(extracted from Annual Report 2015)

Operations and Financial Review

Amidst challenging market conditions, Tat Hong posted an 11% decline in revenue to S$608.6 million whilst operating profit (excluding impairment charges) remained flat at S$35.7 million comparable to the net profit achieved in FY2014. Profit after tax and minority interests (PATMI) dipped 85% to S$4.9 million due to non-cash goodwill and asset impairment charges of S$30.8 million taken by the Group's Australian subsidiaries.

Financial Performance in FY2015

Reflecting the weak market conditions in Australia and Singapore, which together account for more than 60% of the Group's business, total revenue fell 11% to S$608.6 million. Weaker performances were posted by all divisions except the Tower Crane Rental division.

The lower revenue led to a 14% decline in gross profit to S$212.1 million from S$245.7 million in FY2014, yielding a gross profit margin of 34.8% compared with 35.9% a year earlier. The slight decrease in gross profit margin arose from lower utilisation rates in both the Crane Rental and Tower Crane Rental divisions, higher provisions for stock obsolescence in the Distribution division and non-recoverable crane re-positioning costs incurred in Australia.

The Group's other operating income increased 23% to S$34.5 million primarily from gains from the disposal of properties in Australia and Singapore, disposal of equipment as well as the divestment of the Group's non-core subsidiaries, Hup Hin Transport and Tat Hong Flo-Line, and an associate, Kian Ho Bearings. In comparison, FY2014 results had included a gain of S$13.0 million from the disposal of purchase rights for a plot of land in Iskandar, Malaysia. The Group also benefited from a foreign exchange gain of S$12.0 million from a weaker Japanese Yen and stronger Renminbi and US Dollar against the Singapore Dollar, compared with a net foreign exchange loss of S$8.4 million recorded in FY2014.

Total operating expenses increased marginally by 1% to S$206.7 million from S$204.8 million due to goodwill and asset impairment charges of S$30.8 million. The goodwill impairment accounting charge relates to a subsidiary in the General Equipment Rental division - North Sheridan Pty Ltd, which was acquired in 2006 at a substantial premium over net asset value. This business was negatively affected in the past two years as a result of the general economic malaise in Australia and a fair value assessment of the business resulted in the need to account for S$20.4 million in goodwill impairment. The asset impairment charges of S$10.4 million relate primarily to the specialised transport units in Australia.

Excluding the impairment charges, operating expenses fell 13% to S$175.9 million arising from cost savings from the disposal of noncore subsidiaries, lower activity levels and better cost management by entities in ASEAN and Australia in the areas of staff costs and repair and maintenance expenses.

The divestment of an associate and weaker performance from the Group's joint ventures resulted in a 19% decline in contribution from associates and joint ventures, to S$4.4 million compared with S$5.4 million a year earlier.

Resulting from the foregoing, the Group's profit before tax fell 62% to S$18.4 million whilst PATMI declined 85% to S$4.9 million. Excluding the non-cash impairment charges and on a comparable basis, net operating profit after tax for FY2015 was S$35.7 million, similar to that achieved in FY2014.

Segmental Review

Crane Rental

The Crane Rental division saw a 9% fall in revenue to S$237.6 million as higher revenues from Malaysia and from barge rental activities were insufficient to compensate for the decline in contribution from Singapore where revenue was impacted by the completion of projects and the disposal of a subsidiary. Revenue contribution from Malaysia improved on the back of participation in higher value infrastructure and industrial projects such as the Sabah Ammonia and Urea Plant and the fabrication of structures for the Wheatstone LNG project. Thailand and Hong Kong posted similar revenues as the year before from continued participation in long-term projects such as the Bengkruai Power Plant and the EPC project for Ichthys LNG facilities in the former, and the Wan Chai Bypass and the Hong Kong- Macau-Zhuhai Bridge projects in the latter. Revenue contribution from Australia was also stable from continued deployment of its cranes in long-term LNG projects such as the Gorgon, Ichthys and Wheatstone projects.

Gross profit margin from the Crane Rental division fell marginally by 1% point to 53.0% primarily due to the decline in revenue as well as non-recoverable crane re-positioning costs in Australia.

As at 31 March 2015, the Group's fleet of crawler and mobile cranes comprised 647 units, 36 units fewer than the previous year due to the disposal of a subsidiary and asset disposals. Utilisation rate on 31 March 2015 was 57% compared with 65% on 31 March 2014 due mainly to the construction slowdown in Singapore and the completion of projects.

Tower Crane Rental

Backed by continued demand from the power generation, infrastructure, industrial and commercial sectors, the Tower Crane Rental division continued to perform well and chalked up an 8% increase in revenue to S$96.6 million. Even though the building momentum is facing a slowdown in some sectors in the People's Republic of China, our tower crane rental business continued to see good demand for its services as the sectors it serves, largely power generation and infrastructure sectors, are driven by government spending.

Gross profit margin for the Tower Crane Rental division fell 1.4% points to 25.8% due to higher costs associated with operating a larger fleet and lower utilisation rates.

At 31 March 2015, the Group's fleet of tower cranes comprised 934 units, an increase of 25 units over the previous year. Group's tower crane fleet enjoyed a healthy utilisation rate of 70% as at 31 March 2015 which is lower than the 78% recorded at 31 March 2014 due to the completion of projects and the time lag in redeploying the returned cranes to new projects.

General Equipment Rental

The General Equipment Rental division was adversely affected by the overall weak economic conditions in Australia, lower public spending, the lack of infrastructure projects and pricing pressure. As a result, it recorded a 17% slide in revenue to S$55.9 million from S$67.5 million a year ago.

