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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
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Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Alternative Energy 2,850.2 537.0 114.0 0.1 41

China New Energy Ltd Final Results

26/03/2020 12:56pm

UK Regulatory (RNS & others)


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TIDMCNEL

RNS Number : 7438H

China New Energy Ltd

26 March 2020

26 March 2020

China New Energy Limited

("CNE" or "the Company")

Final Results for the Year Ended 31 December 2019

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 2019.

Highlights for the year include:

-- Revenue has substantially increased to RMB398.6 million (c.GBP45.9 million) from RMB250.0 million (c. GBP28.4 million) in prior year increase of 59.4%

-- Net profit increases by 29.3% to RMB59.2 million (c. GBP6.8 million) from RMB45.8 million (c. GBP5.2 million) for the year ended 31 December 2018

-- Order book and contract backlog increase by 77.5% to RMB584.9 million (c. GBP67.4 million) from RMB329.6 million (c. GBP37.4 million) for the year ended 31 December 2018

The full version of the report and accounts for the year ended 31 December 2019 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, "I am very pleased to report our best financial results since our listing on AIM and 4(th) consecutive net profit. We continue to have a strong order book which we attribute to the 13(th) Five Year Plan for Renewable Energy Development that clearly demonstrates the intention of the PRC government to develop the ethanol fuel industry.

As widely reported in the press, business activities in China have been disrupted by the COVID-19 outbreak. We are confident and are of the view that the potential impact on our Group's business operations and financial conditions caused by the outbreak of COVID-19 will only be temporary and short-term.

We continue to pursue our strategy of re-listing the Company on the mainboard of the Hong Kong Stock Exchange, and I am very confident about the outlook for 2020 and the investment value of our shares which is expected to be reflected in our medium to long term market valuation.".

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information, please visit www.chinanewenergy.co.uk or contact:

 
 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 
                                                                9371 
 
 Cairn Financial Advisers LLP                  Tel: +44 20 7213 0880 
 Nominated Adviser and Broker 
 Jo Turner / Sandy Jamieson 
 
 
 

CHAIRMAN'S STATEMENT

I am pleased to report that the Group recorded its best ever financial performance and 4(th) consecutive year of generating profit after tax ("net profit").

Our total revenue has substantially increased from RMB250.0 million (c. GBP28.4 million) for the year ended 31 December 2018 to RMB398.6 million (c.GBP45.9 million) for the year ended 31 December 2019, representing an increase of 59.4% which was due to completing projects in our order book for the provision of ethanol production system technology integrated services in the ethanol fuel, alcoholic beverages and other industries respectively.

Our net profit substantially increased from RMB45.8 million (c. GBP5.2 million) for the year ended 31 December 2018 to RMB59.2 million (c. GBP6.8 million) for the year ended 31 December 2019, representing an increase of 29.3%. This would have been higher, if not for exceptional expenses such as fees relating to the proposed re-listing of the Company on the Main Board of the Hong Kong Stock Exchange ("HKSE").

The significant growth in our revenue and net profit from 2017 to 2019 was primarily due to the increased market demand as well as the favourable policies introduced by the People's Republic of China ("PRC") government, such as:

i. The 13th Five Year Plan for Renewable Energy Development clearly demonstrated the intention of the PRC government to vigorously develop the ethanol fuel industry. In September 2017, the PRC government announced a new nationwide ethanol mandate (NEA) that was designated to expand the mandatory use of E10 fuel (gasoline containing 10 percent ethanol) from 12 trial provinces to the entire country by 2020. In addition, the State Council of the PRC executive meeting decided to promote the usage of ethanol fuel in another 14 provinces in addition to the original 12 trial provinces; and

ii. The building of "ecological civilization" is listed as one of the top ten goals of the 13th Five Year Plan.

Driven by the policies mentioned above, ethanol producers have to replace outdated equipment by investing in more advanced production systems that generate high production efficiency and low pollutant discharge. The necessity for upgrades of manufacturing facilities, replacement of production systems and mass-production trends drive demand for advanced ethanol production systems in the alcoholic beverage industry in the PRC. We believe that, with our extensive experience and expertise in the ethanol production system industry, we are well positioned to capture growth opportunities in the PRC. For the year ended 31 December 2019, ethanol production system technology integrated services projects for the ethanol fuel industry included Inner Mongolia Zhongneng Biological Technology Co., Ltd, Heilongjiang Province Wanlirunda Biotechnology Co., Ltd and for the alcoholic beverage industry included Fuyu Huihai Wine Industry Co., Ltd.

