Operations ReviewDuring FY2024, the Group entered into a non-binding term sheet with WJL Holdings Pte Ltd ("Buyer") for the proposed disposal of AIWater (Anhui) Co., Ltd., UG Water Pte. Ltd. and Xinwo AIWater (Hubei) Co., Ltd. ("AIWater Group") which carried out Artificial Intelligence in Water Management System business. Strategically, the proposed disposal will generate cash flow to enable the Group to redirect resources into its other business segment, namely sludge treatment and membrane manufacturing businesses.
On 12 January 2025, the Group had executed the conditional share sale and purchase agreement with the Buyer in relation to the above for a total consideration of RMB370 million, subject to SGX-ST and independent shareholders' approval.
As the proposed disposal meets the criteria under SFRS(I) 5 Non-Current Assets Held for Sale and Discontinued Operations, the comparative consolidated statement of profit or loss is re-presented as if the operation has been discontinued from the start of the comparative year. Accordingly, the Group analysed its operations and financial review in FY2024 based on continuing and discontinued operations as below.
Continuing operations
The Group's revenue decreased by RMB20.1 million and was mainly due to lower project activities in the engineering segment for FY2024 as compared to FY2023 when the Group supplied equipment to a sludge treatment project amounting to RMB22.5 million.
Discontinued operations
Revenue increased by RMB17.4 million in FY2024, from RMB6.0 million in FY2023 to RMB23.4 million in FY2024. The increase was due to additional AIWater operation & maintenance ("O&M") revenue generated for a new customer secured in FY2024.
Continuing operations
Due to lower revenue generated in FY2024, the gross profit generated was only RMB1.76 million, a decrease of RMB4.4 million from FY2023. The gross profit margin increased, from 22.7% in FY2023 to 25.1% in FY2024, mainly due to better margin generated from technical services rendered as compared to lower margins generated from sale of equipment in FY2023.
Discontinued operations
Due to the additional O&M project secured, higher revenue resulted in a higher gross profit margin of RMB6.3 million generated from FY2023. The gross profit margin decreased, from 46.4% in FY2023 to 38.9% in FY2024, mainly due to a lower margin commanded by the project secured.
Continuing operations
Finance income remained consistent at RMB1.6 million in FY2023 and FY2024.
Other income decreased from RMB1.2 million in FY2023 to RMB0.3 million in FY2024 mainly due to a gain on disposal of a subsidiary in 2023.
Fair value gain on convertible bonds ("CB"), decreased from RMB22.0 million in FY2023 to RMB13.6 million in FY2024 mainly due to a lower fair value gain from the revaluation of the embedded derivative in the CB.
The selling and distribution expenses decreased by RMB0.3 million, from RMB0.9 million in FY2023 to RMB0.6 million in FY2024 due to lower marketing expenses incurred for this segment by the Group.
Continuing operations
Administrative expenses decreased by RMB2.3 million, from RMB41.9 million in FY2023 to RMB39.6 million in FY2024, due to lower share option expenses and lower staff costs.
Finance costs increased by RMB5.9 million in FY2024, from RMB8.6 million in FY2023 to RMB14.5 million in FY2024, due to the full year effect of interest expenses recorded on the CB in FY2024 as compared to a partial effect in FY2023.
Impairment losses increased from RMB16.6 million from FY2023 to RMB21.3 million in FY2024, mainly due to the impairment losses of RMB20.8 million arising from Bazhou project's contract assets which were computed based on the Group's Expected Credit Loss ("ECL") model under SFRS(I) 9 to reflect the credit risk assessment made by management on the recoverability of the Group's contract assets.
Other expenses (including impairment loss on property, plant and equipment) decreased by RMB3.9 million in FY2024, from RMB6.7 million in FY2023 to RMB2.8 million in FY2024. The decrease was mainly due to higher impairment loss of RMB6.5 million recognised on leasehold building, machineries and equipment in the membrane business segment in FY2023 as compared to RMB0.5 million impairment loss recorded in machineries and equipment in FY2024. The decrease is partially offset by higher foreign exchange losses arising from convertible bonds due to the appreciation of USD against RMB.
