CNEL.L Regulatory News (CNEL)

19 June 2019

China New Energy Limited

("CNE" or "the Company")

Final Results for the Year Ended 31 December 2018

The Board of CNE (AIM: CNEL), the AIM quoted engineering and technology solutions provider to the bioenergy sector, presents its final results for the year ended 31 December 2018.

Highlights for the year include:

· Change of Auditor to PricewaterhouseCoopers LLP ("PwC")

· Announcement of Prior Year Adjustments on FY2017 audited figures made by PwC

· Slight decrease in revenue of 2.8% against FY2017 to RMB250.0 million (c. £28.1 million)

· Net profit remains stable at RMB45.8 million (£5.2 million)

· Order book and contract backlog increase by 207.8% to RMB329.6 million (c. £37.7 million)

· Continued positive market outlook with third consecutive year of profit

The full version of the report and accounts for the year ended 31 December 2018 will be available from the Company's website www.chinanewenergy.co.uk and notification of posting of the accounts, together with the Notice of AGM, will shortly be sent to all shareholders.

Mr. Yu commented, "I am very pleased that we have sustained our recovery and have recorded our third consecutive net profit. The 13th Five Year Plan for Renewable Energy Development clearly demonstrated the intention of the PRC government to develop the ethanol fuel industry. We believe that our advanced technologies and research and development capabilities have given us a competitive edge and allowed us to continue to secure contracts from customers through our provision of high-quality and innovative ethanol production system technology integrated services in the PRC. I am very confident about the outlook for 2019 and the investment value of our shares which is expected to be reflected in our medium to long term market valuation".

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information, please visit www.chinanewenergy.co.uk or contact:

CHAIRMAN'S STATEMENT

I am pleased to report that the Group recorded its third consecutive profit after tax ("net profit").

Our total revenue has slightly decreased from RMB257.1 million (c. £29.2 million) for the year ended 31 December 2017 to RMB250.0 million (c. £28.1 million) for the year ended 31 December 2018, representing a decrease of 2.8% which was due to the decrease in revenue generated from the provision of ethanol production system technology integrated services in the ethanol fuel industry although this was partially offset by the growth in revenue of RMB46.5 million and RMB13.5 million generated from projects in the alcoholic beverages and other industries respectively. Our net profit increased marginally from RMB45.7 million (c. £5.2 million) for the year ended 31 December 2017 to RMB45.8 million (c. £5.2 million) for the year ended 31 December 2018, representing an increase of 0.2%.

The significant growth in our revenue and net profit from 2016 to 2018 was primarily due to the increased market demand as well as the favourable policies introduced by the People's Republic of China ("PRC") government, such as: i.) The 13th Five Year Plan for Renewable Energy Development clearly demonstrated the intention of the PRC government to vigorously develop the ethanol fuel industry. In September 2017, the PRC government announced a new nationwide ethanol mandate (NEA) that was designated to expand the mandatory use of E10 fuel (gasoline containing 10 percent ethanol) from 12 trial provinces to the entire country by 2020. In addition, the State Council of the PRC executive meeting decided to promote the usage of ethanol fuel in another 14 provinces in addition to the original 12 trial provinces; and ii.) The building of "ecological civilization" is listed as one of the top ten goals of the 13th Five Year Plan. Driven by the policies mentioned by policies mentioned above, ethanol producers have to replace outdated equipment by investing in more advanced production systems that generate high production efficiency and low pollutant discharge. The necessity for upgrades of manufacturing facilities, replacement of production systems and mass-production trends drive demand for advanced ethanol production system in the alcoholic beverage industry in the PRC. We believe that, with our extensive experience and expertise in ethanol production system industry, we are well positioned to capture growth opportunities in the PRC. For the year ended 31 December 2018, the major ethanol production system technology integrated services projects for the ethanol fuel industry were with Heilongjiang Hongzhan Biotechnology Co., Ltd and for the alcoholic beverage industry were with Jilin Xintianlong Industries Co., Ltd, Mengzhou City Houyuan Biotechnology Co., Ltd, and Henan Xinheyang Alcohol Co., Ltd respectively.

