Financial Statements And Related Announcement - Full Yearly Results
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Profit & Loss
Consolidated Statement of Comprehensive Income
Review of Group Performance
Effect for the change of Functional Currency
The presentation of the Group’s financial statements has been changed from Singapore dollars (“S$”) to Chinese Renminbi (“RMB”) based on the rationale explained in paragraph 5 of this announcement (the “Change in Presentation Currency”). Accordingly, the comparatives have been restated and presented in RMB.
Review of Financial Performance (FY2017 vs FY2016)
Revenue rose by RMB 226.9 million to RMB 1.3 billion in FY2017 mainly due to a higher number of ongoing projects in China.
In line with the higher revenue, gross profit edged up 14.3% to RMB 149.9 million from RMB 131.1 million in FY2016, whereas gross profit margin narrowed to 11.5% compared to 12.2% in FY2016. The lower margin was mainly due to higher costs of materials; Ranken generally has to bear approximately 5% of material price fluctuation both ways, with project owners bearing any additional cost of fluctuation outside the agreed percentage.
Other income – including Ranken’s project-related income of RMB 3.3 million – fell to RMB 22.0 million, a drop of RMB 1.8 million from FY2016. This was due mainly to the absence of one-off consultancy fees, fair value gain related to the acquisition of Mancala (as a result of a fall in fair value of contingent purchase consideration payable) and net foreign exchange gain, which were recorded in FY2016 but not FY2017. These were mitigated by gain on disposal of subsidiaries arising from reversal of translation differences relating to the accumulated losses of SMR, TJSB and SCD at historical exchange rates to RMB upon completion of disposal, as part of the Group’s corporate streamlining exercise.
Selling and distribution costs rose by RMB 4.5 million to RMB 8.8 million, due mainly to Ranken’s higher travelling expenses and project tendering costs, including costs for project assessments. Ranken evaluated many more projects during the year under review and has selectively tendered for some under evaluation.
Administrative expenses fell by RMB 2.5 million to RMB 56.8 million due mainly to cost control exercises.
Other expenses rose by RMB 7.4 million to RMB 15.4 million, due mainly to fair value loss on financial assets amounting to RMB 2.9 million, discounting effect on long-term receivables of RMB 2.2 million and allowance for impairment losses of doubtful receivables RMB 3.2 million. These were mitigated by lower loss on disposal of fixed assets of RMB 1.0 million.
Finance costs rose by RMB 13.7 million due mainly to higher refinancing costs during the period under review, specifically RMB 70.0 million for the hire purchase refinancing of facilities obtained in FY2017.
Income tax expense was RMB 20.5 million, attributable to provision for income tax on taxable profits for Ranken’s operations.
Given the above, the Continuing Operations recorded net profit of RMB 43.5 million, and net cash generated from operating activities of RMB 10.6 million for FY2017.
The results of Discontinued Operations included (i) net loss for Mancala Group (the Mining Services Business), which is presented as discontinued operations during the period under review pursuant to the Sale and Purchase Agreement (“SPA”) announced on 30 December 2016 to dispose 81% of Mancala Group; and (ii) the Group’s net gain on disposal of Mancala Group, the transaction of which was completed on 28 February 2017.
The mining services business made a net loss of RMB 3.2 million in for the 2 months period ended 28 February 2017. On completion of the disposal of Mancala Group, the Group recognised a gain on disposal of RMB 4.1 million, net of the loss incurred on partial settlement of amounts payable to the vendors of Mancala.
Review of Financial Position (31 December 2017 vs 31 December 2016)
Total non-current assets rose by RMB 66.9 million due mainly to (i) recognition of a 19% stake in Mancala as available-for-sale financial assets valued at RMB 12.5 million, (ii) long-term receivables from a former subsidiary company (“Mancala”) amounting to RMB 21.3 million and (iii) additions of plant and equipment and site facilities by Ranken of RMB 38.7 million for recently secured projects, net of depreciation during the period under review.
Total current assets rose by RMB 137.6 million due mainly to (i) changes in current assets (excluding disposal group, Mancala), which rose by RMB 336.6 million as at 31 December 2017 and offset by (ii) the absence of assets held for sale of RMB 199.0 million following the completion of the disposal of the Mining Services Business. Significant changes (excluding those of the disposal group) during the period under review were:
- Other investments comprised quoted shares classified as financial assets at fair value of RMB 4.5 million.
- Inventories rose by RMB 23.2 million, including railway sleeper stock for the Meng Hua project.
- Contract work in progress, related to Ranken’s projects under construction, rose by RMB 174.1 million to RMB 573.0 million due to works completed in stages that have yet to be certified (and thus not invoiced and not recognised as revenue) during the period.
- Trade receivables related to Ranken’s projects rose by RMB 56.3 million to RMB 709.9 million. Trade debtor’s turnaround time improved to 199 days (31 December 2016: 221 days). Trade receivables included retention monies, build-and-transfer contracts and other guarantee sums, excluding which the trade receivables turnaround period would have been approximately 95 days as at 31 December 2017 (31 December 2016: 90 days).
- Other receivables, deposits and prepayment, which comprised mainly (i) Ranken’s materials procured on behalf of project owners and (ii) security deposits placed with project owners (refundable on project completion), rose by RMB 97.8 million to RMB 203.2 million.
