Boyuan Construction Reports Third Quarter Financial Results

Company gradually resumed construction activities near end of quarter

TORONTO, May 13, 2020 /CNW/ - Boyuan Construction Group, Inc. ("Boyuan" or the "Company") (TSX: BOY), a well-established China-based construction and engineering company, today reported its third quarter financial results for the three-month period ended March 31, 2020. All figures are in U.S. dollars unless otherwise stated.

Third Quarter 2020 Highlights

• Revenue decreased 33.0% to $81.23 million;
• Gross profit decreased 83.6% to $1.54 million on higher labour costs;
• Net loss was $8.72 million, or ($0.27) per diluted share, compared to net income of $1.37 million, or $0.05 per diluted share, for the same quarter last year.

"For most of February and March, our construction activities were halted by way of a government lockdown order resulting from the outbreak and spread of COVID-19," said Mr. Cai Liang Shou, Chairman and CEO of Boyuan Construction Group. "While this had a dramatically negative affect on our revenue and profitability for the third quarter, we were able to weather this impact due to our strong balance sheet heading into the pandemic. Fortunately, the virus now seems to be largely under control in many parts of China, and we were able to gradually resume construction activities in the final days of March."

"It remains difficult to assess what overall impact COVID-19 will have on our business over the next few quarters, as we are unable to predict how the virus might resurface until a vaccine is developed. In the meantime, our worksites are taking every reasonable precaution, including screening workers daily for symptoms and temperature checks; workflow reorganization to avoid crowding as much as possible; and requiring any employees working in close proximity of one another to wear masks."

Selected Third Quarter Financial Results

In thousands except share and % data	Q3 2020	Q3 2019	Change
Revenue	$81,238	$121,282	(33.0%)
Gross profit	$1,542	$9,375	(83.6%)
Gross profit margin	1.9%	7.7%	(75.3%)
EBITDA^1	($9,858)	$3,648	̶
(Loss) Net income	($8,725)	$1,370	̶
Earnings per share – diluted	($0.27)	$0.05	̶

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¹ EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is not a defined performance measure under IFRS

In thousands except % data	Mar. 31, 2020	June 30, 2019	Change
Total Assets	$328,467	$310,168	5.9%
Cash, cash equivalents & restricted cash	$9,975	$25,686	(61.2%)

Review of Third Quarter 2020 Financial Results

Revenue for the third quarter decreased 33.0% to $81.2 million from $121.3 million in the same quarter from last year. The substantial decrease in revenue for the quarter was the result of construction activities being halted for most of the months of February and March due to the government lockdown order in response to the spread of COVID-19.  The Company gradually began to resume construction activities in late March.

Construction costs for the quarter fell 28.8% to $79.7 million, compared to $111.9 million in the third quarter of last year. The two major components of the cost of construction are direct material and labour costs. Direct material costs were $53.2 million and labour costs were $21.2 million, compared to $77.5 million and $28.8 million respectively in the same quarter last year. The Company has been experiencing tighter gross margins in recent years due to relatively depressed real estate markets.

Gross profit for the quarter was $1.5 million, 1.9% of revenue, compared to $9.4 million, or 7.7% of revenue in the third quarter of last year. The particularly low gross margin for this quarter was caused by the additional costs incurred in resuming the construction activities after the government mandatory lockdown.

Other income for the quarter increased to $1.3 million compared to $1.1 million in the same period last year. The major component of other income is the accretion income from the discount on non-current accounts receivable and contract assets.

G&A expenses were $1.3 million in this quarter compared to $1 million in the same quarter last year. G&A expenses last year were unusually low as a result of the recovery of deposits relating to construction projects that were written off in the past.

Net impairment loss for this quarter was $6.4 million versus $5.4 million in the same quarter last year. These losses are primarily attributable to four projects that have overdue payments owing to the Company. Their properties sales have slowed down significantly since January of this year due to the outbreak of COVID-19, thus adversely affecting their cash flows and business viability.

Interest expense for the quarter was $1.4 million, compared to $1.1 million for the same quarter a year ago. The increase was a result of the increase in borrowings and bank notes payable.

Net loss for the quarter was $8.7 million, or $0.27 per diluted share, compared to net income of $1.4 million, or $0.05 per diluted share, for the same period last year.

At the end of the quarter, the Company had working capital of $76.8 million, including, cash and cash equivalents totaling $7.7 million. This compares to the $55.5 million and $19 million at June 30, 2019.   

Boyuan's consolidated statements for the three-month period and nine-month period ended March 31, 2020 and related management's discussion and analysis (MD&A) will be filed with securities regulatory authorities within applicable timelines and will be available via SEDAR at www.sedar.com.

About Boyuan Construction Group, Inc.

Backed by a longstanding track record, Boyuan Construction Group, Inc. ("Boyuan" or the "Company") has the knowledge and expertise to design and build a wide range of commercial and residential developments, as well as municipal infrastructure and engineering projects. Based in Jiaxing City and with a growing presence in both Zhejiang Province and Hainan Province, Boyuan focuses on construction projects in China's fast-growing regions of the Yangtze River Delta and the Hainan Province. The Company's current project backlog includes residential, commercial, industrial and mixed-use developments. For more information visit www.boyuangroup.cn.

Caution Regarding Forward-Looking Information:

Certain information contained in this press release constitutes forward-looking information, which is information relating to future events or the Company's future performance and which is inherently uncertain. All information other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words or phrases (including negative variations) suggesting future outcomes or statements regarding an outlook. Forward-looking information contained in this press release includes, but is not limited to, management's expectation to comply with the Alternative Information Guidelines. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. The Company believes the expectations reflected in the forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and readers are cautioned not to place undue reliance on forward-looking information contained in this press release. Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking information contained in this press release include, but are not limited to: risk of a general cease trade order bing issued, risk of risk of macro-economy cycle, risk from competition, risk from insufficient marketing to secure new projects, risk in obtaining additional financing, risk involving permits and licences, reliance on key management member, risk from supply of raw materials, risk of financial leverage, risk of bad debts in accounts receivables, risk involved in real estate development, foreign exchange fluctuations, political and economic conditions in China and other risks included in the Company's AIF for the fiscal year ended June 30, 2019 and in the Company's public disclosure documents filed with certain Canadian securities regulatory authorities and available at www.sedar.com. The forward-looking information contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law.

SOURCE Boyuan Construction Group, Inc.

Boyuan Construction Group, Inc., Mr. Paul Law, CFO, +(852) 9329 5088, [email protected]; NATIONAL Capital Markets, Trevor Heisler, Investor Relations, [phone], [email protected]