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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Haike Chemical | LSE:HAIK | London | Ordinary Share | KYG423181083 | ORD USD0.002 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 38.00 | 1.00 | 75.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jun 2019 to Jun 2024
TIDMHAIK
RNS Number : 6425Z
HaiKe Chemical Group Ltd.
31 May 2016
HaiKe Chemical Group Limited
Audited results for the year ended 31 December 2015
HaiKe Chemical Group Ltd. ("HaiKe" or the "Company", together with its subsidiaries as the "Group" or "HaiKe Group"), the AIM quoted (AIM: HAIK) specialty chemical company based in Shandong Province, China, announces its final results for the period ended 31 December 2015. The full Annual Report and Accounts will be available on the Company's website, www.haikechemical.com and will be posted, together with a notice of AGM to be held on 26 June 2016, to shareholders shortly.
2015 was a challenging year for the Company with depressed oil prices and fierce competition in the Isopropyl Alcohol market. In light of this, in order to better position the business, the Board in Q3 decided to focus on higher margin specialty chemical products, supported by new product development, and cost controls. While this required an initial outlay, the positive results of such action began to be evidenced in Q4 2015.
Highlights
Financial
-- Turnover decreased by 25.3% to CNY727.5 million / GBP76.3 million (2014: CNY973.3 million / GBP96.1 million)
-- Profit for the year from continuing operations was CNY4.1 million / GBP0.4 million (2014: CNY7.6 million / GBP0.8 million)
-- Earnings per share was CNY0.1 (2014: loss of CNY8.5*)
-- Cash and cash equivalents balance as at 31 December 2015 was CNY35.4 million / GBP3.7 million (2014: CNY39.4 million / GBP3.9 million)
-- Total borrowings as at 31 December 2015 significantly reduced to CNY80.0 million / GBP8.4 million (2014: CNY702.9 million / GBP69.4 million) principally reflecting the scaled down trading activities of HaiKe Trading, the trading arm of the Company, during the year
-- The Board does not recommend a final dividend
Operational
-- As previously indicated, market conditions were challenging for our major products especially Isopropyl Alcohol (IPA) which faced strong competition from other producers
-- Lower crude oil prices depressed selling prices of downstream derivative products, further impacting our specialty chemical products
-- Decisive action was taken in Q3 to adjust the Company's product mix towards higher-end, more profitable specialty chemical products in order to better position the business in a weak market
Outlook
-- For the first four months of 2016 unaudited turnover of CNY225.5 million / GPB24.2 million (the first four months of 2015: CNY278.7 million / GBP30.1million)
-- For the first four months of 2016 unaudited net profit of CNY7.3 million / GPB0.8 million (the first four months of 2015: loss of CNY 1.6 million / GBP0.2 million). Following an improved performance in Q4, profitability in the first four months of 2016 has continued to benefit positively from the revised high-end product mix
-- Weak operating environment expected to continue
-- Innovating new specialty chemical products to evolve further the product mix to support business performance
GBP/CNY exchange rate = 1:9.5344 which was the arithmetic average of the exchange rates for 2015
* including effect of Discontinuing Operations in 2014
Mr. Xiaohong Yang, Executive Chairman, said:
"The Group delivered a modest profit despite difficult trading conditions. Depressed oil prices and an oversupply of mid to lower-end specialty chemicals had a negative effect on our selling prices and eroded our average margins. In Q3, in order to counteract a weak market and better position the business, we decided to focus on higher margin specialty chemical products, new product development, and tighter cost controls. This began to deliver an improved performance in Q4 which has satisfactorily continued into the first four months of 2016. Looking forward, we expect the operating environment to remain challenging and our focus therefore is to continue to innovate new specialty chemical products and evolve our product mix in order to optimize our performance."
For further information please contact:
Hot Features
Premium
George Zeng, Chief
HaiKe Chemical Financial Officer
Group george@haikechemical.com +86 138 2520 2570
--------------------- -------------------------- --------------------
Richard Johnson /
Stockdale Securities Antonio Bossi +44 (0) 20 7601 6100
--------------------- -------------------------- --------------------
Shan Shan Willenbrock
/
Emma Crawshaw
Cardew Group haike@cardewgroup.com +44 (0) 20 7930 0777
--------------------- -------------------------- --------------------
Chairman's Statement
Review of 2015 Performance
This was a challenging year for the Company. Turnover decreased 25.3% to CNY727.5 million (2014: CNY973.3 million) with profit from continuing operations falling 46.1% to CNY4.1 million (2014: CNY7.6 million).
The business performance was impacted by continued depressed oil prices which had an adverse effect on selling prices.
In addition, China's economy continued to slow down with GDP growth falling below 7% for the first time in 2015, compared to 7.4% growth in the preceding year. The slowing economy resulted in an oversupply of mid to lower-end specialty chemicals which weakened our pricing power further and eroded average margins.
The specialty chemical products recorded an average 1.0% volume decrease and the average price fell by 23.9% year-on-year. The sales volume of Dimethyl Carbonate ("DMC") and IPA decreased by 1.6% and 1.9% year-on-year respectively; the price of DMC and IPA decreased by 18.9% and 35.7% year-on-year respectively.
In light of the difficult trading environment, in Q3, the Board decided to adjust the product mix towards higher-end products, supported by new product development, and implemented tighter cost controls. While this required an initial outlay, the positive results of such action began to be evidenced in Q4 2015.
Outlook
In the first four months of 2016, the Company recorded an unaudited turnover of CNY225.5 million (the first four months of 2015: CNY278.7 million). Net profit was CNY7.3 million, compared with loss of CNY1.6 million in the first four months of 2015. The improvement in profitability has been driven by:
-- our focus on upgrading our product mix towards higher-end products;
-- an improved performance of one of our major products, IPA, as the oil price has shown some uplift, which has resulted in slight margin recovery
-- continued cost saving initiatives during the period.
We expect trading conditions to remain difficult over the short to medium] term and decisive action has been taken to mitigate these effects and support the performance of the business. The action we have taken has yielded positive results to date and we continue to focus on higher-end specialty chemicals, developing new products to support this, and cost control.
Dividend
No dividend is proposed for this year. When the Group's profitability has further improved, the Board will consider the resumption of dividend payments.
Chief Executive Officer's Report
For the year ended 31 December 2015, the Group sold 125,000 tons of specialty chemical products, representing a decrease of 1.0% when compared to 2014.
Sales Volume ('000 ton)
Change
2015 2014 y-o-y(%)
------------------------- ---- ----- ---------
Dimethyl
Carbonate 44 44 -1.6%
Propylene
glycol 35 36 -0.3%
Isopropyl
alcohol 42 43 -1.9%
Diisopropyl
ether 4 3 12.1%
-------------------------- ---- ----- -----------
Total 125 126 -1.0%
-------------------------- ---- ----- -----------
Meanwhile, the average realised price of specialty chemicals decreased by 23.9% year-on-year, primarily as a result of depressed oil prices.
One of our major products, IPA, faced severe competition from other producers during the period, which impacted our selling price. The suppressed oil price contributed to this in two ways.
Firstly, lower crude oil prices depressed selling prices of downstream derivative products, which affected our specialty chemical products. Secondly, the lower crude oil prices benefited rival manufacturers of IPA, who adopt a different production process, which is more sensitive to oil price fluctuations.
While this alternative production process also has the added advantage of using other cheaper alternative feedstock and newer technology, enabling it to deliver a higher standard of product specification, with the oil price remaining at such low levels over the course of 2015, our competitors were able to initiate a price war. This was done in order for our competitors to gain market share in what had become an oversupplied market of mid to lower-end specialty chemicals, chiefly due to the slowing Chinese economy.
In response to this, in order to maintain our market share, we consequently reduced our selling prices, which had an adverse effect on margins over the period. However, with this oversupply of the mid to lower-end speciality chemicals market, in Q3, the Board took decisive action to better position the business in this challenging market. As such, from Q3, the Company began moving its product mix towards more higher-end specialty chemical products.
During the year, sales turnover fell by 25.3% to CNY727.5 million. Gross profit was CNY84.4 million, 18.7% lower than 2014. Gross margins did however increase slightly from 10.7% in 2014 to 11.6%, as a result of the altered product mix.
Reflecting the changing product mix, sales of high-end specialty chemicals accounted for 3.0% of total sales in 2015, compared to 2.6% in 2014.
A profit after tax of CNY4.1 million was recorded for the reporting period, compared to a loss of CNY362.3 million in 2014, which is inclusive of part of the loss incurred before completion of the restructuring.
