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CF Energy Corp. — Management Reports 2025
Apr 28, 2025
46218_rns_2025-04-28_ab085e18-4698-40c7-ab05-3170421a3fdf.pdf
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CF ENERGY CORP.
Management's Discussion and Analysis
for the years ended
December 31, 2024 and 2023
Dated April 28, 2025
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Advisory
This Management's Discussion and Analysis ("MD&A") provides an analysis to enable readers to understand the financial position and operations of CF Energy Corp. (hereafter referred to as "CF Energy", "we" or the "Company") and its subsidiaries (collectively referred to as the "Group" or "our Group") as at and for the three-month period and year ended December 31, 2024. This information should be read in conjunction with the Company's audited consolidated financial statements and related notes for the years ended December 31, 2024 and 2023. "CF Energy" includes CF Energy Corp. and its subsidiaries, unless otherwise indicated. Additional information related to CF Energy is available on SEDAR+ at www.sedarplus.com or on its website at http://www.cfenergy.com.
The preparation of the audited consolidated financial statements in conformity with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IASB") (collectively, "IFRS Accounting Standards") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosed contingent assets and liabilities at the date of the financial statements, and reported amounts of sales and expenses during the reporting period. CF Energy bases its estimates on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
This MD&A contains certain non-IFRS Accounting Standards ("non-GAAP") financial measures to assist users in assessing the Company's performance. Non-GAAP financial measures do not have any standard meaning prescribed by IFRS Accounting Standards and may not be comparable to similar measures presented by other issuers. These measures are identified and described under the section "Non-GAAP Financial Measures".
Amounts are stated in Renminbi (RMB), the official currency of the People's Republic of China (the "PRC" or "China") and the functional currency of the principal operating subsidiaries of the Company in the PRC, and Canadian dollars (CAD) unless otherwise indicated.
Caution Regarding Forward-Looking Information
Certain statements in this MD&A may constitute "forward looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or the industry in which they operate, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this MD&A, the words "estimate", "believe", "anticipate", "intend", "expect", "plan", "may", "should", "will", the negative thereof or other variations thereon or comparable terminology are intended to identify forward-looking statements. Such forward looking statements reflect the current expectations of the management of the Company with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those expressed or implied by those forward looking statements, such as significant changes in market conditions, the inability of the Company to realize sales and the inability of the Company to attract sufficient financing and the risk factors summarized below under the heading "Risks and Uncertainties". New risk factors may arise from time to time and it is not possible for management of the Company to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance or achievements of the Company to be materially different from those expressed or implied in such forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Although the forward-looking statements contained in this MD&A are based upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements contained in this MD&A speak only as of the date hereof. The Company does not undertake or assume any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Overview
CF Energy is a Canadian public company currently listed on the TSX Venture Exchange ("TSX-V") under the stock symbol "CFY". CF Energy is primarily involved in natural gas distribution and sustainable energy utilization, serving residential, commercial and industrial users as well as electric vehicle battery swap services in the PRC.
For reporting purposes under IFRS8 Operating Segments, our operating business model is grouped and presented under three main reportable segments:
(i) Gas distribution utility segment, which comprises natural gas transmission and sales, including:
(a) Pipeline Natural Gas ("PNG") sales and Liquified Natural Gas ("LNG") supply distribution sales and related service pipeline installation and connection sub-segments; and
(b) Natural gas direct transmission;
(ii) Integrated smart energy segment, which comprises the integrated smart energy system and integrated district energy distribution; and
(iii) Smart mobility segment, which comprises the operation of electric vehicle ("EV") battery swap stations and trading of EV to designated customers.
Gas Distribution Utility Segment
Pipeline PNG Sales and LNG Supply Distribution Sales
Major pipeline PNG sales projects are based in Sanya City, Hainan Province, and Pingxiang City, Jiangxi Province. The Company has been granted a 30-year exclusive concession right (2007 to 2037) in Sanya City to operate the PNG sales as well as the construction and maintenance of the required facilities and pipelines which makes the Company the dominant participant in the Sanya PNG gas distribution market. The Company also distributes PNG to users in the ceramic industry base of Xiangdong District, Pingxiang City, Jiangxi Province under a 30-year distribution right (2010 to 2040) granted to its 40% owned associate.
Natural Gas Direct Transmission
This is the transportation of natural gas via the Company's 2.0 kilometers (1.4 miles) pipeline connecting the provincial natural gas trunk lines to the Gaoyao Combined Heat, Power and Cold Natural Gas Power Plant owned by Guangdong Datang International Zhaoqing Heat & Power Co., Ltd. in Zhaoqing City, Guangdong Province.
CNG Vehicle Refueling (suspended operations in 2023)
The Company used to operate two refueling stations in Sanya City, Hainan Province, and Changsha City, Hunan Province respectively which provided both CNG and LNG refueling services for vehicles such as household cars, taxicabs, buses and trucks. The operations of the Sanya City refueling station were forced to suspend as the location of the station being too close to the intended location for the construction of certain government property resulting in it no longer meeting the safety regulation requirements, while the operations of the Changsha City station were terminated as it no longer aligned with the future business strategies of the Group with major focus on clean energy solutions with high growth potentials. As a result of the suspension, the operations of the CNG Vehicle Refueling segment were accounted for as discontinued operations in the consolidated financial statements.
Integrated Smart Energy Segment
Currently, there are two projects under this segment, namely the integrated smart energy project (the "Haitang Bay Integrated Smart Energy Project") and the integrated district energy distribution project (the "Meishan Project").
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 4
The Haitang Bay Integrated Smart Energy Project
The Haitang Bay Integrated Smart Energy Project, which combines the use of multiple clean energy sources, including solar, hydro, electricity and natural gas (CCHP/Co-Gen), is to supply cooling, heating, as well as hot water to the hotels, shopping centers and households in the Haitang Bay area of Sanya City, Hainan Province, the PRC. This project is conducted through the Group's 70% held (30% held by the EDF Group) subsidiary company, EDF Changfeng (Sanya) Energy Co., Ltd. ("EDF CF") with an authorized capital of RMB119.1 million fully paid up in 2021. Under a 30-year concession right agreement (2017 to 2047), EDF CF has the right to build, own and operate the project in Haitang Bay, Hainan Province.
The Project has been recognized as a low-carbon energy utilization project in the tropical resort city of Sanya, Hainan Province, to provide air-conditioning with reduced emissions for public facilities in the Haitang Bay area. The Project will have four (4) central energy stations with 30km of district cooling and heating distribution networks when fully developed. Once fully implemented, the system will distribute cooling, heating and hot water to serve 3.5 million square meters of cooling space for commercial customers, including large-scale hotels, shopping malls, entertainment parks and buildings, hospitals and other commercial complexes. The Project uses an optimized multi-energy integration program to distribute cooling, heating and hot water to customers. The system will apply many advanced technologies, i.e. multi-level compressed high-efficient refrigeration units, "ice battery" technology, hydro heat pump technology, distributed photovoltaic technology and AI data management to provide a more efficient energy supply. The Project integrates advanced energy-saving technologies, such as ice storage and water-source heating pumping. It is expected to save about 30,000 tons of standard coal and reduce about 100,000 tons of carbon dioxide, sulfur dioxide and nitrogen oxide emissions every year once fully implemented.
Construction of the first energy station and the 31.318km of a doubled-lined pipeline for the integrated smart energy network has been completed and commenced commercial operation in September 2021. The first group of commercial customers includes the Sanya Edition Hotel, Fairmont Sanya Haitang Bay, Westin Sanya Haitang Bay Resort and China Taiping Qube Hotel. The Company has signed up sixteen (16) commercial customers in Haitang Bay as of the date of this MD&A. The first phase of the first energy station can provide services to 400,000 square meters of cooling space. Currently, first phase has not reached its maximum capacity hence the construction of other phases has not commenced.
The Meishan Project
The Meishan Project is a joint investment, construction and operation of an integrated district energy distribution project in the New Economic Development Zone of Meishan City, Sichuan Province (the "Meishan New Economic Development Zone") to be operated by Meishan Hengtai Tianzhiyuan Energy Limited ("Meishan Hengtai"), a company which the Group holds an effective interest of 72%. The Meishan New Economic Development Zone, situated next to the central urban area of Meishan City, Sichuan Province, with a planned development area of 50.5 square kilometers, is to be the hub for manufacturers of drugs, supplements, medical equipment and other medical-related supplies. The year-round constant demand for steam is necessary to produce drugs which makes the Meishan New Economic Development Zone an ideal platform for integrated district energy distribution.
The Meishan project commenced operation in mid-May 2021 and has signed up sixteen (16) customers with thirteen (13) customers under service as of the date of this MD&A. Pipelines for the remaining three (3) customers are either under construction or construction completed and pending installing of customers own equipment.
The project is expected to benefit from cost efficiency while significantly improve the district's energy consumption efficiency and reduce local air pollution in line with state policy as more customers connect to the program.
Smart Mobility Segment
EV Battery Swap Stations
The EV battery swap station business is a segment of the Group to build and operate battery swap service for electric vehicles. Two (2) EV battery swap stations in Sanya City commenced operation in August 2020 and January 2021 respectively to serve BAIC Qingxiang Technology Co., Ltd.'s ("BAIC QX") 200 swap-battery EVs for its network taxi hiring business (the "Network Taxis") currently operating in Sanya City and additional 200
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
EV Network Taxis planned for Hainan Province in the near term with Blue Valley Smart (Beijing) Energy Technology Co., Ltd. ("Blue Valley"). In September 2020, the Company and EDF (China) Holding Ltd. ("EDF (China)") jointly established Hainan EDF Huapu Smart Mobility Company Limited ("EDF Huapu SM"), a 70% owned company of the Group which signed an 8-year exclusive co-operating agreement with BAIC QX and Blue Valley to provide EV battery swap services in Haikou City, the provincial capital of Hainan Province.
On September 14, 2023, Hainan Huapu Green Energy Investment Co., Ltd. ("Huapu Green Energy"), a wholly-owned subsidiary of the Group acquired the remaining 30% equity interest in EDF Huapu SM with a consideration of RMB13.2 million, determined based on negotiation and with reference to an independent valuation performed by an independent valuer. As a result, the Group's effective interest in EDF Huapu SM increased from 70% to 100%. Upon completion of acquisition, the name of EDF Huapu SM was changed to Hainan Huapu Smart Mobility Co., Ltd.
Following the acquisition of a 70% equity stake in the local Beihai City EV battery swap station operator, Beihai Brighton Road New Energy Ltd. (the "Beihai Company") in Beihai City, Gangxi Province in October 2022, the Beihai Company currently operates two (2) EV battery swap stations and has 373 registered active taxis as its EV battery swap users by the end of the second quarter of 2024. There is a total of 600 taxis in Beihai City and our clientele accounts for approximately 62% of the market. All of the taxis in Beihai City are battery swap cars, only Beijing Electric Vehicle Co., Ltd. and Dongfeng Electric Vehicle Co., Ltd. are within the government's supplier list for taxis.
Results for the three-month period and year ended December 31, 2024
Continuing operations
For the three-month period ended December 31, 2024, the Group reported a net profit from continuing operations of RMB11.1 million, an increase of RMB36.4 million from a net loss of RMB25.3 million for the three-month period ended December 31, 2023. On a comparable basis, no adjustment on fair value change on the derivative financial instrument of the loan discharge agreement (2023: a fair value loss of RMB24.5 million) (see "Related Party Transactions" section on pages 21 and 22 of this MD&A), the non-GAAP adjusted net profit from continuing operations for the three-month period ended December 31, 2024 remained the same at RMB11.1 million, an increase of RMB11.9 million, from a non-GAAP adjusted net loss of RMB0.8 million as reported for the same period in 2023.
For the year ended December 31, 2024, the Group reported a net profit from continuing operations of RMB16.9 million, an increase of RMB13.9 million from RMB3.0 million for the year ended December 31, 2023. On a comparable basis, no adjustment on fair value change on the derivative financial instrument of the loan discharge agreement (2023: a fair value loss of RMB18.5 million), and no adjustment on a non-recurring government financial assistance (2023: RMB0.8 million from the local government of Haikou City to subsidize infrastructure of EV station in the city), the non-GAAP adjusted net profit from continuing operations for the year ended December 31, 2024 remained the same at RMB16.9 million, a decrease of RMB3.8 million, from a non-GAAP adjusted net profit of RMB20.7 million as reported for the same period in 2023.
Discontinued operations
Loss from discontinued operations for the three-month period ended December 31, 2024 was RMB0.5 million, a decrease of RMB9.7 million from a loss of RMB10.2 million for the three-month period ended December 31, 2023. Loss from discontinued operations for the year ended December 31, 2024 was RMB0.8 million, a decrease of RMB8.2 million from a loss of RMB9.0 million for the year ended December 31, 2023.
Major Highlight for the year ended December 31, 2024 and up to the date of this MD&A
Gas Selling Price Adjustment
The Group's natural gas business is a price-regulated industry in China, where its business and operations are susceptible to risks associated with government pricing policy and regulation changes. The Group needs to enter into discussions and negotiations with local governments on pricing from time to time. Over the past years, the Group had been able to increase the selling price several times. In July 2020, as the government natural gas price regulating body in Sanya City, the Sanya City Development and Reform Commission ("SYDRC")
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 6
finalized the City's natural gas utility pricing formula adjustment (the "Pricing Formula"), which is based on and adjusted with reference to the pricing formula adjustment of the gas purchase price (the "Gas Purchasing Price") plus gas distribution cost became the guideline for the Group to follow on its gas selling prices starting from August 1, 2020 for both residential and commercial customers.
