China Jushi FY2006: Cash generation and working capital

China Fiberglass reported FY2006 main-business revenue of CNY 2.017 billion, 37.74% above CNY 1.464 billion in 2005. Management attributed the increase to expanded manufacturing scale and sales volumes; stated glass-fiber capacity rose from 210,000 to 380,000 tonnes a year, which is not actual annual production. Main-business profit was CNY 622.555 million after CNY 1.387 billion of main-business costs and CNY 6.898 million of related taxes and surcharges. Consolidated profit before income tax was CNY 324.260 million. After CNY 86.661 million of income tax and CNY 101.548 million of minority shareholders’ profit, net profit attributable to the listed shareholders was CNY 136.050 million, up 10.18%. Income tax increased from CNY 33.797 million; management attributed the increase partly to the expiry of Jushi Group’s earlier tax holiday. The subsidiary’s disclosed net profit of CNY 253.062 million has its own entity perimeter and is not the listed issuer’s net profit. The parent-only statements separately reported CNY 126.649 million of net profit under the historical accounting framework. Later restated comparative figures are separate reporting vintages and are not substituted into this account.

Reported business revenue / 2006 / fy2006 core consolidated main business revenue 2006

RMB 2,016,801,443.51

Reported business cost / 2006 / fy2006 core consolidated main business cost 2006

RMB 1,387,348,225.32

Reported consolidated operating profit / 2006 / fy2006 core consolidated operating profit 2006

RMB 307,765,095.48

Reported profit before tax / 2006 / fy2006 core consolidated profit before tax 2006

RMB 324,259,540.04

Profit attributable to subsidiary minority / 2006 / fy2006 core consolidated minority profit 2006

RMB 101,547,959.69

Reported consolidated owner profit / 2006 / fy2006 core consolidated historical owner profit 2006

RMB 136,050,103.9

Reported business revenue / 2005 / fy2006 core consolidated main business revenue 2005

RMB 1,464,189,288.56

Reported business cost / 2005 / fy2006 core consolidated main business cost 2005

RMB 997,729,897.86

Reported consolidated operating profit / 2005 / fy2006 core consolidated operating profit 2005

RMB 212,970,824.04

Reported profit before tax / 2005 / fy2006 core consolidated profit before tax 2005

RMB 245,774,290.29

Profit attributable to subsidiary minority / 2005 / fy2006 core consolidated minority profit 2005

RMB 88,500,829.59

Reported consolidated owner profit / 2005 / fy2006 core consolidated historical owner profit 2005

RMB 123,476,428.8

FY2006 consolidated operating cash inflow net of payments was CNY 323.289 million, compared with CNY 120.053 million in 2005. Cash spent acquiring or constructing fixed assets, intangible assets and other long-term assets was CNY 1.339 billion; it exceeded operating cash generation. Net investing cash outflow was CNY 1.424 billion, including CNY 86.082 million of investment payments. Net financing inflow was CNY 1.170 billion: investment cash receipts were CNY 107.158 million, new borrowing CNY 2.874 billion, debt repayments CNY 1.585 billion, and combined dividend, profit-distribution and interest payments CNY 228.475 million. Investment cash receipts in the consolidated statement do not establish a new share issue by the listed parent. After a CNY 1.633 million adverse exchange effect, cash increased by CNY 67.526 million. The parent-only statement separately reported CNY 55.107 million of operating cash outflow. Group operating cash, the parent’s cash and construction-account transfers retain their different perimeters and measures.

