Financials
CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE SECOND HALF YEAR AND FULL YEAR ENDED 31 MARCH 2022
Financials Archive
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Condensed interim financial statements For the second half year and full year ended 31 March 2022
Income Statement and Comprehensive Income
NM: Not Meaningful
Balance Sheet
Review of Income Statement of the Group
Second-Half FY2022 ("2H FY2022") vs Second-Half FY2021 ("2H FY2021")
Revenue
Group revenue decreased by 23.4% to RMB479.9 million in 2H FY2022 as compared to RMB626.6 million in 2H FY2021 mainly due to the high base in 2H FY2021 with COVID-19 under control in the PRC, certain back-log deliveries were fulfilled during the half year under review. The revenue for 2H FY2022 was also affected by a lackluster property market and recent COVID-19 outbreak in the PRC. Restriction has again been imposed in various cities, with stay-home orders and movement restrictions, resulted in slower business activities.
As a result, revenue from sales of tower cranes and components decreased by RMB187.8 million from RMB543.0 million in 2H FY2021 to RMB355.2 million in 2H FY2022. The decrease in revenue was partly offset by the increase in rental and service income of RMB41.1 million during the period under review with more government projects for both infrastructure and residential in Hong Kong and increase in rental sales in the PRC.
Due to the high base in 2H FY2021 and the slow-down of economy in 2H FY2022 in the PRC, revenue in the PRC has decreased by RMB140.0 million or equal to 41.8% from RMB335.2 in 2H FY2021 to RMB195.2 million in 2H FY2022. Revenue in Asia (outside of the PRC) and the USA & Europe have also dropped by RMB22.6 million and RMB4.2 million respectively. The decrease was offset by the increase in the Middle East of RMB20.1 million.
Overall, sales in Asia (outside the PRC) and the PRC contributed to 41.0% and 40.7% respectively of the Group revenue in 2H FY2022.
Gross profit and gross profit margin
In line with decrease in revenue, gross profit decreased by 12.6% to RMB132.6 million in 2H FY2022 from RMB151.7 million in 2H FY2021.
Average gross profit margin increased to 27.6% in 2H FY2022 from 24.2% in 2H FY2021.
The higher gross profit margin in 2H FY2022 is due to sales of product mixed as higher sales proportion for large and mega size tower cranes as well as the luffing series which generate higher sales margin were sold during the period under review. The lower gross profit in 2H FY2021 was also attributable to lower average selling price resulting from the pricing sensitivity from the recovering market as well as increase in steel price. The increase is also due to higher rental income which generates higher margin.
Other income
Other income decreased by RMB2.0 million to RMB10.1 million in 2H FY2022 as compared to RMB12.1 million in 2H FY2021 was mainly due to lower sales of scrap, lower government subsidies and rebates/grants and non-recurrence of debts no longer required to pay of RB1.5 million, RMB1.1 million and RMB0.7 million respectively. The government subsidies and rebates were received from various authorities, as part of the financial assistance to help businesses tide through the pandemic. The decrease was offset by dividend received from investment, FVOCI of RMB1.4 million.
Operating expenses
Total operating expenses increased 4.3% to RMB124.9 million in 2H FY2022 as compared to RMB119.7 million in 2H FY2021.
Despite lower revenue, distribution costs increased 23.3% to RMB59.5 million in 2H FY2022 as compared to RMB48.2 million in 2H FY2021 mainly due to higher freight and transportation charges and employee benefits cost. Land transportation and sea freight had increased significantly during the period under review due to supply shortage against high demand.
Administrative expenses increased 13.4% to RMB44.1 million in 2H FY2022 as compared to RMB38.9 million in 2H FY2021 mainly due to higher employee benefits costs and higher professional fee.
Other operating expenses decreased RMB13.1 million in 2H FY2022 from RMB25.2 million in 2H FY2021 to RMB12.1 million in 2H FY2022. The decrease is mainly due to lower provision for expected credit loss ("ECL") of RMB11.9 million and lower exchange losses of RMB2.1 million. The Group reported an exchange loss of RMB3.7 million in 2H FY2022 as compared to RMB5.8 million in 2H FY2021.