On April 11, 2023, SYDRC informed the Company by way of a notification letter that the Gas Selling Price for commercial and third level price for residential customers have been recalculated according to the previously adopted Pricing formula (the "2023 Gas Selling Price"). With effect from the April 2023 meter reading cycle, the 2023 Gas Selling Price per m³ to commercial customers increased from RMB4.12 in 2022 to RMB4.31 in 2023 and the third level price to residential customers increased from RMB4.10 in 2022 to RMB4.30 in 2023, while the first and second level prices of residential customers and social welfare customers remain unchanged at RMB2.94, RMB3.53 and RMB3.23 respectively.
As Gas Selling Price adjustments generally take effect from April 1 each year, the weighted average Gas Selling Price each year may not fully reflect the price adjustments pronounced by the SYDRC for that year.
On April 2, 2024, SYDRC informed the Company by way of a notification letter that the 2023 Gas Selling Price for commercial and the third level price for residential customers have been recalculated according to the previously adopted Pricing formula (the "2024 Gas Selling Price"). With effect from the April 2024 meter reading cycle, the 2024 Gas Selling Price per m³ to commercial customers increased from RMB4.31 in 2023 to RMB4.43 and the third level price to residential customers increased from RMB4.30 in 2023 to RMB4.41, while the gas selling price for the remaining categories of customers remains unchanged.
The Pricing Formula is part of the pricing control strategy of the SYDRC for the whole of China. Going forward, as the pricing control policy is being further implemented by the SYDRC, the Group expects the New Gas Selling Price would significantly and adversely impact the profitability of its natural gas distribution business segment.
CF Energy entered into a letter of intent to jointly invest in regional battery energy storage and peak shaving stations
In April 2024, CF Energy engaged in a letter of intent with the Zi Gong, Gongjin District government in Sichuan Province to jointly plan the investment in regional energy storage and peak sharing stations (virtual power plants) and industrial and commercial energy storage projects, as well as the construction of regional energy storage stations and industrial and commercial energy storage facilities. Based on actual conditions such as urban planning, land use, power grid structure, and market demand, a layout plan for regional energy storage stations and industrial and commercial energy storage facilities will be formulated.
CF Energy signed co-operative Agreement with State Power Investment Corporation to Build Natural Gas Pipeline
CF Energy signed a co-operative agreement with the State Power Investment Corporation Limited (the "SPIC") to construct a 7.0km natural gas pipeline to supply natural gas to its Xinhui Daze Gas Thermal Power Project in Daze, Xinhui, Jiangmen, Guangdong, the PRC ("the Daze Project"). The Daze Project is listed as one of the key natural gas cogeneration projects in China's "14th Five Year Plan" for energy development in the Jiangmen City and the "Action Plan for Building a New Power System to Promote High Quality Development of Electric Power in Guangdong Province". The Daze Project plans to construct 2 × 50MW (F-class) gas steam combined cycle cogeneration units, with an expected annual power generation of 584 million kilowatt hours, an annual heating capacity of 108.4 × 104GJ, and an annual consumption of about 150 million Nm³ of natural gas. The natural gas for the project is planned to be connected from the Gonghe Valve Station, approximately 7.0km northeast of the plant site. CF Energy will invest in the construction of direct supply pipeline supporting facilities and the natural gas pipeline from the Gonghe Valve Station to the Xinhui Daze Thermal Power Plant.
Currently, the Company's Daze Project is in the process of receiving necessary regulatory approval from local authorities regarding distribution station and routing planning site with many other key regulator approvals have already been obtained.
CF Energy hosting of the Sanya Haitang Bay Near Zero Carbon Demonstration Forum
On May 26, 2024, the Sanya Haitang Bay Near Zero Carbon Demonstration Forum hosted by CF Energy was held. The forum hosted more than 200 guests, including Xue Yongsen, member of the Standing Committee of the Municipal Party Committee and Deputy Mayor of Sanya, as well as some industry elites, senior executives
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 7
of enterprises, experts and scholars, who participated. The event aims to explore the development path of green economy and feasible solutions for low-carbon transformation, contributing to sustainable development.
Relevant companies also jointly signed the "Sanya Haitang Bay Near Zero Carbon Demonstration Construction Consensus Action Proposal", promising to actively promote the construction and development of near zero carbon Haitang Bay, and contribute to addressing global climate change and promoting regional green development. At the round table meeting on promoting a sustainable Sanya Haitang Bay, the attending guests exchanged and discussed the path and methods of near zero carbon construction in Haitang Bay. Experts in attendance believe that the Sanya Haitang Bay Low Carbon Smart Energy Demonstration Project undertaken by CF Energy Corp. is an important lever for achieving near zero carbon construction in Haitang Bay.
Annual general and special meeting
At the annual general and special meeting of the shareholders of the Company held on November 18, 2024, the following resolutions were approved by the shareholders of the Company:
- Re-election of the five incumbent directors together with the proposed re-appointment of Mr. Wencheng Zhang, a former director of the Company, until the conclusion of the next annual general meeting of the Company;
- Re-appointment of Deloitte Touche Tohmatsu Limited as auditors of the Company for the year ending December 31, 2024; and
- The re-approval of the The Long-term Incentive Plan (the "LTIP").
Meishan project receives natural gas quota
In the fourth quarter of 2024, CF Energy received formal letter of approval from the PetroChina Company Limited's Southwest Oil & Gasfield Subsidiary to receive a gas consumption quota of 20 million cubic meters per year for its Meishan project in the Meishan City, Sichuan Province, the PRC. The approval includes permission to connect the Company's Meishan project natural gas pipeline with the pipeline of PetroChina.
Going forward, the pipeline connection will signify a significant reduction in cost to the Group for generating steam to serve the hub for manufacturers of drugs, supplements, medical equipment and other medical-related supplies in the Meishan New Economic Development Zone.
Company Outlook
The natural gas industry faces a variety of challenges ranging from regulatory impacts to market dynamics, and in the competitive and shifting landscape, we must evolve to embrace the changes and plan ahead.
Distributed Smart Energy Ecosystem – What We Achieved:
CF Energy has developed from a traditional natural gas company into a comprehensive energy solutions provider that aims to incorporate its smart energy system and battery swapping network via energy storage technology to create a highly integrated and efficient framework for sustainable energy management.
CF Energy's Haitang Bay integrated smart energy project and Meishan project are examples of standalone distributed energy system with advanced grid technologies that enable real-time monitoring and responsive energy distribution based on demand and supply conditions. Through ice storage technology, the Haitang Bay integrated smart energy system was founded.
We have entered the field of electrochemical energy storage for cost reduction and energy conservation through the mode of battery swapping in new energy vehicles. The CF Energy battery swap station network in Sanya already successfully provides an energy storage and distribution network for the EV taxis in Sanya city.
Distributed Smart Energy Ecosystem – What We Are Currently Doing:
The Company is working with partners in the IoT (internet of things), and cloud services field to create an efficient EMS (energy management system) that connects the standalone distributed smart energy systems with various energy storage technologies (including battery storage). - IoT Devices and Sensors are deployed across all components of the energy system—solar panels, energy storage units, battery swapping stations, and consumer endpoints. They collect real-time data on energy production, storage levels, battery health, and
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 8
consumption patterns. Using historical data and machine learning models, the EMS can predict demand spikes, potential system disruptions, and optimal energy production schedules. This helps in preemptive management, reducing wastage, and increasing system reliability.
Distributed Smart Energy Ecosystem – Vision Moving Forward:
The Company envisions the smart energy centralized cooling for hotels, battery swap stations, and operates as a virtual power plant with active end user participation. The combined energy capacity from the cooling system, battery swap stations, and possibly additional storage units, can act as a virtual power plant, providing grid services such as peak shaving, load balancing, and frequency regulation.
The Company is working to integrate a demand response system where hotels and other end users can opt-in to adjust their energy usage during peak periods in response to incentives. For example, shifting non-essential power usage to off-peak hours. EV owners can charge their vehicles during off-peak hours to benefit from lower rates and reduce grid strain during high-demand periods. Alternatively, V2G (Vehicle to Grid) concept allows EVs to return energy to the grid during peak times, effectively using the vehicle's battery as a grid resource. Furthermore, utilizing a platform for energy trading that allows surplus energy (from renewable sources and stored energy) to be sold back to the grid or shared among participants will add additional revenue stream and encouraging sustainable practices. The integration must connect all components through a smart grid that enables two-way communication between the energy providers and consumers.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Selected quarterly/yearly Financial Information
The following table provides selected financial information for the three-month and years ended December 31, 2024 and 2023 is presented in Chinese RMB. Presentation in Canadian dollars is for information purposes only (Note 2).
| In thousands of Chinese RMB
except percentages and per share amounts | Three-month periods ended December 31, | | | |
| --- | --- | --- | --- | --- |
| | 2024 | 2023 | Change | % |
| Continuing Operations | | | | |
| Revenue | 143,588 | 108,750 | 34,838 | 32% |
| Gross profit | 53,043 | 27,120 | 25,923 | 96% |
| % of revenue | 36.9% | 24.9% | 12.0% | |
| Other income | 1,201 | 373 | 828 | 222% |
| Other gain and losses, net | 1,670 | 427 | 1,243 | 291% |
| Impairment losses recognized under expected credit loss model, net | (5,018) | (1,397) | (3,621) | 259% |
| Fair value change on derivative financial instrument | - | (24,518) | 24,518 | -100% |
| Selling and marketing expenses | (10,733) | (11,913) | 1,180 | -10% |
| % of revenue | 7.5% | 11.0% | -3.5% | |
| General and administrative expenses | (13,951) | (11,116) | (2,835) | 26% |
| % of revenue | 9.7% | 10.2% | -0.5% | |
| Share of results of associates | 3,714 | 1,237 | 2,477 | 200% |
| Finance costs | (5,870) | (4,591) | (1,279) | 28% |
| Profit (loss) before tax | 24,056 | (24,378) | 48,434 | -199% |
| % of revenue | 16.8% | -22.4% | 39.2% | |
| Income tax expense | (12,950) | (936) | (12,014) | >999% |
| % of revenue | 9.0% | 0.9% | 8.1% | |
| Profit (loss) for the period/year from continuing operations | 11,106 | (25,314) | 36,420 | -144% |
| % of revenue | 7.7% | -23.3% | 31.0% | |
| Discontinued operations | | | | |
| Loss for the period/year from discontinued operations | (505) | (10,219) | 9,714 | -95% |
| Profit (loss) for the period/year | 10,601 | (35,533) | 46,134 | -130% |
| Other comprehensive expense | | | | |
| Items that will not be reclassified to profit or loss | | | | |
| Fair value loss on investments in equity instruments | | | | |
| at fair value through other comprehensive income | (55) | (8,154) | 8,099 | -99% |
| Other comprehensive expense for the period/year, net of income tax | (55) | (8,154) | 8,099 | |
| Total comprehensive income (expense) for the period/year | 10,546 | (43,687) | 54,233 | -124% |
| Profit (loss) for the period/year attributed to owner of the Company | | | | |
| - from continuing operations | 12,615 | (23,941) | 36,556 | -153% |
| - from discontinued operations | (256) | (9,368) | 9,112 | -97% |
| | 12,359 | (33,309) | 45,668 | -137% |
| Loss for the period/year attributed to non-controlling interests | | | | |
| - from continuing operations | (1,509) | (1,373) | (136) | 10% |
| - from discontinued operations | (249) | (851) | 602 | -71% |
| | (1,758) | (2,224) | 466 | -21% |
| | 10,601 | (35,533) | 46,134 | -130% |
| Total comprehensive income (expense) attributable to | | | | |
| - Owners of the Company | 12,304 | (41,463) | 53,767 | -130% |
| - Non-controlling interests | (1,758) | (2,224) | 466 | -21% |
| | 10,546 | (43,687) | 54,233 | -124% |
| EBITDA from continuing operations (note 1) | 40,288 | (5,913) | 46,201 | 781% |
| % of revenue | 28.1% | -5.4% | 33.5% | |
| Earnings (loss) per share | | | | |
| From continuing and discontinued operations | RMB | RMB | | |
| -Basic | 0.20 | (0.51) | | |
| -Diluted | 0.20 | (0.51) | | |
| From continuing operations | | | | |
| -Basic | 0.20 | (0.36) | | |
| -Diluted | 0.20 | (0.36) | | |
| From discontinued operations | | | | |
| -Basic | (0.00) | (0.15) | | |
| -Diluted | (0.00) | (0.15) | | |
| The years ended December 31, | | | | |
| --- | --- | --- | --- | --- |
| 2024 | 2023 | Change | % | |
| 519,975 | 433,990 | 85,985 | 20% | |
| 134,621 | 119,308 | 15,313 | 13% | |
| 25.9% | 27.5% | -1.5% | | |
| 4,793 | 2,709 | 2,084 | 77% | |
| 1,190 | (362) | 1,552 | -429% | |
| (6,764) | (821) | (5,943) | 724% | |
| - | (18,505) | 18,505 | -100% | |
| (39,857) | (37,171) | (2,686) | 7% | |
| 7.7% | 8.6% | -0.9% | | |
| (46,226) | (41,364) | (4,862) | 12% | |
| 8.9% | 9.5% | -0.6% | | |
| 13,922 | 9,523 | 4,399 | 46% | |
| (19,273) | (14,418) | (4,855) | 34% | |
| 42,406 | 18,899 | 23,507 | 124% | |
| 8.2% | 4.4% | 3.7% | | |
| (25,463) | (15,912) | (9,551) | 60% | |
| 4.9% | 3.7% | 1.2% | | |
| 16,943 | 2,987 | 13,956 | 467% | |
| 3.3% | 0.7% | 2.6% | | |
| - | | | | |
| (791) | (8,961) | 8,170 | -91% | |
| 16,152 | (5,974) | 22,126 | -370% | |
| | | | | |
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| | | | | |
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| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| (55) | (8,154) | 8,099 | -99% |
| --- | --- | --- | --- |
| (55) | (8,154) | 8,099 | |
| 16,097 | (14,128) | 30,225 | -214% |
| | | | |
| 24,746 | 9,447 | 15,299 | 162% |
| (277) | (8,748) | 8,471 | -97% |
| 24,469 | 699 | 23,770 | >999% |
| | | | |
| (7,803) | (6,460) | (1,343) | 21% |
| (514) | (213) | (301) | 141% |
| (8,317) | (6,673) | (1,644) | 25% |
| 16,152 | (5,974) | 22,126 | -370% |
| | | | |
| 24,414 | (7,455) | 31,869 | -427% |
| (8,317) | (6,673) | (1,644) | 25% |
| 16,097 | (14,128) | 30,225 | -214% |
| | | | |
| 103,918 | 72,190 | 31,728 | 44% |
| 20.0% | 16.6% | 3.5% | |
| | | | |
| RMB | RMB | | |
| 0.37 | 0.01 | | |
| 0.37 | 0.01 | | |
| | | | |
| 0.37 | 0.14 | | |
| 0.37 | 0.14 | | |
| | | | |
| (0.00) | (0.13) | | |
| (0.00) | (0.13) | | |
Note 1: EBITDA is identified and defined under the section "Non-GAAP Financial Measures".
