Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player



    

  



Email This Print This Location : Home -> Investor Relations -> Financial Information -> Financials

Second Quarter and Half Year Results Announcement for the Period Ended 30 June 2018

Financials Archive

Get Adobe Reader Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.


Profit & Loss
Profit & Loss

Review of Performance
  1. Comprehensive Income Statement

    Comprehensive Income Statement


    The Group’s revenue for 2QFY18 increased by 7.2% from RMB 508.6 million in 2QFY17 to RMB 545.0 million in 2QFY18 while revenue for the six-month period (“1HFY18”) increased by 6.6% year-on-year (“y-o-y”) from RMB 996.1 million to RMB 1,062.1 million. This was mainly due to the increase in the weighted average selling price of the Group’s corn refining products.

    For 2QFY18, sales volume for the corn refining segment decreased from 266K (“K”=1,000) tonnes to 259K tonnes or about 2.7% y-o-y. This decrease was attributable to the decrease in the sales volume of corn sweeteners by about 4.0%, while the sales volume of our by-products increased by 2.3%. For 1HFY18, sales volume for the corn refining segment decreased by 1.1% y-o-y from 512K tonnes to 507K tonnes. This decrease was attributable to the decrease in the sales volume of corn sweeteners by 2.1%, while the sales volume of our by-products increased by 3.7%.

    For 2QFY18, the weighted average selling price of the Group’s corn refining products increased by 10.4% y-o-y. The increase was mainly attributable to the increases in average selling prices of corn sweeteners and by-products by 12.9% and 3.1% respectively. The weighted average price of the Group’s corn refining products for 1HFY18 increased by 7.8% y-o-y. This increase was attributable to the increase in prices of corn sweeteners by 12.2%, which was partially offset by the decrease in prices of by-products by 6.7%.

    The Group’s export revenue in 1HFY18 increased by 9.0% as compared to 1HFY17. While the export revenue as a percentage of total revenue increased from 3.5% in 1HFY17 to 3.6% in 1HFY18. The sales to the export market was poor because of our uncompetitive pricing due to our higher production cost.

    Gross profit and gross profit margin

    For 2QFY18, gross profit increased by 13.5% or about RMB 5.9 million y-o-y, mainly attributable to the increase in gross profit of our corn refining segment by 13.2% or about RMB 5.8 million. Revenue increased by 7.2% y-o-y, while the cost of sales for the corresponding period increased by 6.6%. Group gross profit margin increased by 0.5 percentage points y-o-y to 9.2%. This was mainly due to the increase in selling prices of our corn refining products. The corn raw material prices increased by 7.3% compared to 2QFY17.

    Group gross profit margin in 1HFY18 decreased by 0.1 percentage points y-o-y to 10.7%. Gross profit increased by 5.3% or about RMB 5.8 million y-o-y, mainly attributable to the increase in gross profit of our corn refining segment by 5.2% or about RMB 5.6 million due mainly to the increase in selling prices of our corn refining products. Group revenue increased by 6.6% y-o-y, while the cost of sales for the corresponding period increased by 6.8%.

    The Group has stopped the production of the animal feed products since 1QFY16.

    The others segment, including our Hongzhou subsidiary, made a gross profit of RMB 1.0 million in 1HFY18, compared with RMB 0.9 million in 1HFY17.

    Other operating income

    Other operating income decreased by RMB 66.4 million from RMB 80.1 million in 1HFY17 to RMB 13.7 million in 1HFY18 due mainly to the reversal of impairment of property, plant and equipment of our Shandong subsidiary in May 2017. In addition, the government grants and subsidies decreased by RMB 1.8 million, which was partially offset by the increase in gain on sale of consumables and waste materials by RMB 2.3 million.

    Operating expenses

    - Selling and distribution expenses

    Selling and distribution expenses decreased by 6.5% from RMB 67.0 million in 1HFY17 to RMB 62.6 million in 1HFY18. This was mainly attributable to the decrease of RMB 4.6 million in transportation costs.

    - Administrative expenses

    The Group’s administrative expenses decreased by 9.5% from RMB 49.2 million in 1HFY17 to RMB 44.6 million in 1HFY18. This was partly due to the reclassification of certain depreciation charge and other manufacturing overheads to operating expenses as a result of production halts of certain products.

    - Other operating expenses

    Other operating expenses decreased by about RMB 6.5 million from RMB 8.9 million in 1HFY17 to RMB 2.4 million in 1HFY18. This was due mainly to the decrease in loss on disposal of property, plant and equipment by about RMB 6.7 million.

    Finance expenses

    The Group’s finance expenses decreased by 14.2% from RMB 27.0 million in 1HFY17 to RMB 23.2 million in 1HFY18. This was attributable to the decrease in interest costs as a result of the decrease in bank loans by about RMB 181 million from RMB 1,004 million in 1HFY17 to RMB 823 million in 1HFY18.

    Taxation

    The increase in income tax expense was due to the increase of the net profit generated from our Shaanxi subsidiary. In addition, certain loss-making subsidiaries did not recognise deferred tax assets due to the uncertainty of their future taxable profits. Therefore, the effective tax rate in 1HFY18 was higher than the statutory tax rate.

