FDG ELECTRIC VEHICLES
Annual Results Update
For the year ended 31 March 2018
2017/2018 FINANCIAL RESULTS HIGHLIGHTS
Most challenging year ever for the electric vehicles business
· Group revenue of $1.06 billion, which includes stabilising sales in China as well as the first batch of electric vehicles exported to the United States
· Net loss attributable to shareholders was $2.23 billion, including $1.35 billion of one-off impairment
· Gross profit ratio of 13.4% for all segments combined
· Cash balance of $752 million
Future Development: Pursue specialisation instead of vertical integration
· FDG will concentrate on our first mover advantage in both transit and logistics commercial electric vehicles
· FDG will utilise the Replacement strategy rather than the Infiltration strategy in our identified niche segment in commercial electric vehicles
· Going forward, FDG will focus on specialisation instead of vertical integration, and may consider disposing non-core assets when opportunity arises
· FDG will revaluate our business strategy and converge resources to the core
· FDG will continue to scale up the domestic and international market after the successful sales to the United States, in particular, the European market
Letter from the Chairman
It is my honour that I write to update you on the performance and recent developments of our company for the financial year ended 31 March 2018.
Looking back for the past year, China’s gross domestic product growth rate hiked to 6.9% year-on-year in 2017, beating global growth at 3.1%, the first acceleration for China’s economy since 2010. China has been at the forefront of new energy vehicles globally; of which pure electric vehicles accounted for approximately 84% in all new energy vehicles sold in 2017, more than any country in the world.
For the Chinese electric vehicle industry, though, 2017 was filled with challenges and transformations. Market conditions remain contested as more stringent policies were introduced to the electric vehicle sector in order to achieve higher standard for all players in the industry, eliminating unqualified participants in the market and benefiting consumers in the long run. The vice minister of China's Ministry of Industry and Information Technology (“MIIT”), Mr. Xin Guobin, announced in an industry forum in September 2017 that the government was considering a gradual phase-out fossil fuel vehicles in China. Although no solid date was given by Mr. Xin, China finalised the New Energy Vehicle (“NEV”) mandate in the same month with the publication of the Dual New Energy Vehicle Credits policy. The goal of this policy was interpreted as to gradually shift the existing direct subsidizing towards a more market-oriented support.
2017 was one of the most challenging years as macro factors impacted the electric vehicle industry. Subsidies were less; Criteria to obtain the subsidies were tightened; cash flow was squeezed as the expected time for subsidies to be received took much longer; profits for making batteries and cathode materials shrank; account receivables increased significantly as the Company is still waiting for the subsidies to be received after sales are made. Our impairment on trade receivables increased significantly because of regulatory requirement for electric vehicles to run above 20,000km before they could qualify for subsidies, whilst we may only be able to recover these subsidies when these vehicles complete their 20,000km journey one day. All of these factors contributed to the poor performance of FDG and has turned the period under review to become one of the worst years for FDG in our corporate history.
Despite 2017 being one of the most challenging year for the electric vehicle industry, FDG persevered to make considerable progress. For the year of 2017, FDG continues to expand in the logistic vehicle market, made our first step into the province of Guizhou; and, most importantly, marked our first step internationally by exporting the first ever Chinese-made pure electric logistics vehicles to the United States. Most notably, FDG has finalised exclusive partnership with Ryder Systems Inc. (“Ryder”, NYSE: R) through our subsidiary Chanje. From this partnership, FDG could leverage on Ryder’s network and enables our vehicles to be sold to other blue-chip logistics customers offering original equipment manufacturer (OEM) level of maintenance services. In the B2C area for electric vehicles, FDG became the fifth company in China to be granted with a passenger vehicle license issued by both the MIIT and the National Development and Reform Commission (NDRC). This marks Changjiang to become one of the only six new electric vehicle companies in China with dual-license status.
With all our achievements, I would like to report Group revenue of HK$1.06 billion for the financial year ended 31 March 2018. This includes the gradual stabilising sales in China as well as the first batch of electric vehicles exported to the United States. Net loss attributable to shareholders was $2.23 billion, including HK$1.35 billion of one-off impairment. Management is focused on rigorously managing all costs, without adversely impacting the product’s quality and safety standards.
The management is aware that though we have made strides to achieve top line revenue in the difficult market condition, we should still be alerted with our bottom line position. Therefore, starting from the beginning of 2018, management has taken a conservative approach and included several one-off impairments, as well as began to dispose non-core, loss-making, and cash-consuming asset such as our production base in Yunnan. The management is mindful that such decisions will result in a less-than-promising 2017 year-end net loss number, however we hope such adjustment will provide a clean slate for 2018, a year that we have faith that the FDG will make substantial progress.
With increasingly tightened subsidy policy in the electric vehicle segment and tightened cash policies from the banks, FDG would shift the focal point to concentrate on our primary business in B2B commercial electric vehicles going forward. Focusing on our primary strength in B2B commercial vehicles means that we would no longer need to pursue the vertically-integrated model by building everything from scratch perfectly from head to toe in our supply chain; instead, we would work under a specialisation model and would become a focused commercial electric vehicle manufacturer.
I would also like to take the opportunity to address the recent turbulence FDG’s stock price has experienced. First and foremost, I would like to reiterate that my commitment, confidence and dedication to FDG has not and will not change due to the decrease in my shareholding or the drop in share price. The involuntary disposal of my equity holding in FDG was an unfortunate incident due to my personal financial circumstances and I remain convinced that me, together with FDG and our fellow shareholders, will be able to ride through this adversity together.
Looking ahead, FDG will focus on our B2B commercial electric vehicle as our core business. This is just the start of an electrification revolution where FDG’s electric vehicles will be replacing, rather than penetrating the market. While we used to be strategically vertically-integrated, the Group may consider focusing on one core business only, excel in that business and then progress onwards. We have identified our commercial electric vehicles business as the core. Other segments, such as battery and cathode materials manufacturing, will be secondary businesses for the Group. We will focus on our core B2B segment in commercial electric vehicles because they are ready now, they are the fruits of our investment and they reduce more carbon emissions, even more than five electric passenger cars combined. Disposing the non-profit generating arm in Yunnan was just the start of converging efforts to the core. Lastly, the management continues to be committed to improve FDG’s financial performance and strengthening its balance sheet, and therefore will consider consolidating businesses and disposing non-core assets as deem fits if opportunity arises.
In the past year, I am also pleased to share the numerous awards granted to the Group for enhancing corporate management and investor communication. Some of the examples include the “The Most Valuable Vehicle and Industrial Manufacturing Company” award in the 2017 Golden Hong Kong Equities Awards. FDG and our subsidiary FDG Kinetic (FKL) won the “Best Digital Investor Relations” Award and the “Certificate of Excellence”, recognising our investor relations efforts by the Hong Kong Investor Relations Association respectively. The well-known Chinese financial magazine “New Fortune” granted the “Best Investor Relations Company listed in Hong Kong Award” to FDG and FKL. All of these are solid recognition that FDG is highly regarded by industry experts at the corporate level.
Finally, on behalf of the Board of Directors, I would like to thank all the shareholders, business partners, customers and suppliers for your long-term support and trust. I would like to express my sincere gratitude and appreciation to the employees for their dedication and hard work. We will strive to become a leading electric vehicle manufacturer, create a better world for tomorrow and create better returns for our shareholders.
Mr Zhong Cao
Chairman and CEO
28 June, 2018
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