TIDMCHRR
RNS Number : 8079G
China Rerun Chemical Group Ltd
12 May 2014
CHINA RERUN CHEMICAL GROUP LTD
("China Rerun", "the Group" or "the Company")
Half year results for the period from 1 September 2013 to 28
February 2014
China Rerun Chemical Group Ltd (CHRR.L), the producer of
lubricant products for the domestic automotive, industrial and
agricultural markets in the People's Republic of China ("PRC"),
today announces its unaudited half year results from 1 September
2013 to 28 February 2014 ("the period").
As part of the Group's restructuring in anticipation of its
Admission to AIM, a new operating subsidiary was incorporated in
May 2012 which took over and commenced trading activities in March
2013. As a result, for the period 1 September 2012 to 28 February
2013, there was no trade passing through the new operating
subsidiary as it remained in the private Company. For the purposes
of comparison therefore, pro-forma results including the six months
audited figures of the private Company from 1 September 2012 to 28
February 2013, as detailed in the Admission Document, have been
detailed below:
Financial Highlights
Pro forma Unaudited Audited HY2013 Growth (HY2014
FY2013 HY2014 ended ended 28 Feb and HY2013)
28 Feb 2014 2013
---------------- ---------- -------------- --------------- ---------------
Revenue RMB273.3m RMB164.7m RMB122.6m + 34.4%
---------------- ---------- -------------- --------------- ---------------
Gross profit RMB72.8m RMB50.7m RMB33.4m +51.7%
---------------- ---------- -------------- --------------- ---------------
Gross margin 26.6% 30.8% 27.3% 35Bps
---------------- ---------- -------------- --------------- ---------------
Pre-tax profit RMB45.0m RMB32.7m RMB19.4m +68.0%
---------------- ---------- -------------- --------------- ---------------
Indicative exchange rate as at 9 May 2014: GBP1: RMB10.43
Source: www.oanda.com
Operational Highlights
-- Like-for-like sales volume increased by 31.7% to 8.1 million litres compared with HY2013
-- Gross margin improved to 30.8% (HY2013: 27.3%) from selling
higher quality products at higher prices while also benefitting
from economies of scale associated with the higher volumes
-- Average selling prices increased by 2% to RMB20.2 in HY 2014 (HY2013: RMB19.8)
-- The wholesale distribution network increased to 42
distributors, with the addition of six new partners in line with
the Group's stated strategy of expanding its geographical presence
and wholesale distribution network
-- Increase in demand for the Company's car petrol engine,
construction and agricultural lubricant oils
-- Production of a greater variety of construction and
agricultural oils to meet growing market demand, with three new
products introduced in HY2014
-- The establishment of a ten year partnership with
TianxiaRunyuan (Beijing) Technology Co., Ltd ("Tianxia") for the
distribution of Rerun products to 300 new cities in the PRC
-- Testament to the Company's reputation as a producer of high
quality lubricant products, China Rerun was credited as a training
centre for an Executive Master of Business Administration by the
Economic and Management College of China University of
Petroleum.
Commenting on the results, Mr Xinghe Wu, Executive Chairman of
China Rerun said:
"China Rerun has delivered a strong set of results in the first
half of the financial year and the Board is confident that the
results for the full year ended 31 August 2014 will remain in line
with its expectations. We are focused on growing our sales network
and driving economies of scale, whilst investing in research and
development and developing our marketing activities. Our listing in
London now provides a platform for organic growth which, coupled to
the Group's robust financial base, also places it in a strong
position to seek out acquisition opportunities within its highly
fragmented domestic market. In this way, China Rerun will continue
to expand its market share, increase brand awareness and enhance
overall presence. It remains our stated ambition to become a
leading lubricant oil brand in the domestic marketplace."
For further enquiries, please visit www.chinarerun.com/or
contact:
China Rerun Xinghe Wu +86 459 666 9777
Yan Liu www.chinarerun.com/
Nick Lyth +44 776 990 6686
----------------------------- ----------------------- ----------------------------
Cairn Financial Advisers
LLP Jo Turner
(Nominated Adviser) Liam Murray +44 20 7148 7900
----------------------------- ----------------------- ----------------------------
Beaufort Securities Limited
(Broker) Chris Rourke +44 20 7382 8300
----------------------------- ----------------------- ----------------------------
AM Capital Limited* Robin Fox +852 2116 3336
rfox@amcapital.hk
----------------------------- ----------------------- ----------------------------
Cardew Group Shan Shan Willenbrock +44 20 7930 0777
(Financial PR) Georgina Hall chinarerun@cardewgroup.com
Tom Horsman
----------------------------- ----------------------- ----------------------------
*AM Capital Limited, a securities dealer and financial adviser
registered in Hong Kong, has been engaged by the Group as a
financial adviser
Notes to Editors
China Rerun Chemical Group Ltd is an established and profitable
producer of lubricant products for the PRC's domestic automotive,
industrial and agricultural markets. Based in Daqing, northeastern
China, it operates principally under the "Runyuan" and "Black E"
brands. The Group's products are sold through a network of third
party distributors to end users, some of whom operate branded
automotive garages.