The gross profit decreased by 6.1% to RMB72.6 million (c. £8.2 million) for the year ended 31 December 2018 from RMB77.3 million (c. £8.8 million) for the year ended 31 December 2017. Our overall gross profit margin decreased slightly from 30.1% for the year ended 31 December 2017 to 29.0% for the year ended 31 December 2018.

The net profit for the year increased by 0.2% to RMB45.8 million (£5.2 million) for the year ended 31 December 2018 from RMB45.7 million (£5.2 million) for the year ended 31 December 2017. Net profit margin remained relatively stable at 17.8% for the year ended 31 December 2017 and 18.3% for the year ended 31 December 2018.

Order Book and Contract Backlog

We entered 2019 with a strong order book of RMB329.6 million (c. £37.7 million). This number includes new contracts to be started and the proportion of anticipated revenue from contracts which have started but not yet completed. This represents an increase of 234.3% from RMB98.6 million (c. £11.2 million) for the year ended 31 December 2017.

The following table sets forth the movement of backlog of our projects during the years ended 31 December 2017 and 2018:

Business

The Group is a leading ethanol production system technology integrated service provider in the PRC. The Group primarily provide integrated services including engineering design, equipment manufacturing, installation and commissioning and subsequent maintenance for the core system of ethanol production system in the ethanol fuel and alcoholic beverage industries in the PRC. In addition, the Group also provided its technology integrated services for other chemical production systems in Canada, Russia and other countries.

With 13 years of operating history, the company have gained substantial experience and established a solid reputation in terms of advanced technology skills and proven track records in ethanol production system industry in the PRC .According to a recently commissioned report from the China Insights Consultancy Limited, an independent market research and consulting company, we ranked second in terms of revenue with a market share of approximately 8.4%, in the ethanol production system industry in the PRC in 2017.

Research and Development

We have established a solid reputation in terms of advanced technology skills and proven track records in the ethanol production system industry in the PRC. Over the years, we have been devoted to research and development to drive improvement and innovation in technologies to be applied to the core system of the ethanol production system, we intend to continue to invest in our research and development efforts.

As at the date of this report, we had 31 patented technologies, which we have incorporated into our production procedures. In addition, as at the date of this report, the Group have submitted nine patent registrations in the PRC and two ongoing research and development projects. We believe our advanced technologies and research and development capabilities have given us a competitive edge and allowed us to continue in securing contracts from customers through our provision of high-quality and innovative ethanol production system technology integrated services.

Business Strategies

Our goal is to continue to enhance our overall competitiveness and to capture greater market share in the ethanol production system industry and expand our presence to solidify our position as a leading ethanol production system technology integrated service provider in the PRC. To achieve this goal, we intend to pursue the following strategies:

· Continue to maintain our leading market position by undertaking more projects in the PRC; and

· Continue to focus on research and development to strengthen our design and engineering capability.

Whilst the business fundamentals and outlook have substantially grown over the last three years, we are not seeing the value reflected in the Company's share price. This is both causing frustration amongst the board and investors, as well as making it unattractive for the Company to raise additional capital to expand the business. Our Directors are of the view that we will be better served by listing our shares on a stock exchange in Asia, a larger and more liquid stock market with investors who can more readily understand our business operations and the industry and market we are in. We believe this will better accommodate our growth and, at the same time, increase the investment value of our shares which is expected to be reflected in our medium to long term market valuation.

As a result, the Company is actively seeking a listing in Asia where there is a greater understanding of our primary market in the PRC, which we believe will lead to an increased share price and offer more opportunity to us to raise capital. I am pleased to report that the Company is now in late stage preparation of submitting an application for listing on a stock market in Asia for improving shareholder value, but there is no certainty when the submission will be lodged. We continue to stress that we are committed to remaining public and for our shares to be traded on an internationally recognised stock exchange.

Outlook

The board and I are very optimistic about 2019 and the long-term future of CNE. The continuous favourable changes in the PRC ethanol production policies in recent year such as the 13th Five Year Plan for Renewable Energy Development clearly demonstrated the intention of the PRC government to develop the ethanol fuel industry. We believe that, our advanced technologies and research and development capabilities have given us a competitive edge and allowed us to continue in securing contracts from customers through our provision of high-quality and innovative ethanol production system technology integrated services in the PRC. .

