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

Third Quarter and Nine Months Results Announcement for the Period Ended 30 September 2018

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 by 16.9% from RMB 513.3 million in 3QFY17 to RMB 600.3 million in 3QFY18, while revenue for the nine-month period (“9MFY18”) increased by 10.1% year-on-year (“y-o-y”) from RMB 1.5 billion to RMB 1.7 billion. This was mainly due to both increases in sales volume and weighted average selling price of our corn refining segment.

    For 3QFY18, sales volume for the corn refining segment increased from 262K (“K”=1,000) tonnes to 293K tonnes or about 12.2% y-o-y. This increase was attributable to the increases in the sales volumes of corn sweeteners and by-products of about 8.3% and 23.3% respectively. For 9MFY18, sales volume for the corn refining segment increased from 774K tonnes to 800K tonnes or by 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 1.5% and 10.0% respectively.

    For 3QFY18, the weighted average selling price of the Group’s corn refining products increased by 4.3% y-o-y. The increase was mainly attributable to the increases in average selling prices of corn sweeteners and by-products by 4.9% and 3.7% respectively. The weighted average selling price of the Group’s corn refining products for 9MFY18 increased by 6.6% y-o-y. This increase was attributable to the increase in prices of corn sweeteners by about 9.4%, which was partially offset by the decrease in prices of by-products by 3.0%.

    The Group’s export revenue in 9MFY18 increased by 11.0% as compared to 9MFY17. However, the export revenue as a percentage of total revenue in 9MFY18 is approximately 3.3%, same as that in 9MFY17. The sales to the export market were still poor because of our uncompetitive pricing due to our higher production cost.

    Gross profit and gross profit margin

    Gross profit for 3QFY18 increased significantly by 35.5% or RMB 13.0 million y-o-y, and the gross profit margin increased by 1.1 percentage points from 7.1% in 3QFY17 to 8.2%. Revenue increased by 16.9% y-o-y, while the cost of sales for the corresponding period increased by 15.5%. This was mainly due to the higher capacity utilization resulting from the increase in sales volume of our corn refining products and the higher average selling price of our corn refining products.

    For a similar reason, gross profit for 9MFY18 increased by 13.0% or about RMB 18.7 million y-o-y mainly attributable to the increase in gross profit of our corn refining segment. Group revenue for 9MFY18 increased by 10.1% y-o-y, while the cost of sales for the corresponding period increased by 9.8%. Group gross profit margin increased by 0.2 percentage points y-o-y to 9.8%.

    The others segment including our Hongzhou subsidiary made a gross profit of RMB 1.4 million in 9MFY18, compared with RMB 1.3 million in 9MFY17.

    Other operating income

    Other operating income decreased by 77.9% from RMB 95.3 million in 9MFY17 to RMB 21.1 million in 9MFY18 due mainly to the reversal of impairment of property, plant and equipment of our Shandong subsidiary in May 2017 and the insurance claim compensation for the losses incurred from a fire at our Liaoning subsidiary recognized in 9MFY17, which were partially offset by the increase in gain on sale of consumables and waste materials and the increase in income from penalties imposed on suppliers.

    Operating expenses

    - Selling and distribution expenses

    Selling and distribution expenses decreased by 4.1% from RMB 99.1 million in 9MFY17 to RMB 95.0 million in 9MFY18. This is mainly attributable to the decrease in transportation costs and staff costs.

    - Administrative expenses

    The Group’s administrative expenses decreased by 17.3% from RMB 82.8 million in 9MFY17 to RMB 68.4 million in 9MFY18. This was mainly due to the decrease in staff costs and the decrease in depreciation charge and other manufacturing overheads charged to operating expenses as a result of production halts of certain products. In addition, our plants have experienced interruption which resulted in temporary stoppages of production due to stringent environmental controls.

    - Other operating expenses

    Other operating expenses decreased by RMB 12.2 million from RMB 16.5 million in 9MFY17 to RMB 4.3 million in 9MFY18. This was due mainly to the losses of about RMB 7.3 million resulting from a fire at our Liaoning subsidiary in 9MFY17 and the decrease in the loss on disposal of plant and equipment of about RMB 6.8 million, which were partially offset by the increase in employee compensation for work-related injury.

    Finance costs

    The Group’s finance costs decreased by 15.5% or about RMB 6.2 million from RMB 40.0 million in 9MFY17 to RMB 33.8 million in 9MFY18. This was attributable to the decrease in interest costs arising from decrease in bank loans.

    Taxation

    The increase in income tax expense was due to the increase 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 9MFY18 was higher than the statutory tax rate.

    Total comprehensive loss

    The Group’s total comprehensive income decreased by 2,570.4% or about RMB 20.9 million y-o-y from a profit of RMB 0.8 million in 9MFY17 to a loss of RMB 20.1 million in 9MFY18 due mainly to the decrease of RMB 74.2 million in other operating income, partially offset by the increase in gross profit, and the decreases in operating expenses and finance costs.

