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Financial Statements And Related Announcement - First Quarter Results

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Statement Of Comprehensive Income For The First Quarter ("1Q2017") Ended 31 December 2016

Statements of Financial Position

Review on Group's Financial Results

Revenue

For the period 3 months ended 31 December 2016 ("1Q2017") vs 3 months ended 31 December 2015 ("1Q2016")

Revenue

The Group's revenue increased by approximately S$0.5 million or 1.9% from approximately S$25.9 million in 1Q2016 to approximately S$26.4 million in 1Q2017. The increase was mainly due to the increase in revenue from our Facilities Management Business and Logistics Services Business, partially offset by the decrease in revenue from the Space Optimisation Business in the Industrial Properties.

(a) Space Optimisation Business

Industrial Properties

Revenue derived from Industrial Properties decreased by approximately S$2.4 million or 18.0% from approximately S$13.3 million in 1Q2016 to approximately S$10.9 million in 1Q2017. The decrease in revenue was mainly due to the expiry of some head leases and movement of tenants arising from renewal of sub-leases.

The average occupancy rate of industrial properties managed by the Group in 1Q2017 was approximately 89%.

Commercial Properties

Revenue derived from Commercial Properties remained unchanged at S$6.0 million in 1Q2016 and 1Q2017.

The average occupancy rate of the Group's commercial properties was approximately 92% in 1Q2017.

Residential Properties

Revenue derived from Residential Properties increased by approximately S$0.1 million or 50.0% from approximately S$0.2 million in 1Q2016 to approximately S$0.3 million in 1Q2017. The increase was mainly due to increase in rental income from our Residential Property in Myanmar.

(b) Facilities Management Business

Revenue derived from our Facilities Management Business increased by approximately S$1.0 million or 35.7% from approximately S$2.8 million in 1Q2016 to approximately S$3.8 million in 1Q2017. The increase was mainly due to an increase in revenue from security services and car parking management services. The increase in car parking management services was due to increase in car park rate of its 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$1.8 million or 50.0% from approximately S$3.6 million in 1Q2016 to S$5.4 million in 1Q2017. The increase was mainly due to increase in revenue from our container depot business arising from more storage and repairs of leasing containers contributed by the slow down of shipments worldwide.

Cost of sales increased by approximately S$0.6 million or 2.9% from approximately S$19.5 million in 1Q2016 to approximately S$20.1 million in 1Q2017. The increase in cost of sales was mainly due to an increase in transportation costs of approximately S$0.5 million and upkeep and maintenance costs of approximately S$0.3 million. The increase was offset by a decrease in rental costs of approximately S$0.2 million.

In view of the above mentioned, gross profit decreased by approximately S$0.1 million from approximately S$6.4 million in 1Q2016 to approximately S$6.3 million in 1Q2017.

Other operating income remained relatively unchanged at approximately S$0.6 million in 1Q2016 and 1Q2017.

Selling and distribution expenses de creased by approximately S$0.3 million or 50.9% from approximately S$0.6 million in 1Q2016 to approximately S$0.3 million in 1Q2017. The decrease was mainly due to decrease in agent commission of approximately S$0.3 million.

Administrative expenses increased by approximately S$0.7 million or 14.9% from approximately S$4.4 million in 1Q2016 to approximately S$5.1 million in 1Q2017. The increase was mainly due to increase in employee benefit cost of approximately S$0.6 million and increase in miscellaneous expenses of approximately S$0.1 million.

Finance costs remained relatively unchanged at approximately S$0.2 million in 1Q2016 and 1Q2017.

Share of results of associates and joint ventures increased by approximately S$3.9 million from approximately S$6,000 profit in 1Q2016 to S$3.9 million profit in 1Q2017. The increase was mainly due to a non-recurring gain of approximately S$4.3 million on acquisition of Four Star Industries Pte. Ltd. which was a result of the excess of our proportionate share of the net fair value of the joint venture identifiable assets and liabilities over the cost of investment. This was partially offset by an increase in operating loss of approximately S$0.4 million.

