Final Results

AUHUA CLEAN ENERGY PLC

(the "Company", "Auhua" or the "Group")

FINAL RESULTS

Auhua Clean Energy plc, the AIM quoted (AIM: ACE) environmental technology group based in the Shandong Province of Eastern China, today announces its final results for the 12 months ended 31 December 2012.

Delivered a strong underlying performance and significant milestones

Financial Highlights

·; Group revenue grew strongly by 30% to RMB 218.3 million: GBP 21.8 million (2011: RMB 168.5 million: GBP 16.2 million)

·; Gross profit up by 28.8% to RMB 100.5 million : GBP 10.0 million (2011: RMB 78.0 million: GBP 7.5 million)

·; Profit before tax up by 9.5% to RMB 62.5 million: GBP 6.2 million (2011: RMB 57.1 million: GBP 5.5 million)

·; Net margin reduced due to initial overheads of the new factory in Weihai and the recurring listing expenses moving ahead (the Group listed on 2 April 2012).

·; Cash and cash equivalents were RMB 40.1 million: GBP 4.0 million as at 31 December 2012 compared to RMB 11.9 million: GBP 1.1 million as at 31 December 2011

·; Earnings per share of RMB 0.71: 7.1 pence (31 December 2011: RMB 0.71: 6.8 pence)

·; Net assets of RMB 131.3 million: GBP 13.1 million (31 December 2011: RMB 86.1 million: GBP 8.3 million)

·; 73,000 units sold in the period under review, compared to 60,000 units to 31 December 2011

Operational Highlights

·; Increased revenue from property developers (construction projects) to 86% of overall revenue (2011: 64%), in line with our objectives

·; Signed Memorandums of Understanding ("MOUs") with several large conglomerates to promote solar energy products. Under the MOUs, the conglomerates will use Auhua's products on an exclusive basis while Auhua will provide quality products at competitive prices

·; Played a substantial role in creating Industry Standards for split-unit solar water heaters which were officially launched in August 2012

·; Awarded a five star certification for the quality of its split-unit solar water heaters, the highest grade obtainable under the Shandong Solar Energy Industry Association's industry standards for solar water heaters

·; Awarded the Group Official Recommended Building and Engineering Product in recognition for its split-unit solar water heater system products by the building materials department of the China Association for Engineering Construction. Auhua is the only official recommended supplier of split-unit solar water heaters

·; Four of the company's products were awarded the China Energy Label enabling consumers of Auhua's products to qualify for government subsidies, thereby providing a commercial incentive for clients to choose Auhua products

* All RMB amounts translated using an exchange rate:

RMB 1: GBP 0.09968 (average exchange rate for 2012)

RMB 1: GBP 0.09643 (average exchange rate for 2011)

Mr Raphael Tham, Chairman of Auhua said, "This is an excellent result with the Group delivering both strong revenue and profit growth. This was underpinned by the significant progress we have made in ensuring our products and technologies remain at the forefront of our industry thereby affirming our market leadership in split-unit solar water heaters. Demand remains buoyant driven by an improvement in the property market and strong government support to increase the use of efficient renewable energy solutions. We are well positioned to capitalise on the growth in the market and remain confident of the future."

For further information:

Notes to Editors:

Auhua Clean Energy is an environmental technology group based in the Shandong Province of Eastern China specialising in the development and application of green energy and energy efficient solar water heating solutions. In particular, the Group is focused on the manufacture and sale of solar energy water heating systems.

Auhua Clean Energy operates through its wholly owned subsidiaries Shandong Auhua New Energy Co., Ltd and Weihua Auhua New Energy Co., Ltd., of which Auhua Holdings Pte Ltd is the intermediate holding company.

CHAIRMAN'S STATEMENT

Introduction

On behalf of the Board of Directors (the "Board"), I am pleased to deliver the annual report of Auhua Clean Energy Plc and its subsidiaries (collectively "Auhua" or "the Company" or "the Group") for the financial year ended 31 December 2012. We are proud to present our first full year results since our successful admission to trading on AIM in April 2012. The Group has made good progress and delivered both revenue and profit growth in the year under review.

