Small- and medium-sized firms issue profit warnings amid slower economy

Amid a softer economy, a number of small- and medium-sized firms listed on the Singapore Exchange (SGX) have warned of losses or declines in earnings ahead of their announcements of financial results ending Dec 31, 2016.

Data compiled by The Business Times shows that companies in shipping, construction and manufacturing in Singapore continue to be hit by the economic downturn.

But restructuring specialists told BT that listed companies in trouble are, for now, mostly confined to those from the offshore support services sector.

These firms are seeking insolvency and restructuring advice as charter contracts dry up and debt burdens increase.

Hogan Lovells' restructuring partner Shaun Langhorne said he is dealing with cases comprising offshore services companies with tens, even hundreds of millions of dollars of possibly unsustainable outstanding debt.

As far as possible, the parties involved will try to work out a way to restructure their debt, with liquidation only as a last resort.

"I don't necessarily expect a flood of insolvencies, but there will be a reasonably steady flow of companies and their creditors looking to find a way to deal with the debt burden over the next few years," he added.

Smitha Menon, a WongPartnership partner, said that while some distressed companies in the oil and gas and the offshore support services sectors received new financing in recent years, they are now strapped for cash again.

This is due to factors like limited demand for vessels and oil prices remaining under pressure.

"The reduced availability of easy money from rising interest rates and the economic slowdown in China have also affected other industries such as retail," she added.

Debt restructurings have been undertaken at names like ASL Marine, AusGroup, Marco Polo Marine, Rickmers Maritime Trust, Swissco, Ezra, KrisEnergy and Perisai Petroleum Teknologi.

With the sector in a downturn, asset value writedowns will lead to losses at a couple of other marine firms.

Ship leasing firm First Ship Lease Trust, whose chief executive officer resigned after being confronted over potential misconduct, said it will record a significant net loss due to impairment provisions on vessels and a loss on the disposal of two vessels.

Sinwa Limited, which supplies stores, equipment and consumables for the marine industry here, had been profitable for the first nine months of 2016.

It said its fourth-quarter loss would be wholly due to an impairment loss on a jointly-owned seismic vessel held for sale.

Meanwhile, aluminium supplier Soon Lian Holdings, which counts shipbuilding firms among its customers, said it will report a net loss for 2016 due to challenging market conditions and provisions for doubtful debt.

The local construction industry continued to stay in the doldrums, though firms mentioned how ongoing public infrastructure works might perk things up.

Electrical and air-conditioning systems specialist Libra Group said earnings will decline due to lower operating margins from a challenging economic environment, and potential provisions for doubtful receivables.

Ground engineering specialist CSC Holdings continued to report losses for its financial year ending in March.

"Competition in the foundation engineering sector remains intense and margins continue to be tight," it said.

"The group has thus been working at right-sizing its operations in an effort to reduce costs while increasing productivity."

It previously said it had reduced its headcount by more than 20 per cent since April 2014, and downsized its equipment fleet.

The general economic slowdown in Singapore will also show up in the results of retail and manufacturing firms.

One of the latest firms to warn of a coming loss is hampers firm Noel Gifts International, attributing it to a decrease in revenue.

It also said previously that it was affected by increased transport, manpower and production costs.

Some companies prefer to see the glass as half-full.

Semiconductor, solar and contract equipment maker Manufacturing Integration Technology said it will make a loss as equipment deliveries have not improved for the second half of the year, compared with the first.

"But we are seeing more enquiries and orders for delivery in the first half of 2017," it said.

Metal stamper CFM Holdings said it will make a loss because of lower demand from customers but added that losses narrowed compared to a year ago due to lower staff costs, legal fees and provisions.

Meanwhile, the weather has also affected a number of Singapore-listed firms with operations in China.

Vegetable products firm Yamada Green Resources will report a loss due to a decline in profit in its shiitake mushroom business due to typhoons and warmer weather.

It was also hit by higher selling and distribution expenses for processed food products.

Henan baijiu (white liquor) maker Dukang Distillers warned that its baijiu production and operations were hit hard by severe air pollution and government inspections to enforce pollution-related regulations.

Austerity measures, a switch by consumers to red wine and beer, and intensified competition have also significantly affected the group's revenue and earnings.

haoxiang@sph.com.sg


This article was first published on February 13, 2017.
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