- Cash and cash equivalents for the Group fell by RMB 19.4 million to RMB 125.7 million as at 31 December 2017, due mainly to net cash outflow in investing activities resulting from higher capital expenditure requirements. The cash positions for corporate functions and Ranken as at 31 December 2017 were RMB 2.1 million and RMB 123.6 million, respectively.
Total non-current liabilities rose by RMB 85.9 million due mainly to refinancing of bank loans, bond proceeds and new finance lease liabilities, net of repayment during the year. Non-current financial liabilities comprised mainly (i) bank loans of RMB 46.9 million, (ii) RMB 34.0 million bonds for Ranken’s working capital purposes and (iii) finance lease liabilities of RMB 39.2 million.
Total current liabilities rose by RMB 85.9 million due mainly to (i) higher current liabilities (excluding disposal group, Mancala), which increased by RMB 184.3 million, and offset by (ii) the absence of liabilities held for sale of RMB 98.4 million following the disposal of Mancala. Significant changes (excluding those of the disposal group) during the period under review were:
- Trade payables related to Ranken’s projects rose by RMB 124.1 million to RMB 650.4 million.
- Progress billings in excess of construction work in progress fell by RMB 30.2 million due mainly to lower amount of advance billings made to project owners.
- Other payables and accruals rose by RMB 109.0 million to RMB 466.1 million due mainly to (i) higher cash advances from clients as new projects commence the construction phase; and (ii) offset by settlement of consideration payable to Mancala’s vendor and the remaining of which is expected to be settled in 1Q2018. Other payables and accruals for Ranken and the Company (corporate) as at 31 December 2017 were RMB 449.5 million and RMB 16.6 million, respectively. Other payables and accruals for Ranken comprised mainly the advances from the clients, deposits from clients and security deposits from sub-contractors, VAT payables and accruals of operating expenses.
- Current financial liabilities fell by RMB 15.4 million to RMB 144.2 million as Ranken continued to pay down its working capital borrowings and finance lease obligations.
Total equity attributable to owners of the Company or Shareholders’ Equity rose by RMB 31.4 million to RMB 494.9 million due to (i) earnings of RMB 44.4 million for the current period and (ii) issuance of shares net of expenses under the Shares Award Scheme of RMB 0.4 million, further offset by (iii) net movements in foreign currency translation reserve of RMB 11.9 million, after taking into account translation effects on disposal of foreign subsidiaries and translation of non-RMB denominated financial statements to RMB and (iv) fair value movement of available-for-sale financial asset amounting to RMB 1.5 million.
Review of Cash Flows (FY2017)
Operating cash flow from continuing operations for FY2017 fell by RMB 190.7 million to RMB 10.6 million after accounting for (i) operating profit before working capital changes of RMB 132.4 million and (ii) net working capital changes of RMB 100.4 million, net of tax payment of RMB 21.3 million (mainly for FY2016 tax obligation).
Cash flows used in investing activities from continuing operations for FY2017 were RMB 82.3 million, due mainly to Ranken’s investment in equipment and site facilities for its recently secured projects.
Cash flows generated from financing activities of continuing operations for FY2017 were RMB 34.6 million, due mainly to proceeds from bank loans, finance lease liabilities and bonds of RMB 260.0 million for refinancing of Ranken’s working capital, offset by repayment of bank loans, finance lease liabilities and interest expense, and loan from a previous shareholder of Ranken’s subsidiary amounting to RMB 225.4 million.
Given the above, cash and cash equivalents fell by RMB 16.8 million to RMB 117.7 million (net of fixed deposits pledged of RMB 8.0 million) during FY2017.
China’s GDP increased 6.9% in 2017, driven primarily by national investment in public infrastructure. The country’s plans to spend approximately RMB 15 trillion (S$3.1 trillion) on infrastructure for the 2016-2020 13th Five-Year Plan, including RMB3.5 trillion (S$729.2 billion) for railways.
Industry projections indicate that urban rail transit networks will be extended to reach 50 Chinese cities by 2020 and civil engineering works will be required for additional of more than 8,000km of underground utility tunnels. As one of China’s top private rail engineering enterprises, with a competitive track record spanning 18 first- and second-tier cities, Ranken – which is Sapphire’s core revenue driver – is well positioned to benefit from these developments.
Ranken intends to continue pursuing strategic collaborations such as the cooperation agreement signed with Beijing Enterprises Water Group Co., Ltd. in May 2017, which will open up opportunities relating to environmental conservation and water management. Ranken may also evaluate industry consortiums through which to participate, construct and operate large-scale infrastructure projects on a public-private partnership basis.
Ranken’s order book remains healthy at RMB 3.2 billion (S$660 million), having secured RMB 2.2 billion (S$438.6 million) worth of projects in 2017. It will aggressively bid for new contracts while improving operational capabilities and efficiencies in its efforts to sustain margins.
The Group is actively exploring ways to enhance shareholder value. It has proposed a final dividend of 0.1 Singapore cent per share – its first in many years – to reward shareholders for their support, subject to approval at its annual general meeting in April.
Barring unforeseen circumstances, the Group expects to be profitable for the financial year ending 31 December 2018.