This printed article is located at http://delong.listedcompany.com/financials.html

Financials

UNAUDITED THIRD QUARTER RESULTS FOR THE PERIOD ENDED 30 SEPTEMBER 2017

Financials Archive

Get Adobe Reader Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.

Profit & Loss

Profit & Loss

Consolidated Statement of Comprehensive Income

Comprehensive Income

Balance Sheet

Balance Sheet

Review Of Performance

(a) Financial Review for the third quarter and nine-month ended 30 September 2017

3Q2017 vs 3Q2016

Revenue

Group revenue increased by RMB1,132.8 million or 44.7% from RMB2,534.2 million in 3Q2016 to RMB3,667.0 million in 3Q2017. The increase in revenue was principally attributed to a significant increase in average selling prices of hot rolled coil ("HRC") coupled with an increase in sales volume of HRC driven by infrastructure and construction activities in the PRC as compared to the previous corresponding period.

The increase in sales volume was partially offset by the cessation of Aoyu Steel's operations in August 2017.

In 3Q2017, the Group sold 1,063,750 tonnes of HRC and 32 tonnes of steel billets as compared to 1,017,115 tonnes of HRC and 80 tonnes of steel billets in 3Q2016. Overall sales quantity increased by 46,587 tonnes or 4.6%.

Cost of sales

Total cost of sales increased by RMB634.2 million or 29.4%, from RMB2,153.9 million in 3Q2016 to RMB2,788.1 million in 3Q2017. The increase was primarily due to higher raw material prices for steel production coupled with higher sales volume as mentioned above as compared to the previous corresponding period.

Gross profit

Gross profit increased by RMB498.7 million or 131.1%, from RMB380.2 million in 3Q2016 to RMB878.9 million in 3Q2017.

Gross profit margin increased by 9.0 percentage points from 15.0% in 3Q2016 to 24.0% in 3Q2017. The increase was primarily due to the significant increase in average selling prices of products sold which outpaced the increase in raw materials prices in 3Q2017.

Distribution and marketing expenses

Distribution and marketing expenses decreased by RMB0.9 million, from RMB21.6 million in 3Q2016, to RMB20.7 million in 3Q2017. The decrease was mainly to lower transportation costs associated with the delivery of Aoyu Steel's HRC products to customers in the PRC, amid the cessation of Aoyu Steel's operations in August 2017.

Administrative expenses

Administrative expenses increased by RMB27.2 million, from RMB68.5 million in 3Q2016 to RMB95.7 million in 3Q2017, primarily due to partial workers' compensation payment following the cessation of Aoyu Steel's operations in August 2017 as well as legal and professional fees incurred on the Company's on-going projects as compared to the previous corresponding period.

Finance expenses

Finance expenses decreased by RMB15.1 million from RMB44.5 million in 3Q2016 to RMB29.4 million in 3Q2017, primarily due to the significant decrease in bank borrowings and notes payables, which in turn reduced interest expenses in 3Q2017.

Net profit

As a result of higher operating profit, the Group reported a net profit of RMB973.9 million in 3Q2017, compared to RMB229.3 million in 3Q2016. The net profit margin was 26.6% and 9.1% in 3Q2017 and 3Q2016, respectively.

9M2017 vs 9M2016

Revenue

Group revenue increased by RMB2,688.9 million or 37.5%, from RMB7,163.9 million in 9M2016, to RMB9,852.8 million in 9M2017. The increase in revenue was principally attributed to a significant increase in average selling prices of HRC sold coupled with an increase in sales volume of HRC amid tighter supplies following production cuts and increased infrastructure and construction activities in the PRC.

In 9M2017, the Group sold 3,103,623 tonnes of HRC and 98 tonnes of steel billets as compared to 3,053,708 tonnes of HRC and 426 tonnes of steel billets in 9M2016. Overall sales quantity increased by 49,587 tonnes or 1.6%.

Cost of sales

Total cost of sales increased by RMB1,702.3 million or 27.6%, from RMB6,168.1 million in 9M2016 to RMB7,870.4 million in 9M2017. The increase was primarily due to higher raw materials prices for production amid rising iron ore demand from mills coupled with higher sales volume in 9M2017 as compared to the previous corresponding period.