The gross profit increased by 50.7% to RMB109.4 million (c. GBP12.6 million) for the year ended 31 December 2019 from RMB72.6 million (c. GBP8.2 million) for the year ended 31 December 2018. Our overall gross profit margin decreased slightly from 29.0% for the year ended 31 December 2018 to 27.4% for the year ended 31 December 2019.

The net profit for the year increased by 29.3% to RMB59.2 million (GBP6.8 million) for the year ended 31 December 2019 from RMB45.8 million (c. GBP5.2 million) for the year ended 31 December 2018.

Net profit margin decreased from 18.3% for the year ended 31 December 2018 and 14.9% for the year ended 31 December 2019.

Order Book and Contract Backlog

We entered 2020 with a strong order book of RMB584.9 million (c. GBP67.4 million) for the year ended 31 December 2019. This number includes new contracts to be started and the proportion of anticipated revenue from contracts which have started but not yet completed. This represents an increase of 77.5% from RMB329.6 million (c. GBP37.4 million) for the year ended 31 December 2018.

The following table sets forth the movement of backlog of our projects during the years ended 31 December 2017, 2018 and 2019:

 
                                                                           For the year ended 31 December 
                                                                               2017              2018          2019 
                                                                              RMB'000           RMB'000       RMB'000 
 Contract value (exclusive of value-added tax) of the beginning of the 
  year                                                                        138,142           98,565        329,577 
 Contract value (exclusive of value-added tax) of new contracts awarded 
  during the year                                                             217,532          480,990        653,882 
 Less: 
    Revenue recognised during the year                                       (257,109)        (249,978)      (398,558) 
 Contract value (exclusive of value-added tax) at the end of year             98,565           329,577        584,901 
 

Business

The Group is a leading ethanol production system technology integrated service provider in the PRC. The Group primarily provided integrated services including engineering design, equipment manufacturing, installation and commissioning and subsequent maintenance for the core system of ethanol production system in the ethanol fuel and alcoholic beverage industries in the PRC. In addition, the Group also provided its technology integrated services for other chemical production systems in Canada, Russia and other countries.

With 13 years of operating history, the Company has gained substantial experience and established a solid reputation in terms of advanced technology skills and proven track records in the ethanol production system industry in the PRC. According to a recently commissioned report from the China Insights Consultancy Limited, an independent market research and consulting company, we ranked the first in terms of revenue with a market share of 7.2%, in the ethanol production system industry in the PRC in 2018.

Research and Development

We have established a solid reputation in terms of advanced technology skills and proven track records in the ethanol production system industry in the PRC. Over the years, we have been devoted to research and development to drive improvement and innovation in technologies to be applied to the core system of the ethanol production system, we intend to continue to invest in our research and development efforts.

As at the date of this report, we had 32 patented technologies, which we have incorporated into our production procedures. In addition, as at the date of this report, the Group has submitted 14 patent registrations in the PRC and 1 in Brazil and are engaging in two ongoing research and development projects. We believe our advanced technologies and research and development capabilities have given us a competitive edge and allowed us to continue in securing contracts from customers through our provision of high-quality and innovative ethanol production system technology integrated services.

Business Strategies

Our goal is to continue to enhance our overall competitiveness and to capture greater market share in the ethanol production system industry and expand our presence to solidify our position as a leading ethanol production system technology integrated service provider in the PRC. To achieve this goal, we intend to pursue the following strategies:

-- Continue to maintain our leading market position by undertaking more projects in the PRC; and

-- Continue to focus on research and development to strengthen our design and engineering capability.

COVID-19 and Business Continuity

Recently, there has been an outbreak of COVID-19, a respiratory illness which was first emerged in Wuhan city, Hubei province, China in late 2019 and later continues to spread within the PRC and globally. On 23 January 2020, the PRC government announced the lockdown of Wuhan city in an attempt to quarantine the city. Since then, draconian measures including travel restrictions have been imposed in other major cities in the PRC, as well as other countries and territories, in an effort to control the outbreak.

