Financial Statements And Related Announcement - First Quarter Results
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Profit & Loss
Consolidated Statement of Comprehensive Income
Review of Group Performance
Review of Financial Performance (1Q2018 vs 1Q2017)
Revenue rose by RMB 115.5 million to RMB 303.6 million in 1Q2018 mainly due to a higher number of ongoing projects in China as well as the sale of railway sleepers of RMB 34.7 million during the current period.
However, gross profit fell by RMB 0.2 million to RMB 26.9 million. Overall gross profit margin in 1Q2018 was 8.8% as compared to 14.4% in 1Q2017 due mainly to (a) 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); (b) lower margins from the sale of railway sleepers; and (c) higher margin in 1Q2017 arising from clients’ acceptance of variation orders.
Other income fell by RMB 1.7 million to RMB 1.3 million due mainly to the absence of exchange gain of RMB 1.0 million recorded in 1Q2017 and lower project related compensation income during 1Q2018.
Selling and distribution costs rose by RMB 0.1 million to RMB 1.6 million, related mainly to Ranken’s travelling expenses as well as project assessment and tendering costs.
Administrative expenses fell by RMB 0.8 million to RMB 13.7 million due mainly to cost control exercises.
Other expenses fell by RMB 0.6 million to RMB 2.6 million due mainly lower fair value loss on financial assets by RMB 0.8 million, offset by exchange loss of RMB 0.2 million during the current period.
Finance costs rose by RMB 0.7 million to RMB 3.8 million due mainly to higher interest on finance leases, specifically on the RMB 70.0 million for the hire purchase refinancing of machineries obtained in late 2Q2017.
Income tax expense was RMB 2.3 million, attributable to provision for income tax on taxable profits for Ranken’s operations.
Given the above, net profit for Continuing Operations for 1Q2018 rose by 1.9% to RMB 4.1 million from RMB 4.0 million for 1Q2017, net of non-controlling interest.
In 1Q2017, the mining services business made a net loss of RMB 3.2 million 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, resulting in a net profit from Discontinued operations of RMB 0.8 million.
Overall, net profit for 1Q2018 fell by 15.9% to RMB 4.1 million from RMB 4.8 million for 1Q2017, net of non-controlling interest.
Review of Financial Position (31 March 2018 vs 31 December 2017)
Total non-current assets fell by RMB 10.6 million due mainly to repayment by a former subsidiary company (“Mancala”) resulting in lower other receivables by RMB 7.9 million and depreciation and amortisation of property, plant and equipment, intangible assets and investment properties during the period.
Total current assets fell by RMB 73.9 million due mainly the following significant changes during the period under review:
- Other investment comprised quoted shares classified as financial assets carried at fair value through profit or loss, whose fair value fell and resulted in a fair value loss of RMB 0.9 million.
- Inventories fell by RMB 12.1 million due to sale of railway sleeper stock for the Meng Hua project.
- Contract Assets (previously known as construction work in progress and reclassification of retention monies, Built and Transfer contract receivable and other guarantee sums from trade receivable arising from the adoption of SFRS(I) 15) fell by RMB 44.4 million to RMB 905.3 million due mainly to higher progress billings made during the period.
- Trade receivables related to Ranken’s projects fell by RMB 105.3 million to RMB 234.9 million. Trade debtor’s turnaround time fell to 71 days as compared to 95 days as at 31 December 2017.
- Other receivables, deposits and prepayment, which comprised mainly (i) Ranken’s materials procured on behalf of project owners and (ii) security deposits placed with the project owners (refundable on project completion) rose by RMB 71.2 million to RMB 274.5 million.
- Cash and cash equivalents for the Group rose by RMB 17.6 million to RMB 143.3 million due mainly to operating cash inflow of RMB 48.6 million, offset by payment for purchase of plant and equipment and repayment of bank loans and finance lease liabilities
Total non-current liabilities fell by RMB 39.4 million due mainly to reclassification of long term bond and certain long term finance lease liabilities to current liabilities during the period.
Total current liabilities fell by RMB 47.8 million due mainly to the following significant changes during the period under review:
- Trade payables related to Ranken’s projects fell by RMB 143.5 million to RMB 507.0 million due mainly to payment to suppliers and contractors during the period.
- Other payables and accruals rose by RMB 70.9 million to RMB 537.1 million mainly due to higher cash advances from clients.
- Current financial liabilities rose by RMB 24.7 million to RMB 168.9 million as long term bond and certain long term financial lease liabilities are now due within the next 12 months.
Total equity attributable to owners of the Company or Shareholders’ Equity rose by RMB 2.6 million to RMB 502.6 million due to (i) current period earnings of RMB 4.1 million, net of movements of foreign currency translation reserve of RMB 0.7 million and the effects of the adoption of SFRS(I) 9 of RMB 0.8 million.
Review of Cash Flows (1Q2018 vs 1Q2017)
Operating cash flow from continuing operations for 1Q2018 improved by RMB 93.2 million to cash inflow of RMB 48.6 million after accounting for (i) operating profit before working capital changes of RMB 26.0 million and (ii) net working capital changes of RMB 25.1 million, net of tax payment of RMB 2.5 million.
Cash flows used in investing activities from continuing operations for 1Q2018 were RMB 12.4 million, due mainly to Ranken’s investment in equipment and site facilities.
Cash flows used in financing activities of continuing operations for 1Q2018 were RMB 18.5 million, due to payment of interest, repayment of bank loans and finance lease liabilities.
Given the above, cash and cash equivalents rose by RMB 17.6 million to RMB 135.3 million (net of fixed deposits pledged of RMB 8.0 million).
Under its 2016-2020 13th Five-Year Plan, China plans to spend approximately RMB 15 trillion (S$3.1 trillion) on infrastructure, including RMB3.5 trillion (S$729.2 billion) for railways.
Accordingly to a recent report issued on April 2018 by China Urban Railway Association (“中国城市轨道交 通协会”), there are a total of 34 cities in China with urban railway system in operation and in 2017, there were 880 km of new urban railway lines constructed and in operation, marking an increase of 21.2% as compared to 2016.
As at the end of 2017, there are a total of 165 urban railway routes with a combined distance of 5,032 km, ferrying more than 18 billion passengers, which surpasses previous records.
China’s top economic body, the National Development Reform Commission, also announced plans to relax the requirements needed for local governments to pursue urban railway projects. That includes lowering the minimum population from 3 million to 1.5 million, which would mean that more fast-growing third-and even fourth-tier cities can expect to put in their own urban rail transit system proposals, boosting more investments and activities in this industry segment.
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 8,000 km of underground utility tunnels.
As one of China’s top private urban railway engineering and construction enterprises, with 20 years of operating track record across 18 first- and second-tier cities, Ranken – which is Sapphire’s core revenue driver – is well positioned to benefit from the long-term developments.
In addition, with its strong engineering capabilities, the Group is looking to venture into the business opportunities related to environmental conservation and water environmental improvement projects in China, which is boosted by expected investments of RMB 3.3 trillion under China’s 13th Five-Year Plan. The Group intends to continue pursuing strategic collaborations such as the cooperation agreement signed with Hong Kong mainboard-listed Beijing Enterprises Water Group Co., Ltd. in May 2017, and 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 2.9 billion (S$600 million), and it will continue to proactively identify and bid for new contracts while improving operational capabilities and efficiencies in its efforts to sustain margins.
Barring unforeseen circumstances, the Group expects to be profitable in the current financial year ending 31 December 2018.