Sapphire Corporation Ltd

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Financial Statements And Related Announcement - Full Yearly Results

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Condensed interim consolidated statement of profit or loss

Financials

Condensed interim consolidated statement of comprehensive income

Financials

Review of performance of the Group

Review of Condensed interim consolidated statement of profit or loss and other comprehensive income (FY2023 vs FY2022)

Revenue decreased by RMB 17.6 million to RMB 80.0 million mainly due to lower revenue from sales of goods from supply of construction materials as well as rendering of city urbanization services. In conjunction with the decline in revenue, gross profits decreased by 89.6% to RMB 1.4 million, partly attributable to a lower decline in the costs of sales than the decline in revenue.

Other income decreased by RMB 3.1 million to RMB 4.3 million mainly due to the absence of the foreign exchange gain of RMB 3 million recorded in FY2022.

Administrative expenses increased by RMB 7.1 million to RMB 17.8 million mainly due to increase staff costs amounting to RMB 3.7 million at the subsidiaries of the Company and traveling expenses amount to RMB 1.2 million.

Impairment loss for trade and other receivables increased to RMB 6.9 million mainly due to impairment made for other receivable assigned from Ranken Railway to Chengdu Kai Qi Rui Business Management Co., Ltd (“Chengdu KQR”) during the year. Under the share transfer and capital increase agreement dated 28 May 2020 of Ranken Railway, if Ranken Railway fails to collect the receivables which are more than 5 years overdue, Ranken Railway shall be entitled to offset such amounts against the dividends payable to Chengdu Kai Qi Rui Business Management Co., Ltd (“Chengdu KQR”) and Chengdu KQR shall be liable to reimburse any excess receivables which remain outstanding after the set-off, and upon such reimbursement, the uncollected receivables will be assigned to Chengdu KQR.

Provision for Ranken Railway’s guaranteed trade and other receivables and contract assets increased by RMB 4.6 million as compared to prior year. Provision for covered guarantee provided for banking facilities of Ranken Railway also increased by RMB 1.5 million as the amount of guaranteed bank loans increased from RMB 135.3 million in 2022 to RMB 184.5 million in 2023.

Finance costs increased by RMB 0.1 million to RMB 1.9 million mainly due higher interest expense for lease liabilities.

Share of profit of equity-accounted investees (net of tax) rose by RMB 6.5 million to RMB 31.6 million, mainly due to higher profits of Ranken Railway.

The tax credit of RMB 0.4 million this year was due to over-provision in respect of prior years of RMB 0.7 million and tax expense of RMB 0.3 million. The decrease in tax expense is mainly due to lower taxable profit during the year.

Given the above, net profit for the year decreased by RMB 25.4 million to RMB 6.0 million.

Review of Financial Position (31 December 2023 vs 31 December 2022)

Total non-current assets rose by RMB 41.8 million mainly due to the following significant changes during the period:

  • Property, plant and equipment increased by RMB 6.6 million mainly due to increase in construction in progress amounting to RMB 9.5 million, offset by depreciation amounting to RMB 2.9 million during the period; and
  • Associated company rose by RMB 12.0 million mainly due to the Group’s share of profit of associated company, Ranken Railway.

Total current assets decreased by RMB 88.6 million mainly due to the following significant changes during the period:

  • Other investment decreased by RMB 0.7 million mainly due to fair value losses recognised on quoted equity investments classified at fair value through profit or loss;
  • Trade receivables decreased by RMB 12.0 million mainly due to lower revenue during the period and impairment loss recognised of RMB 0.8 million during the year;
  • Other receivables rose by RMB 35.9 million mainly due to (a) increase in loans to an associated company, Ranken Railway, amounting to RMB 10 million and (b) increase in prepayments to suppliers amounting to RMB 14.6 million, assignment of receivables from an associated company, RMB 20.6 million, partially offset by an increase in impairment loss recognised of RMB 6.1 million during the year;
  • Cash and bank balances (including the restricted cash in an escrow account) decreased by RMB 111.8 million mainly due to cash distributions to the shareholders of the company of RMB 91.7 million and acquisition of property, plant and equipment of RMB 14.5 million.

Total non-current liabilities increased by RMB 4.2 million mainly due to the following significant changes during the period:

  • Provisions for (a) guarantee for the recoverability of outstanding receivable balances of an associated company and (b) covered guarantee for banking facilities of an associated company, Ranken Railway, increased by RMB 3.0 million in total.
  • Lease liabilities increased by RMB 1.4 million due to new leases entered during the year.

Total current liabilities rose by RMB 40.8 million mainly due to the following significant changes during the year:

  • Trade payables rose by RMB 9.5 million mainly due to increase in bills payable of RMB 20 million offset by a decrease in trade payables amounting to RMB 10.5 million;
  • Other payables rose by RMB 31.1 million mainly due to (a) increase in amounts owing to an associated company of RMB 30.6 million, of which RMB 20.6 million relates to the amount of receivables assigned to Chengdu KQR according to the Sales and Purchase agreement, (b) increase in amounts owing to a related company amounting to RMB 6.8 million, offset by a decrease in accrued expenses RMB 2.8 million and decrease in other tax payables RMB 3.1 million.

