Euro Tech(US:CLWT)2022-05-15 16:00Financial Performance - The company reported an income contribution from Blue Sky of US$355,000 in Fiscal 2021, down from US$435,000 in Fiscal 2020 and up from US$137,000 in Fiscal 2019[145]. - Pact-Yixing's revenue for Fiscal 2021 was US$12,161,000, showing a significant increase from US$4,246,000 in Fiscal 2020[163]. - Total revenue decreased by 23.2% from US$17,399,000 in fiscal year 2019 to US$13,357,000 in fiscal year 2020, then increased by 60.1% to US$21,388,000 in fiscal year 2021[198]. - Net income increased by US$915,000 from a net loss of US$(146,000) in fiscal year 2019 to net income of US$769,000 in fiscal year 2020, and further increased by 28.6% to US$989,000 in fiscal year 2021[198]. - Revenue from the PRC increased by 24% in Fiscal 2021 compared to Fiscal 2020, while revenue from Hong Kong decreased by 23% during the same period[166][169]. - Revenue increased by US$8,031,000 or 60.1% to US$21,388,000 in Fiscal 2021 from US$13,357,000 in Fiscal 2020[203]. - Gross profit increased by US$2,010,000 or 54.5% to US$5,695,000 for Fiscal 2021 compared to US$3,685,000 for Fiscal 2020[204]. - Selling and administrative expenses decreased by US$463,000 or 8.6% to US$4,911,000 in Fiscal 2021 from US$5,374,000 in Fiscal 2020[204]. - Net income from continuing operations was US$989,000 in Fiscal 2021 compared to US$769,000 in Fiscal 2020[206]. Business Operations - The company primarily distributes advanced water treatment equipment and related supplies, acting as an exclusive and non-exclusive distributor for well-known manufacturers[156]. - The company has a 19.4% equity interest in Zhejiang Tianlan Environmental Protection Technology Co. Ltd. (Blue Sky), which provides services for industrial waste gas purification[143]. - Pact-Yixing is focusing on the chemical reagent business, which is believed to be more profitable, and these reagents are manufactured in Shanghai[170]. - Pact-Yixing's clients span various industries, including semiconductor, pharmaceutical, petrochemicals, and food and beverage[159]. - The company has developed a handheld ballast water checker, the first of its kind made in China, and has received patent approval and environmental testing certification[180]. - The company has developed and upgraded various environmental monitoring instruments, although sales of some products have been nominal to date[180]. - The company has closed several subsidiaries, reducing its marketing and sales force from 15 in fiscal 2019 to 11 in fiscal 2021[187]. Regulatory Environment - The company has been closely monitoring regulatory developments in China regarding necessary approvals from the CSRC for overseas listings, with no inquiries or objections received as of the report date[151]. - The company operates in a regulatory environment with increased budget allocations for environmental regulation and monitoring, indicating a growing market for environmental protection products[182]. - The company has not been involved in any investigations or cybersecurity reviews initiated by the CAC as of the report date[155]. Research and Development - The company incurred research and development costs of US$493,000 in Fiscal 2020 and plans to spend up to an additional US$120,000 in Fiscal 2022 on similar projects[163][171]. - Research and development expenses were US$61,000, US$497,000, and US$35,000 for Fiscal 2021, 2020, and 2019, respectively, focusing on BWTS[226]. Management and Governance - T.C. Leung served as Chairman and CEO until February 1, 2022, with a background in engineering and management[245]. - David YL Leung became CEO on February 1, 2022, and has been General Manager of Yixing since 2011, focusing on engineering, sales, and marketing[246]. - Jerry Wong has been CFO since inception, with extensive experience in finance and accounting, including roles at Price Waterhouse[247]. - The total compensation for key executives in Fiscal 2021 included US$197,000 for T.C. Leung, US$147,000 for David YL Leung, and US$111,000 for Jerry Wong[254]. - The Audit Committee had 3 meetings during Fiscal 2021, ensuring oversight of financial accounting and reporting processes[271]. - The company has no material legal proceedings involving any directors or officers[252]. Financial Position - Cash and cash equivalents increased to US$5,269,000 at the end of Fiscal 2021 from US$3,519,000 at the end of Fiscal 2020[213]. - Working capital at the end of Fiscal 2021 was US$5,099,000, compared to US$4,915,000 in Fiscal 2020[212]. - Accounts receivable, net decreased from US$3,586,000 at the end of Fiscal 2019 to US$3,199,000 at the end of Fiscal 2020, then increased to US$3,631,000 at the end of Fiscal 2021[216]. - Inventories decreased from US$586,000 at the end of Fiscal 2019 to US$342,000 at the end of Fiscal 2020, then increased to US$547,000 at the end of Fiscal 2021[216]. - The company expects to fund future cash requirements through operations and available bank credit facilities, but no assurances can be made regarding sufficiency[219]. Taxation - The Company reported a profit before income taxes of US$1,276,000 for 2021, compared to US$498,000 in 2020 and a loss of US$173,000 in 2019[308]. - The computed tax using statutory tax rates for 2021 was US$158,000, with a change in valuation allowances amounting to US$349,000[308]. - The effective tax rate resulted in an income tax credit of US$90,000 for 2021, contrasting with an expense of US$96,000 in 2020[308]. - The PRC Enterprise Income Tax rate applicable to the Company’s subsidiaries is 25% for 2021, with certain subsidiaries carrying forward assessable losses[304][306]. Shareholder Information - The Company declared a special cash dividend of US$1,299,000.78 on March 6, 2020, and US$1,030,951.80 on June 17, 2021[282]. - The Company does not currently intend to declare any cash dividends in the foreseeable future, opting to retain earnings for business operations[282]. - The beneficial ownership of ordinary shares as of March 31, 2022, shows T.C. Leung owning 51.7% of the shares, while all executive officers and directors collectively own 56.3%[280]. - The Company has 21 shareholders of record and 361 beneficial owners of its ordinary shares held in nominee names as of May 12, 2022[285]. Risks and Challenges - The company is exposed to foreign currency risks, with sales primarily in HK dollars and RMB, while expenses are also in multiple currencies including U.S. dollars and Japanese yen[325]. - The company does not currently hedge its foreign exchange positions, which could adversely affect its financial condition if foreign currencies appreciate against the U.S. dollar[325]. - Inflation has not materially affected revenues or operations in recent years, but sustained inflation in the PRC could negatively impact the company's business[326]. - The company had no material bank indebtedness in Fiscal 2021, indicating no exposure to interest rate changes[327].