Captii Limited - Financials

Investor Relations.

Financial Statements And Related Announcement - Second Quarter Results

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Consolidated Statement of Comprehensive Income

	Group
	Quarter ended 30 June
	Q2 2019	Q2 2018	Inc/(dec)
	S$'000	S$'000	%
Revenue	6,647	7,634	(12.9)
Cost of Sales	(3,369)	(5,321)	(36.7)
Gross profit	3,278	2,313	41.7
Other Items of Income:
Interest Income	31	12	158.3
Other Gains	441	-	100.0
Other Items of Expense:
Technical Support Expenses	(1,170)	(794)	47.4
Distribution Costs	(412)	(430)	(4.2)
Administrative Expenses	(557)	(647)	(13.9)
Other Losses	(146)	146	(200.0)
Finance Costs	(33)	-	100.0
Profit Before Income Tax	1,432	600	138.7
Income Tax Expenses	(86)	(22)	290.9

Profit, Net of Tax	1,346	578	132.9

Profit, Net of Tax Attributable to:
Owners of the Company	1,294	485	166.8
Non-Controlling Interest	52	93	(44.1)
Profit, Net of Tax	1,346	578	132.9

	Group
	6 months ended 30 June
	2019	2018	Inc/(dec)
	S$'000	S$'000	%
Revenue	11,807	13,669	(13.6)
Cost of Sales	(5,535)	(8,685)	(36.3)
Gross profit	6,272	4,984	25.8
Other Items of Income:
Interest Income	48	25	92.0
Other Gains	466	2	23,200.0
Other Items of Expense:
Technical Support Expenses	(2,178)	(1,544)	41.1
Distribution Costs	(848)	(862)	(1.6)
Administrative Expenses	(1,171)	(1,237)	(5.3)
Other Losses	(273)	(40)	582.5
Finance Costs	(67)	(1)	6,600.0
Profit Before Income Tax	2,249	1,327	69.5
Income Tax Expenses	(320)	(259)	23.6

Profit, Net of Tax	1,929	1,068	80.6

Profit, Net of Tax Attributable to:
Owners of the Company	1,651	722	128.7
Non-Controlling Interest	278	346	(19.7)
Profit, Net of Tax	1,929	1,068	80.6

Consolidated Statement of Comprehensive Income

	Group
	Quarter ended 30 June
	Q2 2019	Q2 2018	Inc/(dec)
	S$'000	S$'000	%
Profit, Net of Tax	1,346	578	132.9
Other Comprehensive Income:
Item that may be reclassified subsequently to profit or loss:
Exchange Differences on Translating Foreign Operations, Net of Tax	(318)	(119)	167.4
Total Comprehensive Income for the period	1,028	459	124.0

Total Comprehensive Income for the period Attributable to:
Owners of the Company	1,023	378	170.6
Non-Controlling interest	5	81	(93.7)
Total Comprehensive Income for the year	1,028	459	124.0

	Group
	6 months ended 30 June
	2019	2018	Inc/(dec)
	S$'000	S$'000	%
Profit, Net of Tax	1,929	1,068	80.6
Other Comprehensive Income:
Item that may be reclassified subsequently to profit or loss:
Exchange Differences on Translating Foreign Operations, Net of Tax	(78)	773	(110.1)
Total Comprehensive Income for the period	1,851	1,841	0.5

Total Comprehensive Income for the period Attributable to:
Owners of the Company	1,592	1,425	11.7
Non-Controlling interest	259	416	(37.6)
Total Comprehensive Income for the year	1,851	1,841	0.5

Balance Sheet

	Group	Group
	As at	As at
	30/6/2019	31/12/2018
	S$'000	S$'000

ASSETS
Non-Current Assets
Plant and Equipment	1,689	1,825
Investment Property	2,294	2,305
Intangible Assets	10,897	11,050
Investments in Subsidiaries	-	-
Investment in an Associate	765	2,255
Other Financial Assets	10,793	8,948
Deferred Tax assets	1,418	1,313
Total Non-Current Assets	27,856	27,696

Current assets
Inventories	6	488
Trade and Other Receivables	16,871	16,549
Other Assets	1,485	2,330
Cash and Cash Equivalents	7,690	8,686
Total Current Assets	26,052	28,053

