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UNAUDITED FIRST QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2019
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First Quarter FY2020 ("Q1 FY2020") vs First Quarter FY2019 ("Q1 FY2019")
Group revenue increased by 72.6% to RMB311.5 million in Q1 FY2020 as compared to RMB180.5 million in Q1 FY2019. The increase in revenue was mainly from higher sales of tower cranes by RM128.0 million from RMB134.7 million in Q1 FY2019 to RMB262.7 million in Q1 FY2020. It was mainly driven by the demand for large and mega size tower cranes in Singapore and the demand for medium size tower cranes in the PRC amidst adoption of the Prefabricated Prefinished Volumetric Construction "PPVC" method and the prefabricated construction method respectively.
Sales of components also increased by RMB10.7 million. The increase in revenue was partly offset by lower rental and service income by RMB7.6 million. Decrease in rental & service income was mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand. Rental in the PRC was also lower due to sales of certain leased tower cranes to customers.
All sales region except for the Middles East reported a higher revenue in Q1 FY2020 as compared to Q1 FY2019. Revenue in the PRC increased RMB73.7 million from RMB107.8 million in Q1 FY2019 to RMB181.5 million in Q1 FY2020 resulted mainly from higher demands in medium size tower cranes and sales of leased tower cranes. Asia (outside the PRC) has increased by 123.4% from RMB42.0 million in Q1 FY2019 to RMB93.7 million in Q1 FY2020 mainly due to increase demand for higher lifting capacity tower cranes in adoption of Prefabricated Pre-finished Volumetric Construction (PPVC) method. Revenue in the USA & Europe has also increased by RMB12.3 million. The increase was slightly offset by the decrease in Middle East & Others which was lowered by RMB6.8 million.
Overall, the PRC and Asia (outside the PRC) sales contributed to 58.3% and 30.1% respectively of the Group revenue in Q1 FY2020.
Gross profit and gross profit margin
In line with increase in revenue, gross profit increased by 103.4% to RMB87.5 million in Q1 FY2020 from RMB43.0 million in Q1 FY2019.
Average gross profit margin increased to 28.1% in Q1 FY2020 from 23.8% in Q1 FY2019 which also explained the higher gross margin. The increase was attributable to sales of more large and mega sized tower cranes of higher lifting capacity which generates higher margin.
Other income decreased by RMB0.2 million to RMB1.6 million in Q1 FY2020 as compared to RMB1.8 million in Q1 FY2019 was mainly due to one-off compensation income of RMB0.6 million from customers by court orders reported in Q1 FY2019 and lower sub-rental of premises income from Hong Kong of RMB0.2 million. The decrease was offset by higher interest income of RMB0.5 million. Interest income mainly derived from deposit placed to secure trade facility.
Total operating expenses increased 53.3% to RMB56.1 million in Q1 FY2020 as compared to RMB36.6 million in Q1 FY2019.
Distribution costs increased 61.1% to RMB24.6 million in Q1 FY2020 as compared to RMB15.3 million in Q1 FY2019 mainly due to higher freight and transportation charges, higher bonus provision and higher after sales service expenses in line with higher sales.
Administrative expenses increased 10.8% to RMB20.9 million in Q1 FY2020 as compared to RMB18.8 million in Q1 FY2019 mainly due to higher product certification fee for new model of tower cranes and transportation expenses.
Other operating expenses reported a debit balance of RMB5.9 million in Q1 FY2020 from a credit balance of RMB2.0 million in Q1 FY2019. The higher operating expenses in Q1 FY2020 is mainly due to a provision for employee compensation of RMB8.2 million for the relocation of Beijing's manufacturing plant. This is partially offset by exchange gain of RMB2.6 million. The credit balance in Q1 FY2019 was mainly arose from an exchange gain of RMB2.2 million.
The exchange gain for Q1 FY2020 arose mainly from:
Despite lower average borrowing, finance costs increased 7.0% to RMB4.7 million in Q1 FY2020 as compared to RMB4.4 million in Q1 FY2019. This is due to higher finance charges incurred on early discounting of letters of credit and bills receivables.
