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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| China New Energy Limited | LSE:CNEL | London | Ordinary Share | JE00B3RWLF12 | ORD 0.025P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 7.50 | 7.00 | 15.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCNEL
RNS Number : 9833S
China New Energy Ltd
29 June 2018
29 June 2018
China New Energy Limited
("CNE" or "the Company")
Final Results for the Year Ended 31 December 2017
The Board of CNE (AIM:CNEL), the AIM quoted engineering and technology solutions provider to the bioenergy sector, presents its final results for the year ended 31 December 2018.
The full version of the report and accounts for the year ended 31 December 2018 will be available from the Company's website www.chinanewenergy.co.uk and notification of posting of the accounts, together with the Notice of AGM, will shortly be sent to all shareholders.
Mr. Yu commented, "We are very pleased to report that CNE has significantly increased revenues and profits. We continue to see increased demand in China for new biorefinery projects due to the change of biofuel policy to favour domestic ethanol production, and renewed interest internationally for new biofuel and biochemical projects that we attribute to the rising oil price which makes them cost competitive again. CNE continues to have a strong order book, and with such a favourable market outlook, I am very confident of continued profitability".
For further information, please visit www.chinanewenergy.co.uk or contact:
Hot Features
Premium
China New Energy Limited www.chinanewenergy.co.uk
Richard Bennett rbennett@zkty.com.cn Tel: +44 7966
388374
Ivy Xu xuhj@zkty.com.cn Tel: +86 20 8705
Nick Brooks 9371
nbrooks@zkty.com.cn Tel: +44 7920
060218
Cairn Financial Advisers LLP Tel: +44 20 7213 0880
(Nomad)
Jo Turner / Sandy Jamieson
Daniel Stewart and Co Tel: +44 20 7776 6550
David Lawman
CHAIRMAN'S STATEMENT
Financial review
For the year ended 31 December 2017, the Group's total revenue was RMB252.4 million (c. GBP28.7 million), an increase of 221% from RMB78.6 million (c. GBP8.7 million).
We are pleased to report that CNE has significantly grown its revenues and underlying profitability. The growth in business performance is mostly attributed to a change of policy in China to increase the production of fuel ethanol, which resulted in winning and delivering a number of high profile contracts with a mix of existing and new customers, including Jilin Boda Biochemical Ltd, COFCO Anhui, Liaoyuan Jiufeng Biotech, and COFCO Guangxi amongst others.
The gross profit for the year was RMB73.6 million (c. GBP8.4 million) up 175% from a gross profit of RMB26.8 million (c. GBP3.0 million).
For the year 2017, the group recorded a profit of RMB30.1 million (c. GBP3.4 million) up 734% from a profit of RMB3.6 million (c. GBP0.4 million) substantially improving on a solid performance in 2016.
Sales pipeline
We entered 2018 with a strong order book of RMB63.7 million (c. GBP7.3 million), which includes the balance of started but not completed contracts from 2017. We continue to believe the change of policy in China to increase the production of fuel ethanol will drive sales opportunities for a significant number of new ethanol projects in China over the next 5 years. As a market leader, that has contributed technology and services to 60% of China's ethanol projects, CNE is ideally positioned to capitalise upon this market growth opportunity.
Products and services
The Group principally provides EPC (Equipment, Procurement and Construction) services and VAS (Value Added Services) to ethanol and biochemical producers. The EPC team primarily designs and builds commercial-scale biorefineries that convert feedstock into ethanol and other biochemicals for both the biofuel, and food & beverage (alcohol) market sectors, whilst the VAS team provides services and technology to optimise the ethanol and biochemical production and energy efficiency of existing biorefineries.
Market
CNE is a market leader in China at designing and building biorefineries that convert agricultural feedstock such as corn, cassava and sugarcane into ethanol for the fuel and food & beverage (alcohol) market sectors and has supplied technology and services to more than 200 projects in China and around the world.
For the past few years, mostly due to the low-oil price, the demand for new 1(st) generation biorefinery projects had stalled. However, both the increase in oil price and the change of policy in China to increase fuel ethanol production, is again creating demand for CNE's core technology and services.
The rise in oil price is also leading to renewed interest in 2(nd) generation biorefinery technology. China, the EU and other developed nations have for a long time sought to broaden the range of biofuel feedstocks to include non-food materials such as corn stover and municipal waste. The rise in oil price, and new technology, is once again making these feedstocks cost competitive.
CNE has also taken notice of the market growth opportunities for biochemicals. Both the rising oil price, and consumer demand for items such as bioplastics is driving demands for biochemicals that can be produced as an extension to CNE's core fermentation and distillation technologies.
As a market leader in ethanol biorefinery process technologies CNE is actively exploring various 2(nd) generation and other biochemical technologies which are nearing commercialisation in order to extend the Company's solutions to respond to these important market trends.
Group strategy
The Group's strategy is to:
1) Sell engineering and construction contracts to develop biorefinery and biochemical projects. The Company is focusing on fuel, biochemical and food & beverage (alcohol) projects in China and other developed markets, and 1(st) generation biorefinery projects in emerging markets including Africa, Eastern Europe and Asia.