Total Assets	53,908	55,749

EQUITY AND LIABILITIES
Equity
Share Capital	31,948	31,948
Retained Earnings	17,022	15,371
Foreign Currency Translation Reserve	(8,352)	(8,293)
Equity, Attributable to Owners of the Parent	40,618	39,026
Non-Controlling Interest	4,291	4,080
Total Equity	44,909	43,106

Non-Current Liabilities
Deferred Tax Liabilities	53	53
Total Non-Current Liabilities	53	53

Current Liabilities
Income Tax Payables	24	102
Trade and Other Payables	4,659	7,047
Other Liabilities	2,636	3,423
Borrowings	1,627	2,018
Total Current Liabilities	8,946	12,590

Total Liabilities	8,999	12,643

Total Equity and Liabilities	53,908	55,749

Review of results for the second quarter ended 30 June 2019 as compared to corresponding quarter ended 30 June 2018

Group Revenue

The Group recorded consolidated revenue of S$6.647 million for the quarter ended 30 June 2019 (“Q2 2019”), a decrease of 12.9% against the revenue achieved in the corresponding quarter ended 30 June 2018 (“Q2 2018”). The decline in Group revenue for Q2 2019 is attributable to lower revenue recorded by GlobeOSS.

GlobeOSS recorded revenue of S$2.069 million in Q2 2019, a decrease of 57.8% from the S$4.900 million recorded in Q2 2018. This decrease in revenue was due to lower system sale contract revenues as a result of delay in award of new system sale contracts and slower than expected delivery of system sale contract in-hand.

In contrast, Unifiedcomms posted revenue of S$4.578 million in Q2 2019, an increase of 67.4% from the S$2.734 million recorded in Q2 2018. This improvement in revenue was driven by higher system sale revenues.

The Group's sales mix in Q2 2019 showed an increase in the proportionate contribution of revenue of a recurring nature, with revenue from managed service contracts representing 51.6% of the Group's total revenue in Q2 2019 as compared to 46.1% in Q2 2018. The higher contribution of managed service contracts to the Group's sales mix in Q2 2019 was mainly due to lower system sale contract revenues contribution from GlobeOSS, which had decreased 21.9% from S$4.118 million in Q2 2018 to S$3.216 million in Q2 2019.

Group Gross Profit and Gross Profit Margins

Although Group revenue was lower in Q2 2019, gross profit was higher at S$3.278 million as compared to S$2.313 million recorded in Q2 2018. This is attributtable to the higher gross profit margin of 49.3% in Q2 2019 against 30.3% in Q2 2018, which was driven by the improvement in gross profit margin on system sale contract revenues. This is attributable to the higher proportionate contribution of system sale contract revenues by Unifiedcomms, which generally delivers higher gross profit margins.

Gross profit margin recorded by the Group on its managed service contract revenues decreased to 52.3% in Q2 2019 from 54.7% in Q2 2018. This decrease in gross profit margin was mainly due to higher third-party costs on certain managed service contracts.

Interest Income

The Group recorded interest income of S$0.031 million in Q2 2019, 158.3% higher against the S$0.012 million recorded in Q2 2018, as a result of higher bank balances in this reporting period.

Other gains

The Group recorded other gains of S$0.441 million in Q2 2019, mainly attributable to fair value gain assessed on the Group's venture investment portfolio.

Other Items of Expense

The Group recorded total expenses of S$2.318 million in Q2 2019, 34.4% higher than the S$1.725 million incurred in Q2 2018. This is mainly attributable to:-

Higher technical support expenses recorded in Q2 2019, due to an increase in technical support headcounts of GlobeOSS; and
Higher net foreign exchange loss as a result of unfavourable exchange rate movement of USD and PKR against SGD, the Group's reporting currency.

The increase in the above-mentioned expenses was partly mitigated by a 13.9% decrease in administrative expenses from S$0.647 million in Q2 2018 to S$0.557 million in Q2 2019. This decrease in administrative expenses is a result of reduction in the administrative headcount of the Group.

Group Net Profit and EBITDA

The Group recorded higher net profit of S$1.346 million and EBITDA of S$1.725 million in Q2 2019 as compared to S$0.578 million in net profit and S$0.866 million in EBITDA recorded by the Group in Q2 2018. The higher net profit and EBITDA results recorded in Q2 2019 are mainly attributable to the flow-down effects of the higher GP margin and higher other income achieved in Q2 2019, though partly offset by higher operating expenses.