    Total comprehensive loss

    The Group’s total comprehensive income decreased by 121.2% from a profit of RMB 35.3 million in 1HFY17 to a loss of RMB 7.5 million in 1HFY18 due mainly to the decrease of RMB 66.4 million in other operating income, which was partially offset by the increase of RMB 5.8 million in gross profit, and the decrease of RMB 15.5 million in operating expenses.

  2. Statement of Financial Position

    (i) Current assets

    Current assets increased by RMB 80.4 million from RMB 602.3 million as at 31 December 2017 to RMB 682.7 million as at 30 June 2018, due mainly to the increase in inventories of RMB 33.7 million, the increase in trade receivables of RMB 23.6 million, and the increase in other receivables, deposits and prepayments of RMB 19.0 million (mainly for prepayments to suppliers for purchasing of raw corn materials), and the increase in cash and cash equivalents of RMB 4.7 million. Trade receivable turnover days increased slightly from 32 days in FY17 to 33 days in 1HFY18. Inventory turnover days was higher at 39 days in 1HFY18 as compared with 36 days for FY17.

    (ii) Non-current assets

    The decrease in non-current assets of RMB 34.4 million was mainly due to the depreciation of RMB 40.8 million and the disposal of plant and equipment of RMB 5.0 million, which were partially offset by the capital expenditure of RMB 11.4 million.

    (iii) Current liabilities

    Current liabilities increased by RMB 52.6 million from RMB 568.1 million as at 31 December 2017 to RMB 620.8 million as at 30 June 2018, due mainly to the increase in trade payables of RMB 44.6 million and the increase in amount owing to a Director of RMB 12.7 million, which was partially offset by the decrease in other payables and accruals of RMB 5.3 million. Trade payable turnover days was higher at 52 days, compared with 48 days for FY17.

    The Group’s debt equity ratio was 9.37 times as at 30 June 2018 compared with 8.46 times as at 31 December 2017, and the net debt equity ratio was 7.15 times as at 30 June 2018 (31 December 2017: 6.47 times). This was due to the increase of RMB 15.9 million in total interest-bearing loans and borrowings and the decrease of RMB 7.5 million in total equity resulting from the net loss in 1HFY18.

    (iv) Non-current liabilities

    Non-current liabilities increased by RMB 0.8 million due to the increase in long-term interest-bearing loans of RMB 3.2 million, partially offset by the decrease in deferred income of RMB 2.4 million (mainly due to the amortization of government grants).

    (v) Shareholders' equity

    As at 30 June 2018, shareholders’ equity was lower than that as at 31 December 2017 mainly due to the net loss of RMB 7.5 million incurred in 1HFY18.

  3. Cash Flows

    For 1HFY18, the Group experienced net operating cash inflow of RMB 16.9 million. This comprised operating profit before changes in working capital of RMB 54.4 million adjusted for increase in working capital of RMB 36.3 million and income tax paid of RMB 1.3 million.

    The change in working capital was mainly the result of;

    i) an increase in inventory of RMB 33.5 million;
    ii) an increase in trade receivables of RMB 23.6 million;
    iii) an increase in other receivables, deposits and prepayments of RMB 19.0 million; and
    iv) a decrease in other payables and accruals of RMB 5.3 million,

    which were partially offset by

    v) an increase in trade payables of RMB 44.6 million

    Net cash used in investing activities amounted to RMB 4.9 million in 1HFY18. This was mainly due to the construction of property, plant and equipment and purchase of packaging containers for our finished products. These cash outflows were partially offset by the cash inflows arising from proceeds from the disposal of plant and equipment of RMB 5.2 million and the interest income of RMB 1.1 million.

    Net cash used in financing activities was RMB 6.3 million, mainly due to the payment of interest expense of RMB 23.1 million, which was partially offset by the net increase in total bank loans of RMB 13.1 million and the increase in amount owing to a Director of RMB 2.8 million.

Commentary

China’s economy appears to be slowing down as the tit-for-tat trade war with the United States is only just getting under way. While the domestic consumption continues to drive growth, there are signs of slower investment growth due to the government’s tightening of financial controls to manage the domestic debts in order to prevent a financial crisis. In addition, the government continues to impose more stringent pollution control measures for sustainable development, further hindering the growth of domestic businesses. Hence, the Group is of the view that should both the global and domestic headwinds persist, it will impact China’s economic growth in the second half of 2018 and beyond.

Amid the Chinese government’s deleveraging efforts with tougher financial regulations, the slower growth in capital expenditure has also impacted the pace of the domestic economy restructuring process in moving up the higher value chain. The policy has hit hard on the manufacturing companies especially in bank loans and higher borrowing costs. The Group expects its funding needs to be adversely affected in the short to medium term as banks continue to tighten the control on borrowing.

However, as China takes on the global leadership in combating climate change in the coming years to reduce greenhouse gases, the Group is facing continuous upgrading costs of its plants and equipment in meeting the environmental pollution measures and this has resulted in higher operating costs for the Group. Furthermore, as announced, China has imposed higher tariff on raw corn imports from the United States, which may lead to higher cost of the raw corn material supply in the domestic market. The Group expects its production costs to increase, hence lowering the profit margin of all its corn sweetener products.

In view of the global trade uncertainty and the likely higher operating and production costs, the management remains cautious of the Group’s business outlook in 2018.

Statement of Financial Position