ACE.L Regulatory News (ACE)

REPLACEMENT ANNOUNCEMENTThis announcement replaces RNS 7911N released on 12 September 2013 at 07:00. The amendment was the insertion of a date of approval as disclosed in note 1 to the interim financial information. All other information remains unchanged.

AUHUA CLEAN ENERGY PLC

(the "Company", "Auhua" or the "Group")

INTERIM RESULTS

Auhua Clean Energy plc (AIM: ACE), the AIM quoted environmental technology group based in the Shandong Province of Eastern China, today announces its unaudited results for the six months ended 30 June 2013.

Technology innovation underpins strong results

Highlights

· Revenue increased by 15% to RMB 110.3 million: GBP 11.8 million (30 June 2012: RMB 95.6 million: GBP 9.7 million) driven by good demand.

· Strong focus on selling to property developers resulted in a 12.9% increase in number of units sold to 35,000 (30 June 2012: 31,000).

· Gross profit grew by 21% to RMB 51.7 million: GBP 5.5 million (30 June 2012: RMB 42.8 million: GBP 4.3 million) and gross margins improved to 47% (30 June 2012: 45%) as the bulk of 1H projects were sold directly to property developers.

· Net profit before tax of RMB 32.5 million: GBP 3.5 million (30 June 2012: RMB 32.1 million: GBP 3.2 million).

· Net assets of RMB 155.5 million: GBP 16.7 million (30 June 2012: RMB 110.3 million: GBP 11.2 million).

· Cash balances at 30 June 2013 of RMB 40.3 million: GBP 4.3 million (30 June 2012: RMB 32.7 million: GBP 3.3 million).

· Earnings per share at half year of RMB 0.37: 4.0 pence (30 June 2012: RMB 0.38: 3.8 pence).

· Order book as at 30 June 2013 was RMB 64.8 million: GBP 6.9 million (30 June 2012: RMB 74.8 million: GBP 7.6 million). The order book was behind last year due to uncertainty before the new Chinese leaders took office in March 2013 which led to property developers delaying their projects during the first quarter of 2013.

· Post year end:

o Auhua's nano-coated flat plate solar panel technology was identified, commended and conferred by the Shandong provincial government for "Outstanding energy saving result" for 2012. The Company's nano coating helps to keep the collector surfaces clean and the selective spectral absorption coating improves collection of the heating part of the light spectrum.

o Awarded "Industrialization of Significant Energy Saving Technology" by the Shandong Province for its highly efficient spectral selective absorbing coating which forms part of its flat panel split-unit solar water heaters.

Outlook

· The Group continues to invest in research and development to remain at the forefront of its field.

· Due diligence on Taiwan Ziolar Technology Co. Ltd is progressing. The proposed acquisition of Taiwan Ziolar is anticipated to provide the Group with international solar thermal technologies and increase energy efficiency for Auhua's products.

· The Group's pipeline remains strong and the market is expected to improve in 2H 2013. The Group's figures for 2013 are expected to be at least in line with market expectations.

Mr Raphael Tham, Chairman of Auhua said, "I am pleased to report a solid set of results. In the six months to 30 June 2013 we have made significant progress by growing revenue and increasing gross margins. We have also been recognised by the China authorities for our pioneering approach to innovation in our products. Our strategic focus is to continue to grow the business and the potential acquisition of Taiwan Ziolar is expected to further strengthen Auhua and take it to the next stage of technological innovation."

* All RMB amounts translated using an exchange rate:

RMB 1 : GBP 0.107107 (as at 30 June 2013)

RMB 1 : GBP 0.10114 (as at 30 June 2012)

Further Enquiries:

Notes to Editors:

About Auhua Clean Energy

Auhua Clean Energy 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 water heating 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 and Weihua Auhua New Energy Co., Ltd., of which Auhua Holdings Pte Ltd is the intermediate holding company.