Detailed Segmental Breakdown of Group Revenue and Gross Profit

The detailed segmental breakdown of the Group's revenue and gross profit for Q2 2019, together with comparative results for Q2 2018 is provided below:

Table 8.1: Group consolidated revenue as analysed by business unit for the quarter ended 30 June

	Q2 2019 S$'000	Sales mix %	Q2 2018 S$'000	Sales mix %
Unifiedcomms	4,578	68.9	2,734	35.8
GlobeOSS	2,069	31.1	4,900	64.2
Captii Ventures	-	-	-	-
Others	-	-	-	-
Total	6,647	100.0	7,634	100.0

Unifiedcomms - Segment for content-driven mobile VAS, messaging and signaling systems, solutions and managed services.

GlobeOSS - Segment for mobile network operation support systems, solutions and managed services.

Others - Segment for operational headquarters of the Group and investment holding.

Table 8.2: Group consolidated revenue as analysed by geographical segment for the quarter ended 30 June

External Sales	Q2 2019
External Sales	Unifiedcomms S$'000	GlobeOSS S$'000	Others S$'000	Group S$'000
South East Asia (SEA)	4,220	2,069	-	6,289
South Asia (SA)	134	-	-	134
Middle East & Africa (MEA)	224	-	-	224
Others	-	-	-	-
Total	4,578	2,069	-	6,647

External Sales	Q2 2018
External Sales	Unifiedcomms S$'000	GlobeOSS S$'000	Others S$'000	Group S$'000
South East Asia (SEA)	2,481	4,896	-	7,377
South Asia (SA)	181	-	-	181
Middle East & Africa (MEA)	72	-	-	72
Others	-	4	-	4
Total	2,734	4,900	-	7,634

Table 8.3: Group consolidated revenue as analysed by contract type for the quarter ended 30 June

External Sales	Q2 2019			Q2 2018
External Sales	System Sale⁽¹⁾	Managed Service⁽²⁾	Group	System Sale⁽¹⁾	Managed Service⁽²⁾	Group
Revenue	3,216	3,431	6,647	4,118	3,516	7,634
Gross Profit	1,485	1,793	3,278	390	1,923	2,313
Gross Profit (%)	46.2%	52.3%	49.3%	9.5%	54.7%	30.3%

⁽¹⁾ System Sale - this refers to contracts that involve the outright purchase by customers of systems comprising the Group's products and technologies, and where these systems are in turn delivered as turnkey solutions. The scope of work for a system sale contract includes system design, implementation, testing and commissioning services.

⁽²⁾ Managed Service - this refers to contracts that involve the provision of both systems comprising the Group's products and technologies as well as the Group's professional services, on a recurring, revenue sharing, software-as-a-service, pay-per-use or monthly or quarterly fixed and variable fee basis. Also treated as a managed service contract are system maintenance and technical support contracts with existing customers of the Group.

Review of results for the six months ended 30 June 2019 as compared to corresponding financial period ended 30 June 2018

Group Revenue

The Group recorded consolidated revenue of S$11.807 million for the six months ended 30 June 2019 (“6M 2019”), a decrease of 13.6% against the revenue achieved in the corresponding period ended 30 June 2018 (“6M 2018”). The decline in Group revenue for 6M 2019 is attributable to lower revenue recorded by GlobeOSS.

GlobeOSS recorded revenue of S$4.277 million in 6M 2019, a decrease of 47% from the S$8.070 million recorded in 6M 2018. This decrease in revenue was due to lower system sale contract revenues as a result of delay in the award of new system sale contracts and slower than expected delivery of system sale contracts in-hand.

In contrast, Unifiedcomms posted revenue of S$7.530 million in 6M 2019, an increase of 34.5% from the S$5.599 million recorded in 6M 2018. This improvement in revenue was driven by higher system sale revenues.

The Group's sales mix in 6M 2019 showed an increase in the proportionate contribution of revenue of a recurring nature, with revenue from managed service contracts representing 56.4% of the Group's total revenue in 6M 2019 as compared to 51.2% in 6M 2018. The higher contribution of managed service contracts to the Group's sales mix in 6M 2019 was mainly due to lower system sale contract revenues from GlobeOSS, which had decreased 22.9% from S$6.674 million in 6M 2018 to S$5.147 million in 6M 2019.

