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First Quarter Results Financial Statement And Related Announcement

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Financial Statements for the 1st Quarter ended 30 June 2018 ("1Q2019")

Income Statement

Financial Statement

Balance Sheet

Balance Sheet

Review Of Performance

Revenue

Revenue for the 3-month period ended 30 June 2018 ("1Q2019") decreased by approximately RMB 2.9 million or 6.1%, from RMB 48.0 million of the 3-month period ended 30 June 2017 ("1Q2018") to RMB 45.1 million in 1Q2019. The lower revenue registered in 1Q2019 was mainly due to the decrease in sales of industrial fuse and initiating explosive devices, partially offset by increase in sales of explosives devices.

Our products can be categorised mainly into (a) explosive devices such as boosters; (b) industrial fuse and initiating explosive devices such as detonating cords and non-electric tubes and (c) industrial detonators such as non-electric detonators and piston non-electric detonators.

The breakdown and comparison of our revenue by the above product types and geographical segments between 1Q2019 and 1Q2018 are as follows:

Financials

Note:

  1. Others include sales of raw materials and packaging materials.
  2. These were sales to export distributors in the PRC in which they export the products to their customers overseas.
  1. Sales within PRC

    Sales within PRC decreased by approximately RMB 10.9 million or 27.5% to RMB 28.8 million in 1Q2019, as compared to RMB 39.7 million in the previous corresponding period. The dip in PRC sales was mainly due to lower sales of industrial fuse and initiating explosive devices as some of our customers' mining operations were affected by additional local authorities measures since the second quarter of FY2018.

  2. Sales to Australia

    Sales to Australia decreased by approximately RMB 3.1 million from RMB 8.3 million during 1Q2018 to RMB 5.2 million during 1Q2019. The lower sales to Australia was mainly due to the timing of scheduled shipments of boosters to overseas customers.

  3. Sales through export distributor

    During 1Q2019, sales through export distributor registered revenue of approximately RMB 10.8 million that was mainly from the export sales of boosters of approximately RMB 8.8 million and industrial detonators of approximately RMB 2.0 million through an export distributor. There was no sale and shipment during 1Q2018.

  4. Sales to other countries

    During 1Q2019, sales to other countries registered revenue of approximately RMB 311,000. There was no sale to other countries during 1Q2018.

All local PRC sales contracts and export applications sought by export agents have been approved by the Ministry of Industry and Information Technology, Department of Work Safety ("MIIT").

Gross profit margin

Due to the higher market competition and lower sales of industrial fuse and initiating explosive devices during 1Q2019, the Group's gross profit margin deteriorated by approximately 8.1 percentage points, from 21.3% in 1Q2018 to 13.2% in 1Q2019.

Interest income / (Finance costs)

Interest income remained relatively unchanged at RMB 76,000 in 1Q2019.

Finance costs increased by approximately RMB 407,000 mainly due to an imputed interest expense on financial liabilities measured at amortised cost of approximately RMB 304,000 and higher bank lending interest rates in the general market during 1Q2019 as compared to 1Q2018.

Other gains

For 1Q2019, other gains include the reversal of allowance for impairment on trade receivables of RMB 145,000, foreign exchange adjustment gain of approximately RMB195,000 and government grants of approximately RMB 106,000. For 1Q2018, other gains include the reversal of allowance for impairment on trade receivables of RMB 157,000, gain on disposal of property, plant and equipment of approximately RMB 320,000 and government grants of approximately RMB 114,000. Gain on disposal of property, plant & equipment relates to the disposal of certain motor vehicles and machineries that were no longer in use. Government grants relate to the miscellaneous grants from governments on an ad hoc basis and the grant for certain plant and equipment which will be amortised over 3 years.

Other losses

There were no other losses for 1Q2019. Other losses for 1Q2018 relate to foreign exchange adjustment loss. Foreign exchange adjustment gain or loss arises from foreign exchange rate changes between Renminbi (RMB), US Dollars and Singapore Dollars.

Operating expenses

In line with reduced sales activities, the Group's distribution and administrative expenses decreased by approximately RMB 0.7 million or 14.1% and RMB 1.3 million or 16.5%, respectively.

Amortisation expense increased by approximately RMB 37,000 or 5.6% mainly due to more land use rights obtained by the Group.

