ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER PDF

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(Incorporated in the Cayman Islands with limited liability) (Stock code: 3868) ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 FINANCIAL HIGHLIGHTS Turnover increased by approximately
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(Incorporated in the Cayman Islands with limited liability) (Stock code: 3868) ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 FINANCIAL HIGHLIGHTS Turnover increased by approximately 18.4% to RMB1,125.5 million. Gross profit rose by approximately 54.0% to RMB283.5 million. Gross profit margin increased from 19.4% to 25.2%. Profit attributable to shareholders increased by approximately 273.4% to RMB350.6 million. Earnings per share achieved RMB42 cents. A final dividend of RMB cents per share was proposed. 1 ANNUAL RESULTS The board (the Board ) of directors (the Directors ) of Qunxing Paper Holdings Company Limited (the Company or Qunxing Paper ) is pleased to announce the consolidated results of the Company and its subsidiaries (the Group ) for the year ended 31 December 2007 together with the comparative figures for the year ended 31 December 2006 as follows: CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2007 Note Turnover 3 1,125, ,844 Cost of sales (842,055) (766,727) Gross profit 283, ,117 Other revenue 4 121, Other net loss 4 (627) Selling expenses (9,459) (9,597) Administrative expenses (23,698) (11,929) Profit from operations 371, ,317 Finance costs 5(a) (21,065) (20,625) Profit before taxation 5 350, ,692 Income tax 6 (48,755) Profit for the year 350,572 93,937 Dividends payable to equity shareholders of the Company attributable to the year: 7 Final dividend proposed after the balance sheet date 105,172 Earnings per share (RMB) 8 Basic CONSOLIDATED BALANCE SHEET As at 31 December 2007 Note Non-current assets Property, plant and equipment 461, ,776 Construction in progress 167,098 16,000 Lease prepayments 11,255 Current assets 639, , Inventories 9 35,487 50,989 Trade and other receivables 10 50,903 81,785 Amount due from a director 15 Amounts due from related parties 183 Cash and cash equivalents 1,792,158 67,265 Current liabilities 1,878, , Bank loans 11 30, ,000 Trade and other payables ,404 79,013 Amounts due to directors 194,491 Current taxation 9,868 21, , , Net current assets/(liabilities) 1,609,276 (426,938) Total assets less current liabilities 2,248,650 88,838 Non-current liabilities Bank loans ,000 NET ASSETS 2,041,650 88,838 Capital and reserves Share capital 101, Reserves 1,940,291 88,736 TOTAL EQUITY 2,041,650 88,838 3 1. GENERAL INFORMATION AND BASIS OF PRESENTATION The Company was incorporated in the Cayman Islands on 5 September 2006 as an exempted company with limited liability under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Group is principally engaged in manufacturing and trading of decorative base paper products and printing paper product. Pursuant to a reorganisation ( the Reorganisation ) of the Group, the Company acquired the equity interests of entities under common control and became the holding company of the subsidiaries now comprising the Group in preparing for the listing of the Company s shares on the Main Board of The Stock Exchange of Hong Kong Limited ( the Stock Exchange ). Details of the Reorganisation are set out in the prospectus of the Company dated 17 September 2007 ( the Prospectus ). The shares of the Company were listed on the Stock Exchange on 2 October The Group is regarded as a continuing entity resulting from the Reorganisation under common control. Accordingly, the consolidated financial statements of the Group for the year ended 31 December 2007 and the comparatives have been prepared as if the current group structure had been in existence throughout the years presented. 2. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRSs ), which collective term includes all applicable individual IFRSs, International Accounting Standards ( IASs ) and Interpretations, issued by the International Accounting Standards Board ( IASB ). These financial statements also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities ( Listing Rules ) on the Stock Exchange. The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group. The adoption of these new and revised IFRSs did not result in significant changes to the Group s accounting policies applied in these financial statements for the years presented. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. 