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
| In thousands of Canadian dollars except percentages (For information purposes and unaudited) | Three-month periods ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | Change | % | |
| Continuing Operations | ||||
| Revenue | 27,325 | 20,739 | 6,586 | 32% |
| Gross profit | 10,094 | 5,172 | 4,922 | 95% |
| % of revenue | 36.9% | 24.9% | 12.0% | |
| Other income | 229 | 71 | 158 | 223% |
| Other gain and losses, net | 318 | 81 | 237 | 293% |
| Impairment losses recognized under expected credit loss model, net | (955) | (266) | (689) | 259% |
| Fair value change on derivative financial instrument | - | (4,676) | 4,676 | -100% |
| Selling and marketing expenses | (2,042) | (2,272) | 230 | -10% |
| % of revenue | 7.5% | 11.0% | -3.5% | |
| General and administrative expenses | (2,654) | (2,116) | (538) | 25% |
| % of revenue | 9.7% | 10.2% | -0.5% | |
| Share of results of associates | 707 | 236 | 471 | 200% |
| Finance costs | (1,117) | (876) | (241) | 28% |
| Profit before tax | 4,580 | (4,646) | 9,226 | -199% |
| % of revenue | 16.8% | -22.4% | 39.2% | |
| Income tax expense | (2,464) | (178) | (2,286) | >999% |
| % of revenue | 9.0% | 0.9% | 8.1% | |
| Profit (loss) for the period/year from continuing operations | 2,116 | (4,824) | 6,940 | -144% |
| % of revenue | 7.7% | -23.3% | 31.0% | |
| Discontinued operations | ||||
| Loss for the period/year from discontinued operations | (96) | (1,949) | 1,853 | -95% |
| Profit (loss) for the period/year | 2,020 | (6,773) | 8,793 | -130% |
| Other comprehensive expense | ||||
| Items that will not be reclassified to profit or loss | ||||
| Fair value loss on investments in equity instruments | ||||
| at fair value through other comprehensive income | (10) | (1,555) | 1,545 | -99% |
| Other comprehensive expense for the period/year, net of income tax | (10) | (1,555) | 1,545 | -99% |
| Total comprehensive income (expense) for the period/year | 2,010 | (8,328) | 10,338 | -124% |
| Profit (loss) for the period/year attributed to owner of the Company | ||||
| - from continuing operations | 2,403 | (4,564) | 6,967 | -153% |
| - from discontinued operations | (49) | (1,785) | 1,736 | -97% |
| 2,354 | (6,349) | 8,703 | -137% | |
| Loss for the period/year attributed to non-controlling interests | ||||
| - from continuing operations | (287) | (260) | (27) | 10% |
| - from discontinued operations | (47) | (164) | 117 | -71% |
| (334) | (424) | 90 | -21% | |
| 2,020 | (6,773) | 8,793 | -130% | |
| Total comprehensive income (expense) attributable to | ||||
| - Owners of the Company | 2,354 | (6,349) | 8,703 | -137% |
| - Non-controlling interests | (334) | (424) | 90 | -21% |
| 2,020 | (6,773) | 8,793 | -130% | |
| EBITDA from continuing operations (note 1) | 7,667 | (1,128) | 8,795 | -780% |
| % of revenue | 28.1% | -5.4% | 33.5% | |
| Earnings (loss) per share | ||||
| From continuing and discontinued operations | CAD | CAD | ||
| -Basic | 0.04 | (0.10) | ||
| -Diluted | 0.04 | (0.10) | ||
| From continuing operations | ||||
| -Basic | 0.04 | (0.07) | ||
| -Diluted | 0.04 | (0.07) | ||
| From discontinuing operations | ||||
| -Basic | (0.00) | (0.03) | ||
| -Diluted | (0.00) | (0.03) |
Note 2: Canadian dollars were converted from RMB at the respective average rates of RMB1.000 to CAD0.1903 and RMB1.000 to CAD 0.1907 for the years ended December 31, 2024 and 2023 respectively. In converting RMB to CAD, % in CAD may not be fully aligned with that of RMB.
| The years ended December 31, | ||||
|---|---|---|---|---|
| 2024 | 2023 | Change | % | |
| 98,951 | 82,762 | 16,189 | 20% | |
| 25,618 | 22,752 | 2,866 | 13% | |
| 25.9% | 27.5% | -1.6% | ||
| 912 | 517 | 395 | 76% | |
| 226 | (69) | 295 | -428% | |
| (1,287) | (157) | (1,130) | 720% | |
| - | (3,529) | 3,529 | -100% | |
| (7,585) | (7,089) | (496) | 7% | |
| 7.7% | 8.6% | -0.9% | ||
| (9,798) | (7,888) | (908) | 12% | |
| 8.9% | 9.5% | -0.6% | ||
| 2,649 | 1,816 | 833 | 46% | |
| (3,668) | (2,750) | (918) | 33% | |
| 8,069 | 3,603 | 4,466 | 124% | |
| 8.2% | 4.4% | 3.7% | ||
| (4,846) | (3,034) | (1,812) | 60% | |
| 4.9% | 3.7% | 1.2% | ||
| 3,223 | 569 | 2,654 | 466% | |
| 3.3% | 0.7% | 2.6% | ||
| (151) | (1,709) | 1,558 | -91% | |
| 3,072 | (1,140) | 4,212 | -369% | |
| (10) | (1,555) | 1,545 | -99% | |
| (10) | (1,555) | 1,545 | -99% | |
| 3,062 | (2,695) | 5,757 | -214% | |
| 4,708 | 1,801 | 2,907 | 161% | |
| (53) | (1,668) | 1,615 | -97% | |
| 4,655 | 133 | 4,522 | 3400% | |
| (1,485) | (1,232) | (253) | 21% | |
| (98) | (41) | (57) | 139% | |
| (1,583) | (1,273) | (310) | 24% | |
| 3,072 | (1,140) | 4,212 | -369% | |
| 4,655 | (1,422) | 6,077 | -427% | |
| (1,583) | (1,273) | (310) | 24% | |
| 3,072 | (1,140) | 4,212 | -369% | |
| 19,776 | 13,767 | 6,009 | 44% | |
| 20.0% | 16.6% | 3.5% | ||
| CAD | CAD | |||
| 0.07 | 0.00 | |||
| 0.07 | 0.00 | |||
| 0.07 | 0.03 | |||
| (0.00) | (0.03) | |||
| (0.00) | (0.03) |
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Result of Operations
Total Revenue and Sales Volume sold
Continuing Operations
Revenue (Summary table)
| Total Revenue (in RMB'000) | Three-month periods ended December 31, | The years ended December 31, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Gas Distribution Utility | ||||||||
| - Gas supply | 58,180 | 54,898 | 3,282 | 6% | 278,485 | 240,715 | 37,770 | 16% |
| - Pipeline installation and connection | 72,145 | 41,621 | 30,524 | 73% | 200,321 | 153,882 | 46,439 | 30% |
| Integrated Smart Energy | 10,146 | 8,616 | 1,530 | 18% | 28,321 | 24,446 | 3,875 | 16% |
| Smart Mobility | 3,117 | 3,615 | (498) | -14% | 12,848 | 14,947 | (2,099) | -14% |
| Total Revenue in RMB'000 | 143,588 | 108,750 | 34,838 | 32% | 519,975 | 433,990 | 85,985 | 20% |
| Total Revenue in CAD'000 | 27,325 | 20,739 | 6,586 | 32% | 98,951 | 82,762 | 16,189 | 20% |
Located in an international tourist destination in the PRC's only tropical province, Sanya City, our business is affected by the demand for natural gas generated by tourists in hotel stays and traveling activities such as catering in restaurants.
Total revenue from continuing operations for the three-month period ended December 31, 2024 (the "Fourth Quarter in 2024") was RMB143.6 million, an increase of RMB34.8 million, or 32%, from RMB108.8 million for the three-month period ended December 31, 2023 (the "Fourth Quarter in 2023"). Revenue from gas supply for the Fourth Quarter in 2024 was RMB58.2 million, an increase of RMB3.3 million, or 6% as compared to RMB54.9 million for the Fourth Quarter in 2023. Revenue from pipeline installation and connection for the Fourth Quarter in 2024 was RMB72.1 million, an increase of RMB30.5 million, or 73% as compared to RMB41.6 million for the Fourth Quarter in 2023. Revenue from the Integrated Smart Energy segment for the Fourth Quarter in 2024 was RMB10.1 million, an increase of RMB1.5 million, or 18% as compared to RMB8.6 million for the Fourth Quarter in 2023. Revenue from the smart mobility segment was RMB3.1 million for the Fourth Quarter in 2024, a decrease of RMB0.5 million, or 14% as compared to RMB3.6 million for the Fourth Quarter in 2023.
Increase in total revenue for the Fourth Quarter in 2024 was mainly attributed to the peak in pipeline installation and connection activities which were contributed by the progressive completion of the new urban gas pipeline facility renovation project and the acceleration of completion in the construction of pipeline installation and connection activities in the last quarter of the year, ahead of the peak season which starts during the Chinese new year holiday period.
Total revenue from continuing operations for the year ended December 31, 2024 was RMB520.0 million, an increase of RMB86.0 million, or 20%, from RMB434.0 million for the year ended December 31, 2023. Revenue from gas supply in 2024 was RMB278.5 million, an increase of RMB37.8 million, or 16% as compared to RMB240.7 million in 2023. Revenue from pipeline installation and connection in 2024 was RMB200.3 million, an increase of RMB46.4 million, or 30% as compared to RMB153.9 million in 2023. Revenue from the Integrated Smart Energy segment in 2024 was RMB28.3 million, an increase of RMB3.9 million, or 16% as compared to RMB24.4 million in 2023. Revenue from the Smart mobility segment was RMB12.8 million in 2024, a decrease of RMB2.1 million, or 14% as compared to RMB14.9 million in 2023.
Increase in total revenue in 2024 was mainly attributed to the increase in gas sales and pipeline installation and connection during the year. Increase in gas sales was contributed by the organic growth of customers and a bulk purchase of gas from gas suppliers of two power plants in 2024. Increase in pipeline revenue of installation and connection during 2024 was mainly contributed in the Fourth Quarter.
Sales volume sold
| Gas salesSales volume sold (m³) | Three-month periods ended December 31, | The years ended December 31, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Sanya City, Hainan Province | 16,134,456 | 15,681,329 | 453,127 | 3% | 82,371,448 | 70,535,403 | 11,836,045 | 17% |
| Total gas sales volume (m³) | 16,134,456 | 15,681,329 | 453,127 | 3% | 82,371,448 | 70,535,403 | 11,836,045 | 17% |
Total sales volume from continuing operations for the Fourth Quarter in 2024 was 16.1 million m³, an increase of 0.4 million m³, or 3% as compared to 15.7 million m³ for the Fourth Quarter in 2023. Total sales volume from
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
continuing operations in 2024 was 82.4 million m³, an increase of 11.9 million m³, or 17% as compared to 70.5 million m³ in 2023.