Chairman's Statement
I am pleased to present a positive set of results for the period
under review. Our continued growth and recent Admission to AIM has
helped secure new commercial partnerships, as was demonstrated by
our joint ten year venture with Tianxia. This partnership enables
China Rerun's products to be sold into 300 new cities previously
not covered by the distribution network and take advantage of
Tianxia's 15 years' experience in the lubricants industry, as well
as its extensive network of over 600 new distributors. We continue
to seek joint partnerships which will further expand our
distribution network, and, in turn, enhance our presence in the
domestic market.
Revenue for the six months to 28 February 2014 grew by 34.4% to
RMB164.7m (HY2013: RMB122.6m). Pre-tax profit rose by 68.0% to
RMB32.7m (HY2013: RMB19.4m). These increases stemmed from the
rising demand for high quality lubricant oils in the domestic
market, coupled with the growing recognition and popularity of our
brands.
Like-for-like sales volumes amounted to 8.1 million litres, up
31.7% compared with HY2013. The rise in sales volumes has resulted
in economies of scale, and for the period, gross margin improved to
30.8% (HY2013: 27.3%). The pricing of our products and our ability
to pass these on to our customers, due to improved branding,
product sophistication and quality control, also contributed to the
rise in margins. In the period under review, average selling prices
increased by RMB20.2, an increase of 2% (HY 2013: RMB19.8). The
terms of the Company's contracts held with our distributors helped
to insulate margins from inflationary pressures passed through
price increases in raw materials.
The ongoing growth of the construction and agricultural
industries within the PRC, coupled with the government's recently
stated commitment to expand the domestic economy is expected to
stimulate demand for construction and agricultural lubricant oils.
In order to satisfy demand for these lubricant oil types, China
Rerun has developed additional products specifically catering for
the construction and agricultural industries. The ability of our
production facility to react quickly to the market's evolving
demands is proving a key strength for the business and we are
pleased to have developed 11 new products since our AIM admission
last October.
At the period end, the Group's wholesale distribution network
grew to 42 distributors (HY2013: 28). The Company will continue to
focus on engagement of additional high quality distributors. As
expected, however, the transitionary period associated with the
reorganisation of the sales network resulted in a reduction in
average revenues per distributor to RMB3.9m (HY2013: 4.3m). For the
full year 2013, average revenues per distributor was RMB7.6m.
Encouragingly, China Rerun was awarded training centre status by
the Economic and Management College of China University of
Petroleum. The training centre will offer an Executive Master of
Business Administration programme for delegates in the oil and gas
sectors. The Group believe that the accreditation will enhance the
Company's reputation and raise brand awareness.
Strategy for Growth
The Company will continue with its strategy of organic growth
and is exploring acquisition opportunities to generate value for
shareholders and increase the Company's presence in its domestic
marketplace.
Firstly, we intend to continue our emphasis on high quality
branded products, upgrading the quality and specification of oil
types which can achieve higher average selling prices and protect
margins.
We are focused on maintaining high quality distribution,
broadening our geographic representation in the PRC and positioning
China Rerun to benefit from an anticipated, sustained increase in
demand for lubricant oils.
We will also look to forge new partnerships, similar to the
agreement with Tianxia, in order to increase our sales distribution
network and support our initiatives to build brand awareness.
We are actively seeking acquisition opportunities and joint
distribution partnerships to complement our existing business,
broaden our representation in the PRC and benefit from the
anticipated increase in demand for lubricant oils. Our recent
listing and solid financial base provides a platform for our stated
ambition to become a leading lubricant oil brand in the domestic
marketplace. The PRC's highly fragmented market presently consists
of over 4,000 lubricant producers, many of which are only able to
provide a narrow or unsophisticated product offering to an
increasingly demanding customer base. As such, their future is
likely to be one of merger and/or consolidation into larger
groupings. This represents an important opportunity for growth that
China Rerun's management intends to exploit.
The Company is committed to investing in branding and
advertising activity to strengthen the brand and increase
awareness.
