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Financials

UNAUDITED SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 SEPTEMBER 2019

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UNAUDITED SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 SEPTEMBER 2019

Income Statement

NM: Not Meaningful

Comprehensive Income

NM: Not Meaningful

Balance Sheet

 

Review of Income Statement of the Group

Second Quarter FY2020 ("Q2 FY2020") vs Second Quarter FY2019 ("Q2 FY2019")

Revenue

Group revenue increased by 28.7% to RMB267.2 million in Q2 FY2020 as compared to RMB207.5 million in Q2 FY2019. The increase in revenue was mainly from higher sales of tower cranes by RM49.0 million from RMB158.7 million in Q2 FY2019 to RMB207.7 million in Q2 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 and rental and service income also increased by RMB6.2 million and RMB4.4 million respectively. The increase in rental income was mainly due to increase in rental in the PRC.

All sales region except for the Middle East and Others reported a higher revenue in Q2 FY2020 as compared to Q2 FY2019. Revenue in the PRC increased RMB41.4 million from RMB95.9 million in Q2 FY2019 to RMB137.3 million in Q2 FY2020 resulted mainly from higher demands in medium size tower cranes and sales of leased tower cranes. Asia (outside the PRC) has increased by RMB18.6 million from RMB88.0 million in Q2 FY2019 to RMB106.5 million in Q2 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 increased marginally by RMB0.7 million. The increase was slightly offset by the decrease in Middle East & Others which was lowered by RMB1.1 million.

Overall, the PRC and Asia (outside the PRC) sales contributed to 51.4% and 39.9% respectively of the Group revenue in Q2 FY2020.

Gross profit and gross profit margin

In line with increase in revenue, gross profit increased by 43.0% to RMB79.7 million in Q2 FY2020 from RMB55.8 million in Q2 FY2019.

Average gross profit margin increased to 29.8% in Q2 FY2020 from 26.9% in Q2 FY2019. The increase was attributable to sales of higher proportion of large and mega sized tower cranes of higher lifting capacity which generates higher margin.

Other income

Other income increased by RMB0.8 million to RMB2.2 million in Q2 FY2020 as compared to RMB1.4 million in Q2 FY2019 was mainly due to gain on disposal of machineries arising from the Beijing factory relocation. The increase is also from government grants received on product development, compensation income received from subcontractors resulted from non-conformance in quality for goods delivered and higher sales of scrapped material.

Operating expenses

Total operating expenses increased 33.9% to RMB55.4 million in Q2 FY2020 as compared to RMB41.4 million in Q2 FY2019.

Distribution costs increased 5.0% to RMB20.3 million in Q2 FY2020 as compared to RMB19.4 million in Q2 FY2019 mainly due to higher freight and transportation charges and higher bonus provision in line with higher sales, partly offset by lower after sales service expenses.

Administrative expenses increased 25.2% to RMB26.3 million in Q2 FY2020 as compared to RMB21.0 million in Q2 FY2019 mainly due to higher bonus provision. In addition, a one-off amount of RMB2.6 million was incurred for discharging our responsibility to repair and maintain a state-owned property previously enforced on Beijing Yongmao by local authority.

Other operating expenses reported a debit balance of RMB4.7 million in Q2 FY2020 from a credit balance of RMB3.2 million in Q2 FY2019. The higher operating expenses in Q2 FY2020 is mainly due to a provision for employee compensation of RMB3.0 million for the relocation of Beijing's manufacturing plant and property, transportation expenses of RMB2.9 million incurred for the relocation and plant and equipment written off of RMB0.5 million. This is partially offset by exchange gain of RMB2.8 million. The credit balance in Q2 FY2019 was mainly arose from an exchange gain of RMB3.3 million.

The exchange gain for Q2 FY2020 arose mainly from:

  1. the strengthening of Singapore Dollars ("SGD") and Hong Kong Dollars ("HKD") against Chinese Yuan ("RMB") due to net RMB liabilities in the Singapore subsidiary's book and Hong Kong subsidiary's book; and
     
  2. the strengthening of HKD against RMB and SGD due to net HKD assets in the Company's book and the Singapore subsidiary's book; and
     
  3. the strengthening of USD against RMB due to net USD assets in the PRC subsidiary's book; offset by
     
  4. the weakening of USD and EURO against SGD due to net USD and EURO assets in the Singapore subsidiary's book.

Despite borrowings decreased by RMB11.4 million to RMB224.6 million as at 30 September 2019 as compared to RMB236.0 million as at 30 June 2019, finance costs only decreased marginally to RMB4.1 million in Q2 FY2020 as compared to RMB4.2 million in Q2 FY2019 due to higher finance charges incurred on early discounting of letters of credit and bills receivables.

Taxation

Income tax expense increased to RMB7.6 million in Q2 FY2020 as compared to RMB3.8 million in Q2 FY2019 is in line with higher profits 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 RMB26.6 million in Q2 FY2020 as compared to RMB15.8 million in Q2 FY2019 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 RMB23.1 million in Q2 FY2020 from RMB13.6 million in Q2 FY2019. This was mainly due to profit before taxation, offset by tax expense.