Gas Sales volume by nature of customers
Gas sales
| Sanya City, Hainan Province Gas volume sold (m³) | Three-month periods ended December 31, | The years ended December 31, | |||||
|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | |
| Residential customers | 6,121,176 | 5,881,137 | 240,039 | 4% | 22,889,287 | 19,984,771 | 2,904,516 |
| Commercial customers | 10,013,280 | 9,800,192 | 213,088 | 2% | 59,482,161 | 50,550,632 | 8,931,529 |
| Total | 16,134,456 | 15,681,329 | 453,127 | 3% | 82,371,448 | 70,535,403 | 11,836,045 |
Gas sales volume of residential customers in Sanya City for the Fourth Quarter in 2024 was 6.1 million m³, an increase of 0.2 million m³, or 4% as compared to 5.9 million m³ for the Fourth Quarter in 2023. Gas sales volume for commercial customers in Sanya City for the Fourth Quarter in 2024 was 10.0 million m³, an increase of 0.2 million m³, or 2% as compared to 9.8 million m³ in the Fourth Quarter of 2023. Demand for natural gas from residential and commercial customers was peaked at the first quarter of 2024 due to the seasonal effect and gradually reduced to a normal level in the Fourth Quarter of 2024.
Gas sales volume of residential customers in Sanya City in 2024 was 22.9 million m³, an increase of 2.9 million m³, or 15% as compared to 20.0 million m³ in 2023. Overall increase of gas sales volume in 2024 was mainly contributed by the increase of gas consumption in the first quarter of 2024 due to the home stay of the seasonal residents from the North to catch the warm weather in the South and visitors for family reunions in the first quarter, which is also the peak season of 2024. Gas sales volume for commercial customers in Sanya City in 2024 was 59.5 million m³, an increase of 8.9 million m³, or 18% as compared to 50.6 million in 2023. Increase in gas sales volume in 2024 was mainly attributed to gas supply to the new customer which distributes gas onwards to Gaoming Power Plant in Foshan City, Guangdong Province, as end user in 2024, while there was only one power plant customer in 2023.
As an international tourist destination and the only tropical province in the PRC, Sanya City's traveling activities have a direct impact on gas revenue from commercial customers with traveling activities as a large portion of gas revenue was generated from this sub-segment. According to the Sanya City Bureau of Statistics, the number of overnight visitors to Sanya City was 26.2 million in 2024, a slight increase of 0.5 million, or 2% as compared to 25.7 million in 2023, which was in line with the sales volume achieved after excluding the increase in sales volume resultant from the additional power plant customer in 2024.
Commercial customers in Sanya City which include non-residential customers such as hotels, resorts and restaurants contributed to approximately 85.0% of the total volume from commercial customers with the remaining 15% contributed from social welfare units such as schools, government facilities, and other not-for-profit organizations.
Gas sales by number of customers
| Sanya City, Hainan Province | Three-month periods ended December 31, | The years ended December 31, | |||||
|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | |
| Customers newly started gas supply | |||||||
| Residential customers | 6,707 | 10,349 | (3,642) | -35% | 25,772 | 34,739 | (8,967) |
| Commercial customers | 36 | 49 | (13) | -27% | 129 | 127 | 2 |
| Total customers | |||||||
| Residential customers | 345,787 | 320,015 | 25,772 | 8% | 345,787 | 320,015 | 25,772 |
| Commercial customers | 1,631 | 1,502 | 129 | 9% | 1,631 | 1,502 | 129 |
The residential sector recorded 6,707 new customers for the Fourth Quarter in 2024, a decrease of 3,642 or 35% as compared to 10,349 new residential customers for the Fourth Quarter in 2023. 36 new commercial customers were obtained for the Fourth Quarter in 2024 as compared to 49 new commercial customers for the Fourth Quarter in 2023.
The residential sector recorded 25,772 new customers in 2024, a decrease of 8,967 or 26% less as compared to 34,739 new residential customers in 2023. 129 new commercial customers were obtained in 2024 as compared to 127 new commercial customers in 2023.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
There was a total of 345,787 residential customers and 1,631 commercial customers as at December 31, 2024, as compared to 320,015 residential customers and 1,502 commercial customers respectively as at December 31, 2023.
Gas sales revenue by customers
| Gas sales | ||||||||
|---|---|---|---|---|---|---|---|---|
| Sanya City, Hainan Province | ||||||||
| Gas sales revenue | ||||||||
| (in RMB'000) | Three-month periods ended December 31, | The years ended December 31, | ||||||
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Residential customers | 17,754 | 16,487 | 1,267 | 8% | 62,821 | 55,296 | 7,525 | 14% |
| Commercial customers | 39,660 | 37,705 | 1,955 | 5% | 209,622 | 180,511 | 29,111 | 16% |
| 57,414 | 54,192 | 3,222 | 6% | 272,443 | 235,807 | 36,636 | 16% | |
| Other cities | ||||||||
| Gas sales revenue | ||||||||
| (in RMB'000) | ||||||||
| Commercial customers | 766 | 706 | 60 | 8% | 6,042 | 4,908 | 1,134 | 23% |
| Total gas sales by customers | 58,180 | 54,898 | 3,282 | 6% | 278,485 | 240,715 | 37,770 | 16% |
Gas sales revenue from residential customers for Sanya City for the Fourth Quarter in 2024 was RMB17.8 million, an increase of RMB1.3 million, or 8%, from RMB16.5 million for the Fourth Quarter in 2023. Gas sales revenue from commercial customers for Sanya City for the Fourth Quarter in 2024 was RMB39.6 million, an increase of RMB1.9 million, or 5%, from RMB37.7 million for the Fourth Quarter in 2023.
Gas sales revenue from residential customers for Sanya City in 2024 was RMB62.8 million, an increase of RMB7.5 million, or 14%, from RMB55.3 million in 2023. Gas sales revenue from commercial customers for Sanya City in 2024 was RMB209.6 million, an increase of RMB29.1 million, or 16%, from RMB180.5 million in 2023.
Sales revenue in Sanya City was driven by sales volume and gas selling prices based on the Gas Selling Price adjustments pronounced by the SYDRC generally take effect from April 1 of each year.
The weighted average gas selling price per m³ for residential customers in Sanya City was RMB2.9 for the Fourth Quarter in 2024, an increase of RMB0.1, or 3.5% from RMB2.8 for the Fourth Quarter in 2023. The weighted average gas selling price per m³ for residential customers in Sanya City was RMB2.7 in 2024, same as 2023.
The weighted average gas selling price per m³ for commercial customers in Sanya City was RMB3.9 for the Fourth Quarter in 2024, an increase of RMB0.1, or 2.6% from RMB3.8 for the Fourth Quarter in 2023. The weighted average gas selling price per m³ for commercial customers in Sanya City was RMB3.5 in 2024, same as 2023. The average selling price for the commercial customers was lower than the commercial selling price pronounced by the SYDRC of RMB4.3 as relatively competitive prices were offered to these two power plant customers which commensurate with their large consumption volume.
Sales in other cities for the Fourth Quarter in 2024 and the full year of 2024 was solely contributed by transmission fee to the Datang Gaoyao Power Plant.
Pipeline installation and connection
| Sanya City, Hainan Province | ||||||||
|---|---|---|---|---|---|---|---|---|
| Pipeline connection | ||||||||
| by number of customers | Three-month periods ended December 31, | The years ended December 31, | ||||||
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Customers newly connected | ||||||||
| Residential customers | 12,231 | 9,415 | 2,816 | 30% | 25,526 | 28,602 | (3,076) | -11% |
| Commercial customers | 53 | 58 | (5) | -9% | 154 | 151 | 3 | 2% |
| Total customers connected | ||||||||
| Residential customers | 417,286 | 391,760 | 25,526 | 7% | 417,286 | 391,760 | 25,526 | 7% |
| Commercial customers | 1,780 | 1,626 | 154 | 9% | 1,780 | 1,626 | 154 | 9% |
| Pipeline connection revenue | ||||||||
| (in RMB'000) | Three-month periods ended December 31, | The years ended December 31, | ||||||
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Residential customers | 61,774 | 31,909 | 29,865 | 94% | 168,742 | 123,749 | 44,993 | 36% |
| Commercial customers | 10,371 | 9,712 | 659 | 7% | 31,579 | 30,133 | 1,446 | 5% |
| Total | 72,145 | 41,621 | 30,524 | 73% | 200,321 | 153,882 | 46,439 | 30% |
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Pipeline installation and connection revenue from residential customers for the Fourth Quarter in 2024 was RMB61.8 million, an increase of RMB29.9 million, or 94% from RMB31.9 million for the Fourth Quarter in 2023. Pipeline installation and connection revenue from residential customers in 2024 was RMB168.7 million, an increase of RMB45.0 million, or 36% from RMB123.7 million in 2023.
In 2024, a series of policies to control the housing prices of the real estate market issued by the PRC government in recent years together with the current unfavorable factors and sentiment in the property market in the PRC have significantly hindered the growth of China's real estate market, which in turn affects the business growth of city natural gas operators in Sanya City. Such adverse effect was partially offset by the commencement of a new contract in August 2024 with the Group for an urban gas pipeline facility renovation project with the government in Sanya City.
New residential customers obtained in 2024 were mainly government projects with the connection of gas supply to the temporary housing for relocating residences of certain old residential areas in the city and the construction of government housing with relatively competitive prices for eligible individuals under the government housing scheme as an encouragement for elites to reside in Sanya City.
Increase of 2,816 new residential customers in the Fourth Quarter in 2024 due to the acceleration of completion in the construction of pipeline installation and connection in the last quarter of the year to accomplish the expected increase in gas consumption in the first quarter of the following year, which is also the peak season in the industry.
Increase in pipeline installation and connection revenue from residential customers for the Fourth Quarter in 2024 was attributed to the increase in new customers in that quarter.
A significant increase in revenue from residential customers in 2024 was attributed to revenue from the urban gas pipeline facility renovation project with the government in Sanya City. Such type of revenue accounted for 19% and 7% of total revenue from residential customers in 2024 and 2023 respectively.
Pipeline installation and connection revenue from commercial customers for the Fourth Quarter in 2024 was RMB10.4 million, an increase of RMB0.7 million, or 7% from RMB9.7 million for the Fourth Quarter in 2023. Pipeline installation and connection revenue from commercial customers in 2024 was RMB31.6 million, an increase of RMB1.5 million, or 5% from RMB30.1 million in 2023. Pipeline installation and connection revenue from commercial customers recorded a steady increase throughout the year.
There were 12,231 new residential customers and 53 new commercial customers for the Fourth Quarter in 2024 as compared to 9,415 new residential customers and 58 new commercial customers for the Fourth Quarter in 2023. There were 25,526 new residential customers and 154 new commercial customers in 2024 as compared to 28,602 new residential customers and 151 new commercial customers in 2023.
There were 417,286 residential customers and 1,780 commercial customers as at December 31, 2024, as compared to 391,760 residential customers and 1,626 commercial customers as at December 31, 2023.
Integrated Smart Energy
| Integrated smart Energy | ||||||||
|---|---|---|---|---|---|---|---|---|
| Integrated Smart Energy System | ||||||||
| Sanya City, Hainan Province | ||||||||
| (in RMB'000) | Three-month periods ended December 31, | The years ended December 31, | ||||||
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Commercial customers | 7,710 | 7,386 | 324 | 4% | 21,118 | 19,984 | 1,134 | 6% |
| Integrated district energy distribution | ||||||||
| Meishan City, Sichuan Province | ||||||||
| (in RMB'000) | ||||||||
| Commercial customers | 2,436 | 1,230 | 1,206 | 98% | 7,203 | 4,462 | 2,741 | 61% |
| Total | 10,146 | 8,616 | 1,530 | 18% | 28,321 | 24,446 | 3,875 | 16% |
The integrated smart energy segment comprises the Haitang Bay Integrated Smart Energy Project (integrated smart energy system) which commenced commercial operation in September 2021 and the Meishan Project (integrated district energy distribution project) which commenced commercial operation in May 2021. The Haitang Bay Integrated Smart Energy Project is in its implementation stage.
The tourist industry activities in Sanya City resumed normal after the boost in the peak season in the first quarter of 2024, and gradually reduced to a normal level throughout the year. Haitang Bay Smart Energy Project reported revenue of RMB7.7 million for the Fourth Quarter in 2024, an increase of RMB0.3 million, or 4% as
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
compared to RMB7.4 million for the Fourth Quarter in 2023. Haitang Bay Smart Energy Project reported revenue of RMB21.1 million in 2024, an increase of RMB1.1 million, or 6% as compared to RMB20.0 million in 2023.
Revenue from the Meishan Project was RMB2.4 million for the Fourth Quarter in 2024, an increase of RMB1.2 million, or 98% from RMB1.2 million for the Fourth Quarter in 2023. Revenue from integrated district energy distribution was RMB7.2 million in 2024, an increase of RMB2.7 million, or 61% from RMB4.5 million in 2023.
Smart Mobility
| Smart Mobility | ||||||||
|---|---|---|---|---|---|---|---|---|
| EV Battery Swap Revenue (in RMB'000) | Three-month periods ended December 31, | The years ended December 31, | ||||||
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Sanya and Haikou City, Hainan Province | 1,630 | 1,494 | 136 | 9% | 6,299 | 4,868 | 1,431 | 29% |
| Beihai City, Guangxi Province | 1,135 | 1,720 | (585) | -34% | 5,174 | 8,782 | (3,608) | -41% |
| Other cities | 352 | 401 | (49) | -12% | 1,375 | 1,297 | 78 | 6% |
| Total | 3,117 | 3,615 | (498) | -14% | 12,848 | 14,947 | (2,099) | -14% |
EV battery swap revenue for the Fourth Quarter in 2024 was RMB3.1 million, a decrease of RMB0.5 million, or 14% from RMB3.6 million for the Fourth Quarter in 2023. EV battery swap revenue in 2024 was RMB12.8 million, a decrease of RMB2.1 million, or 14% from RMB14.9 million in 2023. Sales in Beihai City in 2023 included trading EV and related spare parts business to designated customers but no such sales were made in 2024.
