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Financial Statements And Related Announcement - Full Yearly Results

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Statement Of Comprehensive Income For The Fourth Quarter ("4Q2016") And Full Year Ended 30 September 2016 ("FY2016")

Statements of Financial Position

Review on Group's Financial Results

Revenue

Full Year ended 30 September 2016 (FY2016) vs Full Year ended 30 September 2015 (FY2015)

The Group's revenue increased by approximately S$8.3 million or 8.6% from approximately S$96.4 million in FY2015 to approximately S$104.7 million in FY2016. The increase was due to increase in rental income (which includes warehousing service fees) from our Group's Space Optimisation Business, primarily driven by Industrial and Commercial Properties, as well as increased revenue from our Facilities Management Business and Logistics Services Business.

(a) Space Optimisation Business

Industrial Properties

Revenue derived from Industrial Properties increased by approximately S$6.1 million or 13.3% from approximately S$45.9 million in FY2015 to approximately S$52.0 million in FY2016. The increase in revenue was mainly due to an increase in rental income from the new master leases secured by the Group.

The average occupancy rate of industrial properties managed by the Group in FY2016 was approximately 94%.

Commercial Properties

Revenue derived from Commercial Properties increased by approximately S$0.2 million or 0.9% from approximately S$23.5 million in FY2015 to approximately S$23.7 million in FY2016. The increase in revenue was mainly due to an increase in rental income from our Indonesia office.

The average occupancy rate of the Group's commercial properties was approximately 94% in FY2016.

Residential Properties

Revenue derived from Residential Properties decreased by approximately S$1.7 million or 65.4% from approximately S$2.6 million in FY2015 to approximately S$0.9 million in FY2016. The decrease was mainly due to the expiry of the lease of its managing agent contract on a residential property at 15 Robin Road in October 2015.

(b) Facilities Management Business

Revenue derived from our Facilities Management Business increased by approximately S$2.8 million or 28.9% from approximately S$9.7 million in FY2015 to approximately S$12.5 million in FY2016. The increase was mainly due to an increase in revenue generated from security services and car park management services from both existing sites and new car parks managed by our Group.

(c) Logistics Services Business

Revenue derived from our Logistics Services Business increased by approximately S$0.9 million or 6.1% from approximately S$14.7 million in FY2015 to approximately S$15.6 million in FY2016. The increase was mainly due to increase in revenue from our container depot business.

Cost of sales increased by approximately S$4.3 million or 5.9% from approximately S$72.9 million in FY2015 to approximately S$77.2 million in FY2016. The increase in cost of sales was mainly due to an increase in rental costs of approximately S$3.1 million from the new secured sites managed by our Group and increase in direct labour costs of approximately S$1.1 million.

As a result of the abovementioned, gross profit increased by approximately S$4.0 million from approximately S$23.5 million in FY2015 to approximately S$27.5 million in FY2016 and gross profit margin as a percentage of revenue increased from 24.3% in FY2015 to 26.3% in FY2016. The increase in gross profit was mainly due to higher rental income from our Industrial Properties.

Other operating income increased by approximately S$0.3 million or 12.9%, from approximately S$2.7 million in FY2015 to approximately S$3.0 million in FY2016. The increase was mainly due to foreign exchange gain of approximately S$0.3 million.

Selling and distribution expenses decreased by approximately S$0.5 million or 22.3% from approximately S$2.3 million in FY2015 to approximately S$1.8 million in FY2016. The decrease was mainly due to decrease in advertising cost of approximately S$0.5 million.

Administrative expenses increased by approximately S$2.6 million or 14.5% from approximately S$17.8 million in FY2015 to approximately S$20.4 million in FY2016. The increase in administrative expenses was mainly due to increase in depreciation of approximately S$1.0 million arising from the increase in property plant and equipment and increase in employee benefit cost of approximately S$1.7 million. The increase was offset by a decrease in miscellaneous expenses of approximately S$0.1 million.

Other operating expenses remained at approximately S$0.3 million for both FY2015 and FY2016.

Finance costs increased by approximately S$0.2 million or 34.5% from approximately S$0.4 million in FY2015 to approximately to S$0.6 million in FY2016. The increase was mainly due to increase in interest expense as a result of higher borrowings.