  2. Statement of Financial Position

    (i) Current assets

    Current assets decreased by RMB 42.9 million from RMB 602.3 million as at 31 December 2017 to RMB 559.5 million as at 30 September 2018, due mainly to the decrease in inventories of RMB 18.0 million and the decrease in cash and cash equivalents of RMB 55.1 million, which were partially offset by the increase in trade receivables of RMB 20.3 million, and the increase in other receivables, deposits and prepayments of RMB 10.5 million (mainly for prepayments to suppliers for purchasing of raw materials). Trade receivable turnover days decreased slightly from 32 days in FY17 to 31 days in 9MFY18. Inventory turnover days was lower at 33 days in 9MFY18 as compared with 36 days for FY17.

    (ii) Non-current assets

    The decrease in non-current assets of RMB 45.0 million was mainly due to the depreciation of RMB 60.8 million and the disposal of plant and equipment of RMB 7.3 million, which were partially offset by the capital expenditure of RMB 23.1 million.

    (iii) Current liabilities

    Current liabilities decreased by RMB 17.0 million from RMB 568.1 million as at 31 December 2017 to RMB 551.1 million as at 30 September 2018, due mainly to the decrease in short-term interest-bearing bank loans of RMB 60.0 million (as at 30 September 2018, the pledged cash deposits decreased by RMB 30.9 million to RMB 66.4 million as compared to 31 December 2017), and the decrease in other payables and accruals of RMB 5.8 million, which were partially offset by the increase in trade payables of RMB 35.3 million and the increase in amount owing to a Director of RMB 12.7 million. Trade payable turnover days in 9MFY18 was unchanged compared with 48 days for FY17.

    The Group’s debt equity ratio was 9.47 times as at 30 September 2018 compared with 8.46 times as at 31 December 2017, and the net debt equity ratio was 7.67 times as at 30 September 2018 (31 December 2017: 6.47 times). This was due mainly to the decrease of RMB 20.1 million in total equity resulting from the net loss in 9MFY18, and the decrease of RMB 94.4 million in total bank loans and other borrowings.

    (iv) Non-current liabilities

    Non-current liabilities decreased by RMB 50.8 million, due to the decrease in long-term interest-bearing bank loans of RMB 75.5 million, the decrease in amount owing to a Director of RMB 9.9 million, and the decrease in deferred income of RMB 3.6 million (mainly due to the amortization of government grants), which were partially offset by the increase of RMB 38.2 million in amount owing to a related party.

    (v) Shareholders' equity

    As at 30 September 2018, shareholders’ equity was lower than that as at 31 December 2017 mainly due to the net loss of RMB 20.1 million incurred in 9MFY18.

  3. Cash Flows

    For 9MFY18, the Group experienced net operating cash inflow of RMB 86.5 million. This comprised operating profit before changes in working capital of RMB 71.0 million adjusted for decrease in working capital of RMB 17.7 million and income taxes paid of RMB 2.2 million.

    The decrease in working capital was mainly the result of:

    i) a decrease in inventory of RMB 18.2 million;
    ii) an increase in trade payables of RMB 35.3 million; and
    iii) an increase in amount owing to related parties of RMB 0.9 million,
    which were offset by
    iv) an increase in trade receivables of RMB 20.3 million;
    v) an increase in other receivables, deposits and prepayments of RMB 10.5 million; and
    vi) a decrease in other payables and accruals of RMB 5.8 million.

    Net cash used in investing activities amounted to RMB 13.5 million in 9MFY18. This was mainly due to the expenditures for construction and maintenance of property, plant and equipment 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 7.6 million, and the interest income of RMB 1.7 million.

    Net cash outflow used in financing activities was RMB 97.2 million, mainly due to the net decrease in total bank loans of RMB 135.5 million and payment of interest expense of RMB 33.7 million. These cash outflows were partially offset by the decrease in pledged cash deposits of RMB 30.9 million and the increase in interest-free loans from a Director and a related party of RMB 2.8 million and RMB 38.2 million respectively.

Commentary

China’s economic growth is decelerating in the third quarter at 6.5% mainly due to economy restructuring and the slowing down of domestic capital investment. The impact of the trade war with the United States is expected to weigh on its exports growth in the coming months. In view of the headwinds, the Chinese government is taking steps to stimulate and support its economy, in particular by injecting more liquidity for the local businesses.

Operationally, the Group is hopeful of the Chinese government’s monetary policy and being able to benefit from the spillover of liquidity in terms of easing its cash flow and lowering its borrowing costs. In addition, the Group expects its average raw corn material prices to increase marginally till the end of the year. On the other hand, although there is a downward pressure on its average selling prices of all the products due to the lowering of cane sugar prices recently, barring unforeseen circumstances, the Group does not expect a significant impact on the gross profit margins of its corn sweeteners.

In addition, the Group is in the process of streamlining its management operations for better control and to improve on its operational efficiency.

The Group remains cautious of its business outlook due to the slowing down of the Chinese economy and the uncertainty of the ongoing trade war between China and the United States.

Statement of Financial Position
Profit & Loss