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EY highlights Dyna-mac's going-concern issue

THE independent auditors from Ernst & Young LLP (EY) have highlighted uncertainty over new contract awards as a key going concern issue for Dyna-Mac Holdings, the offshore and marine group said after Friday's trading close.

Dyna-Mac on Feb 26 posted a net loss of S$57.91 million for the year ended Dec 31, 2017, its third consecutive annual loss since a collapse in oil prices back in 2014 kicked off a multi-year O&M downturn.

Dyna-Mac said that whilst preparing the financial statements, its management has indicated that uncertainty over the availability and timing of contract awards may cast significant doubt on the ability of the group to generate sufficient operating cash flows and continue as a going concern.

Even so, its management has pressed on to prepare the financial statements for the group on a going concern basis on three key assumptions.

First, the group has net current assets of S$58.91 million, including cash and cash equivalents of S$37.09 million. Second, the group secured new projects of a provisional sum of S$101 million during FY17. As at Dec 31, 2017, Its order book stood at S$90 million. Third, the group has access to credit facilities for S$37.5 million of short-term loans and advances, of which it has drawn down about S$6.67 million.

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Its management believes the group can tap further financing by pledging encumbered fixed assets on its books, where required. They are also confident that financial institutions will grant the group working capital support when the market improves and when it secures new sizeable contracts.

But with uncertainty hovering over new contract awards, Dyna-Mac's auditors from EY have alluded to risks that may challenge the O&M group's going-concern assumption.

The group needs to win enough new contracts to generate the required cash flows to meet its debt obligations. Or it may have to divest assets at prices that may not match their current book values.

"In addition, the group may have to reclassify non-current assets and liabilities as current assets and liabilities. No such adjustments have been made to these financial statements," the auditors noted.

Dyna-Mac closed at 13.6 cents, down 0.5 cent.

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