Share of associated companies' and joint venture increased by approximately S$6.7 million from approximately S$0.03 million in FY2015 to S$6.7 million in FY2016. The increase was mainly due to fair value gain on investment properties in Singapore of approximately S$7.1 million, which was partially offset by decrease in operating loss of approximately S$0.4 million.

Fair value gain on investment properties of approximately S$2.1 million for FY2016 was mainly due to the increase in valuation of industrial properties in Singapore. The fair value gain of approximately S$0.6 million recognised in FY2015 was due to the increase in valuation of commercial property in Indonesia.

There were no IPO expenses incurred for FY2016 as compared to approximately S$1.6 million incurred for FY2015.

As a result of the aforementioned, the Group's profit before income tax increased by approximately S$11.9 million or 280.2% from approximately S$4.3 million in FY2015 to approximately S$16.2 million in FY2016.

Taxation increased by approximately S$0.9 million or 426.2% from approximately S$0.2 million in FY2015 to approximately S$1.1 million in FY2016. The increase was mainly due to higher taxable profits and lesser utilisation of the Group's tax relief and enhancements in productivity and innovation credit allowances as compared to FY2015.

3 months ended 30 September 2016 (4Q2016) vs 3 months ended 30 September 2015 (4Q2015)

The Group's revenue increased by approximately S$0.3 million or 1.1% from approximately S$25.7 million in 4Q2015 to approximately S$26.0 million in 4Q2016. The increase was mainly due to increase in Facilities Management Business and Logistics Services Business.

(a) Space Optimisation Business

Industrial Properties

Revenue derived from Industrial Properties decreased by approximately S$0.5 million or 4.0% from approximately S$12.5 million in 4Q2015 to approximately S$12.0 million in 4Q2016. The decrease in revenue was mainly due to the expiry of a few lease sites in the 4Q2016.

Commercial Properties

Revenue derived from Commercial Properties decreased by approximately S$0.1 million or 1.6% from approximately S$6.1 million in 4Q2015 to approximately S$6.0 million in 4Q2016.

Residential Properties

Revenue derived from Residential Properties decreased by approximately S$0.5 million or 62.5% from approximately S$0.8 million in 4Q2015 to approximately S$0.3 million in 4Q2016. The decrease was mainly due to the absence of income as a result of the expiry of the lease of its managing agent contract on a residential property at 15 Robin Road in October 2015.

(b) Facilities Management Business

Revenue derived from our Facilities Management Business increased by approximately S$0.7 million or 25.9% from approximately S$2.7 million in 4Q2015 to approximately S$3.4 million in 4Q2016. The increase was mainly due to an increase in revenue generated from security services and car park management services from both existing sites and new car parks managed by our Group.

(c) Logistics Services Business

Revenue derived from our Logistics Services Business increased by approximately S$0.7 million or 19.4% from approximately S$3.6 million in 4Q2015 to approximately S$4.3 million in 4Q2016. The increase was mainly due to increase in revenue from our container depot business.

Cost of sales decreased by approximately S$1.2 million or 6.1% from approximately S$20.7 million in 4Q2015 to approximately S$19.5 million in 4Q2016. The decrease in cost of sales was mainly due to the decrease of rental costs of approximately S$2.3 million in relation to the expiry of a few lease sites. This was partially offset by increase in upkeep and maintenance costs of approximately S$0.5 million and direct labour costs of approximately S$0.6 million.

As a result of the abovementioned, gross profit increased by approximately S$1.5 million from approximately S$5.0 million in 4Q2015 to approximately S$6.5 million in 4Q2016.

Other operating income increased by approximately S$0.2 million or 23.0%, from approximately S$0.7 million in 4Q2015 to approximately S$0.9 million in 4Q2016. The increase was mainly due to foreign exchange gain of approximately S$0.2 million.

Selling and distribution expenses decreased by approximately S$0.6 million or 63.3% from approximately S$1.0 million in 4Q2015 to approximately S$0.4 million in 4Q2016. The decrease was mainly due to a decrease in agent commission of approximately S$0.5 million and advertising expenses of approximately S$0.1 million.

Administrative expenses increased by approximately S$1.3 million or 26.7% from approximately S$4.7 million in 4Q2015 to approximately S$6.0 million in 4Q2016. The increase in administrative expenses was mainly due to increase in depreciation of approximately S$0.1 million arising from the increase in property plant and equipment, increase in employee benefit cost of approximately S$1.0 million and miscellaneous expenses of approximately S$0.2 million.

