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Third Quarter Results Financial Statement And Related Announcement

Financials Archive

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Financial Statements for the Third Quarter ended 31 December 2018 ("3Q2019")

Income Statement

Financial Statement

Statement of Comprehensive Income

Comprehensive Income

Balance Sheet

Balance Sheet

Review Of Performance

Revenue

Revenue for the 3-month period ended 31 December 2018 ("3Q2019") increased by approximately RMB 1.1 million or 2.7%, from RMB 41.2 million for the 3-month period ended 31 December 2017 ("3Q2018") to RMB 42.3 million in 3Q2019. The slight increase in revenue during 3Q2019 was mainly attributed to the increased sales of explosives devices such as boosters but partially offset by the decline in sales of industrial fuse and initiating explosive 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 piston non-electric detonators.

The breakdown and comparison of our revenue by the above product types and geographical segments between 3Q2019 and 3Q2018 and between 9-month period ended 31 December 2018 ("9M2019") and the 9-month period ended 31 December 2017 ("9M2018") are as follows:

Financials

  1. Sales within PRC

    During 3Q2019, sales within PRC decreased by approximately RMB 9.5 million or 30.5% from RMB 31.2 million in 3Q2018 to RMB 21.7 million in 3Q2019. For 9M2019, sales within PRC decreased by approximately RMB 26.8 million or 26.5% from RMB 101.2 million in 9M2018 to RMB 74.4 million in 9M2019.

    The decrease in sales within PRC during 3Q2019 and 9M2019 were mainly attributed to the reduced PRC sales of industrial fuse and initiating explosive devices as some of our customers' mining operations were affected by additional safety measures implemented by the local authorities since the second quarter of FY2018. The new safety measures restricted the use of detonating cords for mining activities in these affected customers' sites, which led to lower demand of our industrial fuse and initiating explosive devices.

  2. Sales through export distributors

    During 3Q2019, sales through export distributors amounted to RMB 3.4 million. There were no sales through export distributors during 3Q2018.

    During 9M2019, sales through export distributors increased by RMB 14.9 million or 344.8%, mainly due to more shipments of boosters to overseas customers through export distributor during the current period under review.

  3. Sales to Australia

    During 3Q2019 and 9M2019, sales to Australia increased by approximately RMB 7.2 million or 71.3% and RMB 1.6 million or 4.8% respectively. The higher sales to Australia was mainly due to the timing of scheduled shipments of boosters to Australia customers.

  4. Sales to other countries

    During 9M2019, sales to other countries registered revenue of approximately RMB 311,000. There was no sale to other countries during 9M2018.

All domestic 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

During 3Q2019, the Group's gross profit margin improved from 14.3% to 23.3% mainly due to higher average selling prices for our products for the current quarter under review. The Group's gross profit margin during 9M2019 declined marginally by 0.7 percentage points to 19.3% from 20.0% for 9M2018.

Interest income / (Finance costs)

For 3Q2019 and 9M2019, there is no material changes to the interest income.

During 3Q2019 and 9M2019, finance costs increased by approximately RMB 250,000 and RMB 956,000 mainly due to imputed interest expense on financial liabilities measured at amortised cost and higher bank lending interest rates in the general market during the current period under review.

Other gains / (Other losses)

For 3Q2019, other gains relate to reversal of allowance for impairment on trade receivables of RMB 508,000, gain on disposal of property, plant and equipment of approximately RMB 71,000 and government grants of RMB 152,000. For 3Q2018, other gains relate to reversal of allowance for impairment on trade receivables of RMB 105,000, gain on disposal of property, plant and equipment of approximately RMB 91,000 and government grants of RMB 539,000.

For 9M2019, other gains relate to reversal of allowance for impairment on trade receivables of RMB 1.2 million, foreign exchange adjustment gain of approximately RMB 595,000, gain on disposal of property, plant and equipment of approximately RMB 71,000 and government grants of approximately RMB 363,000. For 9M2018, other gains relate to reversal of allowance for impairment on trade receivables of RMB 280,000, gain on disposal of property, plant and equipment of approximately RMB 411,000 and government grants of RMB 757,000.

For 3Q2019, other losses relate to allowance for impairment on trade receivables of approximately RMB 3.7 million and foreign exchange adjustment loss of approximately RMB 158,000. For 3Q2018, other losses relate to foreign exchange loss of RMB 402,000 and inventories written-off of RMB 58,000.

For 9M2019, other losses relate to allowance for impairment on trade receivables of approximately RMB 3.7 million. For 9M2018, other losses relate to foreign exchange loss of RMB 551,000 and inventories written-off of RMB 58,000.

Foreign exchange adjustment gain/(losses) arose mainly from foreign exchange rate fluctuation among Renminbi (RMB), United States Dollar (US$) and Singapore Dollars (S$). Government grants relate to a grant for certain plant and equipment which will be amortised over 3 years and other ad hoc government grants for various purposes including safety awareness.

Allowance for impairment on trade receivables for 3Q2019 and 9M2019 was based on a forward-looking expected credit loss ("ECL") model in accordance to the new SFRS(I) 9 which come into effect from 1 April 2018.

Operating expenses

Distribution costs for 3Q2019 increased by approximately RMB 481,000 or 8.2% mainly due to an increase in revenue for 3Q2019. The Group incurred higher freight and port charges due to increased export sales during 3Q2019. Distribution costs for 9M2019 decreased in line with the lower revenue for 9M2019.