Gross profit

Gross profit increased by RMB986.6 million or 99.1%, from RMB995.8 million in 9M2016, to RMB1,982.4 million in 9M2017.

Gross profit margin increased by 6.2 percentage points, from 13.9% in 9M2016 to 20.1% in 9M2017. The increase was primarily due to the increase in average selling prices of products sold which outpaced the increase in raw materials prices in 9M2017 coupled with production efficiency amid continued improvement to the production facilities.

Distribution and marketing expenses

Distribution and marketing expenses increased by RMB23.9 million, from RMB57.1 million in 9M2016, to RMB81.0 million in 9M2017. The increase in distribution and marketing expenses was primarily due to higher transportation costs associated with the delivery of HRC products to customers in the PRC as compared to the previous corresponding period.

Administrative expenses

Administrative expenses increased by RMB14.6 million, from RMB219.8 million in 9M2016, to RMB234.4 million in 9M2017, primarily due to partial workers' compensation payment following the cessation of Aoyu Steel's operations in August 2017.

Finance expenses

Finance expenses decreased by RMB63.9 million, from RMB149.6 million in 9M2016, to RMB85.7 million in 9M2017, mainly due to reduction in notes payables which in turn reduced interest expenses in 9M2017 compared to the previous corresponding period.

Net profit

As a result of higher operating profit and after taking into account taxation and non-controlling interest, the Group reported a net profit of RMB1,742.6 million in 9M2017, compared to a net profit of RMB609.8 million in 9M2016. The net profit margin was 17.7% and 8.5% in 9M2017 and 9M2016, respectively.

(b) Review of balance sheet of the Group as at 30 September 2017

Current assets

Current assets increased by RMB1,681.6 million, from RMB5,430.3 million as at 31 December 2016 to RMB7,111.9 million as at 30 September 2017, primarily due to the increase in held for trading investments, higher inventories as well as higher notes receivable which was in line with higher revenue in 9M2017.

Current liabilities

Current liabilities decreased by RMB28.9 million, from RMB5,103.0 million as at 31 December 2016 to RMB5,074.1 million as at 30 September 2017, primarily due to repayments of bank borrowings and notes payables during the period under review. The decrease was partially offset by the increase in the utilization of letter of credit (classified under trade and other payables) for payments to creditors and suppliers.

The higher utilization of letter of credit was due to the lower security requirement as compared to notes payables.

Working capital

The working capital position improved by RMB1,710.5 million, from RMB327.3 million as at 31 December 2016, to RMB2,037.8 million as at 30 September 2017.

The Group has satisfactorily maintained its credit facilities with financial institutions in PRC during the period under review and the credit facilities have constantly been renewed and/or rolled–over by these financial institutions.

Non-current assets – Property, plant and equipment

Property, plant and equipment increased by RMB187.2 million, from RMB2,229.3 million as at 31 December 2016 to RMB2,416.5 million as at 30 September 2017, primarily due to the capital expenditure incurred for on-going technological and environmental enhancement programmes to the production facilities in the PRC. The increase was partially offset by depreciation charges for the period under review.

Non-Current liabilities

Non-current liabilities increased by RMB143.1 million, from RMB228.2 million as at 31 December 2016 to RMB371.3 million as at 30 September 2017, primarily due to the drawdown of long term bank borrowings for working capital purposes during the period under review.

(c) Review of cash flow statement of the Group

3Q2017 vs 3Q2016

Net Cash Generated From Operating Activities

Operating cashflow before working capital changes increased by RMB819.1 million, from RMB388.5 million in 3Q2016 to RMB1,207.6 million in 3Q2017, primarily due to the increase in operating profit. Cash from operating activities increased by RMB284.7 million from RMB645.2 million in 3Q2016 to RMB929.9 million in 3Q2017, attributable mainly to the increase in the issuance of letters of credit in place of notes payables for the period under review. The increase was partially offset by the increase in inventories and notes receivables.