First Half FY2020 ("1H FY2020") vs First Half FY2019 ("1H FY2019")

Revenue

Group revenue increased by 49.1% to RMB578.7 million in 1H FY2020 as compared to RMB388.0 million in 1H FY2019. The increase in revenue was mainly from higher sales of tower cranes by RM177.0 million from RMB293.4 million in 1H FY2019 to RMB470.4 million in 1H 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 RMB16.9 million. The increase in revenue was partly offset by lower rental and service income by RMB3.2 million. Decrease in rental & service income was mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand.

All sales region except for the Middle East and Others reported a higher revenue in 1H FY2020 as compared to 1H FY2019. Revenue in the PRC increased RMB115.1 million from RMB203.7 million in 1H FY2019 to RMB318.8 million in 1H FY2020 resulted mainly from higher demands in medium size tower cranes and sales of leased tower cranes. Asia (outside the PRC) has increased by RMB70.4 million from RMB129.9 million in 1H FY2019 to RMB200.3 million in Q2 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 also increased by RMB13.0 million. The increase was offset by the decrease in Middle East & Others which was lowered by RMB7.9 million.

Overall, the PRC and Asia (outside the PRC) sales contributed to 55.1% and 34.6% respectively of the Group revenue in 1H FY2020.

Gross profit and gross profit margin

In line with increase in revenue, gross profit increased by 69.3% to RMB167.2 million in 1H FY2020 from RMB98.8 million in 1H FY2019.

Average gross profit margin increased to 28.9% in 1H FY2020 from 25.5% in 1H FY2019. The increase was attributable to sales of higher proportion of large and mega sized tower cranes of higher lifting capacity which generates higher margin.

Other income

Other income slightly increased by RMB0.6 million to RMB3.8 million in 1H FY2020 as compared to RMB3.2 million in 1H FY2019 was mainly due to gain on disposal of machineries arising from the Beijing factory relocation. The increase is also from government grants received on product development, compensation income received from subcontractors resulted from non-conformance in quality for goods delivered and higher sales of scrapped material. The increase was partly offset by lower interest income of RMB0.5 million. Interest income mainly derived from deposit placed to secure trade facility.

Operating expenses

Total operating expenses increased 43.0% to RMB111.5 million in 1H FY2020 as compared to RMB77.9 million in 1H FY2019.

Distribution costs increased 29.7% to RMB45.0 million in 1H FY2020 as compared to RMB34.7 million in 1H FY2019 mainly due to higher freight and transportation charges, higher bonus provision, as well as higher after sales service expenses in line with higher sales.

Administrative expenses increased 18.4% to RMB47.1 million in 1H FY2020 as compared to RMB39.8 million in 1H FY2019 largely due to higher bonus. In addition, a one-off amount of RMB2.6 million was incurred for discharging our responsibility to repair and maintain a state-owned property previously enforced on Beijing Yongmao by local authority. The increase is also contributed by higher traveling cost and professional fees.

Other operating expenses reported a debit balance of RMB10.5 million in 1H FY2020 from a credit balance of RMB5.2 million in 1H FY2019. The higher operating expenses in 1H FY2020 is mainly due to a provision for employee compensation of RMB11.1 million for the relocation of Beijing's manufacturing plant and property, transportation expenses of RMB2.9 million incurred for the relocation and plant and equipment written off of RMB0.5 million. This is partially offset by exchange gain of RMB5.4 million. The credit balance in 1H FY2019 was mainly arose from an exchange gain of RMB5.5 million.

The exchange gain for 1H FY2020 arose mainly from:

  1. the strengthening of Singapore Dollars ("SGD") and Hong Kong Dollars ("HKD") against Chinese Yuan ("RMB") due to net RMB liabilities in the Singapore subsidiary's book and Hong Kong subsidiary's book; and
     
  2. the strengthening of HKD against RMB and SGD due to net HKD assets in the Company's book and the Singapore subsidiary's book; and
     
  3. the strengthening of USD against RMB due to net USD assets in the PRC subsidiary's book; offset by
     
  4. the weakening of USD and EURO against SGD due to net USD and EURO assets in the Singapore subsidiary's book.

Despite lower average borrowing, finance costs increased marginally to RMB8.8 million in 1H FY2020 as compared to RMB8.6 million in 1H FY2019 due to higher finance charges incurred on early discounting of letters of credit and bills receivables.

Taxation

Income tax expense increased to RMB15.1 million in 1H FY2020 as compared to RMB6.1 million in 1H FY2019 is in line with higher profits 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 RMB59.5 million in 1H FY2020 as compared to RMB24.0 million in 1H FY2019 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 RMB51.3 million in 1H FY2020 from RMB21.6 million in 1H FY2019. This was mainly due to profit before taxation, offset by tax expense.

