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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 2019

Financials Archive

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Profit & Loss
Profit & Loss

Review of Performance
  1. Comprehensive Income Statement

    Comprehensive Income Statement


    The Group’s revenue decreased by 18.5% from RMB 600.3 million in 3QFY18 to RMB 489.4 million in 3QFY19, while revenue for the nine-month period (“9MFY19”) decreased by 10.7% year-on-year (“y-o-y”) from RMB 1.7 billion to RMB 1.5 billion. This was mainly due to decreases in sales volume of our corn refining segment.

    For 3QFY19, sales volume for the corn refining segment decreased from 293K (“K”=1,000) tonnes to 226K tonnes or about 23.1% y-o-y. This decrease was attributable to the decreases in the sales volumes of corn sweeteners and by-products of about 21.9% and 26.2% respectively. For 9MFY19, sales volume for the corn refining segment decreased from 800K tonnes to 709K tonnes or by about 11.4% y-o-y. This decrease was attributable to the decreases in the sales volumes of corn sweeteners and by-products of about 11.9% and 10.2% respectively.

    For 3QFY19, the weighted average selling price of the Group’s corn refining products increased by 6.0% y-o-y. The increase was mainly attributable to the increases in average selling prices of corn sweeteners and by-products by 4.6% and 13.4% respectively. The weighted average selling price of the Group’s corn refining products for 9MFY19 increased by 0.8% y-o-y. This increase was attributable to the increases in average selling prices of corn sweeteners and by-products by about 0.6% and 3.7% respectively.

    The Group’s export revenue in 9MFY19 increased by 24.6% as compared to 9MFY18, while the export revenue as a percentage of total revenue increased from 3.3% in 9MFY18 to 4.7% in 9MFY19. The sales to the export market remained insignificant because of uncompetitive pricing due to the Group’s higher production cost.

    Gross profit and gross profit margin

    Gross profit for 3QFY19 decreased significantly by 17.3% or RMB 8.5 million y-o-y, and the gross profit margin increased by 0.2 percentage points from 8.2% in 3QFY18 to 8.4%. Revenue decreased by 18.5% y-o-y, while the cost of sales for the corresponding period decreased by 18.6%. This was mainly due to the higher average selling price of our corn refining products.

    Gross profit for 9MFY19 decreased significantly by 31.5% or about RMB 51.4 million y-o-y mainly attributable to the decrease in gross profit of our corn refining segment. Group revenue for 9MFY19 decreased by 10.7% y-o-y, while the cost of sales for the corresponding period decreased by 8.5%. Group gross profit margin decreased by 2.3 percentage points y-o-y to 7.5%.

    The others segment including our Hongzhou subsidiary made a gross profit of RMB 1.5 million in 9MFY19, compared with RMB 1.4 million in 9MFY18.

    Other operating income

    Other operating income decreased by 23.5% from RMB 21.1 million in 9MFY18 to RMB 16.1 million in 9MFY19 due mainly to the decrease in gain on sale of consumables and waste materials by RMB 3.7 million and the decrease in government grants and subsidies.

    Operating expenses

    - Selling and distribution expenses

    Selling and distribution expenses decreased by 12.5% from RMB 95.0 million in 9MFY18 to RMB 83.1 million in 9MFY19. This is mainly attributable to the decrease in transportation costs and staff costs.

    - Administrative expenses

    The Group’s administrative expenses increased by 4.2% from RMB 68.4 million in 9MFY18 to RMB 71.3 million in 9MFY19. This was mainly due to staff retrenchment compensation by the Group’s Sichuan subsidiary, and the increase in office supplies, which were partially offset by the reversal of allowance for doubtful trade receivables.

    - Other operating expenses

    Other operating expenses decreased by RMB 2.3 million from RMB 4.3 million in 9MFY18 to RMB 2.1 million in 9MFY19. This was due mainly to the decrease in employee compensation for work-related injury.

    Finance costs

    The Group’s finance costs decreased by 5.9% or about RMB 2.0 million from RMB 33.8 million in 9MFY18 to RMB 31.8 million in 9MFY19. This was attributable to the decrease in interest costs arising from decrease in average bank loans.

    Taxation

    The increase in income tax expense was due to withholding and payment of last year's income tax incurred by the Shandong subsidiary and Henan subsidiary. In addition, certain loss-making subsidiaries did not recognise deferred tax assets due to the uncertainty of their future taxable profits. Therefore, there is a difference between the effective tax rate in 9MFY19 and the statutory tax rate.

    Total comprehensive loss

    The Group’s total comprehensive loss increased by 241.6% or about RMB 48.5 million y-o-y from RMB 20.1 million in 9MFY18 to RMB 68.6 million in 9MFY19 due mainly to the decrease of RMB 51.4 million in gross profit, the decrease in other operating income, and the increase in income tax expenses, partially offset by the decreases in operating expenses and finance costs.

  2. Statement of Financial Position

    (i) Current assets

    Current assets decreased by RMB 165.3 million from RMB 626.7 million as at 31 December 2018 to RMB 461.4 million as at 30 September 2019, due mainly to the decrease in inventories of RMB 106.8 million, the decrease in trade receivables of RMB 27.0 million, and the decrease in cash and cash equivalents of RMB 34.7 million, which were partially offset by the increase in other receivables, deposits and prepayments of RMB 3.1 million. Trade receivable turnover days increased slightly from 29 days in FY18 to 31 days in 9MFY19. Inventory turnover days was lower at 36 days in 9MFY19 as compared with 39 days for FY18.