Net Cash Used in Investing Activities

Net cash used in investing activities was RMB841.3 million in 3Q2017. This comprised principally the progress payments for the on-going technical enhancements to the upgrade production facilities in the PRC and payments for the purchase of held for trading investments and available-for-sale financial assets.

The decrease was partially offset by interest received from the financial institutions.

Net Cash Generated from Financing Activities

Net cash generated from financing activities was RMB29.8 million in 3Q2017. This was mainly attributable to the drawdown of bank borrowing of RMB181.0 million for working capital purposes, loan principal and interest repayments of RMB151.2 million.

9M2017 vs 9M2016

Net Cash Used In Operating Activities

Operating cashflow before working capital changes increased by RMB1,194.3 million, from RMB1,075.6 million in 9M2016 to RMB2,269.9 million in 9M2017, primarily due to the increase in operating profit. Net cash from operating activities increased by RMB2,123.8 million from RMB994.6 million in 9M2016, to RMB3,118.4 million in 9M2017, attributable mainly to the increase in trade and other payables including letters of credit during the period under review and a decrease in bank balances pledged as security to banks for the issuance of notes payable.

The increase was partially offset by the increase in inventories and notes receivables.

Net Cash Used in Investing Activities

Net cash used in investing activities was RMB1,107.4 million in 9M2017. This comprised principally the progress payments for the technical enhancements to the upgrade production facilities in the PRC and payments for the purchases of available-for-sale financial assets and held for trading investments.

The decrease was partially offset by the proceeds from the disposal of held-to-maturity financial assets and interest received from the banks.

Net Cash Used in Financing Activities

Net cash generated from financing activities was RMB1,565.6 million in 9M2017. This was mainly attributable to the drawdown of bank borrowings of RMB1,447.5 million, loan principal and interest repayments of RMB3,013.1 million.

Commentary

The PRC steel industry delivered a positive third quarter, buoyed by steel demand arising from China's continued infrastructure push. According to the China Iron and Steel Association, consumption for steel products is expected to grow 3 – 4% year-on-year in 2017, with production output forecast to rise to 840 million tonnes in 2017, from 808 million tonnes a year ago. Nevertheless, the operating outlook for the PRC steel industry is expected to remain challenging as steel prices remained highly volatile and unpredictable amid ongoing efforts by the PRC authorities to reduce excess capacity in the steelmaking industry.

Industrial pollution also remains a primary concern in the PRC and the ongoing haze issue is also expected to have impacts on the steel industry in terms of production and steel transportation. Such initiatives include tightening of its environmental protection rules as it fights smog, such as requiring steel producers to reduce output by at least half during the peak pollution season over the winter months and/or smoggy days, among other initiatives. To be in line with the industry's rising environmental standards, the Group, continually invests in technological upgrades and enhancements to reduce emission, improve energy efficiency and recycling of waste material. Such technological enhancements, undertaken from time to time, also strengthens the production efficiency of the Group's facility, thereby reducing operating costs.

On the operational front, the Group had on 22 August 2017 announced the immediate cessation of operations at its subsidiary, Laiyuan County Aoyu Steel Co., Ltd. ("Aoyu Steel"). The cessation is in relation to announced plans by the PRC Government cut steelmaking capacity in Hebei Province, targeting cities such as Langfang, Baoding and Zhangjiakou. Aoyu Steel is located in Baoding, one of the affected cities under the Capacity Reduction Plans.

To diversify, the Group will continue to selectively engage in opportunities to invest in quoted and/or unquoted securities, as well as the provision of seed and mezzanine capital to private companies with growth potential and undertaking business incubation. The Board and Management will also continue to explore and evaluate earnings-accretive acquisitions and/or investments in our core business for the long-term benefit of shareholders. The Group will also diversify into asset management business in due course, subject to obtaining the type 9 Licence by the Securities and Futures Commission of Hong Kong.


Please read our General Disclaimer & Warning carefully.
Use of this Website constitutes acceptance of the Terms of Website Use.
Copyright © 2017. ListedCompany.com. All Rights Reserved.