Financial Review

The Group continued to deliver growth on the back of higher sales volume. Group revenue increased by 30% from RMB 168.5 million in FY 2011 to RMB 218.3 million FY 2012. In the period under review, property developers accounted for 86% of total revenue, up from 64% in the previous period. As a result of the increase in revenue, gross profit grew by 28.8% to RMB 100.5 million in FY 2012 (2011: RMB 78.0 million).

Administrative expenses increased to RMB 18.9 million (2011: RMB 8.7 million) during the period, largely due to the overheads of our new factory in Rushan, Weihai City. This factory started production in September 2011 and has a potential production capacity of 40,000 units per annum. Increased staff overheads and recurring listing expenses in relation to our admission to AIM in 2012 also contributed significantly to higher administrative expenses in 2012.

Profit before tax increased by 9.5% to RMB 62.5 million (2011: RMB 57.1 million) and net profit after tax rose by 5.5% to RMB 44.6 million (2011: RMB 42.3 million). The Group was impacted by the effective tax rate increasing from 26% to 28.5%. This tax increase was due to the increase in non deductible expenses in Auhua's holding companies in Singapore and Jersey, which operate as cost centres.

As at 31 December 2012, total bank loans (all short term) increased from RMB 8.0 million to RMB 13.5 million. However, total debt to equity ratio decreased from 41% to 35%.

Cash and cash equivalents were RMB 40.1 million as at 31 December 2012 as compared to RMB 11.9 million as at 31 December 2011.

Operational Review

The Group's on-going strategy is to focus on building strategic relationships with mid-to-large scale pan-provincial property developers in China to deliver a steadier revenue stream. In August 2012, the Group signed memorandums of understanding ("MOUs") with several large conglomerates to promote solar energy products. Under the MOUs, the conglomerates will use Auhua's products on an exclusive basis while Auhua will provide quality products at competitive prices. The conglomerates were YanKuang Group, China Construction Eighth Engineering Division Corp Ltd, China Railway Tenth Group Co Ltd and Tianjin Yulin Group.

In August 2012, Shandong Solar Energy Industry Association officially launched industry standards for split-unit solar water heaters (the "Standards") to ensure quality control in the manufacturing of the split-unit solar water heaters and to regulate the industry. Auhua, as a technological leader, was a key adviser in the creation of the new regulatory framework.

Auhua has always striven to produce quality products and these efforts were reaffirmed when the Shandong government conferred Auhua's brand as one of the "Shandong's famous brands" status. Auhua was also featured as one of only two brands in the solar water heater category, out of a total of 466 brands awarded in 2012. In addition, the Group was informed by the National Development and Reform Commission that four of our models had achieved the China Energy Label.

In November 2012, Auhua was the first company to have its products awarded a five star certification for its split-unit solar water heaters, the highest grade obtainable under the Shandong Solar Energy Industry Association's Standards. To date, Auhua is the only company in Shandong to have obtained a five star certification status.

Capitalising on the higher entry level to the industry set by the Standards and as well an increased awareness by property developers for the need to use quality products, the Group was quick to expand its sales team from 28 staff in 2011 to 39 at present. Led by Mr Guan, our Sales Director, staff undergo intensive training and technical support to ensure that projects are executed successfully and our products are delivered in a timely manner.

The Group recognises the importance of research and development to explore new energy efficient and green-energy technologies and strives to be at the forefront of the industry. In addition to having a highly experienced in-house research team, the Group also works in collaboration with research teams at local universities for several projects. In August 2012, Auhua signed an agreement with Shandong Construction University on an exclusive relationship for academic, research and project co-operation.

The Group currently has twelve patents, two of which were awarded this year. A further five patent applications have been submitted.

The management believe that the Group's core strength is in its technology. The protection of intellectual property and investment in research and development are considered vital for delivering future growth.

China Property Market

Total real estate development in China in the first two months of 2013 was up by 22.8% year-on-year. This improvement in real estate development was on the back of an increase in housing sales in H2 2012 and expectations of rising housing prices. Total investment in 2012 was RMB 7.2 billion, representing year-on-year growth of 16.2%. We are seeing an improvement in the property market with some local governments launching incentives to ensure bank loans are available to first time buyers and those wishing to upgrade.

The latest generation of communist leaders took office in March 2013, and we believe China's new leaders will seek to ensure strong GDP growth in their first year in office. We are unlikely to see any major changes to property policies as the sector plays a major role in the economy, at least for the first half of the 2013. We expect the property market to continue to improve with housing prices on a gentle upward trend.

