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

First Quarter Results Announcement for the Period Ended 31 March 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 for 1QFY18 increased by RMB 29.6 million or 6.1% year on year (“y-o-y”), due mainly to the increase in revenue of our corn refining segment by 6.1%.

    For 1QFY18, sales volume for the corn refining segment increased slightly from 247K (“K”=1,000) tonnes to 248K tonnes or about 0.6% y-o-y, due mainly to the increase in the sales volume of by-products of about 5.1%, partially offset by the decrease in the sales volume of corn starch of about 2K tonnes.

    The prices of the corn refining products decreased by 3.7% y-o-y due to stiff competition. This decrease was attributable to the decreases in price of corn sweeteners and by-products of about 1.1% and 15.3% respectively.

    The Group’s export revenue in 1QFY18 decreased by 10.4% y-o-y due to the lower selling price as a result of stiff price competition from the export market, while export revenue as a percentage of total revenue decreased from 3.2% in 1QFY17 to 2.7% in 1QFY18.

    During 1QFY18, gross profit decreased by 0.3% y-o-y to RMB 63.5 million. Revenue increased by 6.1% y-o-y, while the cost of sales increased to a larger extent by 7.0%. Group gross profit margin decreased by 0.8 percentage points or 6.1% y-o-y to 12.3%. This was mainly due to the increase in corn raw material prices of about 12.9% and the decrease in price of corn refining products.

    The Group has stopped the production of animal feed products since 1QFY16 to minimise our net loss.

    The others segment including our Hongzhou subsidiary made a gross profit of RMB 0.5 million in 1QFY18.

    Other operating income

    Other operating income decreased by 21.4% from RMB 6.7 million in 1QFY17 to RMB 5.3 million in 1QFY18, due mainly to the decrease in government grant and subsidies.

    Operating expenses

    - Selling and distribution expenses

    Selling and distribution expenses decreased by 9.9% from RMB 34.4 million in 1QFY17 to RMB 31.0 million in 1QFY18. This was mainly attributable to the decrease in transportation costs.

    - Administrative expenses

    The Group’s administrative expenses decreased by 17.9% from RMB 26.4 million in 1QFY17 to RMB 21.7 million in 1QFY18. 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

    The Group’s other operating expenses increased by about RMB 0.3 million from RMB 0.4 million in 1QFY17 to about RMB 0.7 million in 1QFY18. This was mainly due to the adjustment to the accrued corn added-value tax for prior year.

    Finance expenses

    The Group’s finance expenses decreased by 14.5% from RMB 13.3 million in 1QFY17 to RMB 11.4 million in 1QFY18. This was attributable to the decrease in interest costs as a result of the 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 1QFY18 was higher than the statutory tax rate.

    Total comprehensive loss

    The Group’s total comprehensive income increased by 168.5% from a net loss of RMB 4.4 million in 1QFY17 to a net profit of RMB 3.0 million in 1QFY18, due mainly to the decreases in administrative expenses, selling and distribution expenses and finance expenses.

  2. Statement of Financial Position

    (i) Current assets

    Current assets increased by RMB 28.3 million from RMB 602.3 million as at 31 December 2017 to RMB 630.6 million as at 31 March 2018, due mainly to the increase in inventories of RMB 19.8 million, the increase in trade receivables of RMB 6.7 million, and the increase in other receivables, deposits and prepayments of RMB 8.8 million, which were partially offset by the decrease in cash and cash equivalents of RMB 6.3 million. Trade receivable turnover days was 32 days in 1QFY18, remaining the same as last year. Inventory turnover days was higher at 40 days in 1QFY18 as compared with 36 days for FY17.

    (ii) Non-current assets

    The decrease in non-current assets of RMB 19.1 million was mainly due to the depreciation of RMB 20.6 million and the disposal of plant and equipment of RMB 2.4 million, which were partially offset by the capital expenditure of RMB 3.9 million.

    (iii) Current liabilities

    Current liabilities increased by RMB 20.3 million from RMB 568.1 million as at 31 December 2017 to RMB 588.4 million as at 31 March 2018, due mainly to the increase in trade payables of RMB 32.3 million, which was partially offset by the decrease in other payables and accruals of RMB 12.5 million. Trade payable turnover days was higher at 53 days, compared with 48 days for FY17.

    The Group’s debt equity ratio was 8.07 times as at 31 March 2018 compared with 8.46 times as at 31 December 2017, and the net debt equity ratio was 6.20 times as at 31 March 2018 (31 December 2017: 6.47 times). This was due to the decrease of RMB 13.0 million in total interest-bearing loans and borrowings and the increase of RMB 3.0 million in total equity resulting from the net profit in 1QFY18.

    (iv) Non-current liabilities

    Non-current liabilities decreased by RMB 14.1 million due to the decrease in long-term interest-bearing loans of RMB 13.0 million and the decrease in deferred income of RMB 1.1 million.

    (v) Shareholders' equity

    As at 31 March 2018, shareholders’ equity was higher than that as at 31 December 2017 due to the net profit of RMB 3.0 million in 1QFY18.

  3. Cash Flows

    For 1QFY18, the Group had net operating cash inflow of RMB 18.9 million. This comprised operating profit before changes in working capital of RMB 34.1 million, adjusted for increase in working capital of RMB 15.1 million and income tax paid of RMB 0.2 million.

    The changes in working capital were mainly the result of:

    i) an increase in inventory of RMB 19.8 million;
    ii) an increase in trade receivables of RMB 6.7 million;
    iii) an increase in other receivables, deposits and prepayments of RMB 8.8 million; and
    iv) a decrease in other payables and accruals of RMB 12.5 million,

    which were partially offset by

    v) an increase in trade payables of RMB 32.3 million.

    Net cash used in investing activities amounted to RMB 0.8 million in 1QFY18. This was mainly due to the equipment upgrading expenditure and purchase of packaging containers for our finished products. These cash outflows were partially mitigated by the cash inflow arising from proceeds from the disposal of plant and equipment of RMB 2.5 million.

    Net cash used in financing activities was RMB 24.3 million, mainly due to the interest expense of RMB 11.3 million and the net decrease in total bank loans of RMB 13.0 million.

Commentary

China’s economy

The China economy continues on its expansion plan with a shift in focus to high-quality growth instead of high-speed growth. The overriding priority for the central government is to manage and prevent major financial risks within the Chinese economy. The tightening of financial controls is expected to affect local businesses in terms of costs and sources of funds. The environmental pollution controls is another area which the central government is focusing on in its determination to eliminate polluted air. Measures to close down polluting factories and making businesses more accountable for environmental damage have increased the costs of many manufacturing companies.

The Group is facing the challenges of these changes in the government policies. In particular, the Group is experiencing higher costs of bank borrowing to finance its operations. In addition, the ongoing upgrading of plants and equipment to keep up with the environmental control requirements has also increased the costs of its production. Hence, the Group expects another phase of market consolidation in the corn sweeteners industry as the high cost of production and over-capacity have become unsustainable for smaller manufacturing companies.

Domestically, the supply of raw corn material has been tightening since the beginning of 2018, causing an upward cost pressure for our production. The Group expects demand to be sluggish in the short to mid-term due to the threat of a full-blown trade war between China and the US. In particular, it would affect the demand for our products from the Group’s downstream manufacturers.

In view of the uncertainty in the global economy, coupled with the ongoing restructuring of the Chinese domestic economy, the Group is cautious of its business outlook in 2018.

Statement of Financial Position