

 

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