I am very confident about the immediate outlook for 2019 and the investment value of our shares which is expected to be reflected in our medium to long term market valuation.

On behalf of the board, I would like to extend my appreciation to our valued shareholders, supportive business partners and associates, insightful management and dedicated staff for all their contribution and commitment towards the Company. I would also like to thank the board for their invaluable counsel in steering the Group through this exciting time.

Yu Weijun

Chairman

CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION

AT 31 DECEMBER 2018

CONSOLIDATED AND COMPANY STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

Note: The exchange rate used in 2018 is £1:RMB 8.8178 (2017: £1:RMB 8.7348).

CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

NOTES TO THE FINANCIAL STATEMENTS

The financial information above and the notes to the accounts have been extracted from the Annual Report and Financial Statements for the year ended 31 December 2018. As such, note references and page numbers may not appear correctly in this announcement. Shareholders are advised to read the Annual Report and Financial Statements for the year ended 31 December 2018 in full which will shortly be available from the Company's website, www.chinanewenergy.co.uk.

1. General information

The Company (or "CNE") with registration number 93306 was incorporated in Jersey on 2 May 2006 as an investment holding Company. The Company is domiciled in Jersey with its registered office at Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES.

The principal activities of its main subsidiary, Guangdong Zhongke Tianyuan New Energy Science and Technology Co Ltd. ("ZKTY") are providing turnkey technology solutions to manufacturers of ethanol, edible alcohol and acetic acid from a range of bio-resources including corn, sugarcane, cassava and other bio-resources.

The principal place of business is located at No 4, Nengyuan Road, Wushan, Tianhe District, Guangzhou, People's Republic of China ("PRC").

2. Summary of significant accounting policies

2.1. Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

The consolidated financial statements incorporate the financial information of the Company and the Group. The subsidiaries are entities (including special purposes entities) over which the Group has the power to govern the financial operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights, as to obtain benefits from their activities.

The consolidated financial statements of the Group are presented in Chinese Renminbi ("RMB"), which is the presentation currency of the Group financial statements as the Group mainly operates in the PRC. The individual financial statements of each group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency), with the exception of the parent entity whose functional currency is GBP but has a presentational currency of RMB. All financial information presented in RMB has been recorded to the nearest thousand.

The Group has adopted all relevant IFRS standards effective for accounting periods beginning on or after 1 January 2018.

As at end of the reporting year, the Group has not adopted the following IFRS standards as they are either not yet effective or not applicable to the Group's business.

IFRS standards, amendments and interpretations

Up to the date of issuance of this report, the IASB has issued the following new standards, amendments and interpretations which are not yet effective and have not been early adopted:

(i): IFRS 16 leases

 Nature of change

IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized. The only exceptions are short-term and low-value leases.

Impact

The Group has set up a project team which has reviewed all of the Group's leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group's operating leases.

As at 31 December 2018, the Group has non-cancellable operating lease commitments of RMB6,019,000. Of these commitments, approximately RMB222,000 relate to short-term leases which will be recognized on a straight-line basis as expense in profit or loss. For the remaining lease commitments, the Group expects to recognize right-of-use assets of approximately RMB4,625,000 on 1 January 2019, lease liabilities of RMB4,625,000 (after adjustments for prepayments and accrued lease payments recognized as at 31 December 2018) and deferred tax assets of RMB26,000.

The Group expects that net profit after tax will decrease by approximately RMB146,000 in the year ending December 31, 2019 as a result of adopting the new rules.

2.2. Correction of prior year errors

During the year ended 31 December 2018, management revisited the accounting treatments for certain transactions entered into by the Group in previous years and concluded that adjustments are required to be made to the comparative information presented so as to ensure that the consolidated financial statements presented are in compliance with IFRS. Certain reclassification have also been made to the prior year's consolidated financial statements to enhance the comparability with the current year's results. The comparative figures that show the impact of prior year adjustments ("PYA") and the adoption of IFRS9 are shown in the table below: