On behalf of the Board of Directors ("Board") of TEHO International Inc Ltd ("TEHO" or the "Group"), it is my pleasure to present to you the annual report for the financial year ended 30 June 2017 ("FY2017").
FY2017 continued to be a challenging year for us. The global shipping industry still treads in uncertain waters; cargo rates have remained volatile, reflecting the imbalance in capacity demand and supply. While crude oil prices have largely stabilised, albeit at lower historical price ranges, the offshore sector had and continues to face headwinds.
For the property sector in Singapore, overall sentiment has improved with budding signs of recovery. Residential home transactions have been active in recent months and new property launches are witnessing keen interest from buyers. The increase in private home transactions in the first half of 2017 compared to the same period a year ago (Source: "Singapore property at a turning point?", The Business Times, July 22 - 23, 2017) points to a property market that is regaining confidence.
In FY2017, TEHO achieved higher revenue at $58.1 million, an increase of $0.7 million from $57.4 million for the financial year ended 30 June 2016 ("FY2016"). Nonetheless, gross profit was reduced from $17.9 million in FY2016 to $13.4 million in FY2017.
Revenue in the Marine & Offshore Segment declined by $4.3 million to $48.0 million compared to $52.3 million in FY2016. This was mainly due to keen competition in the marine industry and adverse impact of depressed crude oil prices on customers in the offshore oil & gas industry. The lower revenue led to a smaller gross profit of $16.0 million in FY2017 versus $17.0 million in FY2016.
Nonetheless, the Marine & Offshore Segment achieved higher gross profit margin of 33.4% in FY2017 as compared to 32.4% in FY2016, a result of better sales mix for the mooring and rigging business. This was offset by impairment charges on goodwill and intangible assets amounting to $1.3 million, an effect of the prolonged weakness in oil prices. In addition, there were amortisation charges of $0.5 million. Excluding these charges, the Marine & Offshore Segment would have made an underlying profit of $1.7 million in FY2017.
Revenue from the Property Development Segment rose by $5.0 million to $10.1 million in FY2017. The improvement was mainly due to revenue contribution from the sale of the remaining completed units of the Urban Heritage development project and the sale of units of the Elite Terrace development project, which is recognised on a percentage-of-completion basis.
The Property Development Segment also took impairment charges on goodwill and allowance for foreseeable losses on development properties totaling $3.1 million, attributable to the 17% valuation loss for the Elite Terrace development project. Without these charges, the Property Development Segment would have an underlying loss of $5.6 million in FY2017.
On a consolidated basis, TEHO recorded net loss after tax of $9.8 million in FY2017, significantly lower than the net loss of $23.8 million in FY2016.
" We have made commendable progress over the past year. Despite continued challenges, I am encouraged that our Marine & Offshore Segment remains competitive and resilient. In the months ahead, we will work to further strengthen our relationships with customers and augment our value proposition.
Likewise, our Property Development Segment is on track with its turnaround efforts. Amidst tentative signs of a recovery in Singapore's real estate sector, we will continue to approach this business with a long-term view in mind."
To stay ahead in the competitive landscape of the Marine and Offshore industry, one of our key focus areas is to seek out high value and high-performance product offerings. We believe this will differentiate us, and help sustain our competitive edge.
To this end, our Marine division collaborated with Teijin Aramid of Japan's Teijin conglomerate, and together, developed high-performance mooring lines made of Twaron fiber. These lines meet the technical challenges and demand for operational reliability by the shipping industry, which has high volumes and is moving towards larger and larger vessels for economies of scale. Twaron-based rope has virtually no creep and offers good heat resistance. These are significant advantages over other lightweight ropes currently available in the market. A sea trial is underway and results so far have been very positive.
The Twaron mooring lines also align with the industry's and our sustainability goals, as the discarded rope can be recycled. With ship owners and operators gravitating towards products that can stay in service longer with lower environmental impact, we expect adoption of the Twaron technology to be widespread, and a good income stream for the future.
TEHO also seeks to maintain our competitive edge by having products in close proximity to where customers need them. In June 2016, a new stock point was established in Algeciras, Spain, followed less than six months later, by another in Colon, Panama. The new distribution locations are generating encouraging results, and we will be increasing the range and level of products stocked there. The Group plans to identify new geographical locations to stock our mooring and rigging products and serve the marine vessels calling at these ports.
Following the appointment of a new managing director for the Property Development Segment in the first half of FY2017, TEHO Property is seeing progress in its turnaround efforts.
In January 2017, TEHO Property completed the sale of Urban Heritage, a mixed-use freehold development along Balestier Road with commercial, residential and office units.
Another freehold project, Elite Terrace, which consists of eight units of 3-storey strata title terrace homes along Elite Terrace, saw a total of five units taken up to date. Construction is progressing well and, barring unforeseen circumstances, the project is slated for completion by 2018.
I am pleased to report that after a thorough assessment based on international benchmarks, TEHO Ropes & Supplies was awarded the Business Excellence ("BE") certification by Spring Singapore in January 2017. The BE framework assessment tools measured our organisational performance from external perspectives, enabled us to identify our strengths and areas for improvement, and develop a systematic approach to achieve excellence. The BE certification is a feather in our collective cap, as it reflects the feedback of our suppliers, customers and the general public to the TEHO brand.
In addition, the Group has embarked on the Sustainability Reporting journey this year, in line with reporting requirements set out by the Singapore Exchange. Sustainability Reporting provides us an important platform to communicate to our stakeholders the initiatives, efforts and corporate activities that are carried out with sustainability priorities in consideration. The process also encourages us to evaluate ways to achieve growth in a more sustainable manner, from protecting the environment, contributing to the community to adopting best-in-class governance practices.
The Group was awarded the "MPA Sustainability Reporting Co-Funding Scheme" by the Maritime Port Authority of Singapore ("MPA"), having participated in MPA's efforts to create a Community of Best Practices aimed at elevating the quality of sustainability reporting in the maritime sector.
No area merits more importance in our striving for excellence than the relationship with our customers. We are proud to have customers that have been with us for many years, through thick and thin. Our customers worldwide trust us to deliver quality products and services, and we have built strong ties with them working through issues and developing solutions together. We will continue to cement these relationships and build new ones by our intense focus on customer service and harnessing technology to create products and services that meet needs known and unacknowledged.
I am deeply encouraged by the many strengths that we, as a Group, can leverage to build sustainable growth. Despite the storms buffeting some sectors, teamwork, diligence and unwavering pursuit of excellence in our execution will keep us on an even keel and allow us to set our sails for growth.
I would like to take this opportunity to thank my fellow Board of Directors for their invaluable counsel throughout the year. On behalf of the Board and Management, I sincerely thank our business partners, customers and employees for all your support. I am confident that TEHO is on course to deliver growth and enhance shareholder value.