Total borrowings at the year-end were significantly reduced to CNY80.0 million (from CNY702.9 million as at 31 December 2014) principally reflecting the scaled down trading activities of Haike Trading, the trading arm of the Company.
Looking forward, we do not expect the operating landscape to change significantly in the short term, with competition in the mid to lower-end specialty chemical market remaining strong. We recognise that we cannot rely on an improved oil price, but instead we will drive business performance by further optimising our product mix, which will be supported by new product development, and through our continued focus on cost control.
Chief Financial Officer's Report
Turnover
Turnover from continuing operations fell by 25.3% year-on-year to CNY727.5 million (2014: CNY973.3 million). Both sales volumes and average realized prices for our major products decreased when compared with 2014. The table below sets out the external sales volumes and average realized prices for major products sold by the Group in 2015 and 2014, and the corresponding percentage change year-on-year.
Sales Volume('000 Change Average Realized Change
ton) Price(CNY/ton)
-------------------- -------------------
2015 2014 y-o-y 2015 2014 y-o-y
(%) (%)
------------- --------- --------- ------- --------- -------- -------
Dimethyl
Carbonate 44 44 -1.6 4,011 4,944 -18.9
Propylene
glycol 35 36 -0.3 7,732 9,403 -17.8
Isopropyl
alcohol 42 43 -1.9 5,068 7,883 -35.7
Diisopropyl
ether 4 3 12.1 10,973 12,339 -11.1
------------- --------- --------- ------- --------- -------- -------
Staff Remuneration Costs
Staff remuneration costs for continuing operations were CNY23.9 million, representing a 2.8% decrease year-on-year (2014: CNY24.6 million). The decrease was mainly the result of less commissions paid following reduction in sales volume.
Depreciation and Amortization
Depreciation and amortization for the continuing operations was CNY25.2 million (2014: CNY25.2 million).
Selling, General and Administrative Expenses
The selling, general and administrative expenses for the continuing operations increased by 4.3% to CNY75.9 million (2014: CNY72.8 million), reflecting reduced sales promotion expenditure and salary increases to account for annual inflation.
Net Exchange Gain
The Group recorded a net exchange gain of CNY4.7 million for continuing operations, compared with a loss of CNY2.4 million in 2014. This was mainly attributable to the depreciation of the CNY against the US dollar during the reporting period.
Net Interest Expenses
Interest income for continuing operations increased to CNY12.8 million (2014: CNY12.3 million), representing an increase of 4.1%. The increase was mainly attributable to a higher yield from our bank's financial products.
Interest expense for continuing operations decreased to CNY20.7 million (2014: CNY32.6million), representing a decrease of 36.5%. The lower interest expense was mainly attributable to the decrease in the effective interest rate which resulted from more relaxed monetary policies in China and the significant reduction of our total borrowings.
Net interest expenses for continuing operations decreased to CNY8.0 million (2014: CNY20.2 million), representing a decrease of 60.4%.
Tax Expense
Tax expenses for continuing operations increased by 54.5% to CNY1.7 million (2014: CNY1.1 million) as a result of higher taxable income for both Spring Chemical and HaiKe Trading.
Cash and Cash Equivalents
Cash and cash equivalents decreased to CNY35.4 million as at 31 December 2015, compared to CNY39.4 million for the same period in 2014. The restricted cash was CNY13.3 million as at 31 December 2015 (31 December 2014: CNY16.6 million). The reduction in both cash and cash equivalents and restricted cash was attributable to an increase in working capital.
Bank Loans
Bank loans decreased by CNY622.9 million to CNY80.0 million as at 31 December 2015, compared to CNY702.9 million as at 31 December 2014. Short-term bank loan balance decreased by CNY622.9 million while the long-term loan balance remained unchanged.
Cash Flow from Operating Activities
Cash flow from operating activities from continuing operations was positive amounting to CNY639.2million for the 12 months ended 31 December 2015, compared to a negative cash flow of CNY352.4 million for the prior year. This was mainly attributable to changes in working capital.
Going Concern
The positive net asset position, positive earnings and cash flow from operating activities for the reporting period, together with the reduction in gearing ratio, have ensured that the Group is able to operate as a going concern.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2015
Notes 2015 2014
CNY'000 CNY'000
-------------------------------------- ------ ---------- -----------
Revenue 3 727,521 973,345
Cost of sales (643,092) (869,471)
-------------------------------------- ------ ---------- -----------
Gross profit 84,429 103,874
Other operating expenses 3 485 263
Administrative expenses (41,175) (32,836)
Selling and distribution
expenses (34,749) (39,955)
-------------------------------------- ------ ---------- -----------
Profit from operations 4 8,990 31,346
Finance expenses 5 (20,742) (35,472)
Finance income 3 17,529 12,844
-------------------------------------- ------ ---------- -----------
Profit before tax 5,777 8,718
Tax expense 17 (1,709) (1,142)
-------------------------------------- ------ ---------- -----------
Profit for the year from
continuing operations 4,068 7,576
Profit/(Loss) for the year
from discontinuing operations 15 - (369,842)
Profit/(Loss) for the year 4,068 (362,266)
-------------------------------------- ------ ---------- -----------
Other comprehensive profit,
net of tax
Items that will be reclassified
subsequently to profit or
loss
-------------------------------------- ------ ---------- -----------
Exchange difference arising
from consolidation - (64)
-------------------------------------- ------ ---------- -----------
Total comprehensive profit/(loss)
for the year, net of tax 4,068 (362,330)
-------------------------------------- ------ ---------- -----------
Profit/(Loss) for the year
attributable to:
Owners of parent 4,059 (326,890)
Non-controlling interests 9 (35,376)
-------------------------------------- ------ ---------- -----------
4,068 (362,266)
-------------------------------------- ------ ---------- -----------
Total comprehensive profit/(loss)
for the year attributable
to:
Owners of parent 4,059 (326,954)
Non-controlling interests 9 (35,376)
-------------------------------------- ------ ---------- -----------
4,068 (362,330)
-------------------------------------- ------ ---------- -----------
Earnings per share for profit/(loss)
attributable to the
ordinary equity holders of
the parent during the year
Basic 6
- continuing operations CNY0.106 CNY0.198
- discontinuing operations - (CNY8.721)
Total CNY0.106 (CNY8.523)
Diluted 7
- continuing operations CNY0.106 CNY0.198
- discontinuing operations - (CNY8.721)
Total CNY0.106 (CNY8.523)
-------------------------------------- ------ ---------- -----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEARED 31 DECMEBER 2015
Notes 2015 2014
CNY'000 CNY'000
------------------------------- -------- ------------ ------------
ASSETS
Non-current assets
Property, plant and
equipment 8 135,164 146,759
Intangible assets 9 12,111
147,275 146,759
------------------------------- -------- ------------ ------------
Current assets
Inventories 11 28,595 31,197
Trade and other receivables 12 101,307 123,653
Amounts due from related
parties 22 402,535 857,201
Restricted cash 13 13,259 16,620
Cash and cash equivalents 13 35,405 39,404
581,101 1,068,075
------------------------------- -------- ------------ ------------
Total assets 728,376 1,214,834
------------------------------- -------- ------------ ------------
LIABILITIES
Current liabilities
Short-term loans 14 80,000 702,888
Trade and other payables 16 89,182 138,185
Income tax payable 4,668 10,145
Amounts due to related
parties 22 440,029 262,891
613,879 1,114,109
------------------------------- -------- ------------ ------------
Non-current liabilities
Deferred income 15 2,250 900
------------------------------- -------- ------------ ------------
2,250 900
------------------------------- -------- ------------ ------------
Total liabilities 616,129 1,115,009
------------------------------- -------- ------------ ------------
CAPITAL AND RESERVES
Share capital 18 598 598
Share premium 18 1,564,667 1,564,686
Other reserves 1,818 1,818
Foreign currency translation
reserve (587)
(587)
Statutory reserves 18 32,268 31,575
Accumulated losses 18 (1,486,585) (1,498,313)
------------------------------- -------- ------------ ------------
Equity attributable
to holders of the parent 112,179 99,777
Non-controlling interests 68 48
------------------------------- -------- ------------ ------------
Total equity 112,247 99,825
------------------------------- -------- ------------ ------------
Total liabilities and
equity 728,376 1,214,834
------------------------------- -------- ------------ ------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2015
Attributable to equity holders of the parent
Foreign
currency Acc-
Share Share Other translation Statutory umulated Non-controlling Total
capital premium reserves reserve reserves losses Total interest equity
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
Balance
as at
1 January
2014 598 142,312 1,818 (523) 30,928 (1,060,238) (885,105) (91,566) (976,671)
Transfer
to statutory
reserves - - - - 647 (647) - - -
Transactions
with
owners - - - - 647 (647) - - -
Loss
for the
