BH Global Corporation Ltd

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THIRD QUARTER FINANCIAL STATEMENTS ANNOUNCEMENT FOR THE PERIOD ENDED 30 SEPTEMBER 2017

Financials Archive

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Income Statement

Statement of Comprehensive Income

Balance Sheet
Review Of The Performance

Revenue

(3Q2017 Vs 3Q2016)

Supply Chain Management

Supply Chain Management division accounts for 88% of the Group's turnover in 3Q2017, of which marine cables and accessories contributed 53%, marine lighting equipment and accessories 31% and others 16%. Revenue from the Division decreased by 63% due to slowdown in activities in the marine and offshore sectors as a result of weak shipping markets and low oil prices.

Security

Security division was established in 2Q2016 and mainly provides products and solutions relating to cyber security and security systems. The division accounts for 5% of the Group's turnover in 3Q2017.

Engineering Services

Engineering Services division accounts for 7% of the Group's turnover in 3Q2017. Revenue from Engineering Services remains comparably unchanged.

(9M2017 Vs 9M2016)

Supply Chain Management

Supply Chain Management division accounts for 77% of the Group's turnover in 9M2017, of which marine cables and accessories contributed 50%, marine lighting equipment and accessories 30% and others 21%. Revenue from the Division decreased by 49% due to slowdown in activities in the marine and offshore sectors as a results of weak shipping markets and low oil prices.

Security

Security division was set up in 2Q2016. This division mainly provide security products and solutions relating to information technology. The division accounts for 8% of the Group's turnover in 9M2017.

Engineering Services

Engineering Services division accounts for 15% of the Group's turnover in 9M2017. This division registered a higher revenue of $3.9 million in 9M2017 due mainly to higher progressive recognition of revenue of an existing project as compared to 2Q2016 where the project was still in its engineering phase.

3Q2017 vs 3Q2016

Geographical segment

Revenue derived from Singapore decreased by $8.4 million or 69% from $12.3 million in 3Q2016 to $3.9 million in 3Q2017 due mainly to the slowdown in activities in the marine and offshore sectors.

Revenue derived from overseas decreased by $1.4 million or 36% from $3.9million in 3Q2016 to $2.5 million in 3Q2017 due mainly to weak global shipping markets.

Gross profit

The Group's overall gross profit decreased by $3.6 million or 73% from $4.9 million in 3Q2016 to $1.36 million in 3Q2017 due to lower revenue. The Group's overall gross margin decreased by 9% from 31% in 3Q2016 to 21% in 3Q2017 due to product mix.

Other operating expenses

The higher operating expenses in 3Q2017 as compared against 3Q2016 is due mainly to loss in foreign exchange.

Operating expenses

The Group's operating expenses comprise mainly selling & distribution and administrative expenses. Selling & distribution decreased by 18% and administrative expenses decreased by 63% is a result of the cost cutting measures implemented by the Group.

Share of results in associated companies

The Group's associated companies registered a loss of $207k in 3Q2017 due mainly to higher provision for stock obsolescence and certain cost relating to the construction of the factory were expensed off.

Share of results of joint ventures

The decrease in share of results in joint venture in 3Q2017 by Dream Marine Spare Parts Trading LLC ("DMS") is due mainly to increased competition.

Interest on borrowing

The decrease in interest on borrowings in 3Q2017 as compared to 3Q2016 is due mainly to lower usage of trade facilities by the Supply Chain Management division.

Depreciation

Depreciation in 3Q2017 remains comparably unchanged.

Foreign exchange (loss)/gain

The Group registered a foreign exchange loss in 3Q2017 as compared to a foreign exchange gain in 3Q2016 due mainly to translation of US$ denominated receivables and cash at bank balances as a result of depreciation of USD against SGD.

Net loss for the period

The Group registered a net loss of $2.4 million for the period 3Q2017 as compared to a net loss of $1.1 million for the period 3Q2016 due mainly to lower revenue.