Outlook

The current focus of the Group is to convert MOUs signed with conglomerate property developers in 2012, who have agreed to use Auhua's split unit solar water heater, into actual sales. Working with these conglomerate property developers in the longer term should also provide a steadier revenue stream.

China's improving property market and the growing awareness by property companies in choosing and selecting better quality products since the launch of the Standards are factors which the management believes are likely to increase revenue in 2013. In the light of expected growth and expansion of the business, the Group is assessing and actively pursuing a range of financing options as we continue to increase market share in our domestic market to meet rising demand. The Group will also be looking into further expanding the production capacity in Rushan, Weihai city.

People

I would like to express my gratitude to our staff for their hard work, commitment and dedication, which has enabled the Group to build an established track record and strong foothold in the split-unit solar water heater industry. I would also like to thank our shareholders for their loyal support. My sincere appreciation goes to our customers, business associates and suppliers without whom the success we enjoyed in 2012 would not have been possible.

We have begun an exciting new chapter in the corporate development of Auhua Group and I look forward to your continued support.

Tham Wai Mun Raphael

Non-Executive Chairman

25 April 2013

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2012

Other comprehensive income

Consolidated Cash Flow Statement

For year ended 31 December 2012

Consolidated Statement of Changes in Equity

Notes to the financial information

1. General information and principal activities

The principal activities of Auhua Clean Energy Plc (the "Company" or "Auhua") and its subsidiaries (the "Group") include technology research and the development and production and sale of solar-powered water heater system.

Auhua, a public limited company, is the Group's ultimate parent company. It was incorporated on 21 November 2011 in Jersey, Channel Islands and its registered office address is Queensway House, Hilgrove Street, St. Helier, Jersey JE1 1ES, Channel Islands. The Company's shares are listed on the AIM Market of the London Stock Exchange.

The principal subsidiary of Auhua is Auhua Holdings Pte Ltd ("Auhua Holdings"), the holding company for the Auhua Trading Group (together, "the Auhua Holdings Group"). The Auhua Trading Group is made up of Shandong Auhua New Energy Co., Ltd and Weihai Auhua New Energy Co., Ltd.

The financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board as adopted by the European Union, with the following comment in respect of going concern:

"The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the Group, including the Company.

The Directors have reviewed forecasts and budgets for the coming year, which have been drawn up with appropriate regard for the current economic environment and the particular industry in which the Group operates. These were prepared with reference to historical and current industry knowledge, taking future strategy of the Group into account.

The existing operations have been generating funds to meet short-term operating cash requirements. New bank loans (net proceeds of RMB 5.5 million) provide the Group with additional working capital required at the new factory in Rushan, Weihai city.

The Directors consider that the trading subsidiaries have adequate resources and committed borrowing facilities to continue in operational existence for the foreseeable future.

However, the Company does not hold any cash and, due to Chinese regulations, it can be difficult to extract money out of the trading subsidiaries to pass to the Company so that it can settle its debts. As a result, there is the risk that the Company, and subsequently, the Group, may not be a going concern as the Company may be unable to meet its debts as they fall due. Accordingly, the Directors have sought and obtained the support of the major shareholder of the Company to provide advances to the Company to meet its working capital requirements should the need arise.

In approving the financial statements, the Board have recognised that these circumstances create a level of uncertainty. However, having made enquiries and considered the uncertainties outlined above, the directors have a reasonable expectation that the Company and the Group have sufficient resources to continue in operational existence for the foreseeable future. Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the financial statements."

The financial information set out in this announcement does not constitute the Group's statutory financial statements for the period ended 31 December 2012, but was derived from those financial statements. The auditors have reported on the statutory financial statements for the period ended 31 December 2012; this report was unqualified but included the following emphasis of matter:

"In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.19.1 to the financial statements concerning the Company's ability to continue as a going concern. The financial statements have been prepared on the going concern basis, which depends on the continued shareholder support. These conditions, along with the other matters explained in note 2.19.1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern."

The financial information set out in this announcement was approved by the board on 25 April 2013.

2. Significant accounting policies

2.1 Basis of preparation

The Group prepares its financial statements in accordance with applicable International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board as adopted by the European Union.