As at the date of this report, confirmed cases of COVID-19 have been reported in various provinces in the PRC and had spread across countries and territories globally. The outbreak of COVID-19, which is expected to result in a high number of fatalities, is likely to have an adverse impact on the livelihood of the people and the economy in the PRC, particularly Wuhan city and Hubei province.

Impact on our business operation

While our office was temporarily closed during the Chinese New Year holiday and until 9 February 2020 in accordance with the extension of the Chinese New Year holiday and delay in resumption of work announced by the PRC government, we have resumed our operation on 10 February 2020.

Although a majority of our income during the year ended 31 December 2019 and 2019 was generated in the PRC and our customers are mainly based in the PRC, our Directors, after careful and due consideration, confirm that the business, financial conditions and result of operations of our Group would not be materially affected by the outbreak of COVID-19 for the following reasons:

i. As at the date of the report, we had been able to honour all of our obligations under the existing contracts with our customers, and we did not have loss of existing contracts due to the outbreak of COVID-19;

ii. all of our principal business operations and major customers during the year ended 31 December 2019 and 2018 were not located in Wuhan city or Hubei province. As at date of this report, we did not have any customer based in Wuhan city or Hubei province; and

iii. we have not encountered and do not expect to encounter any disruption of our supplies of raw materials and equipment in light of the outbreak of COVID-19 and we do not have reliance on any particular suppliers in Wuhan city or Hubei province for the above raw materials and equipment.

Impact on our employees

In line with our continuing efforts to provide a safe and healthy working environment to our own employees, we have prepared an internal manual on prevention of spread of COVID-19 and have implemented epidemic prevention measures in response to the outbreak of COVID-19:

i. we have set up an epidemic prevention group led by our general manager, Mr. Jiang Xinchun, to coordinate the implementation of epidemic prevention measures in accordance with the requirements of the PRC government;

ii. before an employee returns to work, we will obtain information and keep record on his/her travelling history in the past 14 days, health conditions and whether he/she has close contact with persons with symptoms of respiratory diseases; and

   iii.           we will carry out disinfection of our office area on a daily basis. 

We believe such measures are effective in reducing the risk of spreading of COVID-19 among our employees. As at the date of this report, none of our employees had been suspected or confirmed to have contracted COVID-19.

We are confident and are of the view that the potential impact on our Group's business operations and financial conditions caused by the outbreak of COVID-19 will only be temporary and short-term. We will continue to assess the impact of COVID-19 on our Group's operation and financial performance and closely monitor our Group's exposure to the risks and uncertainties in connection with the epidemic. We will take appropriate measures as necessary and inform our Shareholders and potential investors as and where necessary.

We have confirmed that, since 31 December 2019 and up to the date of this report, there has been no material adverse change in our financial or trading position or prospects and no event has occurred that would materially and adversely affect subsequent to the reporting period.

Preparation for Submission of an Application for Listing on the Main Board of the Hong Kong Stock Exchange

The Company continues to make good progress with its application to re-list on the HKSE, which is being undertaken to improve shareholder value and to raise additional capital to expand the business. The Company intends to immediately resubmit the application to list on the HKSE with the inclusion of the 2019 financial results which should substantially support our application. Subject to acceptance of the application by the HKSE listing committee, Admission to HKSE is now expected to be in the first half of 2020.

The Company expects to imminently convene an AGM or extraordinary general meeting to re-seek shareholder approval for resolutions in relation to its proposed listing on the Main Board of HKSE which will include shareholders approving the cancellation of trading of the Company's shares on AIM simultaneous with admission to HKSE.

We continue to stress that should application to the HKSE not be successful, we are committed to remaining public and for our shares to be traded on an internationally recognised stock exchange.

Outlook

The board and I are very optimistic about 2020 and the long-term future of CNE. The continuous favourable changes in the PRC ethanol production policies in recent year such as the 13(th) Five Year Plan for Renewable Energy Development clearly demonstrated the intention of the PRC government to develop the ethanol fuel industry. We believe that our advanced technologies and research and development capabilities have given us a competitive edge and allowed us to continue in securing contracts from customers through our provision of high-quality and innovative ethanol production system technology integrated services in the PRC.

