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UNAUDITED FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2017

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UNAUDITED FOURTH QUARTER/FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD/YEAR ENDED 31 MARCH 2017

Income Statement

Comprehensive Income

Balance Sheet

Review of Income Statement of the Group

Fourth Quarter FY2017 ("Q4 FY2017") vs Fourth Quarter FY2016 ("Q4 FY2016")

Revenue

Group revenue increased by 2.1% to RMB119.0 million in Q4 FY2017 as compared to RMB116.5 million in Q4 FY2016. The increase in revenue was contributed from higher rental income and higher sales of components and parts, partly offset by lower sales of towercranes in Q4 FY2017 as compared to Q4 FY2016.

Sales in PRC has increased by RMB4.2 million to RMB47.6 million in Q4 FY2017 as compared to RMB43.4 million in Q4 FY2016. Rental and service income in PRC has increased with demand for large-sized towercranes used for infrastructure projects in PRC. Asia (outside the PRC) sales has also up by RMB2.0 million to RMB47.000 million in Q4 FY2017.

Sales in Middle East and others, the USA and Europe has dropped RMB2.6 million and RMB1.2 million respectively in Q4 FY2017 as compared to Q4 FY2016 mainly due to decrease in sales of towercranes, partly offset by increased sales of components and accessories.

Gross profit and gross profit margin

Gross profit increased 7.6% to RMB40.0 million in Q4 FY2017 from RMB37.2 million in Q4 FY2016. The increase was mainly due to higher margin in Q4 FY2017.

Accordingly, average gross profit margin increased to 33.6% in Q4 FY2017 from 31.9% in Q4 FY2016. The increase was attributable to sales of more large-sized luffing series towercranes of higher lifting capacity which generates higher margin. This was offset by lower margin of service income from Hong Kong operations resulted from higher repairs and maintenance expenses.

Other income

Other income decreased to RMB0.7 million in Q4 FY2017 as compared to RMB5.3 million in Q4 FY2016 was mainly due to lower interest income of RMB4.2 million and lower gain on disposal of property, plant and equipment of RMB0.4 million.

Operating expenses

Total operating expenses increased 6.5% to RMB35.1 million in Q4 FY2017 as compared to RMB32.9 million in Q4 FY2016.

Distribution costs increased 10.9% to RMB12.9 million in Q4 FY2017 as compared to RMB11.7 million in Q4 FY2016 mainly due to higher bonus paid offset by lower freight and transportation charges in line with lower sales of towercranes.

Administrative expenses increased 4.5% to RMB21.0 million in Q4 FY2017 as compared to RMB20.1 million in Q4 FY2016 mainly due to additional property and land holding tax of RMB1.4 million charged by the tax authority in respect to prior years.

Other operating expenses reported a credit balance of RMB2.0 million in Q4 FY2017 from a credit balance of RMB3.0 million in Q4 FY2016. The decrease is due to exchange loss of RMB0.1 million in Q4 FY2017 as compared to the exchange gain of RMB1.6 million in Q4 FY2016 offset by higher reversal for impairment of trade receivables of RMB0.7 million. Via a court order, the Group had recovered trade receivables of RMB2.0m previously provided for the customer, 陕西宏城机械租赁有限公司 in Q4 FY2017.

In line with the lower average borrowing and lower effective interest rate, finance costs decreased 25.6% to RMB3.1 million in Q4 FY2017 as compared to RMB4.2 million in Q4 FY2016.

Taxation

Income tax expense decreased 32.5% to RMB1.8 million in Q4 FY2017 as compared to RMB2.7 million in Q4 FY2016 in line with the lower profit for the financial period.

Profit before taxation and Net profit attributable to equity holders of the Company

The Group recorded a profit before taxation RMB5.6 million in Q4 FY2017 as compare to RMB9.5 million in Q4 FY2016 was mainly due to lower other income and higher operating expenses, partly offset by higher revenue resulting in higher gross profit.

In line with profit before taxation, net profit for the period decreased by 44.6% to RMB3.8 million in Q4 FY2017 from RMB6.8 million in Q4 FY2016.

Net profit attributable to equity holders of the Company decreased 32.1%to RMB5.7 million in Q4 FY2017 from RMB8.3 million mainly due to lower profit before taxation as mentioned above and, partly offset by losses attributable to non-controlling interest.

FY2017 vs FY2016

Revenue

Group revenue increased 26.3% to RMB574.5 million in FY2017, as compared to RMB455.0 million in FY2016. Sales in PRC has increased with revenue recorded at RMB283.3 million, up by 113.6% in FY2017 as compared to FY2016 as demand increased for large sized towercranes used for infrastructure projects, such as power plants, bridges and the Beijing New Airport project in Daxing. The increase is also partly contributed from higher rental and service income in the PRC. Asia (outside the PRC) sales has also increased by RMB13.3 million or equal to 6.4% contributed from improved sales in Taiwan market and higher rental and service income from Hong Kong operations offset by lower sales in Singapore and Malaysia. The increase was partly offset by decrease in sales to Middle East, USA and Europe of RMB 44.4 million from RMB113.9 million in FY2016 to RMB69.5 million in FY2017.