year - - - - - (326,890) (326,890) (35,376) (362,266)
Other
comprehensive
loss - - - - - - - - -
- Foreign
currency
translation - - - (64) - (64) - (64)
Total
comprehensive
loss
for the
year - - - (64) - (326,890) (326,954) (35,376) (362,330)
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
disposal 1,422,374 - (110,538) 1,311,836 126,990 1,438,826
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
Balance
as at
31 December
2014 598 1,564,686 1,818 (587) 31,575 (1,498,313) 99,777 48 99,825
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
Foreign
currency Acc-
Share Share Other translation Statutory umulated Non-controlling Total
capital premium reserves reserve reserves losses Total interest equity
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
Balance
as at
1 January
2015 598 1,564,686 1,818 (587) 31,575 (1,498,313) 99,777 48 99,825
Transfer
to statutory
reserves - (19) - - 693 (674 - 11 11
Previous
year
adjustment - - - - - 8,343 8,343 - 8,343
Transactions
with
owners - (19) - - 693 7,669 8,343 11 8,354
Profit
for the
year - - - - - 4,059 4,059 9 4,068
Other
comprehensive
income - - - - - - - - -
- Foreign
currency
translation - - - - - - - - -
Total
comprehensive
prrofit
for the
year - - - - - 4,059 4,059 9 4,068
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
Balance
as at
31 December
2015 598 1,564,667 1,818 (587) 32,268 (1,486,585) 112,179 68 112,247
---------------- -------- ----------- --------- ------------ ---------- ------------ ---------- ---------------- ----------
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARED 31 DECEMBER 2015
2015 2014
CNY'000 CNY'000
Net cash generated from (used in)
operating activities 639,200 (729,121)
----------------------------------------------------------------------------------------- ---------- ----------------
Cash flow from investing activities
Purchase of property, plant and
equipment (12,818) (22,757)
Interest received 12,790 12,331
Government grant received 459 46
----------------------------------------------------------------------------------------- ---------- ----------------
Net cash used in continuing operations 431 (10,380)
Net cash generated/used(-) in discontinuing
operations - 9,026
Net cash outflow on disposal - (828,984)
----------------------------------------------------------------------------------------- ---------- ----------------
Cash flow generated from (used in)
investing activities 431 (830,338)
----------------------------------------------------------------------------------------- ---------- ----------------
Cash flow from financing activities
Proceeds from bank borrowings 80,000 964,886
Repayment of bank borrowings (702,888) (655,280)
Interest paid (20,742) (32,552)
Dividends paid to shareholders - -
----------------------------------------------------------------------------------------- ---------- ----------------
Net cash generated in continuing
operations (643,630) 277,054
Net cash generated in discontinuing
operations - 675,290
----------------------------------------------------------------------------------------- ---------- ----------------
Cash flow generated from (used in)
financing activities (643,630) 952,344
----------------------------------------------------------------------------------------- ---------- ----------------
Net increase (decrease) in cash
and cash equivalents (3,999) 607,115
Cash at beginning of year 39,404 646,519
35,405 39,404
- included in disposal group - -
----------------------------------------------------------------------------------------- ---------- ----------------
Cash at end of year 35,405 39,404
----------------------------------------------------------------------------------------- ---------- ----------------
NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARED 31 DECEMBER 2015
(a) Cash flow from operating activities
2015 2014
CNY'000 CNY'000
------------------------------------- ---------- ----------
Profit before tax 5,777 8,178
Adjustments for:
Amortisation of intangible 802 -
assets
Provisions for doubtful
debts 136 149
Depreciation of property,
plant and equipment 24,413 25,173
Loss on disposal of property,
plant and equipment (51) 22
Amortisation of deferred capital 1,000 -
grants
Interest income (12,790) (12,331)
Finance expense 20,742 32,552
-------------------------------------- ---------- ----------
Operating cash flows before
working capital changes 40,029 54,283
Working capital changes:
(Increase)/decrease in:
Inventories 2,603 27,461
Trade and other receivables 22,346 194,757
Amounts due from related parties 809,285 (765,200)
Restricted cash 3,361 82,029
Increase/(decrease) in:
Trade and other payables (238,707) 54,234
-------------------------------------- ---------- ----------
Cash generated from (used
in) operations 638,917 (352,437)
Income tax paid 283 -
------------------------------------- ---------- ----------
Net cash generated from (used
in) continuing operations 639,200 (352,437)
Net cash generated from
(used in) discontinuing
operations - (376,684)
-------------------------------------- ---------- ----------
Net cash generated from
(used in) operating activities 639,200 (729,121)
-------------------------------------- ---------- ----------
COMPANY INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2015
Notes 2015 2014
CNY'000 CNY'000
--------------------------------- ------ -------- --------------------
Revenue 3 - -
Cost of sales - -
--------------------------------- ------ -------- --------------------
Gross profit - -
Other operating expenses 3 - -
Administrative expenses (2,487) (6,355)
Selling and distribution - -
expenses
--------------------------------- ------ -------- --------------------
Loss from operations 4 (2,487) (6,355)
Finance expenses 5 - -
Finance income 3 - -
--------------------------------- ------ -------- --------------------
Loss before tax (2,487) (6,355)
Tax expense 17 - -
--------------------------------- ------ -------- --------------------
Loss for the year (2,487) (6,355)
--------------------------------- ------ -------- --------------------
Other comprehensive profit, - -
net of tax
--------------------------------- ------ -------- --------------------
Total comprehensive profit/
(loss) for the year, net
of tax (2,487) (6,355)
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEARED 31 DECEMBER 2015
2015 2014
Notes CNY'000 CNY'000
----------------------------------------- -------- --------- ---------
ASSETS
Non-current assets
Investment in subsidiary undertakings 9 307 307
Amount due from related parties 22 50,790 53,277
Other receivables 5,575 5,575
----------------------------------------- -------- --------- ---------
56,672 59,159
----------------------------------------- -------- --------- ---------
Current assets
Cash and cash equivalents - -
----------------------------------------- -------- --------- ---------
Total assets 56,672 59,159
----------------------------------------- -------- --------- ---------
CAPITAL AND RESERVES
Share capital 18 598 598
Share premium 18 140,390 140,390
Other reserve 1,922 1,922
Accumulated losses 18 (86,238) (83,751)
----------------------------------------- -------- --------- ---------
Total equity 56,672 59,159
----------------------------------------- -------- --------- ---------
COMPANY STATEMENT OF CHANGE IN EQUITY
FOR THE YEARED 31 DECEMBER 2015
Share Other Accumulated Total
capital reserve losses
Share
premium
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
------------------- --------- ---------- --------- ------------ --------
Balance as at
1 January 2014 598 140,390 1,922 (77,396) 65,514
Loss for the year - - - (6,355) (6,355)
------------------- --------- ---------- --------- ------------ --------
Balance as at
31 December 2014 598 140,390 1,922 (83,751) 59,159
------------------- --------- ---------- --------- ------------ --------
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
------------------- --------- ---------- --------- ------------ --------
Balance as at
1 January 2015 598 140,390 1,922 (83,751) 59,159
Loss for the year - - - (2,487) (2,487)
------------------- --------- ---------- --------- ------------ --------
Balance as at
31 December 2015 598 140,390 1,922 (86,238) 56,672
------------------- --------- ---------- --------- ------------ --------
COMPANY STATEMENT OF CASH FLOW
FOR THE YEARED 31 DECEMBER
2015 2015 2014
CNY'000 CNY'000
------------------------------------- -------- --------
Cash flow from operating activities
Loss before income tax (2,487) (6,355)
Decrease in amounts due from
related parties 2,487 6,355 ------------------------------------- -------- -------- Cash flow from operating activities - - ------------------------------------- -------- -------- Cash flow from financing activities Dividends paid to shareholders - - ------------------------------------- -------- -------- Cash flow from financing activities - - ------------------------------------- -------- -------- Net increase in cash and cash - - equivalents ------------------------------------- -------- -------- Cash at beginning of year - - ------------------------------------- -------- -------- Cash at end of year - - ------------------------------------- -------- --------
NOTES TO FINANCIAL STATEMENTS
1. Background and Basis of Preparation 1.1 The Company
HaiKe Chemical Group Ltd. (the "Company") was incorporated on 20 June 2006. The address of the registered office is at Scotia Center 4(th) Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands. The principal activity of the Company is that of investment holding. The Company's ultimate parent company is HiTech Chemical Investment Ltd., a company incorporated in the British Virgin Islands.