Depreciation expenses decreased by approximately RMB 0.5 million or 9.5% mainly due to some property, plant and equipment being fully depreciated, partially offset by the additional depreciation charged on the office property which was acquired during the last financial year as approved during the Extraordinary General Meeting on 31 July 2017.

Income tax expenses

The income tax expenses was mainly due to the provision of withholding tax for the Group.

Statement of Financial Position

Property, plant and equipment decreased by approximately RMB 1.5 million, mainly due to the depreciation charged for the current period under review of approximately RMB 4.7 million which was partially offset by the acquisition of property, plant and equipment of approximately RMB 3.2 million.

Other assets, non-current relate to the Group's land use rights, which decreased by approximately RMB 0.7 million mainly due to the amortisation charges during the current period under review.

Deferred tax assets relate mainly to the deferred tax differences for the allowance for impairment on trade and other receivables, provision for safety expenses and deferred tax on tax losses incurred.

Inventories, trade and other receivables, other assets and cash and cash equivalents, represented approximately 18.0%, 26.4%, 7.6% and 48.0% respectively of our total current assets as at 30 June 2018.

Inventories increased marginally by approximately RMB 250,000 or 0.8% to RMB 32.3 million as at 30 June 2018, as compared to RMB 32.1 million as at 31 March 2018.

During the current quarter under review, trade and other receivables decreased by approximately RMB 7.3 million or 13.3% to RMB 47.4 million as at 30 June 2018.

Other assets, current comprising the Group's prepayments, increased by approximately RMB 4.4 million or 47.6% to RMB 13.7 million as at 30 June 2018 mainly due to higher prepayments for raw materials as at 30 June 2018.

Non-current liabilities relates to the long-term payable at amortised cost for the purchase of office property from a related party which was approved during the Extraordinary General Meeting on 31 July 2017 of approximately RMB 18.6 million and deferred tax liabilities of RMB 2.2 million for the withholding tax on the dividend payable by our subsidiary in China.

As at 30 June 2018, our current liabilities comprised of trade and other payables of approximately RMB 76.2 million, other current financial liabilities of approximately RMB 59.7 million and other liabilities of RMB 3.8 million.

Trade and other payables decreased marginally by approximately RMB 1.5 million or 1.9% during 1Q2019.

As at 30 June 2018, other current financial liabilities of RMB 59.7 million relates to the secured bank loans of Yinguang Technology.

Other liabilities of RMB 2.7 million relate to the Group's provision for safety expenses, advances from customers and a deferred government grant.

Deferred tax liabilities of RMB 2.1 million relate to the deferred tax liabilities for the withholding tax on the dividend payable by our subsidiary in China.

Cash flow

For the current quarter ended 30 June 2018, the Group's net cash from operating activities amounted to approximately RMB 1.0 million, while net cash used in investing activities and financing activities, continuing operations amounted to approximately RMB 3.1 million and RMB 787,000, respectively.

The net cash from operating activities of approximately RMB 1.0 million was mainly due to lower trade and other receivables, partially offset by the increase in other assets due to prepayments for raw materials.

The net cash used in investing activities of approximately RMB 3.2 million was mainly due to the purchase of property, plant and equipment.

The net cash used in financing activities of approximately RMB 787,000 was due the payment of interest expenses.

Commentary On Current Year Prospects

Update on our boosters production facilities

As previously announced, Yinguang Technology's second automated boosters production line has successfully passed the relevant authority's inspection and was approved for trial production during April 2017. However, for safety measures and precautions, the management will be gradually scaling up the production capabilities of this second automated boosters production line.

The Group has also started the design of our third automated boosters production line and barring any unforeseen circumstances, construction is expected to complete by the end of FY2019.

Mergers and Acquisitions

Since 2017, the PRC government has begun to rationalise the commercial explosives industry by encouraging companies within this specialized and niche market segment to merge and consolidate their business operations. Aligned with this government policy and to meet the various requirements of the MTP Exit Criteria under Rule 1314(2) of the SGX-ST's Listing Manual, the Group is proactively exploring merger and acquisition opportunities in the PRC.

On 18 June 2018, the Company announced the proposed acquisition of Shandong Laizhou Ping'an Commercial Explosives Co., Ltd. ("Laizhou Ping'an").

The Company will continue to make the appropriate announcements as and when there is any material development with respect to any potential material acquisition.