Darco Water Tech explains why it's writing off S$2.46m

DARCO Water Technologies is preparing to write off S$2.46 million in debts which it has deemed to be of "low recoverability". They have been due for some three years.

In response to queries from the Singapore Exchange (SGX), the mainboard-listed company said the impairment loss stems from three projects and a former subsidiary.

The largest amount of impairment - to the tune of nearly S$1.05 million - came from a project related to the engineering, procurement and construction of a wastewater project in Binhai, China.

Even though the project was completed in 2017, Darco's customer,  the main contractor, and the project owner were unable to finalise the project's final claim payment. They eventually reached an agreement in 2019, but Darco said the settlement sum falls "markedly short" of the original contract price.

The second project, involving an impairment of S$704,000, is related to a wastewater project in Medan, Indonesia. Darco said the project began in 2016 but was halted in 2017 after the project owner faced "difficulties".

In the third project in an unspecified region of China, the company is owed S$97,000 stemming from a project that has stalled due to "licensing issues".

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Meanwhile, Darco's former subsidiary in Taiwan had gone into liquidation in 2019, resulting in an impairment of S$613,000.

Darco said it is unlikely these funds will be recovered as the debts have been due for more than three years. It added that the board has agreed to make full provision for impairment made on the outstanding amounts.

Apart from these, however, it does not think impairment is needed for the remaining trade and other receivables as at the end of financial year 2019.

SGX also asked for Darco to explain why its advance payment to suppliers increased 85 per cent from Dec 31, 2018 to Dec 31, 2019 to hit S$8.9 million.

"There were orders being placed towards the year-end of 2019, and advance payments have been made to respective suppliers. The orders were placed to purchase materials for use in on-going projects," Darco said in its clarification.

It also said "stiff competition" resulted in a drop in revenue from the segment for engineered environmental systems. It fell from S$63.7 million in FY2018 to S$54.4 million in FY2019, the company said.