The smart mobility segment comprises the EV battery swap business and the relatively new EV trading business. As at December 31, 2024, there are a total of seven (7) EV battery swap stations in operation.
Foreign exchange rates
CF Energy reports its financial results in RMB, its functional currency as it earns all its revenues and incurs most of its expenses in RMB. As the Company is listed on TSX-V, certain financial information and/or comparative analysis are also presented in CAD, and fluctuations in the exchange rates between RMB and CAD should also be considered.
The exchange rate between the RMB and the CAD is summarized below.
| One Chinese RMB to Canadian dollars | 2024 | 2023 | % change |
|---|---|---|---|
| Spot rate at the end of the year | 0.1971 | 0.1863 | -5.1% |
| Average rate for the year | 0.1903 | 0.1907 | -0.9% |
Gross margin
Gross profit from continuing operations in 2024 was RMB134.6 million, an increase of RMB15.3 million, or 13%, from RMB119.3 million in 2023. Gross profit margin in 2024 was 25.9%, a decrease of 1.6 percentage points as compared to 27.5% in 2023.
The slight decrease in overall drop in gross profit margin in 2024 as compared to 2023 was mainly attributable to the following unfavorable factors during 2024.
Selling of pipeline gas to two gas suppliers of power plants in Guangdong Province, including the Gaoming Power Plant in Foshan City and Datang Gaoyao Power Plant in Zhaoqing City are at relatively competitive prices with very low gross margin which has a dilutive effect on the overall gross profit and margin in 2024. Despite this, such business has contributed to the growth of the Group's revenue stream and increase in market share.
The increase in the purchase price of pipeline gas resulting from the renewal of the three-year gas purchase contracts with China National Offshore Oil Corporation which became effective from April 1, 2023 and the lowering of the already competitive pricing margin on the Temporary Government Pipeline Renewal Projects which commenced in August 2024.
Offsetting the above factors, the negative margin of the Integrated Smart Energy segment was marginally narrowed in both Fourth Quarter and the full year of 2024 as compared to the corresponding periods in 2023 as the number of users and their usage increased.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 16
Gross profit from continuing operations for the Fourth Quarter in 2024 was RMB53.0 million, an increase of RMB25.9 million, or 96%, from RMB27.1 million for the Fourth Quarter in 2023. Gross profit margin for the Fourth Quarter in 2024 was 36.9%, an increase of 12.0 percentage points as compared to 24.9% for the Fourth Quarter in 2023.
The overall increase in gross profit and gross profit margin in the Fourth Quarter of 2024 as compared to the same period of 2023 was attributable to the decrease in low-profit-margin sales made in the Fourth Quarter of 2024. No sales were made to those gas suppliers of power plants in Guangdong Province and fewer sales from urban gas pipeline facility renovation project with the government was recognized in the Fourth Quarter of 2024, both of these source of sales generated low profit margin which would have a dilutive effect on the overall gross profit and margin if such sales were made.
Operating expenses
Selling and marketing expenses of continuing operations for the Fourth Quarter in 2024 were RMB10.7 million, a decrease of RMB1.2 million, or 10% from RMB11.9 million for the Fourth Quarter in 2023. Selling and marketing expenses as a percentage of sales for the Fourth Quarter in 2024 were 7.5%, a decrease of 3.5 percentage points as compared to 11.0% for the Fourth Quarter in 2023.
Selling and marketing expenses of continuing operations in 2024 were RMB39.9 million, an increase of RMB2.7 million, or 7% from RMB37.2 million in 2023. Selling and marketing expenses as a percentage of sales in 2024 was 7.7%, a decrease of 0.9 percentage points as compared to 8.6% in 2023.
The increase in selling and marketing expenses in 2024 was mainly attributable to the one-off increase in meeting and travelling expenses incurred for the Sanya Haitang Bay Near Zero Carbon Demonstration Forum in the second quarter of 2024 and the increase in related business activities held after the Forum.
General and administrative expenses of continuing operations for the Fourth Quarter in 2024 were RMB14.0 million, an increase of RMB2.9 million, or 26% from RMB11.1 million for the Fourth Quarter in 2023. General and administrative expenses as a percentage of sales for the Fourth Quarter in 2024 was 9.7%, a decrease of 0.5 percentage points as compared to 10.2% for the Fourth Quarter in 2023.
General and administrative expenses of continuing operations in 2024 were RMB46.2 million, an increase of RMB4.8 million, or 12% from RMB41.4 million in 2023. General and administrative expenses as a percentage of sales in 2024 was 8.9%, a decrease of 0.6 percentage points as compared to 9.5% in 2023.
Finance Costs
Finance costs for the Fourth Quarter in 2024 were RMB5.9 million, an increase of RMB1.3 million, or 28% from RMB4.6 million for the Fourth Quarter in 2023. Finance costs in 2024 were RMB19.3 million, an increase of RMB4.9 million, or 34% from RMB14.4 million in 2023. Finance costs reflected interests on lease liabilities, short-term bank borrowings, long-term bank financing and other borrowings for financing of the Group's projects under development, net of RMB2.7 million capitalized on projects under development in 2024 (2023: RMB6.0 million).
Share of results of associates
Share of profit of associates was RMB3.7 million for the Fourth Quarter in 2024 as compared to RMB1.2 million for the Fourth Quarter in 2023. Share of profit of associates was RMB13.9 million in 2024 as compared to RMB9.5 million in 2023. The share of results of associates mainly represents the share of profit/loss of the Group's 40% held associate, Pingxiang Xinao Changfeng Gas Co., Ltd. ("Pingxiang Xinao CF"). Pingxiang Xinao CF benefited from the successful connection of gas pipeline to reduce its reliance on LNG, resulting in a net profit situation since the second quarter of 2023.
EBITDA from continuing operations
EBITDA from continuing operations (non-GAAP measure as identified and defined under section "Non-GAAP Measures") for the Fourth Quarter in 2024 was RMB40.3 million, an increase of RMB46.2 million, or 781% as compared to negative RMB5.9 million for the Fourth Quarter in 2023. EBITDA from continuing operations in 2024 was RMB103.9 million, an increase of RMB31.7 million, or 44%, from RMB72.2 million in 2023.
EBITDA from continuing operations in 2023 included a fair value change on the derivative financial instrument of the loan discharge agreement relating to the commitment of the estate of Mr. Huajun Lin to subscribe for the common shares of the Company in the amount of RMB36.0 million (please refer to the section headed "Related Party Transactions" on pages 21 and 22 of the MD&A for more details), which was classified as a "derivative financial instrument" under IFRS Accounting Standards and subject to periodic fair value assessment and
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
adjustment (as applicable). The derivative financial instrument was fully written down and stopped being recognized at fair value as at December 31, 2023.
On a comparable basis, no adjustment on fair value change on the derivative financial instrument of the loan discharge agreement (2023: a fair value loss of RMB24.5 million), the adjusted EBITDA from continuing operations for the Fourth Quarter in 2024 remained the same at RMB40.3 million, an increase of RMB21.7 million, or 117%, from RMB18.6 million for the Fourth Quarter in 2023.
On a comparable basis, no adjustment on fair value change on the derivative financial instrument of the loan discharge agreement (2023: a fair value loss of RMB18.5 million) and no adjustment on a non-recurring government financial assistance (2023: RMB0.8 million from the local government of Haikou City to subsidize infrastructure of EV station in the city), the adjusted EBITDA from continuing operations in 2024 remained the same at RMB103.9 million, an increase of RMB14.0 million, or 16%, from RMB89.9 million in 2023.
Profit (loss) from continuing operations
The Group generated a net profit from continuing operations of RMB11.1 million for the Fourth Quarter in 2024, an increase of RMB36.4 million from a net loss of RMB25.3 million for the Fourth Quarter in 2023. Net profit from continuing operations of RMB16.9 million was recorded in 2024, an increase of RMB13.9 million from RMB3.0 million in 2023.
Adjusted net profit for the period from continuing operations (non-GAAP)
| In RMB thousands (except for % figures) | Three-month periods ended December 31, | The years ended December 31, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Continuing operations | ||||||||
| Net profit (loss) for the period/year from continuing operations | 11,106 | (25,314) | 36,420 | -144% | 16,943 | 2,987 | 13,956 | 467% |
| Non-recurring items | - | - | - | - | - | - | - | - |
| Fair value change on derivative financial instrument | - | 24,518 | (24,518) | -100% | - | 18,505 | (18,505) | -100% |
| Government financial assistance | - | - | - | 0% | - | (765) | 765 | -100% |
| Adjusted net profit (loss) for the period/year from continuing operations (non-GAAP) | 11,106 | (796) | 11,902 | >999% | 16,943 | 20,727 | (3,784) | -18% |
All non-GAAP measures have been identified. On a comparable basis (please refer to the section headed "EBITDA from continuing operations" above for more details), no adjustment was made on fair value change on derivative financial instrument of loan discharge agreement for the Fourth Quarter in 2014 and the Year in 2024 (Three Months and Year in 2023 fair value loss: RMB24.5 million and RMB18.5 million respectively) and no adjustment on government financial assistance (Year in 2023: RMB 0.8 million), the adjusted net profit of the Group remained at RMB11.1 million for the Fourth Quarter in 2024, an increase of RMB11.9 million from an adjusted net loss of RMB0.8 million for the Fourth Quarter in 2023. Adjusted net profit in 2024 remained at RMB16.9 million, a decrease of RMB3.8 million, or 18% from an adjusted net profit of RMB20.7 million as reported in 2023.
Earnings per share and adjusted earnings per share (non-GAAP) from continuing operations attributable to owners of the Company
Earnings per share from continuing operations was RMB0.20 (CAD0.04) (basic and diluted) for the Fourth Quarter in 2024 as compared to loss per share of RMB0.36 (CAD0.07) (basic and diluted) for the Fourth Quarter in 2023.
Earnings per share from continuing operations was RMB0.37 (CAD0.07) (basic and diluted) in 2024 as compared to earnings per share of RMB0.14 (CAD0.03) (basic and diluted) in 2023.
Adjusted EPS was derived from the adjusted net profit for the period attributable to owners of the Company from continuing operations (non-GAAP) divided by the weighted average number of ordinary shares for the purpose of diluted earnings per share.
No adjusting items are reported for the calculation of EPS from continuing operations for the Fourth Quarter in 2024 and the full year in 2024. Adjusted EPS from continuing operations was RMB0.01 (CAD0.00) per share (basic and diluted) for the Fourth Quarter in 2023 as compared to RMB0.41 (CAD0.08) (basic and diluted) in 2023.
Loss from discontinued operations
Discontinued operations related to the termination of the operation of Clean Energy and Hunan CF CNPC as part of the Group's policy to realign its future business strategies with major focus on clean energy solutions with high growth potential and suspension of operation of Clean Energy by the order of local government.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Loss from discontinued operations was RMB0.5 million for the Fourth Quarter in 2024 (2023: RMB10.2 million) as compared to a loss of RMB0.8 million in 2024 (2023: RMB9.0 million).
Selected quarterly results
The following set out the Company's unaudited consolidated quarterly results for the most recent eight quarters: In thousands of RMB, except per share amounts
| Quarterly data (RMB '000)
except per share amounts | 2024 | | | | 2023 | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Revenue | 143,588 | 126,021 | 101,339 | 149,027 | 108,750 | 122,097 | 109,317 | 93,826 |
| Gross profit | 53,043 | 33,282 | 15,603 | 32,693 | 27,120 | 30,500 | 33,483 | 28,205 |
| Profit (loss) for the period from continuing operations | 11,106 | 4,304 | (8,392) | 9,925 | (25,314) | 7,636 | 16,459 | 4,206 |
| Profit (loss) for the period attributed to owners of the Company from continuing operations | 12,615 | 6,572 | (5,997) | 11,556 | (23,941) | 11,995 | 14,883 | 6,510 |
| EPS (loss per share) of continuing and discontinued operations | | | | | | | | |
| - basic (RMB) | 0.20 | 0.09 | (0.09) | 0.17 | (0.51) | 0.16 | 0.27 | 0.09 |
| - diluted (RMB) | 0.20 | 0.09 | (0.09) | 0.17 | (0.51) | 0.16 | 0.27 | 0.09 |
| EPS (loss per share) from continuing operations | | | | | | | | |
| - basic (RMB) | 0.20 | 0.09 | (0.09) | 0.17 | (0.36) | 0.18 | 0.23 | 0.09 |
| - diluted (RMB) | 0.20 | 0.09 | (0.09) | 0.17 | (0.36) | 0.18 | 0.23 | 0.09 |
Selected Financial Data
| (RMB000's) | December 31, 2024 | December 31, 2023 |
|---|---|---|
| Bank balances and cash, fixed term bank deposits | 111,695 | 98,999 |
| Net current liabilities | (239,801) | (187,243) |
| Adjusted working capital (note1) | (76,390) | (69,003) |
| Property and equipment | 885,977 | 875,855 |
| Right-of-use of assets | 101,281 | 104,779 |
| Total assets | 1,342,861 | 1,303,220 |
| Non-current liabilities | 427,245 | 472,483 |
| Total equity | 415,970 | 399,373 |
note 1: This financial measure is identified and defined under the section "Non-GAAP Financial Measures"
Bank balance and cash and fixed-term bank deposits increased by RMB12.7 million from RMB99.0 million as at December 31, 2023 to RMB111.7 million as at December 31, 2024. The increase primarily resulted from the net effect of the cash inflow from operating activities of RMB66.7 million which was partially offset by cash used for the acquisition of property and equipment, pipeline for relocation projects and intangible assets of RMB53.7 million and net repayment of short-term borrowings and long-term debt of RMB1.2 million in 2024.
