Final Results and Notice of AGM

AUHUA CLEAN ENERGY PLC

("Auhua" or the "Company")

Final Results and Notice of AGM

12 May 2014: Auhua Clean Energy Plc (AIM: ACE) ("the Company" or "Auhua"), the AIM quoted environmental technology group, today announces its final results for the year ended 31 December 2013.

Financial highlights

· Revenues grew strongly by 15% to GBP 26.1 million (2012: GBP 21.8 million)

· Gross profit up by 8.9% to GBP 11.4 million (2012: GBP 10.0 million)

· Profit before tax up by 5.2% to GBP 6.8 million (2012: GBP 6.2 million)

· Cash and cash equivalents up 21.5% to GBP 5.1 million (2012: GBP 4 million)

· Basic earnings per share rose to GBP 7.6 pence (2012: GBP 7.1 pence)

· Net assets up by 46.1% to GBP 19.9 million (2012: GBP 13.1 million)

· 77,000 units sold in the period under review (2012: 73,000 units)

Since year end

· Maiden dividend of 0.18p per ordinary share proposed with expected payment date of 16 June 2014

· Significant progress made on implementation of growth strategy:

§ Ziolar acquisition due to complete in Q2 2014

§ Major international distribution agreement secured into the Middle East with Istidama

· Strengthened the team with appointments of new non-executive Director and CFO

· Increased revenue derived from property developers (construction projects) to 96% of overall revenue (2012: 86%), in line with objectives

· Further to recent fundraising efforts and in order to execute its expansion strategy, the Company signed a term sheet for a GBP 10 million convertible loan in April 2014 and is due to enter into legally binding terms shortly

Mr David Sumner, non-executive Chairman of Auhua said: "I am delighted to announce Auhua's maiden dividend which signals the confidence we have in our Company and its strategy for future expansion. Auhua has delivered a solid set of results in a transformational year; this dividend reflects our accomplishments and is a thank you to our committed shareholders. Our results were underpinned by continuous progress in ensuring our products and technologies remain at the forefront of innovation, thereby affirming our market leadership in split-unit solar water heaters in Shandong, China.

"The acquisition of Ziolar will significantly broaden our technical capability with the integration of its state-of-the-art thermal panel technology, a vital component in solar powered water heater systems. The acquisition will mark the start of our international expansion strategy outside of China, notably in the Middle East market through our agreement with Istidama.

"Clean energy is firmly on government agendas around the world, with favourable legislation supporting the need for alternative fuel sources. Furthermore, demand for split-unit solar water heaters in China continues to grow due to the increasing price of conventional energy and the strengthening property development market. We have a strong team in place, advantageous market drivers and an aggressive growth strategy to expand in China and around the world, which altogether affirms my positive outlook for the future."

The Company will hold its Annual General Meeting on Wednesday 11 June 2014 at 11am at the Brunswick Group office, 16 Lincoln's Inn Fields, London, WC2A 3ED. Notice of the Annual General Meeting will be sent to shareholders shortly.

The Company's audited financial statements for the year ended 31 December 2013 will shortly be available on the Company's website www.auhuacleanenergy.com.

All RMB amounts have been translated using the below exchange rates:

RMB 1: GBP 0.10396 (average exchange rate for 2013)

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

--ends---

Media Enquiries

Further information

About Auhua:

Auhua Clean Energy (www.auhuacleanenergy.com) 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 split-unit solar 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

On behalf of the Board of Directors (the "Board"), I am pleased to deliver our final results for the year ended 31 December 2013. The Company has continued to make good progress in all areas and has again delivered both revenue and profit growth in the year under review. The acquisition of Ziolar is approaching completion and will enable the Company to significantly advance its solar thermal panel technology which, combined with the progress already made in solar heating combi-systems and solar cooling technologies during 2013 has strongly positioned the Company to enter the solar energy market on a global scale.

A number of factors are reflected in this positive set of final results. Growth was driven by strengthened sales and a supportive market environment. The Chinese government remains committed to policies supportive of both urban expansion and renewable energy, core to our continued growth.

Dividend Policy

A proposed maiden dividend of 0.18 pence per ordinary share was approved by the Board on 30 April 2014 with an expected payment date of 16 June 2014.

Financial Review

Group revenue has increased by 15% from RMB 218.3 million (GBP 21.8 million) in FY12 to RMB 250.9 million (GBP 26.1 million) in FY13. In the period under review, property developers accounted for 96% of total revenue, up from 86% in the previous period. As a result of the increase in revenue, gross profit grew by 8.9% to RMB 109.4 million (GBP 11.4 million) in FY13 (2012: RMB 100.5 million (GBP 10.0 million)).

Administrative expenses reduced to RMB 18.2 million (GBP 1.9 million) during the period (2012: RMB 18.9 million (GBP 1.9 million)). The higher costs in 2012 were largely due to the additional costs that related to our admission to AIM that year. Selling and distribution costs increased to RMB 24.1 million (GBP 2.5 million) in 2013 (2012: RMB 18.2 million (GBP 1.8 million)) following the Company's significant investment in sales and marketing to expand the business into new key markets.

Profit before tax increased by 5.2% to RMB 65.8 million (GBP 6.8 million) (2012: RMB 62.5 million (GBP 6.2 million)) and net profit after tax rose by 7.3% to RMB 47.9 million (GBP 5.0 million) (2012: RMB 44.6 million (GBP 4.4 million)).

As at 31 December 2013, total bank loans increased from RMB 13.5 million (GBP 1.3 million) to RMB 14.5 million (GBP 1.5 million) however, the Company's total debt to equity ratio decreased from 35% to 21%.

Cash and cash equivalents increased by 21.5% to RMB 48.7 million (GBP 5.1 million) as at 31 December 2013 (2012: RMB 40.1 million (GBP 4.0 million)).