2) Sell VAS and maintenance services to existing and new customers. In particular, the board sees opportunities to sell energy efficiency technology to reduce operating costs for customers.
3) Maintain our cost leadership position in the industry through relentless focus on operational efficiency in order to support project developers competing in a (relatively) low crude oil price environment.
4) Commercialise 2(nd) generation and biochemical technologies to enable our clients to further add-value to organic feedstocks and produce a wider range of biofuel and biochemical products.
5) Where appropriate, explore acquiring equity interest in selected biorefinery projects. The board seeks to broaden from engineering and construction contracts where income can be uneven and develop operating businesses with consistent recurring income.
Business development
The business development team shall continue to focus on both domestic and international market opportunities. The development of international market opportunities has taken longer than expected, but the team maintain their business development momentum such as speaking at international sugar and ethanol conferences, and continue to make proposals and develop the sales pipeline, particularly in South Asia and Sub-Saharan Africa. The Company believes that the agreements previously announced with Sunbird Bioenergy Africa and with Supercare Group remain viable projects and look forward to commencing their development once they have achieved financial closure with their respective investors.
Outlook
I am optimistic about the Group's prospects in 2018 and beyond. The positive change of fuel ethanol policy in China, combined with the development of new international markets and the emergence of new technology via in-house and partnerships has resulted in a strong platform from which to develop further growth. Consequently, I believe the outlook is for profitability.
On behalf of the Board, I would like to extend my appreciation to our valued shareholders, supportive business partners and associates, insightful management and dedicated staff for all their contribution and commitment towards the Company. I would also like to thank the Board of Directors for their invaluable counsel in steering the Group through this exciting time.
Yu Weijun
Chairman
DIRECTORS' REPORT
The Directors present their report, together with the audited financial statements for China New Energy Limited ('the Company') and its subsidiary undertakings (together 'the Group) for the year ended 31 December 2017.
Principal activities
The principal activity of the Company is an investment holding company.
The Group's principal activity is providing technology solutions to manufacturers of ethanol, edible alcohol and other biochemicals from a range of organic feedstock including corn, sugarcane, cassava, corn-stover (agricultural waste) and other bio-resources.
Business review
The Group recorded an increase of 221% in revenue to RMB252.4million for the financial year 2017 ("FY2017"), reflecting most contracts signed in 2017 were substantially completed in the FY2017 reporting period. The total value of contracts secured in FY2017 was RMB359 million.
Our contracts' gross profit also increased to RMB73.6million in FY2017 compared to a gross profit of RMB27million in FY2016. This year's gross profit margin was 29% compared to the previous year's 34%.
Profit for the year of RMB30.1million represented a demonstration of continued growth from the platform created in 2016, with sales success being recorded across a range of existing and new customer projects.
During the year, in addition to fulfilling projects won at the end of 2016 and early 2017, business and technology development activities continued in China and internationally. Presence at international conferences led to business development leads which appear promising, and the Company is well positioned given its market leadership position in China to take full advantage of new and expansion projects in the high potential ethanol market domestically.
Risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historic results. The Board monitors risks on an ongoing basis and implements appropriate procedures and processes to try and mitigate the adverse consequences of such risks.
The business faces three principal risks. Firstly, the Group needs to expand, retain and improve its current position in the industry. Future growth will be both organic and through potential acquisitions. There are a number of uncertainties relating to future acquisitions and there can be no guarantee that the Group will be able to expand as envisaged.
The Board of Directors meets regularly to review the future of the Group and potential areas for growth.
Secondly, the Group may need to raise additional capital to fund its future expansion. There can be no assurance that the Group will be able to obtain such funding.
The Board of Directors actively monitors its capital to ensure that the Group operates as a going concern and maintains sufficient flexibility to process planned wishes. This process considers the variety of capital and the sources from which it would be found.
Thirdly, the Group's operating subsidiaries' functional currency is Chinese Yuan ("RMB"), the fluctuations in RMB could have an adverse effect on the Group's business and operating results.
Group's financial risk management objectives, policies and strategies are set out in note 29 to the financial statements. In addition, the risk profile and financial instruments of the Group are set out in notes 29 and 30 to the financial statements.
Note: The exchange rate used in 2017 is GBP1:RMB 8.7869 (2016: GBP1:RMB 8.9844).
Results and dividends
The financial results of the Group are set out on page 17.
The directors do not recommend a dividend payment for the year.
Directors' interests
The following directors have held office during the period under review and their interests as at 31 December 2017, all of which are beneficial unless otherwise stated, whether direct or indirect, of the Directors and their families in the issued share capital of the Company and options over ordinary shares which had been granted, are as follows:
Number of shares % of issued
Name of Directors share capital
Yu Weijun * 90,932,440 18.52%
Tang Zhaoxing ** 48,000,000 9.77%
Richard Bennett 325,732 0.066%
Nicholas Brooks 405,000 0.082%
* Held through Leader Vision Investments Limited and W B Nominees Limited
** Held through Vidacos Nominees Limited
Number of share Expiry date
Name of Directors options
Yu Weijun 3,070,352 20/10/2020
Tang Zhaoxing 3,070,352 20/10/2020
Richard Bennett 3,070,352 20/10/2020
Nicholas Brooks 3,070,352 20/10/2020
In accordance with Article 22.2 of the Articles of Association of the Company, all directors shall not remain in office for longer than 2 years since their last election or re-election without submitting themselves for re-election. The directors will retire by rotation, for which one third of directors who have been in the office longest shall retire by rotation.