The exchange loss for 2H FY2022 arose mainly from:
- the weakening of Singapore Dollars ("SGD") and Hong Kong Dollars ("HKD") against Renminbi ("RMB") due to net RMB liabilities in the Singapore subsidiary's book and Hong Kong subsidiary's book;
- the weakening of HKD against RMB and SGD due to net HKD assets in the Company's book and the Singapore subsidiary's book; and
- the weakening of USD against RMB due to net USD assets in the Singapore's subsidiary's book
Finance costs increased 19.4% to RMB8.8 million in 2H FY2022 as compared to RMB7.4 million in 2H FY2021 due mainly to higher average borrowings and higher letter of credit discounting charges in 2H FY2022.
Taxation
Income tax expense decreased to RMB1.0 million in 2H FY2022 as compared to RMB9.3 million in 2H FY2021 is in line with lower profits for the financial period under review. Lower effective tax rate is due to utilization of unabsorbed tax losses in Beijing Yongmao.
Other comprehensive expenses
Other comprehensive expenses decreased to RMB13.0 million in 2H FY2022 as compared to RMB18.0 million in 2H FY2021. Other comprehensive expenses pertain to loss on exchange translation arose from translation of the net assets of our Hong Kong and Singapore subsidiaries and fair value loss of financial assets, FVOCI. The fair value loss in financial assets, FVOCI is mainly due to the decrease in share price of an entity listed in The Stock Exchange of Hong Kong which the financial assets, FVOCI has an ownership interest.
HKD and SGD depreciated 2.5% and 1.4% respectively against RMB as at 31 March 2022 as compared to 31 March 2022.
Profit before taxation and Net profit attributable to equity holders of the Company
The Group recorded a profit before taxation of RMB17.7 million in 2H FY2022 as compared to RMB44.0 million in 2H FY2021 mainly due to lower operating income and higher operating expenses.
Net profit attributable to equity holders of the Company decreased to RMB10.8 million in 2H FY2022 from RMB30.0 million in 2H FY2021. This was mainly due to lower profit before taxation, offset by lower tax expense.
Full Year FY2022 ("FY2022") vs Full Year ("FY2021")
Revenue
Group revenue increased by 8.1% y-o-y to RMB1,111.3 million in FY2022 as compared to RMB1,028.0 million in FY2021.
Demand and delivery of cranes were choppy during the two financial years with the impact of COVID-19 pandemic hitting our various economies market segments.
In 1H FY2021, COVID-19 outbreak halted economic activities in the PRC and disrupted global supply chains. With the COVID-19 under control in the PRC and Singapore, the Group's revenue saw significant increase in 2H FY2021 with certain back-log orders being fulfilled. The strong delivery continued to 1H FY2022 which also include other segments, the Middle East and others, and the USA & Europe. However, the demands in the PRC slowed in 2H FY2022, affected by a lackluster property market and recent COVID-19 outbreak in the PRC. Restriction has again been imposed in various cities, with stay-home orders and movement restrictions, resulted in slower business activities.
On a y-o-y comparison, revenue from sales of tower cranes and components slightly increased by RMB10.8 million from RMB870.8 million in FY2021 to RMB881.6 million in FY2022. Rental and service income has also increased by RMB72.6 million with more government projects for both infrastructure and residential in Hong Kong and increase in rental sales in the PRC.
Due to the recovery of economy post lockdown, other than the PRC, revenue in all other segment including Asia (outside of the PRC), the USA & Europe and the Middle East and others increased by RMB63.1 million, RMB31.7 million and RMB30.7 million respectively. Revenue in the PRC decreased by RMB42.2 million from RMB601.9 million in FY2021 to RMB559.7 million in FY2022 due to the reasons as explained above.
Despite the reduction in revenue from the PRC, sales in the PRC still remains the highest contribution to the Group revenue at 50.4% followed by Asia (outside the PRC) at 34.2% in FY2022.