Reported operating cash flow / 2006 / fy2006 core consolidated operating cash 2006

RMB 323,289,457.08

Reported cash capital expenditure / 2006 / fy2006 core consolidated long lived asset acquisition cash 2006

RMB 1,339,356,698.66

Reported cash investment payments / 2006 / fy2006 core consolidated investment payment cash 2006

RMB 86,081,656.12

Reported investing cash flow / 2006 / fy2006 core consolidated investing net cash 2006

RMB -1,424,321,633.89

Reported financing cash flow / 2006 / fy2006 core consolidated financing net cash 2006

RMB 1,170,190,372.43

Reported cash borrowing receipts / 2006 / fy2006 core consolidated new borrowing cash 2006

RMB 2,874,140,600

Reported cash debt repayments / 2006 / fy2006 core consolidated debt repayment cash 2006

RMB 1,585,000,000

Reported cash dividends profit interest / 2006 / fy2006 core consolidated combined distribution interest cash 2006

RMB 228,475,459.48

Reported cash fx effect / 2006 / fy2006 core consolidated exchange effect 2006

RMB -1,632,602.7

Reported cash change / 2006 / fy2006 core consolidated cash change 2006

RMB 67,525,592.92

Reported operating cash flow / 2005 / fy2006 core consolidated operating cash 2005

RMB 120,053,455.42

At 31 December 2006, consolidated gross trade receivables were CNY 516.994 million, compared with CNY 383.472 million a year earlier. The bad-debt allowance rose from CNY 19.924 million to CNY 32.740 million. Receivables aged less than one year accounted for 87.69% of the closing gross balance. The five largest debtor balances totaled CNY 148.424 million, or 28.71% of gross receivables; this is a credit-concentration measure, not the largest customers' share of annual sales. The largest named balance was CNY 83.299 million owed by GIBSON INTERPRISES INC. Effective 1 January 2006, the general allowance rates for receivables aged four to five years and over five years increased from 40% to 70% and 100%, respectively. The report states that this policy change reduced FY2006 net profit by CNY 8.918 million. The allowance also included specific assessments: the Hebei Zhongyi balance was fully provided, so applying only the general aging percentages would not reproduce the table. A provision is an accounting assessment of collection risk, not proof that cash was written off or subsequently recovered.

Reported gross trade receivables / 2006 / fy2006 credit original source reported trade receivables gross 2006

RMB 516,994,312.54

Accounts receivable credit-loss allowance / 2006 / fy2006 credit original source accounts receivable allowance 2006

RMB 32,740,391.12

Reported gross trade receivables / 2005 / fy2006 credit original source reported trade receivables gross 2005

RMB 383,471,680.15

Accounts receivable credit-loss allowance / 2005 / fy2006 credit original source accounts receivable allowance 2005

RMB 19,924,201.66

Closing gross inventory was CNY 299.386 million and its allowance was CNY 111,506, leaving CNY 299.274 million net inventory, compared with CNY 236.845 million net a year earlier. The report connects the increase to the formal start of the 8+2 ten-thousand-tonne line, higher raw-material requirements, output and stocks of products. Raw materials were CNY 125.791 million and finished goods CNY 136.863 million; CNY 24.769 million of dispatched goods was separately classified in inventory. These are carrying values, not physical tonnes or a measurement of unused capacity. Customer advances were CNY 72.751 million, up from CNY 36.401 million. Of the closing balance, CNY 10.049 million was more than one year old; the note explains that customers paid before dispatch. Those advances do not establish a firm order backlog or recognized revenue. The component balances here retain the original FY2006 classification: later comparative presentations may classify raw materials and finished goods differently even when the total net inventory agrees.

Reported gross inventory / 2006 / fy2006 consolidated inventory gross 2006

RMB 299,385,904.59

Reported inventory allowance / 2006 / fy2006 consolidated inventory allowance 2006

RMB 111,506.25

Reported net inventory / 2006 / fy2006 consolidated inventory net 2006

RMB 299,274,398.34

Reported raw material inventory / 2006 / fy2006 consolidated raw material inventory 2006

RMB 125,791,261.13

Reported finished goods gross / 2006 / fy2006 consolidated finished goods gross 2006

RMB 136,863,074.59

Customer advances in contract liabilities / 2006 / fy2006 consolidated customer advances 2006

RMB 72,750,640.32

Reported net inventory / 2005 / fy2006 consolidated inventory net 2005

RMB 236,844,715.02

Customer advances in contract liabilities / 2005 / fy2006 consolidated customer advances 2005