Adjusted Working Capital
The adjusted working capital (see "Non-GAAP Financial Measures") was negative RMB74.6 million as at December 31, 2024 as compared to the negative adjusted working capital of RMB69.0 million as at December 31, 2023. Adjusted working capital excludes the receipt in advance from customers before the commencement of pipeline installation and connection construction and natural gas sales of RMB63.4 million and short-term bank borrowings totalling RMB100.0 million.
Liquidity and Capital Resources
The Group's principal sources of short-term funding are existing bank and cash balances, operating cash flows and borrowings under its lines of credit and long-term funding such as bank term loan facilities and other borrowings provided to the Group.
The Company's principal sources of liquidity are cash provided from operation, including advance payments from residential and commercial and industrial customers related to construction contracts for gas connection included in contract liabilities, refund liabilities and access to credit facilities and capital resources.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
The Company's primary short-term cash requirement is to fund working capital and repay the remainder of its outstanding withdrawal on its lines of credit as they fall due.
The Company's medium and long-term cash goals are to fund the construction of its pipeline networks and gas distribution facilities and projects under development, to acquire capital and intangible assets for its growth initiatives in China and to repay its long-term loan facilities from banks.
In the short term, management does not expect to face any liquidity problems considering its current bank and cash position, available undrawn bank facilities as at December 31, 2024 and continue to generate cash flows from operations in the short and long term. During the period ended and as at December 31, 2024, the Group was in compliance with all of its debt covenants.
| In RMB thousands
(except for % figures) | 2024 | 2023 |
| --- | --- | --- |
| Short-term bank borrowings | 100,000 | 62,700 |
| Current portion of long-term debts | 86,080 | 73,882 |
| Long-term debts | 357,134 | 397,785 |
| Lease liabilities | 1,681 | 3,108 |
| Other borrowings | 8,650 | 10,773 |
| Total debts | 553,545 | 548,248 |
| Less: Bank balances and cash and fixed term bank deposits | 111,695 | 98,999 |
| | 441,850 | 449,249 |
| Total equity | 415,970 | 399,373 |
| Gearing ratio (non-GAAP) | 106.2% | 112.5% |
The net gearing ratio is a non-GAAP measure which is calculated by dividing interest-bearing borrowings, other borrowings and lease liabilities, less bank balances and cash and and fixed term deposits, by total equity. The Group's net gearing ratio was approximately 106.2% as at December 31, 2024, a decrease of 6.3 percentage points as compared to 112.5% as at December 31, 2023.
In management of the liquidity risk, the Group monitors and maintains levels of cash and cash equivalents deemed adequate by management of the Group to finance the Group's operations and mitigate the effects of fluctuations in cash flows. The Group has given considerations to its future performance and cash flow projection through monitoring the utilisation of bank borrowings and ensuring its ability to renew or refinance the banking facilities upon maturity, to meet its financial obligations including the capital commitments.
Capital Commitments
As at December 31, 2024, capital expenditure in respect of the acquisition of property and equipment and the construction of pipelines under development contracted for but not provided in the audited consolidated financial statements amounted to RMB60.2 million, a decrease of RMB4.5 million as compared to RMB64.7 million as at December 31, 2023. Capital commitments as at December 31, 2024 also included a remaining initial investment of RMB0.8 million for the 2% equity interests in Hainan Shanglian Investment Co., Ltd. Capital commitments are to be financed by existing bank and cash balances, operating cash flows and borrowings under its lines of credit and long-term funding such as bank-term loan facilities and other borrowings provided to the Group.
Share Capital
As at December 31, 2023 and December 31, 2024, the Company has 65,885,155 common shares and 2,050,000 stock options outstanding.
There was no share option granted during the three-month and years ended December 31, 2024 and 2023. The Company has no warrants outstanding as of the date of this MD&A.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Non-GAAP Financial Measures
This MD&A contains certain financial measures that do not have any standardized meaning prescribed by IFRS Accounting Standards. Therefore, these financial measures may not be comparable to similar measures presented by other companies or issuers. Investors are cautioned that these measures should not be construed as alternatives to net income or to cash provided by operating, investing, and financing activities determined in accordance with IFRS Accounting Standards, as indicators of its performance. The Group provides these measures to assist investors in determining its ability to generate income and cash provided by operating activities and to provide additional information on how these cash resources are used. These measures are listed and defined below.
EBITDA from continuing operations
EBITDA is defined herein as earnings before income tax expense, finance costs, depreciation and amortization. EBITDA does not have any standardized meaning prescribed by IFRS Accounting Standards and therefore may not conform to the definition used by other companies or issuers. A reconciliation of net profit from continuing operations to EBITDA and adjusted EBITDA are presented in the MD&A as follows:
| In RMB thousands (except for % figures) | Three-month periods ended December 31, | The years ended December 31, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |
| Continuing operation | ||||||||
| Net profit (loss) for the period/year from continuing operations | 11,106 | (25,314) | 36,420 | -144% | 16,943 | 2,987 | 13,956 | 467% |
| Add: | ||||||||
| Finance costs | 5,870 | 4,591 | 1,279 | -28% | 19,273 | 14,418 | 4,855 | -34% |
| Income tax expense | 12,950 | 936 | 12,014 | 199% | 25,463 | 15,912 | 9,551 | -60% |
| Depreciation and amortization | 10,362 | 13,874 | (3,512) | -25% | 42,239 | 38,873 | 3,366 | 9% |
| EBITDA for the period/year from continuing operations (non-GAAP) | 40,288 | (5,913) | 46,201 | 781% | 103,918 | 72,190 | 31,728 | 44% |
| Non-recurring/non-operating items | - | - | - | - | - | - | - | - |
| Fair value change on derivative financial instrument | - | 24,518 | (24,518) | -100% | - | 18,505 | (18,505) | -100% |
| Government financial assistance | - | - | - | 0% | - | (765) | 765 | -100% |
| Adjusted EBITDA from continuing operations (non-GAAP) | 40,288 | 18,605 | 21,683 | 117% | 103,918 | 89,930 | 13,988 | 16% |
Adjusted working capital
Adjusted working capital is calculated as current assets less adjusted current liabilities. Adjusted current liabilities is calculated as current liabilities, excluding the receipts in advance from customers from pipeline installation and connection construction before commencement and natural gas sales, included in contract liabilities which represented the Group's obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customers. Receipt in advance from customers from pipeline installation and connection will be recognized as income upon the performance obligations are fulfilled and receipt in advance from customers for natural gas sales will be recognized as income upon the consumption of natural gas. Both amounts are deferred income in nature and non-refundable to customers, hence are excluded in the calculation of adjusted current liabilities. Adjusted current liabilities also excluded the short-term bank loan as lines of credit in the PRC are typically renewable when due.
The Group believes that the working capital as a supplemental measure, as adjusted based on the above parameters, provides a more appropriate indication of the Group's ability to settle its debt obligations as they fall due.
The calculation of adjusted working capital is provided in the table below.
| In RMB thousands | |||
|---|---|---|---|
| As at | Note | December 31, 2024 | December 31, 2023 |
| Current assets | 259,845 | 244,121 | |
| Less: Current liabilities | (499,646) | (431,364) | |
| Net current liabilities | (239,801) | (187,243) | |
| Add: Receipts in advance from customers | 1 | 63,411 | 55,540 |
| Add: Short-term bank borrowings | 100,000 | 62,700 | |
| Adjusted working capital | (76,390) | (69,003) |
Note 1: Receipts in advance from customers in respect of pipeline installation and connection projects prior to commencement and natural gas sales are included in contract liabilities.
As at December 31, 2024, the Group's current liabilities exceeded its current assets by RMB239.8 million, an increase of RMB52.6 million in net current liabilities as compared to RMB187.2 million as at December 31, 2023
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
which was mainly attributed to reclassification of amount due from related parties (Pingxiang Xiao CF) of RMB11.0 million from current assets to non-current assets as the outstanding balance is not expected to be repaid within 12 months and the increase of short-term bank borrowings of RMB37.3 million in 2024.
In view of these circumstances, the management of the Group has given consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern. Management is satisfied that the Group will have sufficient financial resources to meet its financial obligations, including capital commitments. Taking into account the Group's cash flow projections, including the term facility, the Group's ability to renew or refinance the banking facilities upon maturity and the Group's future capital expenditure in respect of its non-cancellable capital commitments, management considers that it has sufficient working capital to meet in full its financial obligations as they fall due for at least the next twelve months from the end of the reporting period and accordingly, the audited consolidated financial statements have been prepared on a going concern basis.
Related Party Transactions
During the year, the Group entered into the following transactions with related parties:
| Name of related party | Relationship party | Nature of transactions | 2024 RMB'000 | 2023 RMB'000 |
|---|---|---|---|---|
| Ann Lin | Chief Executive | Rental expenses | 230 | 480 |
| Pingxiang Xinao CF | Associate | Purchase of gas appliances | 33 | - |
The following balances were outstanding from related party at the end of the reporting period:
| Name of related party | Relationship | Terms | Dec 31, 2024 RMB'000 | Dec 31, 2023 RMB'000 |
|---|---|---|---|---|
| Pingxiang Xiao CF | Associate | Non-trade, unsecured and non-interest bearing (note 1) | 11,000 | 12,423 |
| Sichuan Xiangshu Petrochemical Co., Ltd. | Associate | Non-trade, unsecured and non-interest bearing | 320 | 320 |
| 11,320 | 12,743 | |||
| A director | Director | Unsecured and non-interest bearing (note 2) | (37) | 484 |
Note 1: The balance represented a loan of RMB11.0 million to Pingxiang Xinao CF. As at 31 December 2024, the outstanding balance is not expected to be repaid within 12 months and therefore the amount is classified as non-current asset.
Note 2: The balance as at December 31, 2024 represented staff advances to a member of management for business purposes. Such advances were fully reimbursed in the first quarter of 2025.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Derivative Financial Instrument
In 2007, Mr. Lin, advanced loans in the aggregate amount of RMB40.0 million to the Group pursuant to a subordination and forbearance agreement dated April 27, 2007 (the "Subordination and Forbearance Agreement"). On May 25, 2017, the Group entered into a loan discharge agreement with Mr. Lin ("Loan Discharge Agreement") to repay an aggregate amount of RMB36.0 million and the Group's obligation stated in the Subordination and Forbearance Agreement, has been fully discharged. Accordingly, the remaining RMB4.0 million was recognized as shareholder's contribution.
In addition, the Loan Discharge Agreement provided that if the Initial Public Offering ("IPO") was not completed by June 28, 2019, the Group shall have the right for a period of 90 days following June 28, 2019 to require Mr. Lin, directly or indirectly, to subscribe for common shares of the Company on the TSX Venture Exchange, in the amount of RMB36.0 million or its CAD equivalent (the "Investment"). The subscription price for such common shares shall was the volume-weighted average price of the common shares of the Company in the period of 30 calendar days preceding June 28, 2019 on the TSX Venture Exchange.
The IPO was not completed by June 28, 2019. On July 26, 2019, the Company announced that the Board determined to exercise the Company's option pursuant to the Loan Discharge Agreement to require the estate of Mr. Lin (the "Estate") to subscribe for an aggregate amount of CAD6.862 million (approximately RMB36.0 million) in common shares of the Company at a price of CAD0.68 per common share. Following the subscription, based on the prevailing exchange rate of June 28, 2019, the number of shares to be issued is 10,090,568. The management of the Company considered that the share subscription is a forward contract.
On June 21, 2021, the Company together with CF China filed a contract dispute case (the "Claim") against the Estate in the Sanya Intermediate People's Court, Sanya City, Hainan Province, China (the "Sanya Court") to enforce the execution of the Loan Discharge Agreement and the Investment. The Sanya Court declined to take jurisdiction over the dispute. The Company appealed from that decision to the Hainan Provincial High People's Court, which dismissed the Company's appeal on September 5, 2022. The Company applied for a retrial on the basis of new evidence, and this application was rejected on February 24, 2023. On October 30, 2023, the Company filed the Claim in the Sanya Suburban People's Court, Sanya City. The Claim was dismissed by the Sanya Suburban People's Court on December 7, 2023.
A beneficiary of the Estate (Mingfei He) applied to the court in China for distribution of certain funds from the Estate. The court approved the distribution of funds to Mingfei He and other beneficiaries. The Company is exploring its options, if any, to compel the return of all funds distributed to the beneficiaries of the Estate so that the Estate can comply with the Loan Discharge Agreement. If no reasonable options are available to the Company, the Company will cease to pursue enforcement of the Loan Discharge Agreement.
Notices were sent to the four beneficiaries of the Estate to notify them that the Company previously exercised its option pursuant to the Loan Discharge Agreement and that the Company expected the beneficiaries of the Estate to cause the Estate to comply. Not all beneficiaries of the Estate (the "Dissentient Beneficiaries"), however, have agreed to honor the Investment. The Company has taken into further consideration of the above events in the estimate of fair value of the derivative assets, and considered that these events have undermined the availability of the funds within the Estate, which cast significant doubt as to the fulfillment of the obligations by the Dissentient Beneficiaries under the Loan Discharge Agreement to honour the forward contract. Accordingly, the valuation of the derivative assets as of December 31, 2023 has been determined based on the probability of collection of the funds to honor the Investment which is estimated to be low, and the amount has been fully written down.