As at the date of approval of these non-statutory financial statements, the following standards and interpretations were in issue but not yet effective:

Issued and EU adopted

IFRS 10- Consolidated Financial Statements

IFRS 11- Joint Arrangements

IFRS 12- Disclosure of Interests in other entities

IFRS 13- Fair value measurement

IAS 1- (amended) - Presentation of items of other comprehensive income

IAS 27- Separate Financial Statements

IAS 28- Investments in Associates and Joint Ventures

IFRIC 20- Stripping costs in the production phase of a surface mine

Transition Guidance (Amendments to IFRS 10,11 and 12)

Issued but not yet EU adopted

IFRS 9 - Financial Instruments

Investment Entities (Amendments to IFRS 10,12 and IAS 27)

The Directors do not anticipate that the adoption of these standards and interpretations in future reporting periods will have a material impact on the Company's results.

2.2 Acquisition of Auhua Holdings Group

On 12 December 2011, a share purchase agreement was entered into with shareholders of Auhua Holdings whereby the Company agreed to acquire the entire issued share capital of Auhua Holdings in consideration for the issue and allotment of 59.8 million ordinary shares of the Company.

Due to the relative values of the companies, the former shareholders, management and advisers of Auhua Holdings maintained control over the enlarged ordinary share capital in the Company. Furthermore, the executive management of Auhua Holdings became that of the Company. A qualitative and quantitative analysis of these factors leads the Directors to conclude that in this transaction Auhua Holdings have the controlling interest and should be treated as the accounting acquirers in each transaction.

In determining the appropriate accounting treatment for the acquisition, the Directors have considered the Application Supplement to IFRS 3, Business Combinations. However, they have concluded that this transaction falls outside of the scope of IFRS 3, since the Company, whose activities prior to the acquisition were limited to the management of cash resources, did not constitute a business. It has therefore been determined that the transaction should be accounted for in a manner that is similar to the reverse accounting as described in IFRS 3, but without recognising goodwill.

In accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, in developing an appropriate accounting policy, the Directors have considered the pronouncements of other standard-setting bodies and specifically looked to accounting principles generally accepted in the United States of America ("US GAAP") for guidance (FAS 141, Business Combinations) as well as SEC rules. Under US GAAP, in a reverse acquisition, the target company (Auhua Holdings) is treated as the acquiring company for financial reporting purposes (no purchase accounting adjustments) and the fair value of the acquisitions is recognised, together with adjustments necessary to reflect the net tangible and identifiable intangible assets at their fair value with any remainder assigned to goodwill (full application of purchase accounting).

Under US GAAP, such a transaction is treated as an issuance by the operating group (in this case, Auhua Holdings Group). As a result, the cost of the combination is deemed to equal the net monetary assets of the acquiree plus transaction costs. Only costs incurred by the "target" company can be capitalised.

2.3 Subsidiaries

As at 31 December 2012, the Company had the following subsidiaries:

2.4 Investments

Investment in subsidiary company is stated at cost, less provision for diminution in carrying value.

2.5 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

(i) the group has transferred to the buyer the significant risks and rewards of ownership of the goods;

(ii) the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

(iii) the amount of revenue can be measured reliably;

(iv) it is probable that the economic benefits associated with the transaction will flow to the Group;

(v) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

These conditions are considered to have been satisfied when the customer either collects or take delivery of the goods.

2.6 Financial Instruments

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.

2.6.1 Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial instrument and allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) throughout the expected life of the financial instrument, (or where appropriate, a shorter period), to the net carrying amount of the financial instrument. Income and expenditure are recognised on an effective interest basis for debt instruments other than those financial instruments recognised at fair value through the Statement of Comprehensive Income.

2.6.2 Financial assets

Financial assets within the scope of IAS 39 are classified as either:

(i) financial assets at fair value through profit or loss

(ii) loans and receivables

(iii) held-to-maturity investments

(iv) available-for-sale financial assets

The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at initial recognition and re-evaluates this classification at every reporting date.

All standard purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Company commits to purchase the asset. Regular way purchases and sales are purchases or sales of financial assets that require delivery of the financial assets within the period generally established by regulation or convention of the market place concerned.

Financial assets are derecognised when the rights to receive cash flow from the financial assets have expired or have been transferred and the Company have transferred substantially all risks and rewards of ownership.