I am very confident about the immediate outlook for 2020 and the investment value of our shares which is expected to be reflected in our medium to long term market valuation.

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 for their invaluable counsel in steering the Group through this exciting time.

Yu Weijun

Chairman

CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION

AT 31 DECEMBER 2019

 
                                                As at          As at 
                                          31 December    31 December 
                                                 2019           2018 
                                              RMB'000        RMB'000 
 ASSETS 
 Non-current assets 
 Financial assets at fair value 
  through other comprehensive 
  income                                        5,015              - 
 Investment in an associate                         -              - 
 Property, plant and equipment                 11,589          6,457 
 Land use rights                                    -          2,608 
 Intangible assets                             18,252         12,782 
 Right-of-use assets                            6,281              - 
 Deferred tax assets                            4,325          5,752 
                                        -------------  ------------- 
                                               45,462         27,599 
                                        -------------  ------------- 
 Current assets 
 Inventories                                    3,358          3,661 
 Contract assets                              118,108         88,465 
 Trade and bills receivables                   94,628        103,629 
 Other receivables and prepayments            110,688         17,980 
 Restricted cash                                2,321          1,230 
 Cash and cash equivalents                     26,466          6,358 
                                        -------------  ------------- 
                                              355,569        221,323 
                                        -------------  ------------- 
 
 Total assets                                 401,031        248,922 
                                        =============  ============= 
 
 
 LIABILITIES 
 Non-current liability 
 Lease liabilities                      2,889         - 
                                     --------  -------- 
 
 Current liabilities 
 Contract liabilities                  15,140    21,028 
 Bank and other borrowings             18,941     6,540 
 Convertible notes                     11,847         - 
 Trade payables                       114,755    69,250 
 Other payables                        72,916    59,355 
 Lease liabilities                      1,073         - 
 Current income tax liabilities        33,040    21,723 
                                     --------  -------- 
                                      267,712   177,896 
                                     --------  -------- 
 
 Total liabilities                    270,601   177,896 
                                     ========  ======== 
 
 Equity 
 Equity attributable to Owners 
  of the Company 
 Share capital                          1,444     1,541 
 Reserves                             128,986    69,485 
                                      130,430    71,026 
                                     --------  -------- 
 
 Total equity and liabilities         401,031   248,922 
                                     ========  ======== 
 
 Net current assets                    87,857    43,427 
                                     ========  ======== 
 
 

CONSOLIDATED AND COMPANY STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARED 31 DECEMBER 2019

 
                                                                  Year ended 31 December 
                                                                ------------------------- 
                                                                        2019         2018 
                                                                     RMB'000      RMB'000 
 
 
 Revenue                                                             398,558      249,978 
 Cost of sales                                                     (289,141)    (177,374) 
                                                                ------------  ----------- 
 Gross profit                                                        109,417       72,604 
 
 Selling and marketing expenses                                      (8,617)      (5,801) 
 Administrative expenses                                            (27,700)     (20,218) 
 Net impairment losses on financial 
  assets and contract assets                                         (3,555)        (362) 
 Other income                                                          1,836        1,685 
 Other gains - net                                                     2,409          263 
 
 Operating profit                                                     73,790       48,171 
 
 Finance income                                                           49           22 
 Finance costs                                                       (1,384)      (1,094) 
                                                                ------------  ----------- 
 Finance costs - net                                                 (1,335)      (1,072) 
 
 Profit before income tax                                             72,455       47,099 
 
 Income tax expenses                                                (13,287)      (1,278) 
 Profit for the year attributable to 
  Owners of the Company                                               59,168       45,821 
                                                                ============  =========== 
 
 Other comprehensive income 
 Item that may not be reclassified 
  to profit or loss 
 
   *    Change in the fair value of financial assets at fair 
        value through other comprehensive income, net of tax              13            - 
 Item that may be reclassified to profit 
  or loss 
 - Exchange differences on translation 
  of foreign operations                                                (238)        (224) 
                                                                ------------  ----------- 
 Other comprehensive income for the 
  year, net of tax                                                     (225)        (224) 
 
 Total comprehensive income for the 
  year attributable to Owners of the 
  Company                                                             58,943       45,597 
                                                                ============  =========== 
 
 Earnings per share for profit attributable 
  to Owners of the Company (expressed 
  in RMB per share) 
 Basic earnings per share                                              0.133        0.102 
 Diluted earnings per share                                            0.128        0.102 
 
 

Note: The exchange rate used in 2018 is GBP1:RMB 8.6842 (2018: GBP1:RMB 8.8178).

CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2019

 
                                    Share  Other reserves  (Accumulated    Total 
                                  Capital                      losses)/ 
                                                               retained 
                                                               earnings 
                                  RMB'000         RMB'000       RMB'000  RMB'000 
 
 
Balance at 1 January 2018           1,541          72,273      (44,164)   29,650 
Comprehensive income 
- Profit for the year                   -               -        45,821   45,821 
- Other comprehensive income            -           (224)             -    (224) 
                                 --------  --------------  ------------  ------- 
Total comprehensive income 
 for the year                           -           (224)        45,821   45,597 
                                 --------  --------------  ------------  ------- 
 
Transactions with owners, 
 recognised directly in equity 
Share-based payment expenses            -             460             -      460 
Buy-back of shares                      -         (4,681)             -  (4,681) 
                                 --------  --------------  ------------  ------- 
Total transactions with owners          -         (4,221)             -  (4,221) 
                                 --------  --------------  ------------  ------- 
Balance at 31 December 2018         1,541          67,828         1,657   71,026 
                                 ========  ==============  ============  ======= 
 
Balance at 1 January 2019           1,541          67,828         1,657   71,026 
Comprehensive income 
- Profit for the year                   -               -        59,168   59,168 
- Other comprehensive income            -           (225)             -    (225) 
                                 --------  --------------  ------------  ------- 
Total comprehensive income 
 for the year                           -           (225)        59,168   58,943 
                                 --------  --------------  ------------  ------- 
Transfer to statutory reserves          -           7,498       (7,498)        - 
Share-based payment expenses            -             461             -      461 
Cancellation of treasury 
 shares                              (97)              97             -        - 
                                 --------  --------------  ------------  ------- 
Total transactions with owners       (97)           8,056       (7,498)      461 
                                 --------  --------------  ------------  ------- 
Balance at 31 December 2019         1,444          75,659        53,327  130,430 
                                 ========  ==============  ============  ======= 
 

CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS

FOR THE YEARED 31 DECEMBER 2019

 
                                                                                         2019       2018 
                                                                                      RMB'000    RMB'000 
 
 Cash flows from operating activities 
 Cash generated from operations                                                        24,935     10,069 
 Income tax paid                                                                        (545)    (3,425) 
 Interest paid                                                                        (1,335)    (1,072) 
                                                                                    ---------  --------- 
 Net cash generated from operating activities                                          23,055      5,572 
                                                                                    ---------  --------- 
 
 Cash flows from investing activities 
 Purchases of property, plant and equipment                                           (7,526)      (889) 
 Purchase of intangible assets                                                        (6,192)    (5,954) 
 Proceeds from disposal of property, plant and equipment                                    -          3 
 Investment in financial assets at fair value through other comprehensive income      (5,000)          - 
 Net cash used in investing activities                                               (18,718)    (6,840) 
                                                                                    ---------  --------- 
 
   Cash flows from financing activities 
 Proceeds from bank and other borrowings                                               23,060      6,800 
 Proceeds from convertible notes                                                       10,606          - 
 Repayments of bank and other borrowings                                             (10,659)   (10,367) 
 Principal elements of lease payments                                                   (842)          - 
 Cash advance from related parties                                                          -     15,404 
 Repayment to related parties                                                         (1,949)   (11,165) 
 Payment for listing related expenses                                                 (4,098)          - 
 Increase in guarantee deposits for borrowings                                        (1,091)    (1,230) 
                                                                                    ---------  --------- 
 Net cash generated from/(used in) financing activities                                15,027      (558) 
                                                                                    ---------  --------- 
 
 Net increase/(decrease) in cash and cash equivalents                                  19,364    (1,826) 
   Cash and cash equivalents at beginning of year                                       6,358      8,180 
   Translation differences on cash and cash equivalents                                   744          4 
                                                                                    ---------  --------- 
   Cash and cash equivalents at end of year                                            26,466      6,358 
                                                                                    =========  ========= 
 
 

NOTES TO THE FINANCIAL STATEMENTS

The financial information above and the notes to the accounts have been extracted from the Annual Report and Financial Statements for the year ended 31 December 2019. As such, note references and page numbers may not appear correctly in this announcement. Shareholders are advised to read the Annual Report and Financial Statements for the year ended 31 December 2019 in full which will shortly be available from the Company's website, www.chinanewenergy.co.uk .