The principal activities of the Group were manufacturing and sale of petrochemical and chemical products during the reporting period. Following the trading update announced in December 2013, Board of Directors decided a major restructuring plan by disposing of all investments except for Spring Chemical and HaiKe Trading. The proposal of restructuring was approved in shareholder's meeting on 15 May 2014. The restructuring was completed in June 2014. The principal place of business of the Company is Shengli Industrial Park, Dongying City, Shandong Province, China.
The financial statements present information about the Company and its subsidiaries (the "Group") as a consolidated group of companies.
1.2 Basis of Preparation
The consolidated financial statements of the Group have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force ("IFRS"), which comprise standards and interpretations issued by the International Accounting Standards Board ("IASB"), and International Accounting Standards ("IASs") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRICs") that remain in effect, as adopted by the European Union. The parent company's statement of comprehensive income is not required to be presented under the laws of the Cayman Islands.
The Company's functional and presentational currency is the Chinese Yuan ("CNY").All values are rounded to the nearest thousand (CNY'000) except when otherwise indicated.
The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the Group.
As at 31 December 2015, the Group had net assets of CNY112.2 million (2014: CNY99.8 million) and net current liabilities of CNY32.8million (2014: net current assets CNY46.0 million).
The Directors have reviewed forecasts and budgets for the period ended 31 December 2015, which have been drawn up with appropriate regard for the current economic environment and the particular industry in which the Group operates. These were prepared with reference to historical and current industry knowledge, taking group restructuring and future strategy of the Group into account.
The continuing operations are funded through a mixture of cash generative operations and new short term bank loans (net repayment of CNY622.9 million).
The Directors consider that the Group and the subsidiaries remaining after group restructure have adequate resources and committed borrowing facilities to continue in operational existence for the foreseeable future.
However, the Group is reliant on the renewal of the short term bank loans. Although the Directors believe that the Group will be able to renew their facilities due to the Group's relationships with its banks, there is the risk that in the future, the Group, may not be a going concern if the Group is unable to meet its debts as they fall due.
In approving the financial statements, the Board has recognized that these circumstances create a level of uncertainty. However, having made enquiries and considered the uncertainties outlined above, the directors have a reasonable expectation that the Group has sufficient resources to continue in operational existence for the foreseeable future. Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the financial statements.
1.3 Changes in Accounting Policies
New standards, interpretations and amendments
The following new standards and amendments to standards are mandatory for the Group for financial year beginning 1 January 2015. Except as noted, the implementation of these standards is not expected to have a material effect on the Group.
Standard
Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle Amendments to IFRS 10, 12 & IAS 27 on consolidation for investment entities
No other IFRS issued and adopted but not yet effective are expected to have an impact on the Group's financial statements.
Standards, amendments and interpretations which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:
Standard Impact on initial application Effective
date
Amendments to IAS 38 and IAS 36: Clarification 1 January
of acceptable methods of depreciation 2016
and amortization
Amendments to IFRS 10 Consolidated 1 January
financial statements 2016
Amendments to IAS 16 Property, Plant 1 January
and Equipment and IAS 38 Intangible 2016
Assets
Amendment to IFRS 9 Financial instruments 1 January
on general hedge accounting 2018
Annual Improvements to IFRSs 2012-2014 1 January
Cycle 2016
Disclosure initiative: Amendments to 1 January
IAS 1 2016
IFRS 9 Financial instruments 1 January
2018
IFRS 15 Revenue from contracts with 1 January
customers 2017
IFRS 16 Leases 1 January
2019
2. Significant Accounting Policies
2.1 Significant management judgment and estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to exercise judgment in the process of applying the Group's accounting policies and requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amount of revenue and expenses during the reporting period.
The following judgments and estimates that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the reporting period are disclosed below:
2.1.1 Significant management judgment
In the process of applying the Company's accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements:
Assets held for sale
Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification, however an asset may remain in this categorization for longer than one year if it remains unsold due to events or circumstances beyond the Group's control.
2.1.2 Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
a) Share-based payment
The Group measures the cost of equity-settled share-based transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model, including the expected life of the stock option, volatility and dividend yield, and assumptions.
b) Cross guarantee
The Group, as a warrantor, has guaranteed the bank loans of third parties to the amount disclosed in Note 20. The Group assesses on a regular basis of the guarantees. In this, amongst other steps taken, the Group reviews the financial statements of the warrantees which indicate that they are able to pay their debts as they mature.
The directors are therefore of the view that they do not expect any significant liability to arise in respect of the guarantee at the date of these financial statements. As the guarantees total CNY nil, should any crystallize, the Group would be required to assess these in its ongoing cashflow projections and consider their impact on the going concern status of the Group.
c) Provision for impairment of account receivables
The Group makes sales on credit. A proportion of the outstanding credit sales may prove uncollectible in due course. An estimate is made of the uncollectible portion of accounts receivables using a percentage based on the aging profile of the amounts outstanding.
Although these estimates are based on management's best knowledge of current events and actions, actual results may differ from these estimates.
d) Depreciation of plant and equipment
The cost of plant and equipment used for the manufacturing process is depreciated on a straight line basis over its estimated useful life. Managements' estimate of the useful life of plant and equipment is within 3 to 30 years. Management believes that these are common life expectancies applied in the chemical industry. Changes in the expected level of usage and technological developments could impact the economic use life and the residual value of these assets, therefore, future depreciation charges could be revised. More details including carrying values are included in Note 8.
e) Inventory
The Group reviews the net realizable value of, and demand for its inventory on a monthly basis to provide assurance that recorded inventory is stated at lower of cost and net realizable value. Factors that could impact estimated demand and selling prices include the timing and success of future technological innovations, competitor actions, suppliers' prices and economic trends. Changes of the expected net realizable value of inventory could potentially result in an increase or reduction in the profit for the year.
f) Fair value measurement
Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date (see Note 23).
2.2 Functional and Presentation Currency
a) Functional currency
The directors have determined the currency of the primary economic environment in which the Company operates, to be Renminbi ("CNY"). Sales and major costs of the providing goods and services including major operating expenses are primarily influenced by fluctuations in CNY against US$.
b) Foreign currency transactions
Transactions in foreign currencies are measured in the respective functional currencies of the consolidated entities and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the reporting date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair values are determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognized in the statement of comprehensive income except for exchange differences arising on monetary items that form part of the Group's net investment in foreign subsidiaries, which are recognized initially in a separate component of equity as foreign currency translation reserve in the consolidated statement of financial position and recognized in the consolidated statement of comprehensive income on disposal of the subsidiary.
c) Foreign currency translation
The presentation currency of the Group is CNY, financial information denominated in other currencies have been translated into CNY.
Assets and liabilities for each reporting are presented at the closing rate ruling at that reporting date; and income and expenses for statement of comprehensive income are translated at average exchange rates for the year, which approximates to the exchange rates at the date of transactions.
All resulting exchange differences are recognized in the currency translation reserve, a separate component of equity. Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the reporting date.
2.3 Subsidiaries and Principles of Consolidation
a) Subsidiaries
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. Subsidiaries are deconsolidated from the date on which control ceases.
b) Principles of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at the reporting date. The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances.
All intra-group balances, transactions, income, expenses, profits and losses resulting from inter-group transactions that are recognized and eliminated in full.
2.3 Subsidiaries and Principles of Consolidation (continued)
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases.
Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
Any excess of the cost of the business combination over the Group's interest in the net fair value of the identified assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated below.
Any excess of the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognized in the statement of comprehensive income on the date of acquisition.
Non-controlling interests represent the portion of net assets in subsidiaries not held by the Group. These are presented in the consolidated statement of comprehensive income within equity, separately from the parent shareholder's equity, and the share of profit or loss is separately disclosed in the consolidated statement of comprehensive income.
2.4 Property, Plant and Equipment
Property, plant and equipment are recorded at historic cost, less accumulated depreciation and any impairment loss where the recoverable amount of the asset is estimated to be lower than its carrying amount.
Property, plant and equipment in the course of construction for production or administrative purposes is carried at cost, less any recognized impairment loss. Depreciation of these assets commences when the assets are ready for their intended use.
Depreciation is charged so as to write off the cost of the assets over their estimated useful lives, using the straight-line method, as follows:
Buildings
5 - 30 years
Machinery equipment 5 - 19 years
Electronic equipment, furniture and fixtures 3 - 10 years
Motor vehicles 3 - 10 years
Land use rights 18.75 years
The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
The up-front payments made for land use rights are expensed in the consolidated statement of comprehensive income on a straight-line basis over the period of the lease, which is 18.75 years, or where there is impairment, the impairment is expensed in the consolidated statement of comprehensive income.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the consolidated statement of comprehensive income.