Financial assets at fair value through profit and loss

Financial assets are classified in this category if they are acquired for the purpose of selling in the short term. Gains or losses on investments held for trading are recognised in the Statement of Comprehensive Income.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in active market are classified as loans and receivables. Loans and receivables are measured at amortised cost, using the effective interest method less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial.

Available for Sale Investments

Available for sale investments are those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables, held to maturity investments or financial assets at fair value through profit and loss. After initial recognition, available for sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement of comprehensive income.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the closure of business on the statement of financial position date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions, reference to the current market value, discounted cash flow analysis and option pricing models.

Impairment of financial assets

Financial assets, other than fair value through profit and loss, are assessed for indicators of impairment at the end of each financial year. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets carried, at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amounts of all financial assets are reduced by the impairment loss directly with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in the Statement of Comprehensive Income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through the Statement of Comprehensive Income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity.

Derecognition of financial assets

The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds receivables.

2.6.3 Classification as debt or equity

Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

2.6.4 Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.

2.6.5 Financial liabilities

Financial liabilities are classified as either financial liabilities at fair value through the Statement of Comprehensive Income or other financial liabilities.

Financial liabilities are classified as at fair value through comprehensive income statement if the financial liability is either held for trading or it is designated as such upon initial recognition.

Other financial liabilities

Trade and other payables

Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, where applicable, using the effective interest method, with interest expense recognised on an effective yield basis.

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.

2.7 Property, plant and equipment

Property, plant and equipment are stated at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Depreciation is charged so as to write off the cost, less estimated residual value on assets other than land, over their estimated useful lives, using the reducing balance method, on the following bases:

Estimated useful life of machinery & equipment was changed to 8 years commenced from 2009 due to change in PRC's accounting policy.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the asset. These are included in the pro forma aggregated statements of comprehensive income.

2.8 Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the net book amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such an indication of impairment is identified, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. In determining fair value less costs to sell, an appropriate valuation model is used.

If the recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

2.9 Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the pro forma aggregated statement of comprehensive income when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

2.10 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and demand deposits.

2.11 Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

2.12 Share capital

Ordinary share capital is recognised at the fair value of the consideration received by the company. Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds.

2.13 Share-based payments

All share-based payment arrangements are recognised in the consolidated financial statements in the period in which the associated goods or services are provided. The Group operates equity-settled share-based remuneration plans for remuneration of its employees, although to-date no options have been granted under these plans.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values at the date the services are provided.

All equity-settle share based payments are recognised as an expense with a corresponding credit to "Share based payment reserve". Where the cost relates to the issue of shares, the cost has been offset against share capital. Upon exercise of the share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital.

2.14 Taxation

The taxation ('tax') expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profits for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the pro forma aggregated statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the pro forma aggregated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

2.15 Foreign currency transaction and translation

Monetary assets and liabilities denominated in foreign currencies in each company are translated at the rates of exchange prevailing at the accounting date. Transactions in foreign currencies are translated at the rate prevailing at the date of transaction.

On revenues, costs and cash flows of undertakings abroad are included in the Group statement of comprehensive income at average rates of exchange for the year. The assets and liabilities denominated in foreign currencies are translated into Renminbi ('RMB') using rates of exchange ruling at the date of the consolidated statement of financial position.

Exchange differences on the re-translation of opening net assets and results for the year of foreign subsidiary undertakings are dealt with through reserves net of differences on related foreign currency borrowings. Other gains and losses arising from foreign currency transactions, including trading, are included in the consolidated statement of comprehensive income.

2.16 Employee benefits

Auhua Holdings, based in Singapore, makes contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme.

The Group's Chinese subsidiaries follow the rules and regulations stipulated by the PRC, including:

(i) Pension obligations

The Group's Chinese subsidiaries contribute to defined contribution retirement schemes which are available to all employees. Contributions to the schemes by the Group and employees are calculated as a percentage of employees' basic salaries. The retirement benefit scheme cost charged to the income statement represents contributions payable by the Group to the scheme.

(ii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

2.17 Functional and foreign currency

2.17.1 Functional and presentation currency

Itemsincluded in the financial statements of each of the Group entities are measured using the currency of the primaryeconomic environmentin which the entity operates (the "functional currency"); i.e. The functional currency of Shandong Auhua New Energy Co. Ltd and Weihai Auhua New Energy Co. Ltd ("Auhua Trading Group") is Renminbi; Auhua Holdings and the Company is Singapore dollar. The financial information is presentedin Renminbi, which is the Group's presentational currency.