Operational Review

Auhua continues to focus on building strategic relationships with mid-to-large scale pan-provincial property developers in China to deliver strong and steady revenue streams. Significant investment was made in sales and marketing during 2013 which helped the business branch into new domestic markets and resulted in 96% of the Company's sales being attributed to property developers during the period in review.

The Company's ongoing strategy is to focus on research and development and innovation and to ensure it remains the technological leader in energy saving split-unit solar water heaters. In July 2013, Auhua was officially authorised and appointed by the Jinan Municipal Science and Technology Bureau to jointly set up an engineering and technology research centre with Jinan University for split-unit water heating systems and was once again recognized by the Chinese authorities with its nano-coating flat panel solar technology being identified, commended and conferred by the Shandong provincial government as an "outstanding energy savings result". The Company was also presented the "Industrialisation of Significant Energy Saving Technology" award by the Shandong Province in August 2013 for its highly efficient spectral selective absorbing coating.

China Property Market

Despite growth in Chinese real estate development stabilizing during 2013, the Chinese government remained committed to building 36 million new affordable homes by 2015. In addition, 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. We believe China's new leaders will seek to ensure strong GDP growth during 2014 and we expect the property market to continue to improve with housing prices showing a gentle upward trend. We are focused on maintaining strong partnerships with legislators, regulators, property developers and local governments within China to ensure long-term, profitable trading relationships with Auhua.

Outlook

We are poised for both international and domestic growth. In China, we continue to focus on further strengthening our position in Shandong while replicating our success there in key target markets in the provinces of Anhui, Shaanxi and Hebei as well as the municipal city of Tianjin. We have identified these markets as being aligned with our existing network and potential property developers, distributors and government bodies. These areas also share similar demographics and potential as Shandong; they have seen strong growth during 2013 and have a combined population which is twice that of Shandong. They all provide significant opportunities for growth in the future. Internationally, we have entered into the Middle East through the agreement with the United Arab Emirates' Istidama which has an extensive sales and distribution network in the UAE and helps clients to match power generation requirements with clean-technology solutions.

People

I would like to thank our staff for their continued efforts in ensuring Auhua remains at the forefront of solar water heating innovation. The year 2013 marked significant progress for the Company and this is testament to our dedicated team, the strength of our Board and our committed shareholders. I would also like to thank all our partners, our shareholders, customers, business associates and suppliers, for their continued support.

We have built a reputation for robust and cutting-edge technology and strong partnerships which will help accelerate plans to expand in China as well as internationally. Based on our full year's strong performance and the forward pipeline, the Board remains confident of delivering long term shareholder value and we look forward to the journey ahead.

David Sumner

Non-executive Chairman

9 May 2014

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013

Consolidated Statement Of Financial Position

As at 31 December 2013

Consolidated Cash Flow Statement

For year ended 31 December 2013

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 systems.

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 set out in this announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2013, but was derived from those financial statements. The auditors have reported on the statutory financial statements for the year ended 31 December 2013; this report was unqualified.

The financial information set out in this announcement was approved by the board on 9 May 2014.

2. Accounting policies

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.

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 reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

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

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

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 RMB9 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.

In addition, the GBP 10 million convertible loan term sheet executed in April 2014 provides the Company with sufficient working capital to continue to meet its working capital requirements 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:

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.

3 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, to maintain a strong credit rating and healthy capital ratios 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.

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 capital to shareholders or issue new shares. Changes were made in the period 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 2013, 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 2013 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.

6. Investments

7. Profit from operations

Profit from operations in the period under review has been arrived after charging the following amounts:

8. Staff costs

Average number of persons employed by the Group (including Executive Directors) during the year: 260 (2012: 299)

 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 2013 (2012: 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 76,030,000 (2012: RMB 45,174,000) were past due but not impaired by the year end. The ageing analysis of these receivables at the yearend is as follows:

The amount over 6 months overdue is less than RMB 21 million. Management have assessed the recoverability of debtors, which includes consideration of amounts settled post year end and based on their assessment consider that the amounts above are recoverable.

15. Stated capital

On 21 November 2011, the Company was incorporated and had an unlimited share capital. On incorporation, the Company issued 2 ordinary shares of no par value for a cash consideration of £0.01 each.

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 2012 the Company granted Northland Capital 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 yearend 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. Long term loans

The average annual interest rates paid were as follows:-

A total working capital loan of RMB 9 million was granted to a subsidiary of the Company, Weihai Auhua New Energy Co Ltd, during Q1 2013. Interest is payable on the loan at a rate of 1.75 times the prevailing People's Bank of China's base lending rate, which remained at 10.7625% throughout the period. The loan is due for repayment on 3 February 2016.

20. 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.

21. 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:

21.1 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.

21.2 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 and the recoverability of trade receivables. These are monitored carefully and action taken where appropriate to ensure that cash flows are maximised.

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

21.3 Interest rate sensitivity

The Group's policy is to minimise interest rate cash flow risk exposure on long-term financing. As at 31 December 2013, the Group's interest-bearing loans entered into are a combination of short and medium term loans.

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.

21.3.1 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 2013, 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 572,404 / (RMB 175,321).

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.

21.4 Foreign currency risk management

The Group's 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").

21.5 Foreign currency sensitivity

The Group is facing the following foreign currency exposure:

21.6 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.

The group is exposed to credit risk on its trade receivables balances. The board reviews these balances on a regular basis and ensures that appropriate action is taken to maximise cash flows.

22. Contingencies

The Group had no material contingent liabilities as at 31 December 2013 and 31 December 2012.

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.

24. Post Balance Sheet Events

On 30 April the Company signed a letter of offer for a standby facility of up to £10 million with Sunmax Global Capital Private Limited.