2.5 Impairment of Non-financial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or an annual impairment test for an asset is required, the Group makes an estimate of the asset's recoverable amount.
An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flow are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
As assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses recognized for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss is recognized. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Reverse of an impairment loss is recognized in the statement of comprehensive income. After such a reversal, the depreciation charge is adjusted for future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic base over its remaining useful life. The Group does not reverse in a subsequent period, an impairment loss recognized for goodwill.
2.6 Financial Assets
The Group holds its investments in financial assets in the category of financial assets as loans and receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment.
Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognized within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate.
Cash and cash equivalents comprise cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
2.7 Financial Liabilities and Equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. Significant financial liabilities include interest-bearing short-term bank loans, trade and other payables.
Trade payables and other short-term monetary liabilities are initially recognized at fair value and subsequently carried at amortized cost using the effective interest method.
All loans and borrowings are initially recognized at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortized cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
2.8 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost incurred in bringing the inventories to their present location and condition is accounted for as follows:
Raw materials
* purchase cost on a weighted average basis
Finished goods and
work-in-process * costs of direct materials and labor and a proportion
of manufacture overheads based on normal operating
capacity but excluding borrowing costs.
Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.
2.9 Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized.
a) Sales of goods
Revenue is recognized upon the transfer of significant risk and rewards of ownership of the goods to the customer, which coincides with delivery and acceptance of the goods sold.
b) Interest income
Interest income is accrued on a time apportioned basis, by reference to the principal outstanding and at the interest rate applicable, on an effective yield basis.
2.10 Government Grants
Government grants are not recognized in other operating income until there is reasonable assurance that the Group will comply with the conditions for their receipt and that the grant will be received. In the event that a grant that has been recognized appears likely to have to be repaid, provision is be made for the estimated liability.
Government grants are recognized at fair value. When a grant relates to an expense item, it is recognized in the consolidated statement of comprehensive income over the period necessary to match it on systematic basis to the costs that it is intended to compensate. Where a grant relates to an asset, it is included in deferred income and amortized to the consolidated statement of comprehensive income in equal annual installments over the expected useful life of the relevant asset.
2.11 Employee Benefits
Obligations for contributions to defined contribution pension plans are recognized as an expense in the statement of comprehensive income as incurred.
Bonuses for staff are accrued when the Group has an obligation to settle the liability for staff's past performance at the financial year end. The bonus accrual is stated at the present value of the discounted cash flows based upon the expected timing of bonus payments.
2.12 Share-based Payments
Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of options that eventually vest. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.
Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.
The Group also operates a phantom share option scheme (a cash settled share-based payment). An option pricing model is used to measure the Group's liability at each reporting date, taking into account the terms and conditions on which the bonus is awarded and the extent to which employees have rendered service. Movements in the liability (other than cash payments) are recognized in the consolidated statement of comprehensive income.
2.13 Borrowing Costs
Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Other borrowing costs are expensed as incurred. Capitalization of borrowing costs commences when the activities to prepare the asset to its intended use or sell are in process and the expenditures or borrowing costs are incurred. Other borrowing costs are capitalized until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.
2.14 Taxation
Current income tax assets and liabilities comprise those obligations to fiscal authorities in the countries in which the Group carries out its operations. They are calculated according to the tax rates and tax laws applicable to the fiscal period and the country to which they relate. Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity.
Current tax assets and liabilities for the current and prior period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilized.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: the same taxable Group company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
2.15 Profit or Loss from Discontinued Operations
A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and:
-- represents a separate major line of business or geographical area of operations
-- is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or
-- is a subsidiary acquired exclusively with a view to resale.
Profit or loss from discontinued operations, including prior year components of profit or loss, is presented in a single amount in the statement of profit or loss. This amount, which comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of assets classified as held for sale (see also Note 2.16), is further analyzed in Note 15.
The disclosures for discontinued operations in the prior year relate to all operations that have been discontinued by the reporting date of the latest period presented.
2.16 Operating Lease
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognized as a reduction of the rental expense over the lease term on a straight-line basis.
3. Revenue and other income
2015 2014
CNY'000 CNY'000
------------------------------- -------- --------
Sale of goods 727,521 973,345
------------------------------- -------- --------
Other operating income/(Loss)
Government grant income 459 46
Other income/(Loss) 26 217
------------------------------- -------- --------
485 263
------------------------------- -------- --------
Finance income
Interest income 12,790 12,331
Exchange gain 4,739 513
------------------------------- -------- --------
17,529 12,844
------------------------------- -------- --------
Total income 745,535 986,452
------------------------------- -------- --------
Sale of goods represents the invoiced amount of delivered goods net of discounts, returns and valued added tax. All intra-group transactions are excluded from the revenue of the consolidated Group.
4. Profit from Operations
2015 2014
CNY'000 CNY'000
--------------------------------- -------- --------
This has been arrived at
after charging/(crediting):
Cost of inventories recognized
as expense 643,092 869,471
Depreciation of property,
plant and equipment 24,413 25,173
Staff costs 23,857 24,613
Remuneration of auditors:
Audit of consolidated financial
statements
Amortization of intangible 802 -
assets
Loss on disposal of property,
plant and equipment (51) 22
--------------------------------- -------- --------
5. Finance Expenses
2015 2014
CNY'000 CNY'000
----------------------- -------- --------
Interest expenses on
bank and other loans 20,742 32,552
Exchange loss - 2,920
20,742 35,472
----------------------- -------- --------
6. Profit per Share
Profit per share has been calculated on the basis of the net loss attributable to equity shareholders of the parent of CNY4,059,000 (2014: CNY326,890,000).
The profit for the financial year that is attributable to equity holders of the parent was as follows:
2015 2014
CNY'000 CNY'000
-------------------------------- -------- ----------
Profit for the year
attributable to equity holders
of the parent 4,059 (326,890)
-------------------------------- -------- ----------
The weighted average number of ordinary shares used in the calculation of earnings per share has been derived as follows:
2015 2014
------------------------------------- ----------- -----------
Weighted average number of ordinary
shares - basic & diluted 38,353,571 38,353,571
------------------------------------- ----------- -----------
The effect of the ESOP discussed in note 7 was anti-dilutive for the year 2014 and 2015.
7. Share-based Payment
The company operates two share based remuneration schemes for employees: an equity-settled Employee Share Ownership Plan ("ESOP") and a cash-settled Phantom Employee Share Ownership Plan ("Phantom ESOP"). All Directors and part of the management team are eligible to participate in the ESOP/Phantom ESOP scheme. The only vesting condition is that the individual remains an employee of the Group over the 3-year period and the options will lapse if the individual leaves within 1 year of satisfying this criterion.
2015 2014
Exercise ESOP Phantom Exercise ESOP Phantom
Price Number ESOP Price Number ESOP
(p) Number (p) Number
------------------ --------- -------- ---------- --------- -------- ----------
Outstanding
at beginning
of period 58.25 536,950 3,298,407 58.25 536,950 3,298,407
Granted during - - - - - -
the period
Forfeited during - - - - - -
the period
Exercised during - - - - - -
the period
Lapsed during - - - - - -
the period
Outstanding
at the end
of period 58.25 536,950 3,298,407 58.25 536,950 3,298,407
------------------ --------- -------- ---------- --------- -------- ----------
The exercise price of options is 58.25p (2011: 58.25p) and contractual life was 10 years (2011: 10 years).The options are exercisable in the following installments: 40% on the first anniversary of the Grant Date; 30% on the second anniversary of the Grant Date; and the remaining 30% on the third anniversary of the Grant Date. The Grant Date for the issued Options and Phantom Options is 1 February 2011.
The fair value of each option at grant date was 25p.
For the Phantom ESOP, the intrinsic value was zero at end of 2015 and 2014 as the market value of the Group's shares was below the exercise price of the options.
2015 2014
CNY CNY
---------------------------------- ----- -----
Phantom share option scheme
liability (included within
employee benefits) - -
Intrinsic value, at the
end of the period of liabilities
for which the employee's
right to payment had vested - -
---------------------------------- ----- -----
The following information is relevant in the determination of the fair value of options granted during the period under the equity- and cash-settled share based remuneration schemes operated by HaiKe.
2015 2014
----------------------------- ------------- -------------
Option pricing model used Black-Scholes Black-Scholes
Share price at date of grant
(in pence) 5.75 11.50
Exercise price (in pence) 58.25 58.25
Contractual life (in years) - 1.00
Expected volatility 71.88% 44.73%
Risk-free interest rate 1.96% 2.20%
----------------------------- ------------- -------------
The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of daily share prices over the last two years. (2014: two years).