Directors' remuneration
2017 2016
RMB'000 RMB'000
Yu Weijun 564 548
Tang Zhaoxing 563 548
Richard Bennett 174 180
Nicholas Brooks (appointed 28 October
2016) 180 37
Total 1,481 1,313
======== ========
Employment policies
The Group pursues a policy of equal opportunities to all employees and potential employees. The Group has continued its policy of giving fair consideration to applications for employment made by disabled persons bearing in mind the requirements for skills and aptitude for the job. In the areas of planned employee training and career development, the Group strives to ensure that disabled employees receive equal treatment, including opportunities for promotion.
Every effort is made to ensure that continuing employment and opportunities are also provided for employees who become disabled. It is the Group's policy to take the views of employees into account in making decisions, and wherever possible to encourage the involvement of employees in the Group's performance.
Payments to suppliers
The Group's policy for the year ended 31 December 2017 is to settle the terms of payment with suppliers when agreeing the terms of the business transactions:
-- To ensure that suppliers are aware of the terms of payments by the inclusion of the relevant terms in contracts; and
-- To pay in accordance with the Company's contractual and other legal obligations.
The number of days of trade purchases outstanding for the Group as at 31 December 2017 was 100 days (2016: 252 days).
Substantial shareholders
The Group had been notified of the following beneficial interest of 3% or more in its shares as at 18 June 2018
Number of shares % of issued
Name of shareholders share capital
Leader Vision Investments Limited
(Yu Weijun) * 64,000,000 13.03%
Vidacos Nominees Limited (Tang
Zhaoxing) 48,000,000 9.77%
Best Full Investments Limited
(Liang Hongtao) 48,000,000 9.77%
Jet-Air (HK) Limited 44,652,107 9.09%
W B Nominees Limited (Yu Weijun)
* 26,932,440 5.49%
Pershing Nominees Limited (Jiang
Xinchun) 25,100,000 5.13%
* Both held shares for Mr Yu Weijun, aggregated % of issued share capital is 18.52%
**Jiang Xinchun also holds other shares of 7,000,000 by his name of Mr Xinchun Jiang, totalling 32,100,000 shares with an aggregated % of issued share capital of 6.53%
Going concern
The financial statements have been prepared assuming the Group will continue as a going concern.
During the year ended 31 December 2017, the Group made a profit of RMB30.1million, including a provision on a court case of RMB5.9million (note 14), research and development expense of RMB1.2million (note 21). At the year-end date, the Group had net assets of RMB41.3million (2016: net assets of RMB4.6million), of which RMB19.4million (2016: RMB13.9million) was cash in bank (note 11), including a restricted cash of RMB11.2million (2016: RMB11.2million).
The Group has a cash balance of RMB1.5 million at 30 April 2018, the restricted cash of RMB11.2million was repaid to the court.
The Directors consider that the Group has adequate resources, especially with sufficient cash in bank and proceeds of GBP702,132 arising from new shares issued in February 2017, to continue in operational existence for at least the next twelve months from the date of approval of these financial statements.
The Group's existing business made significantly increased operating profits to the year end 31 December 2017. Whilst there continues to be uncertainty in the renewables industry, together with working capital risks linked to the industry practice of phased contractual payments for projects, the Directors consider that the underlying economic environment for the sector in 2018 is improving compared to earlier years. The Group is continuing to evaluate new funding options. Currently operations are partially relying on project payments in advance from customers and phased payments to suppliers, which gives a degree of uncertainty in the future going concern. This is because there can be no guarantee that required funds availability is synchronised perfectly with cash requirements to fund suppliers. Consequently, a material uncertainty exists that may cast doubt on the Group's ability to continue to operate as planned and to be able to meet its commitments and discharge its liabilities in the normal course of business for a period not less than twelve months for the date of this report.
The financial statements do not include the adjustments that would result if the Group was unable to continue in operation.
Events after the reporting period
Subsequent to the year end the Company purchased 46,808,809 of its ordinary shares at a purchase price of 1.2 pence per share from Mr. Lv Jingbin for a total cash consideration of GBP561,705 and transferred the shares into treasury. Mr. Lv then no longer had an interest in the Company.
Statement of directors' responsibilities
Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors confirm that they have complied with the above requirements in preparing the financial statements.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group to enable them to ensure that the financial statements comply with the Companies (Jersey) Law, 1991. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Statement of disclosure to auditors
The directors have confirmed that:
-- so far as each director is aware, there is no relevant audit information of which the Company's auditors is unaware; and
-- each director has taken all the necessary steps he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Auditors
In accordance with Article 109 of the Companies (Jersey) Law 1991, a resolution proposing that UHY Hacker Young LLP be re-appointed for the forthcoming year will be put to the Annual General Meeting.
