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Financial Statement and Dividend Announcement for the Second Quarter and Half Year Ended 30 June 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

Our revenue in Q2 2018 increased by RMB68.1 million to RMB623.3 million as compared to RMB555.1 million in Q2 2017. This was mainly due to an increase in revenue from sale of AA and AE by RMB139.9 million which was partially offset by a decrease in revenue from sale of other chemical products by RMB71.8 million.

The increase in revenue from AA and AE was mainly attributable to higher average selling prices in Q2 2018 of RMB7,900 per tonne as compared to Q2 2017 of RMB7,100 per tonne. The sale volume for AA and AE also increased from 65,200 tonnes in Q2 2017 to 71,500 tonnes in Q2 2018.

Gross profit

The Group incurred a gross profit of RMB30.7 million in Q2 2018 as compared to RMB68.6 million in Q2 2017. Sales of AA and AE as well as other chemical products contributed gross profit of RMB29.8 million and RMB0.9 million respectively.

Overall gross profit margin decreased from 12.4% in Q2 2017 to 4.9% in Q2 2018. This was mainly due to an increase in raw material cost as compared to Q2 2017.

Other operating income

Other operating income comprised the following items:-

Operating Income 2q2018

The Group purchased catalyst and on-sell to Taixing Jinyan in Q2 2018.

Distribution expenses

Distribution expenses decreased by RMB6.4 million to RMB13.6 million in Q2 2018 as compared to RMB20.0 million in Q2 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

Administrative expenses increased by RMB11.4 million to RMB42.0 million in Q2 2018 as compared to RMB30.6 million in Q2 2017. This was mainly due to a net exchange loss of RMB13.4 million in Q2 2018 as compared to a net gain of RMB0.9 million in Q2 2017. The exchange loss was incurred due to depreciation of RMB against USD as most of our raw materials were imported.

Other operating expenses

Other operating expenses comprised the following items:-

Operating Expenses 2q2018

The Group purchased catalyst and on-sell to Taixing Jinyan in Q2 2018.

Finance expenses

Finance expenses increased by RMB3.1 million to RMB21.1 million in Q2 2018 as compared to RMB18.0 million in Q2 2017. This was mainly due to higher factoring interest incurred on notes receivables in Q2 2018.

Income tax expense

Income tax expense increased by RMB2.8 million to RMB6.2 million in Q2 2018 as compared to RMB3.4 million in Q2 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.

Balance sheet

Property, plant and equipment decreased by RMB63.7 million to RMB1,071.7 million as at 30 June 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 RMB32.3 million to RMB76.9 million as at 30 June 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 RMB304.6 million to RMB1,259.5 million as at 30 June 2018 as compared to RMB955.0 million as at 31 December 2017. This was mainly due to increase in trade receivables from 3rd parties and related parties by RMB107.8 million and RMB258.8 million respectively.

Breakdown of the trade receivables from related parties of approximately RMB745.0 million is as follows:-

The ageing of the trade receivables from related parties as at 30 June 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 RMB58.3 million to RMB179.1 million as at 30 June 2018 as compared to RMB120.8 million as at 31 December 2017.

Breakdown of trade and other payables is as follows:-

Trade and other payables increased by RMB537.1 million to RMB1,414.6 million as at 31 June 2018 as compared to RMB877.5 million as at 31 December 2017. This was mainly due to increase in trade payables to third parties, related parties and the joint venture entity as well as an increase in notes payables.

Total non-current and current interest-bearing liabilities decreased by RMB271.4 million to RMB665.1 million as at 30 June 2018 compared to RMB936.5 million as at 31 December 2017. This was mainly due to repayments made in 1H 2018.

Cash Flow Statement

Our Group generated positive operating cash flow of RMB307.0 million in Q2 2018 after adjusting for interest expense, depreciation charge, a decrease in inventories and an increase in trade and other payables. These were partially offset by loss incurred and income tax paid for the period as well as an increase in trade and other receivables.

Financing activities resulted in a negative cash flow of RMB336.5 million in Q2 2018 mainly due to an increase in pledged deposits and repayments of interest-bearing liabilities and interest paid. These were partially offset by proceeds from interest-bearing liabilities.

There was a net cash outflow of RMB7.4 million in Q2 2018 from the Group’s investing activities mainly due to acquisitions of property, plant and equipment by the joint venture entity.

As a result of the above, cash and cash equivalents decreased from RMB157.3 million as at 31 December 2017 to RMB59.2 million as at 30 June 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.

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.

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