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Financial Statement and Dividend Announcement for the Third Quarter Ended 30 September 2018

Financials Archive

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Profit & Loss

Profit and Loss 2q2018

Balance Sheet

Balance Sheet 2q2018

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 2018 decreased by RMB269.5 million to RMB227.6 million as compared to RMB497.1 million in Q3 2017. This was mainly due to an "Stop of Supply" order implemented by the joint-venture entity, Taixing Sunke, against the Company’s subsidiary company, Taixing Jurong, in end July 2018 which resulted in lower volume being allocated for our onwards sales to customers.

Please refer to our announcement dated 8 November 2018 on Proposed Disposal of 45% Equity Interest in Taixing Sunke for more details on the “Stop of Supply” order.

Average selling prices for AA and AE were higher at RMB8,200 per tonne in Q3 2018 as compared to RMB7,600 per tonne in Q3 2017. Sale volume for AA and AE stood at 37,600 tonnes in Q3 2018 as compared to 50,300 tonnes in Q3 2017.

Gross profit

The Group incurred a gross profit of RMB6.8 million in Q3 2018 as compared to RMB59.0 million in Q3 2017. Sales of AA and AE as well as other chemical products contributed RMB5.8 million and RMB1.0 million respectively.

Overall gross loss margin decreased from 11.9% in Q3 2017 to 3.0% in Q3 2018. This was mainly due to lower sale volume as well as higher raw material cost as compared to Q3 2017.

Other operating income

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

Operating Income 2q2018

Other operating income decreased by RMB5.6 million to RMB3.3 million in Q3 2018 as compared to RMB8.9 million in Q3 2017 mainly due to a decrease in income relating to sale of steam and provision of waste water treatment services recorded under the joint venture entity due to temporary suspension of such services.

Distribution expenses

Distribution expenses decreased by RMB10.2 million to RMB4.1 million in Q3 2018 as compared to RMB14.3 million in Q3 2017. Distribution expenses consisted of transportation charges and packaging costs as well as other sales related expenses. These expenses decreased mainly due lower sale volume.

Administrative expenses

Administrative expenses decreased by RMB3.7 million to RMB23.3 million in Q3 2018 as compared to RMB27.0 million in Q3 2017. This was mainly due to a net exchange gain of RMB2.6 million incurred in Q3 2018 as compared to a net loss of RMB1.6 million in Q3 2017.

Other operating expenses

Other operating expenses comprised the following items:-

Operating Expenses 2q2018

Other operating expenses decreased by RMB6.2 million to RMB3.8 million in Q3 2018 as compared to RMB10.0 million in Q3 2017. This was mainly due to a decrease in costs relating to sale of steam and provision of waste water treatment services as these services were temporary suspended in Q3 2018.

Finance expenses

Finance expenses decreased by RMB3.3 million to RMB18.0 million in Q3 2018 as compared to RMB21.2 million in Q3 2017. This was mainly due to lower outstanding bank borrowings in Q3 2018 as compared to Q3 2017.

Income tax expense

Income tax expense increased by RMB2.1 million to RMB2.3 million in Q3 2018 as compared to RMB0.2 million in Q3 2017. Income tax was paid on profit incurred by the joint venture entity.

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

Property, plant and equipment decreased by RMB66.6 million to RMB1,068.8 million as at 30 September 2018 as compared to RMB1,135.4 million as at 31 December 2017. This was mainly due to depreciation charge for the period.

Inventories decreased by RMB24.8 million to RMB84.3 million as at 30 September 2018 as compared to RMB109.1 million as at 31 December 2017. The prices of raw materials have been on an upward trend, and therefore the Management is taking a more cautious effort to only purchase raw materials which resulted in lower raw material carried on site.

Breakdown of trade and other receivables is as follows:-

Trade and other receivables increased by RMB74.7 million to RMB1,029.7 million as at 30 September 2018 as compared to RMB955.0 million as at 31 December 2017. This was mainly due to increase in trade receivables from related parties by RMB256.1 million which was partially offset by decrease in receivable from joint venture entity, notes receivables and trade receivables from 3rd parties.

Breakdown of the trade receivables from related parties of approximately RMB742.3 million is as follows:-

The ageing of the trade receivables from related parties as at 30 September 2018 is as follows:-

Jiangsu Yinyan 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 Audit Committee has directed the Company’s Management to expedite the collections from these related parties to minimise our Group’s credit exposure.

Pledged deposits increased by RMB84.2 million to RMB205.1 million as at 30 September 2018 as compared to RMB120.8 million as at 31 December 2017.

Total non-current and current interest-bearing liabilities decreased by RMB279.2 million to RMB657.3 million as at 30 September 2018 as compared to RMB936.5 million as at 31 December 2017. This was mainly due to repayments made during the 9-months period in 2018.

Breakdown of trade and other payables is as follows:-

Trade and other payables increased by RMB379.9 million to RMB1,257.4 million as at 31 September 2018 as compared to RMB877.5 million as at 31 December 2017. This was mainly due to increase in trade payables to related parties and the joint venture entity as well as an increase in notes payables.

Cash Flow Statement

Our Group generated positive operating cash flow of RMB78.0 million in Q3 2018 mainly due to depreciation charge and interest expense as well as a decrease in trade and other receivables. These were partially offset by an increase in inventories and a decrease in trade and other payables.

Financing activities resulted in negative cash flow of RMB51.7 million in Q3 2018 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 RMB31.5 million in Q3 2018 from the Group’s investing activities mainly due to acquisitions of property, plant and equipment by the joint venture entity, which was partially offset by interest received.

As a result of the above, cash and cash equivalents decreased from RMB59.2 million as at 30 June 2018 to RMB54.1 million as at 30 September 2018.

Commentary

The operating environment of AA industry remains challenging due to several factors, which include the current oversupply situation in PRC, rising raw material costs and volatile selling prices of AA and AE.

As mentioned in our Q1 2018 results announcement, our Xiangshui plant remains shutdown under the directive from the local government and the Management is still working with the local government to re-commence the production to minimise the impact of the shutdown to the Group’s FY2018 results.

With the “Stop of Supply” order implemented against Taixing Jurong and the shutting down of our Xiangshui plants (as announced in our Q1 2018 results announcement), the Company is currently purchasing from third parties to satisfy our customers’ needs.

The Management is currently evaluating market situations and options available. Updates will be provided accordingly in due course.

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