2.17.2 Transactions and balances in each entity's financial statements

Transactions in foreign currencies are translated into the functional currency using the exchange rates prevailing on the transaction dates.Monetary assets and liabilities in foreign currenciesare translated at the rates ruling on the balancesheet date. Profits and losses resulting from this translation policy are included in the consolidated statement of comprehensive income.

2.18 Research and development

Research expenditure is recognised as an expense when it is incurred.

Development expenditure is recognised as an expense except that costs incurred on development projects are capitalised as long-term assets to the extent that such expenditure is expected to generate future economic benefits. Development expenditure is capitalised if, and only if an entity can demonstrate all of the following:-

(i) its ability to measure reliably the expenditure attributable to the asset under development;

(ii) the product or process is technically and commercially feasible;

(iii) its future economic benefits are probable;

(iv) its ability to use or sell the developed asset; and

(iv) the availability of adequate technical, financial and other resources to complete the asset under development.

Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if any. Development expenditure initially recognised as an expense is not recognised as assets in the subsequent period.

The development expenditure is amortised on a straight-line method over a period of 5 years when the products are ready for sale or use. In the event that the expected future economic benefits are no longer probable of being recovered, the development expenditure is written down to its recoverable amount.

Both research and development expenditure are integral to the manufacturing process and not separately identified.

2.19 Key assumptions and sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reportedamounts of assetsand liabilities at the date of the financial statements and the reported amounts of expenses during the reportingperiod.

Although these estimatesare based on management's best knowledgeof the amount, event or actions,results ultimately may differ from those estimates. The directorshave reviewed the accounting policies set out above and consider them to be the most appropriate to the Group's business activities.

The Group makes estimatesand assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the relatedactual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below:

2.19.1 Going concern

The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the Group, including the Company.

The Directors have reviewed forecasts and budgets for the coming year, which have been drawn up with appropriate regard for the current economic environment and the particular industry in which the Group operates. These were prepared with reference to historical and current industry knowledge, taking future strategy of the Group into account.

The existing operations have been generating funds to meet short-term operating cash requirements. New bank loans (net proceeds of RMB 5.5 million) provide the Group with additional working capital required at the new factory in Rushan, Weihai city.

The Directors consider that the trading subsidiaries have adequate resources and committed borrowing facilities to continue in operational existence for the foreseeable future.

However, the Company does not hold any cash and, due to Chinese regulations, it can be difficult to extract money out of the trading subsidiaries to pass to the Company so that it can settle its debts. As a result, there is the risk that the Company, and subsequently, the Group, may not be a going concern as the Company may be unable to meet its debts as they fall due. Accordingly, the Directors have sought and obtained the support of the major shareholder of the Company to provide advances to the Company to meet its working capital requirements.

In approving the financial statements, the Board have recognised that these circumstances create a level of uncertainty. However, having made enquiries and considered the uncertainties outlined above, the directors have a reasonable expectation that the Company and the Group have sufficient resources to continue in operational existence for the foreseeable future. Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the financial statements.

The Group also uses the following estimates and assumptions that do not have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These are:

2.19.2 Allowance for trade and other receivables

Management reviews its loans and receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgment as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

Where there is objective evidence of impairment, management makes judgment as to whether impairment in value should be recorded in the income statement. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience.

The allowance policy for doubtful debts of the Group is based on the ageing analysis and management's ongoing evaluation of the recoverability of the outstanding receivables. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the assessment of the creditworthiness and the past collection history of each customer. If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

2.19.3 Income Taxes

There are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these measures is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made.

2.19.4 Depreciation of property, plant and equipment

The Group depreciates the property, plant and equipment, using the straight-line method, over their estimated useful lives after taking into account of their estimated residual values. The estimated useful life reflects management's estimate of the period that the Group intends to derive future economic benefits from the use of the Group's property, plant and equipment. The residual value reflects management's estimated amount that the Group would currently obtain from the disposal of the asset, after deducting the estimated costs of disposal, as if the asset were already of the age and in the condition expected at the end of its useful life. Changes in the expected level of usage and technological developments could affect the economics, useful lives and the residual values of these assets which could then consequentially impact future depreciation charges.