Gross Profit and Gross Profit Margins

Although Group revenue was lower in 6M 2019, gross profit was higher at S$6.272 million as compared to S$4.984 million recorded in 6M 2018. This is attributtable to the higher gross profit margin of 53.1% in 6M 2019 against 36.5% in 6M 2018, which was driven by the improvement in gross profit margin on system sale contract revenues. This is attributable to the higher proportionate contribution of system sale contract revenues by Unifiedcomms, which generally delivers higher gross profit margins.

Gross profit margin recorded by the Group on its managed service contract revenues decreased to 50.5% in 6M 2019 from 54.7% in 6M 2018. This decrease in gross profit margin was mainly due to higher third-party costs on certain managed service contracts.

Interest Income

The Group recorded interest income of S$0.048 million in 6M 2019, 92% higher against the S$0.025 million recorded in 6M 2018, as a result of higher bank balances in this reporting period.

Other gains

The Group recorded other gains of S$0.466 million in 6M 2019, 23,200% higher against the S$0.002 million recorded in 6M 2018. This is mainly attributable to fair value gain assessed on the Group's venture investment portfolio.

Other Items of Expense

The Group recorded total expenses of S$4.537 million in 6M 2019, 23.2% higher than the S$3.684 million incurred in 6M 2018. This is mainly attributable to:-

Higher technical support expenses recorded in 6M 2019, due to an increase in technical support headcounts of GlobeOSS; and
Higher net foreign exchange loss as a result of unfavourable exchange rate movement of USD and PKR against SGD, the Group's reporting currency.

The increase in the above-mentioned expenses was partly mitigated by a 5.3% decrease in administrative expenses from S$1.237 million in 6M 2018 to S$1.171 million in 6M 2019. This decrease in administrative expenses is a result of reduction in the administrative headcount of the Group.

Net Profit and EBITDA

The Group recorded higher net profit of S$1.929 million and EBITDA of S$2.848 million in 6M 2019 as compared to S$1.068 million in net profit and S$1.852 million in EBITDA recorded by the Group in 6M 2018. The higher net profit and EBITDA results recorded in 6M 2019 are mainly attributable to the flow-down effects of the higher GP margin and higher other income achieved in 6M 2019, though partly offset by higher operating expenses.

Detailed Segmental Breakdown of Group Revenue and Gross Profit

The detailed segmental breakdown of the Group's revenue and gross profit for 6M 2019, together with comparative results for 6M 2018 is provided below:

Table 8.4: Group revenue as analysed by business unit for the six months ended 30 June

	2019 S$'000	Sales mix %	2018 S$'000	Sales mix %
Unifiedcomms	7,530	63.8	5,599	41.0
GlobeOSS	4,277	36.2	8,070	59.0
Captii Ventures	-	-	-	-
Others	-	-	-	-
Total	11,807	100.0	13,669	100.0

Unifiedcomms - Segment for content-driven mobile VAS, messaging and signaling systems, solutions and managed services.

GlobeOSS - Segment for mobile network operation support systems, solutions and managed services.

Captii Ventures - Segment for strategic investment in early and late-stage technology ventures.

Others - Segment for operational headquarters of the Group and investment holding.

Table 8.5: Group revenue as analysed by geographical segment for the six months ended 30 June

External Sales	2019
External Sales	Unifiedcomms S$'000	GlobeOSS S$'000	Others S$'000	Group S$'000
South East Asia (SEA)	7,018	4,274	-	11,292
South Asia (SA)	288	-	-	288
Middle East & Africa (MEA)	224	-	-	224
Others	-	3	-	3
Total	7,530	4,277	-	11,807

External Sales	2018
External Sales	Unifiedcomms S$'000	GlobeOSS S$'000	Others S$'000	Group S$'000
South East Asia (SEA)	5,085	8,062	-	13,147
South Asia (SA)	371	-	-	371
Middle East & Africa (MEA)	143	-	-	143
Others	-	8	-	8
Total	5,599	8,070	-	13,669

Table 8.6: Group revenue as analysed by contract type for the six months ended 30 June

