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Financial Statement and Dividend Announcement for the Third Quarter Ended 30 September 2017

Financials Archive

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Profit & Loss

Profit and Loss 2q2017

Balance Sheet

Balance Sheet 2q2017

Review of Performance

(a) Any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors; and

Revenue

Revenue in Q3 2017 increased by RMB22.4 million to RMB497.1 million compared to RMB474.7 million in Q3 2016. This was mainly due to an increase in revenue from sale of AA and AE by RMB20.2 million.

The increase in revenue from sale of AA and AE was mainly attributable to higher average selling prices in Q3 2017 of RMB7,600 per tonne when compared to Q3 2016 of RMB6,000 per tonne. This was partially offset by slightly lower sale volume in Q3 2017 of 50,300 tonnes compared to 58,800 tonnes in Q3 2016.

Gross profit/(loss)

The Group incurred a gross profit of RMB59.0 million in Q3 2017 compared to a gross loss of RMB8.9 million in Q3 2016. Sales of AA and AE as well as other chemical products contributed RMB53.6 and RMB5.4 million respectively.

Overall gross loss margin improved from a negative of 1.9% in Q3 2016 to a positive of 11.9% in Q3 2017. Gross loss margin for AA and AE improved from a negative of 4.8% in Q3 2016 to a positive of 15.3% in Q3 2017.

Other operating income

Other operating income and other operating expenses included the following items:-

Other operating income decreased by RMB4.2 million to RMB8.9 million in Q3 2017 compared to RMB13.1 million in Q3 2016.

Distribution expenses

Distribution expenses increased by RMB4.5 million to RMB14.3 million in Q3 2017 compared to RMB9.8 million in Q3 2016. Distribution expenses consisted of transportation charges and packaging costs as well as other sales related expenses. Distribution expenses increased mainly due to increase in freight rates charged by carriers.

Administrative expenses

Administrative expenses decreased by RMB9.9 million to RMB27.0 million in Q3 2017 compared to RMB36.9 million in Q3 2016. This was mainly due to decrease in depreciation charge as a result of lower carrying amount for property, plant and equipment after taking into consideration of impairment loss made.

Other operating expenses

Other operating expenses increased by RMB0.8 million to RMB10.0 million in Q3 2017 compared to RMB9.2 million in Q3 2016.

Finance expenses

Finance expenses increased by RMB3.4 million to RMB21.2 million in Q3 2017 compared to RMB17.9 million in Q3 2016. This was mainly due to factoring of notes receivables in Q3 2017.

(b) Any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current financial period reported on.

Balance sheet

Property, plant and equipment decreased by RMB17.4 million to RMB1,189.2 million as at 30 September 2017 compared to RMB1,206.6 million as at 31 December 2016. This was mainly due to depreciation charge for the period which was partially offset by additional of property, plant and equipment relating to the new equipment and modifications under the Xiangshui plant.

Inventories increased by RMB125.7 million to RMB207.6 million as at 30 September 2017 compared to RMB81.9 million as at 31 December 2016. This was mainly due to an increase in (i) raw material, propylene, as our AA plant in Xiangshui re-commenced production in September 2017 after completion of modifications; and (ii) a cargo in transit (ethylene) which was sold subsequently in October 2017.

Breakdown of trade and other receivables is as follows:-

Trade and other receivables increased by RMB48.7 million to RMB1,039.0 million as at 30 September 2017 compared to RMB990.3 million as at 31 December 2016. This was mainly due to increase in receivables due from related parties and notes receivables. These were partially offset by decrease in receivables due from third parties and joint venture entity as well as value added tax recoverable.

Breakdown of the trade receivables from related parties of approximately RMB631.7 million is as follows:-

The ageing of the trade receivables from related parties as at 30 September 2017 is as follows:-

Jiangsu Yinyan, Yixing Danson and Taixing Jinyan are taking longer than expected to pay due to credit tightening from their bankers and the expansion of production plants by these companies; thereby resulting in tight cash flows in these companies.

The Company’s management continue to monitor the repayments from these related parties and their cash flow situation closely to minimise our Group’s credit exposure.

In addition, the members of the Audit Committee actively engage with the controlling shareholder of the Company to provide certain undertakings in relation to all of the related parties’ (except for Arkema’s) debts and guarantees provided by our Group in their favour. This is to safe guard the interest of the Company and to ensure that the risk exposure of our Group is adequately managed.

Pledged deposits increased by RMB45.8 million to RMB111.5 million as at 30 September 2017 compared to RMB65.7 million as at 31 December 2016. This was mainly due to deposits pledged for issuance of notes payables in 2017.

An impairment exercise will be performed at year end on (i) trade receivables due from related parties as a results of the long overdue situation; and (ii) property, plant and equipment due to loss making position of the Group.

Total non-current and current interest-bearing liabilities decreased by RMB219.3 million to RMB918.0 million as at 30 September 2017 compared to RMB1,137.3 million as at 31 December 2016. This was mainly due to repayments made during the 9-month period ended 30 September 2017.

Breakdown of trade and other payables is as follows:-

Trade and other payables increased by RMB321.6 million to RMB967.5 million as at 30 September 2017 compared to RMB646.0 million as at 31 December 2016. This was mainly due to an increase in notes payables for purchase of inventories.

Cash Flow Statement

Our Group generated positive operating cash flow of RMB144.3 million in Q3 2017 mainly due to depreciation charge and interest expense as well as a decrease in trade and other receivables and an increase in trade and other payables. These were partially offset by an increase in inventories.

Financing activities resulted in negative cash flow of RMB156.0 million in Q3 2017 mainly due to an increase in pledged deposits, repayment of bank borrowings and interest paid. These were partially offset by proceeds from bank borrowings.

There was a net cash outflow of RMB25.9 million in Q3 2017 from the Group’s investing activities mainly due to acquisitions of property, plant and equipment (relating to the new equipment and modifications under the Xiangshui plant), which was partially offset by interest received.

As a result of the above, cash and cash equivalents decreased from RMB130.2 million as at 30 June 2017 to RMB92.6 million as at 30 September 2017.

Commentary

The operating environment of AA industry remains challenging due to the current oversupply situation in the PRC.

Despite the improvement in average selling prices in Q3 2017, we remain cautious on the Group’s overall performance in the next 12 months.

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