By order of the Board
Yu Weijun
Director
INDEPENT AUDITORS' REPORT
Opinion
We have audited the financial statements of China New Energy Limited ("the Company") for the year ended 31 December 2017 which comprise the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Profit or Loss and Other Comprehensive Income, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs), as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the Group and Company's affairs as at 31 December 2017 and of the Group and Company's profit and cash flows for the year then ended;
-- have been properly prepared in accordance with IFRSs, as adopted by the European Union; and -- have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern and recoverability of trade receivables
We have considered the adequacy of the disclosure in note 2.2 in the financial statements concerning the Group's ability to continue as a going concern and the disclosures in note 10 in the financial statements concerning the Group's ability to recover its trade receivables. The Group made a net profit of RMB30.1 million during the year ended 31 December 2017. The Group had cash and cash equivalents (including bank overdraft) of RMB 721,000 at year end, which excludes a restricted cash balance of RMB 11.2million which was frozen at the year-end by a court order and has been utilised in 2018 to settle a legal case (see note 14). As set out in note 10 to the financial statements, at 31 December 2017 the Group had outstanding trade receivables of RMB67 million, including significant amounts which are past their due by collection dates.
The continued high level of long outstanding receivables indicates an increased degree of uncertainty as to when and whether the debts may be collectible in full and casts doubt on the Group's policies and procedures for effective debt collection. The directors have reviewed the outstanding receivables in detail and made impairment provisions against receivables that they believe are at risk of not being received in full. The directors therefore are of the opinion that the unprovided receivables will be collected in full and they are making efforts to do so.
The Group's operations are partially funded by project payments in advance from customers and receipts from customers for completed contract billings.
These conditions, along with other matters explained in note 2.2 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Company's and Group's ability to continue as a going concern.
The financial statements do not include adjustments that would result from further impairment of trade receivables if the Group were unable to collect its debts in full and also do not include the adjustments (such as the impairment of other assets) that would result if the Company and Group were unable to continue as a going concern. Our opinion is not modified in respect of these matters.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Our assessment of risks of material misstatements
We identified the following risks of material misstatement that we believe had the greatest impact on our overall audit strategy and scope, the allocation of resources in the audit and directing the efforts of the engagement team. This is not a complete list of all risks identified by our audit.
Key audit matter How our audit addressed the
key audit matter
Accounting for construction contracts
- Revenue recognition We obtained an understanding
The Group recognised revenue and reviewed, on a sample basis,
of RMB 252million from construction the key financial controls surrounding
contracts using the percentage management's internal costing
of completion method for the and revenue recognition process
financial year ended 31 December put in place to estimate contract
2017. The percentage of completion revenues, costs and profit margin.
is measured by reference to contract We tested the mathematical accuracy
costs incurred compared to estimated of contract revenues, costs
total costs for the contracts. and profits based on the percentage
The determination of the contract of completion calculations.
revenues and contract costs requires Where there has been a significant
significant management estimates, change in management's estimates
which may have a material impact of such revenues, costs and
on the amounts of contract work-in-progress, profit margins, we enquired
contract revenue, contract cost with management the rationale
and profits recognised during of such changes and obtained
the year. Accordingly, we have supporting documentation to
identified this as a key audit corroborate management's explanation.
matter. We reviewed the projects and
discussed with the management
on the progress of significant
contracts to determine if there
are any changes such as delays,
penalties, overruns where it
is probable that total contract
costs will exceed total contract
revenue and require the recognition
of foreseeable losses on such
contracts.
Information regarding the Group's
contract work-in-progress and
revenue from construction contracts
is disclosed in notes 9 and
32 to the financial statements.
Recoverability of trade receivables
We identified the recoverability Our procedures in relation to
of trade receivables as a key the recoverability of trade
audit matter due to the significance receivables included:
of the balance to the consolidated * Obtaining an understanding on how the allowance for
financial statements as a whole, doubtful debts is estimated by the management and
combined with the significant assessing the management's process in determining the
degree of judgements made by estimated future cash flows of trade receivables;
the management in assessing the
impairment of accounts receivables
and determining the allowance * Discussing with the management and reviewing trade
for doubtful debts. receivables with limited cash settlements, during the
year or subsequent to the end of the reporting
As at 31 December, 2017, the period;
carrying amounts of accounts
receivables was RMB67million,
net of an impairment of doubtful * Checking the aging analysis and subsequent settlement
debts of RMB10million for the of the trade receivables, on a sample basis, to
year ended 31 December 2017 (including source documents including invoices and bank
adjustments arising during our statements; and
audit work) as disclosed in note
10 to the consolidated financial
statements. * Assessing the reasonableness of allowance for
doubtful debts for trade receivables with reference
to the history of defaults or delays in payments,
settlement records, subsequent settlements and aging
analysis of the trade receivables on a sample basis.
The Group has discussed its
trade receivables in note 10,
and the directors are confident
that outstanding receivables
will be collected from customers
and are making efforts to do
so.
The continued high level of
long outstanding receivables
indicates an increased degree
of uncertainty as to whether
the debts may be collectible
in full and may cast doubt on
the Group's policies and procedures
for effective debt collection.