Pricing pressure and low utilisation resulted in a margin compression to 47.3% in FY2015 compared with the margin of 50.3% achieved a year earlier.


Revenue contribution from the Distribution division fell 18% to S$218.4 million from S$267.0 million posted a year earlier. The fall in revenue contribution was attributable to lower sales of cranes in Singapore and to overseas markets such as Malaysia and Europe. Australia also recorded lower equipment sales due to weak demand. Meanwhile, the Group continued to downsize its excavator sales business in Indonesia which further exacerbated the decline in revenues.

Gross profit margin for the division fell by 1.7% percentage points to 15.9% primarily due to an increase of S$5.0 million in provisions for stock obsolescence.

Unlocking Value

Concerted efforts to unlock value from the Group's non-core assets which commenced in FY2014 continued into FY2015. In total, the Group realised proceeds of S$89.1 million from its divestment programme during the year under review.

Two non-core subsidiaries, 70%-owned Hup Hin Transport Pte Ltd, which provides lorry transport and mobile crane rental services, and 60%-owned Tat Hong Flo-Line Pte Ltd, whose principal activities are in the remanufacturing, repair and testing of hydraulic components were divested for a consideration of S$20.9 million and S$1.5 million, respectively. The Group also divested its entire 31.3% stake in listed company, Kian Ho Bearings Ltd, a stockist and retailer of all kinds of bearings, seals and power transmission belts, raising total proceeds of S$17.2 million.

The major asset disposals comprised four properties in Australia which were disposed on a sale and leaseback basis and a property at 18 Sungei Kadut Avenue in Singapore which has a remaining lease of seven and a half years. These raised a total of S$31.7 million. Disposal of equipment contributed to the balance of the disposal proceeds.

Efficient Capital Management

Proceeds from the divestment programme were utilised to repay loans and other financial obligations. As a result, net gearing was reduced to 0.77 times at 31 March 2015 compared with 0.87 times a year ago while cash and cash equivalents increased to S$93.3 million from S$58.6 million.

In addition to de-levering the balance sheet, the Group also termed out it loans resulting in a more balanced debt maturity profile that reflects the long useful lives of the crane assets. Previously, the Group's debt maturity profi le was skewed towards shortterm loans due to a heavy reliance on hire purchase loans which are usually of 3-year tenor. The Group has since expanded its sources of funds to include a S$100 million 5-year notes which was issued in FY2014 as well as a S$100 syndicated 5-year term loan obtained during the year under review. These facilities enabled the Group to achieve a more balanced debt maturity profile and to term out its loan repayments up to FY2020.

Cash flows and Liquidity

The Group enjoyed strong cash flows from operations in FY2015 of S$141.6 million, S$62.6 million more than the S$79.0 million achieved in FY2014. The improvement arose primarily from better working capital management and lower income taxes. The improved net cash from operations, together with reduced capital expenditure, resulted in free cash flow generated of S$115.1 million.

Net cash inflows from investing activities totalled S$14.5 million in FY2015, compared with net cash outflows of S$103.5 million. The improvement was primarily the result of reduced purchases of property, plant and equipment which declined S$62.8 million to S$78.0 million, increased proceeds from the disposals of non-core assets and businesses of S$45.7 million as well as the repayment of a S$5.6 million loan by a joint venture.

Net cash outflows from financing activities totalled S$113.9 million compared with cash inflows of S$17.0 million in FY2014. Cash outflows comprised mainly of the repayment of trust receipts of S$30.2 million, net repayment of finance leases of S$60.2 million, the redemption of 11.7 million convertible redeemable preference shares at S$13.5 million as well as dividend and interest payments of S$35.7 million. Cash inflow comprised mainly of net proceeds from bank loans of S$27.3 million.

Stronger Balance Sheet

Total equity attributable to shareholders fell to S$650.8 million as at 31 March 2015 from S$675.5 million a year earlier due primarily to the reduction in share capital from the redemption of the convertible redeemable preference shares, the depreciation of the Australian Dollar which impacted the Group's currency translation reserve and dividends declared.

Non-current assets decreased to S$1.0 billion from S$1.1 billion a year ago due primarily to the disposal of subsidiaries and an associate, net foreign exchange translation loss, depreciation and asset impairments, partially offset by equipment purchases, reclassification of inventory into plant, property and equipment as well as the capitalisation of building construction costs. Current assets rose to S$485.1 million from S$473.7 million a year earlier due primarily to an increase in cash and cash equivalents, partially offset by lower receivables due to the decline in revenues.

Total financial liabilities (current and noncurrent) comprising fi xed-rate notes, bank loans and finance leases fell to S$556.5 million as at 31 March 2015, from S$578.3 million as at 31 March 2014, primarily from the net repayment of financial obligations. This, together with lower deferred tax liabilities and trade and other payables but higher current tax payables, brought total liabilities down to S$795.8 million as at 31 March 2015 from S$846.5 million a year ago.

Divisional Outlook

While demand remains positive in certain markets for the Crane Rental division, weakness in the Singapore and Australia markets will impact performance from this division.

The Tower Crane Rental division is expected to maintain its growth momentum in FY2016 with its strong base of on-going projects and new opportunities in the building, infrastructure, transport and power generation sectors in the People's Republic of China.

The General Equipment Rental division is expected to turn in a lacklustre performance due to the slow recovery of the Australian construction sector.

Trading conditions for the Distribution division are expected to continue to be challenging due to the generally weak demand for heavy equipment in the region, coupled with the weak Australian economy.

The economic and sector outlooks for the Group's key markets are expected to remain challenging.