Information about the solar industry in China

The Shandong province is the leader in China's solar thermal initiatives. It manufactures one third of China's solar water heaters and China uses 64.8% of the world's total capacity for solar heating

In 2012, China solar water heater production has risen to 63.9 million square meters at a growth rate of 10.7% or so, with total inventory of roughly 258 million square meters. (source: Global Status Report)

Currently dominated by unibody systems purchased by end consumers, the Shandong government is shifting its focus to promote split-unit water heater systems to property developers. Consequently they have introduced regulations to increase demand by requiring all buildings with more than 12 floors (which traditional unibody systems cannot support) to utilise solar water heater systems. Government subsidies are also available to property developers when they incorporate solar water heater systems into their building plans.

Chairman's Statement

Introduction

On behalf of the Board of Directors, I am pleased to present the unaudited accounts for the Group for the six month period ended 30 June 2013.

The Group has made positive progress with revenue rising by 15% to RM 110.3 million: GBP 11.8 million (30 June 2012: RMB 95.6 million: GBP 9.7 million). Gross profit grew by 21% to RMB 51.7 million: GBP 5.5 million (30 June 2012: RMB 42.8 million: GBP 4.3 million) and gross margins improved to 47% (30 June 2012: 45%). Net profit after tax was in line with last year at RMB 23.6 million: GBP 2.5 million (30 June 2012: RMB 23.7 million: GBP 2.4 million) due to higher administrative expenses which mainly related to listing overheads incurred during the period under review.

Our strategy to focus on research, development and innovation is key to ensuring we remain technological leaders in energy saving split-unit solar water heaters. We are pleased that our leading position has been acknowledged and endorsed by the China authorities. We are now officially authorised and appointed to setup an engineering and technology research centre in Jinan city and also to establish an engineering laboratory in Weihai city. Documentation has been submitted to Beijing to be recognised at the provincial level. We have also received the following awards:

· Industralization of Significant Energy Saving Technology in August 2013

· Outstanding Energy Saving Result in July 2013

In addition, we will be receiving a one-off incentive grant of RMB 500,000 for our innovative technology.

Taiwan Ziolar

On 2 August 2013, the Group announced the potential business and share acquisition of Taiwan Ziolar Technology Co. Ltd. ("Taiwan Ziolar"). 

Taiwan Ziolar was originally set up in 2012 as the engineering center of a Singaporean technology start-up. Taiwan Ziolar's mission is to apply advanced thin film technology to develop integrated, high-performance, low-cost solar thermal collectors that will potentially revolutionize the solar thermal industry. Taiwan Ziolar develops coating technology to improve panel efficiency and to drive down costs. In the past three months, two US patents and two China patents have been filed. Taiwan Ziolar is also working with leading technology institutes, such as Purdue University in United States, SIMTech in Singapore, and National Tsinghua University in Taiwan, to advance the system solution for 100 - 200°C applications such as solar thermal HVAC, process heat, drying and boiler feed water. Further patents will be filed pending the completion of the projects with these prestigious institutions.

This acquisition has the potential to expand Auhua from being a predominantly solar powered water heater manufacturer into a much broader solar thermal technology firm. At the base of the technology roadmap, it means that Auhua's products will be more advanced and more efficient than our competitors (Auhua's products are already the only five star rated split unit solar water heaters in the Shandong market). We believe the proposed acquisition will bring world-class technology into the Group and propel Auhua's expansion into opportunities in international markets.

Financial Performance

Gross profit increased by 21% to RMB 51.7 million: GBP 5.5 million (30 June 2012: RMB 42.8 million: GBP 4.3 million). The gross profit margin was 47% for the period compared to 45% for the corresponding period ending 30 June 2012. This improvement in profit margin was a result of securing more projects directly with property developers rather than going through third parties or OEMs. Profit before tax rose modestly by 1.4% to RMB 32.5 million: GBP 3.5 million largely due to an increase in administrative expenses.

Administrative expenses increased by RMB 2.7 million: GBP 0.3 million to RMB 8.4 million: GBP 0.9 million due to higher staff overheads and expenses in relation to the listing maintenance costs i.e. 1H 2013 took into account the full six months of listing overheads compared to three months for 1H 2012 since Auhua was admitted to trading on the AIM Market in April 2012.

