From Singapore Auditor to China CFO

Chiar Choon Teck used to be an audit manager at Baker Tilly in Singapore, where he supervised a portfolio of audit engagements that included private companies in the process of getting listed. Before that, he was an external auditor with Ernst & Young and Moore Stephens. Then in June this year, he became chief financial officer of China Environment Ltd. (CENV), a provider of air pollution control and treatment solutions in mainland China. 

 
The 34-year-old accountant’s ascent to a top financial post is yet another entry in Asia’s lengthening list of rocket-fuelled careers. As China, India, Indonesia, Vietnam and other emerging economies resume gangbusters growth, demand for finance talent is once again outstripping supply. Especially in China, private enterprises are finding good pickings in the audit firms that they engage.
 
For Chiar, the transition from auditor to corporate executive has been seamless because he has a professional relationship with CENV. “I’ve known them since 2007,” he says. That was the year the Chinese company listed on the Singapore stock exchange via a reverse takeover (RTO) of Gates Electronics, a dormant listed company controlled by a CENV strategic investor. Chiar was the Baker Tilly audit manager that helped the company prepare for the RTO, then became the listed firm’s external auditor.
 
Sexy Industry
It was not difficult for Chiar to make the decision to jump from auditor to auditee. “It’s a sexy industry,” he says of CENV’s business. The company manufactures and installs electrostatic precipitators (ESPs) in China’s power generation plants, cement factories, chemical facilities, iron and steel mills, paper mills and mining operations, which are required by law to filter out ash and other particles measuring 50 milligrams from every cubic metre of smoke they emit.
 
And there are massive amounts of these emissions. China is already the world’s top emitter of carbon dioxide, accounting for around 21% of the world’s greenhouse gas emissions. The country has been accused of being a stumbling block in crafting a global agreement to combat climate change in Copenhagen late last year. The latest talks that China hosted in Tianjin this month does not seem to be making much headway either.
 
But on its own, China has been aggressively trying to cleanse and protect the environment. “In August, the Chinese government has already shut down more than 2,000 factories,” says Chiar. “Premier Wen Jiabao has said he wants to cut China’s carbon dioxide emissions per unit of economic output by 40% to 45% from 2005 levels.” Under its current five-year plan, China has allocated 1.4 trillion renminbi, equal to 2% of GDP, on environmental protection.
 
Companies like CENV are among the beneficiaries. The government’s carrot-and-stick approach involves penalties and outright closures, and tax perks and other incentives for compliance. An environmental services provider like CENV can also be categorised as a high-technology company, which enjoys tax breaks. The company’s application has been approved, which means it is now taxed at 15%, down from the 25% rate of other corporates in China.
 
Investor Relations
It’s too early to say whether CENV can ride the green wave all the way through. But Chiar is positive. Revenues last year topped RMB499 million (US$75 million), up 7.6% from 2008, although net profit fell 35% to RMB53.8 million because of goodwill write-off related to the RTO to the tune of RMB29.3 million. Without the write-off, net profit was actually up 26%. Net profit in the first half of 2010 reached RMB55.8 million, up 26% from the same period in 2009.
 
He has had to explain these results to shareholders, analysts and the media. “That’s the new one for me, investor relations,” says Chiar. Earlier this year, before he became CFO, the market was hit by rumours that the controlling shareholder was selling out and that there were financial irregularities. CENV’s stock price fell, despite the company’s denials.  The share price had soared to the S$0.70-level from the RTO price of S$0.29, up 141%. The stock closed at S$0.26 on October 8.
 
Chiar is philosophical. “The share price is out of our control,” he says. “What we can do is try to [be more] hardworking, to generate more sales, to get more projects. We try to have constant meetings with fund managers and analysts, maybe quarterly – to provide them with our new updates. It’s all we can do.”
 
It may be working. SIAS Research, created by the Securities Investors’ Association of Singapore to provide independent and professional analysis on publicly listed companies in Singapore, recently initiated coverage. “We like CENV for its exposure to the growing China environmental protection industry,” the September report concludes. “We expect the award of contracts from 600MW power plants and the sale of ESLPs to be key catalysts going forward . . . mega-contracts for desulphurisation and de-NOx modules in conjunction with its ESP systems are likely to be upside surprises.”
 
ESLP stands for electrostatic lentoid precipitator, a new technology that CENV bought from a professor from Wuhan University. Chiar says it can filter out particles as small as 13 milligrams per cubic metre, and yet is cheaper and faster to build than a conventional ESP system, and has a more compact footprint. For a cement plant with a capacity of 5,000 tons a day, CENV claims an ESLP system can be built for RMB44.7 million versus RMB55.8 million for an ESP system.
 
Desulphurisation refers to the process of filtering out sulphur while de-NOx is the filtering out of nitrogen oxides. At this point, only coal-burning power plants are required to have desulphurisation and de-NOx equipment, but there is talk that factories will also be required to have them.
 
There is also a proposal to tighten the national emissions standard such that 30 milligram of particles should be filtered from every cubic metre of emission, making ESP systems non-compliant (because they can filter out only 50 mg of particles) and giving CENV’s ESLP system with its 13 mg capability a big boost.
 
Forward March
All these expectations underpin Chiar’s optimism about his company’s future. “We’re currently in negotiations with an Indian potential customer,” he says. “We’re talking about the entire thing, not only ESP but also desulphurisation and de-NOx.” India is a prime target for CENV, along with Vietnam, Indonesia and other emerging markets. “It’s a good time to explore these markets,” says Chiar. “Governments are quite aggressive to build up their infrastructure. That’s why they are starting to think about environmental issues.”
 
As he sees it, China has surpassed even the West on anti-polluting technologies. “What is forcing Chinese companies to deliver the new technology is because they are [bigger polluters] compared to the developed countries,” he claims. “The ESP technology in China right now is actually more advanced than the U.S. and Europe because their technology has stopped. There is little pollution there since they are so conscious about environmental issues.”
 
Indeed, Chiar says R&D at CENV is on full-blast. Company researchers are looking for ways to turn the particles filtered out from emissions into useful products. “The ash collected is thrown away as rubbish, so that causes a second type of pollution,” he explains. “Our R&D centres are now assessing the possibility of recycling the ash particles for other applications [such as] extracting certain ingredients to burn again, make cement and also use it for bricks.”
 
The company is still small enough for Chiar to undertake financial management using accounting software by Chinese software maker Kingdee. “The information provided is not perfect, but the necessary data is already in there,” he says. “There are certain information that [require] Excel, for example, money analysis, because there is no ERP system. But we are currently in touch with an ERP supplier.”
 
Fortunately, both Singapore and Chinese accounting standards are converging with international financial reporting standards (IFRS). CENV does not own property – the plant and other facilities in Fujian are leased from the controlling shareholder – so there are no mark-to-market issues. Employee attrition is also low – the finance function’s two senior managers and most of the 20 staff in Fujian have stayed put. “If we were located in Beijing and Shanghai, staff turnover would have been quite high,” says Chiar.  
 
True Mettle
He is also kept busy with the peculiar dynamics of CENV’s business. The company needs to keep a lot of cash on hand because steel suppliers do not give credit terms, at least to small and medium sized players. As soon as a contract is signed, CENV sources the steel it will need and pays for it in cash. It’s not a very efficient way of managing cash and creates volatility in planning and budgeting with the fluctuations in the price and availability of steel.
 
Chiar, who lives in Singapore with his wife and children, leads a peripatetic CFO life, travelling to China every month to check on stocks and inventory, among other things, and tending to finance and investor relations while in Singapore. Things will grow more hectic if CENV achieves its grand ambitions. That will be another test of the auditor-turned-CFO’s true mettle.
 
About the Author
Cesar Bacani is senior consulting editor at CFO Innovation.   
 
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