Accordingly there is a material
uncertainty on the timing of
trade receivables collections
- as set out in the 'Material
uncertainty related to going
concern and recoverability of
trade receivables' paragraph
of the audit report.
Management override of controls
Intrinsically there is always We reviewed the nominal ledger
a risk of material misstatement accounts, journals and cash
due to fraud as a result of possible transactions to identify any
override of internal controls unusual or exceptional transactions.
by management or by those charged We investigated and tested a
with governance. sample of items to ensure amounts
paid during the year related
to business expenses and that
transactions were appropriate.
We reviewed and enquired into
the accounting systems, processes,
controls and segregation of
duties that existed in the Company
and the Group.
We also evaluated whether there
was evidence of bias by the
directors that represented a
risk of material misstatement
of fraud.
During our audit we found no
evidence of management override
of internal controls by the
directors or management.
Going concern
The Company and Group is still We reviewed the Group's cash
in its growth phase and is therefore flow forecasts for the period
dependent on cash funded by project to 30 June 2019. Despite the
payments in advance from customers return to profitability during
and receipts from customers for 2017 the Group had cash and
completed contract billings. cash equivalents of RMB 721,000
There is a risk that delayed (including a short term bank
cash receipts from contract customers loan of RMB7.4 million) at the
could result in a material uncertainty year-end, which excluded a restricted
that may cast doubt on the Group's cash balance of RMB 11.2million
ability to continue as a going which was frozen at the year-end
concern. by a court order and has been
utilised in 2018 to settle a
legal case (see note 14).
The forecasts indicate that
further the Group is dependent
on prompt receipt of funds from
contract customers to cover
both the operational and contract
costs.
The Group has discussed its
going concern in note 2.2 to
the financial statements, and
the directors are confident
that sufficient funds will be
received from customers in time
for the Group to continue as
a going concern.
There is however a going concern
risk and therefore no guarantee
that sufficient funds will be
received as and when required.
Accordingly there is a material
uncertainty that may cast significant
doubt on the Company's and Group's
ability to continue as a going
concern - as set out in the
'Material uncertainty related
to going concern and recoverability
of trade receivables' paragraph
of the audit report.
Our application of materiality
The scope and focus of our audit was influenced by our assessment and application of materiality. We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the financial statements.
We define financial statement materiality as the magnitude by which misstatements, including omissions, could reasonably be expected to influence the economic decisions taken on the basis of the financial statements by reasonable users.
We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
Overall materiality We determined materiality for the financial statements as a whole to be RMB 2.5 million.
How we determine it Based on a materiality model using an average of benchmark amounts of revenue, profit before tax, gross assets and net assets.
Rationale for benchmarks applied We believe an averaging model to be the most appropriate benchmarks due to the size, growth stage, increase in profitability and the nature of the Company and Group.
Performance materiality On the basis of our risk assessment, together with our assessment of the Company's control environment, our judgement is that performance materiality for the financial statements should be 75% of materiality, and was set at RMB 1.87million.
We agreed with the Audit Committee that we would report to them all misstatements over RMB100,000 identified during the audit, as well as differences below that threshold that, in our view, warrant reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account an understanding of the structure of the Company and the Group, their activities, the accounting processes and controls, and the industry in which they operate. Our planned audit testing was directed accordingly and was focused on areas where we assessed there to be the highest risk of material misstatement.
Our Group audit scope includes all of the group companies. At the Parent Company level, we also tested the consolidation procedures. The audit team met and communicated regularly throughout the audit with those charged with governance in order to ensure we had a good knowledge of the business of the Group. During the audit we reassessed and re-evaluated audit risks and tailored our approach accordingly.