Our trade receivables increased to RMB 66.5 million: GBP 7.1 million (FY 2012: RMB 45.2 million: GBP 4.6 million), as a result of higher sales but also in part due to the tight domestic debt markets affecting our customers. On a selective basis, we have provided some of our clients with longer credit terms. Our customers have also requested longer installation periods and have protracted the project inspection and commissioning phases, thereby affecting the collection period. As a result, our debtor days increased from 59 days for FY 2012 to 93 days for 1H 2013 (53 days for 1H 2012). Overall, trade receivables represent 60% of our turnover (1H 2012:33%). For this reason, we have been prudent in our sales during the period. We have chosen to increase margins and to sell to select property developers rather than push for revenue growth and capacity utilisation. This directly resulted in the slower year-on-year revenue growth but higher margins.

Inventory increased to RMB 7.6 million: GBP 0.8 million (FY 2012: RMB 3.6 million: GBP 0.4 million). The increase is due to the scaling up of the Weihai factory and the preparation for second half orders. This is still relatively low as we do not hedge against the raw material price fluctuations. Conversely, we usually reduce inventory in December as the weather gets too cold for installation and there is less demand due to the Lunar new year holidays.

The Group maintained a strong financial position with a balance sheet debt ratio of 27%. Cash and cash equivalents held at 30 June 2013 were RMB 40.3 million: GBP 4.3 million compared to RMB 32.7 million: GBP 3.2 million at 30 June 2012.

Currently the Group has a combined capacity of 90,000 units per annum but has the potential to increase production capacity by a further 60,000 units in the Rushan factory in Weihai city. In terms of units, the Group sold 35,000 units in the first half, an increase of 13% over the previous year. We expect near full production in the second half of 2013.

China Property Market

The China property market was slower in 1H 2013 due to two major reasons. The first reason was the changing of the guard in China which happens once every 10 years and which resulted in the appointment of Xi Jiping and Li Keqiang. Both property developers and property buyers waited to see the policies of the new leaders resulting in less activity in Q1 2013. The second reason was the continued tight debt market in China which saw banks continue to rein in lending to the property sector.

Despite this, the total investment in real estate development in the first seven months of 2013 was RMB4.4 trillion, up by 20.5% year-on-year in nominal terms. Of this, the investment in residential buildings was RMB 3.0 trillion, up by 20.2% and accounted for 68% of real estate development investment. The floor space of residential buildings started in the year amounted to 826 million square metres, up by 7.1%. At an average of 100 square metres per apartment, this equates to an estimated 8.3 million apartments launched in the first seven months of this year.

We expect the Chinese property market to continue to remain stable and healthy. The official Xinhua News Agency reported that according to Zhu Zhongyi, the deputy head of the China Real Estate Industry Association, the government is expected to release a "long-term mechanism" to encourage stable development in Q3 2013. This is opportune for Auhua as demand for our products is traditionally skewed towards the second half of the year.

Outlook

The Group will continue to invest in research and development to improve the quality of our products. The acknowledgement by the Chinese authorities of the strength of our research and development in split-unit solar water heater technology further consolidates our market leadership in Shandong and other provinces in this industry.

In addition, the endorsement of our products as well as on-going support towards renewable energy, make us confident of further support from the Chinese authorities going forward.

The potential acquisition of Taiwan Ziolar, subject to the satisfactory due diligence, funding and other conditions precedent, will create strong synergies for the Group. Auhua will continue to remain focused on innovation and developments relating to solar water heater whilst Taiwan Ziolar will be focused on researching solar thermal panels, resulting in producing better quality products and creating a long-term competitive edge for Auhua in the solar thermal industry.

Despite the challenging macro environment in 1H2013, the Group has shown a determination to grow, which has also been helped by the commitment of the Chinese government to renewable energy. We expect the second half of 2013 to show an improved property market in tandem with our traditional peak sales period.