3 Capital risk management

The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The capital structure of the Group consists of equity attributable to equity holders as disclosed in the statement of financial position.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the retire capital to shareholders or issue new shares. Changes were made in the objectives, policies or processes as disclosed in the statement of changes in equity.

The Group monitors capital using a gearing ratio and debt to equity ratio:

3.1 Gearing ratio

The gearing ratio is defined as and calculated by the Group as total of interest-bearing borrowings to the owners' equity. Equity includes equity attributable to the equity holders of the Group. During the year ended 31 December 2012, the Group's strategy was to maintain the gearing ratio at a moderate level in order to secure access to finance at a reasonable cost. The gearing ratios as at the financial position dates were as follows:

3.1 Debt to equity ratio

The debt to equity ratio is defined and calculated by the Group as total debt (total liabilities) to the owner's equity as at 31 December 2012 as follows:

4. Turnover

5. Operating segments

For the purpose of IFRS 8, the chief operating decision-maker ("CODM"), who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

The Group is engaged in technology R&D and production and sale of solar-powered and sale of water heater system. The Group's revenue and profit before taxation were all derived from its principal activity. Revenues from all periods were derived from external customers based in the PRC. The Group's operations are principally based in China and its assets and liabilities related to this single business segment. 

The CODM therefore considers that the business of the Group comprises of a single activity being a holding company and therefore that only one reportable segment exits.

6. Investments

7. Profit from operations

The profit from operations in the period under review has been arrived at after charging the following amounts:

The Company has not presented its individual income statement. The result for the financial year ended 31 December 2012 was a loss of RMB 5.6 m (2011: Nil).

8. Staff costs

Average number of persons employed by the Group (including Executive Directors) during the year: 299 (2011: 275)

9. Finance costs

10. Taxation

10.1 The major components of the income tax expense are as follows:

Auhua Holdings Pte Ltd is subject to a Singapore Tax rate of 17%. As Auhua Holdings has no trading income, the expenses incurred cannot be carried forward as tax losses.

Auhua Trading Group is subject to a PRC Enterprise income tax rate of 25%.

10.2 A reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rates is as follows:-

10.3 There was no material unprovided deferred tax as at 31 December 2012 (2011: nil).

11. Property, plant and equipment

12. Prepaid lease payments

Prepaid lease payments represent the cost of acquiring land use rights, and related costs, in respect of the factory in Rushan, Weihai City.

13. Inventories

14. Trade and other receivables

There are no material differences between the fair value of trade and other receivables and their carrying value at the year end.

Receivables of RMB 12,467,000 were past due but not impaired by the year end. The ageing analysis of these receivables at the year end is as follows:

The amount over 6 months overdue is less than RMB 3 million.

15. Share capital

On 21 November 2011, the Company was incorporated and had an unlimited share capital. On incorporation, the Company issued 2 ordinary shares of £0.01 each for a cash consideration of £0.02.

Following the Share Swap Agreement on 12 December 2011, a share purchase agreement was entered into whereby the Company agreed to acquire the entire issued share capital of the Auhua Holdings Pte Ltd ("Auhua Holdings") in consideration for the issue and allotment and of 59.8 million ordinary shares of the Company. The share purchase agreement was completed on 12 December 2012 and 59,799,998 ordinary shares were issued and allotted on the same date.

16. Reserves

16.1 Statutory surplus reserve

According to the relevant PRC regulations and the Articles of Association, a company is required to transfer 10% of its profit after income tax to the statutory surplus reserve until the reserve balance reaches 50% of their registered capital. The transfer to this reserve must be made before the distribution of dividends to equity owners. Statutory surplus reserve can be used to make good previous years' losses, if any, and may be converted into paid-in capital in proportion to the existing interests of equity owners, provided that the balance after such conversion is not less than 25% of the registered capital.

16.2 Share based payment reserve

During the period the Company granted Northland Partners Limited an option to subscribe for 635,650 ordinary shares at 40 pence at any time during the period of three years following admission. These were granted in respect of the services they provide during the listing of the Company on the Alternative Investment Market. These options have been valued at the fair value of the services received. At the year end these options remain unexercised.