Following the improvement in the PRC sales, it formed the bulk of the sales at 49.3% in FY2017 as compared to 29.1% in FY2016.

Gross profit and gross profit margin

Gross profit increased 39.0% to RMB196.3 million in FY2017 from RMB141.2 million in FY2016. The increase was due to both higher revenue and better margin in FY2017.

Average gross profit margin increased to 34.2% in FY2017 from 31.0% in FY2016. The increase was attributable to sales of more larger-sized tower cranes of higher lifting capacity and luffing series towercranes which generates higher gross margin as well as higher rental income from both PRC and Hong Kong operations. This was offset by lower margin of service income from Hong Kong operations resulted from higher repairs and maintenance expenses.

Other income

Other income decreased to RMB4.6 million in FY2017 as compared to RMB7.9 million in FY2016. This decrease is due to lower interest income of RMB4.2 million offset by higher compensation income from customers and suppliers of RMB1.1 million.

Operating expenses

Total operating expenses increased 11.2% to RMB160.8 million in FY2017 as compared to RMB144.6 million in FY2016.

Distribution costs increased 19.4% to RMB55.2 million in FY2017 as compared to RMB46.2 million in FY2016 mainly due to higher freight and transportation charges in line with higher sales and more sales of large-sized towercranes. This was also affected by the stricter loading restriction imposed by the local authority from Sep 2016 resulted in higher freight and transportation cost.

Administrative expenses increased 13.2% to RMB84.8 million in FY2017 as compared to RMB74.9 million in FY2016 largely due to higher bonus provision in line with higher profit reported in FY2017. The increase is also due to higher entertainment and transportation expenses, higher staff cost (excludes bonuses) and higher property and land holding tax in FY2017. Increase in entertainment and transportation arose from the participation in the bi-annual Bauma 2016 exhibition. Staff cost increased due to increase in number of staff as well as salary increment. Additional property and land holding tax of RMB1.4 million was charged by the tax authority in respect to prior years.

Other operating expenses increased to RMB4.2 million in FY2017 from RMB2.9 million in FY2016. This is mainly due to higher allowance for impairment of trade receivables and higher exchange losses offset by lower donations. Allowance for impairment of trade receivables reported at RMB1.5 million in FY2017 pertains to allowance made mainly for two Beijing local rental companies namely 北京中惠博远机械工程有限公司 and 北京拓兴盛机械设备租赁有限公司which were long-outstanding, partly offset by doubtful debts previously provided for, now recovered from 陕西宏城机械租赁有限公司 by court orders.

The exchange losses arose mainly from:

  1. the weakening of Chinese Yuan ("RMB") against United States Dollars ("USD") due to net USD liabilities reported in the Group, offset by
  2. the strengthening of Singapore Dollars ("SGD") against RMB due to net SGD assets reported in the Group.

In line with the lower average borrowing and lower effective interest rate, finance costs decreased 19.4% to RMB16.6 million in FY2017 as compared to RMB20.7 million in FY2016.

Taxation

Income tax expense reported at RMB7.9 million in FY2017 as compared to RMB2.1 million in FY2016 in line with higher profit for the financial year.

Profit before taxation and Net profit attributable to equity holders of the Company

The Group recorded a profit before taxation RMB40.0 million in FY2017 as compare to RMB4.4 million in FY2016 was mainly due to higher revenue resulting in higher gross profit, partly offset by lower other income and higher operating expenses.

In line with profit before taxation, net profit for the year increased to RMB32.1 million in FY2017 from RMB2.3 million in FY2016.

Net profit attributable to equity holders of the Company increased to RMB28.1 million in FY2017 from RMB3.9 million mainly due to higher profit before taxation as mentioned above, partly offset by profit attributable to non-controlling interest.

Review Of Financial Position Of The Group

Non-current Assets

Non-current assets increased by RMB16.1 million to RMB580.7 million as at 31 March 2017 arises from net additions in property, plant and equipment mainly due to increase in rental fleet and higher available-for-sale financial assets. This was partly offset by lower deferred costs and lower deferred tax assets. Fair value gains of RMB11.2 million on the available-for-sale financial assets was recognised as at 31 March 2017.

Deferred costs related to the corresponding non-current portion cost of sales relating to revenue deferred (See Note on deferred income below).

Deferred tax assets arose mainly from deferred income, provisions and elimination of unrealised profits in intragroup sales.