Tham Wai Mun Raphael

Non-executive Chairman

Auhua Clean Energy Plc

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the six month period ended 30 June 2013

Unaudited Condensed Consolidated Statement of Changes in Equity

For the six month period ended 30 June 2013

Condensed Consolidated Statement of Financial Position

As at 30 June 2013

Condensed Consolidated Statement of Cash Flows

For the six month period ended 30 June 2013

Basis of Presentation and Summary of Significant Accounting Policies

1. General information and principal activities

The financial information for the six months ended 30 June 2013 and 30 June 2012 set out in this interim financial information is unaudited and does not constitute statutory financial statements. The financial information for the year ended 31 December 2012 set out in this interim financial information does not comprise the Group's statutory financial statements but has been extracted from those financial statements.

The directors approved the interim financial information for the six months ended 30 June 2013 on 11 September 2013.

Copies of this interim financial information will be available on the Company's website:

www.auhuacleanenergy.com

The interim financial information has been prepared in accordance with the principles of IFRS as adopted by the European Union. The standards have been applied consistently (except as otherwise stated).

The statutory financial statements for the year ended 31 December 2012, which have been filed at Jersey Registrar of Companies, were prepared under IFRS and IFRIC interpretations as adopted by the European Union. The auditors reported on those financial statements; their Audit Report was unqualified but contained an emphasis of matter in respect of the Group's ability to continue as a going concern.

The accounting policies adopted by the Group in this interim financial information is consistent with those set out in the Annual Report for the year ended 31 December 2012, have been consistently applied to all periods presented and are consistent with those accounting policies the Group expects to be using in the Annual Report for the year ended 31 December 2013.

2. 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. Auhua is an environmental technology group specialising in the development and application of green energy and energy efficient solar water heating solutions. 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 China. The operations are based in China and its assets and liabilities related to this single business segment. The CODM therefore considers that the business of the Group comprises a single activity and that therefore only one reportable segment exists

3. Taxation

A reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rates is as follows:-

No deferred tax assets or liability is recognised, principally as result of the taxable profit for the Group equating to accounting profit.

4. Property, plant and equipment

5. Share capital

6. Reserves

6.1 Capital reserve

According to the relevant PRC regulations and the Articles of Association, a company is required to transfer 10% of its profit after income tax to the statutory surplus reserve until the reserve balance reaches 50% of its registered capital. The transfer to this reserve must be made before the distribution of dividends to equity owners. Statutory surplus reserve can be used to make good previous years' losses, if any, and may be converted into paid-in capital in proportion to the existing interests of equity owners, provided that the balance after such conversion is not less than 25% of the registered capital.

6.2 Share based payment reserve

During the period the Company granted Northland Capital Partners Limited an option to subscribe for 635,650 ordinary shares at 40 pence at any time during the period of three years following admission. These were granted in respect of the services they provide during the listing of the Company on the Alternative Investment Market. These options have been valued at the fair value of the services received. At the period ending 30 June 2013, these options remain unexercised.

Movement in the year:

The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year:

7. 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.

b) Key management personnel compensation is analysed as follows:

Key management personnel are the Directors.

c) Payment to 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.

8. Commitments

As at 30 June 2013, the capital commitment for the Group amounted to RMB 27.5 million (31 December 2012: RMB 27.5 million). This was for purchasing of new equipment and construction of new office building at Weihai Auhua New Energy Co., Ltd. and new equipments at Shandong Auhua New Energy Co., Ltd.  The Group capital commitments as at 30 June 2012 were RMB 38.3 million.

9. Earnings per share

The calculation of earnings per share is based on the following earnings and number of shares.

10. Post balance sheet event

The Group announced on 2 August 2013 potential business and share acquisition of Taiwan Ziolar Technology Co. Ltd. ("Taiwan Ziolar"). The acquisition will see Auhua Holdings acquire the assets of Ziolar Pte Ltd ("Ziolar") and the shares of Taiwan Ziolar. 

However, the completion of Taiwan Ziolar/Ziolar deal is subject to the satisfactory conduct of due diligence, funding and other conditions precedent.

-Ends-