The share-based remuneration expense comprises:
2015 2014
CNY CNY
-------------------------- ----- -----
Equity-settled ESOP - -
Cash-settled Phantom ESOP - -
-------------------------- ----- -----
- -
-------------------------- ----- -----
The Group did not enter into any share-based payment transactions with parties other than employees and Directors during the current or previous period.
8. Property, Plant and Equipment
Buildings Machinery Electronic Motor Land Total
equipment equipment vehicles use
rights
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
------------------ --------- ---------- ---------- --------- -------- -----------
Cost :
At 1 January 2014 16,257 317,218 4,315 540 3,496 341,826
------------------ --------- ---------- ---------- --------- -------- -----------
Additions 2,560 19,110 1,087 - - 22,757
Disposals (11) (3,916) - - - ( 3,927)
At 31 December
2014 18,806 332,412 5,402 540 3,496 360,656
------------------ --------- ---------- ---------- --------- -------- -----------
Additions 701 11,959 91 67 - 12,818
Disposals - - - - - -
At 31 December
2015 19,507 344,371 5,493 607 3,496 373,474
------------------ --------- ---------- ---------- --------- -------- -----------
Accumulated depreciation:
At 1 January 2014 3,517 184,526 2,749 390 1,119 192,300
-------------------------- -------- ------- ----- --- ----- -------
Depreciation
charged for the
year 681 23,672 596 38 186 25,173
Disposals (11) (3,566) - - - (3,577)
At 31 December
2014 4,187 204,632 3,345 428 1,305 213,897
-------------------------- -------- ------- ----- --- ----- -------
Depreciation
charged for the
year 718 22,726 743 40 186 24,413
At 31 December
2015 4,905 227,358 4,088 468 1,491 238,310
-------------------------- -------- ------- ----- --- ----- -------
Net carrying amount:
At 31 December
2014 14,619 127,780 2,057 112 2,191 146,759
-------------------------- -------- ------- ----- --- ----- -------
At 31 December
2015 14,602 117,013 1,405 139 2,005 135,164
-------------------------- -------- ------- ----- --- ----- -------
Land use rights have been reclassified to property, plant and equipment from intangible assets as in the opinion of the Directors this better reflects the underlying nature of the asset.
Building with carrying value of CNY14.6 million had not yet registered for property certificates as at 31 December 2015.
Assets under Construction
Included in machinery equipment of the Group at 31 December 2015 was an amount of CNY3,024,401 (2014: CNY2,023,598) relating to expenditure for equipment in the course of construction.
9. Intangible Assets
Industry Software Total
rights
CNY'000 CNY'000 CNY'000
--------------------------- --------- --------- --------
Cost:
At 1 January 2014 5,500 35 5,535
Additions - - -
--------------------------- --------- --------- --------
At 31 December
2014 5,500 - 5,535
---------------------------- --------- --------- --------
Additions 12,913 - 12,913
At 31 December
2015 18,413 35 18,448
---------------------------- --------- --------- --------
Accumulated amortization:
At 1 January 2014 5,500 35 5,535
Amortisation - - -
--------------------------- --------- --------- --------
At 31 December
2014 5,500 35 5,535
---------------------------- --------- --------- --------
Amortisation 802 - 802
At 31 December
2015 6,302 35 6,337
---------------------------- --------- --------- --------
Net carrying amount:
At 31 December
2014 - - -
--------------------------- --------- --------- --------
At 31 December
2015 12,111 - 12,111
---------------------------- --------- --------- --------
Land use rights have been reclassified to property, plant and equipment from intangible assets as in the opinion of the Directors this better reflects the underlying nature of the asset.
Industry rights include Reactor for Producing Isopropanol by Direct Hydration of Propylene, Carbon Dioxide Cooling Utilization Device in Dimethyl Carbonate Device and Method for Preparing High Quality Propylene Carbonate by Using High Efficient and Environmental Protection Composite Ionic Liquid Catalyst, which were self-developed by Dongying Hi-tech Spring Chemical Co., Ltd. and obtained patent certificate respectively. Correspondingly, these have been recognized as intangible assets when the expenses were eligible for capitalization.
10. Investment in Subsidiaries
2015 2014
CNY'000 CNY'000
------------------------------ --------- --------
Cost at beginning of the
financial year - 10
------------------------------ --------- --------
Changes during the financial
year - (10)
------------------------------ --------- --------
Cost at end of the financial - -
year
------------------------------ --------- --------
The companies comprised in the Group are as follows:
Proportion
(%) of
ownership
interest
activities
Place and Principal and voting
Name date of incorporation activities rights
--------------------------- ------------------------ --------------- ------------
Held by the Company
Hong Kong
Haike Trading Hong September
Kong Limited 2005 Trading 100
Held through subsidiaries
Dongying Hi-tech
Spring Chemical Co., China October
Ltd. 2002 Manufacturing 99.87
11. Inventories
2015 2014
CNY'000 CNY'000
------------------------------- -------- --------
Raw materials and consumables 11,778 13,565
Finished goods 14,898 15,339
Goods in transit 1,919 2,293
Work in process - -
------------------------------- -------- --------
28,595 31,197
------------------------------- -------- --------
12. Trade and Other Receivables
2015 2014
CNY'000 CNY'000
------------------------------------- -------- --------
Trade receivables:
Trade receivables 68,167 75,355
Less: provision for impairment
of trade receivables (136) (149)
------------------------------------- -------- --------
Trade receivables - Net 68,031 75,206
Other receivables:
Other receivables 17,539 25,840
Less: provision for impairment - -
of other receivables
------------------------------------- -------- --------
Other receivables - net 17,539 25,840
------------------------------------- -------- --------
Total financial assets other
than cash and cash equivalents
and due from related parties
classified as loans and
receivables - Current portion 85,570 101,046
VAT receivable - -
Advance to suppliers / constructors 15,737 22,607
101,307 123,653
------------------------------------- -------- --------
2015 2014
CNY'000 CNY'000
-------------------------------------- -------- ----------
Total financial assets other
than cash and cash equivalents
and due from related parties
classified as loans and receivables
- Current portion 85,570 101,046
Amount due from related parties 402,535 857,201
Restricted cash 13,259 16,620
Cash and cash equivalents 35,405 39,404
-------------------------------------- -------- ----------
Total financial assets classified
as loans and receivables 536,769 1,014,271
-------------------------------------- -------- ----------
All trade and other receivables are current. Management considers the carrying amounts recognized in the statement of financial position to be a reasonable approximation of their fair value due to the short term duration.
Trade and other receivables are mainly receivables owed by customers for goods or services and loans to third parties. Loans are non-interest bearing and will be paid on demand. The Group does not hold any collateral as security.
As at 31 December 2015, the ageing analysis of trade and other receivables is as followings:
2015 2014
CNY'000 CNY'000
------------------------------ ------- -------
Neither past due nor impaired 60,938 82,605
3 to 6 months 23,044 24,000
6 to 12 months 7,442 8,428
12 to 24 months 8,249 5,638
>24 months 1,634 2,982
------------------------------ ------- -------
101,307 123,653
------------------------------ ------- -------
Trade receivables are generally on 90 days' terms.
Movements on the group provision for impairment of trade and other receivables are as follows:
2015 2014
CNY'000 CNY'000
---------------------------- -------- --------
At beginning of the year 149 456
Unused amounts reversed (13) (307)
Accrual this year - -
Included in disposal group - -
---------------------------- -------- --------
136 149
---------------------------- -------- --------
13. Restricted Cash, Cash and Cash Equivalents
2015 2014
CNY'000 CNY'000
--------------------------- -------- --------
Cash at banks and in hand 35,405 39,404
--------------------------- -------- --------
Cash at banks earns interest at floating rates based on bank deposit rates ranging from 0.35% to 0.50% per annum (2014: 0.36% to 0.50% per annum).
2015 2014
CNY'000 CNY'000
----------------- -------- --------
Restricted cash 13,259 16,620
----------------- -------- --------
The deposits are pledged for the credit facility of loans payable, with the predetermined rate of 3.5% per annum. The deposit is solely used for the security and settlement of the loans payable when they mature.
