Dyna-Mac's independent auditor flags cash flow, going concern issues

DYNA-MAC Holdings' independent auditor has raised doubts on the group's ability to generate sufficient operating cash flows and continue as a going concern.

The highlighted material uncertainty is over the timing of cash flows from the billing milestones and award of new contracts, according to Ernst & Young. The auditor had included an emphasis of matter in its independent auditor's report on Dyna-Mac's financials.

Ernst & Young's opinion, however, remains unqualified, the offshore oil and gas contractor said on Wednesday in a regulatory filing.

Dyna-Mac had incurred a net loss of S$24 million for the financial year ended Dec 31, 2019, compared with net profit of S$1.5 million a year ago.

Its management and directors believe the group will be able to continue as a going concern due to factors such as new orders secured, potential new orders and available credit facilities.

New orders secured and potential new orders are expected to generate adequate cash flows for the group to repay its debt obligations in the next 12 months, the group said.

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Dyna-Mac's order book stands at S$67.1 million, compared with S$7 million a year ago. The group had also obtained several fabrication contracts worth S$18 million after the Dec 31, 2019 year-end. Completion and deliveries also extend into Q2 2021.

The group is also anticipating additional contracts in the year ahead despite the challenging market environment.

The group has banking facilities for short-term trade loans and advances totalling S$27.5 million, as at Dec 31, 2019. Its bank borrowing of around S$13.3 million relates to amounts drawn under these facilities.

Moreover, it has received in-principle approval from a bank to restructure its banking facilities by pledging its main yards to the bank for additional facilities of S$30 million comprising short-term trade credit facilities and advances.

Other events which occurred after the reporting period include the group receiving, from a third party, an offer to purchase its investment properties at 37 and 39 Tech Park Crescent for S$9.5 million.

The group had also on March 5, 2020, incorporated a wholly-owned subsidiary in Jiangsu, China, called Dyna-Mac Heavy Industry (Jiangsu) Co.

The Covid-19 situation was also considered a factor in the group analysing its validity in preparing its financial statements on a going concern basis. Dyna-Mac said it has not seen a significant impact on its business to date.

However, the measures implemented by various governments in dealing with the global pandemic have interfered with the general level of activities within the community, economy and the group's operations.

The scale and duration of these developments remain uncertain as at the date of the auditor's report, it added.

Dyna-Mac shares ended at 8.4 Singapore cents on Wednesday, up 0.1 cent or 1.2 per cent.