Group CEO Kuah Boon Wee. NextInsight file photoMTQ COPRORATION has posted lower earnings for 1QFY2015. But the good news is: Productivity has improved and so has its balance sheet.Group gross profit margin improved by 4.3 percentage points to 34.0% mainly due to improved margins in subsidiary Neptune Marine Services and in its greenfield project in Bahrain.
There was also healthy margin contribution from recent acquisition, Binder Group, which represents an example of strong cost management.
Despite the inclusion of its results in the Group's 1QFY2015, staff costs have only increased by 1% and other operating expenses by 2% due to progress in overhead reduction in Neptune.
Net gearing improved from 16.8% as at 31 March to 15.3% as at 30 June.
On the downside:
>> Redundancy costs in Indonesia resulted in a share of losses from the joint venture of S$300,000.
>> Group revenue was down 19% year-on-year at S$76.7 million, due to:
1) The absence of a vessel campaign from the Neptune Marine Services segment which had previously boosted 1QFY2014's revenue.
2) Lower sales from the Oilfield Engineering businesses in Singapore.
3) A quiet start from the Binder Group, which had started contributing to Group revenue in 4QFY2014.
Net profit attributable to shareholders was down 35% at S$4.2 million.
"Exploration and production demand remain healthy. I am certainly our activities will pick up in later this year," said MTQ Group CEO Kuah Boon Wee during a teleconference with investment professionals on Friday morning.
CFO Dominic Siu. NextInsight file photoMr Kuah and CFO Dominic Siu discussed the Group's progress during the teleconference. Below is a summary of the questions raised, and the replies they provided.
Q: Singapore engineering activity has come down. What is your factory's utilization rate for 1QFY2015 for Singapore?
Utilization at the main factory was 70% to 80% consistently for most of last year. 1QFY2015 was at 55% to 60%. We have orders, but that has not translated into immediate activity.
Q: What segment margins are you looking at when utilization rates are between 55% to 60%?
The volume of work that we have been handling has tapered off without affecting margins. Our margins have improved.
Q: Net profit margins are only at 5.5%, and that is down year-on-year. Is there a strong focus on trying to improve bottom line?
I am pleased with the overhead reductions in Neptune. When we acquired 75% of Binder Group, it was loss-making. While that has affected our net profit, it is not worrisome as orders placed with Binder tend to be bulkier.
Q: What are the prospects for the Binder joint venture in Indonesia?
Binder’s main manufacturing hub is in Indonesia. That is the main hub for global sales. It also has a local procurement team for LNG projects in Indonesia, which we consider to be a captive market.
A few major oil & gas capital expenditure projects in Indonesia have been delayed in the past few quarters as the international players were trying to approach new projects with the right degree of caution.
Now that the Indonesian election is over, we are hoping that government decision-making there will be clearer and oil majors will launch more projects.
MTQ'S stock price is up more than 40% year-to-date. Bloomberg data
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