   1.         General information 

The consolidated financial statements of China New Energy Limited (the "Company") and its subsidiaries (the "Group") 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 providing 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 8 Floor, Zone B, Energy Saving and Environmental Protection Building of GIEC, No 2, Nengyuan Road, Tianhe District, Guangzhou, People's Republic of China ("PRC").

   2.         Summary of significant accounting policies 
   2.1.      Basis of preparation 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board ("IASB"), including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

The consolidated financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities measured at fair value.

The consolidated financial statements of the Group are presented in Chinese Renminbi ("RMB"), which is the presentation currency of the Group financial statements as the Group mainly operates in the PRC. 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), with the exception of the parent entity whose functional currency is GBP but has a presentational currency of RMB. All financial information presented in RMB has been recorded to the nearest thousand.

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.

Save as disclosed below, all standards, amendments to standards and interpretations, which are effective during the year beginning on 1 January 2019 have been adopted by the Group.

2.1.1. New and revised standard adopted

IFRS 16 Lease

The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated the 2018 reporting periods, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening statement of financial position on 1 January 2019.

   (i)         Adjustments recognised on adoption of IFRS 16 

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 6.53%.

 
                                                                             RMB'000 
 
           Operating lease commitments disclosed as at 31 December 
            2018                                                               6,019 
           Less: short-term leases recognised on a straight-line 
            basis as expense                                                   (423) 
                                                                      -------------- 
                                                                               5,596 
                                                                      -------------- 
           Discounted using the lessee's incremental borrowing 
            rate of at the date of initial application                         4,804 
           Lease liability recognised as at 1 January 2019                     4,804 
                                                                      -------------- 
             Of which are: 
                 Current lease liabilities                                     1,489 
                 Non-current lease liabilities                                 3,315 
                                                                      -------------- 
                                                                               4,804 
                                                                      -------------- 
 

Right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position as at 31 December 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

The recognised right-of-use assets relate to properties.

The change in accounting policy affected the following items in the statement of financial position on 1 January 2019:

   --        land use rights - decreased by RMB2,608,000 
   --        right-of-use assets - increased by RMB7,412,000 
   --        lease liabilities - increased by RMB4,804,000 
   (ii)       Practical expedients applied 

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

   --        reliance on previous assessments on whether leases are onerous 

-- the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases; and

-- the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.

   (iii)      The Group's leasing activities and how these are accounted for 

The Group leases an office, the rental contract for which is made for a fixed period of 55 months. The lease agreement does not impose any covenants, but leased asset may not be used as security for borrowing purposes.

Until the 2018 financial year, payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Right-of-use assets are measured at cost comprising the following:

   --        the amount of the initial measurement of lease liability 

-- any lease payments made at or before the commencement date less any lease incentives received

   --        any initial direct costs, and 
   --        restoration costs. 

Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

2.1.2. New and revised standards, amendments and interpretations to existing standards that have been issued but are not effective for the year beginning on 1 January 2019 and have not been early adopted

Up to the date of issuance of this report, the IASB has issued the following new standards, amendments and interpretations which are not yet effective and have not been early adopted:

 
                                                                         Effective for 
                                                                        annual periods 
                                                                          beginning on 
                                                                              or after 
    IFRS 3 (Amendment)            Definition of a business              1 January 2020 
    Conceptual framework      Revised conceptual framework              1 January 2020 
     for financial reporting   for financial reporting 
     2018 
IAS 1 and IAS 8                   Definition of material                1 January 2020 
 (Amendments) 
IFRS 7, IFRS 9 and                Interest rate benchmark reform        1 January 2020 
 IAS 39 (Amendments) 
    IFRS 17                       Insurance contracts                   1 January 2021 
    IAS 1 (Amendment)             Classification of liabilities         1 January 2022 
                              Sale or contribution of assets          To be determined 
IFRS 10 and IAS                between an investor and its 
 28 (Amendments)               associate or joint venture 
 

There are no new and revised standards, amendments and interpretations that are not yet effective and that would be expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

   2.2.      Principles of consolidation and equity accounting 
   (a)       Subsidiaries 

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

   (b)       Associates 

Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investment in an associate is accounted for using the equity method of accounting (see (c) below), after initially being recognised at cost.

