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Unaudited Half Year Financial Statement Announcement for the Financial Period Ended 30 June 2020
Group revenue for 1H 2020 totalled $86.3 million, 8% higher than 1H 2019. The growth in revenue was mainly due to the inclusion of revenue from the newly acquired subsidiaries in Malaysia, Guper Integrated Logistics Sdn Bhd, Gems Logistics Sdn Bhd., Dolphin Shipping Agency Sdn Bhd and East West Freight Services Sdn Bhd (collectively the new Malaysia subsidiaries); and revenue from the chartered in of bulk carriers.
Logistics activities accounted for about 72% of the Group's revenue in 1H 2020. Revenue from logistics activities increased by 8% to $61.7 million mainly due to revenue contribution of $7.9 million from the new Malaysia subsidiaries. Excluding the revenue from the new Malaysia subsidiaries, revenue from logistics activities would be $53.8 million for 1H 2020, 5% lower than 1H 2019 mainly due to lower revenue from warehousing management and automotive logistics services resulting from lower volume of business activities and rental waiver granted to tenants under the Government Rental Relief Framework, partially mitigated by higher revenue from transportation and container depot services.
Revenue from shipping activities increased by 62% from $8.4 million to $13.7 million mainly due to revenue contribution from an increased fleet of bulk carriers that the Group had chartered in during 1H 2020 as compared to 1H 2019. Excluding the revenue from charter-in bulk carriers of $9.5 million (1H 2019: $1.4 million), revenue from owned bulk carriers has decreased by about $2.8 million due to lower charter rates in 1H 2020 as compared to 1H 2019. The Baltic Dry Index (BDI), a measure of shipping costs for commodities, averaged 685 points in 1H 2020, a decline of 23% from the average of 895 points in 1H 2019.
Revenue from property management decreased by 42% or $4.0 million to $5.5 million mainly due to rental waiver granted to tenants under the Government Rental Relief Framework and lower rental rates for its retail and office properties in 1H 2020 as compared to 1H 2019.
Revenue from ship repair and marine engineering decreased marginally by 1% mainly due lower revenue from ship repair and fabrication works.
Costs and Profitability
Cost of sales increased by 23% or $14.1 million was mainly due to the inclusion of the cost of sales of the new Malaysia subsidiaries, increase in charter-hire costs for the increased number of bulk carriers chartered-in during 1H 2020 and higher operational costs.
Gross profit decreased by 43% from $18.7 million in 1H 2019 to $10.7 million in 1H 2020 mainly due to lower rental revenue as a result of rental waiver and lower gross margins.
Other income increased by 598% to $6.7 million in 1H 2020 was mainly due to government grants of $6.1 million under the various support measures in relation to the COVID-19 pandemic.
Other gains and losses in 1H 2020 comprised mainly gain on disposal of an investment property and gain on bargain purchase of subsidiaries. The gain on bargain purchase of subsidiaries of $0.9 million arose from the differences in the purchase consideration against the provisional fair values of assets and liabilities of the new Malaysia subsidiaries as at the completion date on 14 February 2020.
Distribution and administrative expenses increased by 2% and 3% respectively mainly due to the inclusion of the distribution and administrative expenses of the new Malaysia subsidiaries.
Finance costs decreased by 5% to $4.2 million mainly due to lower borrowing costs.
Share of profit of associated companies of $1.0 million was contributed by the Group's 40% shareholdings in PT. Ocean Global Shipping Logistics and the 30% shareholdings in Tan Cang-COSCO-OOCL Logistics Company Limited.
Income tax expense decreased by 19% to $1.07 million mainly due to lower profits in 1H 2020. The effective tax rate was higher in 1H 2020 as compared to 1H 2019 mainly due to lower tax exempt profits from shipping subsidiary.
Overall, net profit attributable to equity holders was $1.4 million, 69% lower than 1H 2019 mainly due to rental waiver granted to tenants, weak shipping charter rates and lower profit margins, partially mitigated by government grants and contribution from new Malaysia subsidiaries.
(30 June 2020 vs 31 December 2019)
Cash and cash equivalents increased from $67.2 million to $71.4 million mainly due to net cash provided by operating activities and increase in borrowings, partially offset by net cash outflow for acquisition of subsidiaries and payments for purchase of property, plant and equipment.
