EMS Energy recovers with S$4.1m net profit in FY2013

Reversal from previous year's S$15.4m loss.

EMS Energy Limited (EMS) announced that it recorded a net profit after tax of S$4.1 million for the financial year ended 31 December 2013 (FY2013), reversing from a loss of S$15.4 million in 31 December 2012 (FY2012), and said it has entered into a tenancy agreement for a lease of land in Tuas to build a new waterfront facility for its engineering solutions for the offshore and oil and gas sector.

The SGX Catalist-listed provider of engineering solutions, customized equipment and contract manufacturing and packaging solutions said its net profit for FY2013 – a positive swing of S$19.5 million over FY2012 – was achieved on a 13% increase in revenue to S$21.1 million from S$18.7 million over the comparative periods. The Group also reported in excess of a 11-fold increase in FY2013 gross profit.

Despite recording a weaker revenue and operational losses in the first half of FY2013 (1H2013) due to a challenging operating environment and intense competition, accelerated progress of ongoing projects and new wins in 2H2013 helped the Group recover lost ground and also lifted full-year gross profit margin to 19.8% from 1.9% in FY2012. In September 2013, EMS announced it had secured a Derrick Equipment Set (DES) project worth US$36 million from its major shareholder, Koastal Industries Pte. Ltd. (Koastal).

Apart from the one-time gain of S$7.1 million recognised from the disposal of 40%-stake in its 60%-owned subsidiary, the FY2013 results were also boosted by significant cost reductions – in line with a three-pronged strategy announced on 29 November 2013 to improve operational efficiencies, including establishing strategic business units to maximise business opportunities, expand its marketing network and develop new businesses.

Cost of sales in FY2013 fell 7.6% due to improved efficiencies following the implementation of an Enterprise Resource Planning system while general administrative expenses and finance expenses were cut by 52.1% and 42.7%, respectively. The absence of a S$10.2 million impairment of goodwill recorded in FY2012 contributed to the decrease in administrative expenses in FY2013.

Earnings per share, based on the weighted average share capital base of approximately 645.4 million shares, increased to 0.48 Singapore cents in FY2013 from a loss of 3.48 Singapore cents in FY2012. The Group’s net asset value per share increased 21.6% to 2.93 Singapore cents in FY2013 from 2.41 Singapore cents in FY2012.

EMS said it had entered into an agreement to lease from Jurong Town Corporation a 23,237.88 square meter parcel of land at Tuas South Street 15 for 16 years and eight months commencing 1 May 2014. EMS will construct a new facility, which will be five times bigger than its current premises, on the site.

The new Facility – which will have a major advantage of a 106-meter waterfront boundary – will allow EMS to embark on larger projects and increase its capabilities while reducing operational costs and dependence on third-party subcontractors currently engaged for activities such as painting, blasting and machining.

Total capital expenditure for the new waterfrontfacility – expected to approximate S$23.6 million – will be financed in stages by internal resources and bank financing. The Group expects to commence construction in 1H2014 and move into its new premises by FY2015.

Commenting on the results, Executive Chairman and Chief Executive Officer of EMS, Mr. Ting Teck Jin, said: “Despite a weaker 1H2013, the much improved overall performance in FY2013 underscores the success of our efforts to improve efficiencies while focusing more on bigger orders with the potential for higher margins, as outlined in our recent corporate update.”

“Upon completion of the new waterfront facility in Tuas, the Group is positioned to take on much larger projects especially with the major advantage of a waterfront boundary. It will also allow us to bring various services – currently outsourced – under one roof, leading to economies of scale and lower costs,” he said.

The Group’s order book to-date stood at approximately S$55 million, mostly for delivery over the next 12 months. On the business outlook, EMS is seeking to secure 2 repeat DES contracts from Koastal and a separate DES contract from another third-party in FY2014, each estimated to be worth US$36 million.

Barring any unforeseen circumstances, EMS expects its revenue in FY2014 to exceed that of FY2013.