Financials

Balance Sheet

Review of Performance

Revenue

Amidst the global economic slowdown which started in late 2008, the Group recorded a 12.3% decline in revenue from S$45.4m in 1HFY09 to S$39.8m in 1HY10.

Revenue for the Oilfield Engineering Division declined by 22.2% or S$5.6m in 1HFY10 as compared to 1HFY09 with both its core repair and complementary fabrication and equipment rental business experiencing lower demand.

The Engine Systems Division recorded a modest increase in revenue in Australian Dollar (A$) terms. However, due to adverse currency fluctuations, revenue decreased marginally by 1.1% or S$0.2m in 1HFY10.

Profitability

Despite lower revenue, the Group managed to maintain its profit from operating activities for 1HFY10 at 1HFY09 levels.

The Oilfield Engineering Division's operating profit decreased in line with its lower revenue, but its gross profit margin managed to improve on tighter cost controls.

Excluding the huge write back of CSR bad debt in 1HFY09, the Engine Systems Division recorded a 32.1% increase in operating profit in 1HFY10. Gross profit margins also increased.

Overall profits from operating activities included an increase in other income of S$1.9m gain on disposal of long-term investment in quoted shares.

The 13% drop in taxation in 1HFY10 was due to lower taxable profit recorded.

Commentary

Prospects

Given the severity of the global economic crisis, the Group's performance in the period concerned has been quite resilient.

With the recovery of oil prices, demand in the Oil & Gas industry is also picking up. The Oilfield Engineering Division has begun to experience an improvement in the demand for its products and services in the last 3 months and such demand is likely to persist.

The Engine Systems Division has weathered the storm well. With the recent acquisition of distribution rights for the full range of Bosch products to the aftermarket repairers network, the Division not only strengthens its market position, its performance is also set to improve in the coming Financial Year.

Barring any further worsening of market conditions, we are reasonably confident that the two divisions will maintain their respective performance in the second half of FY10 compared to the first half of FY10.