ACE.L Regulatory News (ACE)

AUHUA CLEAN ENERGY PLC

("Auhua" or the "Company")

Final Results and Notice of AGM

29 June 2015: Auhua Clean Energy Plc (AIM: ACE) (the "Company"), the environmental technology group, is pleased to announce its final results for the year ended 31 December 2014.

Financial highlights:

· Revenues of RMB 248.9 million (GBP 24.6 million) (2013: RMB 250.9 million (GBP 26.1 million))

· Gross margin of 38.6% (2013: 43.6%)

· EBITDA of RMB 53.4 million (GBP 5.3 million) (2013: RMB 71.8 million (GBP 7.5 million))

· Profit before tax of RMB 48.2 million (GBP 4.8 million) (2013: RMB 65.8 million (GBP 6.8 million))

· Cash balances of RMB 47.0 million (GBP4.6 million) (2013: RMB 48.7 million, (GBP 5.1 million))

· Basic earnings per share of RMB 0.37 (GBP 4 pence) (2013: RMB 0.71 (GBP 8 pence))

· Net assets up to RMB 252.6 million (GBP 24.9 million) (2013: RMB 191.8 million (GBP 19.9 million))

· Net assets per share up 22% to RMB 2.82 (GBP 28 pence) (2013: RMB 2.32 (GBP 24 pence))

· Significant R&D advancements in the solar thermal panel manufacturing and building integration solar thermal technologies (BIST) with Purdue University in the USA.

Post balance sheet events:

· Entered into the Dubai Green Economy Partnership in May 2015

· Raised £1,724,500 through a placing and subscription, as announced on 19 June 2015

The Company has performed strongly amidst the slower growth in the Chinese economy and the property sector. This is largely because the Chinese government remains committed to the renewable energy sector and, in particular, the promotion of solar technologies in building developments. The Company was recently awarded a significant technology accolade by the Weihai Science and Technology Department for its technology advancements in solar thermal panel efficiencies. Demand in solar thermal projects remains strong among the property developers.

David Sumner, Chairman and Non-Executive Director of Auhua, said: "We are delighted with this sound set of financial results despite price pressures and the tougher market conditions in China. In spite of a challenging economic backdrop in the country, Auhua has had a good year. Our close ties with regulatory authorities, governments and property developers have helped ensure stable growth in sales domestically. We have ambitious domestic and international plans as global demand for solar products continues to thrive and the competitive adoption of clean power becomes more firmly fixed in the minds and actions of countries and governments. We look forward to a promising future ahead."

Chen Anxiang, Chief Executive Officer of Auhua, commented: "Auhua's investments into research and development has significantly helped the Company to develop the innovation needed to maintain a strong competitive advantage against its competitors. The 2014 joint research project between Taiwan Ziolar and Purdue University, USA has resulted in the filing of four Chinese patents and two U.S. patents since July 2014. We expect to form a pilot solar thermal coating production line in the second half of 2015. This technology will fill the gap in the market for innovative thermal solutions in property development."

On 19 June 2015, the Company completed a fundraising of GBP 1,724,500 (before expenses) through a placing and subscription of new Ordinary Shares of no par value of the Company at 4.5 pence per new Ordinary Share. While the Group's operations in China are profitable and cash positive, liquidity in China continues to be tight and the working capital requirements to operate the business have increased year on year. As such, the Company raised monies from the market to fund its capital expansion and provide working capital for its overseas expansion.

The Company will hold its Annual General Meeting at 11am (BST) on Wednesday 22 July 2015 at the offices of Grant Thornton UK LLP at 30 Finsbury Square, London, EC2P 2YU. Notice of the Annual General Meeting will be sent to shareholders tomorrow, 30 June 2015.

The financial information in this announcement is derived from the Company's audited financial statements for the year ended 31 December 2014 which are available on the Company's website www.auhuacleanenergy.com.

Copies of the Company's Annual Report and Accounts for the year ended 31 December 2014 will be sent to shareholders tomorrow, 30 June 2015 and will be available on the Company's website www.auhuacleanenergy.com.