Other operating expenses decreased by approximately S$0.1 million or 20.6% from approximately S$0.4 million in 4Q2015 to approximately S$0.3 million in 4Q2016. The decrease in other operating expenses was due to lower allowance for doubtful debt.

Finance costs were approximately $0.1 million for 4Q2015 and 4Q2016.

Share of associated companies' and joint venture increased by approximately S$6.8 million from approximately S$0.01 million in 4Q2015 to S$6.8 million in 4Q2016. The increase was mainly due to fair value gain on investment properties in Singapore of approximately S$7.1 million, which was partially offset by decrease in operating loss of approximately S$0.3 million.

Fair value gain on investment properties of approximately S$2.1 million for FY2016 was mainly due to the non- recurring increase in valuation of industrial properties in Singapore. The fair value gain of approximately S$0.6 million recognised in FY2015 was due to the increase in valuation of commercial property in Indonesia.

As a result of the aforementioned, the Group's profit before income tax increased by approximately S$9.4 million from approximately S$0.1 million in 4Q2015 to approximately S$9.5 million in 4Q2016.

Taxation increased by approximately S$0.9 million from approximately S$0.6 million tax credit in 4Q2015 to approximately S$0.3 million tax expense in 4Q2016. The increase was mainly due to higher taxable profits and lesser utilisation of the Group's tax relief and enhancements in productivity and innovation credit allowances as compared to 4Q2015.

Review of Statements of Financial Position

Group

Non-current assets

Non-current assets increased by approximately S$13.8 million from approximately S$58.6 million as at 30 September 2015 to approximately S$72.4 million as at 30 September 2016. The increase was mainly due to increase in investment in joint venture of approximately S$7.3 million which was largely due to fair value gain on investment properties of approximately S$7.1 million and increase in investment properties of approximately S$6.1 million which was largely due to capitalisation of renovation cost of approximately S$3.5 million and fair value gain on investment properties in Singapore of approximately S$2.1 million. Long term prepayments increased by approximately S$0.4 million which was largely due to advance payment for insurance guarantee and stamp duty.

Current assets

Current assets increased by approximately S$1.1 million from approximately S$48.0 million as at 30 September 2015 to approximately S$49.1 million as at 30 September 2016. The increase was mainly due to increase in trade and other receivables of approximately S$5.5 million, cash and bank balances of approximately S$4.3 million and prepayment of approximately S$0.4 million. This was partially offset by decrease in fixed deposit of approximately S$9.0 million which was partially utilised for expansion of our operations and decrease in inventories of approximately S$0.1 million.

Increase in trade and other receivables of approximately S$5.5 million was mainly due to increase in trade receivables of approximately S$0.5 million and increase in other receivables of approximately S$5.0 million. Increase in other receivables consist of mainly loan advances to joint venture companies of approximately S$7.0 million partially offset by the decrease in net GST receivables of approximately S$0.9 million and decrease in deposit paid to suppliers and landlords of approximately S$1.1 million. Increase in prepayment of approximately S$0.4 million was mainly due to increase in advance payment for rental costs.

Non-current liabilities

Non-current liabilities increased by approximately S$0.6 million from approximately S$20.6 million as at 30 September 2015 to approximately S$21.2 million as at 30 September 2016. The increase was mainly due to increase in provision for reinstatement cost for leased properties of approximately S$0.4 million, increase in obligations under finance lease of approximately S$0.1 million and bank borrowings of approximately S$0.1 million.

Current liabilities

Current liabilities increased by approximately S$0.1 million from approximately S$30.8 million as at 30 September 2015 to approximately S$30.9 million as at 30 September 2016. The increase was mainly due to increase in bank borrowings of approximately S$0.4 million. These were partially offset against decrease in obligation under finance lease of approximately S$0.2 million and decrease in trade and other payables of approximately S$0.1 million.

Review of Statement of Cash Flows

FY2016

In FY2016, we recorded net cash generated from operating activities of approximately S$13.1 million, which was a result of operating cash flows before changes in working capital of S$14.3 million and net working capital inflow of approximately S$0.3 million, adjusted for income tax paid of approximately S$1.1 million and net interest expense paid of approximately S$0.4 million. Our working capital inflows were mainly due to an decrease in operating receivables of approximately S$0.7 million and decrease in inventories of approximately S$0.2 million which were partially offset by decrease in operating payables of approximately S$0.6 million.

