Boustead Singapore

[valuestalker]

I don't have any finance background and maybe this is a stupid question.
but i am going to ask anyway

Do they have to write off even if they didn't recognize the revenue or profit in the first place?
Thanks.

[Behappyalways]

if money is already inside the country and invested in plants and equipment you have too.

[Musicwhiz]

I don't have any finance background and maybe this is a stupid question.
but i am going to ask anyway

Do they have to write off even if they didn't recognize the revenue or profit in the first place?
Thanks.

In order to look at this issue, we first have to ask ourselves – how did Boustead book in the expenses relating to the Al Marj Township project? There are essentially two methods: Balance Sheet and Profit & Loss methods.

For Balance Sheet method, this assumes that as Boustead sent personnel to Libya and constructed the township, they were progressively capitalizing the expenditure on their Balance Sheet. Taking a glance at the Balance Sheet, it appears the most likely candidate for this is Contract Work in Progress (at S$32.9 million as at Dec 31, 2010). However, the commentary does mention that this relates to ongoing projects under the Real-Estate Solution Division, so I suspect it relates to the Design and Build contracts which were awarded to Boustead Projects. There isn’t any other item within the Balance Sheet to suggest that costs were accumulated and capitalized.

For the Profit and Loss method, this assumes that the costs were treated as expenses which were recognized during each financial year as they were incurred, and had no accumulative impact on the Balance Sheet (hence, nothing to write-off). Boustead does mention that only costs were incurred to date and no revenue or profits were recognized at all, and the restructuring with GCBC will result in a loss of S$1.1 million, which is probably a result of Balance Sheet adjustments for their proportionate interest dropping from 65% to 35%.

Under Balance Sheet method,

Dr Township Development XX
Cr Cash At Bank XX

Under Profit & Loss Method,

Dr Expenses* XX
Cr Cash At Bank XX

*Expenses will relate to staff salaries, travelling allowances and other incidentals relating to construction of the Township.

In both cases, one can see that the CASH has already been spent and would have been reflected in prior years’ cash flow statements. The impact will now be either on Balance Sheet or Income Statement. Since the evidence points to an Income Statement impact over the years, I can safely conclude that there is nothing large to write-off from the Balance Sheet, and hence Income Statement will not register a large impairment loss over stoppage of work on the Township (or in the worst-case scenario, the entire place is bombed and destroyed by the Libyan Army).

So whatever the case, there is only the possibility of a large one-time hit to Income Statement, but there should be no corresponding impact on Cash Flows at all.

My 2-cents worth of analysis. Thanks.

[valuestalker]

Thanks MW.
Learn a precious lesson from your post.

Anyway, I am satisfied with their FCF so far.
One-time off profit hit (probably next quarter) may as well present the opportunities i have waited since last year.
Again thanks.

(note: vested)

[Musicwhiz]

I just checked with an accountant friend during lunch, and discovered that there may be some issues I did not take into account:-

1) The S$1.1 million loss – it was not mentioned if this was booked into 3Q 2011, or in a subsequent period. And is this the ONLY loss associated with the project, or are there any other costs which need to be expensed off? I guess I cannot simply assume that there are no other Balance Sheet items which could have been capitalized (life is seldom so simplistic), hence it may be better to drop the Company an email to find out.

2) There may still be some residual cash flow impact if there are progress billings to GCBC which have yet to be recovered by Boustead. If so, then they may have recognized it as Trade Receivables which then have to be written off to either Doubtful or Bad Debts. This would impact future cash flow collections. Also, there may be some cash used for ferrying the Singaporeans and Malaysians back home on urgent basis, and some other incidental expenses relating to the Township which I had not anticipated.

Best is to send an email to the IR to confirm the above, and see if they will respond as the information may be market-sensitive.

[Behappyalways]

if money is already inside the country and invested in plants and equipment you have too.

No vested interest. For those interested in buying this counter, my personal view is consider ONLY after they announce a write-off.

Migrant workers describe tribesmen descending on their compounds with guns and swords, demanding their car-keys at knifepoint, confiscating their belongings and torching their pre-fab bungalows. Armed tribesmen arrived with ten trucks to loot their project, including eighty computers, according to a British contractor working on an extension to Omar Mukhtar Unversity, in the eastern city of Darna. A Turkish contractor arriving from Tobruk also reported tens of millions of dollars in damage to sewage infrastructure. Finally the regime was investing in its people, said the British project manager, who watched looters torch his part of a $2.5 billion project to upgrade 25 universities.

From The Economist

A correspondent reports from the border between Libya and Egypt

TRIBAL forces have established control across Eastern Libya since the police forces abandoned their posts a week ago, according to migrant workers fleeing the country via Egypt in their thousands. A last ditch attempt by mercenaries flown in from Chad, Zimbabwe, and Guinea and gunmen firing from helicopters to re-establish Muammar Qaddhafi's hold left a bloody trail, but no change to the tribal takeover. The scale of the violence contrasts markedly with North Africa's largely peaceful uprisings.

The uprising that is trying to reclaim Libya from the world's longest-ruling autocrat has also unleashed a wave of looting and destruction—much of it targeting foreign-managed projects, according to Egyptian, Turkish and British nationals, and some Libyans arriving in the Egyptian border crossing at Salloum. Underpinning much of the violence is anger at oil-rich Libya's transformation into a rentier state in which foreign companies won the prime government contracts and thousands of foreign workers from China, Egypt and Vietnam secured many jobs. Widespread killing by African mercenaries wearing orange construction hard-hats for helmets has further turned popular Libyan sentiment against foreigners.

