东光化工(01702) - 2019 - 中期财报

Company Information Board of Directors and Management This section details the composition of the Board of Directors, its committees, and key management personnel - The Board of Directors, chaired by Mr. Wang Zhihe, includes executive, non-executive, and independent non-executive directors, with key committees led by independent non-executive directors[11][12][13] Company Basic Information This section provides essential company details such as stock code, website, principal business location, and main banks Company Basic Information | Item | Information | | :--- | :--- | | Stock Code | 1702 | | Company Website | www.dg-chemical.com | | Principal Place of Business in Hong Kong | Room 1201-5, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong | | Main Banks | China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Cangzhou Bank | Management Discussion and Analysis Business Overview H1 2019 saw a 72.5% surge in profit to RMB 112.7 million despite flat revenue, driven by improved gross margins, lower finance costs, and strong urea performance H1 2019 Key Performance Indicators | Indicator | H1 2019 | H1 2018 | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Revenue | Approx. 1,117.1 million RMB | Approx. 1,113.5 million RMB | +0.3% | | Profit | Approx. 112.7 million RMB | Approx. 65.3 million RMB | +72.5% | | Urea Average Selling Price | Approx. 1,721 RMB/ton | Approx. 1,694 RMB/ton | +1.6% | - Significant profit growth was primarily driven by higher overall gross profit and gross profit margin and lower finance costs[16] - The subsidiary, Hebei Dongguang, received national-level green factory recognition and was named an advanced unit in energy conservation and emission reduction for four consecutive years[17] Operations and Financial Review This section reviews product-line revenue and gross profit, highlighting urea's strong growth and methanol's decline, alongside effective control over administrative and finance costs Revenue by Product (For the six months ended June 30) | Product | 2019 (RMB thousand) | 2018 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Urea | 989,371 | 962,835 | +2.8% | | Methanol | 68,717 | 85,188 | -19.3% | | Other Products | 59,059 | 65,476 | -9.8% | | Total | 1,117,147 | 1,113,499 | +0.3% | Gross Profit and Gross Margin by Product (For the six months ended June 30) | Product | 2019 Gross Profit (RMB thousand) | 2019 Gross Margin (%) | 2018 Gross Profit (RMB thousand) | 2018 Gross Margin (%) | Gross Profit Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Urea | 177,120 | 17.9% | 123,870 | 12.9% | +43.0% | | Methanol | (7,459) | (10.9%) | 5,642 | 6.6% | -232.2% | | Other Products | 25,074 | 42.4% | 24,069 | 36.8% | +4.2% | | Total | 194,735 | 17.4% | 153,581 | 13.8% | +26.8% | - Administrative expenses decreased by 8.0% to RMB 30.6 million, mainly due to reduced directors' remuneration[27] - Finance costs significantly decreased by 29.9% to RMB 19.9 million, primarily due to an overall reduction in borrowing levels[29] Capital Structure, Liquidity and Financial Resources As of June 30, 2019, net assets increased to RMB 1.089 billion, cash balances surged, and the gearing ratio significantly improved to 0.14, despite net current liabilities Capital Structure Summary | Item | June 30, 2019 (RMB million) | December 31, 2018 (RMB million) | | :--- | :--- | :--- | | Net Assets | 1,089.2 | 998.2 | | Cash and Bank Balances | 438.4 | 215.5 | | Interest-bearing Bank and Other Borrowings | 589.7 | 601.7 | | Net Current Liabilities | 110.3 | 193.3 | - The gearing ratio significantly decreased from 0.43 at the end of 2018 to 0.14 as of June 30, 2019[36] Outlook The Group plans to pursue green development by investing in energy conservation and new technologies, while consolidating market position through capacity enhancement and value chain expansion - Future strategy focuses on green development, increasing investment in energy conservation and environmental protection, and upgrading high-energy-consuming processes[37] - Growth strategies include increasing capacity, improving quality and efficiency, expanding into urea-related products, and seeking strategic partnerships[37] Other Operating Information and Risks The Group faces foreign exchange risk from HKD borrowings without hedging, has RMB 21.4 