Current Assets

Current assets decreased by RMB19.2 million to RMB850.1 million as at 31 March 2017 mainly due to lower trade and other receivables, lower amount owing by related parties, and lower cash and cash equivalents (see Note on Review on Cash Flow Statement below), offset by higher inventories.

Despite increase in revenue, trade and other receivables decreased by RMB23.9 million to RMB292.1 million as at 31 March 2017 due to improvement in collection.

Amount owing by related parties are mainly trade in nature which decreased due to net collection over sales for the financial period.

Inventories increased by RMB36.8 million to RMB317.6 million as at 31 March 2017 as compared to RMB280.8 million as at 31 March 2016 for delivery due in Q1 FY2018.

Deferred costs related to the corresponding current portion cost of sales relating to revenue deferred (See Note on deferred income below).

Non-current Liabilities

Non-current liabilities decreased by RMB3.7 million to RMB61.1 million as at 31 March 2017 as compared to RMB64.8 million as at 31 March 2016 mainly due to lower deferred income (See Note on deferred income below), partly offset by higher deferred tax liabilities, higher borrowings and higher trade and other payables.

Current Liabilities

Current liabilities decreased by RM49.1 million to RMB692.1 million as at 31 March 2017 as compared to RMB741.3 million as at 31 March 2016 mainly due to repayment of borrowings, partly offset by higher trade and other payables.

Trade and other payables increased by RMB68.4 million mainly due to higher purchases as a result of higher sales and slower repayment.

Amount owing to related parties was for the purpose of increasing the working capital of the Group.

Deferred income included RMB18.1 million of revenue deferred due to uncertainty in the timing of the consideration for the delivery of goods made to the customer. Owing to the uncertainty, the amount of the unpaid sum owed by the customer to the financial institution is deferred and recognised as revenue when the uncertainty is removed. The deferred costs, as mentioned under non-current and current assets above, related to the amount carried in the statement of financial position to the extent that revenue has been deferred. The decrease in deferred income, from RMB30.3 million as at 31 March 2016, was mainly due to repayment by customers to financial institutions.

Total Equity

As at 31 March 2017, the Group's total equity amounted to RMB677.5 million. The increase was mainly due to net profit of RMB32.1 million and other comprehensive income of RMB17.6 million for FY2017.

Review Of Cash Flow Statement

Q4 FY2017 vs Q4 FY2016

The Group reported a net decrease in cash and cash equivalents amounting to RMB28.5 million in Q4 FY2017 mainly due to:

  1. Net cash used in generated from operating activities in Q4 FY2017 of RMB29.3 million resulted mainly from increase in inventories, decrease in operating payables, partly offset by operating profit before working capital changes and decrease in operating receivables;
  2. Net cash used in investing activities of RMB1.4 million mainly from purchases of machinery and motor vehicles; and
  3. Net cash generated from financing activities of RMB2.2 million mainly from net proceeds of bank borrowings and advances from a director, partly offset by net repayment to finance lease creditors, repayment to related parties and higher restricted bank balances.

FY2017 vs FY2016

The Group reported a net decrease in cash and cash equivalents amounting to RMB28.6 million in FY2017 mainly due to:

  1. Net cash from operating activities in FY2017 of RMB106.8 million mainly from operating profit before working capital changes, decrease in operating receivables and increase in operating payables, partly offset by increase in inventories;
  2. Net cash used in investing activities of RMB5.9 million mainly from purchases of machinery and motor vehicles; and
  3. Net cash used in financing activities of RMB129.5 million mainly from net repayment of bank borrowings and finance lease creditors, repayment to related parties and higher restricted bank balances, partly offset by advance from a director.

Commentary

China's economy expanded 6.9 percent year-on-year in the March quarter of 2017, compared to a 6.8 percent growth in the fourth quarter 2016. This was the strongest expansion since the September quarter 2015 supported by faster rises in industrial output, retail sales and fixed-asset investment while fiscal spending surged.

The unexpected recovery in China's residential property market last year has helped support the economy in 2016. The recovery appears uneven as rapid price rises in some of the biggest cities fanned concerns of overheating and prompted a few local governments to cool sales by tightening property transfer restrictions. In smaller cities, a large number of unsold new properties continued to hit sales and prices forcing local authorities to explore new ways to increase sales. As such, domestic demand for construction machinery and equipment including towercranes for residential property market continues to remain muted.

Despite recent residential property tightening measures, investment momentum is likely to stay stronger in coming months amid heavy infrastructure investment. The April announcement of the new Xiongan economic zone portends stronger construction spending and suggests authorities are likely to remain reliant on investment to help support longer-term growth. This augurs positively for the construction market for infrastructure development in China.

Demand for towercranes in other overseas markets is mixed with markets such as Singapore, Taiwan and Australia likely to see a better demand in the replacement market whereas markets like Macau remain challenging.