3. TURNOVER Turnover represents the sales value of goods sold less returns, discounts, and value added taxes and other sales taxes, which may be analysed as follows: Decorative base paper products 868, ,160 Printing paper product 257, ,684 1,125, ,844 4 4. OTHER REVENUE AND NET LOSS Other revenue Interest income on financial assets not at fair value through profit or loss Interest income from banks 15, Interest income from subscription monies upon public offering 106,946 Other net loss 121, Loss on disposal of property, plant and equipment 103 Net foreign exchange loss PROFIT BEFORE TAXATION Profit before taxation is arrived at after charging: 627 (a) Finance costs: Interest on financial liabilities not at fair value through profit or loss Interest on bank borrowings wholly repayable within five years 21,065 20,625 (b) Staff costs: Contributions to defined contribution retirement plans 1,798 2,058 Salaries, wages and other benefits 25,035 18,732 26,833 20,790 (c) Other items: Amortisation of lease prepayments 186 Auditors remuneration 1,212 6 Depreciation 57,075 47,983 Loss on disposal of property, plant and equipment 103 Operating lease charges in respect of leasehold land and properties 960 1,200 Sewage disposal expenses Research and development costs 796 1,216 5 6. INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT Current tax PRC income tax Provision for the year 48,755 Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands ( BVI ), the Group is not subject to any income tax in the Cayman Islands and BVI. No provision has been made for Hong Kong Profits Tax as the Group did not have assessable profits subject to Hong Kong Profits Tax during the year. Pursuant to the income tax rules and regulations of the People s Republic of China ( PRC ), Shandong Qunxing Paper Limited ( Shandong Qunxing ) was liable to PRC income tax at a rate of 33% for the year ended 31 December As Shandong Qunxing became a foreign investment enterprise on 16 August 2006, it has been granted certain tax relief whereby it is fully exempted from PRC income tax for the two years starting from 1 January 2007 to 31 December 2008, followed by a 50% reduction in PRC income tax rate for the three years from 1 January 2009 to 31 December On 16 March 2007, the Fifth Plenary Session of the Tenth National People s Congress passed the Corporate Income Tax Law of the PRC ( New Tax Law ) which took effect on 1 January The PRC income tax rate is unified to 25% for all enterprises, except for small-scale enterprises earning small profit, where the tax rate is reduced to 20%. Under the grandfathering treatments of the New Tax Law ( Grandfathering Treatments ), Shandong Qunxing which has not fully utilised its five-year tax holiday upon implementation of the New Tax Law will be allowed to continue to receive such a tax holiday during the five-year grandfathering period. Accordingly, Shandong Qunxing is exempted from PRC income tax for the two years starting from 1 January 2007 to 31 December 2008, followed by a reduced PRC income tax rate at 12.5% for the remaining three years from 1 January 2009 to 31 December Under the New Tax Law, dividends received by foreign investors from its investment in foreign-invested enterprises are subject to withholding tax at a rate of 10% unless reduced by treaty. Pursuant to the Grandfathering Treatments, dividends receivable by the Group from Shandong Qunxing in respect of its undistributed profits prior to 31 December 2007 are exempted from the withholding tax. Dividends receivable by the Group from Shandong Qunxing in respect of its profits earned since 1 January 2008 will be subject to the withholding tax. The enactment of the New Tax Law is not expected to have any financial effect on the amounts accrued in the balance sheet in respect of current tax payable. 7. DIVIDENDS Final dividend proposed after the balance sheet date of RMB cents per ordinary share (2006: Nil) 105,172 The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date. 6 8. EARNINGS PER SHARE (a) The calculation of basic earnings per share for the year ended 31 December 2007 is based on the profit attributable to equity shareholders of the Company of RMB350,572,000 and the weighted average number of 826,562,000 ordinary shares in issue during the year. The calculation of basic earnings per share for the year ended 31 December 2006 is based on the profit attributable to equity shareholders of the Company of RMB93,937,000 and the 750,000,000 shares (100,000,000 shares in issue as at the date of the Prospectus and 650,000,000 shares issued pursuant to capitalisation issue upon listing), as if the shares had been outstanding throughout the year. (b) There were no dilutive potential ordinary shares during the years presented and, therefore, diluted earnings per share is not presented. 