All RMB amounts have been translated using the below exchange rates:

RMB 1: GBP 0.09870 (average exchange rate for 2014)

RMB 1: GBP 0.10396 (average exchange rate for 2013)

--ends---

Media Enquiries

Further information

About Auhua:

Auhua Clean Energy (www.auhuacleanenergy.com) is an environmental technology group based in the Shandong Province of Eastern China specialising in the development and application of green energy and energy efficient solar thermal solutions. In particular, the Group is focused on the manufacture and sale of split-unit solar water heating systems.

Auhua Clean Energy operates through its wholly owned subsidiaries Shandong Auhua New Energy Co., Ltd, Weihua Auhua New Energy Co., Ltd., and Taiwan Ziolar Technology Co. Ltd, of which Auhua Holdings Pte Ltd is the intermediate holding company. 

CHAIRMAN'S STATEMENT

On behalf of the Board of Directors (the "Board"), I am pleased to deliver our results for the year ended 31 December 2014.

The Company has continued to make good progress in our product development and penetration into new markets. We did not proceed with a fund raise in 2014, and as such were unable to increase the paid-up share capital of our Chinese subsidiaries or increase our production capacity. This restricted our growth and resulted in the Company maintaining its production output. Amidst price pressures in China and our strategic move towards larger customers, we suffered a small dip in revenues and gross margins. The Company has however made significant technological advances during 2014 and, following a key strategic acquisition, is strongly positioned to enter the solar energy market on a global scale.

Financial Review

Group revenue was RMB 248.9 million (GBP 24.6 million) in FY14 compared to RMB 250.9 million (GBP 26.1 million) in FY13. The Group had received considerable orders in the fourth quarter of 2014, but was unable to fulfil them all since it was already operating at full production capacity. Some of the orders were also delayed due to the poor property climate in China. Meanwhile, stainless steel prices increased in the second half of 2014, adding to our cost of goods, and price pressures from the larger customers caused our gross margins to dip to 38.6 per cent and gross profit of RMB 96.1 million (GBP 9.5 million) compared to 2013 where gross profit was RMB 109.4 million (GBP 11.4 million).

Administrative expenses increased significantly to RMB 27.2 million (GBP 2.7 million) during the period (2013: RMB 18.2 million (GBP 1.9 million)). The higher costs in 2014 were largely due to the operating overheads of Taiwan Ziolar and the increased training expenses in China to build up our sales and marketing teams. Selling and distribution costs fell to RMB 19.5 million (GBP 1.9 million) in 2014 compared to RMB 24.1 million (GBP 2.5 million) in 2013.

The Group also made several new adjustments this year, including an impairment of obsolete equipment of RMB 1 million (GBP 0.1 million), compared with nil in 2013, and amortisation of the intangibles derived from its acquisition of Taiwan Ziolar of RMB 1.0 million (GBP 0.1 million).

As a result of the lower gross profit margins and the higher administrative overheads, impairments and amortisations, profit before tax dropped by 27 per cent to RMB 48.2 million (GBP 4.8 million) (2013: RMB 65.8 million (GBP 6.8 million)) and net profit after tax from RMB 47.9 million (GBP 5.0 million) to RMB 32.5 million (GBP 3.2 million) in 2014. The Group's EBITDA dropped 26% to RMB 53.4 million (GBP 5.3 million, (2013: RMB 71.8 million (GBP 7.5 million)).

Fixed assets of the Group increased to RMB122.0 million (GBP 12.0 million) in 2014 compared to RMB 82.5 million (GBP 8.6 million) in 2013 largely due to the increase in construction in progress and the intangibles realised on the acquisition of Taiwan Ziolar, which completed in May 2014. Trade receivables increased to RMB90.9 million (GBP 9.0 million) from RMB76.0 million (GBP 7.9 million) as customers delayed payments and demanded longer credit terms. These customers are generally mid to large sized property developers and have a very small risk of bad debt. However, the Group has continued to provided RMB 2.5 million (GBP 0.2 million) in bad debt provisions for FYE2014, as was also provided in 2013.

As at 31 December 2014, total bank loans dropped to RMB 9.0 million (GBP 0.9 million) from RMB 14.5 million (GBP 1.5 million) and cash and cash equivalents maintained at RMB 47.0 million (GBP 4.6 million) as at 31 December 2014 (2013: RMB 48.7 million (GBP 5.1 million)).

