First Quarter Results Financial Statement And Related Announcement
Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.
Explanatory Notes for WITHOUT financial effects of Convertible Bonds:
- Financial effects of Convertible Bonds consist of unrealised foreign exchange translation, amortised interest expenses (inclusive of interest charges) and fair value gain / (loss) of Convertible Bonds.
- Included in the foreign exchange loss of RMB 19.2 million was foreign exchange translation loss of RMB 15.4 million arising from unutilised proceeds from the issuance of the Convertible Bonds on 3 March 2017. These bonds are denominated in US Dollar and have depreciated against the RMB, thus resulting in the foreign exchange loss. Hence, profit attributable to equity holders (after excluding foreign exchange loss) for 1Q2018 was RMB 46.3 million, a 52.4% increase from 1Q2017.
Review of Performance
The Group's performance for the first quarter ended 31 March 2018 ("1Q2018") as compared to that of the first quarter ended 31 March 2017 ("1Q2017")
*Based on actual financial performance WITH financial effects of Convertible Bonds*
The Group's revenue increased by approximately RMB 278.3 million or 81.1% from RMB 343.2 million in 1Q2017 to RMB 621.5 million in 1Q2018. This was attributed to (a) Green Investment (GI) business revenue increased by RMB125.3 million mainly from Changrun and Xinyuan projects; and (b) Manufacturing and Services (M&S) revenue increased by RMB153.0 million as order book increase.
Gross profit increased by approximately RMB 45.8 million or 52.9% from RMB 86.7 million in 1Q2017 to RMB 132.5 million in 1Q2018. However, gross profit margin decreased from 25.3% for 1Q2017 to 21.3 % for 1Q2018 mainly due to increased competition and higher raw material price in the manufacturing business.
Profit before Income Tax
Profit before tax increased by RMB 165.6 million from a loss before tax of RMB 76.2 million in 1Q2017 to RMB 89.3 million in 1Q2018. The increase was mainly attributable to the following factors:
- Increase in gross profit of RMB 45.8 million;
- Increase in fair value changes on Convertible Bonds of RMB 156.2 million from 1Q2017 to 1Q2018.
The above increase was offset by:
- Increase in administrative expenses of RMB 19.7 million largely due to increases in personnel expenses to support the Group's Green Investment ("GI") segment expansion;
- Increase in foreign exchange loss of RMB 2.8 million due to unutilized Convertible Bonds; and
- Increase in finance costs of RMB 15.2 million due to accrued effective interest of Convertible Bonds and interest expense from operated GI projects.
Income Tax Expense
Excluding the non-taxable effect of the fair value gain on the Convertible Bonds, the effective tax rate for 1Q2018 would have been 15.7% (1Q2017: 18.8%).
Profit for the Financial Period
The Group's net profit attributable to shareholders increased by RMB 165.9 million or 198.7% from loss of RMB 83.5 million in 1Q2017 to RMB 82.4 million in 1Q2017.
Review of the Group's Financial Position
*Based on the statement of financial position WITH financial effects of Convertible Bonds*
The Group's total current assets decreased by RMB 133.9 million or 4.5% from RMB 2,966.4 million as at 31 December 2017 to RMB 2,832.5 million as at 31 March 2018 mainly due:
- Decrease in cash and cash equivalents of RMB 256.7 million, primarily due to the usage of funds for BOT and GI projects during the first three months ended 1Q2018;
- Increase in pledged bank deposits of RMB 17.1 million as more collaterals were required for the credit facilities granted;
Decrease in trade receivables of RMB 32.1 million primarily as a result of collection from customers.
Approximately 26.9% and 8.0% of the trade receivables at 31 December 2017 and 31 March 2018 respectively were collected as at 30 April 2018. Most of the trade receivables are due from customers that are state-owned enterprises, listed companies or multinational corporations. Overall, the Group's customers are credit-worthy but payments remain slow due to tightening credit in China.
- Increase in other receivables and prepayments of RMB 67.7 million due to the increase in advance payment for purchases to fulfil the orders on hand as at 31 March 2018; and
- Increase in inventories of RMB 70.2 million primarily due to an aggregate increase in work-in-progress and raw materials and consumables of RMB 70.2 million for project use.
The Group's total non-current assets increased by RMB 128.0 million or 6.3% from RMB 2,033.9 million as at 31 December 2017 to RMB 2,161.9 million as at 31 March 2018 mainly due to:
- Increase in other receivables, deposits and prepayments of RMB 2.3 million resulting from prepayments made to subcontractors for work done for the "BOT, BOO, TOT" projects on hand as at 31 March 2018; and
- Increase in intangible assets of RMB 109.0 million mainly due to service concession arrangements relating to "BOT, BOO, TOT" projects on hand as at 31 March 2018.