   (c)        Equity method 

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment.

When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associate are eliminated to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 2.8.

   3.         Earnings per share 
   (a)        Basic earnings per share 
 
                                          2019     2018 
                                       -------  ------- 
                                       RMB'000  RMB'000 
 
Profit attributable to Owners of the 
 Company                                59,168   45,821 
Weighted average number of ordinary 
 shares in issue (thousand shares)     444,448  449,319 
 
Basic earnings per share                 0.133    0.102 
                                       =======  ======= 
 
    (b)       Diluted earnings per share 
 
                                          2019     2018 
                                       -------  ------- 
                                       RMB'000  RMB'000 
 
Profit attributable to Owners of the 
 Company                                60,409   45,821 
Weighted average number of ordinary 
 shares in issue (thousand shares)     471,402  449,319 
 
Dilutive earnings per share              0.128    0.102 
                                       =======  ======= 
 
   (c)        Reconciliations of earnings used in calculating earnings per share 
 
                                                    2019     2018 
                                                 -------  ------- 
                                                 RMB'000  RMB'000 
Basic earnings per share 
Profit from continuing operations attributable 
 to the ordinary equity holders of the 
 Company used in calculating basic earnings 
 per share:                                       59,168   45,821 
                                                 =======  ======= 
 
Diluted earnings per share 
Profit from continuing operations attributable 
 to the ordinary equity holders of the 
 Company: 
  Used in calculating basic earnings per 
   share                                          59,168   45,821 
  Add: fair value loss on convertible 
   notes                                           1,241        - 
                                                 -------  ------- 
  Used in calculating diluted earnings 
   per share                                      60,409   45,821 
                                                 =======  ======= 
 
   (d)      Weighted average number of shares used as the denominator 
 
                                                  2019     2018 
                                               -------  ------- 
                                               RMB'000  RMB'000 
Weighted average number of ordinary 
 shares (thousand shares) used as the 
 denominator in calculating basic earnings 
 per share                                     444,448  449,319 
Adjustments for calculation of diluted 
 earnings per share: 
     Share options granted under the Pre-IPO 
      Share Option Scheme (thousand shares) 
      (note i)                                   5,979        - 
   Convertible notes (thousand shares) 
    (note ii)                                   20,975        - 
                                               -------  ------- 
Weighted average number of ordinary 
 shares (thousand shares) and potential 
 ordinary shares used as the denominator 
 in calculating diluted earnings per 
 share                                         471,402  449,319 
                                               =======  ======= 
 

Note i

On 20 October 2017, the Group granted 39,300,508 share options for the long-term incentive of directors and senior employees of the Group. For details, please refer to Note 21.

The number of shares that would have been issued assuming the exercise of the share options less the number of shares that could have been issued at fair value (determined as the average market price per share for the year) for the same total proceeds is the number of shares issued for no consideration. The resulting number of shares issued for no consideration is included in the weighted average number of ordinary shares as the denominator for calculating diluted earnings per share.

The share options granted under the Pre-IPO Share Option Scheme are not included in the calculation of diluted earnings per share because they are antidilutive for the years ended 31 December 2018.

Note ii

The Company issued 12% convertible notes for HKD5,250,000 and HKD6,250,000 on 8 February 2019 and 15 February 2019 respectively. For details, please refer to Note 17. Convertible notes are included in the determination of dilutive earnings per share from their date of issue.

   4.         Subsequent events 

After the outbreak of Coronavirus Disease 2019 ("COVID-19 outbreak") in early 2020, a series of precautionary and control measures have been and continued to be implemented across the country/region. The Group will pay close attention to the development of the COVID-19 outbreak and evaluate its impact on the financial position and operating results of the Group. As at the date on which this set of financial statements were authorised for issue, the Group was not aware of any material adverse effects on the financial statements as a result of the COVID-19 outbreak.

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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(END) Dow Jones Newswires

March 26, 2020 08:56 ET (12:56 GMT)

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