million in capital commitments, and maintained stable employee numbers with slightly reduced staff costs - The Group's primary foreign exchange risk stems from HKD-denominated borrowings, with no formal hedging policy in place[39] - As of June 30, 2019, capital commitments totaled approximately RMB 21.4 million, with no significant contingent liabilities[40][42] - As of June 30, 2019, the Group employed 1,268 staff, with total employee costs of approximately RMB 50.9 million[43] Other Information Directors', Chief Executive's and Major Shareholders' Interests This section details the shareholding interests of directors and major shareholders, identifying controlling shareholders Mr. Wang Zhihe and Mr. Sun Yi Directors' and Major Shareholders' Shareholdings | Shareholder Name/Entity | Capacity/Nature of Interest | Number of Shares Held (Long Position) | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | | Mr. Wang Zhihe | Interest in Controlled Corporation | 460,000,000 | 74.08% | | Mr. Sun Yi | Interest in Controlled Corporation | 180,320,000 | 29.04% | | Timely Moon | Interest in Controlled Corporation | 460,000,000 | 74.08% | | Guofu (Hong Kong) Holdings Limited | Beneficial Owner | 31,132,000 | 5.01% | Share Option Scheme The company adopted a share option scheme in 2017 to incentivize contributors, but no options have been granted, exercised, or cancelled to date - Since its adoption in 2017, no share options have been granted, exercised, or cancelled under the scheme as of the reporting date[54] Use of Proceeds The report updates the use of global offering proceeds, with HKD 24.1 million remaining unutilized as of June 30, 2019, expected to be fully used by year-end Update on Use of Proceeds (As of June 30, 2019) | Purpose | Actual Net Proceeds (HKD million) | Amount Utilized (HKD million) | Unutilized Amount (HKD million) | | :--- | :--- | :--- | :--- | | Purchase of new equipment and construction of new energy-saving power facilities | 69.3 | 45.2 | 24.1 | | Purchase, construction and installation of new environmental protection facilities | 52.7 | 52.7 | – | | Loan repayment | 14.8 | 14.8 | – | | Working capital and general corporate purposes | 10.9 | 10.9 | – | | Total | 147.7 | 123.6 | 24.1 | - The remaining unutilized net proceeds are expected to be fully utilized by December 31, 2019[57] Other Disclosures The company had no major acquisitions or disposals, no listed securities transactions, declared no interim dividend, complied with governance codes, and disclosed reduced executive director remuneration - The Board decided not to declare an interim dividend for the six months ended June 30, 2019[62] - The Audit Committee reviewed the Group's interim results, which were also reviewed by the company's auditor[63][65] - During the reporting period, the company did not purchase, sell, or redeem any of its listed securities[61] - The remuneration of Mr. Wang Zhihe, Mr. Sun Zushan, and Mr. Xu Xijiang decreased effective January 1, 2019[67][68][69] Review Report on Interim Condensed Consolidated Financial Statements Auditor's Review Conclusion The auditor, BDO Limited, reviewed the interim financial statements and found no material non-compliance with IAS 34, without expressing an audit opinion - The review was conducted in accordance with Hong Kong Standard on Review Engagements 2410 issued by the HKICPA[79] - Conclusion: Based on the review, the auditor found no matters indicating the interim financial statements were not prepared in accordance with International Accounting Standard 34 in all material respects[81] Condensed Consolidated Financial Statements Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For H1 2019, revenue slightly increased to RMB 1.117 billion, while gross profit surged 26.8% and profit for the period grew 72.5% to RMB 112.7 million Profit or Loss Statement Summary (For the six months ended June 30) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Revenue | 1,117,147 | 1,113,499 | | Gross Profit | 194,735 | 153,581 | | Profit before income tax | 146,747 | 94,774 | | Profit for the period | 112,734 | 65,345 | | Basic earnings per share (RMB cents) | 18.2 | 10.5 | Condensed Consolidated Statement of Financial Position As of June 30, 2019, total assets reached RMB 1.89 billion, with net assets at RMB 1.089 billion, and improved