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Third Quarter and Nine Months Results Announcement for the Period Ended 30 September 2017

Financials Archive

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Profit & Loss
Profit & Loss

Review of Performance
  1. Comprehensive Income Statement

    Comprehensive Income Statement


    The Group’s revenue increased slightly by 0.7% from RMB 509.6 million in 3QFY16 to RMB 513.3 million in 3QFY17, while revenue for the nine-month period (“9MFY17”) increased by 9.0% year-on-year (“y-o-y”) from RMB 1.4 billion to RMB 1.5 billion. This was mainly due to the increase in sales volume of our corn refining segment, which was partially offset by the decrease in the average selling price resulting from the stiff competition in the corn sweetener industry.

    For 3QFY17, sales volume for the corn refining segment increased from 253K (“K”=1,000) tonnes to 262K tonnes or about 3.4% y-o-y. This increase was attributable to the increases in the sales volumes of corn sweeteners and by-products of about 3.2% and 4.3% respectively. For 9MFY17, sales volume for the corn refining segment increased from 672K tonnes to 774K tonnes or by about 15.1% y-o-y. This increase was attributable to the increases in the sales volumes of corn sweeteners and by-products of about 12.3% and 22.0% respectively.

    For 3QFY17, the weighted average selling price of the Group’s corn refining products decreased by 0.9% y-o-y. This decrease was mainly attributable to the decrease in prices of by-products of about 7.6%. The weighted average selling price of the Group’s corn refining products for 9MFY17 decreased by 2.1% y-o-y. This decrease was attributable to the decrease in prices of corn sweeteners by about 3.1%, which was partially offset by the increase in prices of by-products by 2.0%.

    The Group’s export revenue in 9MFY17 increased by 7.2% as compared to 9MFY16. However, the export revenue as a percentage of total revenue decreased from 3.4% in 9MFY16 to 3.3% in 9MFY17. The increase in export revenue in 9MFY17 was because our corn sweetener products became more competitive for the export market in view of lower production costs, resulting from the lower average corn raw material prices.

    Gross profit and gross profit margin

    Gross profit for 3QFY17 decreased by 25.9% or RMB 12.8 million y-o-y, and the gross profit margin decreased from 9.7% in 3QFY16 to 7.1%. Revenue increased by 0.7% y-o-y, while the cost of sales for the corresponding period increased by 3.6%. This was mainly due to the decrease in selling prices of our corn refining products and the substantial increase in the cost of coal used by the coal-based electricity and steam power generation plants. The corn raw material prices decreased by 1.7% compared to 3QFY16.

    For a similar reason, gross profit for 9MFY17 decreased by 1.0% or about RMB 1.4 million y-o-y mainly attributable to the decrease in gross profit of our corn refining segment by 2.2% or about RMB 3.2 million. Group revenue for 9MFY17 increased by 9.0% y-o-y, while the cost of sales for the corresponding period increased by 10.2%. Group gross profit margin decreased by 0.9 percentage points y-o-y to 9.6%.

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

    The others segment including our Hongzhou subsidiary made a gross profit of RMB 1.3 million in 9MFY17, compared with RMB 0.8 million in 9MFY16.

    Other operating income

    Other operating income increased by 238.1% from RMB 26.3 million in 9MFY16 to RMB 89.0 million in 9MFY17 due mainly to the reversal of impairment of property, plant and equipment of our Shandong subsidiary in May 2017 and the increase in insurance claim compensation for the losses incurred from a fire at our Liaoning subsidiary, which was partially offset by the decrease in gain on sale of consumables and waste materials and decrease in government grant and subsidies.

    Operating expenses

    - Selling and distribution expenses

    Selling and distribution expenses increased by 30.0% from RMB 76.2 million in 9MFY16 to RMB 99.1 million in 9MFY17. This is mainly attributable to the increase in transportation costs.

    - Administrative expenses

    The Group’s administrative expenses increased by 4.0% from RMB 79.6 million in 9MFY16 to RMB 82.8 million in 9MFY17. This was mainly due to the increase in staff costs (including salary, social insurance payment and other welfare), partially offset by the decrease in depreciation charge and other manufacturing overheads charged to operating expenses as a result of production halts of certain products.

    - Other operating expenses

    Other operating expenses increased by RMB 5.3 million from RMB 4.9 million in 9MFY16 to RMB 10.3 million in 9MFY17. This was mainly due to the losses resulting from a fire at our Liaoning subsidiary, which was partially offset by the decrease in sales cost of raw materials.

    Finance costs

    The Group’s finance costs increased by 4.0% or about RMB 1.5 million from RMB 38.5 million in 9MFY16 to RMB 40.0 million in 9MFY17. This was attributable to the increase in interest costs.

    Taxation

    The decrease in income tax expense was due to the decrease in 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 9MFY17 was higher than the statutory tax rate.

    Total comprehensive loss

    The Group’s total comprehensive income increased by 102.6% or about RMB 31.7 million y-o-y from a loss of RMB 30.9 million in 9MFY16 to a profit of RMB 0.8 million in 9MFY17 due mainly to the increase of RMB 62.7 million in other operating income, and the increases in selling and distribution expenses, administrative expenses and other operating expenses.