14. Interest Bearing Loans and Borrowings
2015 2014
CNY'000 CNY'000
----------------------- -------- --------
Short term loan:
Secured bank loans 80,000 702,888
Other unsecured loans - -
----------------------- -------- --------
Total loans 80,000 702,888
----------------------- -------- --------
Average interest rate and maturity of short term loans
Loans are all at fixed rates, the average interest rate and maturity is as follows:
Short term Long term Short Long
term term
2015 2015 2014 2014
------------------- ------------ ---------- ------------ ------
Average annual
interest rate 5.71% 0.00% 3.83% 0.00%
Average maturity
(months) 2.23 0.00 3.79 0.00
Range of interest
rate 5.35%-6.06% 0.00% 2.39%-7.50% 0.00%
------------------- ------------ ---------- ------------ ------
Secured short-term loan
Included in the secured short-term bank loans in 2015, CNY80.0 million (2014: CNY252.4 million) is guaranteed by third parties, and CNY nil (2014: CNY450.5 million) is secured against bank deposits.
Long-term loan
Included in the long-term loan, CNY nil (2014: nil) was guaranteed by third parties. The average maturity of long-term loan is nil month (2014: nil month).
15. Deferred Income
2015 2014
CNY'000 CNY'000
--------------------------------- -------- --------
Cost:
Opening balance at 1 January 900 -
Received during the year 1,350 900
Included in disposal group - -
--------------------------------- -------- --------
Closing balance at 31 December 2,250 900
--------------------------------- -------- --------
Accumulated amortization:
Opening balance at 1 January - -
Recognized in income statement - -
Included in disposal group - -
--------------------------------- -------- --------
Closing balance at 31 December - -
--------------------------------- -------- --------
Net Carrying value:
Current - -
Non-current 2,250 900
--------------------------------- -------- --------
2,250 900
--------------------------------- -------- --------
There are no unfulfilled conditions or contingencies attached to the grants.
16. Trade and Other Payables
2015 2014
CNY'000 CNY'000
-------------------------------- ------- -------
Trade payables:
Trade payables 65,233 109,131
-------------------------------- ------- -------
Other payables:
Other payables 9,538 8,675
Accruals 3,984 12,959
-------------------------------- ------- -------
13,522 21,634
-------------------------------- ------- -------
Total financial liabilities,
excluding bank borrowings,
due to related parties and
income tax payable, classified
as financial liabilities 78,755 130,765
Advance from customers 10,427 7,420
Other tax payable - -
-------------------------------- ------- -------
89,182 138,185
-------------------------------- ------- -------
The trade payables are mainly related to the purchase of raw materials, equipment and construction service. For the purchase of crude oil, the payment term is usually cash on delivery, for other materials, the credit period granted by the suppliers usually ranges from 30 to 90 days, for the purchase of equipment and construction service, the payment will be made according to the progress of the construction.
Advances from customers are unsecured, interest-free and repayable on demand.
Management considers the carrying amounts of financial liabilities to be a reasonable approximation of their fair value.
2015 2014
CNY'000 CNY'000
-------------------------------- ------- ---------
Total financial liabilities,
excluding bank borrowings,
due to related parties and
income tax payable, classified
as financial liabilities 78,755 130,765
Due to related parties 440,029 262,891
Interest bearing loans and
borrowings 80,000 702,888
-------------------------------- ------- ---------
Total financial liabilities
measured at amortized cost 598,784 1,096,544
-------------------------------- ------- ---------
17. Income Tax
Major components of income tax expense
The major components of income tax expense are as follows:
2015 2014
CNY'000 CNY'000
--------------------------- -------- --------
Current income tax 1,709 1,142
Deferred tax:
Originating and reversal - -
of temporary differences
--------------------------- -------- --------
Income tax recognized in
income statement 1,709 1,142
--------------------------- -------- --------
Reconciliation between tax expense and the accounting profit multiplied by the applicable corporate tax rate of 25% is as follows:
2015 2014
CNY'000 CNY'000
------------------------------ --------------------------- -------
Profit before tax 5,777 8,718
Tax at respective companies'
domestic income tax rate 1,444 2,180
Non deductible expenses 265 (1,038)
------------------------------ --------------------------- -------
Income tax expense recognized
in income statement 1,709 1,142
------------------------------ --------------------------- -------
The Company and the significant subsidiaries are subject to income tax on the following bases and at the following rates:
HaiKe Chemical Group Ltd.
The applicable tax rate is nil.
Dongying Hi-Tech Spring Chemical Co., Ltd.
The applicable tax rate is 25%.
Haike Trading Hong Kong Limited
The applicable tax rate is 16.5% for onshore income and nil for offshore income.
18. Share Capital and Reserve
a) Share Capital - the Company
2015 2014
No. of CNY'000 No. of CNY'000
shares shares
------------------ ----------- -------- ----------- --------
Authorized
Ordinary shares
of $0.002 each 43,050,000 668 43,050,000 668
------------------ ----------- -------- ----------- --------
Issued and fully
paid
Opening balance
at 1 January &
at 31 December 38,353,571 598 38,353,571 598
------------------ ----------- -------- ----------- --------
b) Share Premium
Share premium represents the amount subscribed for shares in excess of the nominated value less expenses incurred on the issue of shares.
c) Statutory Reserve
According to the Company Law of PRC, the companies operating in China are required each year to transfer 10% of the profit after tax as reported in its PRC statutory financial statements to the statutory common reserve fund, except where the fund has reached 50% of the company's registered capital. This fund can be used to make up for any losses incurred or be converted into paid-up capital, provided that the fund does not fall below 25% of the registered capital.
d) Foreign Currency Translation Reserve
The foreign currency translation reserve comprises the gains and losses arising on translating the net assets into US dollars.
e) Accumulated Losses
The accumulated losses comprise the cumulative net gains and losses recognized in the consolidated statement of comprehensive income.
19. Staff Costs
2015 2014
------------------------------- ----- ------
Average number of employees
of continuing operations
Management and administration 24 23
Sales 40 82
Manufacturing 228 225
Average number of employees
of discontinuing operations - 2,229
------------------------------- ----- ------
292 2,559
------------------------------- ----- ------
2015 2014
CNY'000 CNY'000
------------------------------------- -------------- ------------
The staff costs of continuing
operations
Wages and salaries 18,634 20,002
Social security costs 3,333 2,933
Housing Fund 1,890 1,678
The staff costs of the discontinuing
operations - 71,673
------------------------------------- -------------- ------------
23,857 96,286
------------------------------------- -------------- ------------
20. Commitments and Contingencies
Capital commitments
Capital expenditure contracted for property, plant and equipment in continuing operations as at 31 December 2015 but not recognized in the financial statements was CNY3.5 million(2014: CNY6.0 million).
Contingent liabilities
Up to 31 December 2015, as a guarantor, the Group's continuing operations has guaranteed the bank loans of third parties to aggregate amount of CNY nil (2014: CNY nil). It is unlikely that any significant liability to the Group will arise because the financial statements of the guarantees indicate that they are able to pay their debts as they mature. The directors are of the view that they do not expect any significant liability to arise in respect of the guarantee at the date of these financial statements.
21. Subsequent Event
No subsequent event occurred for the reporting period.
22. Related Party Disclosures
The immediate and ultimate parent company is Hi-Tech Chemical Investment Ltd., a company incorporated in British Virgin Islands.
The Group companies are set out in Note 10, and the directors of the Company and its subsidiaries have been identified as related parties. Details of transactions with related parties are as follows:
Sales, purchase of goods and loans
During the year, the Group made the following sales, purchase and funds transfer with related parties:
Sales Purchase Loan Loan Loan Total
from to repayment
------------------------ -------- --------- -------- -------- ----------- ----------
2015 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
------------------------ -------- --------- -------- -------- ----------- ----------
Shareholder - - - 8 - 8
Bright Century
Global Holdings
Limited - - 200,966 - - 200,966
Haik Investment
Holding - - - 390 - 390
Haike Holding Hongkong
Limited - - 14,380 83,699 - 98,079
Haike International
Holding Limited - - - 10 - 10
Haiyuan Trading
Pte.Ltd - - 2,429 - - 2,429
HiTech Chemical
Investment Ltd. - - - 6 - 6
Jumbo Light Hong
Kong Limited - - - 222,923 - 222,923
Dongying Hi-tech
Qifen Co., Ltd 667 147,703 - 91,007 - 239,377
Shandong Hi-tech
Ruilin Chemical
Co., Ltd 514 20,164 41,779 - - 62,457
Dongying He-bang
Chemical Co., Ltd - 676 26,460 - - 27,136
Dongying Tiandong
Biochemical Co.,
Ltd - 2,628 6,741 3,209 - 12,578
Shandong Hi-tech
Chemical Group
Ltd - 204 141,957 1,283 - 143,444
Shanghai Yuanchuan
Chemical Ltd 161 4,717 5,063 - - 9,941
Dongying Hi-tech
Transport Co.,Ltd. - - 253 - - 253
1,342 176,092 440,028 402,535 - 1,019,997
------------------------ -------- --------- -------- -------- ----------- ----------
2014 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
----------------------- -------- -------- -------- -------- -------- ----------
Shandong Hi-tech
Chemical Group Ltd 89,529 175,060 619,321 708,857 - 1,592,767
Shandong Hi-tech
Ruilin Chemical Co.,
Ltd 226,598 45,798 - - - 272,396
Dongying He-bang
Chemical Co., Ltd - 303 - - - 303
Dongying Tiandong
Biochemical Co.,
Ltd - 7,447 - - - 7,447
Bright Century Global
Holdings Limited - - 189,704 - - 189,704
316,127 228,608 809,025 708,857 - 2,062,617
----------------------- -------- -------- -------- -------- -------- ----------
The sales of goods to the related parties are based on the market price.