Overall, net asset per share increased by 22 per cent from RMB 2.32 (GBP 0.24) in 2013 to RMB 2.82 (GBP 0.28) in 2014.

All RMB amounts have been translated using the below exchange rates:

RMB 1: GBP 0.09870 (average exchange rate for 2014)

RMB 1: GBP 0.10396 (average exchange rate for 2013)

Operational Review

Auhua continued to make good inroads into the mid to large property developers. This included the securing of an agreement with a subsidiary of Green Land Group to supply 1,570 units of solar thermal water heaters. Green Land Group was ranked No. 268 among the Fortune Global 500 companies in 2014 and one of China's largest property developer groups. The Group would have been in a stronger position to secure similar projects if not for the limited production capacity and the small paid up capital of its Chinese subsidiaries. The Group is already operating at full capacity and because it has taken longer than initially expected to raise capital from the market, the Group has therefore had to use its own internal funds to finance its production expansion. Since these funds were sourced in China the Group was unable to increase the paid-up capital of its Chinese subsidiaries since the fund injection needed to come from overseas. Nevertheless, the Group continued to make investment in sales, marketing and training in preparation for the Group's future expansion.

The Group is also looking to grow its overseas business and has made significant progress in Dubai. It has entered into the Dubai Green Economy Partnership ("Dubai GEP"), a government-backed initiative led by His Highness Sheikh Hamdan bin Mohammed bin Rashid al Maktoum, Crown Prince of Dubai and Chairman of the Dubai Executive Council and has been selected as one of the only solar thermal water heater providers under the programme.

The Company's ongoing strategy is to focus on research and development and innovation and to ensure it remains the technological leader in energy saving split-unit solar water heaters. In August 2014, the Group signed a joint development programme with Lyles School of Civil Engineering, Purdue University to enhance Auhua's existing solar thermal technologies by further developing its advanced composite material and proprietary coating technologies. These innovations will aim to achieve breakthrough performance in a number of ways, including system efficiency, structural strength, safety, durability, building lighting, and thermal management, and advance the Building Integrated Solar Thermal (BIST) applications of the design. In November 2014, Weihai Auhua New Energy Co Ltd, one of the Company's subsidiaries, was awarded the status of "Shandong Provincial Enterprise Technical Center". Conferred by the Shandong Economic and Information Technology Committee, the award is only made to companies with certain competitive advantages in terms of technology and operating results over its competitors in the same industry and with strong research and development capability. To date, the Group has already accumulated over forty patents under its Chinese subsidiaries with another five patents pending, and one patent has now been granted in China and the USA from its Taiwan Ziolar subsidiary.

Outlook

China's growth continues to look challenging but there are tangible signs of recovery in the property sector. Liquidity remains tight with the property developers and this will filter down to the building contractors and suppliers like ourselves. We believe the Chinese property market will recover. In the meantime, the progress we are making in Dubai will bring an alternative growth market and a diversification of our market risks. We will continue to be selective with our customers, manage our working capital, look to build production capacity for future growth and to invest in and nurture our technologies.

2014 has marked a consolidation year for the Company from a commercial perspective and a significant milestone with our technology development. It affirms our commitment to growing a world-class, renewable and profitable technology company. I would like to thank our staff for their continued efforts in ensuring Auhua remains at the forefront of solar thermal innovations and lastly, I would also like to thank all our partners, shareholders, customers, business associates and suppliers for their continued support over the year.

David Sumner

Non-executive Chairman

29 June 2015

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2014

Other comprehensive income

Consolidated Statement Of Financial Position

For the year ended 31 December 2014

Consolidated Cash Flow Statement

For year ended 31 December 2014

Consolidated Statement of Changes in Equity

Material Notes to the financial statements

1. General information and principal activities

The principal activities of Auhua Clean Energy Plc (the "Company" or "Auhua") and its subsidiaries (the "Group") include technology research and the development and production and sale of solar-powered water heater systems.

Auhua, a public limited company, is the Group's ultimate parent company. It was incorporated on 21 November 2011 in Jersey, Channel Islands and its registered office address is Queensway House, Hilgrove Street, St. Helier, Jersey JE1 1ES, Channel Islands. The Company's shares are listed on the AIM Market of the London Stock Exchange.