  2. Statement of Financial Position

    (i) Current assets

    Current assets decreased by RMB 127.4 million from RMB 779.5 million as at 31 December 2016 to RMB 652.1 million as at 30 September 2017, due mainly to the decrease in inventories of RMB 29.4 million, the decrease in other receivables, deposits and prepayments (including the amount owing by related parties) of RMB 62.9 million (due mainly to the full collection of the compensation for relocation of our Shandong subsidiary owed by the local government), and the decrease in cash and cash equivalents of RMB 35.7 million. Trade receivable turnover days decreased slightly from 35 days in FY16 to 33 days in 9MFY17. Inventory turnover days was lower at 32 days in 9MFY17 as compared with 40 days for FY16.

    (ii) Non-current assets

    The increase in non-current assets of RMB 31.6 million was mainly due to the reversal of impairment of property, plant and equipment of RMB 67.4 million and the capital expenditure of RMB 39.3 million, which were partially offset by the depreciation of RMB 62.8 million and the disposal of plant and equipment of RMB 12.4 million.

    (iii) Current liabilities

    Current liabilities decreased by RMB 32.2 million from RMB 670.7 million as at 31 December 2016 to RMB 638.5 million as at 30 September 2017, due mainly to the decrease in short-term interest-bearing loans and borrowings of RMB 31.5 million (as at 30 September 2017, the pledged cash deposits decreased by RMB 18.7 million to RMB 127.3 million as compared to 31 December 2016), and the decrease in trade payables of RMB 1.2 million, partially offset by the increase in other payables and accruals of RMB 1.3 million. Trade payable turnover days stood at 47 days, unchanged compared with that for FY16.

    The Group’s debt equity ratio was 6.77 times as at 30 September 2017 compared with 7.20 times as at 31 December 2016, and the net debt equity ratio was 4.73 times as at 30 September 2017 (31 December 2016: 4.96 times). This was mainly due to the decrease of RMB 91.6 million in total interest-bearing loans and borrowings, and the decrease of RMB 5.0 million in total equity.

    (iv) Non-current liabilities

    Non-current liabilities decreased by RMB 58.6 million due to the decrease of RMB 60.1 million in long-term interest-bearing loans, partially offset by the increase of RMB 1.5 million in deferred income (mainly due to increase in government grants and subsidies relating to low-energy environmental protection equipment and the amortization of government grants).

    (v) Shareholders' equity

    As at 30 September 2017, shareholders’ equity was lower than that as at 31 December 2016 mainly due to the payment of dividend in May 2017.

  3. Cash Flows

    For 9MFY17, the Group experienced net operating cash inflow of RMB 120.7 million. This comprised operating profit before changes in working capital of RMB 29.7 million adjusted for decrease in working capital of RMB 92.7 million and income taxes paid of RMB 1.6 million.

    The decrease in working capital was mainly the result of:

    i) a decrease in inventory of RMB 29.4 million;
    ii) a decrease in trade receivables of RMB 0.3 million;
    iii) a decrease in other receivables, deposits and prepayments of RMB 62.0 million;
    iv) a decrease in amount owing by related parties of RMB 0.9 million; and
    v) an increase in other payables and accruals of RMB 1.3 million

    which were offset by


    vi) a decrease in trade payables of RMB 1.2 million.

    Net cash used in investing activities amounted to RMB 18.9 million in 9MFY17. This was mainly due to the construction of property, plant and equipment in our Shandong subsidiary, the upgrading and reconstruction of corn evaporator in our Henan subsidiary and Shaanxi subsidiary, the purchase of land use rights in our Xinjiang branch and the purchase of packaging containers for our finished products. These cash outflows were partially mitigated by the cash inflows arising from proceeds from the disposal of plant and equipment of RMB 12.2 million, proceeds from government grants for low-energy environmental protection equipment of RMB 6.1 million, and the interest income of RMB 2.2 million.

    Net cash outflow used in financing activities was RMB 118.8 million, mainly due to the net decrease in total bank loans of RMB 101.5 million and payment of interest expense and dividend of RMB 40.0 million and RMB 5.9 million respectively. These cash outflows were partially offset by the decrease in pledged cash deposits of RMB 18.7 million and the increase in interest-bearing loans from a Director of RMB 9.9 million.

Commentary

Business climate

The corn sweetener business in China remains challenging as the entire industry has been facing tough environmental control regulations by the central government leading to higher operating costs. Higher electricity cost continues to be a major concern for the Group as it constantly upgrades its power generation plants in order to meet the standards on air pollution and waste control. For the same reason, the Group has stopped the production and sale of its animal feed; and it is also facing a growing concern over the demand for its by-products by the animal feed industry due to tighter environmental control regulations. In addition, there is still over-capacity within the corn sweetener industry and hence downward pressure on the average selling prices of all corn sweetener products.

On the operational level, the expected slight increase in raw corn material prices for the coming months and the increase in staff cost will further erode the profit margins of the Group. Furthermore, the uncertainty of the changes in government policy, especially in the area of environmental control, will also increase the Group’s operating costs. Thus, the Group maintains a cautious outlook for its financial performance for the year 2017.

Statement of Financial Position
Profit & Loss