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

Our revenue in Q2 2017 increased by RMB39.6 million to RMB555.1 million compared to RMB515.6 million Q2 2016. This was mainly due to an increase in revenue from sale of AA and AE by RMB35.9 million.

The increase in revenue from AA and AE was mainly attributable to higher average selling prices in Q2 2017 of RMB7,100 when compared to Q2 2016 of RMB6,000. This was partially offset by slightly lower sale volume in Q2 2017 of 65,200 tonnes compared to 67,000 tonnes in Q2 2016.

Gross profit

The Group incurred a gross profit of RMB68.6 million in Q2 2017 compared RMB13.9 million in Q2 2016. Sales of AA and AE as well as other chemical products contributed RMB61.9 million and RMB6.7 million respectively.

Overall gross profit margin improved from 2.7% in Q2 2016 to 12.4% in Q2 2017. We have seen a temporary rebound in AA and AE selling prices in Q2 2017 due to shut-down maintenance by some of the AA producers in the PRC during the period which resulted in better margins.

Gross profit margins for AA and AE improved from 1.6% in Q2 2016 to 14.2% in Q2 2017.

Other operating income

The other operating income in Q2 2016 included a one-off gain amounted to RMB100.0 million as a result of re-negotiation of joint venture agreement with Arkema. There was no such gain in Q2 2017 which resulted in a decrease in other operating income by RMB100.4 million.

Distribution expenses

Distribution expenses increased by RMB9.2 million to RMB20.0 million in Q2 2017 compared to RMB10.8 million in Q2 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 RMB20.6 million to RMB30.6 million in Q2 2017 compared to RMB51.2 million in Q2 2016. This was mainly due to (i) decrease in depreciation charge amounted to RMB5.0 million as a result of lower carrying amount for property, plant and equipment after taking into consideration of impairment loss made; and (ii) incurrence of a net exchange loss of RMB6.9 million in Q2 2016 compared to a net gain of RMB0.9 million in Q2 2017.

Other operating expenses

Other operating expenses decreased by RMB3.2 million to RMB6.5 million in Q2 2017 compared to RMB9.7 million in Q2 2016.

Finance expenses

Finance expenses decreased by RMB3.8 million to RMB18.0 million in Q2 2017 compared to RMB21.8 million in Q2 2016. This was mainly due to lower interest bearing liabilities in Q2 2017 compared to Q2 2016.

Income tax expense

Income tax expense increased by RMB2.8 million to RMB3.4 million in Q2 2017 compared to RMB0.6 million in Q2 2016. Income tax was 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 RMB13.0 million to RMB1,193.6 million as at 30 June 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.

Inventories increased by RMB89.6 million to RMB171.5 million as at 30 June 2017 compared to RMB81.9 million as at 31 December 2016. This was mainly due to an increase in raw material, propylene, to cater for our production plan for the months of July and August 2017.

Breakdown of trade and other receivables is as follows:-

Trade and other receivables increased by RMB110.6 million to RMB1,100.9 million as at 30 June 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 joint venture entity and value added tax recoverable.

Breakdown of trade and other payables is as follows:-

Trade and other payables increased by RMB254.1 million to RMB900.0 million as at 30 June 2017 compared to RMB646.0 million as at 31 December 2016. This was mainly attributable to an increase in purchase of raw materials to cater for higher production plan in the months of July and August 2017.

Total non-current and current interest-bearing liabilities decreased by RMB111.8 million to RMB1,025.5 million as at 30 June 2017 compared to RMB1,137.3 million as at 31 December 2016. This was mainly due to repayments made in Q2 2017.

Cash Flow Statement

Our Group generated negative operating cash flow of RMB140.7 million in Q2 2017 mainly due to an increase in trade and other receivables and a decrease in trade and other payables. These were partially offset by a decrease in inventories.

Financing activities resulted in positive cash flow of RMB41.5 million in Q2 2017 mainly due to a decrease in pledged deposits and proceeds from interest-bearing. These were partially offset by repayments of interest-bearing liabilities and interest paid.

There was a net cash outflow of RMB9.8 million in Q2 2017 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 RMB196.5 million as at 31 December 2016 to RMB130.2 million as at 30 June 2017.

Commentary

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

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