Unaudited Financial Statements for the Third Quarter and Nine Months Ended 31 December 2017
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Statement of Comprehensive Income
Review of Performance
Third quarter ended 31 December 2017 versus third quarter ended 31 December 2016
For the third quarter ended 31 December 2017 (3QFY2018), the group recorded revenue of S$56.8 million, gross profit of S$12.4 million and loss from operations of S$10.3 million, as compared to 3QFY2017, which recorded revenue, gross profit and loss from operations amounting to S$88.5 million, S$19.5 million and S$9.7 million respectively. These represent a 35.8% decrease in revenue and 36.3% decrease in gross profit.
Lower revenue and gross profit (a decrease of S$31.7 million and S$7.1 million respectively) was due to lack of working capital as a result of delay in obtaining refinancing.
Loss from operations increased by S$0.6 million in 3QFY2018. This was mainly due to decrease in gross profit.
The Group reported loss for the period of S$16.1 million in 3QFY2018 is mainly due to:
Excluding the effects of these items, the Group would have recorded a net loss of S$5.6 million for Q3FY2018.
Nine months ended 31 December 2017 versus nine months ended 31 December 2016
For the nine months ended 31 December 2017 (9MFY2018), the group recorded revenue of S$190.0 million, gross profit of S$42.3 million and loss from operations of S$30.9 million, as compared to 9MFY2017, which recorded revenue, gross profit and loss from operations amounting to S$249.9 million, S$64.3 million and S$23.9 million respectively. These represent a 24.0% decrease in revenue and 34.2% decrease in gross profit.
Lower revenue and gross profit (a decrease of S$59.9 million and S$22.0 million respectively) was due to lack of working capital as a result of delay in obtaining refinancing.
Loss from operations increased by S$7.0 million in 9MFY2018. This was mainly due to decrease in gross profit.
The Group reported loss for the period of S$49.0 million in 9MFY2018 mainly due to:
Excluding the effects of these items, the Group would have recorded a net loss of S$17.6 million for 9MFY2018.
The Group's operating environment remains challenging against a backdrop of a weak retail industry and volatile exchange rates in our major markets, increasing margin pressures, rising costs across geographical regions, as well as manpower tightening policies in Singapore.
The Company is under the Scheme of Arrangement (the "Scheme") sanctioned by the Court of Appeal in Singapore on 13 October 2010. The effective date of the Scheme is 19 April 2010.
On 24 July 2017, the Company announced receipt of a Letter of Demand dated 21 July 2017 from solicitors of its 51% owned subsidiary, Big Box Pte Ltd ("BBPL"), claiming the repayment of S$50.75 million in alleged rental arrears. The Company disputes the alleged claim and sought legal advice to challenge the demand made by BBPL.
Since 4 August 2017, trading in the Company's securities on the SGX-ST has been voluntarily suspended by the Company.
On 6 September 2017, the Court granted the Moratorium Application made on 11 August 2017 pursuant to Section 211B(1) of the Companies Act. The Moratorium Application sought, inter alia, orders that all creditors be restrained from taking certain further action against the Company and its assets for such period as the Court thinks fit until 11 February 2018. For more details, please refer to the Company's announcement dated 6 Sept 2017 ("Moratorium Announcement").
On 27 September 2017, BBPL received a letter from Ernst & Young Solutions LLP stating inter alia that Messrs Ee Meng Yen Angela and Aaron Loh Cheng Lee have been jointly and severally appointed as Receivers and Managers over all relevant assets, properties and undertakings comprised and secured to Oversea-Chinese Banking Corporation Limited ("OCBC") as security trustee for the lenders under the BBPL Faciltiy.
The appointment of the Receivers and Managers and the resultant repercussions has severely affected the warehouse retail scheme (WRS) businesses and operations carried out by the Company at Big Box building. The Company's efforts to pursue refinancing options to provide a total solution for the Group, including BBPL's liabilities, financing and restructuring of the existing indebtedness of the Company and working capital requirements of the Group, is made more challenging.
The Company has been in continued discussions with arrangers, financial institutions and counterparties to secure funding to refinance the existing term loan secured by Big Box property and other liabilities of the Group ("Refinancing Exercise"), including the Settlement Sum required to discharge the Scheme in full as approved by the Scheme Creditors on 18 April 2017, which was extended on 11 August 2017 and 17 October 2017 to 18 February 2018.
The Company has, on 31 January 2018, entered into a term sheet ("Term Sheet") with a potential investor ("Investor"), for a proposed investment of up to S$125 million by the Investor ("Proposed Investment") as part of the financial restructuring of the Company and its subsidiaries and affiliated entities. The Term Sheet sets out the agreed key terms between the Company and the Investor, and forms the basis for entry into definitive agreements for the Proposed Investment ("Investment Documentation") between the Investor and/or its nominees and/or affiliated entities (collectively, the "Investors") and the Company.
Where the Proposed Investment is made in the form of a loan to the Company, it is envisaged that the Company will grant security in a form and substance satisfactory to the Investors and the Company. Where the entire Proposed Investment is in the form of new capital commitment to the Company, this may result in the Investors receiving at least 24.5% of the enlarged shareholding of the reorganized Company (after the issuance of the New Shares contemplated under the Term Sheet).
Proceeds from the Proposed Investment will be used for, among others, the following purposes:
- Statutory payments in relation to the Big Box building owned by the Company's subsidiary, Big Box Pte Ltd;
- Payment to discharge the indebtedness under the existing scheme of arrangement which took effect on 19 April 2010 ("Existing Scheme") and/or other existing indebtedness and payables of the Company (and which may require a new scheme of arrangement under section 210 or section 211I of the Companies Act (Chapter 50 of Singapore) ("Scheme") to be implemented) ("Restructuring Exercise"); and
- Working capital.
The long stop date ("Long Stop Date") of the Term Sheet is 31 May 2018, unless extended in writing by the Investor and the Company. The Proposed Investment is subject to the Company meeting certain conditions precedent imposed by the Investor. Details could be referred to in the Company's announcement dated 2 February 2018 ("Investment Announcement").
The Moratorium granted by the Court has provided the Company with breathing space, and most importantly, has allowed the Company the much-needed time required to negotiate and obtain the Term Sheet with the Investor for the Proposed Investment, which is crucial and an integral part of the Restructuring Exercise. Given that the Moratorium expires on 12 February 2018 and the Company requires more time to finalise the Proposed Investment and the Restructuring, the Company has, on 2 February 2018, made an application to the Court to extend the Moratorium ("Moratorium Extension Application"). The Moratorium Extension Application has been fixed to be heard on 5 March 2018. In the meantime, the Court has granted an interim extension of the Moratorium until the conclusion of the Moratorium Extension Application.
Subject to the successful completion of the Proposed Investment and the contemplated transactions, including the Refinancing Exercise, the discharge of the Scheme, together with the restored suppliers' confidence and improved trade terms, would allow the Group to embark on its recovery of its financial health. Meanwhile, the Group has obtained an offer from a financial institution for a trade finance facility of up to US$20 million for the funding requirements of its businesses and operations.The Company will continue exploring various possibilities in securing the necessary funding to provide the Group with additional working capital.
The Company will continue to keep all its stakeholders updated on any material development on a timely basis once available.