Net cash used in investing activities amounted to approximately S$8.0 million, which was mainly due to the acquisition of property, plant and equipment of approximately S$4.8 million, purchase of investment property of approximately S$3.0 million and incorporation of joint venture of approximately S$0.6 million. These were partially offset by proceeds from disposals of property, plant and equipment of approximately S$0.3 million and interest received of approximately S$0.1 million.

Net cash used in financing activities amounted to approximately S$9.8 million which was due to the loan advances to joint venture companies of approximately S$7.0 million, repayment of finance lease of approximately S$1.1 million, repayment of bank borrowings of approximately S$1.5 million, repayment of amount due to a director of our subsidiaries of approximately S$0.2 million, purchase of treasury shares of approximately S$0.2 million and dividend paid of approximately S$1.8 million. These were partially offset by proceeds received from bank borrowings obtained of approximately S$2.0 million.

As a result of the above, the cash and cash equivalents decreased by of approximately S$4.7 million, amounting to S$19.9 million as at 30 September 2016.

4Q2016

In 4Q2016, we recorded net cash generated from operating activities of approximately S$5.3 million, which was a result of operating cash flows before changes in working capital of S$2.3 million and net working capital inflow of approximately S$3.1 million, adjusted for income tax paid of approximately S$0.04 million and net interest expense paid of approximately S$0.1 million. Our working capital inflows were mainly due to a decrease in operating receivables of approximately S$0.9 million and an increase in operating payables of approximately S$2.2 million.

Net cash used in investing activities amounted to approximately S$2.1 million, which was mainly due to the acquisition of property, plant and equipment of approximately S$0.9 million, investment properties of approximately S$1.1 million and incorporation of joint venture of approximately S$0.1 million.

Net cash used in financing activities amounted to approximately S$4.7 million which was due to the loan advances to joint venture companies of approximately S$4.2 million, repayment of finance lease liabilities of approximately S$0.6 million, repayment of bank borrowings of approximately S$0.4 million and purchase of treasury shares of approximately S$0.2 million. These were partially offset by proceeds received from bank borrowings obtained of approximately S$0.7 million.

As a result of the above, the cash and cash equivalents decreased by of approximately S$1.5 million amounting to S$19.9 million as at 30 September 2016.

Commentary

Rising global economic uncertainties, weak manufacturing and trading conditions, poor consumer sentiment and oversupply of commercial and industrial space has dampened demand and caused intense price pressures on rents.

As such, LHN Group expects the next 12 months to be challenging for its core Space Optimisation Business. However, it remains optimistically confident in being able to maintain stable occupancies as it focuses on attracting new tenants from growth sectors such as infocomm and e-commerce. The Group's new "Work+Store" concept, which was launched in 2016 and caters mainly to businesses in the e-commerce sector, continues to attract positive feedback and response from the market. It will also continue to seek and secure more master leases of strategically located properties with good leasing potential.

Other positive developments announced in FY2016 that are expected to come on stream and become operational in FY2017 include:

  • The completed acquisition of 38 Ang Mo Kio Industrial Park 2 in May 2016; and
  • The completed acquisition of Four Star Industries Pte Ltd in October 2016, which includes a JTC Corporation leasehold 6-storey purpose built flatted factory building, will pave the way for LHN to employ its space optimisation expertise on the furniture business and property.

Meanwhile the Group is also planning to expand its GreenHub premium fitted office brand to a fourth location at Beach Road in February 2017 in addition to expanding the branch at 10 Raeburn Park. Together they will add another 200 workstations under this brand making it a total of 606 workstations in Singapore and more than 1,000 workstations regionally.

The Group constantly reviews its business as part of its effort to maximise value for shareholders. As part of the review, the Group sometimes engages in preliminary discussions with various parties. However, there is no assurance that any transactions may arise therefrom.

Beyond Singapore, the Group's operations in Indonesia, Thailand and Myanmar remain stable and the Group continues to be on the lookout for expansion opportunities in the ASEAN region through acquisitions, joint ventures and strategic alliances which will give it access to new markets and customers.