Due from/to related parties
Group Company Group Company
2015 2015 2014 2014
CNY'000 CNY'000 CNY'000 CNY'000
-------------------------- -------- -------- -------- --------
Amounts due from related
parties
Due from shareholders 398 398 398 398
Due from related parties
under common control 402,137 50,392 856,803 52,879
-------------------------- -------- -------- -------- --------
402,535 50,790 857,201 53,277
-------------------------- -------- -------- -------- --------
Amounts due to related
parties
Due to related parties
under common control 239,063 - 73,187 -
-------------------------- -------- -------- -------- --------
Due to other related
parties 200,966 - 189,704 -
-------------------------- -------- -------- -------- --------
440,029 - 262,891 -
-------------------------- -------- -------- -------- --------
Key management remuneration
2015 2014
CNY'000 CNY'000
------------------------------------- -------- --------
Short term employee benefits of
the Directors of the Company 3,142 3,092
Short term employee benefits of
the Directors of the continuing
group 618 279
Short term employee benefits of
the Directors of the discontinuing
group - 1,541
------------------------------------- -------- --------
3,760 4,912
------------------------------------- -------- --------
Refer to the Directors' Report for details of Directors' interests in shares of Group's and related party companies.
23. Fair value measurement
a) Fair value measurement of financial instruments
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three Levels of a fair value hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement, as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
-- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
-- Level 3: unobservable inputs for the asset or liability.
Assets and liabilities of disposal group as held for sale are the Level 3 within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 31 December 2013. There were no transfers between Level 1 and Level 2 in 2013 or 2012.
b) Measurement of fair value of assets and liabilities of disposal group as held for sale
The Group's finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximizing the use of market-based information. The finance team reports directly to the chief financial officer (CFO) and to the audit committee. Valuation processes and fair value changes are discussed among the audit committee and the valuation team at least every year, in line with the Group's reporting dates. The valuation techniques used for instruments categorized in Level 3 are described below:
Assets and liabilities of disposal group as held for sale (Level 3)
For receivables, inventory, cash, investment in associate, payables and loans included in disposal group, their fair value is closed to their carrying value.
For property, plant and equipment and intangible assets, the appraisal was carried out using a market price of individual assets approach that reflects observed prices for recent market transactions or quoted price for acquisition or construction of similar properties and incorporates adjustments for factors specific to the property, plant and equipment and intangible assets in question, including their aging, size of facilities, location, encumbrances and current use. In 2013, a negative adjustment of 22.5% was incorporated for these factors.
The significant unobservable input is the adjustment for factors specific to the property, plant and equipment and intangible assets in question. The extent and direction of this adjustment depends on the current situation of assets and characteristics of the observable market price in similar assets that are used as the starting point for valuation. Although this input is a subjective judgement, management considers that the overall valuation would not be materially affected by reasonably possible alternative assumptions.
The reconciliation of the opening and closing fair value balance of level 3 assets and liabilities of disposal group as held for sale is provided below:
Assets and liabilities
of disposal group
as held for sale
(CNY'000)
Opening balance (level 3 recurring
fair values) at 1 January 2014 (1,249,015)
Addition in assets 3,719,466
Addition in liabilities (3,900,509)
Consideration of Spin off 10
Gains (Loss): included in equity 1,430,068
-----------------------
Closing balance (level 3 recurring -
fair values)
-----------------------
24. Financial Risks Management Objectives and Policies
Financial instruments - Risk Management
The group is exposed through its operations to the following financial risks:
-- Credit risk -- Market risk -- Liquidity risk
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
-- trade and other receivables -- cash at bank and restricted cash -- trade and other payables -- short and long term loans -- loans from related parties
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board receives monthly reports from the Group Financial Controller through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The Group's internal auditors also review the risk management policies and processes and report their findings to the Audit Committee. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices.
The Risk Management Committee has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group's standard payment and delivery terms and conditions are offered. The Group's review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Risk Management Committee. These limits are reviewed quarterly. Customers that fail to meet the Group's benchmark creditworthiness may transact with the Group on a prepayment basis.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with minimum rating "A" are accepted. The Group does not enter into derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated. Quantitative disclosure of the credit risk is as follows:
2015 2014
CNY'000 CNY'000
------------------ ------- -------
Current financial
assets
Trade and other
receivables 85,570 101,046
Restricted
cash 13,259 16,620
Cash and cash
equivalents 35,405 39,404
------------------ ------- -------
134,234 157,070
------------------ ------- -------
The maximum exposure to credit risk for each class of asset is the statement of financial position carrying value as disclosed above.
The Risk Management Committee monitors the utilization of the credit limits regularly and at the reporting date does not expect any losses from non-performance by the counterparties.
Market risk
Market risk arises from the Group's use of interest bearing, tradable instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk).
I. Interest rate risk
Interest rate risk arises from the potential changes in interest rates that may have an adverse effect on the Group in the current reporting period and in future years.
Other than the bank deposits and borrowings, the Group has no other significant interest-bearing assets and liabilities. Its interest-bearing assets and liabilities are mainly current bank deposits and loan from banks and unrelated parties. The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's policy is to secure all its borrowings at fixed borrowing rates.
If the Group's average interest rate on short and long term loans increased by 1%, this would result in Group profit before tax being CNY0.5 m lower. Conversely a 1% decrease would result in Group profit before tax being CNY0.5 m higher.
II. Foreign exchange risk
The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with cash generated from their own operations in that currency.
Foreign exchange risk refers to the risk that movement in foreign currency exchange rates against the Group's functional or reporting currency will affect the Group's financial results and cash flows. The Group has transaction currency exposure, which arises from sales by an operating unit in currencies other than its functional currency. Approximately 35.7% (2014: 35.6%) of the Group's sales are denominated in US$. The Group's policy as it relates to currency risk is to limit payment to immediate letters of credit or prepayment before transporting goods to the clients.
If the exchange rate on uncovered exposure were to move significantly between the year end and the date of payment or receipt, there could be an impact on the Group's net income. As the balance of financial assets and liabilities denominated in US$ is small and is short term in nature, this risk is not considered to be substantial.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 45 days.
The Group is reliant on the renewal of the short-term agreed facilities with their banks. The Group has not had any defaults or breaches on its financial liabilities.
The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:
Between Between Between
Up to 3 3 and 1 and 2 and Over
12 2 5
At 31 December months months year years 5 years
2015
--------- -------- -------- -------- --------
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
Trade and
other payables 73,104 5,231 5,524 5,324 -
Loans and
borrowings 40,000 40,000 - - -
Future interest
payments 755 47 - - -
-------- -------- -------- -------- --------
Total 113,859 45,278 5,524 5,324 -
-------- -------- -------- -------- --------
Between Between Between
Up to 3 3 and 1 and 2 and Over
12 2 5
At 31 December months months year years 5 years
2014
-------- -------- -------- -------- --------
CNY'000 CNY'000 CNY'000 CNY'000 CNY'000
Trade and
other payables 93,680 29,888 5,214 2,863 6,540
Loans and
borrowings 470,526 232,362 - - -
Future interest
payments 2,636 6,801 - - -
Total 566,842 269,051 5,214 2,863 6,540
-------- -------- -------- -------- --------
Capital management
The Group considers its capital to comprise its ordinary share capital, share premium, other reserves, statutory reserves, foreign currency translations reserve and accumulated retained earnings. In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions.
The directors continue to monitor the capital requirements of the Group by reference to expected future cash flows. Capital for the reporting periods under review is summarized in the consolidated statement of changes in equity. The directors consider the capital of the Group to be the total equity attributable to the equity holders of the parent of CNY99.8 million as at 31 December 2015.
25. Dividend
No dividend was declared for 2015.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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