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Financials

UNAUDITED FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018

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UNAUDITED FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018

Income Statement

Comprehensive Income

Balance Sheet

Review of Income Statement of the Group

Fourth Quarter FY2018 (“Q4 FY2018”) vs Fourth Quarter FY2017 (“Q4 FY2017”

Revenue

Group revenue increased by 35.7% to RMB161.4 million in Q4 FY2018 as compared to RMB119.0 million in Q4 FY2017. The increase in revenue was mainly from higher sales of towercranes of RMB34.4 million. Rental income as well as service income also increased by RMB15.4 million. The increase partly offset by lower sales of components and parts of RMB7.4 million.

All sales region except for the USA & Europe has reported a higher revenue in Q4 FY2018 as compared to Q4 FY2017. Asia (outside the PRC) has increased by 46.5% to RMB68.9 million mainly due to increase demand for higher lifting capacity towercranes in adoption of Prefabricated Pre-finished Volumetric Construction (PPVC) method. Revenue in the PRC also increased 30.0% from RMB47.6 million in Q4 FY2017 to RMB61.9 million in Q4 FY2018 resulted mainly from higher demands in medium size towercranes and higher rental income in Q4 FY2018. Revenue in Middle East & Others has also up by RMB10.1 million. The increase was offset by the decrease in the USA & Europe which was down by RMB3.8 million.

Overall, Asia (outside the PRC) and PRC sales contributed 42.7% and 38.3% respectively of the Group revenue.

Gross profit and gross profit margin

Despite the increase in revenue, gross profit decreased marginally 0.6% to RMB39.7 million in Q4 FY2018 from RMB40.0 million in Q4 FY2017 amidst keen price competition resulting in lower margins from sales of towercranes, coupled with higher steel material cost.

Accordingly, average gross profit margin decreased to 24.6% in Q4 FY2018 from 33.6% in Q4 FY2017.

Other income

Other income increased to RMB1.0 million in Q4 FY2018 as compared to RMB0.7 million in Q4 FY2017 was mainly due to higher government grants obtained and higher sales of scrap material.

Operating expenses

Total operating expenses increased 22.9% to RMB43.1 million in Q4 FY2018 as compared to RMB35.1 million in Q4 FY2017.

Distribution costs increased 28.8% to RMB16.6 million in Q4 FY2018 as compared to RMB12.9 million in Q4 FY2017 mainly due to higher freight and transportation charges in line with higher sales of towercranes partly offset by lower sales service expenses.

Administrative expenses increased 14.8% to RMB24.1 million in Q4 FY2018 as compared to RMB21.0 million in Q4 FY2017 mainly due to higher staff benefit costs and higher transportation cost incurred for the shifting of Hong Kong office and warehouse. The increase was partly offset by property and land holding tax of RMB1.4 million charged by the tax authority Q4 FY2017. There was no such charges in Q4 FY2018.

Other operating expenses reported a credit balance of RMB1.3 million in Q4 FY2018 from a credit balance of RMB2.0 million in Q4 FY2017. The decrease is due to higher exchange loss of RMB2.1 million in Q4 FY2018 as compared to RMB0.1 million in Q4 FY2017. The decrease was offset by higher reversal for impairment of trade receivables of RMB4.4 million and compared to RMB2.4 million in Q4 FY2017. The reversal for impairment of trade receivables of RMB4.4 mainly pertains to:

  1. RMB0.7 million recovered by recalling two units of towercranes;
  2. RMB1.5 million collections from customers previously provided for in FY2017; and
  3. RMB2.2 million reversal for provision no longer required.

The exchange loss arose mainly from:

  1. the weakening 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 weakening 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 weakening of USD against SGD due to net USD assets in the Singapore subsidiary’s book.

Finance costs increased 16.5% to RMB3.7 million in Q4 FY2018 as compared to RMB3.1 million in Q4 FY2017 due to higher average borrowing.

Taxation

Income tax expense decreased 43.7% to RMB1.0 million in Q4 FY2018 as compared to RMB1.8 million in Q4 FY2017. Despite loss before taxation in Q4 FY2018, the tax expense is mainly due to under-provision of deferred tax expense for prior year in Hong Kong subsidiary.

(Loss)/Profit before taxation and Net (loss)/profit attributable to equity holders of the Company

The Group recorded a loss before taxation RMB2.4 million in Q4 FY2018 as compare to a profit before taxation of RMB5.6 million in Q4 FY2017. Despite achieving higher sales, gross profit margin was lower due to keen price competition and higher steel material price, as well as higher operating expenses.