Administrative expenses for 3Q2018 and 9M2018 remained relatively unchanged.

There was no material fluctuation for depreciation and amortisation expenses.

Income tax expenses

The income tax expenses for 3Q2019 and 9M2019 were mainly related to the provision of withholding tax for undistributed profits of the subsidiary to the Group as well as the income tax expenses on the taxable profits of the subsidiary.

Statement of Financial Position

Property, plant and equipment decreased by approximately RMB 4.3 million, mainly due to the depreciation charged for the current period under review of approximately RMB 13.8 million which was partially offset by the acquisition of property, plant and equipment of approximately RMB 9.6 million.

Other assets, non-current relate to the Group's land use rights, which decreased by approximately RMB 2.0 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 15.2%, 22.5%, 8.5% and 53.8% respectively of our total current assets as at 31 December 2018.

Inventories decreased by approximately RMB 7.1 million or 22.0% to RMB 25.0 million as at 31 December 2018, as compared to RMB 32.1 million as at 31 March 2018. The decrease in inventories is mainly to lower finished goods as at 31 December 2018.

During the current quarter under review, trade and other receivables decreased by approximately RMB 17.7 million or 32.3% to RMB 37.0 million as at 31 December 2018. The decreased was mainly due to recovery of trade receivables and the allowance for impairment on trade receivables based on a forward-looking expected credit loss ("ECL") model in accordance to the new SFRS(I) 9 which come into effect from 1 April 2018. An allowance for impairment on trade receivables of approximately RMB 6.8 million was adjusted to opening retained earnings as at 1 April 2018 in accordance to SFRS(I) 9.

Other assets, current comprising the Group's prepayments, increased by approximately RMB 4.8 million or 51.4% to RMB 14.0 million as at 31 December 2018 mainly due to higher prepayments for raw materials as at 31 December 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 19.1 million and deferred tax liabilities of RMB 2.5 million for the withholding tax on the dividend payable by our subsidiary in China.

As at 31 December 2018, our current liabilities comprised trade and other payables of approximately RMB 74.6 million, other current financial liabilities of approximately RMB 58.0 million and other liabilities of RMB 6.9 million.

Trade and other payables, current decreased marginally by approximately RMB 3.1 million or 3.9% during 9M2019.

As at 31 December 2018, other current financial liabilities of RMB 58.0 million relates to the secured bank loans of Yinguang Technology.

Other liabilities of RMB 6.9 million relate to the Group's provision for safety expenses, advances from customers and a deferred government grant. The increase of approximately RMB 2.4 million is mainly due to increase in advances from customers.

Cash flow

For 3Q2019, the Group has net cash used in operating activities of approximately RMB 3.3 million and net cash used in investing activities and financing activities of approximately RMB 3.7 million and RMB 2.7 million, respectively.

For 9M2019, the Group generated net cash from operating activities of approximately RMB 13.0 million, while net cash used in investing and financing activities of RMB 9.3 million and RMB 4.3 million, respectively.

The net cash used in operating activities for 3Q2019 was mainly due to the increase in trade and other receivables and decrease in trade and other payables during the three months ended 31 December 2018. The net cash from operating activities for 9M2019 was mainly due to the lower trade and other receivables and decreased in inventories during the 9 months ended 31 December 2018.

The net cash used in investing activities of approximately RMB 3.7 million and RMB 9.3 million during 3Q2019 and 9M2019, respectively were mainly due to the purchase of property, plant and equipment, partially offset by the proceeds from the disposal of property, plant and equipment and interest received.

The net cash used in financing activities during 3Q2019 and 9M2019 were mainly due to the payment of interest expenses and net repayment of bank loan of approximately RMB 1.65 million.

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 is gradually scaling up the production capabilities of this second automated boosters production line.

The Group has started the design of our third automated boosters production line and construction is expected to complete during the first quarter of the next financial year.

Potential impairment on our property, plant and equipment

  1. Lower market demand for detonating cords

    Since the second quarter of FY2018, the Group's sales of industrial fuse and initiating explosive devices, in particular detonating cords, had decreased significantly. The lower market demand for detonating cords was due to additional safety measures implemented by the local authorities that restricted the use of detonating cords for mining activities in some of our customers' sites.

    As a result, this has led to lower sales contribution from our industrial fuse and initiating explosive devices product segment over the past few quarters.

    To mitigate this situation, the management has been actively seeking other sales channels to market our detonating cords product. However, it is foreseeable that the lower market demand for detonating cords will continue to persist in the coming quarters.

  2. New industry directive on detonators

    Recently, the commercial explosives governing authority in China issued a directive recommending the new industry roadmap for detonators. In the directive, it was highlighted that all manufacturing and usage of detonators should be changed to digital electronic detonators for a higher level of safety standards as well as environmental reasons.

    Currently, Yinguang Technology only manufactures non-electric detonators. With the introduction of this new directive, Yinguang Technology has started feasibility studies into the manufacturing of digital electronic detonators. The management is of the view that the new industry directive from the Chinese authority will have an impact to the commercial explosives industry and the associated detonator manufacturers in the near term.

The management is currently assessing the situation and the potential impairment impact on our detonating cords and non-electric detonators' property, plant and equipment. The management will continue to monitor the market conditions and update shareholders if there are any other material developments.

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"). On 31 January 2019, the Company released an announcement to update the status of the acquisition. For more information on the proposed acquisition of Laizhou Ping'an, please refer to the announcement on 18 June 2018 and 31 January 2019.

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