As a result of the aforementioned, the Group's profit before income tax increased by approximately S$3.4 million or 183.7% from approximately S$1.9 million in 1Q2016 to approximately S$5.3 million in 1Q2017.

Taxation decreased by approximately S$0.1 million or 31.3% from approximately S$0.3 million in 1Q2016 to approximately S$0.2 million in 1Q2017. The decrease was mainly due to lower taxable profits.

Review of Statement of Financial Position

Group

Non-current assets

Non-current assets increased by approximately S$5.2 million from approximately S$72.4 million as at 30 September 2016 to approximately S$77.6 million as at 31 December 2016. The increase was mainly due to gain on acquisition of a joint venture of approximately of S$4.3 million, increase in investment properties of approximately S$0.1 million and increase in property, plant and equipment of approximately S$0.8 million, largely attributable to the capitalisation of renovation costs of leased sites.

Current assets

Current assets increased by approximately S$1.6 million from approximately S$49.1 million as at 30 September 2016 to approximately S$50.7 million as at 31 December 2016. The increase was mainly due to the increase in cash and bank balances of approximately S$1.1 million largely generated from operations and increase in trade and other receivables of approximately S$0.5 million mainly due to increase in trade receivables of approximately S$1.0 million and partially offset by decrease in other receivables of approximately S$0.5 million.

Non-current liabilities

Non-current liabilities decreased by approximately S$0.5 million from approximately S$21.2 million as at 30 September 2016 to approximately S$20.7 million as at 31 December 2016. The decrease was mainly due to repayment of bank borrowings of approximately S$0.4 million and decrease of obligations under hire-purchase contracts of approximately S$0.1 million.

Current liabilities

Current liabilities increased by approximately S$2.2 million from approximately S$30.9 million as at 30 September 2016 to approximately S$33.1 million as at 31 December 2016. The increase was mainly due to increase in trade payables of approximately S$0.6 million and other payables of approximately S$1.3 million. The increase in other payables mainly consists of accrued rental expense of approximately S$1.0 million and current tax payable of approximately S$0.2 million and bank borrowings of approximately S$0.1 million.

Review of Statement of Cash Flows

In 1Q2017, we recorded net cash from operating activities of approximately S$3.4 million, which was a result of operating cash flows before changes in working capital of S$3.0 million, adjusted for net working capital inflow of approximately S$0.5 million, and interest expense paid of approximately S$0.1 million. Our working capital inflows were mainly due to an increase in operating payables of approximately S$1.2 million and partially offset by an increase in operating receivables of approximately S$0.7 million.

Net cash used in investing activities amounted to approximately S$1.5 million, which was mainly due to the acquisition of property, plant and equipment of approximately S$1.5 million and acquisition of a joint venture of approximately S$0.1 million. These were partially offset by repayment by joint venture of approximately S$0.1 million.

Net cash generated used in financing activities amounted to approximately S$0.8 million which was mainly due to repayment of obligations under hire-purchase of approximately S$0.4 million and repayment of bank borrowings of approximately S$0.4 million.

As a result of the above, there was a net increase of approximately S$1.1 million in our cash and cash equivalents, from approximately S$19.9 million as at 30 September 2016 to approximately S$21.0 million as at 31 December 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.

LHN expects the next 12 months to remain challenging because of ongoing economic uncertainties and poor overall sentiments leading to a fall in leasing activities. However, we also observed a trend of businesses scaling down the size of their operations leading to a demand for smaller business space and an increase in requirement for value-add services. To capitalise on this trend, LHN has reviewed its marketing strategy and service offerings.

In mid Jan 2017, the Group obtained Temporary Occupation Permit for its property at 100 Eunos Avenue 7 which has been purposed for the Work + Store concept. We have also completed the first phase renovation at 38 Ang Mo Kio. We expect to build up the occupancy rate of these two properties over the next few months.

The Group has recently launched PickJunction, which is an innovative and experiential concept to support small, independent entrepreneurs of furnishing and lifestyle products.

Both the Work + Store and PickJunction newest concepts are expected to widen the Group's tenant mix to include those from these target sectors.