In line with loss before taxation, net loss for the period recorded at RMB3.4 million.

Net loss attributable to equity holders of the Company was RMB2.3 million in Q4 FY2018 mainly due to loss before taxation as mentioned above and, partly offset by losses attributable to non-controlling interest.

FY2018 vs FY2017

Revenue

Group revenue increased 9.1% to RMB626.5 million in FY2018, as compared to RMB574.5 million in FY2017. The increase resulted mainly from higher towercranes sales of RMB56.3 million and higher rental income of RMB5.8 million, partly offset by lower sales in components and accessories of RMB10.3 million and lower services income of RMB0.3 million.

Middle East & others increased 109.8% from RMB34.8 million in FY2017 to RMB73.0 million in FY2018 with higher quantity of towercranes delivered.

Asia (outside the PRC) also increased RMB28.3 million to RMB250.0 million in FY2018 from RMB221.7 million in FY2017 mainly contributed by sales of higher lifting capacity towercranes in adoption of Prefabricated Pre-finished Volumetric Construction (PPVC) method. The increase was offset by lower rental income and service income in Hong Kong and Macau operations as a result of weaker demand.

Revenue in the PRC and USA & Europe decreased by RMB6.7 million and RMB7.7 million respectively in FY2018 as compared to FY2017. Towercranes revenue in the PRC has seen a decrease partly mitigated by the Company engaging into more leasing activities for mega-sized towercranes in lieu of outright sales. This explained the higher rental income reported in FY2018. The decline in PRC sales was also partly due to deferred sales of RMB27.0 million in FY2018 (see Note on deferred income under “Current Liabilities”). Nevertheless, PRC sales still made the largest turnover contribution to the Group, amounting to 44.1% of revenue in FY2018.

Gross profit and gross profit margin

Gross profit decreased 7.9% to RMB180.8 million in FY2018 from RMB196.3 million in FY2017 amidst keen price competition resulting in lower margins from sales of towercranes, coupled with higher steel material cost. The decrease was also attributable to higher percentage sales in small and medium sized towercranes which generally generates lower gross margin.

Margin of service income from Hong Kong operations was also lower resulted from higher repairs and maintenance expenses. Accordingly, average gross profit margin decreased to 28.9% in FY2018 from 34.2% in FY2017.

Other income

Other income decreased to RMB3.3 million in FY2018 as compared to RMB4.6 million in FY2017 was mainly due to compensation income from customers of RMB1.9 million in FY2017.

Operating expenses

Total operating expenses slightly decreased by 2.8% to RMB156.3 million in FY2018 as compared to RMB160.8 million in FY2017.

Distribution costs marginally decreased 1.7% to RMB54.2 million in FY2018 as compared to RMB55.2 million in FY2017 mainly due to lower sale service expenses and lower bonus, offset by higher freight and transportation charges in line with higher sales.

Administrative expenses slightly decreased 0.7% to RMB84.2 million in FY2018 as compared to RMB84.8 million in largely due to lower depreciation cost and the non-recurring property and land holding tax of RMB1.4 million was charged in FY2017 by the tax authority in respect to prior years, partly offset by higher bonus and higher transportation cost incurred for the shifting of Hong Kong office and warehouse.

Other operating expenses decreased to RMB1.8 million in FY2018 from RMB4.2 million in FY2017. A net reversal of doubtful debts of RMB4.8 million was made in FY2018 as compared to a provision of RMB1.5 million made in FY2017. The decrease was offset by higher exchange losses of RMB4.3 million in FY2018 as compared to RMB0.9 million in FY2017.

The net reversal of impairment of trade receivables in FY2018 mainly refer to:

  1. RMB2.1 million recovered by recalling four units of tower cranes provided for in FY2016; and
  2. RMB0.5 million recovered by court order provided for in FY2016
  3. RMB1.7 million recovered by proceeding of legal action on debts which was long outstanding for two to four years.

The exchange loss arose mainly from:

  1. the weakening of SGD and HKD against RMB due to net RMB liabilities in the Singapore subsidiary’s book and Hong Kong subsidiary’s book; and
  2. 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
  3. the weakening of USD against SGD due to net USD assets in the Singapore subsidiary’s book.

Finance costs decreased 3.2% to RMB16.1 million in FY2018 as compared to RMB16.6 million in FY2017 due to lower average borrowing.

Taxation

Income tax expense reported at RMB6.5 million in FY2018 as compared to RMB7.9 million in FY2017 in line with lower 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 RMB27.9 million in FY2018 as compare to RMB40.0 million in FY2017. Despite achieving higher revenue, gross profit was lower due to keen price competition and higher steel material price.

