DESTINI Annual Report 2019

03 PERFORMANCE MARINE MANUFACTURING • The Groups marine manufacturing segment recorded a slip in revenue of RM108.38 million in FYE2019 from RM171.87 million in FYE2018. Profits also slipped into the red to LATNCI of RM67.71 million from a PATNCI of RM8.82 million the year before. • Although Destini’s marine business was reported as the highest revenue contributor by taking up 58% of the pie, this business segment reported lower revenue year- on-year (YoY) due to slower progress in its shipbuilding projects as well as less opportunities in the market for the Group to replenish its order book. This resulted in fixed costs that the Group had to carry forward in which translated into an escalation in costs which was not budgeted earlier. • Destini’s marine manufacturing business is divided into the manufacturing of para-military vessels and lifeboats. Lower revenue for this business segment under para-military vessels was due to the completion of the Malaysian Maritime Enforcement Agency’s (“MMEA”) New Generation Patrol Craft hence there were no more contributions from the fabrication of this vessels. • Meanwhile, the Group saw a slower progress in building the MMEA’s Offshore Patrol Vessel due to delays in payment disbursement by the Government as planned. Budget constrains from MMEA is also reflected on our lower margins for ship repair services for its vessels. • Coupled with not being able to replenish its order book because there were no tenders out for bidding, this has resulted in higher administrative expenses which compressed margins in ship building. • Meanwhile, Destini’s lifeboat manufacturing business remained stable with the deliveries of five Self Propelled Hyperbaric Lifeboats (“SHPL”) and 16 lifeboats through its Singapore-based subsidiary Vanguarde Pte Ltd. However, there were impairments recognized on the SPHL which translated to losses for this business segment. SERVICES • For marine services on the other hand, the Group saw a 38% increase in revenue to RM64.46 million in FYE2019 from RM46.75 million a year ago. Despite higher revenue, this business segment recorded a PATNCI of RM1.59 million against a PATNCI of 3.27 million in FYE2018. • The rise in revenue was from better performance by Destini’s Techno Fibre Group of companies which saw an increase in its services. However, this business segment slipped into losses due to higher operating expenses which squeezed its margins. • Destini’s marine services in Singapore has been seeing positive growth momentum which is reflective in the increase in oil & gas activities in the areas the company operates which includes the United Kingdom, Middle East, Australia and Malaysia. • Amidst the uncertain operating climate Destini remains cautiously optimistic on the growth and profitability of its marine services which is pegged mainly from the demand in the oil and gas sector which is cyclical in nature and sentiment driven. • The Group intends to grow its marine services in the defence sector by replicating its success in commercial marine services. In doing so, Destini has been actively bidding for marine MRO works locally and in other countries in the region. MANAGEMENT DISCUSSION AND ANALYSIS DESTINI BERHAD 042