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of global macro economy. As for the PRC's economy, the PRC government continued to vigorously
promote the economic restructuring and supply-side reform. Currently, the PRC's economy is going
through a phase of "slow growth, restructuring and financial stabilization".
During the reporting period, prices of nonferrous metals were relatively stable with fluctuations in a
tight range. Against the backdrop of improved performance in nonferrous metals industry and relatively
balanced market supply and demand, prices of nonferrous metals are expected to grow steadily and
moderately in the second half of 2017.
Business review
In the first half of 2017, the Group's operating subsidiary for copper plates and strips business, Ningbo
Xingye Shengtai Group Ltd. ("Xingye Shengtai"), formed its new management team and formulated
its operating guidelines for the year of 2017, confirming that 2017 would be the foundation year for
the enterprise's secondary transformation and upgrading.
- 21 -
During the reporting period, under the guidance of the new management team, together with the joint
efforts of all the staff, the Group's copper plates and strips realized an output of 59,998 tons and sales
volume of 60,286 tons, both hitting a record high over the same period of prior years. In the first
half of the year, sales revenue of the Group's copper plates and strips business achieved RMB1,987.9
million, representing an increase of 33.2% as compared to that of the corresponding period of 2016,
among which, revenue from the sale of copper products amounted to RMB1,765.7 million, revenue
from copper processing business RMB98.8 million and revenue of trading RMB123.4 million, up
by 26.4%, 40.3% and 393.6%, respectively. In the first half of the year, the copper business realised
an operating profit before taxation (profit before taxation excluding the change in fair value of the
contingent consideration payable and the impairment of plant and equipment) of RMB76.0 million,
which decreased by 9.6% as compared to that of the corresponding period of last year, mainly due to
a significant decrease in orders of a type of high value-added products launched in 2016 during the
reporting period, thus resulting in a fall in gross profit and operating profit as compared to that of the
corresponding period of last year, despite a significant increase in the sales volume of other products
of the copper plates and strips business.
Business development
According to the operating guidelines of 2017, the Group's operating subsidiaries of the copper plates
and strips business carried out the following work:
Strengthen the foundations for enterprise development: following the stage of "big investment,
great technical renovation", the Group's copper plates and strips business has entered into a period of
transformation, upgrading and building solid foundations. To this end, Xingye Shengtai has taken a
series of actions to deleverage, cut inventory and obsolete capacity, and reduce costs.
Pursue transformation and upgrading to ensure sound development: Xingye Shengtai carried
out refined management, deepened product technology innovation and intensified the integration of
industrialization with information technologies. MES (Manufacturing Execution System) has been
continuously improved to lay a sound foundation for full operation. In the first half of the year, Xingye
Shengtai introduced the full fledged second phase of TPM (Total Productive Maintenance) management,
aimed to enhance its management and technical level. Xingye Shengtai focused on the trial production
of hot-dip tinning line, and the products of the hot-dip tinning line were well recognized by well-known
enterprises and were expected to gain their technical access.
Outlook
Looking ahead to the second half of the year, the management team of the Group's copper plates and
strips manufacturing business believes that, with the efforts of all employees, more stable development
will be achieved in the second half of the year to generate returns for the Group's shareholders.
- 22 -
FINANCIAL REVIEW
Revenue and gross profit
The Group recorded total sales revenue of RMB2,001.7 million in the reporting period, which increased
by 34.1% as compared with that of the corresponding period of last year. The increase in sales revenue
of the Group's copper business was mainly due to an increase in sales volume of copper products and
copper price.
