Chairman's & CEO's Statement
Dear Shareholders
The last financial year ended 31 May 2018 (“FY2018”) saw the Group weather yet another round of adversities.
The protracted downcycle of the oil and gas industry, the intense competition in the warehousing & logistics business and the uncertainties in the macro environment continued to weigh on the financial performance of the Group over the last financial year.
The Group registered a 27.3% increase in revenue, from S$56.1 million for the financial year ended 31 May 2017 (“FY2017”) to S$71.5 million in FY2018. The increase was mainly driven by the Group’s strategic investment in a wholly-owned ready-mix concrete manufacturing plant, Wuzhou Xing Jian Readymix Co., Ltd. (“Wuzhou Xing Jian”), which commenced commercialisation in June 2016, and a full-year contribution from TNS Ocean Lines (S) Pte Ltd, which it acquired in late November 2016. Whilst the warehousing & logistics sector grappled with intense competition, the fluctuations in the commodities markets undermined the performance of both our joint venture and associated companies, namely, Ocean Latitude Limited (“Ocean Latitude”), which holds the liquefied gas carrier vessel, and GKE Metal Logistics Pte Ltd (“GKE Metal”), which manages the storage and shipment of non-ferrous metals that are traded on London Metal Exchange (“LME”). The adverse financial performance of Ocean Latitude and GKE Metal outweighed the positive contributions from Wuzhou Xing Jian and our chemical warehouse and logistics subsidiary, Marquis Services Pte Ltd (“Marquis”). To refine our focus on our core warehousing & logistics business, the Group decided to divest Ocean Latitude in December 2017. This divestment was completed on 31 May 2018 and the Group recognised a net loss of approximately S$7.5 million from the divestment. Consequently, the Group recorded a net loss attributable to shareholders of S$10.6 million in FY2018, widening from a net loss attributable to shareholders of S$2.3 million in FY2017.
Refining Focus
We had embarked on a diversification strategy with the aim of broadening our range of business activities, revenue base and profit generation. The driving motivation was to create value for all stakeholders, including our shareholders.
However, our expansion into new and uncharted territory, particularly the liquefied gas carrier vessel where we had a 50% stake in the joint venture, did not provide the Group with the expected returns and value that we had expected. Consequently, we took the painful but necessary decision to weed out nonperforming businesses rather than allowing them to drag down our Group’s performance over time and in the long run.
In December 2017, we divested the Group’s 50% stake in Ocean Latitude to our joint venture partner, Sunrise Marine Limited, for a cash consideration of US$1.08 million (equivalent to approximately S$1.5 million). The Group had also provided a shareholder loan of US$4.4 million (equivalent to approximately S$6.0 million) to Ocean Latitude for the maintenance of the liquefied gas carrier vessel when charter rates and demand for the vessel declined. This loan will be repaid within a year.
On 8 August 2018, the Group entered into a Sale and Purchase Agreement to divest its 49% stake in GKE Metal for US$2.07 million (equivalent to approximately S$2.8 million). The proposed divestment opportunity came about as our majority partner, Plantation Holdings B.V., decided to sell its stake to Hung Lin Holding Ltd, the eventual purchaser. We expect the Group to record a net gain of S$0.3 million from this divestment.
Strengthening Core Expertise
With the divestment of the non-performing businesses, the Group will continue to focus on strengthening its core expertise in warehousing & logistics.
We are pleased to announce that the construction of the new warehouse cum office at 39 Benoi Road (“Benoi Road Property”) and the vehicular link bridge connecting the 40-footer ramp from Benoi Road Property to 30 Pioneer Road warehouse property, have been completed and operations have commenced. Through active marketing of the Group’s integrated warehousing & logistics solutions and management services, we have seen increasing occupancy for the additional 200,000 sqft of storage space and an approximately 130,000 sqft open yard storage space in the Benoi Road property. With the completion of the link bridge, Viva Industrial Real Estate Investment Trust paid the Group an easement fee of S$3.0 million, and will be paying a monthly maintenance fee as well as sharing any repair costs of the ramp that may arise.
As a lateral expansion initiative, the Group extended our safe storage of hazardous chemicals and dangerous goods and services to providing auxiliary services such as drumming of chemicals for chemical traders and suppliers during the financial year. Through the investment in G-Chem Logistics Pte Ltd, the Group believes that the auxiliary services will complement and enhance our warehousing & logistics capabilities in the niche sector of specialty chemicals.
Looking ahead, we envision that uncertainties will remain, particularly the ongoing trade wars and volatile political situation, that could have an adverse impact on the Group. We will, however, rationalise and transform to overcome adversities and adapt to an ever-evolving competitive landscape, with the aim of becoming a stronger organisation that has the capability to generate sustainable value for all stakeholders.
As technological advancements are redefining distribution systems and global supply chains, we seize the opportunity to harness technology to reinvent our conventional practices in our core warehousing & logistics businesses, to meet and even exceed our customers’ requirements and expectations. The Group will align our businesses in tandem with the Singapore Government’s initiatives on Industrial Transformation.
