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Financial Statements And Related Announcement - Third Quarter Results

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Statement Of Comprehensive Income For The Third Quarter ("3Q2017") And Nine Months Ended 30 June 2017 ("9M2017")

Statements of Financial Position

Review on Group's Financial Results

Revenue

3 months ended 30 June 2017 (3Q2017) vs 3 months ended 30 June 2016 (3Q2016)

The Group's revenue decreased by approximately S$0.6 million to approximately S$26.2 million in 3Q2017 due to decrease in revenue from the Space Optimisation Business, partially offset by the increase in revenue from our Facilities Management Business and Logistics Services Business.

(a) Space Optimisation Business

Industrial Properties

Revenue derived from Industrial Properties decreased by 19.5% to approximately S$10.7 million in 3Q2017 mainly due to the expiry of some head leases, movement of tenants and lower rental rates arising from expiry and renewal of sub-leases.

Commercial Properties

Revenue derived from Commercial Properties decreased by 3.4% to approximately S$5.7 million in 3Q2017 mainly due to the movement of tenants and lower rental rates arising from expiry and renewal of sub-leases.

Residential Properties

Revenue derived from Residential Properties decreased by 25.0% to approximately S$0.3 million in 3Q2017 mainly due to decrease in revenue from design works of approximately S$0.2 million, partially offset by increase in rental income from Myanmar of approximately S$0.1 million.

(b) Facilities Management Business

Revenue derived from our Facilities Management Business increased by 43.8% to approximately S$4.6 million in 3Q2017, mainly due to an increase in demand from security services and car park management services (in the form of management of new car parks), and increase in car park rate of existing car parks managed by our Group.

(c) Logistics Services Business

Revenue derived from our Logistics Services Business increased by 22.5% to approximately S$4.9 million in 3Q2017, mainly from the increase in demand of storage and repairs of leasing containers contributed by slow-down of shipments worldwide and transportation services.

Cost of sales increased by 4.9% to approximately S$20.3 million in 3Q2017, mainly due to an increase in upkeep and maintenance costs of approximately S$0.3 million, rental costs and costs of approximately S$0.3 million, direct labour cost of approximately S$0.4 million. The increase was offset by a decrease in miscellaneous costs of approximately S$0.1 million.

In view of the above mentioned, gross profit decreased by approximately S$1.5 million from approximately S$7.4 million in 3Q2016 to approximately S$5.9 million in 3Q2017.

Other operating income remained relatively unchanged at approximately S$0.5 million in 3Q2016 and 3Q2017.

Selling and distribution expenses decreased by 34.9% to approximately S$0.3 million in 3Q017 mainly due to decrease in agent commission of approximately S$0.1 million.

Administrative expenses increased by 11.2% to approximately S$5.4 million in 3Q2017 mainly due to increase in employee benefit cost of approximately S$0.3 million due to increase in headcount as compared to 3Q2016, increase in foreign exchange loss of approximately S$0.1 million and miscellaneous expenses of approximately S$0.1 million.

Finance costs remained relatively unchanged at approximately S$0.2 million in 3Q2016 and 3Q2017.

Share of results of associates and joint ventures decreased by approximately S$0.4 million from operating losses of approximately S$0.1 million in 3Q2016 to approximately S$0.5 million in 3Q2017 as we just obtained Temporary Occupation Permit in June 17 for our joint ventures property at 38 Ang Mo Kio and the property at 44 Kallang is still under renovation.

Dual Listing expenses incurred during 3Q2017 of approximately S$2.9 million relates to dual primary listing on the Main Board of The Stock Exchange of Hong Kong Limited.

Impairment loss on asset held-for-sale of approximately S$0.5 million in 3Q2017 was mainly due to the decrease in valuation of non-current assets classified as held-for-sale.

As a result of the aforementioned, the Group's profit before income tax decreased by approximately S$5.7 million from approximately S$2.4 million in 3Q2016 to a loss of approximately S$3.3 million in 3Q2017.

Taxation decreased by approximately S$0.2 million mainly due to lower taxable profit.