Balance Sheet and Cash Flow Analysis

Investment in associated companies

The decrease in investment in associated companies is due mainly to the share of loss in GL Lighting Holding Pte Ltd ("GLH").

Intangible assets

Decrease in intangible assets is due mainly to amortization of research and development cost.

Convertible loan notes

One of the Group's subsidiary, Omnisense Systems Pte Ltd and its shareholders entered into a convertible loan agreement ("CLA") dated 7 September 2017, pursuant to which its shareholders have agreed, subject to the terms of the CLA, to grant a convertible note of up to aggregate principle amount of up to $4 million to the Company at an interest rate at 6.0% per annum.

Purchase deposit to a supplier

The purchase deposit is paid to a main cable supplier which is offset from future purchases over a fiveyear period (refer to the Group's announcement on 9 June 2015 to the SGX). The decrease is due to a partial repayment from the supplier during the period.

Trade receivables

The decrease in trade receivables of $1.7 million is due mainly to lower sales in the Supply Chain Management division in 3Q2017.

Other receivables

The decrease in other receivables of $699 is due mainly to offsetting of deposits paid to trade payables for project procurement upon receipts of such supplies.

Due to customers on construction contracts

The decrease in due to customers on construction contracts is due mainly to recognition of revenue from advance billing of a project by Engineering Services division.

Trade payables

Trade payables remain comparatively unchanged.

Other payables

The increase in other payables of $416k is due mainly to tax credit arise from transfer of loss items under the group relief system within the same group pending for finalisation from tax authority.

Provisions

The decrease in provisions by $2.1 million is due mainly to repayment of banking facilities taken by a joint venture, Gulf Specialty Steel Industries LLC which the Company has provided corporate guarantee.

Bank borrowings

The decrease in bank borrowings by $2.6 million is due mainly to repayment of bank loan and trade facilities by Supply Chain Management division.

Cash flow

Net cash used in operating activities amounted to $740k in 3Q2017 as compared to a net cash generated from operating activities of $4.1 million in 3Q2016. Net cash and cash equivalent decreased by $2.5 million in 3Q2017 compared to an increase of $2.8 million in 3Q2016. The decrease is due mainly to additional investment in a joint ventures company, increase in inventories and purchase of fixed assets offset by a decrease in receivables.

Commentary

The Group's main revenue contributor, the Supply Chain Management division, continues to be adversely affected by challenging market conditions in the offshore and marine industries. Although oil prices and the shipping markets have seen some recovery in recent months, it remains volatile and its positive effects have yet to be reflected in the broader support and services sector. The Group's costcutting measures have been successful in reducing its operating expenses and it will continue these measures while exploring other viable opportunities in the industrial and petrochemical sectors.

The Security division was formed in 2Q2016 and focuses on cybersecurity, enterprise IT operation management and sensing security products for both public and private sectors in Singapore and the region. This division continues to mark new milestones with orders from both government agencies and private companies supporting its growth. The Group remains optimistic about the prospects of this division.

The operations of GLH, the Group's associated company, were severely affected by supplier-related issues resulting in lower sales to major customers in FY2016. However, GLH has since sourced alternative suppliers and the construction of the new factory, which will enhance production capacity, is expected to be completed by 1Q2018.

Tough market conditions persist for the Group's galvanized steel wire factory in Oman. The factory plans to cease production in November 2017 and the Group will continue to work closely with its Omani joint venture partner to explore all possible options with regards to the viability of this business.

On its Engineering Services division (reported under Discontinued Operations), the Group has previously announced to the Singapore Exchange ("SGX") on 4 September 2015 that its subsidiary, Oil & Gas Solutions Pte. Ltd. ("OGS"), has initiated creditors' voluntary liquidation proceedings. The liquidation of OGS remains ongoing. On PTE, the Group continues to search for potential buyers to dispose of the land.