    (ii) Non-current assets

    The decrease in non-current assets of RMB 38.8 million was mainly due to the depreciation of RMB 46.9 million and the disposal of plant and equipment of RMB 7.2 million, which were partially offset by the capital expenditure of RMB 15.2 million.

    (iii) Current liabilities

    Current liabilities decreased by RMB 73.6 million from RMB 602.2 million as at 31 December 2018 to RMB 528.6 million as at 30 September 2019, due mainly to the decrease in trade payables of RMB 78.5 million and the decrease in other payables and accruals of RMB 15.6 million, which were partially offset by the increase in short-term bank loans of RMB 4.3 million, the increase in borrowings from a related party of RMB 14.0 million and the increase in amount owing to related parties of RMB 1.9 million. Trade payable turnover days in 9MFY19 was higher at 53 days, compared with 50 days for FY18.

    The Group’s debt equity ratio was negative 11.5 times as at 30 September 2019 compared with 159.3 times as at 31 December 2018, and the net debt equity ratio was negative 9.4 times as at 30 September 2019 (31 December 2018: 125.4 times). This was mainly due to the decrease of RMB 68.6 million in total equity resulting from the net loss in 9MFY19 and the decrease of RMB 39.9 million in total bank loans and other borrowings.

    WORKING CAPITAL AND BANK BORROWINGS AS AT 30 SEPTEMBER 2019

    The management will take active steps to manage the Group’s working capital position. As at 30 September 2019, the Group has approximately RMB 44.34 million in short-term bank loans to be repaid by end of 4QFY19. The repayment of loans that are due by end of 4QFY19 shall be funded through the operating cash flow, in addition to the new bank borrowings for which the management is in discussion with bankers as well as interest-free borrowings from related parties.

    In addition, a director has procured and extended corporate and personal guarantees amounting to RMB473 million to secure bank loans granted to the Group.

    (iv) Non-current liabilities

    Non-current liabilities decreased by RMB 62.0 million due to the decrease in long-term bank loans of RMB 58.4 million (as at 30 September 2019, the long-term bank loan of our Sichuan subsidiary was reclassified as short-term loan due to the low possibility of renewal after repayment) and the decrease in deferred income of RMB 3.8 million (mainly due to the amortization of government grants).

    (v) Shareholders' equity

    As at 30 September 2019, shareholders’ equity was lower than that as at 31 December 2018 mainly due to the net loss of RMB 68.6 million incurred in 9MFY19.

  3. Cash Flows

    For 9MFY19, the Group generated net operating cash inflow of RMB 43.6 million. This comprised operating profit before changes in working capital of RMB 9.4 million adjusted for decrease in working capital of RMB 42.2 million and the income tax paid of RMB 8.0 million.

    The changes in working capital were mainly the result of:

    i) a decrease in inventory of RMB 108.6 million;
    ii) a decrease in trade receivables of RMB 28.3 million; and
    iii) an increase in amount owing to related parties of RMB 1.9 million,
    which were partially offset by
    iv) a decrease in trade payables of RMB 78.5 million;
    v) a decrease in other payables and accruals of RMB 15.6 million; and
    vi) an increase in other receivables, deposits and prepayments of RMB 2.5 million.

    Net cash used in investing activities amounted to RMB 6.7 million in 9MFY19. This was mainly due to the equipment upgrading expenditure and purchase of packaging containers for finished products. These cash outflows were partially offset by the cash inflows arising from proceeds from the disposal of plant and equipment of RMB 7.3 million and the interest income of RMB 1.2 million.

    Net cash outflow used in financing activities was RMB 71.6 million, mainly due to the net decrease in total bank loans of RMB 54.1 million and payment of interest expense of RMB 31.7 million. These cash outflows were partially offset by the increase in interest-free loans from a related party of RMB 14.2 million.

Commentary

China’s economy has been slowing down rather significantly, affected by the weakening of the domestic economy and the external trade tensions with US and overall global slowdown.

In view of the poor domestic demand for our products, coupled with the increase in average raw corn material prices, the Group’s revenue and gross profit margin have been affected. As the industry is still facing uncertainty due to the trade war, the management is of the view that the industry will continue its consolidation, stiffening the competition for market share. To face up to the challenging business climate, the Group has been cutting back on its capital investment in order to conserve cash in anticipation of more economic headwinds.

Since July 2019, the Group’s operations have been scaled down with production only at its Shandong, Shaanxi and Henan subsidiaries. However, in view of the recent favourable local market conditions, the Group has resumed the production of its Liaoning subsidiary since early November 2019.

Update on the Company’s Working Capital Position

To assist in ensuring that the Group has sufficient working capital for its operations, the Executive Chairman, Mr Niu Ji Xing has continued to provide his commitments as follows:

  1. A letter of undertaking previously granted to provide continuing financial support to the Group by Mr Niu Ji Xing shall continue to be in force and this is in addition to the corporate and personal guarantees granted and arranged by him, to secure RMB473 million of the Group’s banking facilities as at 30 September 2019.
  2. He has since May 2019 stopped drawing his salary until the financial performance of the Group has improved.
  3. As at 30 September 2019, Mr Niu and his related company have granted a total loan amounting to RMB 64,892,178 to the Group.

It is also noted that for the financial period up to 30 September 2019, the Group generated positive cash flow from its operating activities with the EBIDTA of about RMB17 million as at 30 September 2019. As at 30 September 2019, the Group had cash of approximately RMB 129.05 million.

At the request of the Audit Committee, the management has on 10 November 2019 confirmed that the Group has not received any notifications from any financial institutions requiring early repayment of any loans.

Statement of Financial Position
Profit & Loss