Review of Statements of Financial Position

Non-current assets

Non-current assets decreased by approximately S$15.5 million to approximately S$56.9 million as at 30 June 2017, mainly due to the reclassification of non-current assets of approximately S$19.5 million to current assets held-for-sale. These were partially offset by an increase in investment in joint ventures of approximately S$4.0 million.

Current assets

Current assets increased by approximately S$16.9 million to approximately S$66.0 million as at 30 June 2017, mainly due to reclassification as elaborated above as well as an increase in trade and other receivables of approximately S$2.3 million largely attributable to the amount due from joint ventures. These were partially offset by the decrease in cash and bank balances of approximately S$4.1 million largely due to the payment of dividend of approximately S$1.6 million and expenses for the Company's dual primary listing.

Non-current liabilities

Non-current liabilities decreased by approximately S$1.2 million to approximately S$20.0 million as at 30 June 2017, mainly due to repayment of bank borrowings of approximately S$1.3 million and reduction of provision for reinstatement cost of approximately S$0.2 million partially offset by increase in obligations under finance lease of approximately S$0.3 million.

Current liabilities

Current liabilities increased by approximately S$2.5 million to approximately S$33.4 million as at 30 June 2017, mainly due to proceeds received from bank borrowings obtained of approximately S$2.1 million, increase in obligations under finance lease of approximately S$0.2 million and increase in provision for reinstatement cost of approximately S$0.2 million.

Review of Statement of Cash Flows

3Q2017

In 3Q2017, the Group recorded net cash generated from operating activities of approximately S$0.2 million, which was a result of operating losses before changes in working capital of S$0.8 million, decrease in operating receivables of approximately S$0.9 million and increase in operating payables of approximately S$0.9 million, adjusted for income tax paid of approximately S$0.6 million and net interest expense paid of approximately S$0.2 million.

Net cash used in investing activities amounted to approximately S$2.2 million, which was mainly due to the acquisition of property, plant and equipment of approximately S$1.4 million and advances to joint ventures of approximately S$0.8 million.

Net cash generated from financing activities amounted to approximately S$1.2 million, which was due to proceeds received from bank borrowings of approximately S$2.0 million and uplift of deposit of approximately S$0.1 million. These were partially offset by the repayment of obligations under finance lease of approximately S$0.4 million and repayment of bank borrowings of approximately S$0.5 million.

As a result of the above, the cash and cash equivalents decreased by approximately S$0.8 million, amounting to S$15.8 million as at 30 June 2017.

Commentary

The Group expects rental demand for industrial and commercial properties to remain depressed mainly because the market is currently facing an oversupply of industrial and commercial space. This is expected to cause further downward pressures in rental and occupancy.

Our expectations are in line with the recent report released by JTC in its quarterly market report, which highlighted that prices and rentals of industrial space in Singapore continued to moderate in the second quarter of the year with the price and rental indices for the overall industrial property market falling by 1.6% and 0.8%, respectively from the first quarter of 2017. Looking at a year ago, the second quarter 2017 price and rental indices fell by 8.2 per cent and 4.1 per cent as compared to the second quarter 2016. 1 The report also highlighted that about 1.4 million sqm of industrial space, including 311,000 sqm of multiple-user factory space, was estimated to come on-stream in the second half of 2017.

Regardless of the current challenges in our Space Optimisation Business, we remain optimistic that our Facilities Management Business and Logistics Services Business will continue to enjoy strong growth because of the rising demand for such services.

On 5 May 2017, our Group announced it was seeking a proposed dual primary listing of its ordinary shares on the Main Board of The Stock Exchange of Hong Kong Limited ("SEHK") and in an update posted on 11 June 2017, the Group announced the application proof of the prospectus has been uploaded on the website of the SEHK. Shareholders should note that upon successful dual listing on SEHK, there will be a further listing expenses of approximately $2.3million to be paid.

On 22 May 2017, LHN announced its entry into the Greater China market with its first car park management contract in Hong Kong. This milestone is in-line with the Group's strategy to expand into the Greater China Region and supports its intention for a dual listing on the Hong Kong bourse.