Gross profit and gross profit margin
In line with higher revenue, gross profit increased by 20.6% to RMB307.5 million in FY2022 from RMB255.0 million in FY2021.
Average gross profit margin increased to 27.7% in FY2022 from 24.8% in FY2021.
The higher gross profit margin in FY2022 is due to sales of product mixed as higher sales proportion for large and mega size tower cranes as well as the luffing series which generate higher sales margin were sold during the period under review. The lower gross profit in FY2021 was also attributable to high production overhead cost absorbed during the first half of year 2020 with government containment measures implemented in the PRC amid the rapid spread of the COVID-19 pandemic. The increase in gross profit margin in FY2022 is also due to higher rental income which generates higher margin.
Other income
Other income decreased by RMB3.9 million to RMB14.5 million in FY2022 as compared to RMB18.4 million in FY2021 was mainly due to due to lower government subsidies and rebates/grants, lower sales of scrap and non-recurrence of debts no longer required to pay of RB2.9 million, RMB1.4 million and RMB0.7 million respectively. The government subsidies and rebates were received from various authorities, as part of the financial assistance to help businesses tide through the pandemic. The decrease was offset by dividend received from investment, FVOCI of RB1.4 million.
Operating expenses
Total operating expenses increased 25.0% to RMB244.6 million in FY2022 as compared to RMB195.7 million in FY2021.
Distribution costs increased 56.7% to RMB125.4 million in FY2022 as compared to RMB80.0 million in FY2021 mainly due to higher freight and transportation charges and employee benefits cost in line with higher sales. Other than higher proportion of export sales, land transportation and sea freight had also increased significantly during the year under review due to supply shortage against high demand.
Administrative expenses increased 15.0% to RMB82.7 million in FY2022 as compared to RMB72.0 million in FY2021 mainly due to higher employee benefits costs, higher land & property taxes in the PRC and higher professional fee. Certain land & property taxes in FY2021 were waived or reduced during the lock-down period.
Other operating expenses decreased to RMB19.1 million in FY2022 from RMB28.9 million in FY2021. The decrease is mainly due to lower provision for expected credit loss ("ECL") of RMB7.3 million and lower exchange losses of RMB4.6 million. The Group reported an exchange loss of RMB3.6 million in FY2022 as compared to RMB8.2 million in FY2021. Bank charges also increased to RMB3.2 million in FY2022 from RMB 1.2 million in FY2021. Higher bank charges were incurred for certain export sales.
The exchange loss for FY2022 arose mainly from:
- the weakening of Singapore Dollars ("SGD") and Hong Kong Dollars ("HKD") against Renminbi ("RMB") due to net RMB liabilities in the Singapore subsidiary's book and Hong Kong subsidiary's book;
- the weakening of HKD against RMB and SGD due to net HKD assets in the Company's book and the Singapore subsidiary's book; and
- the weakening of USD against RMB due to net USD assets in the Singapore's subsidiary's book.
Finance costs increased 13.0% to RMB17.0 million in FY2022 as compared to RMB14.8 million in FY2021 due mainly to higher average borrowings and higher letter of credit discounting charges in FY2022.
Taxation
Income tax expense decreased to RMB12.6 million in FY2022 as compared to RMB16.0 million in FY2021 despite operating profit remains comparable. Lower effective tax rate due to utilization of unabsorbed tax losses in Beijing Yongmao.
Other comprehensive expenses
Other comprehensive expenses increased to RMB30.0 million in FY2022 as compared to RMB23.6 million in FY2021. Other comprehensive expenses pertain to loss on exchange translation arose from translation of the net assets of our Hong Kong and Singapore subsidiaries and fair value loss of financial assets, FVOCI. The fair value loss in financial assets, FVOCI is mainly due to the decrease in share price of an entity listed in The Stock Exchange of Hong Kong which the financial assets, FVOCI has an ownership interest.
SGD and HKD depreciated 4.0% and 3.8% respectively against RMB as at 31 March 2022 as compared to last financial year end.