RMB 36,400,717.48

Advance payments fell from CNY 251.803 million to CNY 125.975 million, a reported decline of 49.97%. The financial note attributes the change mainly to the transfer of advance construction payments for Jushi Group's project 210, described there as the 8+2 ten-thousand-tonne line, into fixed assets. The decline therefore cannot be read as a matching cash receipt or evidence that expansion had stopped. At year end, CNY 61.996 million of advances was less than one year old and CNY 54.370 million was one to two years old. The five largest balances totaled CNY 52.332 million, or 41.54%, and included construction work, goods and fuel. These balances represent prepayments ahead of supplier performance, rather than customer receivables, installed equipment or production output. Their accounting transfer also has a different scope from the construction-in-progress movements disclosed for the individual projects.

Tianjian Huazheng Zhongzhou (Beijing) issued an unqualified financial audit opinion dated 10 April 2007 on China Fiberglass’s FY2006 balance sheet, income and profit-distribution statement, cash-flow statement and notes under the then-applicable Chinese accounting standards and Enterprise Accounting System. It considered financial-reporting controls to design audit procedures but did not issue an opinion on their effectiveness. A separate report reviewed the reconciliation of shareholders’ equity on first adoption of the new Chinese accounting standards on 1 January 2007. That work provided limited assurance, explicitly less than an audit, and warned that the opening-equity figures might differ from those in the subsequent FY2007 financial report. Financial-statement assurance is not independent verification of every production forecast, technology ranking or this site’s English editorial work.

The FY2006 tax note states a 15% income-tax rate for the listed issuer and a 26.4% applicable rate for Jushi Group, while additional-investment tax relief resulted in Jushi Group's reported actual rate of 21.62%. A later note compares that actual rate with 13.2% in FY2005 and identifies the increase, together with higher profit, as a reason for higher income tax payable at Jushi Group. Jushi Chengdu was separately reported at 15%. These are different legal-entity and historical tax scopes, not a single consolidated effective tax rate. Consolidated income-tax expense rose to CNY 86.661 million from CNY 33.797 million. The tax-rate figures therefore help explain manufacturing earnings, but cannot by themselves reconcile the group's tax expense without the individual taxable-profit bases and reliefs. They describe the conditions reported for 2006 and do not state the company's current tax treatment.

Reported historical corporate-income-tax rate by entity / 2006 / fy2006 issuer stated tax rate 2006

15 percent

Reported historical corporate-income-tax rate by entity / 2006 / fy2006 jushi group applicable tax rate 2006

26.4 percent

Reported historical corporate-income-tax rate by entity / 2006 / fy2006 jushi group actual tax rate 2006

21.62 percent

Reported historical corporate-income-tax rate by entity / 2005 / fy2006 jushi group actual tax rate 2005

13.2 percent

Reported consolidated income-tax expense / 2006 / fy2006 consolidated income tax expense 2006

RMB 86,661,476.45

Reported consolidated income-tax expense / 2005 / fy2006 consolidated income tax expense 2005

RMB 33,797,031.9

Consolidated investment income declined to CNY 4.456 million from CNY 21.444 million. The FY2006 table combines CNY 12.516 million of equity-method results, a positive CNY 174,114 investment-difference amortization component, a negative CNY 8.046 million impairment component and a CNY 187,792 disposal loss. Although the impairment row is labeled as a reversal in the source table, its printed amount is negative; the investment note separately records additional impairment of CNY 6.636 million for the Yantai Bohai investment and CNY 1.410 million for Kaisheng. The negative amount is therefore retained rather than translated into a positive earnings benefit. Subsidy income was CNY 20.586 million, comprising CNY 18.599 million of fiscal support, CNY 1.567 million of VAT refunds and CNY 420,000 of other support. The explanatory note mixes receipt-period descriptions, so recognition in the FY2006 income table is not proof that every underlying payment was received in that year. Net non-recurring profit was much smaller at CNY 3.823 million after disposal and other losses and the table's signed tax adjustment. Deducting it from reported net profit of CNY 136.050 million gives the report's CNY 132.228 million profit excluding non-recurring items. Gross subsidies, net non-recurring profit and ordinary manufacturing profit have different scopes and should not be used interchangeably.