Trade and other receivables increased by $5.5 million to $46.8 million (31 December 2019: $41.3 million). The increase in trade and other receivables was mainly due to the trade and other receivables acquired for the new Malaysia subsidiaries.
Property, plant and equipment increased by $41.6 million to $714.0 million mainly due to the fair values of the property, plant and equipment acquired for the new Malaysia subsidiaries and the progressive construction of Jurong Island Chemical Logistics Facility ("JICLH").
Trade and other payables increased by $9.7 million to $59.7 million mainly due to the trade and other payables assumed for the new Malaysia subsidiaries and the recognition of redemption liability of $6.9 million in relation to the present value of the expected future payments associated to the purchase of the minority interest holdings in the new Malaysia subsidiaries. The increase in trade and other payables was partially offset by the payments of outstanding construction costs for JICLH.
Total borrowings increased by $37.8 million to $337.6 million mainly due to the borrowings procured to finance the acquisition of the new Malaysia subsidiaries and the construction costs of JICLH, and borrowings assumed for the new Malaysia subsidiaries.
Shareholder's equity decreased by $4.1 million to $532.3 million mainly due to the recognition of a debit balance in other reserves for redemption liability of $6.9 million, partially mitigated by profits and an increase in currency translation reserves in 1H 2020.
Net cash provided by operating activities for 1H 2020 was $32.2 million. This was mainly due to cash generated from operations.
Net cash used in investing activities for 1H 2020 was $41.3 million. This was mainly due to cash used for acquisition of the new Malaysia subsidiaries and the payments for property, plant and equipment.
Net cash provided by financing activities for 1H 2020 was $11.9 million. This was mainly due to the net proceeds from borrowings.
Through its wholly-owned subsidiary, Cogent Holdings Limited ("Cogent") and its associates, the Company is establishing a logistics network in Singapore, Malaysia, Indonesia and Vietnam.
Pertaining to the construction of the Jurong Island Chemical Logistics Facility, all construction works were halted since 7 April 2020 due to the COVID-19 pandemic. Since 8 August 2020, construction works have resumed partially and the contractor will strive to abide by strict safe management guidelines at the worksites.
In connection with the Group's announcement of the proposed lease of land at Port Klang, Malaysia to construct a warehouse of approximately 300,000 square feet, the Group is progressing on this matter and the Company will make further announcements as and when there are material developments.
The Company aims to expand its logistics network in South and Southeast Asia through acquisitions and investments and continues to explore potential targets to acquire and seek investment opportunities, taking into consideration the targets' business scale and scope, historical performance, growth potential and synergy with the Group's operations.
The Company's ultimate holding company, China COSCO Shipping Corporation Limited, has a well-established logistics business network throughout the People's Republic of China ("PRC"), which the Company will be able to leverage on this existing logistics business platform to potentially develop new business opportunities in the logistics sector in South and Southeast Asia, taking advantage of the "Belt and Road Initiative" formulated by the PRC Government in 2013. The Company will also be able to offer end-to-end services to its customers with logistical needs in Singapore and Malaysia, thereby increasing the Company's competitive edge in relation to its global competitors and entrenching its customers.
With respect to the Group's shipping business, the Company's subsidiary, COSCO SHIPPING (Singapore) Pte Ltd, currently has a total of 3 vessels with a total tonnage of 163,000 tons and with an average age of 15 years. In the first half of 2020, the international dry bulk shipping market declined over the same period in 2019. The Baltic Dry Index averaged 685 points in the first half of 2020, a decline of 23% from the average of 895 points in the first half of 2019.
Moving forward as one team, the Group is expected to create overall synergy by engaging in cross sales and business optimization with its related companies. This will also help the Group to achieve economies of scale and scope.
As a result of the COVID-19 pandemic, the Group's financial performance has been adversely impacted in the first half of 2020, largely due to rental waiver granted to tenants under the Government Rental Relief Framework and difficult market conditions. Given that the COVID-19 situation continues to evolve, there remains uncertainty in terms of the length and depth of its economic impact. The Company will continue to monitor the evolving situation.