A Libyan construction worker arriving from Baida, the scene of the first uprising, blamed the damage on an outpouring of years of frustration at Mr Qaddhafi's foreign adventures and white elephant infrastructure projects while most Libyans lived on in poverty. Another worker from Baida circulated a mobile phone recording of the lynching of an African he said had been a mercenary who confessed to receiving $12,000 for each Libyan he shot. Others showed recordings of dead mutilated African bodies, and a Tunisian they claimed had worked with deposed Tunisian leader Ben Ali's republican guard.

Migrant workers describe tribesmen descending on their compounds with guns and swords, demanding their car-keys at knifepoint, confiscating their belongings and torching their pre-fab bungalows. Armed tribesmen arrived with ten trucks to loot their project, including eighty computers, according to a British contractor working on an extension to Omar Mukhtar Unversity, in the eastern city of Darna. A Turkish contractor arriving from Tobruk also reported tens of millions of dollars in damage to sewage infrastructure. Finally the regime was investing in its people, said the British project manager, who watched looters torch his part of a $2.5 billion project to upgrade 25 universities.

In their reclaimed towns, including Benghazi, the country's second city, the migrant workers report that Libyan youths cruise the streets in their stolen cars using heavy weapons and even tanks looted from army bases. Security bases and checkpoints have been torched, and emblems of the Qaddhafi regime torched. Video images showed the current Libyan flag, introduced in 1977, replaced with that which flew under King Idriss, whom Qaddhafi overthrew in 1969. It has an Islamic crescent and star in its centre. Graffiti on a court-room celebrates the downfall of "the unbeliever" Mr Gaddhafi.

Egyptian workers arriving from Benghazi said the youths had formed popular committees to restore order, likening the situation to Egyptian groups which filled the vacuum after its police force abandoned their posts after the uprising there. But others spoke of violence. An Egyptian accountant working in Tobruk said youths wielding swords had taken his company's bulldozers to capture arms from army arsenals. Hundreds of new Hyundai cars have disappeared from Darna port's storage depot, and container ships docked in the harbour set on fire.

With scant support from their embassies hundreds of kilometres away in the capital, Tripoli, thousands of migrants are fleeing by road after receiving warnings from Libyan opposition groups to leave. Thousands more including Turks and Vietnamese are reportedly trapped near Benghazi airport waiting for planes to ferry them out.

To prevent a spillover of unrest, Egyptian forces are reportedly reinforcing their border. Egyptian eyewitnesses said tanks were heading west from bases at Sidi Barrani, 80 kilometres from the Libyan border. Some Egyptians called on their troops to push west in a bid end further bloodshed. The last Libyan security forces at the Salloum crossing reportedly abandoned their posts on Monday night. Until then, travellers said a reduced Libyan border guard had insisted on stamping passports of fleeing foreigners.

[D123]

Just realized that Pacific Healthcare's cancellation of their cancer hospital project
http://info.sgx.com/webcoranncatth.nsf/V...0004493CB/$file/Ann.misc-Updates_on_proposed_establishment_of_a_private_cancer_hospital.pdf?openelement

will impact Boustead's order book, albeit slightly.
http://info.sgx.com/webcoranncatth.nsf/V...F0035852D/$file/Boustead_Announcement-Subsidiary_Awarded_SGD18.6M_Contract-2.11.2009.pdf?openelement

[EDIT]
Sorry for the error, Boustead is not affected. Refer to Nick's post below.

[Nick]

Just realized that Pacific Healthcare's cancellation of their cancer hospital project
http://info.sgx.com/webcoranncatth.nsf/V...0004493CB/$file/Ann.misc-Updates_on_proposed_establishment_of_a_private_cancer_hospital.pdf?openelement

will impact Boustead's order book, albeit slightly.
http://info.sgx.com/webcoranncatth.nsf/V...F0035852D/$file/Boustead_Announcement-Subsidiary_Awarded_SGD18.6M_Contract-2.11.2009.pdf?openelement

There will be no impact on Boustead. The hospital is sold by First REIT to Fortis for $33 million. Fortis will most likely be operating it thereafter.

http://info.sgx.com/webcoranncatth.nsf/V...penelement

an agreement between the Trustee, the Purchaser and Boustead Projects Pte Ltd (“Boustead”) to novate to the Purchaser an agreement dated 30 October 2009 between the Trustee and Boustead in respect of the provision of design and construction works on the Adam Road Investment Property (the “Main Contract” and the agreement to novate the Main Contract to the Purchaser, the “Novation Agreement”).

(Vested in First REIT)

[Musicwhiz]

Boustead announced during lunch that all Boustead staff have been safely evacuated. I am glad to hear this, as it shows the Company has a heart for their employees' safety and have taken all measures to ensure International SOS ferried them home, even though conditions were tough.

[valuestalker]

1) The S$1.1 million loss – it was not mentioned if this was booked into 3Q 2011, or in a subsequent period. And is this the ONLY loss associated with the project, or are there any other costs which need to be expensed off? I guess I cannot simply assume that there are no other Balance Sheet items which could have been capitalized (life is seldom so simplistic), hence it may be better to drop the Company an email to find out.

From the cashflow, it seems like the 1.1 million loss was recognized in Q3.
Since it was a non cash item, it was added back to Operating cashflow.