Financial Review
As part of the Group's restructuring in anticipation of its
Admission to AIM, a new operating subsidiary was incorporated in
May 2012 which took over and commenced trading activities in March
2013. As a result, for the period 1 September 2012 to 28 February
2013, there was no trade passing through the new operating
subsidiary as it remained in the private company. For the purposes
of comparison therefore, pro-forma results including the six months
audited figures of the private Company from 1 September 2012 to 28
February 2013, as detailed in the Admission Document, have been
included.
In the period under review, the Group generated revenue of
RMB164.7m (HY 2013: RMB122.6m) representing growth of 34.4%.
The Group achieved gross profit of RMB50.7m an increase of 51.7%
compared to the prior year period (HY 2013: RMB33.4m). Gross margin
increased by 3.5 percentage points to 30.8% year-on-year (HY 2013:
27.3%). The improved gross profit was mainly driven by product
upgrades as well as benefits from economies of scale as volumes
increased by 31.7%.
Sales and distribution expenses increased to RMB11.2m (HY 2013:
RMB7.5m). This increase was mainly driven by increased sales
commissions, distributors' rebates and distribution of goods, along
with revenue growth. Advertising and marketing costs increased by
37%, accounting for 1.18% of revenue (HY 2013: 1.15%) as the Group
continues to focus on building its brands through marketing
initiatives, in line with the Company's strategy.
During the period under review, administrative expenses were
RMB6.8m absorbing one-off listing costs of RMB3.9m. The Group
achieved a pre-tax profit of RMB32.7m in HY 2014, up 67.98% (HY
2013: RMB 19.4m). Operating margin increased by 3.9 percentage
points to 19.8% (HY 2013: 15.8%).
The Group's PRC operating subsidiary is subject to an income tax
rate of 25%, which is in accordance with the PRC Enterprise Income
Tax Law.
At 28 February 2014, inventories increased by RMB6.1m to RMB8.8m
(HY 2013: RMB2.7m), due, in part, to seasonal factors.
Historically, revenues and sales volumes are usually higher between
the months of March and August, coinciding with increased fuel and
lubricant oil consumption during the summer months. There were no
trade receivables as most of the Group's sales are on a cash basis.
There was, however, an increase in RMB37.59m of other receivables
at the period end including RMB37.5m of advance payment to
suppliers to secure upstream suppliers in a stable manner and avoid
an effect on costs from base oil price fluctuation.
This is a positive performance for the business and we have a
sound financial base from which to further expand our customer base
and grow our market presence.
Outlook
We are pleased with the progress made in the period under review
and our management remains confident in its ability to secure
long-term growth for China Rerun.
We continue to seek new commercial opportunities for joint
distribution partnerships and target acquisitions with the
intention to create long term shareholder value.
We are committed to expanding our sales presence to include new
regions and to further strengthen our sales team with senior
recruits. We will continue to invest in the future of our brands,
in which we have confidence in the long-term potential, as we look
forward to the next phase of development.
The macroeconomic environment is encouraging. We see an increase
in consumption of lubricant oils in the PRC, led by strong demand
from the automotive, construction and agricultural sectors. With
such underlying growth, our expanding distribution network and
rising brand awareness, the Board is confident that the results for
the full year ended 31 August 2014 will be in line with its
expectations.
Condensed consolidated statement of comprehensive income
for the six months ended 28 February 2014
6 months 6 months 12 months
ended Ended ended
28Feb 28Feb 31Aug
2014 2013 2013
Unaudited Unaudited Audited
RMB'000 RMB'000 RMB'000
Revenue 164,703 - 150,714
Cost of sales (114,014) - (111,359)
---------- ---------- ----------
Gross profit 50,689 - 39,355
Selling and distribution expenses (11,267) - (7,420)
Administrative expenses (6,848) (550) (1,823)
Listing costs - - (4,543)
Finance income 86 - 12
---------- ---------- ----------
Profit before tax 32,660 (550) 25,581
Income tax expense (9,163) - (7,308)
---------- ---------- ----------
Profit for the period 23,497 (550) 18,273
Other comprehensive income
Exchange differences on translation
of foreign operations 29 - 108
---------- ---------- ----------
Total comprehensive income for the
period 23,526 (550) 18,381
========== ========== ==========
Attributable to:
Equity Shareholders of the Company 23,526 (306) 18,651
Minority Interests - (244) (270)
---------- ---------- ----------
- (550) 18,381
========== ========== ==========
Earnings per ordinary share
Basic (in RMB 1.00) 0.092
Diluted (in RMB 1.00) 0.092
Condensed consolidated statement of financial position
as at 28 February 2014
28Feb 28Feb 31Aug
2014 2013 2013
Unaudited Unaudited Audited
RMB'000 RMB'000 RMB'000
ASSETS
Non current asset
Property, plant and equipment 3,393 3,980 3,701
Intangible assets -* - -*
3,393 3,980 3,701
Current assets
Inventories 8,799 310 2,655
Trade and other receivables 37,590 889 16,602