Profit before taxation and Net profit attributable to equity holders of the Company
The Group recorded a profit before taxation of RMB77.3 million in FY2022 as compared to RMB77.7 million in FY2021 mainly due to higher gross profit from higher revenue, partly offset by higher operating expenses.
Net profit attributable to equity holders of the Company increased slightly to RMB55.3 million in FY2022 from RMB54.9 million in FY2021.
Review of Financial Position of the Group
Non-current Assets
Non-current assets increased by RMB94.8 million to RMB641.8 million as at 31 March 2022 mainly due to higher property, plant and equipment and higher deferred tax assets, offset by lower financial asset, at FVOCI.
The increase of RMB110.1 million in the Group's net carrying amount of property, plant and equipment was mainly attributable to the increase in rental fleet, partly offset by net depreciation charges and disposals. With the increase demand in Hong Kong rental market, a number of large and mega size tower cranes were added to the operations. Apart from this, two unit of our mega-size rental fleets were deployed to the Middle East and a unit to a windmill in the PRC.
During the period under review, sales of tower cranes for the amount approximate to RMB114.2 million were entered with an option to return by customers within a period of time-frame. In accordance to SFRS(I) 15, if the sale of the tower cranes is combined with a residual value commitment (buybacks), the criterion of transferring control is based on if the customer has a significant economic incentive to exercise the option to return the tower cranes. A significant economic incentive exists, or if the historical returns indicate that it is probable that the customer will return the tower cranes at the end of the commitment period. Thus, the control has not been transferred and the sales transaction is recognized as an operating lease transaction. The revenue and expense are recognized over the residual value commitment period in the income statement. Assets under operating leases were capitalised as property, plant and equipment, payment received as advances from customers are recognized in the balance sheet.
Deferred tax assets arose mainly from provisions and elimination of unrealised profits in intragroup sales and the various provisions made.
Financial assets, at FVOCI decreased with fair value loss of RMB22.0 million as at 31 March 2022.
Current Assets
Current assets decreased by RMB39.5 million to RMB1,215.7 million as at 31 March 2022 mainly due to lower inventories and lower trade and other receivables, partly offset by higher amount owing by related parties, higher cash and cash equivalents (see Note on Review on Cash Flow Statement below).
Amount owing by related parties increased by RMB12.1 million to RMB27.6 million as at 31 March 2022 due to higher sales over repayments to related parties.
Trade and other receivables decreased by RMB11.4 million to RMB613.5 million as at 31 March 2022. The decrease is due to lower advances to suppliers.
Inventories decreased by RMB124.3 million to RMB376.1 million as at 31 March 2022 as compared to RMB500.4 million as at 31 March 2021. This lower inventory mainly due to capitalisation to property, plant & equipment as rental equipment, partly offset by increase in operating inventory level.
Non-current Liabilities
Non-current liabilities increased by RMB14.0 million to RMB68.8 million as at 31 March 2022 as compared to RMB54.7 million as at 31 March 2021 mainly due to higher borrowings, higher deferred tax liabilities, partly offset by lower trade and other payables.
Deferred tax provision was mainly made for withholding tax levied on dividends of undistributed earnings of PRC subsidiaries, accelerated tax depreciation on inter-company sales of tower cranes used as rental fleet.
Current Liabilities
Current liabilities increased by RMB10.9 million to RMB898.7 million as at 31 March 2022 as compared to RMB887.8 million as at 31 March 2021 mainly due to higher borrowings, offset by lower trade and other payable, lower amount owing to related parties, and lower tax payable.
Borrowings increased by RMB35.6 million mainly due to higher trade financing arranged on export sales.
Trade and other payables decreased by RMB18.4 million mainly due to lower purchases over payment offset by higher advances from customers. Increase in advances from customers relates to the sales with option to return by customers. (See Note on property, plant and equipment above for more explanation).
Amount owing to related parties decreased from RMB11.5 million in 31 March 2021 to RMB7.6 million in 31 March 2022 was due to higher repayment over transactions made during the period under review.