Discontinued operations
The selling and distribution expenses increased by RMB0.2 million in FY2024, from RMB0.7 million in FY2023 to RMB0.9 million in FY2024 due to higher marketing expenses to source for potential projects.
Impairment losses increased by RMB0.2 million in FY2024 due to impairment losses recognised for certain contract assets using the Group's ECL model under SFRS(I) 9. There was no impairment losses in FY2023.
Share of results of associates recorded a profit of RMB0.4 million in FY2024 as compared to a loss of RMB0.8 million in FY2023 due to positive result contributions from the associate and joint venture.
Continuing operations
In FY2024, the Group recorded net income tax credit of RMB2.9 million mainly due to the reversal of prior year income taxes amounting to RMB4.1 million, partially offset by deferred tax expense of RMB1.2 million due to the timing difference of its contract assets. In FY2023, the Group recorded income tax expenses of RMB0.3 million based on the chargeable income after adjusting for net non-deductible expenses of a subsidiary.
In view of above, the Group reported a loss after taxation of RMB58.3 million in FY2024 as compared to RMB45.0 million recorded in FY2023.
Discontinued operations
In FY2024, the Group recorded deferred tax expense of RMB1.8 million due to the timing difference of its contract assets.
In view of the foregoing, the AIWater Group reported a loss after taxation of RMB3.9 million in FY2024 as compared to loss after taxation of RMB8.0 million in FY2023.
Total equity decreased by RMB54.1 million from RMB92.7 million in FY2023 to RMB38.6 million in FY2024, mainly due to total comprehensive loss of RMB57.8 million attributable to the owners of the Company during the financial year.
Total Group assets as at 31 December 2024 decreased by RMB47.4 million, from RMB254.4 million in FY2023 to RMB207.0 million in FY2024, due to higher non-current assets of RMB4.7 million and lower current assets of RMB52.1 million respectively.
The increase in non-current assets of RMB4.7 million from RMB79.9 million in FY2023 to RMB84.6 million in FY2024, were mainly due to the investment in an associate and joint venture of RMB11.6 million offset by routine depreciation and amortisation.
The decrease in currents assets of RMB52.1 million, from RMB174.6 million in FY2023 to RMB122.4 million in FY2024, was mainly due to lower bank balances used in the working capital requirements of the Group and additional impairment loss recognised for contract assets amounting to RMB21.3 million. The decrease was counterbalanced by the recognition of RMB15.4 million of property, plant and equipment and intangible assets under "assets classified as held for sale".
Total liabilities increased by RMB6.7 million, from RMB161.7 million in FY2023 to RMB168.4 million in FY2024, mainly due to RMB9.3 million capital grant received to partially finance the demonstration plant, offset by repayment of bank borrowings of RMB3.2 million.
Net cash used in operating activities was RMB30.5 million as compared with RMB50.8 million in the same period last year mainly due to recognition, realisation and collection of contract assets under billings for the year offset by other working capital requirements.
Net cash used in investing activities was RMB13.3 million due to acquisitions of property, plant and equipment of RMB11.7 million, acquisition of intangible assets of RMB1.3 million and a payment made for investment in an associate of RMB11.2 million. The cash outflow was partly offset by interest income of RMB1.6 million received during the year and proceeds from government grant of RMB9.3 million.
Net cash generated from financing activities was RMB1.1 million due to capital contributions from non-controlling shareholders of RMB6.7 million and decrease in bank deposits pledged of RMB0.4 million which is partly offset by net repayments of bank borrowings of RMB2.1 million, increase in restricted cash of RMB0.7 million, repayments of lease liabilities of RMB1.7 million and interest paid of RMB1.5 million.