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In FY2023, the decrease in the revenue of RMB22.9 million or 41.0% was mainly attributed to the (i) lower engineering revenue of RMB26.9 million mainly arising from lower revenue recognised in respect of the sludge treatment project in Bazhou as compared to FY2022, partly offset by higher treatment income, recognised from operation, maintenance and technical services rendered through our Artificial Intelligence Water Management projects, of RMB4.0 million.
Cost of sales constituted 68.3% and 73.0% of its revenue in FY2022 and FY2023 respectively. Cost of sales decreased by RMB14.1 million or 36.9% which was in line with the decrease in revenue.
In view of the above, overall gross profit decreased by RMB8.8 million or 49.7%, and gross profit margin decreased from 31.7% in FY2022 to 27.0% in FY2023. The reduced gross profit margin was mainly due to lower project margin earned in first half of FY2023.
Finance income increased from RMB0.5 million in FY2022 to RMB1.6 million in FY2023. The increase was mainly due to higher interest earned from the Group’s cash held in fixed deposits in a Singapore bank.
Other income decreased by RMB3.4 million in FY2023, from RMB4.6 million in FY2022 to RMB1.2 million in FY2023 mainly due to lower government grants & support received in FY2023 after the COVID-19 pandemic.
Fair value gain on convertible bonds arose due to the revaluation of the embedded derivative of the convertible bond amounting to RMB22.0 million.
The increase in selling and distribution expenses by RMB0.6 million, from RMB1.0 million in FY2022 to RMB1.6 million in FY2023 was mainly due to increase in marketing related costs to drive marketing efforts to secure future projects.
Administrative expenses increased by RMB14.9 million in FY2023, from RMB37.1 million in FY2022 to RMB52.0 million in FY2023. The increase was due mainly to increased payroll and related costs arising from additional headcount to expand the engineering and treatment segments of the Group. In addition, there were higher professional fees incurred of RMB0.8 million arising from the issuance of convertible bonds (“CB”) and higher research and development expenses of RMB3.9 million.
Finance costs increased by RMB7.6 million in FY2023 due to higher interest expense arising from the issuance of convertible bonds. While the convertible bonds bear zero-coupon interest, the Group imputed interest rates to fair value the liability component of the convertible bonds under SFRS(I) 9.
Impairment on financial assets and contract assets increased by RMB15.0 million in FY2023, from RMB1.6 million in FY2022 to RMB16.6 million in FY2023. The increase in impairment loss for FY2023 was mainly due to revised assumptions applied in the Group’s 12-month expected credit loss model to reflect the increase in credit risk arising from the Group’s contract assets from the Bazhou project. In FY2022, the Group recorded an impairment of RMB1.6 million of which no impairment losses was recognised for the Bazhou project as the PublicPrivate-Partnership was still on-going in prior year.
Impairment loss on property, plant and equipment increased by RMB6.5 million mainly due to write downs made to leasehold building, machineries and equipment in the membrane business segment.
Share of results of associated company decreased by RMB1.3 million in FY2023, from a gain of RMB0.5 million in FY2022 to a loss of RMB0.8 million in FY2023. This arose due to the associated company expensing off certain contract assets as the joint venture with the local government did not go as planned. The associated company was subsequently dissolved in November 2023.
Income tax expense decreased by RMB1.5 million from RMB1.8 million in FY2022 to RMB0.3 million in FY2023. This is due to lower chargeable income in FY2023 as the Group of subsidiaries are mostly loss-making in FY2023 as compared to a higher chargeable income in FY2022 from results registered by three PRC subsidiaries.
The effective tax rate was less than its statutory rate of 25% due mainly to certain tax exemptions on income, unabsorbed losses utilized and operating losses from other subsidiaries of the Group.
In view of above, the Group reported a loss after taxation for the financial year ended 31 December 2023 of RMB53.0 million as compared to a loss after taxation of RMB19.3 million in FY2022.
