On behalf of our Board of Directors, it is my pleasure to present our annual report for the financial year ended December 31, 2016 (“FY2016”).
We are pleased that the Group delivered a satisfying set of results amidst the challenging business environment. The Group registered revenue of $60.7 million in FY2016, representing an increase of 126.6%, mainly attributable to higher contribution from the Engineered Environmental Systems (“EE Systems”) of $33.2 million and trading sales of $1.5 million of revenue. With the contribution from the newly acquire entity, Wuhan Kaidi Water Services Co., Ltd. (“WHKD”), China made up 46.0% of the Group’s total revenue, becoming the top contributing market of the Group. As a result, the Group recorded a net profit of $3.4 million in FY2016.
PEOPLE’S REPUBLIC OF CHINA
The acquisition of WHKD was proven to be a success and the process of post-merger integration is seamless. The acquisition of WHKD was completed on March 2016 and WHKD has contributed $27.9 million to the Group’s revenue in FY2016. With the acquisition of WHKD, China has become the key market for the Group, with overall revenue contributing to 46% of total Group earnings. With its track record and established brand name, WHKD has won many contracts in China, contributing to the Group’s top and bottom line.
Notably, WHKD was awarded a RMB40.9 million contract to construct Phase II 2*1000MW desulfurization zero-liquid-discharge (“ZLD”) wastewater treatment system for Tianjin Power’s power generating plant in North China from a well-known enterprise, Tianjin SDIC Jinneng Electric Power Co., Ltd. More significantly, this project is one of the first desulfurization ZLD wastewater treatment projects in China.
In addition, capitalising on WHKD’s track records in wastewater treatment industry, WHKD won a contract worth RMB41.6 million for the expansion of a Wastewater Treatment Project (Phase I) and procurement of equipment at a chemical industrial park in Zhejiang Province as well as a RMB48.7 million contract for removing minerals from seawater to provide fresh water to the 2 x 670MW ultra-supercritical heating generators in Shandong Province.
The successful bid of these projects is of great significance to the Group’s strategic plan, laying a solid foundation for the future development of the Group in China. In addition, the contracts win is a strong endorsement to the Group’s capability in offering state-of-art technologies. Leveraging on WHKD’s technical expertise and cost competitiveness in China, the Group is well-poised to take on more water projects and further strengthen our regional presence in the promising market of China.
In preparation for future expansion plans, the Group has acquired an office building which is located within (Wuhan Donghu Technology Development District), Hubei Province. It is a 4-storey office building with the gross area of 1,493.51 square metres and remaining lease term of approximately 45 years, which will expire on March 2061. With this building, the Group’s China operations will be able to eliminate the unpredictability of rental increases and add tangible benefits to the Group in terms of value appreciation as well as improving our competitive advantage and enhance our brand image in the China market.
Revenue from Malaysia increased from $18.8 million in FY2015 to $23.6 million in FY2016, representing a growth of 25.5%. Malaysia is one of the key markets in the Group’s portfolio, contributing 38.8% revenue to the Group.
The Group has successfully clinched several wastewater treatment EPC projects in Malaysia since the beginning of 2016 with a total contract value of MYR15.5 million (approximately $5.2 million) involving the construction of ammoniacal nitrogen waste water treatment system for a solar cell and nitrogenous fertilizer manufacturing plant with a total capacity of 57 m3 per hour as well as the system upgrading of existing Engineered Water Systems to meet the customer’s manufacturing expansion.
Singapore has become one of the key markets of the Group contributing to 9.0% of revenue to the Group. Revenue from Singapore increased by 71.8% to $5.5 million in FY2016 from $3.2 million in FY2015.
Leveraging on our technical capability, we have secured 5 contracts which worth a total of $17.5 million to supply and maintain Pneumatic Waste Conveyance System (“PWCS”) for centralized domestic waste collection in Singapore in which 2 of these contracts were awarded by the Housing & Development Board. Waste management using PWCS is one of the green initiatives as part of the HDB Greenprint to create sustainable public housing in Singapore, including Bidadari, which will be rolled out eventually to other HDB towns.
