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Financial Statement and Dividend Announcement for the First Quarter Ended 31 March 2018

Financials Archive

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Profit & Loss

Profit and Loss 1q20187

Balance Sheet

Balance Sheet 1q2018

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

Total revenue in Q1 2018 increased by RMB88.3 million to RMB677.2 million as compared to RMB588.9 million Q1 2017. This was mainly due to increase in revenue from sales of AA and AE as well as other chemical products by RMB85.8 million and RMB2.5 million respectively.

The increase in revenue from AA and AE was mainly attributable to higher sale volume when compared to Q1 2017. This was partially offset by lower average selling prices in Q1 2018 when compared to Q1 2017.

Sale volume of AA and AE increased from 64,200 tonnes in Q1 2017 to 79,300 tonnes in Q1 2018. Average selling prices of AA and AE decreased from RMB8,500 in Q1 2017 to RMB7,400 per tonne in Q1 2018.

Gross profit

The Group incurred a gross profit of RMB27.4 million in Q1 2018 as compared to RMB82.6 million in Q1 2017. Sales of AA and AE as well as other chemical products contributed gross profit of RMB24.0 million and RMB3.4 million respectively.

Overall gross profit margin reduced from 14.0% in Q1 2017 to 4.0% in Q1 2018. This was mainly due to lower average selling prices for AA and AE and higher raw material costs in Q1 2018 when compared to Q1 2017.

Gross profit margins for AA and AE reduced from 16.5% for Q1 2017 to 4.4% in Q1 2018 whilst gross profit margin for other chemical products reduced from 4.8% in Q1 2017 to 2.6% in Q1 2018.

Other operating income

Other operating income in Q1 2018 increased by RMB2.3 million to RMB11.2 million as compared to RMB8.9 million in Q1 2017. This was mainly due to an increase in income from sale of steam and provision of waste water treatment services from RMB7.2 million in Q1 2017 to RMB8.1 million in Q1 2018.

Distribution expenses

Distribution expenses decreased by RMB10.5 million to RMB12.4 million in Q1 2018 as compared to RMB22.9 million in Q1 2017. Distribution expenses consisted of transportation charges and packaging costs as well as other sales related expenses. These expenses decreased mainly due to re-negotiation of freight rates with carriers resulting in lower distribution expenses.

Administrative expenses

In Q1 2018, administrative expenses decreased by RMB1.6 million to RMB30.6 million as compared to RMB32.2 million in Q1 2017. This was mainly due to the efforts from the Management to cut costs.

Other operating expenses

Other operating expenses decreased by RMB0.8 million in Q1 2018 to RMB7.2 million as compared to RMB8.0 million in Q1 2017. These expenses comprised of the following:-

Balance Sheet 1q2018

Finance expenses

Finance expenses decreased by RMB4.8 million to RMB23.8 million in Q1 2018 as compared to RMB28.5 million in Q1 2017. This was mainly due to lower outstanding bank borrowings in Q1 2018 when compared to Q1 2017.

Income tax expense

Income tax expense decreased by RMB2.2 million to RMB1.5 million in Q1 2018 as compared to RMB3.7 million in Q1 2017. Income tax expense was incurred notwithstanding the Group was in a loss position mainly due to income tax paid on profit incurred in 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.

Balance sheet

Property, plant and equipment decreased by RMB37.5 million to RMB1,097.8 million as at 31 March 2018 as compared to RMB1,135.4 million as at 31 December 2017. This was mainly due to depreciation charge for the period.

Inventories increased by RMB15.6 million to RMB124.7 million as at 31 March 2018 as compared to RMB109.1 million as at 31 December 2017. This was mainly due to an increase in raw material, propylene, to cater for our production plan for the month of April 2018 in the joint venture entity.

Breakdown of trade and other receivables is as follows:-

Trade and other receivables increased by RMB127.4 million to RMB1,082.3 million as at 31 March 2018 as compared to RMB955.0 million as at 31 December 2017. This was mainly due to (i) increase in 3rd parties trade receivables by RMB25.9 million as a result of higher revenue in Q1 2018; and (ii) increase in trade receivables due from related parties by RMB141.2 million.

Breakdown of the trade receivables from related parties of approximately RMB627.4 million is as follows:-

The ageing of the trade receivables from related parties as at 31 March 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 Company’s Management continues to monitor the repayments from these related parties and their cash flow situation closely to minimise our Group’s credit exposure.

Pledged deposits increased by RMB8.9 million to RMB129.7 million as at 31 March 2018 compared to RMB120.8 million as at 31 December 2017.

Total non-current and current interest-bearing liabilities decreased by RMB5.5 million to RMB931.0 million as at 31 March 2018 as compared to RMB936.5 million as at 31 December 2017. This was mainly due to repayments made in Q12018.

Breakdown of trade and other payables is as follows:-

Trade and other payables increased by RMB106.3 million to RMB983.7 million as at 31 March 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 by RMB46.1 million and RMB75.9 million respectively.

Cash Flow Statement

Our Group generated negative operating cash flow of RMB17.9 million in Q1 2018 mainly due to loss before income tax, income tax paid and increase in inventories as well as trade and other receivables. These were partially offset by depreciation charge for the period, interest expense and an increase in trade and other payables.

Financing activities resulted in negative cash flow of RMB38.1 million in Q1 2018 mainly due to repayment of interest-bearing liabilities, interest paid and an increase in pledged deposits. These were partially offset by proceeds from interest-bearing liabilities.

There was a net cash outflow of RMB5.2 million in Q1 2018 from the Group’s investing activities mainly due to acquisitions of property, plant and equipment.

As a result of the above, cash and cash equivalents decreased from RMB157.3 million as at 31 December 2017 to RMB96.1 million as at 31 March 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. We continue to be cautious on the Group’s overall performance in the next 12 months.

In response to a media exposure about pollution by chemical producers in the region, the local government of Yancheng city, in which our Xiangshui plant is located, has ordered a shutdown of all chemical producers to evaluate the compliance of environment regulations of each of these producers. Our Xiangshui plant, which has an annual AA capacity of 205,000 tonnes, has been ordered to shut down to comply with the directive.

The Management is working with the local government to re-commence the production to minimize the impact of the shutdown to the Group’s FY2018 results.

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