Total equity

Total equity attributable to owners of the Company or Shareholders’ Equity decreased by RMB 91.9 million due to the capital reduction of RMB 115.8 million and cash distribution to shareholders of RMB 93.3 million during the year and decrease in total comprehensive income for the year.

Review of Cash Flows (FY2023 vs FY2022)

Operating losses before working capital changes decreased by RMB 21.9 million mainly due to lower profit before tax which was offset by an increase in share of profit of equity-accounted investees (net of tax) of RMB 6.6 million. The operating cash outflow for FY2023 of RMB 8.7 million is arrived at after accounting for (i) operating loss before working capital changes of RMB 11.3 million and (ii) income tax payments of RMB 1.0 million, partially offset by (iii) net working capital inflow of RMB 3.6 million.

Cash inflow from investing activities for FY 2023 increased by RMB 98.9 million to RMB 78.6 million mainly due to (a) transfer from Escrow account of RMB 91.7 million and (b) repayment of loan by an unrelated party of RMB 3.0 million during the year, and partially offset by the (c) payment for purchase of property, plant and equipment of RMB 10.2 million and (d) additional loan of RMB 10 million to an associated company.

Cash outflow from financing activities increased by RMB 87.5 million mainly due to capital distribution paid to shareholders of the Company amounting to RMB 93.3 million, partially offset by loan from a related party amounting to RMB 6.8 million.

Given the above, cash and cash equivalents decreased by RMB 20.1 million during the year.

Commentary

On January 8, 2023, China officially downgraded COVID-19 from a "category A infectious disease" to the less serious "category B infectious disease", lifting a wide range of restrictions and regulations aimed at containing the spread of the virus, such as reopening borders for internal and international travel, mandatory quarantine measures as well as people infected with the virus.

China's economic growth rebounded quickly after the measures are lifted, however the pace of economic growth has been uneven in 2023. This has prompted China to step up its efforts to revive the economy’s recovery and improve the business environment as concerns about the growth outlook continue to mount.

China's economy is the world's second-largest economy and its growth continue to outpace the global economy. The International Monetary Fund has upgraded its GDP growth forecast to 5.4 per cent for China in 2023, reflecting a strong post-COVID rebound.

According to Chinese state media sources, the domestic economy is expected to see more favourable conditions and more opportunities than challenges in 2024. Macroeconomic policies will continue to provide support for economic recovery, shifting from a post-pandemic recovery to sustained consumption growth, cultivating new consumption growth areas.

As part of its broader efforts to boost domestic consumption, China is looking to accelerate urbanisation and steady progress was made in the coordinated development across urban and rural areas and different regions. By the end of 2022, the urbanisation rate of permanent residents reached 65.22 per cent, 0.50 percentage points higher than that at the end of 2021.

With China’s people-centric approach in advancing its new urbanisation strategy, the development and construction modes of very large cities and megacities aims to take into consideration various economic, life, ecological, and security needs.

The Chengdu-Chongqing city cluster has been identified for such measures to be pushed forward in the years to come, where there are planned investments in public services and healthcare in counties, and upgrading infrastructure in bigger cities, such as adding elevators to old apartment buildings as their residents age.

The "Chengdu "14th Five-Year Plan" Urban Construction Planning Opportunity List, issued by the Chengdu Municipal Bureau of Housing and Urban-rural Development, has highlighted 60 projects with a total investment of about RMB 372.1 billion. In the list of "urban organic renewal" projects, there are 21 projects in the urban organic renewal project category, involving high-tech zones, Jinjiang District, Wuhou District and other districts (cities) and counties.

Strategically based in Chengdu, the Group focuses on two core operating business units – one specialising in property management and city redevelopment services, and the other in leasing warehouse and equipment, as well as supplying materials for urbanisation projects.

Urban renewal holds significant economic and social importance for major Chinese metropolises due to the acceleration of their population towards an ageing society and the limited availability of land resources for further development. Notably, urban renewal presents an opportunity to foster sustainable inner-city development and stimulate economic growth. The primary aim of urban renewal is to enhance residents' living standards and contribute to the sustainable development of a city.

Furthermore, in response to increasingly stringent environmental protection regulations in China to mitigate climate change, the transformation of industrial parks into "eco-industrial parks" presents promising avenue for new business opportunities. Particularly, in China, where large-scale industrialization activities are concentrated, the greening of industrial parks will likely be aligned with such environmental goals.

Adopting a service-centric approach in integrated building estate management services, the Group aims to generate recurring income by providing a comprehensive suite of services related to urbanization trends, focusing urban renewal and eco-industrial parks.

There is good potential that integrated building estate management services can capitalise on opportunities arising from improvements in cross-city transit systems, integrated residential-recreational-healthcarecommercial developments, and the adoption of new technologies and renewable energy sources.

Additionally, the Group aims to harness opportunities in aligning our services with the development of ecofriendly industrial parks, offering integrated building estate management services coupled with water and environmental conservation solutions. This strategic positioning leverages the Group's established track record in water and environmental conservation projects, providing new areas for growth and contribution to sustainability efforts.

Condensed interim statements of financial position

Financials