9. INVENTORIES Raw materials and consumables 19,316 30,426 Finished goods 16,171 20, TRADE AND OTHER RECEIVABLES 35,487 50,989 Trade receivables 50,297 80,478 Prepayments, deposits and other receivables 606 1,307 Less: allowance for doubtful debts All of the trade receivables are expected to be recovered within one year. Ageing analysis 50,903 81,785 Included in trade and other receivables are trade debtors with the following ageing analysis as of the balance sheet date: Current 50,297 79,226 Less than one month past due 1,252 50,297 80,478 7 11. BANK LOANS At 31 December 2007, the bank loans were repayable as follows: Within one year 30, ,000 After one year but within two years 207,000 At 31 December 2007, the bank loans were secured as follows: 237, ,000 Secured bank loans: secured by property, plant and equipment 237, ,000 Unsecured bank loans: guaranteed by a related party 145, , ,000 The bank loans as at 31 December 2007 were interest bearing at rates ranging from 7.23% to 8.95% per annum (2006: 6.13% to 8.93% per annum). The guarantees provided by a related party were released on 28 September TRADE AND OTHER PAYABLES Trade payables 61,120 53,979 Other payables and accruals 168,284 25, ,404 79,013 Included in trade and other payables are trade payables with the following ageing analysis as of the balance sheet date. The credit periods granted by suppliers generally are not more than 30 days. Due within 30 days 61,120 53,979 All of the trade and other payables are expected to be settled within one year, apart from retention monies payable in respect of the construction of production lines of RMB8,339,000 (2006: Nil) which are expected to be settled after one year. 8 13. NON-ADJUSTING POST BALANCE SHEET EVENTS After the balance sheet date of 31 December 2007 and up to the date of this report, the Company repurchased its own shares on the Stock Exchange. The repurchased shares were cancelled and, accordingly, the issued share capital of the Company was reduced by the nominal value of these shares. The premium paid on the repurchase of the shares of HK$18,820,000 (equivalent to RMB17,419,000) was charged to the share premium account. Particulars of the shares repurchased after the balance sheet date and up to 29 February 2008 are as follows: Number of Highest Lowest Aggregate shares price paid price paid consideration Month/year repurchased per share per share paid HK$ HK$ HK$ 000 January ,990, ,897 February ,391, ,561 FINAL DIVIDEND 6,381,000 19,458 The Board has recommended the payment of a final dividend of RMB cents per ordinary share for the year ended 31 December 2007 which shall be payable on or about Tuesday, 13 May 2008 to shareholders whose names appear on the register of members of the Company on Tuesday, 29 April 2008, subject to the approval of the shareholders at the annual general meeting of the Company to be held on Tuesday, 29 April The final dividend will be paid in Hong Kong Dollars based on the official exchange rate of Renminbi against Hong Kong Dollars as quoted by the People s Bank of China at the remittance date. CLOSURE OF REGISTER OF MEMBERS The register of members of the Company will be closed from Tuesday, 22 April 2008 to Tuesday, 29 April 2008, both days inclusive. In order to qualify for the above mentioned proposed final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company s Hong Kong branch share registrar and transfer office, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen s Road East, Hong Kong not later than 4:30 p.m. on Monday, 21 April BUSINESS REVIEW AND OUTLOOK Business Review Our Group is the largest decorative base paper manufacturer in the PRC. The year 2007 marked a milestone for Qunxing Paper. The initial public offering of new shares of the Company in October 2007 received overwhelming market response and was of 857 times oversubscribed, raising net proceeds of approximately HK$1,492.8 million (equivalent to approximately RMB1,445.5 million). The success of our initial public offering provided us with new funds for business development and enabled us to access to international capital markets, thus making us well-positioned to capture additional growth opportunities as they arise. Moreover, the listing enabled us to align ourselves with international best practices in various areas such as internal control and corporate governance. Qunxing Paper will not only strive to affirm its leading position in decorative base paper industry in the PRC, but also to establish a sound system of corporate governance. 9 Even more encouraging is the remarkable results we achieved in During the year, both our turnover and profit attained new records. Turnover of the Group amounted to approximately RMB1,125.5 million, representing an increase of 18.4% over that of the same period of last year. Profit attributable to shareholders for the year was RMB350.6 million, representing a growth of 273.4%. Basic earnings per share was approximately RMB42 cents. Our encouraging results during the year were attributable to the strong demand for decorative base paper products. According to the National Bureau of Statistics of the PRC, the country gross domestic product (GDP) reached RMB24,661.9 billion in 2007, rising approximately 11.4% on a year-on-year basis, which represents the fifth consecutive year with a growth rate of over 10%. The rapid growth of personal disposable income and rising living standard in the PRC stimulated demand for quality housing and