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Second Quarter Financial Statement And Dividend Announcement for the Period Ended 30 June 2017

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UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017

profit and loss


Statements of Financial Position

Review of Performance

COMMENTARY ON THE STATEMENT OF COMPREHENSIVE INCOME

2Q2017

The revenue contribution from each division is as follows:

Our total revenue increased by approximately RMB122.8 million or 32.1% from RMB382.8 million in 2Q2016 to RMB505.6 million in 2Q2017. The increase is mainly due to the inclusion of Aluminium Alloy Stretched Plates Division's revenue of approximately RMB109.6 million in 2Q2017. Revenue at our Aluminium Alloy Extruded Products Division increased by approximately RMB13.3 million or 3.5% from RMB381.4 million in 2Q2016 to RMB394.7 million in 2Q2017. Our Aluminium Alloy Extruded Products Division contributed approximately 78.1% of total revenue in 2Q2017 as compared to approximately 99.6% for 2Q2016.

The table below shows the revenue segmentation by end usage at our Aluminium Alloy Extruded Products Division for the three months ended 30 June 2017.

Revenue contributions for the "Others" segment in the Aluminium Alloy Extruded Products Division comprised mainly of the supply of aluminium alloy rods and other specialized profiles for industrial machinery.

The Group's gross profit margin for 2Q2017 was 31.4% versus 27.8% in 2Q2016. This was due to higher gross profit margin at our Aluminium Alloy Extruded Products Division of 31.6% in 2Q2017 as compared to 28.0% in 2Q2016. Gross profit margin for our Aluminium Alloy Stretched Plates Division was 31.0% in 2Q2017.

Other income increased by approximately RMB6.8 million in 2Q2017 mainly due to unrealised foreign exchange gain of RMB5.7 million arising from US dollar denominated medium term notes.

Selling and distribution expenses increased by approximately RMB4.7 million in 2Q2017, driven by higher business volume as compared with 2Q2016.

Administrative expenses increased by about RMB3.9 million in 2Q2017 mainly due to higher staff costs as compared with 2Q2016 and amortization of intangible asset of approximately RMB2.1 million.

Finance costs comprised interest for borrowings, bank charges and financing costs relating to discounted notes receivables. Finance costs increased in 2Q2017 mainly due to higher interest rates and higher amount of outstanding borrowings as compared to 2Q2016. Approximately RMB26.4 million (2Q2016: RMB24.3 million) of the interest on borrowings that are used to finance the construction of property, plant and equipment for our new production lines were capitalized.

The Group's share of profits from its associated company, CRRC Nanjing Puzhen Rail Transport Co., Ltd was approximately RMB7.1 million in 2Q2017 as compared to RMB10.6 million in 2Q2016. This was mainly due to a different project mix in the respective periods and also an increase in its operating expenses.

Income tax expense for 2Q2017 decreased by about RMB5.4 million mainly due to an adjustment for under provision of income tax in 2Q2016 and lower withholding tax expense for the current period.

2Q2017 ended with profits of approximately RMB55.5 million which represented 197.1% increase over 2Q2016.

1H2017

The revenue contribution from each division is as follows:

Our total revenue increased by approximately RMB217.6 million or 31.7% from RMB686.4 million in 1H2016 to RMB904.0 million in 1H2017. The increase is mainly due to the inclusion of Aluminium Alloy Stretched Plates Division's revenue of approximately RMB186.2 million in 1H2017. Revenue at our Aluminium Alloy Extruded Products Division increased by approximately RMB31.4 million or 4.6% from RMB684.2 million in 1H2016 to RMB715.5 million in 1H2017. Our Aluminium Alloy Extruded Products Division contributed approximately 79.1% of total revenue in 1H2017 as compared to approximately 99.7% for 1H2016.

The table below shows the revenue segmentation by end usage at our Aluminium Alloy Extruded Products Division for the six months ended 30 June 2017.

Revenue contributions for the "Others" segment in the Aluminium Alloy Extruded Products Division comprised mainly the supply of aluminium alloy rods and other specialized profiles for industrial machinery.

The Group's gross profit margin for 1H2017 was 29.8% versus 29.2% in 1H2016. This was due to higher gross profit margin at our Aluminium Alloy Extruded Products Division of 30.9% in 1H2017 as compared to 29.4% in 1H2016. Gross profit margin for our Aluminium Alloy Stretched Plates Division was 26.4% in 1H2017.

Other income increased by approximately RMB21.1 million in 1H2017 mainly due to unrealised foreign exchange gain of RMB19.4 million arising from US dollar denominated medium term notes.

Selling and distribution expenses increased by approximately RMB8.8 million in 1H2017, driven by higher business volume as compared with 1H2016.

Administrative expenses increased by about RMB7.8 million in 1H2017 mainly due to higher staff costs and depreciation expenses as compared with 1H2016 and amortization of intangible asset of approximately RMB4.3 million.

Finance costs comprised interest for borrowings, bank charges and financing costs relating to discounted notes receivables. Finance costs increased in 1H2017 mainly due to higher interest rates and higher amount of outstanding borrowings as compared to 1H2016. Approximately RMB51.3 million (1H2016: RMB52.2 million) of the interest on borrowings that are used to finance the construction of property, plant and equipment for our new production lines were capitalized.

The Group's share of profits from its associated company, CRRC Nanjing Puzhen Rail Transport Co., Ltd was approximately RMB19.2 million in 1H2017 as compared to RMB13.2 million in 1H2016. This was mainly due to increased delivery to its customers during the period.

Income tax expense for 1H2017 decreased by about RMB5.2 million mainly due to an adjustment for under provision of income tax in 1H2016 and lower withholding tax expense for 1H2017.

1H2017 ended with profits of approximately RMB84.3 million which represented 193.8% increase over 1H2016.

Commentary on the Statements of Financial Position

Trade and other receivables increased by about RMB86.1 million. This was mainly due to increase in business volume.

Restricted bank deposits decreased by about RMB51.0 million due mainly to the settlement of banker's acceptances in respect of the purchase of raw materials.

Net borrowings after currency translation adjustments decreased by RMB160.7 million mainly due to repayments.

Commentary on the Consolidated Statement of Cash Flows

During the quarter under review, payments made for property, plant and equipment amounted to RMB58.9 million and net decrease in borrowings was approximately RMB140.7 million. The above outflows were offset by net cash from operating activities of approximately RMB80.1 million which resulted in cash and cash equivalents balance of RMB955.5 million as at 30 June 2017.

Commentary

The PRC railway industry is poised to continue its growth path, backed by the authorities' continued railway investments to expand the country's railway network, including the passenger rail transportation sector covering metro and high-speed train projects.

The PRC government's Belt and Road Initiative is also expected to provide opportunities for the export of China's railway expertise to international markets in the mid-to-long term. Industry players, including Midas, with established track records and quality service offerings, will stand to benefit from these positive industry developments in the PRC and in the international markets. The Group is also focused on its diversification strategy to expand its customer base and enter new industries.