Boyuan Files FY2016 Financial Statements

– Decrease in year-over-year revenue a result of strategic decision to slow pace of growth in response to near-term market conditions –

TORONTO, Sept. 28, 2016 /CNW/ - Boyuan Construction Group, Inc. (TSX: BOY, BOY.DB.A) ("Boyuan" or the "Company"), a growing construction company in China of commercial, residential and municipal infrastructure projects, today reported its financial results for the three-month and twelve-month periods ended June 30, 2016.

Selected Fiscal Year Financial Results

In thousands except share and % data

FY2016

FY2015

Change

Revenue

$200,954

$320,896

(37.4%)

Gross profit

$18,317

$32,204

(43.1%)

Gross profit margin

9.1%

10.0%


EBITDA1

$19,940

$31,044

(35.8%)

Net income

$5,238

$12,429

(57.9%)

Earnings per share - diluted

$0.20

$0.45

(55.6%)


June 30, 2016

June 30, 2015


Total Assets

$245,334

$257,469

(4.7%)

Cash, cash equivalents and restricted cash

$16,042

$20,170

(20.5%)

 

"2016 was marked by continued uncertainty in the real estate market in China, resulting in developers experiencing tight liquidity and customers often delaying payment to manage their working capital positions" said Mr. Cai Liang Shou, Chairman of Boyuan Construction Group. "As a result, management and the Board have made a strategic decision to slow the pace of the Company's growth, maintaining a focus on strengthening our liquidity and working capital position to position us for a sustainable growth trajectory with new projects drawn from a base of high-quality customers with strong credit positions."

FY2015 Operational and Financial Results

  • Revenue of $201.0 million, down 37.4% from $320.9 million for FY2015
  • EBITDA of $19.9, down 35.8% from $31.0 million in FY2015
  • Net income of $5.2 million, or $0.20 per diluted share for, down from $12.4 million, or $0.45 per diluted share, for FY2016
  • $85.9 million worth of projects initiated during the fiscal year

Highlights Subsequent to Year End

  • Initiated construction of a residential development in Jiaxing with a contract value of US$13.2 million and an expected completion by Q4 of calendar year 2017
  • Initiated construction of a second residential development in Jiaxing with a contract value of US$16.0 million and an expected completion by Q3 of calendar year 2018
  • Initiated construction of a commercial development in Jiaxing with a contract value of US$21.1 million and an expected completion by Q1 of calendar year 2018

Review of FY 2016 Financial Results

Revenue for FY2016 was $201.0 million, down 37.4% from $320.9 million for FY2015. Revenue is recognized on the percentage-of-completion method. The measures introduced by the Chinese central government a few years ago to cool down the real estate market have had a negative impact on the Company's business activities resulting in slower growth in revenue and a smaller gross margin in the past three years. The Company was also more selective in taking up new construction projects under the uncertain economic environment. This strategy has become the Company's main focus in the past year, as the protracted collection period has had a negative impact on the Company's cash flows. New projects taken up in FY2016, FY2015 and FY2014 amounted to $86 million, $273 million and $367 million respectively. Most of the Company's projects have durations between 1 to 3 years.

Cost of construction for FY2016 was $182.6 million, down 36.8% from $288.7 million for FY2015. The decrease was primarily as a result of lower expenses associated with smaller project volume. Cost of construction includes all direct material, labour, subcontract and other related costs, such as equipment repairs. The two major components of the cost of construction are direct material and labour costs. Direct material costs were $128.0 million and labour cost was $48.8 million in FY2016. In comparison, direct material costs and labour costs were $203.8 million and $76.2 million in FY2015.

Gross profit for FY2016 was $18.3 million, representing a margin of 9.1% on revenue. Gross profit for FY2015 was $32.2 million, representing a margin of 10.0% on revenue.

G&A expenses were $6.1 million in FY2016 compared to $6.0 million in FY2015. G&A expenses have remained fairly stable year on year.

The net impairment loss on unbilled revenue was $3.6 million for FY2016 (nil for FY2015). The Company has made provided for impairment loss for three long outstanding and overdue accounts amounting to $5.5 million. On the other hand, the Company has received $1.9 million from four accounts that already recorded an impairment loss in previous years.

The Company also reversed $0.3 million (nil for FY2015) of impairment loss recognized on accounts receivable in previous years as a result of cash received from these accounts in the current year.

Other income was $5.1 million in FY2016, compared to $3.6 million in FY2015. Imputed interest on accounts receivable and unbilled revenue of $4.8 million and $3.5 million was recorded to interest and other income for the years ended June 30, 2016 and 2015 respectively.

