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UNAUDITED FIRST QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2017
First Quarter FY2018 ("Q1 FY2018") vs First Quarter FY2017 ("Q1 FY2017")
Group revenue slightly decreased 1.0% to RMB153.2 million in Q1 FY2018 as compared to RMB154.6 million in Q1 FY2017. The decrease was mainly resulted from lower services income of RMB3.4 million and lower sales of components and accessories of RMB5.9 million, partly offset by higher sales in towercranes of RMB7.8 million. Decrease in service income mainly due to decrease in Macau operations as a result of weaker demand.
Sales in PRC and Asia (outside the PRC) has dropped by RMB7.6 million and RMB3.5 million respectively. The decrease was offset by the increase in Middle East & others and USA & Europe which grew by RMB8.0 million and RMB1.7 million respectively due to higher demand of towercranes especially in Finland and Israel region. Overall, PRC sales still made the largest turnover contribution to the Group, amounting to 46.6% of revenue in Q1 FY2018 as compared to 51.1% of revenue in Q1 FY2017.
Gross profit and gross profit margin
Gross profit decreased 13.8% to RMB44.6 million in Q1 FY2018 from RMB51.8 million in Q1 FY2017. The decrease was mainly due to lower margin in Q1 FY2018.
Average gross profit margin decreased to 29.1% in Q1 FY2018 from 33.5% in Q1 FY2017. The decrease was mainly attributable to lower margin from service income in Macau as more dismantling services was provided in Q1 FY2017. However, there were no such services in Q1 FY2018. There were also lesser sales of large-sized tower cranes and sales of components and accessories which generates higher gross margin in Q1 FY2018 as compared to Q1 FY2017.
The decrease of other income to RMB0.4 million in Q1 FY2018 as compared to RMB0.7million in Q1 FY2017 was mainly due to one-time compensation income from customer by court orders resulted from breach of contract in Q1 FY2017.
Total operating expenses decreased 8.5% to RMB36.3million in Q1 FY2018 as compared to RMB39.7 million in Q1 FY2017.
Distribution costs decreased 15.0% to RMB12.3 million in Q1 FY2018 as compared to RMB14.5 million in Q1 FY2017 mainly due to lower freight and transportation charges in line with lower sales of large-sized towercranes as explained above. The decrease is further explained by lower after sales services expenses offset by higher employee benefit costs.
Administrative expenses slightly decreased 0.3% to RMB19.4 million in Q1 FY2018 as compared to RMB19.5 million in Q1 FY2017 mainly due to lower transportation and travelling expenses and office expenses. This decrease was partly offset by higher employee benefit costs during the period.
Other operating expenses decreased 13.2% to RMB1.0 million in Q1 FY2018 as compared to RMB1.1 million in Q1 FY2017 mainly due to lower exchange loss. This decrease was partly offset by higher bank charges.
The exchange loss arose mainly from the weakening of Singapore dollars ("SGD") against Chinese Yuan ("RMB") due to net SGD assets in the Company's books and RMB liabilities in the Singapore subsidiary's books.
In line with the lower average borrowing and lower effective interest rate, finance costs decreased 21.4% to RMB3.6 million in Q1 FY2018 as compared to RMB4.6 million in Q1 FY2017.
Income tax expense decreased 53.0% to RMB1.3 million in Q1 FY2018 as compared to RMB2.7 million in Q1 FY2017 in line with the lower profit for the financial period and the utilization of unabsorbed tax losses previously not recognized as deferred tax asset.
Profit before taxation and Net profit attributable to equity holders of the Company
The Group recorded a profit before taxation of RMB8.7 million in Q1 FY2018 as compare to RMB12.8 million in Q1 FY2017 was mainly due to lower gross profit offset by lower operating expenses.
Net profit attributable to equity holders of the Company decreased 16.3% to RMB6.7 million in Q1 FY2018 from RMB8.0 million mainly due to lower profit before taxation as mentioned above and lower profit attributable to noncontrolling interest.
Non-current assets decreased by RMB14.7 million to RMB566.0 million as at 30 June 2017 mainly due to depreciation and amortization expenses charged and lower deferred tax assets, partly offset by higher deferred cost for the financial period.
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 decreased mainly from lower provisions and elimination of unrealised profits in intragroup sales.
Current assets increased by RMB22.6 million to RMB872.7 million as at 30 June 2017 mainly due to higher inventory, trade and other receivables and amount owing by related parties. This was partly offset by lower cash and cash equivalents and deferred cost.
Inventories increased by RMB12.8 million for delivery due in the second quarter FY2018.
Trade and other receivables increased by RMB15.6 million to RMB307.8 million as at 30 June 2017 due to higher net sales over collection in Q1 FY2018.
Amount owing by related parties increased by RMB7.4 million to RMB90.5 million as at 30 June 2017 due to slower payment from related parties.
Deferred costs related to the corresponding current portion cost of sales relating to revenue deferred (See Note on deferred income below).
Non-current liabilities increased by RMB0.3 million to RMB61.1 million as at 30 June 2017 as compared to RMB61.1 million as at 31 March 2017 mainly due to increase in deferred income (See Note on deferred income below).
Current liabilities increased by RM2.9 million to RMB695.0 million as at 30 June 2017 as compared to RMB692.1 million as at 31 March 2017 mainly due to increase in trade and other payables, amount owing to a corporate shareholder of a subsidiary and current tax payable. This was partly offset by decrease in amount owing to related parties and borrowing.
Trade and other payables increased by RMB15.4 million mainly due to higher purchases and slower repayment.
Amount owing to a corporate shareholder increased by RMB1.2million due to slower repayment.
Amount owing to related parties decreased mainly due to loan repayment to related parties.
Deferred income included RMB17.8 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 RMB18.1 million as at 31 March 2017, was mainly due to repayment by customers to financial institutions.
As at 30 June 2017, the Group's total equity amounted to RMB682.5 million. The increase was mainly due to net profit of RMB7.5 million, partly offset by other comprehensive expenses of RMB2.5 million for Q1 FY2018.
Q1 FY2018 vs Q1 FY2017
The Group reported a net increase in cash and cash equivalents amounting to RMB16.0 million in Q1 FY2018 mainly due to:
China's economy expanded 6.9 percent year-on-year in the second quarter of 2017, the same pace as in the previous period. Growth remained at its strongest level since the third quarter of 2015 as industrial output, retail sales and fixed-asset investment remained strong. However, the economic growth may cool in coming months as government crack-down on financial risks raising borrowing costs for businesses.
Rapid property 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.
While property sector slowed, infrastructure investment is picking up on the back of regional development initiatives outlined by the 13th Five-Year Plan and the Xiongan economic zone. China pouring of funds into infrastructure has fueled demand for buildings material, from cements to steel and all others. Nevertheless, the Group remains cautious in view of the rising business cost.
Demand for towercranes 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 markets like Macau remain challenging.