On behalf of our Board of Directors, it is my pleasure to present our annual report for the financial year ended 31 December 2017 (“FY2017”). In FY2017, the Group has maintain its revenue at $60.7 million. Engineered Environmental Systems (“EE Systems”), Water Management Services (“WM Services”) and the trading segment have contributed $40.6 million, $10.8 million and $9.3 million respectively to the Group’s overall revenue in FY2017. China remained as our key market with a contribution of $23.6 million to the total revenue in FY2017. As a result of the challenging business environment, the Group recorded a lower net profit of $1.2 million in FY2017. PEOPLE’S REPUBLIC OF CHINA In view of huge business opportunities in the growing China market, the Group has proposed to acquire an additional 12% of the total equity interest in Wuhan Kaidi Water Services Co., Ltd. (“WHKD”). Upon successful acquisition subject to the approval of the shareholders, the Group will own 72% in WHKD.
In addition, the Group has inked a cooperative framework agreement with Northern Ecological Environment Municipal Engineering Technology Co., Ltd. (“Northern Ecological”) to undertake Public- Private-Partnership (“PPP”) and Build-Operate- Transfer (“BOT”) projects in Xiongan New Area by forming a consortium to bid for these projects. Xiongan New Area is one of the largest freshwater wetlands in North China and it is being built as a new special economic zone by the Chinese government. The Group will provide their expertise and technological competencies in the environmental protection industry while Northern Ecological will contribute their professional knowledge in the engineering, procurement and
construction, urban infrastructure and wastewater industry in China. Significantly, the cooperative framework agreement forms part of the Group’s strategy to further broaden our market presence as well as to capture greater market share in China. MALAYSIA Revenue from Malaysia decreased from $23.6 million in FY2016 to $20.3 million in FY2017, representing a decrease of 13.9%. Malaysia remains as one of our top markets, contributing 33.5% revenue to the Group. SINGAPORE Revenue from Singapore increased by 90.5% to $10.4 million in FY2017 from $5.5 million in FY2016, representing a contribution of 17.1% to the Group’s revenue. Following the signing of the Memorandum of Understanding with Aquaporin Asia Pte. Ltd. (“Aquaporin”) for a joint collaboration in 2016, the Group has commenced the forward osmosis pilot project with Aquaporin of low-energy Zero Liquid Discharge systems for industrial wastewater treatment based on the Aquaporin Inside™ Forward Osmosis Technology in 2017. The project represents the first on-site piloting of its kind in Southeast Asia for the use of a forward osmosis hybrid water treatment system for industrial wastewater in the semiconductor industry.
The Group will incorporate Aquaporin’s Forward Osmosis membranes into the Group’s overall system as pilot plant scale test units in application for industrial sectors. Upon completion, the Group will be the first mover in the application of this technology and will be one step closer in bringing the technology to commercialisation. TAIWAN The Group has entered into two separate sale and purchase agreements with purchasers to dispose a total of 60% equity interest in Darco Youli Co., Ltd. (“Darco Youli”). With its handling capacity of 180 tons of waste per month, Darco Youli is considered a relatively small player and faces stiff competition in the Taiwan market. Darco Youli is currently operating at the maximum capacity, with no additional capacity or back up facilities to cope with sudden volume spikes, emergencies, or plant breakdown. Therefore, there is a need for huge capital injection to refurbish the current plant as well as to keep Darco Youli competitive. In view of this, coupled with its low presence in Taiwan market, the Company do not foresee a long term benefit to continue in the business, the proposed disposal will allow the Group to have more available cash to fund new investments and venture into new markets. PAVING THE WAY FOR GROWTH The Group has place out 27,680,000 new shares, at S$0.65 per share to a strategic investor, Mr. Wang Zhi, or largely known as Robert Wang.
Mr. Wang has granted the Group a loan of S$4.0 million which would be solely used for the working capital of the Group’s subsidiary, WHKD. Through the placement and loan, the Group can raise at least S$19.6 million via equity and debt to finance business expansion, improve its cash flow, increase working capital, and for general corporate purposes. Mr. Wang has more than 15 years of experience in the business of water and wastewater treatment and water supply. Tapping on Mr. Wang’s network and expertise in the water industry, there is also a potential asset injection from Mr. Wang which will change the earnings profile of the group where the Group can generate recurring income stream from BOT or Build-Operate- Own water treatment asset or concession. In order to raise funds for PPP water infrastructure projects, the Group also completed a share placement to Stone Robert Alexander and Sofos.
Infrastructure Investment Fund SPC where the Group issued 1.5 million and 3.5 million new ordinary shares respectively at a placement price of $0.60. Through the placement, the Group would have raised a total of approximately $3 million. STRENGTHENING PRESENCE IN NEW MARKET Vietnam is one of the world’s fastest-growing economies, which offers high returns and good yield to the investors for developing PPP based projects in the water sector. Leveraging on the government push to develop the economy by attracting foreign investors to set up manufacturing facilities and the need for safer drinking water in Vietnam, the Group is well-poised to tap into the growing Vietnam market. The Group is also pleased to obtain an investment certificate for a BuildOperate-Transfer drinking water project (“Darco Ba Lai Utility Water Supply Project”) in Ben Tre province, Vietnam. This project involves a total investment of US$11.7 million with a concession period of 50 years. This contract win represents a vote of confidence in the Group’s strong technological capabilities and reputation in the industry. Through International Enterprise (IE) Singapore’s facilitation, the Group will be collaborating with InfraCo Asia Development Pte. Ltd. (InfraCo Asia), a commercially-managed infrastructure development company, on a Design, Build, Own, Operate (DBOO) model for four municipal water treatment projects in Vietnam, involving a total investment of S$50 million with 50 years of concession period. This marks a significant move as the Group adopts a DBOO model in Vietnam for the first time, transforming to an asset ownership model for its overseas growth by capitalizing on the expertise of IE Singapore and InfraCo Asia. By building up on DBOO projects, the strong recurring revenue will allow Darco to grow in a sustainable manner. Through these smaller-scale decentralised projects, the Group can amass experience to scale up for bigger municipal projects in Vietnam and Southeast Asia. Besides Vietnam, the Group has secured its first landfill gas recovery and conversion project which is worth DKK21.5 million (approximately S$4.7 million) in Jati Barang Landfill, Semarang, Central Java, Indonesia. Jati Barang Landfill is the biggest landfill in Semarang and has been in operation since 19921. Winning this contract would further expand our business operations in the solid waste management industry which is in tandem with the Group’s strategy to become a comprehensive integrated environmental protection solutions provider. WORDS OF APPRECIATION Given the progress that we have achieved so far, we see huge potential in the company that have yet to be unlocked. This would not have been possible without the support of all stakeholders of the Company.
I would like to take this opportunity to express my sincere appreciation to our customers, employees, management, suppliers and shareholders for their unwavering support. Last but not least, I would like to express my gratitude to the Board for their guidance and counsel. As we embark on a growth journey, we aim to continue to deliver greater value to the shareholders.
THYE KIM MENG
Chairman and Managing Director