POISED FOR NEXT PHASE OF GROWTH
On 26 January 2017, the Group has entered into a placement agreement with Capital Boom Limited and Stone Robert Alexander (“Robert Stone”) where the Group proposed to issue up to 5 million new ordinary shares at a placement price of $0.60. Upon completion of the placement, the Group can raise approximately $3 million which would be utilized for funding Public- Private-Partnership (“PPP”) water infrastructure projects or investments and working capital. In light of the share placement exercise that will raise $3 million and the successful incorporation of Darco Environment Vietnam Co., Ltd., the Group is now equipped with initial capital to venture into the Vietnam market.
STRIVES TO IMPROVE BUSINESS OUTLOOK
We have always been seeking to enhance its engineering capability in the environmental protection industrial and commercial sector as well as improve the financial performance of the Group.
We are collaborating with Aquaporin Asia Pte. Ltd. (“Aquaporin Asia”) to jointly pilot and test-bed low-energy ZLD systems for industrial wastewater treatment based on the Aquaporin Inside™ Forward Osmosis Technology under Aquaporin Asia’s 3-year forward osmosis project. The collaboration is funded by the Singapore National Research Foundation (“NRF”).
We will use our own wastewater treatment know-how to incorporate Aquaporin Asia’s Forward Osmosis membranes into our overall system as pilot plant scale test units in application for different industries. With this, we have positioned ourselves as a first mover within the application of the Aquaporin Inside™ Forward Osmosis technology and have pre-knowledge on ZLD wastewater treatment operations and applications.
Besides, we also expanded our operation into solid waste management. The Group has traditionally provided suitable engineering systems for customers to meet the relevant regulatory requirements. The successful bid of these projects is in line with the Group’s strategy to become a comprehensive integrated environmental protection solutions provider.
The Group shall allocate more financial resources to participate in such projects either on a Build-Operate- Transfer (“BOT”) model or Engineering, Procurement and Construction (“EPC”) arrangement, intensify its efforts in pursuing Public-Private-Partnership (“PPP”) water projects in ASEAN regions which would generate greater revenue and profit to the Group. The growth path will be subject to the Group’s ability to raise funds from the capital market. In the meantime, the Group will continue to develop our core Engineered Environmental Systems business, water management and trading services in the industrial sector.
I would like to extend a warm welcome to Mr. Teh Chun Sem, who joined us as Financial Controller on 31 May 2016. He will be responsible for overseeing the Group’s financial, account matters and risk function. Mr Teh has approximately 8 years of working experience in audit firm. He served as Audit Assistant Manager in audit firm before joining the Group. With Mr. Teh’s wealth of experience and knowledge in audit, we believe that he will be able to provide valuable insights and guidance to the Group.
Besides, I would also like to welcome Mr. Oh Chee Sien and Mr. Wang Yaoyu who joined us as the Independent Director and Executive Director respectively on 13 September 2016. Mr. Oh was also appointed as Member of Audit Committee, Remuneration Committee and Nominating Committee. They have more than 10 years of experience in the wastewater treatment industry. Prior to joining the Group, Mr. Oh was the Chief Financial Officer of Moya Holdings Asia Limited while Mr. Wang has served WHKD, Asia Water Technology Ltd. and SIIC Environment Holdings (Wuhan) Co., Ltd.
The Board would like to thank Mr. Tan Sze Leng and Mr. Yeoh Kim Kooi for their contributions during their term of service as the Chief Financial Officer and Group Financial Controller of the Company and wishes them success in their future endeavours.
Last but not least, my utmost gratitude goes to our customers, employees, management, and shareholders for placing great confidence and trust in us throughout the years. Without their unwavering support and patronage, we would not be able to reach this far. We will approach 2017 with determination while remain prudent to the prevailing business environment.
THYE KIM MENG
Chairman and Managing Director