Consolidated investment income or loss / 2006 / fy2006 consolidated investment income 2006

RMB 4,456,201.99

Consolidated investment income or loss / 2005 / fy2006 consolidated investment income 2005

RMB 21,444,222.9

Consolidated equity-method investment income / 2006 / fy2006 consolidated equity method income 2006

RMB 12,516,120.97

Reported nonrecurring net profit / 2006 / fy2006 reported net nonrecurring profit 2006

RMB 3,822,560.18

Profit excluding nonrecurring / 2006 / fy2006 reported profit excluding nonrecurring 2006

RMB 132,227,543.72

The appendix bridges CNY 841.835 million of equity under the old accounting basis at 31 December 2006 to CNY 1.536 billion at 1 January 2007 under the new basis. Its largest component is CNY 673.250 million under other adjustments, explained as opening minority interests: CNY 667.080 million already existed under the old presentation and CNY 6.170 million arose from subsidiary transition adjustments. The bridge also includes CNY 5.395 million of investment-difference adjustments, CNY 742,912 of financial-asset fair-value adjustment and CNY 15.141 million of deferred-tax asset recognition. The increase therefore cannot be interpreted as a corresponding cash injection, new manufacturing output or earnings earned overnight. Minority interests represent the interests of other holders in consolidated subsidiaries, so the new total is not entirely equity attributable to shareholders of the listed issuer. The separate accountant's report dated 10 April 2007 provided limited assurance on this transition schedule and explicitly did not provide an audit opinion on it. Both management and the reviewer warned that the eventual FY2007 financial statements could use different policies or judgments and produce different opening figures. This appendix is retained as the transition disclosure available with the FY2006 report, without overwriting the original FY2006 statements or claiming it is the final FY2007 comparative presentation.

Equity / 2007 / fy2006 transition opening total equity 2007

RMB 1,536,364,783.7

Closing subsidiary minority equity / 2007 / fy2006 transition opening minority equity 2007

RMB 673,249,712.48

The parent-only FY2006 statements reported CNY 174.893 million of investment income and CNY 126.649 million of net profit, compared with CNY 139.283 million and CNY 132.538 million in FY2005. This differs from the FY2006 consolidated investment income of CNY 4.456 million and profit attributable to listed shareholders of CNY 136.050 million. The historical accounting policy used the equity method for investments with sufficient voting interests or significant influence, and the parent investment schedule includes its controlled Jushi and Beixin interests as well as associates. Equity-method accounting records changes in the investor's share of investee results in its investment balance; the recorded return is not the same as cash distributed. The parent investment-income note comprises CNY 182.472 million of investee-equity profit adjustments, a positive CNY 467,325 investment-difference amortization component and a CNY 8.046 million impairment charge, reconciling to the CNY 174.893 million total. Its Jushi investment schedule separately records CNY 169.033 million of profit adjustments and CNY 30.549 million of reductions, rather than simply presenting the subsidiary's entire CNY 253.062 million net profit as parent income. The consolidated statement reports the controlled manufacturing businesses within the group perimeter and a separate minority-profit deduction. Parent and consolidated investment returns consequently must not be added together or treated as two independent revenue streams. These are the original FY2006 accounting presentations; the 1 January 2007 transition and later comparative restatements remain separate vintages.

Reported parent-only investment income / 2006 / fy2006 parent accounting parent investment income 2006

RMB 174,892,721.68

Reported parent-only investment income / 2005 / fy2006 parent accounting parent investment income 2005

RMB 139,282,950.82

Reported parent-only equity-method investment income / 2006 / fy2006 parent accounting parent equity method profit adjustments 2006

RMB 182,471,637.94

Parent-only net profit / 2006 / fy2006 parent accounting historical parent net profit 2006

RMB 126,649,117.43

Parent-only net profit / 2005 / fy2006 parent accounting historical parent net profit 2005

RMB 132,537,656.23