Review Of Financial Position Of The Group

Non-current Assets

Non-current assets increased by RMB3.1 million to RMB566.4 million as at 30 September 2019 arises from right-ofuse assets. 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 period under review, a deprecation on the right-ofuse assets of RMB2.6 million was charged to income statement.

Deferred tax assets also increased by RMB5.3 million. Deferred tax assets arose mainly from provisions and elimination of unrealised profits in intragroup sales.

The increased was offset by net decrease in property, plant and equipment over additions, disposal and depreciation charged for the period under review.

Current Assets

Current assets increased by RMB32.1 million to RMB1,132.0 million as at 30 September 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 RMB40.9 million to RMB495.9 million as at 30 September 2019. The increase is in line with increase in sales.

Inventories increased by RMB32.8 million to RMB391.5 million as at 30 September 2019 as compared to RMB358.6 million as at 31 March 2019. This higher inventory is for delivery to customers in the third quarter FY2020.

Amount owing by related parties increased by RMB4.5 million to RMB93.7 million as at 30 September 2019 due to higher sales over repayments from related parties.

Non-current Liabilities

Non-current liabilities increased by RMB7.7 million to RMB59.0 million as at 30 September 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 RMB2.5 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

Current liabilities decreased by RM12.9 million to RMB816.4 million as at 30 September 2019 as compared to RMB829.3 million as at 31 March 2019 mainly due to repayment of bank borrowings and amount owing to related parties. The decrease was partly offset by higher tax payable, trade and other payables and amount owing to a corporate shareholder of a subsidiary.

Trade and other payables increased by RMB5.9 million mainly due to higher purchases made during the period partially offset by lower advances from customers.

Amount owing to a corporate shareholder increased by RMB2.0 million due to higher transactions over repayments during the period.

Total Equity

As at 30 September 2019, the Group's total equity amounted to RMB822.9 million. The increase was mainly due to total comprehensive income of RMB53.8 million for 1H FY2020, partly offset by dividends paid in Q2 FY2020.

Review Of Cashflow Statement

Q2 FY2020 vs Q2 FY2019

The Group reported a net decrease in cash and cash equivalents amounting to RMB16.4 million in Q2 FY2020 mainly due to:

  1. Net cash generating from operating activities of RMB11.5 million resulted mainly from operating profit before working capital changes, decrease in operating receivables and increase in operating payables, partly offset by increased in inventory, and interest and taxes paid;
     
  2. Net cash generated from investing activities of RMB0.4 million mainly from interest received and the proceeds from disposal of property, plant and equipment, partly offset by acquisition of properties, machineries and office equipment; and
     
  3. Net cash used in financing activities of RMB28.3 million mainly from net repayment of bank borrowings and finance lease creditors, repayment of lease liabilities, repayment to related parties and a director and dividend paid to shareholders of the company, partly offset by lower restricted bank balances.

1H FY2020 vs 1H FY2019

The Group reported a net increase in cash and cash equivalents amounting to RMB41.5 million in 1H FY2019 mainly due to:

  1. Net cash generated from operating activities in 1H FY2019 of RMB7.3 million resulted mainly from operating profit before working capital changes, partly offset by increase in operating receivables, increase in inventories, decrease in operating payables and interest and taxes paid;
     
  2. Net cash used in investing activities of RMB0.1 million mainly from acquisition of properties, machineries and office equipment, partly offset by interest received and the proceeds from disposal of property, plant and equipment; and
     
  3. Net cash used in financing activities of RMB48.7 million mainly from net repayment of bank borrowings and finance lease creditors, repayment of lease liabilities, repayment to related parties and a director and dividend paid to shareholders of the company, partly offset by lower restricted bank balances.

Commentary

PRC's economy grew by 6.0 per cent in the third quarter of 2019, slowing from a 6.2 percent expansion in the previous quarter and compared with market expectations of 6.1 percent. While the decline was within PRC Government's GDP target for the year of between 6 to 6.5 per cent, the continuing trade war with the U.S. may cause uncertainty to the global economic environment.

PRC government has continued to ramp up investments in infrastructure in the country. Apart from this, the construction sector in PRC is seeing an increase in the adoption of prefabricated construction method that will likely drive the demand for bigger size tower cranes. Demand for tower cranes outside the PRC including Singapore, Taiwan and the Middle East is likely to see a better demand in the replacement market.

The Group has consolidated its Beijing's manufacturing plant to Fushun as part of the its efforts to streamline its operations and to improve overall management and cost efficiency in September 2019. The relocation exercise is substantially completed and total expenses to-date approximate to RMB14.6 million. In this regard, the Group had discussed with the relevant local authorities for certain subsidies and we are currently finalizing the amount with them.

The Group continues to experience keen price competition as well as rising material and business costs. Looking ahead, the Group will continue to focus on cost controls, enhance capacity utilisation and grow our presence in new markets.


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