liquidity reflected by narrowed net current liabilities Statement of Financial Position Summary | Item | June 30, 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | Total non-current assets | 1,241,065 | 1,319,138 | | Total current assets | 648,685 | 508,638 | | Total current liabilities | 758,968 | 701,944 | | Total non-current liabilities | 41,554 | 127,604 | | Net Assets | 1,089,228 | 998,228 | Condensed Consolidated Statement of Cash Flows Operating cash flow was RMB 196 million, investing activities generated RMB 124 million (due to loan recovery), and financing activities had a RMB 96 million outflow, leading to a significant increase in period-end cash to RMB 438 million Cash Flow Statement Summary (For the six months ended June 30) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Net cash generated from operating activities | 195,620 | 213,754 | | Net cash generated from/(used in) investing activities | 123,585 | (43,772) | | Net cash used in financing activities | (95,556) | (134,811) | | Net increase in cash and cash equivalents | 223,649 | 35,171 | | Cash and cash equivalents at end of period | 438,390 | 212,763 | Notes to the Interim Condensed Consolidated Financial Statements 2. Basis of Preparation Financial statements are prepared on a going concern basis, despite RMB 110 million net current liabilities, supported by refinancing commitments and strong credit - As of June 30, 2019, current liabilities exceeded current assets by RMB 110,283,000[98] - To address liquidity, the Group secured RMB 275.4 million in refinancing letters of intent, supporting the going concern basis of preparation[100] 3. Changes in International Financial Reporting Standards The Group adopted IFRS 16 from January 1, 2019, using a modified retrospective approach, impacting asset and liability presentation without restating prior year comparatives - The Group adopted IFRS 16 using the modified retrospective approach, recognizing right-of-use assets on January 1, 2019, without restating comparative data[106] Impact of IFRS 16 Adoption on Statement of Financial Position as of January 1, 2019 | Item | Impact (Increase/(Decrease)) (RMB thousand) | | :--- | :--- | | Assets | | | Right-of-use assets | 114,121 | | Prepaid land lease payments | (86,754) | | Liabilities | | | Lease liabilities | 28,460 | | Accrued expenses | (1,093) | 5. Revenue and Other Income All revenue originated from China, with urea sales being the primary source at 88.6% of total revenue, supplemented by government grants and bank interest Revenue by Major Product (For the six months ended June 30) | Product | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Sales of urea | 989,371 | 962,835 | | Sales of methanol | 68,717 | 85,188 | | Sales of liquid ammonia | 26,891 | 35,913 | | Others | 32,168 | 29,563 | 12. Earnings Per Share Basic earnings per share significantly increased by 73.3% to RMB 18.2 cents, with diluted EPS being identical Earnings Per Share Calculation | Item | For the six months ended June 30, 2019 | For the six months ended June 30, 2018 | | :--- | :--- | :--- | | Profit (RMB thousand) | 112,734 | 65,345 | | Weighted average number of ordinary shares (thousand shares) | 620,472 | 620,000 | | Basic earnings per share (RMB cents) | 18.2 | 10.5 | 18. Bank and Other Borrowings As of June 30, 2019, total bank and other borrowings were RMB 590 million, all current, with some secured by assets or director guarantees - As of June 30, 2019, total bank and other borrowings were RMB 589,744 thousand, all repayable within one year[148] - Secured loans are collateralized by Group assets, including property, plant, and equipment, with some borrowings also guaranteed by company directors[150][151] 20. Related Party Transactions and Balances Amounts payable to Bloom Ocean Investments Limited were fully repaid, and key management personnel remuneration significantly decreased to RMB 786 thousand - Amounts payable to shareholder Bloom Ocean Investments Limited (at 8% annual interest) were fully repaid on February 25, 2019[156] Key Management Personnel Remuneration (For the six months ended June 30) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Short-term employee benefits | 598 | 1,362 | | Post-employment benefits | 100 | 13 | | Share-based payment expenses | 88 | 203 | | Total | 786 | 1,578 |