External Sales	2019			2018
External Sales	System Sale⁽¹⁾	Managed Service⁽²⁾	Group	System Sale⁽¹⁾	Managed Service⁽²⁾	Group
Revenue	5,147	6,660	11,807	6,674	6,995	13,669
Gross Profit	2,908	3,364	6,272	1,160	3,824	4,984
Gross Profit (%)	56.5%	50.5%	53.1%	17.4%	54.7%	36.5%

Review of the Group's financial position as at 30 June 2019 as compared to the Group's financial position as at 31 December 2018

Non-cash current assets of the Group decreased from $19.367 million as at 31 December 2018 to S$18.362 million as at 30 June 2019. This 5.2% decrease in non-cash current assets was mainly due to decrease in inventories and other assets, as a result of project deployment and collection of receivables.

Total non-current assets of the Group increased slightly from S$27.696 million as at 31 December 2018 to S$27.856 million as at 30 June 2019 representing a marginal increase of 0.6%. This marginal increase comprises mainly i) an increase in fair value of S$1.935 million in the Group's other financial assets; and ii) a reduction in fair value of S$1.469 million in the Group's investment in an associate. The said associate and other financial assets are investees in the Group's venture investment portfolio. The net effect of their fair value movements is reflected under the fair value gain on investments amounting to S$0.466 million for the current period. These fair value movements assessed on the Group's venture investment portfolio, which are unrealised, is a result of changes in estimated fair valuation of the Group's venture investments following the adoption of the most appropriate valuation techniques for each investment and may not be reflective of the actual return upon disposal of these investments in the medium to long term.

Total liabilities of the Group decreased from S$12.643 million as at 31 December 2018 to S$8.999 million as at 30 June 2019. This 28.8% decrease in total liabilities is attributable to decrease in trade and other payables and borrowings following repayments during the reporting period.

Review of the Group's cash flow for the quarter and six months ended 30 June 2019 as compared to the corresponding period ended 30 June 2018

The Group's net cash flow used in operations for Q2 2019 was S$1.108 million, as compared to S$0.039 million for Q2 2018, a significant increase of 2,741%. This increase was mainly due to higher working capital of S$2.392 million in the current reporting period, as compared to S$0.936 million for Q2 2018.

The Group's net cash flow from operations for 6M 2019 was S$0.233 million, as compared to S$0.418 million for 6M 2018, a decrease of 44.3%. This decrease was mainly due to higher working capital of S$2.149 million in the current reporting period, as compared to S$1.465 million for 6M 2018.

The Group's net cash flow used in investing activities for Q2 2019 was S$0.183 million, as compared to S$0.51 million for Q2 2018. The lower net cash used in investing activities was mainly due to the lower volume of venture investments and lower investment in plant and equipment for new managed service contracts made in the current quarter as compared to Q2 2018.

The Group's net cash flow used in investing activities for 6M 2019 was S$0.281 million, as compared to S$1.544 million for 6M 2018. The lower net cash used in investing activities was mainly due to the lower volume of venture investments made in the current period as compared to 6M 2018.

The Group's net cash flow from financing activities for Q2 2019 was S$0.121 million, in contrast with the net cash flow used in financing activities of S$0.001 million for Q2 2018. This increase was mainly due to proceeds from borrowings.

The Group's net cash flow used in financing activities for 6M 2019 was S$0.202 million, as compared to S$0.517 million for 6M 2018. This decrease was mainly due to withdrawal of restricted deposits placed as performance bond in connection with new system sale contracts requirement, in contrast with additional restricted deposits placed in 6M 2018.

Commentary

The directors and management of the Group expect the remainder of 2019 to be challenging but remain optimistic about growth prospects.

Although the growth in system sale business of GlobeOSS in 2017 and 2018 had significantly augmented the slower than desired growth of the Group's managed service contract portfolio, uncertainty and hence lumpiness is still to be expected in the contribution of system sale contracts to the Group's future results.

The need for management to continue to strengthen the Group's managed service contract portfolio and to continue to grow its venture investment portfolio as the basis for delivering steady, if not rapid yet sustainable future growth, remains.

The growing interest and opportunity in internet-driven application services for enterprises, fintech as well as internet and handset-app delivered digital media will guide the Group's venture investment activities. The Group's venture investment plans in the year ahead will continue to focus primarily on these growth businesses in the SEA region and will complement the organic growth strategy in place for the Unifiedcomms and GlobeOSS businesses.