The Straits Times / The Business Times News on Hyflux

Hyyflux's Q2 profit down 79%, revenue nearly doubles

Fall in earnings attributed to exceptional gains of $11.6m last year

HYFLUX, which provides membrane-based solutions for water-treatment and other systems, nearly doubled second-quarter revenues year-on-year to $37.5 million, thanks to vigorous industrial sales. But its net profits dropped 79 per cent to $2.99 million.

Hyflux attributed the fall in earnings attributable to shareholders to exceptional gains of about $11.6 million last year. It said net profits from core operations actually rose by 24 per cent.

'We experienced strong core earnings growth, backed by high industrial sales from the pharmaceutical and biotechnology sectors, and a healthy pipeline from projects in China,' CEO Olivia Lum said.

Based on a strong order book and growth prospects, 'we will have a strong second half, much stronger than the first half', she told analysts yesterday.

In the first half of 2006, industrial sales more than doubled to $46.6 million, from $20.5 million for the same period last year, though municipal sales remained flat at $23 million. Industrial sales made up 66 per cent of Hyflux's revenues in 1H 06, compared to 48 per cent in 1H 05.

A strong pipeline of municipal and industrial projects from China also helped revenues, Ms Lum said. China accounted for 70 per cent of sales in 1H 06, compared to 46 per cent last year. Singapore's share also increased significantly, as the SingSpring desalination plant in Tuas turned fully operational. But revenues from the Middle East dropped from more than half to just 14 per cent of Hyflux's revenues after it sold out of a Dubai joint venture in March.

Cost of sales increased 186 per cent in the second quarter, bringing gross margins down to 41 per cent from 59 per cent. Ms Lum blamed the larger proportion of small projects and costly municipal projects.

Staff costs, which more than doubled to $9.6 million for the first half, also affected margins. Ms Lum said the group was building its human capital to develop new markets in India, the Middle East and Africa, and to develop a new oil recycling business.

Ms Lum gave further details on Hyflux's latest venture into recycling base oil, or oil used for lubricating machines, which she expects will contribute to sales. 'We are the only proven technology in the world. Others have managed to prove their techniques in the laboratory, but we have demonstrated ours in a pilot plant,' she said.

The first phase of a processing plant in Singapore is on track and Hyflux expects profits next year.

The group, which recently signed a five-year US$138 million syndicated loan facility with banks in Asia and Europe, wants to secure more project financing and use a business trust structure to securitise the projects. Hyflux had a debt capital ratio of 0.25x at the end of 1H 06, compared to 0.05x at the same time last year.

Hyflux shares closed up 2 cents at $2.16 yesterday.