The audit testing included substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls and the management of specific risk.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant findings, including any significant deficiencies in internal control that we identify during the audit.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditors' report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
-- adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
-- the financial statements are not in agreement with the accounting records and returns; or -- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities.This description forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Colin Wright
(Senior Statutory Auditor)
For and on behalf of
UHY Hacker Young
Chartered Accountant
Statutory Auditor
Quadrant House
4 Thomas More Square
London E1W 1YW
CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION
AT 31 DECEMBER 2017
Group Company
Note As at 31 December As at 31 December
--------------------- ---------------------
2017 2016 2017 2016
RMB'000 RMB'000 RMB'000 RMB'000
Non-current assets
Property, plant
and equipment 5 3,854 4,774 - -
Intangible assets 6 15,814 14,541 - -
Investments in
subsidiaries 7 - - 9,107 8,851
19,668 19,315 9,107 8,851
---------- --------- ---------- ---------
Current assets
Inventories 8 18,745 3,438 - -
Construction
work-in-progress
in excess of
progress billings 9 55,866 35,713 - -
Trade and other
receivables 10 92,791 73,217 8,620 3,717
Cash and cash
equivalents 11 8,168 2,654 240 1,808
Restricted cash
at bank 11 11,200 11,200 - -
---------- --------- ---------- ---------
186,770 126,222 8,860 5,525
---------- --------- ---------- ---------
Current liabilities
Borrowings 12 7,447 - - -
Trade and other
payables 13 96,632 91,976 6,327 6,867
Progress billings
in excess of
construction
work-in-progress 9 31,055 30,215 - -
Provision for
liabilities 14 15,873 10,000 - -
Income tax payable 12,014 8,776 - -
163,021 140,967 6,327 6,867
---------- --------- ---------- ---------
Net current assets/(liabilities) 23,749 (14,745) 2,533 (1,342)
---------- --------- ---------- ---------
Non-current liabilities
Deferred tax
liability 25 2,125 - - -
---------- --------- ---------- ---------
2,125 - - -
---------- --------- ---------- ---------
Net assets 41,292 4,570 11,640 7,509
========== ========= ========== =========
Equity
Share capital 15 1,541 1,441 1,541 1,441
Share premium 15 68,830 62,905 68,830 62,905
Combination reserve 16 (33,156) (33,156) - -
Statutory reserve 17 12,328 12,328 - -
Share-based payment
reserve 18 528 - 528 -
Retained losses (32,954) (63,039) (51,919) (49,157)
Foreign currency
translation reserve 19 24,175 24,091 (7,340) (7,680)
---------- --------- ---------- ---------
41,292 4,570 11,640 7,509
========== ========= ========== =========
CONSOLIDATED AND COMPANY STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2017
Group Company
Note Year ended 31 December Year ended 31 December
-------------------------- --------------------------
2017 2016 2017 2016
RMB'000 RMB'000 RMB'000 RMB'000
Revenue - project revenue 32 252,400 78,584 - -
Cost of sales - costs
of construction (178,802) (51,828) - -
------------- ----------- ------------ ------------
Gross profit 73,598 26,756 - -
Selling and distribution
expenses (5,890) (4,868) - -
Administrative expenses (5,044) (7,576) (2,314) (2,309)
Share-based payments 18 (528) - (528) -
Other income 20 7,642 3,204 - -
Other expenses 21 (7,150) (9,696) - -
Provisions - receivables
& contracts 10 (26,828) (2,715) - (1,665)
Impairment loss on
investment - - - (1,846)
Operating profit/(loss) 35,800 5,105 (2,842) (5,820)
Interest income 57 55 - 2
Finance costs 22 (666) (1,549) 80 (917)
Profit/(loss) before
tax 23 35,191 3,611 (2,762) (6,735)
Income tax expense 25 (2,981) - - -
Deferred tax expense 25 (2,125) - - -
------------- ----------- ------------ ------------
Profit/(loss) for the
year attributable to
owners of the Group 30,085 3,611 (2,762) (6,735)
============= =========== ============ ============
Other comprehensive
income
Exchange difference:
on translating foreign
operations 84 405 340 (938)
Total comprehensive
income for the year
attributable to owners
of the Group 30,169 4,016 (2,422) (7,673)
============= =========== ============ ============
Earnings per share
(RMB)
Basic 26 0.07 0.009
Diluted 26 0.06 0.009
Earnings per share
(Pence)
Basic 0.80p 0.097p
Diluted 0.68p 0.097p
Exchange rate GBP1: RMB8.7869 (2016: GBP1: RMB8.9844)
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Foreign
Share-based currency
Share Combination Statutory payment Retained translation Total
Group Share capital premium reserve reserve reserve losses reserve equity
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Balance at 31
December 2015 1,357 56,696 (33,156) 12,328 1,673 (68,323) 23,686 (5,739)
================== ======= =========== ========= ============ ======== =========== =======
Profit for the
year - - - - - 3,611 - 3,611
Other
comprehensive
income - - - - - - 405 405
Transfer
share-based
payment
reserve - - - - (1,673) 1,673 - -
Total
comprehensive
income for the
year - - - - (1,673) 5,284 405 4,016
----------- --------- ------------ -------- ----------- -------
Issue of
shares, net of
share issue
cost 84 6,209 - - - - - 6,293
Balance at 31
December 2016 1,441 62,905 (33,156) 12,328 - (63,039) 24,091 4,570
================== ======= =========== ========= ============ ======== =========== =======
Profit for
the year - - - - 528 30,085 - 30,613
Other
comprehensive
income - - - - - - 84 84
Total
comprehensive
income for the
year - - - - 528 30,085 84 30,697
----------- --------- ------------ -------- ----------- -------
Issue of
shares, net of
share issue
cost 100 5,925 - - - - - 6,025
Balance at 31
December 2017 1,541 68,830 (33,156) 12,328 528 (32,954) 24,175 41,292
================== ======= =========== ========= ============ ======== =========== =======
Foreign
Share-based currency
payment Retained translation
Company Share capital Share premium reserve losses reserve Total equity
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Balance at 31
December 2015 1,357 56,696 1,673 (44,095) (6,742) 8,889