Total Group assets as at 31 December 2023 increased by RMB42.4 million, from RMB212.0 million in FY2022 to RMB254.4 million in FY2023 due to higher non-current assets of RMB0.6 million and higher current assets of RMB41.8 million respectively.
The increase in non-current assets was due to (i) the capitalisation of construction in progress cost arising from a sludge treatment plant of RMB16.0 million; (ii) additions in fixed assets, net of disposals, of RMB2.6 million offset by (iii) impairment of certain fixed assets and routine depreciation of RMB14.4 million; (iv) additions in intangibles of RMB0.4 million from capitalised software development costs, net of amortisation of RMB0.2 million; (v) currency translation differences of RMB2.3m, (vi) derecognition of right-of-use assets of RMB0.3 million and (vii) dissolution of investment in an associated company of RMB5.8 million as the joint venture entered into by United Greentech (Yishui) Co., Ltd did not proceed as planned.
The increase in currents assets of RMB41.8 million was due to higher (i) bank balances, deposits and cash for working capital of RMB49.6 million from convertible bonds proceeds, (ii) higher inventory balances of RMB0.8 million arising from materials procured for membrane segment business, (iii) trade receivables, VAT & other tax receivables of RMB9.8 million in line with increase in business activities in second half of FY2023.
This increase was partially offset by a decrease in (i) security deposits of RMB8.0 million which was reclassified to net off against trade receivables invoiced to a customer upon delivery of the project (ii) contract assets of RMB4.4 million due to reclassification to trade receivables upon customer acceptance (iii) advances to trade and non-trade suppliers, prepayments and other receivables RMB6.0 million in aggregate. Subsequent to year end, the Group had invoiced and collected cash receipts of RMB11.0 million from the Shijiazhuang project.
Total liabilities increased by RMB88.6 million, from RMB73.1 million in FY2022 to RMB161.7 million in FY2023. Non-current liabilities increased by RMB85.8 million due to an increase in convertible bond of RMB88.8 million and increase in provision for restoration cost & other liabilities of RMB0.3 million partially offset by lower (i) leases of RMB1.6 million which was in line with the decrease in ROU assets; (ii) net repayment of term loan of RMB1.7 million.
Current liabilities increased by RMB2.8 million, from RMB47.1 million in FY2022 to RMB49.9 million in FY2023 due to increase in (i) other liabilities of RMB1.3 million mainly due to increase in accrued capital expenditure arising from the sludge treatment under construction, (ii) bank borrowings of RMB1.4 million due to a new loan secured by a PRC subsidiary, (iii) trade and other payables of RMB0.2 million in line with increase in business activities in 2HY2023; (iv) lower lease liabilities of RMB0.5 million; and (v) higher income tax payable of RMB0.3 million arising from current year tax provision.
Total equity decreased by RMB46.1 million due to total comprehensive loss of RMB40.9 million during the financial year and decrease in non-controlling interests of RMB3.4 million as a result of capital contributions made, net of its share of total comprehensive loss of RMB10.6 million. This decrease was partly offset by the increase in the recognition of share-based payment on the employee stock options of RMB2.0 million.
Net cash used in operating activities was RMB50.8 million as compared with RMB33.7 million in the same period last year mainly due to higher working capital requirements.
Net cash used in investing activities was RMB4.4 million due to acquisitions of property, plant and equipment and intangible assets amounting to RMB10.5 million and RMB0.1 million respectively and cash outflow arising from disposal of a subsidiary of RMB0.2 million. The decrease was partly offset by interest income of RMB1.4 million and proceeds of dissolution of an associate of RMB5.0 million.
Net cash generated from financing activities was RMB103.8 million due to proceeds from issuance of convertible bonds of RMB105.8 million, capital contributions from non-controlling shareholders of RMB3.9 million and proceeds from bank borrowings of RMB9.5 million, partly offset by an increase in bank deposits pledged of RMB1.0 million, repayments of bank borrowings of RMB10.9 million, repayments of lease liabilities of RMB1.8 million and interest paid of RMB1.7 million.