The Group's total current liabilities decreased by RMB 65.0 million or 2.8% from RMB 2,306.0 million as at 31 December 2017 to RMB 2,241.0 million as at 31 March 2018 mainly due to:
- Decrease in other payables of RMB 175.2 million primarily due to the decreased payables for acquisition of subsidiaries of RMB 110.0 million, and the aggregate decrease in accrued payroll costs and interest payable of RMB 58.3 million;
The above decrease was mitigated by:
- Increase in trade payables of RMB 85.2 million as a result of the increase in trade payables with third parties of RMB 138.5 million, offset by the aggregate decrease in customer advances and notes payables with third parties of RMB 53.3 million.
The Group's total non-current liabilities decreased by approximately RMB 49.7 million from RMB 1,291.3 million as at 31 December 2017 to RMB 1,241.6 million as at 31 March 2018 mainly due to decrease in derivative component of Convertible Bonds of RMB 53.1 million.
Review of the Group's cash flow statement for the first quarter ended 31 March 2018
*Based on the cash flow statement WITH financial effects of Convertible Bonds*
Net cash used in operating activities amounted to approximately RMB 54.1 million, primarily due to operating cash flows before movements in working capital of approximately RMB 70.3 million that were derived from:
- Decrease in trade receivables of RMB 33.5 million, increase in other receivables and prepayments of RMB 64.2 million and increase in inventories of RMB 70.2 million;
- Increase in trade payables of RMB 64.2 million and decrease in other payables of RMB 49.4 million; and
- Interest and tax paid of RMB 39.5 million in aggregate.
Net cash used in investing activities amounted to RMB 235.1 million mainly due to an increase in expenditure on intangible assets of RMB 98.0 million and the decreased payables for the acquisition of subsidiaries acquired during second half of FY2017 for RMB 110.0 million.
Net cash generated from financing activities amounted to RMB 32.6 million due to cash inflow arising from the proceeds from new borrowings and contribution from minority interests of RMB 149.4 million and RMB 25.5 million respectively, which was offset by the repayment of borrowings and pledged bank deposits of RMB 125.2 million and RMB 17.1 million respectively.
Commentary On Prospects
In 1Q2018, Sunpower achieved year-on-year ("YoY") growth of 81.1% in revenue and 198.7% in net profit attributable to shareholders, largely due to increased contributions from the GI business. Despite the impact of seasonality caused by the Spring Festival, revenue and EBITDA generated from 5 operating GI projects during the quarter was RMB 125.3 million and RMB 35 million, respectively. The long-term net present value of GI project cash flows is expected to far exceed the EBITDA contributions of the latest quarter.
Sunpower currently has 5 projects in operation, another 5 projects in the construction or design phases, and a deal pipeline of 28 projects under evaluation. RMB 3.4 billion (40% equity/60% debt) has been invested and committed in projects that can command an attractive double-digit IRR.
GI will form the bulk of the value of Sunpower in time. The Group is working to establish healthy, long-term, recurring cash flows through GI on the back of:
- Fundamental demand – Increasingly stringent enforcement of smog-related policies by the government has forced industrial users that used to operate "dirty" on-site steam boilers to switch to "clean" centralized steam providers such as Sunpower.
- Industrial park expansion – The organic expansion of the user base in the industrial parks will also drive demand for steam higher as more factories are built and relocated in.
- Exclusive supplier – Sunpower has been granted 30-year concession rights (with right of first refusal to renew) to be the exclusive steam supplier in the relevant industrial parks.
- Proprietary technology – The Group's ability to reduce temperature and pressure loss that lowers operating costs, and Sunpower can cover a larger area through its long distance steam distribution pipelines which achieves economies of scale;
The M&S segment also continued to grow strongly in 1Q2018 with a revenue increase of 44.6% YoY. It is expected to benefit from a record order book of RMB 2.0 billion as at end-March 2018, as it rides on the recovery and growing stability in crude oil prices. Sunpower has a proven track record of over 13 years in delivering solid results and stable margins in this segment. To date, the Group has served approximately 1,500 customers in over 15 industries globally. With its established market reputation and leadership in the industry, Sunpower has built a reputable customer base that includes a variety of leading conglomerates, namely, BASF, BP, Shell, CNOOC, CNPC and SINOPEC etc.
Going forward, Sunpower will remain focused on building a high-quality portfolio of GI assets that is expected to deliver long-term recurring cash flows. With its strong capital position, advanced proprietary technologies and experienced management team, Sunpower will accelerate the process to take advantage of its first-mover leadership for superior IRR. Management believes this GI strategy will benefit all stakeholders.
As at 31 March 2018, the total orders on hand amounted to RMB 2 billion, a record high for the Group and higher than the RMB 1.9 billion recorded at the end of 2017, after taking into account contract deliveries in 1Q2018.