In line with profit before taxation, net profit for the year decreased to RMB21.4 million in FY2018 from RMB32.1 million in FY2017.

Net profit attributable to equity holders of the Company decreased to RMB20.6 million in FY2018 from RM28.1 million mainly due to lower 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 decreased by RMB34.9 million to RMB545.8 million as at 31 March 2018 mainly due to lower property, plant and equipment and lower available-for-sale financial assets, partly offset by higher deferred cost. The decrease of RMB42.3 million in the Group’s net carrying amount of property, plant and equipment was mainly attributable to the depreciation charges and disposals, partially offset by the additions mainly pertains to rental fleet. Fair value losses of RMB4.9 million on the available-for-sale financial assets was recognised as at 31 March 2018.

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 increased by RMB83.3 million to RMB933.4 million as at 31 March 2018 mainly due to higher trade and other receivables, higher inventories and higher deferred cost, offset by lower amount owing by related parties, and lower cash and cash equivalents (see Note on Review on Cash Flow Statement below).

Trade and other receivables increased by RMB100.6 million to RMB392.7 million as at 31 March 2018 due to timing of sales and slower collections in the PRC. The increase is also due to higher advance paid to suppliers.

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

Inventories increased by RMB4.7 million to RMB322.3 million as at 31 March 2018 as compared to RMB317.6 million as at 31 March 2017 for delivery due in Q1 FY2019.

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 increased by RMB14.9 million to RMB75.9 million as at 31 March 2018 as compared to RMB61.1 million as at 31 March 2017 mainly due to higher deferred income (See Note on deferred income below).

Current Liabilities

Current liabilities increased by RM33.7 million to RMB725.8 million as at 31 March 2018 as compared to RMB692.1 million as at 31 March 2017 mainly due to higher trade and other payables, higher borrowings, higher deferred income and higher amount owing to a corporate shareholders of a subsidiary, partly offset by lower amount owing to related parties.

Trade and other payables increased by RMB11.0 million mainly due to higher advances from customers, higher provision for bonus and accrued expenses offset by lower trade payables.

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

Deferred income included RMB45.1 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 increase in deferred income, from RMB18.1 million as at 31 March 2017, was mainly due to the increase in such deferred sales partly offset by repayment by customers to financial institutions.

Total Equity

As at 31 March 2018, the Group’s total equity amounted to RMB677.4 million, marginally decreased from RMB677.5 as at 31 March 2017. The decrease was mainly due to dividend paid of RMB4.4 million, offset by total comprehensive income of RMB4.2 million for FY2018.

Review Of Cashflow Statement

Q4 FY2018 vs Q4 FY2017

The Group reported a net increase in cash and cash equivalents amounting to RMB13.6 million in Q4 FY2018 mainly due to:

  1. Net cash used in operating activities in Q4 FY2018 of RMB16.4 million resulted mainly from increase in inventories, increase in operating receivables and increase in deferred cost, partly offset by operating profit before working capital changes, increase in operating payables and increased in deferred revenue; and

  2. Net cash used in investing activities of RMB1.3 million mainly from purchases of machinery and motor vehicles; and

  3. Net cash generated from financing activities of RMB31.2 million mainly from net proceeds of bank borrowings and finance lease creditors, as well as higher restricted bank balances, partly offset by repayment to director.

FY2018 vs FY2017

The Group reported a net increase in cash and cash equivalents amounting to RMB13.8 million in FY2018 mainly due to:

  1. Net cash used in operating activities in FY2018 of RMB24.4 million resulted mainly from increase in inventories, increase in operating receivables and increase in deferred cost, partly offset by operating profit before working capital changes, increase in operating payables and increased in deferred revenue; and

  2. Net cash used in investing activities of RMB4.2 million mainly from purchases of machinery and motor vehicles; and

  3. Net cash generated from financing activities of RMB42.4 million mainly from net proceeds of bank borrowings and finance lease creditors and dividend paid, partly offset by repayment to director and lower restricted bank balances.

Commentary

China’s economy expanded 6.8 percent year-on-year in the first quarter of 2018, the same pace as in the previous two quarters. Growth remained steady and positive as industrial output, retail sales and fixed-asset investment remained strong. The economic growth is also bolstered by global recovery where exports have been quite buoyant vis-a-vis last year. However, the economic growth may cool in coming months as government crack-down on financial risks thereby raising borrowing costs for businesses.

While resale residential 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.


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