greater floor space, resulting in a booming property market in the PRC. Such development fueled the growth of the PRC s furniture and construction material industry, which in turn led to an increase in demand for laminated board, a material widely used as decorative materials in the furniture and construction materials industry. As our decorative base paper products constitute a major raw material to furnish the surface of laminated board, sales of our decorative base paper products recorded significant growth during the year. Currently, the supply of decorative base papers in the PRC is, to a large extent, dependent on import. Existing domestic supply obviously falls short of market demand. In view of this huge market potential, the Group will endeavour to expand its production capacity of decorative base paper products in order to capture new business opportunities and to take advantage of economy of scale. Assigning an equally high priority, the Group will also put more efforts in strengthening its brand building, product research and development and quality control system. During the year, the Group maintained its position as a leading decorative base paper manufacturer in the PRC. To date, the Group has invested and is operating seven highly automated Production line nos. 1 to 7 with an aggregate designed annual production capacity of approximately 200,000 tonnes, comprising approximately 150,000 tonnes of decorative base paper products and approximately 50,000 tonnes of printing paper product. To cater for the rapid growth of market demand for decorative base paper products, construction of our Production line no. 7 was completed in December 2007 and its commercial production is scheduled to commence in March 2008, two months ahead of the original schedule. With a designed annual production capacity of 30,000 tonnes, Production line no. 7 brings the total designed annual production capacity of our decorative base paper products to 150,000 tonnes. At the same time, two more Production lines nos. 8 to 9 are under construction and are expected to provide additional designed annual production capacities of 60,000 tonnes in total. These new production facilities will further expand the Group s total production capacity and contribute to our turnover growth, thus strengthening our leading position in the PRC s decorative base paper market and enhancing our competitiveness. The Group is actively seeking opportunities to broaden our distribution channels in the PRC. To date, the Group has designated six sales regions in the PRC, namely, Shandong, Sichuan, Guangdong, Beijing, Jiangsu and Zhejiang. The Group has over 125 customers covering 13 provinces, autonomous regions and municipalities in the PRC. In addition, the Group is committed to developing overseas markets in order to broaden our revenue streams so as to sustain long-term business growth. 10 Outlook The PRC is currently the world s second largest production and consumption country of paper products. On the back of positive market conditions and the rapid growth of the PRC s economy, the demand for paper products will remain robust, hence creating huge growth potential for the paper industry in the PRC. The Group plans to further strengthen its leading market position and capture this promising market potential by expanding our production capacity, expanding into new regional markets, refining our production technologies and processes as well as enhancing our proprietary research and development capabilities. Leveraging our proven track record, established market position, as well as the expertise of our management, the Group is committed to becoming a leading manufacturer of decorative base paper products and printing paper product in the region, and ultimately, generating lucrative returns to our shareholders. FINANCIAL REVIEW Turnover Turnover for the year ended 31 December 2007 increased by approximately 18.4% from RMB950.8 million in the year ended 31 December 2006 to RMB1,125.5 million during the year ended 31 December The increase in turnover during the year ended 31 December 2007 was mainly attributable to the combined effects of (i) the increase in overall sales volumes by approximately 23.0% from 91,625 tonnes to 112,681 tonnes, out of which sales volumes of the printing paper product, the product line launched in July 2006, increased by approximately 107.6% from 19,503 tonnes for the six months ended 31 December 2006 to 40,494 tonnes during the year ended 31 December 2007; and (ii) the increase in the average selling prices of the decorative base paper products by approximately 4.0% from RMB11,566 per tonne to RMB12,028 per tonne. Cost of sales Cost of sales represents the production costs of goods sold during the year. These production costs comprise cost of raw materials, direct labour costs and manufacturing overheads, which include depreciation
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