Total Equity
As at 31 March 2022, the Group's total equity amounted to RMB890.1 million. The increase was mainly due to total comprehensive income of RMB34.7 million for FY2022, offset by dividend paid.
Review of Cash Flow Statement
2H FY2022 vs 2H FY2021
The Group reported a net increase in cash and cash equivalents amounting to RMB12.2 million in 2H FY2022 mainly due to:
- Net cash generated from operating activities of RMB33.4 million resulted from operating profit before working capital changes and decrease in operating receivables, partly offset by decrease in operating payables, increase in inventories and taxes paid.
- Net cash from investing activities of RMB0.5 million from dividend received from investment, interested received and proceeds from disposal of property, plant and equipment, partly offset by acquisition of property, plant and equipment and investment in an associated company; and
- Net cash used in financing activities of RMB21.7 million mainly from higher net repayment to bank borrowings, and interest paid, partly offset by net proceed over repayment of principal portion of lease liabilities and higher restricted bank balances.
Full Year FY2022 vs Full Year FY2021
The Group reported a net increase in cash and cash equivalents amounting to RMB82.4 million in Full Year FY2022 mainly due to:
- Net cash generated from operating activities of RMB96.2 million resulted from operating profit before working capital changes and decrease in operating receivables, partly offset by decrease in operating payables, increase in inventories and taxes paid.
- Net cash used in investing activities of RMB15.8 million from acquisition of property, plant and equipment and investment in an associated company, partly offset by dividend received from investment, interested received and proceeds from disposal of property, plant and equipment; and
- Net cash generated from financing activities of RMB2.0 million mainly from higher net proceed from bank borrowings and net proceed over repayment of principal portion of lease liabilities, partly offset by higher restricted bank balances, repayment to a director and interest paid.
Commentary
China's 2022 first-quarter GDP beats expectations to grow 4.8% year-on-year. However, economists have cut their forecasts for China's full-year economic growth in recent days after the country reported worse-than-expected data for April 2022 as Covid-19 controls restricted business activity. Since March, mainland China has struggled to contain its worst Covid outbreak in two years. Notably, Shanghai is slowly starting to emerge from a six-week lockdown amid signs the Covid-19 outbreak in the city is coming under control, while cases in Beijing are rising as the capital continues to tighten restrictions.
April's weak data pointed to a plunge in retail sales and industrial production, far worse than expected. However, the country has signaled in recent weeks that it still wants to meet its growth target of 5.5% this year despite downside risks from COVID- 19 disruptions and geopolitical tensions. The support would include infrastructure investment, tax cuts and rebates, measures to boost consumption, and other relief measures for companies.
Outside China, Covid-19 epidemic is still spreading globally and the international landscape is complicated with high uncertainties and instabilities. The financial leaders of the world's most powerful countries warned of the potential for a global economic slowdown, as the threats caused by Russia's invasion of Ukraine continued to multiply. Globally, hike in interest rates which is determined to curb inflation will risk pushing all nations into recession. The developing world faces an emerging debt crisis on top of a growing hunger problem sparked by the war.
Meanwhile, in the Group's major markets, i.e. Singapore and Hong Kong, have kept the COVID-19 pandemic largely under controls. The Housing Board of Singapore has announced the launching of about 17,000 units Build-To-Order (BTO) flats in 2022, similar to 2021. The Hong Kong construction industry is forecast to grow by 2.5% this year, up from an estimated growth of 2.1% in 2021, supported by the gradual recovery of construction activity and the execution of major transportation and housing infrastructure projects outlined in the 2021 Budget to stimulate economic growth. The Hong Kong government established HKD5 billion funding scheme to promote the construction of transitional housing, in an attempt to improve affordability in what is the most unaffordable city globally.
Notwithstanding with the increase in revenue in FY2022, the Group expect the operating environment to be challenging and the reasons as stated above. The Group remains vigilant and committed in exercising cost discipline and will take necessary remedial actions, where possible.
The Company will provide further updates as and when there are any material developments.