The principal subsidiary of Auhua is Auhua Holdings Pte Ltd ("Auhua Holdings"), the holding company for the Auhua Trading Group (together, "the Auhua Holdings Group"). The Auhua Trading Group is made up of Shandong Auhua New Energy Co., Ltd, Weihai Auhua New Energy Co., Ltd, and Taiwan Ziolar Technology Co. Ltd.

2. Significant accounting policies

2.1 Basis of preparation

The Group prepares its financial statements in accordance with applicable International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board as adopted by the European Union.

The Directors have considered those standards and interpretations, which have not been applied in the Financial Statements but are relevant to the Group's operations, that are in issue but not yet effective and do not consider that any will have a material impact on the future results of the Group. The Company has not presented a statement of cashflows as no bank account is maintained by the Company.

2.2 Subsidiaries

As at 31 December 2014, the Company had the following subsidiaries:

2.3 Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the net book amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such an indication of impairment is identified, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows thatare independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. In determining fair value less costs to sell, an appropriate valuation model is used.

If the recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

2.4 Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

2.5 Key assumptions and sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Although these estimates are based on management's best knowledge of the amount, event or actions, results ultimately may differ from those estimates. The Directors have reviewed the accounting policies set out above and consider them to be the most appropriate to the Group's business activities.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

2.5.1 Going concern

The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the Group, including the Company. The Directors have reviewed forecasts and budgets for the coming year, which have been drawn up with appropriate regard for the current economic environment and the particular industry in which the Group operates. These were prepared with reference to historical and current industry knowledge, taking future strategy of the Group into account. The existing operations have been generating funds to meet short-term operating cash requirements. Depending on its ability to raise further capital, it is within the Directors' ability to control the pace of any capital expenditure required.

The Directors consider that the trading subsidiaries in PRC are profitable and cashflow generative. They have adequate resources and committed borrowing facilities to continue in operational existence for the foreseeable future. The entity in Taiwan has been supported by the Company through shareholder loans and, subsequent to the year end, as detailed in note 21 to the financial statements, through a placing of £1.72 million (RMB17.2 million). . Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the financial statements.

2.5.2 Valuation of intangible assets acquired

The intellectual property assets were acquired through the business combination outlined in note 6. The intellectual property is amortised over ten years. The determination of the fair value of assets and liabilities including goodwill arising on the acquisition of businesses, the acquisition of intellectual property, whether arising from separate purchases or from the acquisition as part of business combinations, and development expenditure which is expected to generate future economic benefits, are based, to a considerable extent, on management's judgement. The fair value of these assets is determined by discounting estimated future net cash flows generated by the asset where no active market for the assets exists. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets.

Allocation of the purchase price affects the results of the Group as finite lived intangible assets are amortised, whereas indefinite lived intangible assets, including goodwill, are not amortised and could result in differing amortisation charges based on the allocation to indefinite lived and finite lived intangible assets. The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired and management's estimate of the period over which economic benefit will be derived from the asset. The estimated useful life principally reflects management's view of the average economic life of each asset and is assessed by reference to historical data and future expectations. Any reduction in the estimated useful life would lead to an increase in the amortisation charge.

Goodwill also arose through the business combination outlined in note 6. The Group tests goodwill recognised through business combinations annually for impairment using the method outlined above.

2.6 Key assumptions and sources of estimation uncertainty (continued)

The Group also uses the following estimates and assumptions that do not have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These are:

2.6.1 Allowance for trade and other receivables

Management reviews its loans and receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgment as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

Where there is objective evidence of impairment, management makes judgment as to whether impairment in value should be recorded in the income statement. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience.