In 2024, the counsel representing a shareholder of the Company commenced a petition to the Supreme Court of British Columbia (the "Supreme Court") for leave to prosecute the claim under the Loan Discharge Agreement in the Ontario Superior Court of Justice in the name and on behalf of the Company against the Estate of Mr. Lin. Having sought advice from its legal counsel, the Company considered it appropriate to oppose against the petition and the petition is now pending hearing by the Supreme Court.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 23
Risks and Uncertainties
The Company is exposed to a variety of risks in the normal course of operations that could significantly affect its operating cash flows and profitability of operations and could cause its actual results to differ in material respects from its anticipated results. These risks may include but are not limited to, those listed below. The Company seeks to manage the risks associated with its business operations; however, many of the factors affecting these risks are beyond the Company's control. The future effect of these risks and uncertainties cannot be quantified or predicted.
RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC
Any future change in laws, regulations, governmental policies or initiatives could materially and adversely affect our business, financial condition and results of operations
All of our business operations are located in the PRC. As such, our financial position, profitability and prospects are prone to economic, political and legal developments in the PRC. Any adverse changes, variations or adjustments could materially affect the business of our Group.
Despite the growth of the Chinese economy in the past several decades, China is still considered as a developing economy. The structure, level of government involvement, level of development, foreign exchange control, capital investment control, growth rate and allocation of resources continue to be the key factors of separation from the developed countries. The PRC government implemented various measures to support local companies, strengthen economic development and guide the allocation of resources. In the recent China's Two Sessions, while some of these measures may be beneficial to the PRC economy as a whole, it may have a negative impact on our Group. For example, we may be affected by changes in tax regulations and control over capital investments. In addition, as China is becoming progressively integrated with the global economy, major events such as economic recessions will adversely affect the economic conditions in the PRC. Such adverse conditions may, in turn, affect market demand for our services and our competitive position.
As a natural gas distributor in the PRC, we operate under the supervision of a number of national government ministries and departments, including the Ministry of Commerce, the Ministry of Labor and Social Security and the Ministry of Housing and Urban-Rural Development, as well as local provincial or city authorities where our Group's projects are located. Our Group is also obligated to comply with the relevant requirements of certain regulations, such as the Regulation on the Administration of Urban Gas and Regulations on the Safety Supervision of Special Equipment. Provision of natural gas is granted by the local government through the awarding of exclusive concession rights, pursuant to the policies of promoting environmental protection and encouraging the use of natural gas as a cleaner energy source. We cannot assure you that the above regulatory regime and policies (including the granting of exclusive concession rights) will not be amended. Any unfavorable amendments could materially and adversely affect our business operations and our financial condition.
Fluctuations in the value of the Renminbi may have a material and adverse impact on your investment
Most of our revenues and expenses were denominated in RMB, while dividends, if any, will be distributed in Canadian dollars. Any significant revaluation or devaluation of the RMB may materially and adversely affect our cash flows and financial position. The fluctuation in the value of RMB against other foreign currencies is affected by China's political and economic conditions and China's foreign exchange regime and policy.
The PRC government has adopted a managed floating exchange rate system in July 2005 to allow the value of the Renminbi to fluctuate within a regulated range based on market supply and by reference to a basket of currencies. Since the adoption of this policy, the PRC government has made, and in the future may make, further adjustments to the exchange rate system. Under significant international pressure, the PRC government may proceed further with the reform of the Renminbi exchange rate system and enhance the flexibility of the Renminbi exchange rate.
We cannot predict how the exchange rate of RMB against other currencies will fluctuate in the future. Any appreciation or depreciation of the RMB against Canadian dollars may have an impact on the value and any dividends payable.
The PRC government's control of foreign currency conversion may limit our foreign exchange transactions, including dividend payments on our Shares
The RMB is not a freely convertible currency, and conversion and remittance of foreign currencies are subject to PRC foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, we will have sufficient foreign exchange to meet our foreign exchange requirements. Under the existing PRC foreign exchange regulations, payment of current account items, including the payment of dividends, do not require prior approval from the State Administration of Foreign Exchange, subject to compliance with certain procedural
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 24
requirements. However, approval from appropriate government authorities is required when Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as repayment of loans denominated in foreign currency.
The restrictions on foreign exchange transactions under capital accounts could also affect our subsidiaries' ability to obtain foreign exchange through debt and equity financing, including by means of loans and capital contributions from us. The PRC government may in the future and at its discretion restrict access to foreign currencies for current account transactions. However, there is no assurance that these foreign exchange policies regarding the payment of dividends in foreign currencies will continue to come into effect in the future.
RISKS RELATING TO BUSINESS AND OPERATIONS OF OUR GROUP
We are affected by risks arising from the PRC government's price control regime for natural gas
The Group's natural gas business is a price-regulated industry in China, where its business and operations are susceptible to risks associated with government pricing policy and regulation changes. The Group needs to enter into discussions and negotiations with local governments, including the Sanya City Development and Reform Commission ("SYDRC") on pricing from time to time.
In July 2020, the SYDRC laid down the City's natural gas utility pricing adjustment formula which became the guideline for the Group to follow on its gas selling prices starting from August 1, 2020 (the "New Gas Selling Price"). SYDRC is the government natural gas price regulating body in Sanya City, and this pricing adjustment formula (the "Pricing Formula") is part of the pricing control strategy of China's National Development and Reform Commission for the whole of China. The Development and Reform Commissions at the local level have gradually introduced specific regulations in line with such guiding principles.
Effective August 1, 2020, the Group's New Gas Selling Price commenced being regulated by the Pricing Formula based on the gas purchase price (the "Gas Purchasing Price") plus gas distribution cost (the "Gas Distribution Cost"). The New Gas Selling Price are applicable to both residential and commercial customers. The New Gas Selling Price are to be reviewed and adjusted periodically based on changes to the Gas Purchasing Price and the Gas Distribution Cost. Since then, adjustments to the New Gas Selling Price with reference to the Pricing Formula have also taken place.
As the Price Formula uses historical Gas Purchasing Price and Gas Distribution Cost to determine the future selling price, and the actual New Gas Purchase Price and Gas Distribution Cost will vary, going forward, such impact on the Group's future operating results could not be readily quantified.
PNG sales segment and service pipeline installation and connection segment are operated pursuant to concession rights granted by the local governments and early termination of our concession rights or failure to renew or secure new concession rights will materially affect our operation
For the year ended December 31, 2024, revenue from gas sales and pipeline installation and connection accounted for over 90% of our total revenue. Such businesses are operated under the concession rights granted by the relevant local governments with a fixed term and area of operation. Currently, our Group has obtained three concession rights, including a 30-year exclusive concession right (2007 to 2037) in Sanya City obtained by CF China, a 30-year operation right (2010 to 2040) in the administrative region of Xiangdong District, including the Pingxiang Industrial Ceramic Production Park obtained by one of our associates, Pingxiang CF and a 30-year concession right (2017 to 2047) to build, own and operate four energy processing stations in Haitang Bay obtained by EDF CF. Under the relevant concession agreements, we are required to comply with continuing obligations during the concession period. If the grantor of the concession right is satisfied with our compliance with the continuing obligations during the concession period, it may, one year prior to the expiration of the concession right, negotiate with us on the extension of the concession period or grant us a preferential right for the renewal of the concession agreement. On the other hand, any failure to meet such obligations may lead to early termination of the concession rights.
In addition, the concession rights may be terminated before the expiration date under various circumstances which include: (i) the occurrence of force majeure events; (ii) by mutual agreement between the signing parties; (iii) cancellation of the concession rights; and (iv) the occurrence of any serious incidents caused by our default which materially affected public welfare and safety.
There is no guarantee that our concession rights will not be terminated before the contracted expiration date nor that we could ascertain the renewal of such concession rights to be granted upon their expiration. Upon the expiration of the concession rights or early termination of any of the concession rights, if we are unable to negotiate for renewal or obtain concession rights in other new operating areas, our business, operations and financial results will be materially and adversely affected and, in the worst situation, the sustainability of our operation may not be assured.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
We are exposed to risks relating to our business relationship with our major supplier, China National Offshore Oil Corporation ("CNOOC")
In June 2019, the Group entered into a purchase contract with CNOOC for the supply of PNG from the new gas field "Eastern 13-2" of CNOOC. The purchase contract stipulated the price and the amount of PNG committed and made available to the Group from June 17, 2019 to December 31, 2020 period. Prior the expiry of the purchase contract, the Group signed a further purchase contract with CNOOC for the continuing supply of PNG to the Group for the 2021 year. A three-year purchase contract with CNOOC from 2023 to 2026 was signed in March 2023. PNG constitutes the major raw material for our business. CNOOC is currently our single PNG supplier and any instability in, shortages of supply of PNG to us from CNOOC could significantly and adversely affect our business operations and financial results.
Any dispute between us and CNOOC or any material disagreements in the interpretation of any of the terms under the purchase contract, or if we fail to comply with the terms under the purchase contract in a timely manner, our relationship with CNOOC may be adversely affected, which in turn, would result in disruption or insufficient supply of natural gas to our customers and consequently, loss of business opportunities. In any case, if CNOOC decides to terminate the purchase contract, or we fail to renew or secure a new purchase contract upon expiry of the existing purchase contract under similar or more commercially favorable terms, we may be faced with a shortage of natural gas or higher purchase cost as more expensive LNG may have to be sourced to supplement the shortage of PNG supply, our business operation and financial conditions may be adversely affected.
We require various licenses and permits to commence, operate and expand our operations. Any failure to obtain or renew any or all of these licenses and permits or any enforcement action taken against us for non-compliance incident may materially and adversely affect our business and expansion plans
In accordance with the applicable PRC laws and regulations, our business operations required us to obtain prerequisite local government approval and granting of licenses and permit from relevant government authorities. As our operation required licenses and permits granted by the local government authorities, we are subject to their annual inspections for compliance issues. Failure to pass these inspections or any breach in compliance could result in the temporary suspension or revocation of our licenses and permits which could significantly disrupt our operation and may materially and adversely affect our business and financial condition.
Our business is subjected to seasonality
As a substantial portion of our revenue is derived from Sanya City, our business is subjected to seasonality. Sanya City, being a famous tropical tourist city, attracts more tourists between November and February than the rest of the year. A large amount of the total sales volume of our natural gas occurred in the first and fourth quarter of a year. During this peak season, the increase in the number of seasonal residents will cause a higher demand for the usage of natural gas for cooking and heating purposes, and in any case, if we are unable to source sufficient natural gas from our suppliers, a shortage of gas supply may be resulted.
Our business relies on the continuous normal functioning of our gas transmission and any unexpected breakdown or malfunction of our gas pipeline networks or gas leakage would materially affect our business operation
Our gas distribution business requires normal functioning of the pipeline networks in order to sell and transmit natural gas to our customers. The functioning of pipeline networks can be affected by factors such as natural disasters and damage inflicted by an independent third party. Any unexpected malfunctioning or leakage of the pipeline network would require us to perform restoration or replacement works which might take time, and we may have to temporarily shut down our gas supply to our affected customers due to safety issues. As a result, our business operation and financial condition may be adversely affected.
We may not have adequate insurance to cover all hazards common to the natural gas industry to which our operations are subjected to
Due to the flammable and explosive nature of natural gas, we are exposed to various risks and hazards, including equipment failures, industrial accidents, environmental hazards and natural disasters, etc. These inherent risks and hazards, if not managed or mitigated with due care, could adversely affect our business operation, financial condition and reputation. Such hazards may lead to (i) suspension or disruption in our operations; (ii) contamination to the surrounding environment; (iii) personal injuries or death; and (iv) severe damage to property, plant and equipment. We may also be accountable for civil liabilities or fines or criminal charges as a result of third parties injuries.
We have obtained various insurance policies to cover certain risks associated with our business. We can neither guarantee nor assure of the adequacy of our insurance policies coverage to ensure us fully against all risks and losses that may arise. Furthermore, our insurance policies are subjected to regular review by our insurers. If we
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 26
fail to renew our insurance policies on similar or acceptable terms, and if, in the case of material loss that exceeded the limits or coverage of our insurance policies, our business operations and financial condition may be materially and adversely affected.
We engage third parties to undertake our service pipeline installation and connection work and construction of pipeline networks and any defects on works carried out by such third parties may materially affect our business
We typically engage third-party contractors to perform our pipeline installation and connection works and construction of pipeline networks. We cannot guarantee the work carried out by third parties will not contain any defects as we have limited control over their operations. We also cannot assure you that we will be able to continually engage third-party contractors under commercially acceptable terms. Any loss of their services or increase costs of their engagement, or failure to find a suitable replacement in a timely manner, will materially disrupt our business operations and adversely affect our financial condition.
Our future plans are subject to uncertainties and risks and could result in fluctuations in our financial performance
Our growth is closely associated with the successful implementation of our future plans. There is no guarantee that we can efficiently and accurately implement our future plans as we may encounter unexpected obstacles and unforeseeable changes which could be beyond our control, such as macro-economic changes, fluctuations in market conditions, difficulties in dealing with local regulatory and governmental authorities, changes in governmental policies and initiatives and complications in negotiating with our contractual counterparts. There is also no assurance that the outcome of such future plans will be satisfactory. Such obstacles and changes may restrain us from achieving the expected results.
