Comprehensive Income Statement
The Group’s revenue for 2QFY17 increased by 18.2% from RMB 430.2 million in 2QFY16 to RMB 508.6 million in 2QFY17 while revenue for the six-month period (“1HFY17”) increased by 13.9% year-on-year (“y-o-y”) from RMB 874.7 million to RMB 996.1 million. This was mainly due to the increase in sales volume of our corn refining segment, which was partially offset by the decrease in selling price.
For 2QFY17, sales volume for the corn refining segment increased from 215K (“K”=1,000) tonnes to 266K tonnes or about 23.5% y-o-y. This increase was attributable to the increases in the sales volumes of corn sweeteners and by-products by 22.9% and 23.7% respectively. For 1HFY17, sales volume for the corn refining segment increased by 22.1% y-o-y from 419K tonnes to 512K tonnes. This increase was attributable to the increases in the sales volumes of corn sweeteners and by-products by 17.8% and 32.6% respectively.
For 2QFY17, the weighted average price of the Group’s corn refining products decreased by 1.8% y-o-y due to stiff competition. The decrease was mainly attributable to the decreases in average prices of corn sweeteners and by-products by 2.7% and 0.8% respectively. The weighted average price of the Group’s corn refining products for 1HFY17 decreased by 2.7% y-o-y. This decrease was attributable to the decrease in prices of corn sweeteners by 4.8%, which was partially offset by the increase in prices of by-products by 7.9%.
The Group’s export revenue in 1HFY17 increased by 3.1% as compared to 1HFY16. However, the export revenue as a percentage of total revenue decreased from 3.8% in 1HFY16 to 3.5% in 1HFY17. The increase in export revenue 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
For 2QFY17, gross profit decreased by 11.6% or about RMB 5.8 million y-o-y, mainly attributable to the decrease in gross profit of our corn refining segment by 12.7% or about RMB 6.4 million. Revenue increased by 18.2% y-o-y, while the cost of sales for the corresponding period increased by 22.2%. Group gross profit margin decreased by 2.9 percentage points y-o-y to 8.7%. 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 slightly by 0.6% compared to 2QFY16.
For similar reason, group gross profit margin in 1HFY17 decreased by 0.2 percentage points y-o-y to 10.8%. Gross profit increased by 11.7% or about RMB 11.3 million y-o-y, mainly attributable to the increase in gross profit of our corn refining segment by 9.8% or about RMB 9.6 million due mainly to the increase in sales volume.
Group revenue increased by 13.9% y-o-y, while the cost of sales for the corresponding period increased by 14.1%.
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 0.9 million in 1HFY17, compared with RMB 0.3 million in 1HFY16.
Other operating income
Other operating income increased by RMB 61.7 million from RMB 12.2 million in 1HFY16 to RMB 73.9 million in 1HFY17 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 increased by RMB 2.0 million, which was partially offset by the decrease in the gain on sales of steam by RMB 1.4 million.
- Selling and distribution expenses
Selling and distribution expenses increased by 35.4% from RMB 49.5 million in 1HFY16 to RMB 67.0 million in 1HFY17. This was mainly attributable to the increase in transportation costs, which is in line with the increases in revenue and sales volume.
- Administrative expenses
The Group’s administrative expenses decreased by 10.6% from RMB 55.1 million in 1HFY16 to RMB 49.2 million in 1HFY17. This was mainly attributable to the decreases in depreciation charge and other manufacturing overheads charged to operating expenses as a result of production halts of certain products and the decrease in staff costs (including salary, social insurance payment and other welfare).
- Other operating expenses
Other operating expenses decreased slightly by about RMB 0.3 million from RMB 3.0 million in 1HFY16 to RMB 2.6 million in 1HFY17. This was due mainly to the decreases in payment of accrued income tax for prior year by our Shaanxi subsidiary and Henan subsidiary.
The Group’s finance expenses increased by 5.5% from RMB 25.6 million in 1HFY16 to RMB 27.0 million in 1HFY17. This was attributable to the increase in interest costs as a result of the increase in bank loans.
The decrease in income tax expense was due to the decrease 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 1HFY17 was higher than the statutory tax rate.
Total comprehensive loss
The Group’s total comprehensive income increased by 230.0% from a loss of RMB 27.2 million in 1HFY16 to a profit of RMB 35.3 million in 1HFY17 due mainly to a 11.7% y-o-y increase in gross profit or about RMB 11.3 million, the increase of RMB 61.7 million in other operating income due mainly to the reversal of impairment of property, plant and equipment, and the decrease of RMB 5.8 million in administrative expenses. These were partially offset by the increase of RMB 17.5 million in selling and distribution expenses.
Statement of Financial Position
(i) Current assets
Current assets increased by RMB 51.9 million from RMB 779.5 million as at 31 December 2016 to RMB 831.4 million as at 30 June 2017, due mainly to the increase in cash and cash equivalents of RMB 61.3 million, the increase in trade receivables of RMB 33.0 million and the increase in inventories of RMB 7.2 million, which were partially offset by the decrease in other receivables, deposits and prepayments (including the amount owing by related parties) of RMB 50.5 million (due mainly to the full collection of the compensation for relocation of our Shandong Subsidiary owed by the local government). Trade receivable turnover days increased slightly from 35 days in FY16 to 37 days in 1HFY17. Inventory turnover days was lower at 37 days in 1HFY17 as compared with 40 days for FY16.
(ii) Non-current assets
The increase in non-current assets of RMB 33.8 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 17.5 million, which were partially offset by the depreciation of RMB 40.4 million and the disposal of plant and equipment of RMB 10.7 million.
(iii) Current liabilities
Current liabilities increased by RMB 70.5 million from RMB 670.7 million as at 31 December 2016 to RMB 741.2 million as at 30 June 2017, due mainly to the increase in short-term interest-bearing loans and borrowings of RMB 60.5 million (as at 30 June 2017, the pledged cash deposits increased by RMB 67.4 million to RMB 213.4 million as compared to 31 December 2016), the increase in trade payables of RMB 7.7 million and the increase in other payables and accruals of RMB 2.7 million. Trade payable turnover days was higher at 49 days, compared with 47 days for FY16.
The Group’s debt equity ratio was 6.17 times as at 30 June 2017 compared with 7.20 times as at 31 December 2016, and the net debt equity ratio was 3.96 times as at 30 June 2017 (31 December 2016: 4.96 times). This was due to the increase of RMB 29.5 million in total equity, and the increase of RMB 43.4 million in total interest-bearing loans and borrowings.
(iv) Non-current liabilities
Non-current liabilities decreased by RMB 14.3 million due to the decrease of RMB 17.1 million in long-term interest-bearing loans, partially offset by the increase of RMB 2.9 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 June 2017, shareholders’ equity was higher than that as at 31 December 2016 mainly due to the net profit of RMB 35.3 million generated in 1HFY17.
For 1HFY17, the Group experienced net operating cash inflow of RMB 50.5 million. This comprised operating profit before changes in working capital of RMB 31.5 million adjusted for decrease in working capital of RMB 20.7 million and income tax paid of RMB 1.6 million.
The change in working capital was mainly the result of;
i) a decrease in other receivables, deposits and prepayments of RMB 50.5 million (including amount owing by related parties);
ii) an increase in trade payables of RMB 7.7 million; and
iii) an increase in other payables and accruals of RMB 2.7 million,
which were partially offset by
iv) an increase in inventory of RMB 7.2 million; and
v) an increase in trade receivables of RMB 33.0 million.
Net cash generated from investing activities amounted to RMB 0.3 million in 1HFY17. This was mainly due to the cash inflows arising from proceeds from the disposal of plant and equipment of RMB 10.5 million, proceeds from government grants for low-energy environmental protection equipment of RMB 6.1 million, and the interest income of RMB 1.3 million. These cash inflows were partially offset by the construction of property, plant and equipment and purchase of packaging containers for our finished products.
Net cash outflow used in financing activities was RMB 56.9 million, mainly due to the increase in pledged cash deposits of RMB 67.4 million, and payment of interest expense and dividend of RMB 27.0 million and RMB 5.9 million respectively. These cash outflows were partially offset by the net increase in total bank loans of RMB 33.5 million and the increase in interest-bearing loans from a Director of RMB 9.9 million.