First Quarter Financial Statement And Dividend Announcement 2018
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FINANCIAL STATEMENTS FOR THE QUARTER ENDED 31 MARCH 2018
* Tokumei Kumiai (“TK”) refers to a form of silent partnership structure used in Japan. Allocation to TK investors refers to share of profit and
loss attributable to other TK investors of the TK structure.
N/M: Not meaningful
Review of Performance
Review of Income Statement
Total income of the Group was $25.6 million for 1Q2018, an 11% increase from 1Q2017. Changes in major components of total income, including charter income, fee income, hotel income and investment returns are explained below.
(i) Charter Income
Charter income increased by 14% from $8.9 million in 1Q2017 to $10.2 million in 1Q2018 due to better spot charter rates and additional ship in the ship portfolio in 1Q2018 compared to 1Q2017.
(ii) Fee Income
Total fee income increased by 110% to $2.4 million in 1Q2018 from $1.1 million in 1Q2017. Arrangement deals completed in 1Q2018 increased arrangement and agency fee income to $1.7 million for 1Q2018, a 207% increase compared to $0.6 million in 1Q2017.
(iii) Hotel Income
Hotel income increased by 25% from $10.3 million in 1Q2017 to $12.8 million in 1Q2018 due to more rooms under operations in 1Q2018 and better performance of the hotel portfolio.
(iv) Investment Returns
Investment returns for 1Q2018 was a loss of $0.9 million compared to a gain of $2.2 million for 1Q2017 mainly due to net fair valuation loss of $1.4 million booked in 1Q2018 mainly for tanker and containership investments.
Total Operating Expenses
While the Group’s total income increased by 11%, the Group’s total operating expenses increased by 5% from $19.5 million in 1Q2017 to $20.4 million in 1Q2018. Employee benefits expenses, hotel lease expenses and hotel operating expenses increased in line with the increase in the number of hotels under operations. In particular, hotel operating expenses increased by 39% partly due to pre-opening expenses incurred in 1Q2018 for new hotels to be opened after 1Q2018.
The Group made a reversal of impairment of property, plant and equipment totalling $3.1 million following the disposal of a hotel as well as a contracted sale of a ship, both of which were impaired in previous years.
Operating profit of the Group increased by 48% from $3.5 million for 1Q2017 to $5.2 million for 1Q2018.
Net Profit After Tax
The Group posted a net profit after tax of $3.3 million for 1Q2018, a 57% increase from $2.1 million in 1Q2017.
Trade tensions between the US and China have escalated in recent weeks, with China introducing new tariffs on US imports, such as US soybeans. On the other hand, expected positive demand trends in iron ore, coal and minor bulk trade could outweigh the negative impact such tariffs have on global seaborne dry bulk trade, resulting instead in a positive growth of global seaborne dry bulk trade in 2018. On the supply side, according to Clarksons Research “Dry Bulk Trade Outlook” April 2018 issue, bulkcarrier fleet growth is expected to remain relatively limited at around 2% in 2018, on the back of a slower pace of deliveries. So long as the fleet growth is slow, and the demand trends remain positive, the bulkcarrier sector could improve in 2018.
Hong Kong Property
Hong Kong’s overall economy and labour market remained strong in 1Q2018 supporting the leasing demand for office. As the demand for commercial office space in Hong Kong continues to grow, the Group has move on to our fourth Hong Kong property project and is exploring the fifth project so as to capitalise on this growth.
Japan Residential Property
According to Japan Real Estate Economic Institute, the supply of new condominium units for sale in greater Tokyo in 2018 is expected to increase as compared to 2017. Notwithstanding the increase in supply, sales prices have continued to rise. The Japan Real Estate Economic Institute noted that major re-development projects in the Tokyo 23 Wards have helped to drive demand for new condominiums. The Group monitors the Tokyo residential market carefully and selects investment sites for our ALERO projects prudently so as to maximise returns while minimising risks to the Group.
Japan’s hospitality industry has been boosted in recent years by growing inbound tourism and rising average daily room rates. With the Group’s existing portfolio of hotels and new hotels to be added to the Group’s portfolio, the Group is in a good position to benefit from the growing hospitality market in Japan.