Cash and cash equivalents 91,391 29 48,836
---------- ---------- --------
137,780 1,228 66,093
---------- ---------- --------
Total assets 141,173 5,208 69,794
========== ========== ========
EQUITY AND LIABILITIES
Capital and Reserves
Share capital 12 12 12
Share premium 2,414 620 620
Statutory reserves 4,013 - 2,287
Warrant reserve 497
Translation reserves 137 10 108
Retained earnings 37,837 (306) 16,066
---------- ---------- --------
Equity attributable to owners 44,910 336 19,093
Minority Interest - 3,764 -
---------- ---------- --------
Total equity 44,910 4,100 19,093
---------- ---------- --------
Current
Trade and other payables 25,193 1,108 17,426
VAT payable 54,599 - 25,967
Corporate income tax payable 16,471 - 7,308
96,263 1,108 50,701
---------- ---------- --------
Total equity and liabilities 141,173 5,208 69,794
========== ========== ========
*Amount is less than RMB 1,000
Condensed consolidated statement of cash flows
for the six months ended 28 February 2014
6 months 6 months Year
Ended ended ended
28Feb 28Feb 31Aug
2014 2013 2013
Unaudited Unaudited Audited
RMB'000 RMB'000 RMB'000
Profit /(loss) before income
tax 32,658 (550) 25,581
Adjustments for:
Interest income (84) - (12)
Warrant charge 497 - -
Depreciation of property, plant
and equipment 319 - 368
Operating profit before working
capital changes 33,390 (550) 25,937
Decrease in inventories (6,144) (310) (2,655)
Increase in trade and other
receivables (20,988) (889) (16,602)
Increase/(decrease) in trade
and other payables 35,661 15 33,950
---------- ---------- ---------
Cash generated from operations 41,919 (1,734) 40,630
Tax paid - - -
---------- ---------- ---------
Net cash generated from operating
activities 41,919 (1,734) 40,630
Investing activities
Interest received 84 - 12
Purchase of property, plant
and equipment (11) - (112)
Net cash from/(used in) investing
activities 73 - (100)
Financing activities
Loan from the director 769 1,131 5,674
Proceed from issue of shares 1,794 632 632
Net cash inflow from financing
activities 2,563 1,763 6,306
Net increase in cash and cash
equivalents 44,555 29 46,836
Cash and cash equivalents at 46,836
beginning of period - -
Effect of foreign exchange -*
rate changes - -
---------- ---------- ---------
Cash and cash equivalents at
end of period 91,391 29 46,836
========== ========== =========
Condensed consolidated statement of changes in equity
for the period ended 28 February 2014
Share Share Statutory Warrant Translation Retained Non-controlling
Capital Premium reserve reserve reserve earnings Total interest Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
At 30May 2012 - - - - - - - - -
Profit for the
period - - - - - (306) (306) (244) (550)
Exchange
difference - - - - 10 - 10 - 10
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
Total
comprehensive
income
for the year - - - - 10 (306) (296) (244) (540)
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
Issue of shares 12 620 - - - - 632 - 632
Minority
interest - - - - - - - 4,008 4,008
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
At 28 February
2013 12 620 1,753 - 10 (306) 336 3,764 4,100
======== ========== ========= ======== =========== ========= ======= =============== =======
At 30 May 2012 - - - - - - - - -
Profit for the
period - - - - - 18,543 18,543 (270) 18,273
Transfer to
statutory
reserve - - 2,287 - - (2,287) - - -
Exchange
difference - - - - 108 - 108 - 108
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
Total
comprehensive
income
for the year - 2,287 108 16,256 18,651 (270) 18,381
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
Issue of shares 12 620 - - - - 632 - 632
Acquisition of
non-controlling
interest
without a
change
in control - - - - - (190) (190) 270 80
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
At 31 August
2013 12 620 2,287 - 108 16,066 19,093 - 19,093
======== ========== ========= ======== =========== ========= ======= =============== =======
Profit for the
period - - - - - 23,497 23,497 - 23,497
Transfer to
statutory
reserve - - 1,726 - - (1,726) - - -
Exchange
difference - - - - 29 - 29 - 29
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
Total
comprehensive
income
for the year - - 1,726 - 29 21,771 23,526 - 23,526
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
Issue of shares -* 1,794 - - - - 1,794 - 1,794
Warrant granted - - - 497 - - 497 - 497
-------- ---------- --------- -------- ----------- --------- ------- --------------- -------
At 28 February
2014 -* 2,414 4,013 497 137 37,837 44,910 - 44,910
======== ========== ========= ======== =========== ========= ======= =============== =======
Notes to the condensed consolidated financial statement
1. General information
China Rerun Chemical Group Limited ("China Rerun" or the
"Company") was incorporated on 30 May 2012 in Cayman Islands. The
registered office of the Company is located at 89 Nexus Way, Camana
Bay, Grand Cayman Y1-9007 Cayman Islands
The principal activity of the Company is that of an investment
holding company and the principal activities of the Group are
production and distribution of lubricating oil for the automotive,
agricultural and certain industrial markets in PRC. The principal
place of business is at No 99, Zhongsan Road, Sa'ertu district,
Daqing, Heilongjiang Province, PRC.
