Asia Environment

Second Quarter Results Financial Statement And Related Announcement For The Period Ended 30 June 2011

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SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2011

Profit and Loss

Statements of comprehensive income for the financial period ended 30 June 2011

Balance Sheet

Review of Performance

A) 2Q2011 vs 2Q2010

1. Group Revenue
   

   The Group's revenue decreased by 3% or RMB 3.8 million from RMB 140.7 million in 2Q2010 to RMB 136.9 million in 2Q2011. This was primarily due to the following:-

   1. decrease in revenue recognised from turnkey services rendered to various BOT and External EPC projects amounting to RMB 31.3 million.
      
      which is offset by:
      
      
   2. increase in sales of manufactured equipment amounting to RMB 6.3 million; and
      
   3. increase in revenue from operations and maintenance amounting to RMB 21.2 million.
      
      
2. Profitability
   

   Net profit for the group attributable to owners of the Company for the quarter decreased by 94% to RMB 0.6 million (2Q2010: RMB 10.5 million). The decrease of RMB 9.9 million in net profit was mainly attributed to the one-off gain on the disposal of 22.02% stake in Nantong Penyao amounting to RMB 11.9 million taken up in 2Q2010.

B) 1H2011 vs 1H2010

1. Group Revenue
   

   The Group's revenue decreased by 24% or RMB 64.0 million from RMB 261.7 million in 1H2010 to RMB 197.7 million in 1H2011. This was primarily due to the following:-

   1. decrease in revenue recognised from turnkey services of RMB 118.1 million which mainly resulted from
      
      1. overall decrease in services rendered to our BOT projects amounted to RMB 93.1 million as most of the projects are completed in FY2010 and there is no new BOT and TOT projects secured in FY2010;
         
      2. decreased revenue from external EPC projects amounting to RMB 25.2 million, derived mainly from Xining third WWTP;
         
         

      which is offset by:

   2. increase in sales of manufactured equipment amounting to RMB 17.0 million; and
      
   3. increase in revenue from operations and maintenance amounting to RMB 37.1 million as 10 additional wastewater plants went into operation in 1H2011, as compared to 1H2010.
      
      
2. Profitability
   

   The Group's net profit attributable to the owners of the Company for 1H2011 decreased by 77% to RMB 4.5 million (1H2010: RMB 19.7 million). The decrease of RMB 15.2 million in net profit was mainly attributed to the one-off gain of RMB 11.9m from the disposal of 22.02% stake in Nantong Penyao and decrease in government grants and compensation for value added tax amounting to RMB 4.4 million.

Commentary

China's 11th 5-year plan (2006 – 2010) called for an investment of RMB 200 billion in water infrastructure projects to raise wastewater treatment coverage to 70% in major urban areas and 30% in small cities. In the 12th 5-year plan (2011 – 2015) release in the No.1 document of 2011, China aims to increase its spending to RMB 4 trillion in the next decade to improve on its water infrastructure. Since privatization of the industry in 2002, investment in this area has resulted in a coverage of wastewater treatment from 36% in 2002 to 70% in 2009. Nevertheless, there is still room for expansion in the urban market, the rural market and the western regions which has been left very much untapped.

In the 12th 5-year plan, the Chinese government has set the stage for the continued growth of the industry with an planned investment RMB4 trillion over the next decade. Therefore, whilst the Groups' primary focus will continue be to on procurement of engineering procurement contract services ("EPC Services") projects and equipment supply contract via the expansion and investments in sales networks, the Group will be increasing its focus on obtaining new BOT water projects as the current BOT projects of the Group commence operation or trial operation over the course of this financial year. The ability of the Group to procure new BOT projects and to successfully complete them is dependent on the Group's ability to address its financing cost, obtain funding and to strengthen its capital base.

In recent months, the China Central Bank has imposed a number of moneraty measures to tighten the bank borrowings and to control inflation. As a result, financing has become more expensive and this has posed new challenges to the Group especially when we are in a capital intensive industry.

Baring unforeseen circumstances, the profitability of the Group is therefore dependent on the Group's ability to procure new BOT projects and to operate existing BOT projects efficiently and profitability to ensure sufficient level of revenue is being generated.