Hiap Seng Engineering : 2020 Annual Report

(Judicial Managers Appointed)

OUR VISION	OUR MISSION
To be the preferred Service Provider in	To deliver efficient, reliable and quality
plant design,fabrication & construction and	products and services to customers in a
maintenance to the process industriesin	safe and timely manner, maximum returns
Singapore, and beyond.	to shareholders and a rewarding work
	environment to employees.
OUR CORE VALUES
Courage, determinationand great
teamwork are the foundations for our
success.
	CONTENTS
	About theGroup	1
	Chairman's Statement	2
	Financial Contents	5

ABOUT

THEGROUP

We are one ofthe leading integrated service providersof mechanical engineering,plant fabrication& installation and plant maintenance tothe oil-and-gas(serving both upstream

explorationand production as wellas downstream refinery andstorage), petrochemical

and pharmaceutical industries in Singapore, Asia Pacific andother regions. We are dedicatedto providing our clients with efficient, reliable and quality produc ts and services.

CONSTRUCTION

Mechanical Constructionof Oil-and-

GasPlants, Oil Storage Terminals &

Pharmaceutical Plants

PLANTMAINTENANCE

Oil-and-Gas, Chemical & UtilityPlant

Maintenance

EPC

Process Equipment,Gas Compressors,

FPSO Topsides & Tank farms

Annual Report 2020

1

CHAIRMAN'SSTATEMENT

FINANCIAL AND OPERATING PERFORMANCE REVIEW

In FY2020, despite aslight improvement in the

demand for servicesin the oil-and-gas industry,

the Group still faced intense competition

which ledto a challenging financial year.TheGroup'sbusinessimproved with overall revenue increasing by 6% to S$149.6 million in FY2020 from S$140.9million in theprevious

corresponding period ("FY2019"). With higher

revenue andlowercosts incurred in FY2020, gross loss decreased to S$7.4 million in FY2020 from S$21.5million in FY2019. As a result, the

Group's net lossattributable to shareholders

decreasedto S$23.8 million inFY2020from S$37.5 million inFY2019.

SEGMENTALCONTRIBUTIONS

Revenuefor the plant construction and

maintenance segment decreasedfrom S$134.4

million in FY2019to S$127.1million in FY2020,

largelyattributableto the lower recognition of

project revenue.However, loss before income

tax,depreciation and amortisation forthis

segmentdecreasedfrom S$29.8 million in FY2019to S$11.7 millionin FY2020mainly due to loweroperating costs.

Revenuefor the compression andprocess

equipmentfabricationsegment increased

from S$6.5 million in FY2019to S$22.5million

inFY2020 due to higher recognition ofproject

revenue.Loss before income tax, depreciation

andamortization for this segment increased

from S$3.3 million in FY2019 to S$7.0 million

in FY2020 mainly due tohigher operating costs incurred for this segment in derivingthe

revenue.

Geographically,the Group's revenue inUAE,

Thailand, Malaysiaand Others segment

recordedan increase inrevenue to S$74.7millioncompared toS$28.7 millionin the prior

yearmainly due to the commencementof a project in theUAE.

FINANCIALPOSITION REVIEW

The Group's shareholders' funds decreased byS$24.5 million, from S$7.3million as at 31 March 2019,to a deficitof S$17.2 millionas at 31 March2020.

Hiap Seng's currentassetsdecreased to S$36.3 millionasat 31 March 2020fromS$62.1 million as at 31 March 2019.Current liabilities, including bankborrowings of S$29.3million and contract liabilitiesof S$5.7million, decreased to S$78.0 millionasat 31 March 2020from S$82.6 million

asat 31 March 2019.Asa result,thecurrent ratio declined from 0.75 asat 31 March 2019to 0.47as at 31March 2020.

The Group's non-current assets decreased to S$24.8 million as at 31 March 2020, from S$28.4million as at 31 March2019. This was largelydue to depreciationcharge and the disposalofasubsidiary during theyear which

saw a decrease in the valueof property, plant and equipment. The decreaseis offset by the recognition of the right-of-useassetsfor FY2020,onadoption of SFRS(I)16 Leases.

2 HIAP SENG ENGINEERING LTD

CHAIRMAN'S

STATEMENT

Hiap Seng's cash and cash equivalents stood at

S$1.9 millionas at 31 March 2020 as comparedto S$8.1 million as at 31March2019, with bank borrowings at S$29.3 million as at 31 March 2020 ascompared to S$30.2 million as at 31

March2019.

BUSINESS REVIEWAND OUTLOOK

The pastyear hasseen tough operating conditions dueto intense price competitionand the impact ofCOVID-19relateddisruptions. The Companyobserved a decreasein revenue

withinSingapore, and reduced profit margins

throughout the period with intensifyingmarketcompetition.

The Companyobserved an increasing

frequency in workstoppages,spending cuts at

the energycompanies, cancellation of projects in theoiland gas industry andthe extension, oreven suspension, of constructiontimelines.The Company hadalso observed a general increasing reluctanceof lendersin the Singapore

market to provide financing tothe oil and gas

industry.In April2019, theCompany beganto

experiencea shortening of its invoice financing

facility due to the drop in new invoices, as well as restrictions in the grantof new facilities.As the globalcommunity observedwide-spread

lockdowns in 2019 and 2020 in response to tackling theCOVID-19 pandemic, demandforoil contracted significantly, further depressing crude oil prices which culminated in a collapse of crude oil into negative prices in April 2020 for

the first time in known history.

Againstthis backdrop, the Company observed

a significant shrinkage inthe number of plant construction projects, lower bids and thinner margins, aswell as a weakened cashflow and

weakened credit terms from supplier and

counterparts. This, in turn, affected the cashflowposition of the Company anditssubsidiaries.

In 2020, the Group wasinfinancial distress due

to difficultiesfaced with its liquidityresulting in the Group being in a weak and challengingfinancial position. Delays in projectwork commencement, project stoppagesandharsh market conditions also led to costs overrun

in certain projects. Due to COVID-19safety measures and restrictions imposed, the Group expects further decrease in revenue.

The Company had been pursuingall availableavenues to easeits liquidity constraints and to generate cash.Further to this, the Company's subsidiary, Hiap Seng Engineering (Thailand) Co.,Ltd., ("HSE Thailand")'s factory buildings, workshop and two-storey building ("Property") togetherwith plantand equipment("Assets") wereput upfor sale. HSE Thailand receiveda formal offer from a third partybuyerof Thailand

Baht 300million (approximately S$13.3million) andhad on8October 2020 entered intothe sale andpurchase agreementsfor the Property and theAssets. Shareholdersapproved the proposed disposal via an Extraordinary GeneralMeeting convened on 13 January 2021and the sale wascompleted on18 January 2021.Thereafter, HSE Thailand was placed under voluntary liquidation.

The Company managed to preservethe livelihoods ofstaff and workerswith the financial assistance of the Singapore Government, through Jobs SupportScheme as well as Foreign Workers Levy Rebate. Hence,this enabled the Companyto continue servicingits clientsand

keep the essential services operational.

Based on the projections prepared by Management, the Group would likely be in a cash deficit positionby theend of 2020. Accordingly, the Board hasconcluded that the Company would likely be faced with going concern issues and thereto,on 28 July 2020, the Company and

its subsidiary HS Compression & Process Pte Ltd ("HSCP"), each filed an applicationinthe High Court of Singapore for, amongst others,orders

Annual Report 2020

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