The allowance policy for doubtful debts of the Group is based on the ageing analysis and management's ongoing evaluation of the recoverability of the outstanding receivables. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the assessment of the creditworthiness and the past collection history of each customer. If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

3 Capital risk management

The Group defines capital as the total equity of the Group. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, to maintain a strong credit rating and healthy capital ratios in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group consists of equity attributable to equity holders as disclosed in the statement of financial position. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the capital to shareholders or issue new shares. Changes were made in the period as disclosed in the statement of changes in equity. The Group monitors capital using a gearing ratio and debt to equity ratio:

3.1 Gearing ratio

The gearing ratio is defined as and calculated by the Group as total of interest-bearing borrowings to the owners' equity. Equity includes equity attributable to the equity holders of the Group. During the year ended 31 December 2014, the Group's strategy was to maintain the gearing ratio at a moderate level in order to secure access to finance at a reasonable cost. The gearing ratios as at the financial position dates were as follows:

3.2 Debt to equity ratio

The debt to equity ratio is defined and calculated by the Group as total debt (total liabilities) to the owner's equity as at 31 December 2014 as follows:

4. Revenue

5. Operating segments

For the purpose of IFRS 8, the chief operating decision-maker ("CODM"), who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

The Group is engaged in technology, R&D and the production and sale of solar-powered water heater systems. The Group's revenue and profit before taxation were all derived from its principal activity.

Revenues from all periods were derived from external customers based in the PRC. The Group's operations are principally based in the PRC and its assets and liabilities related to this single business segment.

6. Investments

The Company completed the acquisition of Taiwan Ziolar Technology Co. Ltd on 23 May 2014 for a consideration of USD 4.5 million through the issuance of 6,944,400 ordinary shares at 40 pence per Auhua Share.

Acquisition of Taiwan Ziolar Technology Co. Ltd

On 23 May 2014, the Group acquired 100% of the share capital of Taiwan Ziolar Technology Co. Ltd, a company based in Taiwan, in exchange for the Group's shares. Taiwan Ziolar Technology Co. Ltd was acquired to enable the Group to significantly enhance its solar thermal panel technology.

At the time of authorising these financial statements for issuance, the Group was still in the process of finalising the valuation of certain assets and liabilities acquired. Any changes to the amounts disclosed below, arising from finalisation of these valuations, will be reflected in the Group's next set of financial statements.

Details of the purchase consideration, net assets acquired and goodwill are as follows

The goodwill is primarily attributable to expected synergies arising from the acquisition, which is not separately recognised. From the date of acquisition, Taiwan Ziolar Technology Group contributed nil revenue and a loss of RMB 2,674k to profit before tax from the operations of the Group.

7. Profit from operations

Profit from operations in the period under review has been arrived after charging the following amounts:

8. Property, plant and equipment

9. Intangibles

Acquisition during the year

The intellectual property of RMB16.6 million was acquired through the business combination outlined in note 6. The intellectual property is amortised over the expected life of the asset.

Goodwill

The recoverable amount of goodwill of RMB6.1 million at 31 December 2014 is determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five year period. Cash flow projections beyond the five year timeframe are extrapolated by applying a flat growth rate in perpetuity. The pre-tax discount rate applied to the cash flow projections is 11%. As a result of the analysis, management did not identify any impairment to the goodwill.

10. Trade and other receivables

There are no material differences between the fair value of trade and other receivables and their carrying value at the year end.

Receivables of RMB 90,696,000 (2013: RMB 76,030,000) were past due but not impaired by the year end. The ageing analysis of these receivables at the year end is as follows:

Management have assessed the recoverability of debtors, which includes consideration of amounts settled post year end and based on their assessment consider that the amounts above are recoverable.

The company trade and receivables balance relates to amounts due from subsidiary companies. This was the same for the prior year amounts.

11. Stated capital

12. Trade and other payables

13. Related party transactions

a) Related parties are entities with common direct or indirect shareholders and/or previous and/or current directors. Parties are considered to be related if one party has the ability to control the other party in making financial and operating decisions.

Certain of Group's transactions and arrangements are with related parties and the effect of these on the basis determined between the parties is reflected in the financial statements.

The balances are unsecured, interest-free and repayable on demand unless otherwise stated.

Tham Wai Mun Raphael provided additional loan finance of RMB1.65 million during the year. David Sumner provided additional loan finance of RMB1.09 million during the year.

b) Key management personnel compensation is analysed as follows:

Key management personnel above refer to the executive directors.

c) Augrains Capital Pte Ltd

Augrains Capital Pte. Ltd. is controlled by Tham Wai Mun Raphael, a director of the Group as at the balance sheet date.