Movement in the year:

The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year:

17. Trade and other payables

18. Short term loans

Group

The average annual interest rates paid were as follows:-

Due to the short term nature of the borrowings, the fair values approximate their carrying values.

19. Related party transactions

a) Related parties are entities with common direct or indirect shareholders and/or previous and/or current directors. Parties are considered to be related if one party has the ability to control the other party in making financial and operating decisions.

Certain of Group's transactions and arrangements are with related parties and the effect of these on the basis determined between the parties is reflected in the financial statements. The balances are unsecured, interest-free and repayable on demand unless otherwise stated.

b) Key management personnel compensation is analysed as follows:

Key management personnel are the Directors.

c) Payment to Augrains Capital Pte Ltd

Augrains Capital Pte. Ltd. is controlled by Tham Wai Mun Raphael, a director of the Group as at the balance sheet date.

20. Financial instruments

The Group's principal financial instruments comprise cash and cash equivalents, trade and other receivables and trade and other payables. The Group's accounting policies and methods adopted, including the criteria for recognition, the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are set out in Note 2. The Group does not use financial instruments for speculative purposes.

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

20.1 Derivatives, financial instruments and risk management

The Group does not use derivative instruments or other financial instruments to manage its exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices.

20.2 Liquidity Risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The principal liabilities of the Group arise in respect of the ongoing research and development programs, trade and other payables. Trade and other payables are all payable within 12 months.

The Board receives cash flow projections on a regular basis as well as information on cash balances.

Any repayments for amount due to related parties or shareholders are negotiated so as not jeopardise the working capital requirement of the Group.

20.3 Interest rate sensitivity

The Group's policy is to minimise interest rate cash flow risk exposure on long-term financing. Longer term borrowings are therefore usually at fixed rates. As at 31 December 2012, most of the Group's interest-bearing loans entered are short term borrowings with less than one year tenure.

The Group is also exposed to cash flow interest rate in relation to the fluctuation of prevailing market interest rate on interest-bearing financial assets and financial liabilities. Interest-bearing financial assets are mainly balances with banks which are short term in nature.

The Group's interest rate risk arises from interest-bearing financial liabilities that mainly are short-term borrowings arrangement. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

20.3.1 Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to variable interest rate for non-derivative instruments at the balance sheet date. For variable-rate borrowings, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year.

A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rate.

As at 31 December 2012, if interest rate had been 100 basis points higher/lower and all other variables were held constant, this would increase/decrease the group's profit after tax and retained earnings by approximately RMB 453,098 / (RMB 177,949).

The 100 basis point increase/(decrease) represents management's assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date.

20.4 Foreign currency risk management

The Group ultimate holding company is located in Jersey, Channel Island and its monetary assets, liabilities and transactions are principally denominated in the functional currency of respective group entities. However, most of the transactions of the Group are carried out in the PRC- where Auhua Holdings Group operates. The Group's sales transactions, all related purchases and loan borrowings transactions are denominated in Renminbi ("RMB").

The Group has no significant exposure to foreign exchange risk as its cash flows and financial assets and liabilities are mainly denominated in Renminbi. The amount to be paid and received in RMB are expected to offset one another, no hedging activity is undertaken. For the financial year, the Group's expenses incurred were in combination of RMB and Singapore Dollar ("SGD").

20.5 Foreign currency sensitivity

The Group is facing the following foreign currency exposure:

20.6 Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group's exposure and the credit ratings of its trading counterparties are monitored by the board of directors to ensure that the aggregate value of transactions is spread amongst approved counterparties.

The Group's principal financial assets are cash and cash equivalents, trade debtors and other accounts receivables. Cash equivalents include amounts held on deposit with financial institutions.

The Group has no significant concentrations of credit risk. Cash is placed with established financial institutions. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

20.7 Capital risk management

The Group defines capital as the total equity of the Group. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

21. Commitments

As at 31 December 2012, the capital commitment for the Group was RMB 27.5 million (2011: RMB 16.9 million). This was mainly for purchasing of new equipment and construction of new office building at Weihai Auhua New energy Co. Ltd.

22. Contingencies

The Group had no material contingent liabilities as at 31 December 2012 and 31 December 2011.

23. Earnings per share

The calculation of earnings per share is based on the following earnings and number of shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares. The Company has one category of dilutive potential ordinary shares: share options.