The Group's copper business achieved a total revenue of RMB1,987.9 million for the six months ended
30 June 2017, representing an increase of 33.2% compared to RMB1,492.8 million of the corresponding
period in 2016. Revenue generated from the sales of high precision copper plates and strips, provision
of processing services and trading of raw materials amounted to RMB1,765.7 million, RMB98.8 million
and RMB123.4 million respectively (for the six months ended 30 June 2016: RMB1,397.4 million,
RMB70.4 million and RMB25.0 million respectively). For the six months ended 30 June 2017, 88.8%,
5.0% and 6.2% of total revenue was derived from the sales of high precision copper plates and strips,
provision of processing services and trading of raw materials respectively (for the six months ended
30 June 2016: 93.6%, 4.7% and 1.7% respectively). The sales volume of high precision copper plates
and strips, provision of processing services and trading of raw material were 41,466 tons, 18,820 tons
and 4,383 tons respectively, making 64.1%, 29.1% and 6.8% of the total.
The Group's online gaming business achieved revenue of RMB13.9 million for the six months ended
30 June 2017, representing 0.7% of the total revenue (for the six months ended 30 June 2016: Nil).
The overall gross margin of the Group's copper business for the period under review decreased to
11.2% from 14.3% of the corresponding period in 2016, which was mainly due to the sales volume
decrease of copper products with higher gross margin.
Other income
During the six months ended 30 June 2017, the Group's other income amounted to RMB10.1 million
in total, representing a decrease of 28.4% compared to RMB14.1 million of the corresponding period
of last year, which was mainly attributable to a decrease of gain on metal future contracts of RMB6.0
million.
Other expenses
For the six months ended 30 June 2017, the Group recorded RMB0.4 million in other expenses, while
recording other expenses of RMB16.2 million for the corresponding period of last year. Such decrease
was mainly due to the impairment loss of property, plant and equipment of RMB15.1 million in the
corresponding period of last year.
- 23 -
Distribution expenses
For the six months ended 30 June 2017, the ratio of distribution expenses to revenue rose to 1.25%
as compared to 1.12% of the corresponding period of last year, which was comparable as that of the
corresponding period of 2016.
Administrative expenses
For the six months ended 30 June 2017, the Group's administrative expenses increased by 10.5% to
RMB115.3 million from RMB104.3 million in the same period of last year, which was attributable
to an increase in research and development expenses by RMB9.1 million to RMB74.8 million from
RMB65.7 million of the corresponding period of last year.
Net finance costs
The Group's net finance costs for the six months ended 30 June 2017 amounted to RMB5.9 million,
representing an decrease of 72.8% compared to that of RMB21.7 million of the corresponding period
of last year, which was mainly due to the gain of RMB15.5 million from change in fair value of
contingent consideration payables for the six months ended 30 June 2017. The change in fair value
of the contingent consideration payables is mainly due to the fact that the share price of the Group as
at 30 June 2017 was lower than the acquisition date price of the consideration shares to be issued to
Mobilefun Limited associated with the acquisition of Funnytime Limited completed in August 2016.
Income tax
For the six months ended 30 June 2017, the Group's income tax expenses was RMB20.3 million
(corresponding period of last year: RMB11.6 million). The Group's consolidated effective tax rate for
the six months ended 30 June 2017 was 21% (six months ended 30 June 2016: 17%). The increase on
the effective tax rate was mainly because the preferential tax rate of Xingye Shengtai expired since 2017.
Profit attributable to the shareholders of the Company
The profit attributable to owners of the Company for the six months ended 30 June 2017 amounted to
RMB74.5 million, representing an increase of RMB19.2 million compared to that of RMB55.3 million
of the corresponding period of last year. The increase is mainly due to the financial gain of RMB15.5
million from change in fair value of contingent consideration payables for the six months ended 30
June 2017.
- 24 -
Liquidity financial resources and capital structure
As at 30 June 2017, the Group recorded net current liabilities of RMB76.6 million, which was primarily
due to capital expenditure made in current period under review being largely financed by short-term
bank borrowings. Capital expenditures are used to purchase manufacturing equipment, land and buildings
according to the development plan of the Group.
As a percentage of total interest-bearing borrowings, the short-term interest-bearing borrowings
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August 27, 2017 22:15 ET (02:15 GMT)
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