Interest expense was $7.6 million in FY2016, a small increase of $0.5 million over FY2015. The increase was mainly due to the increase in interest rate from 10% to 11.5% on the convertible debentures as a result of the amended terms effective from July 1, 2015.

The gain on fair value change of financial guarantee contracts was $1.9 million for FY2016 (loss of $3.1 million for FY2015) was related to the carrying amount of the financial guarantee contracts, representing the amount of obligation under these contracts as at June 30, 2016. The fair value of the financial guarantee contracts was assessed by an independent qualified professional valuer. The fair value of financial guarantee contracts upon recognition is determined using option pricing models where the main assumptions are the probability of default by the specified counterparty extrapolated from market-based credit information and the amount of expected loss, as a result of the default.

After-tax net income for FY2016 was $5.2 million or $0.20 per fully diluted share while it was $12.4 million or $0.45 for FY2015.  The decrease was principally due to smaller revenue recognized this year and the impairment loss recognized on unbilled revenue.

Boyuan had working capital of $37.5 million, including cash, cash equivalents, and restricted cash totaling $16.0 million as at June 30, 2016. This compares to $42.2 million and $20.2 million, respectively at June 30, 2015.

Outlook
"While there continue to be near-term challenges in China's real estate market which will dampen the pace of our Company's growth, a longer view suggests the potential for a recovery," added Mr. Shou. "According to a recent estimate by the Chief Economist of RBC Global Asset Management, approximately 9 million new homes are needed each year to meet the rising demands of the urbanized middle class, whereas only 7 million a year are currently being built.2 As we move forward, we will continue to be selective about the projects that we select in our core markets while strongly positioning us for a rebound in the overall real estate sector in China."

Boyuan's consolidated statements for the three-month and twelve-month periods ended June 30, 2016 and related management's discussion and analysis (MD&A) will be filed with securities regulatory authorities within applicable timelines and will be available via SEDAR at www.sedar.com.

Conference Call Notice
The Company will hold a conference call to discuss its fiscal 2016 fourth quarter and year-end financial results on Thursday, September 29, 2016 at 9:30 A.M. (ET). Mr. Paul Law, Boyuan's Chief Financial Officer, will host the call.

All interested parties can join the conference call by dialing 1-888-231-8191 or 647-427-7450. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation.

The conference call will be archived for replay until Thursday, October 6, 2016 at midnight. To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation number 74662846#.

About Boyuan Construction Group, Inc.
Based in Jiaxing City, China, Boyuan Construction Group, Inc. is in the business of commercial building and residential construction, municipal infrastructure and engineering projects. In its last three fiscal years ending June 30, 2016, Boyuan completed 41 projects for a number of private and public sector clients. Boyuan's current project backlog includes residential, commercial, industrial and mixed-use developments. From its operating bases in Zhejiang Province and in Hainan Province, Boyuan focuses on construction projects in China's fast-growing regions of the Yangtze River Delta and the Hainan Province. For more information visit www.boyuangroup.com.

Caution Regarding Forward-Looking Information:

Certain information contained in this press release constitutes forward-looking information, which is information relating to future events or the Company's future performance and which is inherently uncertain. All information other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words or phrases (including negative variations) suggesting future outcomes or statements regarding an outlook. Forward-looking information contained in this press release includes, but is not limited to, management's expectation to comply with the Alternative Information Guidelines. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. The Company believes the expectations reflected in the forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and readers are cautioned not to place undue reliance on forward-looking information contained in this press release. Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking information contained in this press release include, but are not limited to: risk of a general cease trade order being issued, risk of risk of macro-economy cycle, risk from competition, risk from insufficient marketing to secure new projects, risk in obtaining additional financing, risk involving permits and licences, reliance on key management member, risk from supply of raw materials, risk of financial leverage, risk of bad debts in accounts receivables, risk involved in real estate development, foreign exchange fluctuations, political and economic conditions in China and other risks included in the Company's AIF for the fiscal year ended June 30, 2015 and in the Company's public disclosure documents filed with certain Canadian securities regulatory authorities and available at www.sedar.com. The forward-looking information contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law.

1 EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is not a defined performance measure under IFRS.

2 Lascelles, E. (2016, September 22). China's economic fate rests on its housing market. www.financialtimes.com

SOURCE Boyuan Construction Group, Inc.

For further information: Boyuan Construction Group, Inc., Mr. Paul Law, CFO, +(852) 9329 5088, paullaw@zjboyuan.com.cn; NATIONAL Equicom, Mr. Keith Richards, (416) 848-1599, krichards@national.ca


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