============= ============= ============== ============== ============= ============
Loss for the
year - - - (6,735) - (6,735)
Other
comprehensive
income - - - - (938) (938)
Transfer
share-based
payment
reserve - - (1,673) 1,673 - -
Total
comprehensive
income for the
year - - (1,673) (5,062) (938) (7,673)
Issue of
shares, net of
share issue
cost 84 6,209 - - - 6,293
Balance at 31
December 2016 1,441 62,905 - (49,157) (7,680) 7,509
============= ============= ============== ============== ============= ============
Loss for the
year - - 528 (2,762) - (2,234)
Other
comprehensive
income - - - - 340 340
Total
comprehensive
income for the
year - - 528 (2,762) 340 (1,894)
Issue of
shares, net of
share issue
cost 100 5,925 - - - 6,025
Balance at 31
December 2017 1,541 68,830 528 (51,919) (7,340) 11,640
============= ============= ============== ============== ============= ============
CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2017
Group Company
2017 2016 2017 2016
RMB'000 RMB'000 RMB'000 RMB'000
Operating activities
Profit/(loss) before tax 35,191 3,611 (2,762) (6,735)
Adjustments for:
Depreciation and amortisation 1,846 2,565 - -
Share-based payments 528 - 528 -
(Gain)/loss on disposal of plant
& equipment (20) 1,548 - -
Gain on disposal of intangible
assets - (2,359) - -
Interest income (57) (55) - (2)
Interest expenses 666 537 - -
Impairment of inventories - 242 - -
Impairment of plant & equipment - (366) - -
Impairment of investment - - - 1,846
Exchange difference 84 405 84 313
--------- --------- -------- --------
Operating cash flows before movements
in working capital 38,238 6,128 (2,150) (4,578)
(Increase)/decrease in inventories (15,307) 6,258 - -
Increase in construction contracts
work-in-progress (net) (19,313) (2,824) - -
(Increase)/decrease in trade and
other receivables (19,574) (27,065) (4,903) 2,178
Increase/(decrease) in trade and
other payables 4,913 11,786 (540) (4,893)
Increase in provision for liabilities 5,873 - - -
Restricted cash frozen by court
(note 14) - (11,200) - -
--------- --------- -------- --------
Net cash used by operating activities (5,170) (16,917) (7,593) (7,293)
--------- --------- -------- --------
Investing activities
Purchase of property, plant and
equipment (413) (1,965) - -
Expenditure on intangible assets
additions (1,864) (3,701) - -
--------- --------- -------- --------
Net cash used in investing activities (2,277) (5,666) - -
--------- --------- -------- --------
Group Company
2017 2016 2017 2016
RMB'000 RMB'000 RMB'000 RMB'000
Financing activities
Proceeds from disposal of plant
& equipment 98 - - -
Proceeds from issue of shares 6,025 6,293 6,025 6,293
Interest received 57 55 - 2
Interest paid (666) (537) - -
--------- --------- -------- --------
Net cash from financing activities 5,514 5,811 6,025 6,295
--------- --------- -------- --------
Net decrease in cash and cash equivalents (1,933) (16,772) (1,568) (998)
Cash and cash equivalents at beginning
of year 2,654 19,426 1,808 2,806
Cash and cash equivalents at end
of year (Note 11) 721 2,654 240 1,808
========= ========= ======== ========
Cash and cash equivalents shown above excludes restricted cash at bank of RMB11.2 million which has been frozen under a court order and has been used subsequent to the year end to settle a court case (notes 14 & 33). The restricted cash at bank has been shown separately on the consolidated statement of financial position.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents at 31 December 2017 comprise the cash and cash equivalents shown in the consolidated statement of financial position of RMB8.168 million less short term bank loans of RMB7.447 million (note 12), resulting in RMB721,000 shown above (note 11).
EXTRACT OF NOTES TO THE FINANCIAL STATEMENTS
The following notes have been extracted from the Company's report and accounts. Accordingly, page references and note references may not reconcile in the extracts and the Report and Accounts should be read in full.
1. General information
The Company (or "CNE") with registration number 93306 was incorporated in Jersey on 2 May 2006 as an investment holding Company. The Company is domiciled in Jersey with its registered office at Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES.
The principal activities of its main subsidiary, Guangdong Zhongke Tianyuan New Energy Science and Technology Co Ltd. ("ZKTY") are engaged in turnkey technology solutions to manufacturers of ethanol, edible alcohol and acetic acid from a range of bio-resources including corn, sugarcane, cassava and other bio-resources.
The principal place of business is located at No 4, Nengyuan Road, Wushan, Tianhe District, Guangzhou, People's Republic of China ("PRC").
2. Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").
The consolidated financial statements incorporate the financial information of the Company and the Group. The subsidiaries are entities (including special purposes entities) over which the Group has the power to govern the financial operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights, as to obtain benefits from their activities.
The individual financial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements of the Group are presented in Chinese Renminbi ("RMB"), which is the presentation currency and functional currency of the Company and Group financial statements as the Group mainly operates in the PRC. All financial information presented in RMB has been recorded to the nearest thousand.
The Group has adopted all relevant IFRS standards effective for accounting periods beginning on or after 1 January 2017.
3. Going concern
The financial statements have been prepared assuming the Group will continue as a going concern.
During the year ended 31 December 2017, the Group made a profit of RMB 30.1million, including a provision on a court case of RMB 5.8million (note 14), research and development expense of RMB 1.2million (note 21). At the year-end date, the Group had net assets of RMB 41.3million (2016: net assets of RMB4.6million), of which RMB19.4million (2016: RMB13.9million) was cash in bank (note 11), including a restricted cash of RMB11.2million (2016: RMB11.2million).