Income tax expense increased to RMB7.4 million in Q1 FY2020 as compared to RMB2.3 million in Q1 FY2019 is in line with higher 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 of RMB33.0 million in Q1 FY2020 as compared to RMB8.2 million in Q1 FY2019 was 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 to RMB28.3 million in Q1 FY2020 from RMB8.0 million in Q1 FY2019. This was mainly due to profit before taxation, offset by tax expense.
Non-current assets decreased by RMB3.7 million to RMB559.6 million as at 30 June 2019. Included in property, plant and equipment, rental fleet amounting to RMB10.0 million was disposed and depreciation of RMB13.2 million was charged to income statement during the quarter under review.
Upon the adoption of SFRS(I) 16 Leases as explained in paragraph 5 above, right-of-use assets of RMB13.6 million was recognised as at 1 April 2019. During the quarter under review, a deprecation on the right-of-use assets of RMB1.3 million was charged to income statement.
Deferred tax assets also increased by RMB2.0 million. Deferred tax assets arose mainly from provisions and elimination of unrealised profits in intragroup sales.
Current assets increased by RMB36.2 million to RMB1,136.1 million as at 30 June 2019 mainly due to higher trade and other receivables, higher inventory and higher amount owing by related parties. This was partly offset by lower cash and cash equivalents.
Trade and other receivables increased by RMB35.7 million to RMB490.7 million as at 30 June 2019. The increase is in line with increase in sales.
Inventories increased by RMB7.2 million to RMB365.8 million as at 30 June 2019 as compared to RMB358.6 million as at 31 March 2019 for delivery due in the first quarter FY2020. Increase in inventory level is in line with increase in sales.
Amount owing by related parties increased by RMB16.6 million to RMB105.8 million as at 30 June 2019 due to higher sales over repayments from related parties.
Non-current liabilities increased by RMB8.3 million to RMB59.6 million as at 30 June 2019 as compared to RMB51.3 million as at 31 March 2019 mainly due to the adoption of SFRS(I) 16 Leases as explained in paragraph 5 above, where a lease liability of RMB13.6 million (including non-current and current portion) was recognised as at 1 April 2019.
Deferred tax liabilities also increased by RMB0.9 million. Deferred tax provision was mainly made for withholding tax levied on dividends of undistributed earnings of PRC subsidiaries and accelerated tax depreciation on inter-company sales of tower cranes used as rental fleet.
Current liabilities decreased by RM5.9 million to RMB823.3 million as at 30 June 2019 as compared to RMB829.2 million as at 31 March 2019 mainly due to repayment of borrowings and amount owing to related parties. The decrease was partly offset by higher tax payable and amount owing to a corporate shareholder of a subsidiary.
Amount owing to a corporate shareholder increased by RMB1.0 million due to higher transactions over repayments during the period.
As at 30 June 2019, the Group's total equity amounted to RMB812.7 million. The increase was mainly due to total comprehensive income of RMB30.1 million for Q1 FY2020.
Q1 FY2020 vs Q1 FY2019
The Group reported a net decrease in cash and cash equivalents amounting to RMB25.1 million in Q1 FY2020 mainly due to:
China's economy grew by 6.2 per cent as projected in the second quarter of 2019, the lowest figure since records began in March 1992. While the falls was within China Government's GDP target for the year of between 6 to 6.5 per cent, the ongoing US trade war is likely to cause weaker exports and pressure to the economy. Trade tensions between the U.S. and China may also stall a global recovery and are continuing to endanger investment and growth.
China government also primes up spending on infrastructure to boost economic growth to stave off the slowdown in the domestic economy and effect of trade war.
Apart from this, the construction sector in China is seeing an increase in the adoption of prefabricated construction method that will likely drive the demand of bigger size tower cranes. Demand for tower cranes in other overseas markets is mixed with markets such as Singapore, Taiwan and Middle East likely to see a better demand in the replacement market whereas market like Hong Kong remains challenging. However, the Group remains cautious in view of the keen price competition as well as the rising material and business cost.
The Group is consolidating its Beijing's manufacturing plant to Fushun as part of the Group's effort to streamline its operations and to improve overall management and cost efficiency. The relocation has commenced in July and is expected to complete in September 2019. This is unlikely to have a significant impact to the financial statements.