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Business Review
(Extracted from Annual Report 2007)
Introduction
While FY2006 is a year noted for its expansion accomplishments, FY2007 is one highlighted by consolidations and rein-ins in operations and management of the previous year's acquisitions. The fruits from last year's efforts were evident with record-breaking revenue and China's inclination toward clean renewable energy for the future ahead.
Financial Performance
During the year under review, the Group demonstrated a remarkable consistency in its revenue growth as the closure of FY2007 witnessed a revenue increment of S$9.0 million to S$129.8 million, compared to S$120.8 million from the previous corresponding year.
Gross profit also improved by 15.0% to S$33.0 million in FY2007. For FY2006, net profit for the year continued to be in the pink of health with a moderate figure at S$21.0 million. However, when compared against FY2007's net profit of S$31.8 million, FY2006's net profit did not reflect the same optimism as revenue growth.
This boils down to the disposal of Shenzhen NARI Technologies Co., Ltd and another associate, which contributed S$10.0 million to the Group's profit in FY2006.
As a matter of fact, disregarding this extraordinary gain of S$10.0 million in FY2006, the Group achieved a net profit attributable to shareholders growth of 23.9% in FY2007 compared to the same period last year.
Administrative expenses increased by S$4.4 million from S$7.9 million in FY2006 to S$12.3 million in FY2007. This is mainly due to the financial consolidation of JAZ Technology and allowance for doubtful debt amounting to S$1.9 million provided during the year. Finance costs for FY2007 also increased by 17.0% due to higher interest rates charged for bank borrowings. Nevertheless, the Group's financial condition continues to be healthy with cash and cash equivalents standing at S$28.2 million.
Asia Power's net cash inflow from operating activities surged 28.4% to S$36.6 million in FY2007 from S$28.5 million in FY2006. This is in correspondence with the Group's growth in the Power Plants and Power Related Technology business segments by 2.1% and 158.5% respectively. Conversely, the Group's Investment Holding and Others business segment's revenue decreased by S$2.2 million to S$8.6 million.
Due to a drop in net profit, earnings per share for the Group decreased from FY2007's SG 5.62 cents to SG 3.38 cents for FY2007. Nonetheless, this is not a worrying issue as FY2006's amplified net profit is mainly due to the extraordinary gain from the disposal of Shenzhen NARI Technologies Co., Ltd.
In addition, the Group's net asset value improved to SG 21.21 cents in FY2007 from FY2006's SG 18.98 cents.
Consolidating Renewable Energy
In FY2007, the Group edged closer towards our business transformation into the renewable energy sector, in view of China's surging demand for clean energy within the country.
During FY2007, the Group stepped up another gear in our drive towards hydropower by successfully securing a 94% controlling interest over Asia Power (Yunxian) Hydroelectricity Co., Ltd.
Previously, the Group already owned a 55% direct interest and another indirect interest of 15% through the Group's subsidiary - JAZ Technology Development (Shenzhen) Co., Ltd in Yunxian. The remaining 30% was eventually completed via our wholly owned Asia Power (Chengdu) Investment Management Co., Ltd, a company which is principally engaged in the provision of power-related investment, business consultation and management services in the PRC.
To further improve margins from the Group's hydropower plants, we implemented a new management system that aims to enhance safey and efficiency levels of the energy plants. As a result of which, the Group's subsidiary, Asia Power (Neijiang) Hydro Electricity Co., Ltd experienced lower operation and management costs.
During the year under review, Asia Power (Leibo) Hydroelectricity Co., Ltd, whose principal activity is to develop and operate hydropower electricity generation plants with 40 MW installation capacity in Sichuan, PRC, completed all necessary paperwork processes from approval to construction in the past year. This is no doubt due to measures that were introduced in FY2007 that seeks to shorten the time taken for approval and construction of hydropower projects.
Prospects and Growth Strategies
Some of the major issues facing the world today are surging oil prices and the imminent dangers of an abused Earth. As such, China's Law on Renewable Energy, which promotes cleaner energy technologies, is now more important than ever.
On top of that, China's National People's Congress, has recently passed a plan to reshuffle central government bureaucracy and set up five super-ministries. One of the super-ministries that was set up - environmental protection - suggests that China is committed to cutting CO2 emissions and other greenhouse gases. This comes after the recent snowstorms, which caused a breakdown in coal and power supply and exposed the weakness of its energy security policy.
Coupled with China's voracious appetite for energy due to the growing affluence of the economy, the Group's strategy of developing more lucrative renewable energy places the Group in a favorable position for future growth.
The Group will continue to explore expansion opportunities through acquisitions of existing projects and at the same time, accelerate efforts in the development of the hydropower electricity generation plant.