The Group has a cash balance of RMB1.5 million at 30 April 2018, the restricted cash of RMB11.2million was repaid to the court.
The Directors consider that the Group has adequate resources, especially with sufficient cash in bank and proceeds of GBP702,132 arising from new shares issued in February 2017, to continue in operational existence for at least the next twelve months from the date of approval of these financial statements.
The Group's existing business made significantly increased operating profits to the year end 31 December 2017. Whilst there continues to be uncertainty in the renewables industry, together with working capital risks linked to the industry practice of phased contractual payments for projects, the Directors consider that the underlying economic environment for the sector in 2018 is improving compared to earlier years. The Group is continuing to evaluate new funding options. Currently operations are partially relying on project payments in advance from customers and phased payments to suppliers, which gives a degree of uncertainty in the future going concern. This is because there can be no guarantee that required funds availability is synchronised perfectly with cash requirements to fund suppliers. Consequently, a material uncertainty exists that may cast doubt on the Group's ability to continue to operate as planned and to be able to meet its commitments and discharge its liabilities in the normal course of business for a period not less than twelve months for the date of this report.
The financial statements do not include the adjustments (such as impairment of assets) that would result if the Group was unable to continue in operation.
4. Trade and other receivables
Group Company
As at 31 December As at 31 December
------------------------------------------------ ---------------------
2017 2016 2017 2016
RMB'000 RMB'000 RMB'000 RMB'000
Trade receivables (net
of impairments) 67,053 49,766 - -
Other receivables 8,029 9,768 4,989 86
Advance to suppliers
(net of impairments) 3,939 2,818 - -
Due from Group undertakings - - 3,631 3,631
Due from related parties 3,481 10,595 - -
Notes receivables 10,115 100 - -
Prepayments 174 170 - -
-------- -------- ---------- ---------
92,791 73,217 8,620 3,717
======== ======== ========== =========
The carrying amounts of trade and other receivables approximate their fair values and are non-interest bearing.
Trade receivable as security - included in the trade receivables is an amount of RMB9.5 million which has been pledged to secure borrowings of the Group (note 12).
The amounts due from related parties are non-trade, unsecured, non-interest bearing and repayable on demand.
Movements in impairments in doubtful debts in trade receivables are as follows:
Group
As at 31 December
---------------------
2017 2016
RMB'000 RMB'000
Impairments during the year 10,994 966
Movements in impairments in doubtful debts in advances to suppliers and other receivables are as follows:
Group
As at 31 December
---------------------
2017 2016
RMB'000 RMB'000
Allowance during the year 23 1,749
Reversal during the year - (3,493)
The Group's trade receivables that are not impaired are as follows:
As at 31 December
---------------------
2017 2016
RMB'000 RMB'000
Less than 1 year 61,620 37,180
1-2 years (net of impairments) 5,392 10,343
Over 2 years 41 2,243
67,053 49,766
At 31 December 2017, the Group had trade receivables of RMB 67million, net of impairments made against certain slow paying receivables. The continued high level of long outstanding receivables indicates an increased degree of uncertainty as to whether the debts may be collectible in full. All of the trade receivables have been reviewed for indicators of impairment and impairment provisions of RMB 10.9million have been made against receivables thought to be at risk of not being received in full. The directors believe that the unprovided receivables will collected in full and they are making every effort to do so. The directors are also putting in place improved debt collection procedures and a formal debt provision policy.
5. Earnings/(loss) per share
The calculation of earnings per share is based on Group's profit for the year and the weighted average number of shares in issue after adjusting for movement in own shares during the financial year. There is no potential dilutive share or share options outstanding and therefore, the diluted earnings per share is the same as basic earnings per share.
Weighted
average
number Earnings
Profit of shares per share
2017 RMB'000 '000 RMB
Basic 30,085 449,012 0.07
Diluted 30,085 488,312 0.06
2016
Basic 3,611 412,591 0.009
Diluted 3,611 412,591 0.009
6. Litigation and legal case liability
At year end, the Group had settled a legal case with a customer, Tangshan Chenhong Industry Co. Ltd ('TSCH'), relating to a quality dispute in relation to a project in 2012. The full amount of RMB15.8 million has been provided in provisions for liabilities according to the final court order (note 14) with the expense included in 'other expenses' (note 21).
As part of the settlement the Group also received a return of inventories valued at RMB6.6 million from Tangshan Chenhong (note 8).
RMB11.2 million was frozen from the Group's bank account during 2016 and subsequent to the year end the RMB11.2 million was deducted from the Group's bank accounts in settlement of the court order in March 2018. The RMB11.2 million has been treated as restricted cash at bank in these financial statements (note 11).
7. Subsequent events
Subsequent to the year end the Company purchased 46,808,809 of its ordinary shares at a purchase price of 1.2 pence per share from Mr. Lv Jingbin for a total cash consideration of GBP561,705 and transferred the shares into treasury. Mr. Lv then no longer has an interest in the Company.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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