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Full Year Financial Statement and Dividend Announcement for the Year Ended 31 December 2017

Financials Archive

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Profit & Loss

Profit and Loss FY2017

Balance Sheet

Balance Sheet FY2017

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 FY2017 increased by RMB113.2 million to RMB2,246.7 million as compared to RMB2,133.6 million in FY2016. This was mainly due to increase in revenue from sale of acrylic acid ("AA") and acrylate esters ("AE") as well as other chemical products by RMB39.3 million and RMB85.5 million respectively, which were partially offset by a decrease in revenue from sale of PMIDA & glyphosate by RMB11.7 million.

The increase in revenue from AA and AE was mainly attributable to higher average selling prices in FY2017 of RMB7,700 per tonne when compared to FY2016 of RMB6,000. This was partially offset by lower sale volume in FY2017 of 235,000 tonnes compared to 255,000 tonnes in FY2016.

Gross profit

The Group incurred a gross profit of RMB222.9 million in FY2017 as compared to RMB70.1 million in FY2016. Sale of AA and AE as well as other chemical products contributed gross profit of RMB201.6 million and RMB21.3 million respectively in FY2017.

Overall gross profit margin improved from 3.3% in FY2016 to 9.9% in FY2017. This was mainly due to higher average selling prices for AA and AE in FY2017. Gross profit margin for sale of AA and AE stood at 11.6% in FY2017 compared to 3.5% in FY2016.

Other operating income

Other operating income included the following items:-

  1. In Q2 2016, the Group recognised a gain of RMB100.0 million after agreement with Arkema on the new shareholding structure and other terms on the joint venture with Arkema.
  2. We have ceased the sale of propylene and other crude residuals to the joint venture entity in FY2017 as the joint venture entity had taken over the procurement of its own raw materials.
  3. This related to sale of steam and provision of waste water treatment services provided by the joint venture entity.

Distribution expenses

Distribution expenses increased by RMB6.6 million to RMB42.8 million in FY2017 as compared to RMB36.2 million in FY2016. Distribution expenses consisted of transportation charges and packaging costs as well as other sales related expenses. These expenses increased mainly due to (i) higher freight rates due to stricter transportation regulations on transporting of dangerous chemical products; and (ii) incurrence of additional freight charges to transport crude acrylic acid from our joint venture company in Taixing to our acrylate ester plants in Xiangshui for processing the crude AA into AE.

In Q4 2017, there was a reversal of accrual of freight charges due to re-negotiation of freight rates with carriers resulting in an income for distribution expenses.

Administrative expenses

Administrative expenses decreased by RMB50.8 million to RMB122.2 million in FY2017 as compared to RMB173.0 million in FY2016. This was mainly due to the efforts from the Management to cut costs.

Other operating expenses

Other operating expenses included the following items:-

  1. In FY2016, the Group made an impairment loss on property, plant and equipment, no such impairment was made in FY2017. Subject to confirmation by an independent valuer, no such impairment was made in FY2017.
  2. We have ceased the sale of propylene and other crude residuals to the joint venture entity in FY2017 as the joint venture entity had taken over the procurement of its own raw materials.

Finance expenses

Finance expenses increased by RMB2.9 million to RMB81.6 million in FY2017 as compared to RMB78.7 million in FY2016.

Income tax expense

Income tax expense decreased by RMB63.8 million to RMB5.7 million in FY2017 as compared to RMB69.6 million in FY2016. This was mainly due to recognition of income tax in FY2016 due to adjustments made on the taxes receivable and deferred tax assets which were brought forward from prior years.

(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 RMB71.2 million to RMB1,135.3 million as at 31 December 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 RMB27.2 million to RMB109.1 million as at 31 December 2017 compared to RMB81.9 million as at 31 December 2016. This was mainly due to additional stocking of raw material, as our AA plant in Xiangshui re-commenced production in September 2017 after completion of modifications.

Breakdown of trade and other receivables is as follows:-

Trade and other receivables decreased by RMB35.4 million to RMB954.9 million as at 31 December 2017 as compared to RMB990.3 million as at 31 December 2016. This was mainly due to decrease in receivables due from 3rd parties and joint venture entity as well as value addd tax recoverable. These were partially offset by increase in receivables due from related parties and notes receivables.

Breakdown of the trade receivables from related parties of approximately RMB486.2 million is as follows:-

The ageing of the trade receivables from related parties as at 31 December 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 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 RMB131.9 million to RMB197.6 million as at 31 December 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.

Total non-current and current interest-bearing liabilities decreased by RMB200.8 million to RMB936.5 million as at 31 December 2017 compared to RMB1,137.3 million as at 31 December 2016. This was mainly due to repayments made in FY2017.

Breakdown of trade and other payables is as follows:-

Trade and other payables increased by RMB231.5 million to RMB877.5 million as at 31 December 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 RMB537.3 million in FY2017 mainly due to depreciation charge, 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 interest income, a reversal of write-down of inventories and an increase in inventories.

Financing activities resulted in negative cash flow of RMB414.3 million in FY2017 mainly due to repayments of bank loans, interest paid and an increase in pledged deposits. These were partially offset by proceeds from bank loans.

There was a net cash outflow of RMB162.1 million in FY2017 from the Group's investing activities mainly due to purchase of property, plant and equipment as well as intangible assets in FY2017. This was partially offset by interest received.

As a result of the above, cash and cash equivalents decreased from RMB196.5 million as at 31 December 2016 to RMB157.3 million as at 31 December 2017.

Commentary

The operating environment of AA industry remains challenging due to the current oversupply situation in the PRC. The prices of our products remain volatile, we remain cautious on the Group's overall performance in the next 12 months.

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