These condensed financial statements present information about
the group and are set out in Renminbi ("RMB") of the PRC, which is
the functional currency of the group.
2. Basis of preparationand accounting policies
These condensed financial statements have been prepared on the
basis of the accounting policies set out in the last audited
consolidated financial statements, which are in accordance with
International Accounting Standard 34 Interim Financial
Reporting.
The interim report is unaudited and does not constitute the
company's statutory accounts for the six months ended 28February
2014.
The preparation of the interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expense. Actual results
may subsequently differ from those estimates.
3. Segmental analysis
The group's revenue and profit before taxation were all derived
from only one segment which is its principal activity. All revenue
originates in the PRC and assets are mainly held in the PRC. As a
result of this, management considered that no segment reporting is
required.
4. Taxation
A company is deemed to be resident in PRC if it is established
in PRC or its effective management is in PRC. Residents are taxed
on their worldwide income. Non-residents are taxed on PRC source
income and income effectively connected with their establishments
in PRC.
China Rerun is regarded as resident for the tax purposes in
Cayman Islands. There are no applicable taxes in the Cayman Islands
for the company.
The Group is regarded as resident for the tax purposes in PRC
and subject to national income tax at 25%.
The taxation charge is based upon the expected effective rate
for the period ended 28February 2014.
5. Warrant charge
On 15 October 2013, the Company has granted 2,558,100 and 18,100
warrants to Cairn Financial advisers LLP and Beaufort International
Associates Limited respectively in connection to their service
during the Group's AIM admission process.
Judgements and estimates are required in determining the share
based payment charge as an expense in the income statement. The
directors have used Black-Scholes model which has been widely used
in valuing the share based payment charge. The directors are in the
opinion that the model used has been adjusted to their best
estimate in arriving at the charge.
6. Property, plant and equipment
During the period, the group made additions of approximate RMB
11,000 to property, plant and equipment.
7. Earnings per share
Basic loss per share
Basic loss per share is calculated by dividing the loss
attributable to equity shareholders of the company by the weighted
average number of ordinary shares in issue during the year.
28Feb 2014
RMB'000
Profit attributable to equity holders of the company 23,495
===========
Weighted average number of shares in issue (thousands) 254,963
===========
Diluted earnings per share
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The dilutive
potential ordinary shares in the company are share options. A
calculation is done to determine the number of shares that could
have been acquired at fair value (determined as the average annual
market share price of the company's shares) based on the monetary
rights attached to outstanding share options. The number of shares
calculated above is compared with the number of shares that would
have issued assuming the exercise of the share options.
Weighted average number of ordinary shares (diluted):
28Feb 2014
'000
At beginning of the period 254,963
Effect of conversion of warrants 1,921
-----------
At end of period 256,884
===========
8. Share capital
The issued share capital of the company as at 28February 2014 is
RMB 12,126 fully paid.
On 12 September 2013, the Company issued and allotted 46
ordinary shares to an existing shareholder at par value.
On 6 October 2013, an ordinary and special solution passed to
resolve that each issued Ordianry shares of US$1.00 each be divided
into 127,000 ordinary shares of US$0.000007874 each.
On 16 October 2013, the Company has been admitted to trading on
the AIM market of London Stock Exchange plc ("Admission"). The
Company has raised approximately GBP181,000 before expenses through
a subscription of 1,810,000 new ordinary shares at 10p per
share.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the company. All shares rank equally with
regard to the company's residual assets.
At 28February 2014, the company had the following outstanding
share options:
Date of grant: 15 Oct 2013
Number of warrants: 2,576,200
Option price: 10 pence
Exercise period: 15.10.2013 - 15.10.2018
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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