Our financial condition and results of operations can be affected by the occurrence of epidemics or pandemics and natural disasters as well as political instability
With COVID-19 pandemic affecting China, quarantine and travel restriction measures were implemented in China to compact the pandemic resulting in the Group experiencing a significant drop in its business across all business segments during 2020 to 2022.
As a substantial portion of our revenue is generated by our business operation in Sanya City and despite having business operations in other locations within the PRC, the geographic concentration of our business operation exposes us to natural disasters, epidemics or pandemics such as the resurgence of COVID-19 pandemic and other acts of God, which are beyond our control and could adversely affect the local economy, infrastructure and livelihood of the people in the Sanya City. Our business, operating results and financial condition may be adversely and materially affected if such natural disasters occur in Sanya City and/or in the regions in which we have operations.
Our business and financial performance may be affected if we are unable to attract or retain experienced professionals
The ability to retain or attract experienced professionals is also a crucial factor in our sustainable growth. Our continuing success is largely attributable to our experienced management team who possess rich industry experience and profound knowledge and vision. Our business, financial performance and prospects depend on our ability to recruit, train and retain qualified and registered technical personnel, including engineers and safety personnel. As our business operation requires various licenses to be obtained, we are obligated under relevant regulations to maintain a certain number of qualified personnel in order to satisfy the minimum requirement as a license holder. In any event, if we lose a number of our key management members or qualified personnel and are unable to find a suitable replacement with equivalent qualifications in a timely manner, our business operation and profitability could be adversely affected.
Our business and financial performance may be affected if by the slow economic, and more specifically the real estate recession
The real estate section in China has taken a tremendous hit in 2023, such as the real estate giant Evergrande or Country Garden etc.. China's property market slide has worsened despite government efforts to prop up the sector that was once a key driver for China's economy. This could drag on the country's broader recovery and heap pressure on other sectors including utility companies. China's real estate crash threatens commodity supplies and suppliers, as there's going to be less steel demand, less commodities being used — less natural gas, for instance. As a result, this could lead to a slower-than-expected usage growth in the future.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 27
RISKS RELATING TO OUR INDUSTRY
Any changes in laws, regulations or government policies in relation to our industry could materially and adversely affect our business, financial condition and results of operations
Our business operations are subject to a broad range of laws and regulations in the PRC, such as environmental protection and fire control, safety and foreign investment. We may incur extra compliance costs and be required to make timely adjustments to our operations as a result of any changes in existing laws and regulations, either of which could materially and adversely affect our business operations and financial condition. We cannot predict any future changes nor can we assure you that there will be no future change in such laws and regulations. We may be adversely affected as a result of the continuing changes in the existing laws and regulations.
We compete with other alternative energy sources
Energy sources such as coal gas and electricity can be used as an alternative energy sources by the end-users. When an end-user chooses the type of energy to be used, they will consider various factors such as cost, convenience, reliability and safety. As such, comparison with these alternative energy sources will affect the demand for natural gas. In addition, the change of government policy to other substitute energy sources will also affect the demand for natural gas. There is no guarantee that end-users will shift to use natural gas as their primary energy source. If the end-users refuse to use natural gas as their primary energy source or other alternative energy sources are seen as more cost-efficient, our operation and financial position will be adversely affected.
Technological advancement of and the increasing governmental support for the use of electric vehicles may reduce the demand for natural gas refueling services
Electricity is considered as an alternative for natural gas as vehicle fuel. With the sustained and rapid development of China's economy and the acceleration of urbanization, energy shortage and environmental pollution have become more prominent. As such, the development of new energy automobiles is crucial to alleviate energy and environmental pressure. The Government has implemented transformative strategies to upgrade the automobile industry in an attempt to strengthen energy conservation and reduce emissions. Governmental policies have encouraged and promoted the manufacture and usage of electric vehicles by placing more resources into research and development of core technologies to enhance the functionality of the electric vehicles such as higher driving range and faster recharging time as well as better designs and to increase the number of recharging stations nationally. In addition, the PRC government also promoted the usage of new energy vehicles by means of government subsidies and tax exemption on both national and provincial levels. Subsidies and tax exemptions can be enjoyed by purchasers of electric vehicles.
As a result of this directive policy the demand for natural gas vehicles and our natural gas refueling services has slow down, which has adversely affected our operating results.
Natural gas operation requires substantial initial capital investment and any significant increase in the cost of constructing or developing natural gas facilities may materially and adversely affect our planned expansion and prospects
Natural gas operators are required to make substantial initial capital investments to construct new gas pipelines and natural gas facilities. Upon the raise in its equity interest in EDF CF from 50% to 70% in 2019, the Company expects to have to inject a substantial capital investment to meet the construction funding requirements of the phase 2 of Haitang Bay Integrated Smart Energy Project, including the infrastructure of station A and C and connection pipelines of the plant.
The capital investment required to develop and construct natural gas facilities varies based on the cost of fixed assets and the cost of construction. The price of such equipment and/or construction may increase if market demand for such equipment or construction is greater than the available supply, or if the prices of key components, commodities and raw materials necessary to build such equipment increase. A significant increase in the costs of developing and constructing natural gas facilities could materially and adversely affect the business, financial condition, results of operations and cost of implementation of the planned expansion.
Increasing coverage of city natural gas may cause gas shortage
The increasing demand for natural gas will tighten the natural gas supply and may cause shortages if the large demand is not met by upstream suppliers. There is no guarantee that the upstream suppliers will be able to continually provide sufficient natural gas supply to meet with the increasing demand driven by the government policies. Our business and financial condition will be adversely affected if such gas shortage problem occurs in Sanya City or in the regions in which we have operations.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Page 28
Government policy regulation in the real estate market will affect our business growth
The PRC government has issued a series of policies to control the housing price of the real estate market. Policies such as restricted loan and purchase policies may significantly hinder the growth of China's real estate market, which in turn affect the business growth of city natural gas operators. There is no guarantee that relevant policies will not be amended. Any unfavorable amendments could adversely affect our business operations and financial condition.
Government policy regulation in Pipeline Connection Related Services Charges to Customers in Sanya will affect our business growth
The Company was notified by the regulatory officials in Hainan Province that, with retroactive effective to March 1, 2021, certain service charges relating to the connection services for the distribution of natural gas to customers in Sanya will be abolished. The new rules will impact certain of the Company's pipeline connection fees and meter upgrade fees chargeable to their customers going forward as a result of this regulatory change.
The Company continues to expand its marketing and sales efforts in anticipation of high regional economic growth driven by the government's International Free Trade Zone development policy which if successful are expected to offset the anticipated revenue reduction resulting from the recent regulatory change. By growing its customer base, optimizing district gas supply and operational costs, the Company remains its focus on achieving healthy growth in Sanya's natural gas distribution business for the coming years. However, despite such counter measures are being undertaken by the Group, there is no guarantee that such measures would successfully alleviate all the impact which the new policy might bring. Furthermore, there is no guarantee that additional more stringent policy measures would not be implemented by the government in Hainan Province and if such additional policy measures were being implemented, revenue from the pipeline connection and related services business segment may be further impacted.
Business risk in EV battery swap operation
Market Demand for Battery Swap Cars
In 2024, prices for public fast-charging were between RMB 1.5 to 2.5/kWh (including service fees), which has narrowed the price gap as compared to battery swap services. However, with the relatively lower investment cost and high market penetration of EV charging stations, there is no guarantee that the battery swap technology will become a popular alternative to EV charging.
In addition, economic downturns may lower ride-hailing/taxi demand in tourism-dependent cities, which will negatively affect the demand for EV battery swap services, reducing station utilization and cash flow.
Risk of EV Increasing Market Competition
BAIC swap stations can only perform battery swap services for Beijing Auto EV and is not currently compatible with other EV car brands. Until there is a further collaboration between BAIC and the other EV brands, the swap station services of the Company are tied with the sales of Beijing Auto EV. In recent years, many automakers, startups, and technology companies have entered the electric vehicle market, providing fierce competition for BJEV in terms of price and technologies. As the fast-charging technology continues to evolve, people are probe to go with newer EV car models.
Decline of Electric Vehicle Usage
The Chinese government has mostly phased out state subsidies for electric vehicle sales in the year which negatively impacted the growth of the EV and swap station market in China.
Alternative Clean Energy Vehicles
Hydrogen is seen as a viable alternative to diesel and petrol vehicles and does not require investment in battery recharging or swap infrastructure. Hydrogen can be pumped like petrol and diesel using an existing network of petrol stations. Electric vehicles will not remain the only clean energy alternative for the automotive sector and may face competition from other clean energy sources. Government orders for hydrogen-powered vehicles in China have exceed 5,000 by the end of 2024, a significant increase compared to previous years.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
Accounting Policies
APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS Accounting Standards")
Amendments to IFRS Accounting Standards that are mandatorily effective for the current year
In the current year, the Group has applied the following amendments to IFRS Accounting Standards issued by the International Accounting Standard Board ("IASB") for the first time, which are mandatorily effective for the annual period beginning on or after January 1, 2024 for the preparation of the consolidated financial statements:
| Amendments to IFRS 16 | Lease Liability in a Sale and Leaseback |
|---|---|
| Amendments to IAS 1 | Classification of Liabilities as Current or Non-current |
| Amendments to IAS 1 | Non-current Liabilities with Covenants |
| Amendments to IAS 7 and IFRS 7 | Supplier Finance Arrangement |
Except as described below, the application of the amendments to IFRS Accounting Standards in the current year has had no material impact on the Group's financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.
Amendments to IAS 1 Classification of Liabilities as Current or Non-current (the "2020 Amendments") and Amendments to IAS 1 Non-current Liabilities with Covenants ('the 2022 Amendments')
The 2020 Amendments provide clarification and additional guidance on the assessment of right to defer settlement for at least twelve months from reporting date for classification of liabilities as current or non-current, which:
- clarify that if a liability has terms that could, at the option of the counterparty, result in its settlement by the transfer of the entity's own equity instruments, these terms do not affect its classification as current or non-current only if the entity recognises the option separately as an equity instrument applying IAS 32 Financial Instruments: Presentation.
- specify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period. Specifically, the amendments clarify that the classification should not be affected by management intentions or expectations to settle the liability within 12 months.
For rights to defer settlement for at least twelve months from reporting date which are conditional on the compliance with covenants, the requirements introduced by the 2020 Amendments have been modified by the 2022 Amendments. The 2022 Amendments specify that only covenants with which an entity is required to comply with on or before the end of the reporting period affect the entity's right to defer settlement of a liability for at least twelve months after the reporting date. Covenants which are required to comply with only after the reporting period do not affect whether that right exists at the end of the reporting period.
In addition, the 2022 Amendments specify the disclosure requirements about information that enables users of financial statements to understand the risk that the liabilities could become repayable within twelve months after the reporting period, if the entity classify liabilities arising from loan arrangements as non-current when the entity's right to defer settlement of those liabilities is subject to the entity complying with covenants within twelve months after the reporting period.
The 2022 Amendments also defer the effective date of applying the 2020 Amendments to annual reporting periods beginning on or after 1 January 2024. The 2022 Amendments, together with the 2020 Amendments, are effective for annual reporting periods beginning on or after 1 January 2024, with early application permitted. If an entity applies the 2020 amendments for an earlier period after the issue of the 2022 Amendments, the entity should also apply the 2022 Amendments for that period.
CF Energy Corp.
Management's Discussion and Analysis
For the years ended December 31, 2024 and 2023
New and amendments to IFRS Accounting Standards in issue but not yet effective
The Group has not early applied the following new and amendments to IFRS Accounting Standards that have been issued but are not yet effective:
| Amendments to IFRS 9 and IFRS 7 | Amendments to the Classification and Measurement of Financial Instruments^{3} |
|---|---|
| Amendments to IFRS 9 and IFRS 7 | Contracts Referencing Nature - Dependent Electricity^{3} |
| Amendments to IFRS 10 and IAS 28 | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture^{1} |
| Amendments to IFRS | Annual Improvements to IFRS Accounting Standards |
| Accounting Standards | - Volume 11^{3} |
| Amendments to IAS 21 | Lack of Exchangeability^{2} |
| IFRS 18 | Presentation and Disclosure in Financial Statements^{4} |
- Effective for annual periods beginning on or after a date to be determined.
- Effective for annual periods beginning on or after 1 January 2025.
- Effective for annual periods beginning on or after 1 January 2026.
- Effective for annual periods beginning on or after 1 January 2027.
Except for the new IFRS Accounting Standards mentioned below, the directors of the Company anticipate that the application of all other amendments to IFRS Accounting Standards will have no material impact on the Group's consolidated financial statements in the foreseeable future.
IFRS 18 Presentation and Disclosure in Financial Statements
IFRS 18 sets out requirements on presentation and disclosures in financial statements and it will replace IAS 1 Presentation of Financial Statements. The new standard introduces new requirements to present specified categories and defined subtotals in the statement of profit or loss; provide disclosures on management-defined performance measures in the notes to the financial statements and improve aggregation and disaggregation of information to be disclosed in the financial statements. Minor amendments to IAS 7 Statement of Cash Flows and IAS 33 Earnings per Share are also made.
IFRS 18 and amendments to other standards, will be effective for annual periods beginning on or after 1 January 2027, with early application permitted. The application of the new standard is expected to affect the presentation of the consolidated statement of profit or loss and disclosures in the future financial statements. The Group will continue to assess the impact of IFRS 18 on the Group's consolidated financial statements.