AR for 2008 - Abterra

14 ABTERRA
Annual Report 2008
OPERATING AND FINANCIAL PERFORMANCE REVIEW (cont’d)
Business Development
Amid the current economic adversity, the Company’s
turnover remains stable at S$215.3 million despite a
slowdown in trade activities and the resultant moderation
of prices for coking coal, coke and iron ore.
Since General Nice Resources (Hong Kong) Limited
became the controlling stakeholder of the Company in
October 2006, Abterra Ltd. has successfully acquired a
15% equity interest in Zuoquan Yongxing Coal Company
Limited (“Zuoquan Yongxing”) and a 45% equity interest
in Tianjin Lant. The former provides a steady supply
of coking coal with a coal mine with annual capacity
upgraded to 900,000 tons and engages in coking coal
processing business. The latter serves as a logistic arm
which provides the bulk handling of iron ore, coke and
coal at a major port of Tianjin in China.
Apart from the above, the Company has announced the
proposed acquisition of 49% equity interest in Taixing
Jiaozhong Coal Industry Company Limited (“Taixing
Jiaozhong”) which owns coal mines, 22.8% equity interest
in Zuoquan Xinrui Metallurgy Mine Company Limited
(“Zuoquan Xinrui”) which owns iron ore mines in Shanxi
Province of China and 49.9% equity interest in Shanxi
Loudong General Nice Coking and Gas Company Limited
(“Loudong”). The transactions for Taixing Jiaozhong
and Zuoquan Xinrui are expected to be completed very
shortly. Under the terms of the Loudong conditional sale
and purchase agreement dated 26 March 2008, the
Group’s obligation to complete the transaction is subject
to the fulfillment of certain conditions by a long stop date,
which was deferred by mutual consent of the Group and
the Vendor, to 31 March 2009. However, as not all of the
conditions to the proposed acquisition have been met by
31 March 2009, the agreement has lapsed in accordance
with its terms.
Liquidity and Financial Resources
The Group’s cash and bank balances decreased
approximately S$8.0 million to S$46.8 million from S$54.8
million at 30 June 2008 mainly due to the settlement for
the acquisition of the entire 11th floor of Suntec Tower 1,
where the Group is headquartered in 2 of these units. The
fall in cash and bank balances is also attributable to the
purchase of financial assets, at fair value through profit
or loss.
Trade receivables increased 9.5% to S$125.1 million,
net of allowance for doubtful debts of S$10.2 million as
mentioned above. Our counterparties are experiencing
delays in onward dealings with factories which are reducing
their production capacities under the harsh economic
climate. Other receivables, which include deposits and
prepayments, increased S$9.0 million to S$79.6 million
due to the prepayments made to suppliers of metallurgical
coke to secure supply. As such, the Group’s “debtors’
turnover days”, calculated by trade receivables/ sale x
365 days, has increased to 212 days as compared with
approximately 106 days at 30 June 2008. Subsequent
receipt from trade debtors up to 31 March 2009 amounts
to approximately S$20.2, representing 16% of total trade
receivables balance as at 31 December 2008.
In an attempt to reduce pollution and traffic congestion
during the Olympics Games last year, the Chinese
Government restricted the delivery of goods in port areas
near Beijing. Coupled with the slowdown of global trade
activities, the Group’s inventories increased S$13.1 million
to S$78.2 million. A large portion of the inventories have
been subsequently sold.
The Group’s non-current assets at 31 December 2008
were higher at S$133.7 million, increased by S$100.6
million from S$33.1 million at 30 June 2008, partly due
to the reclassification of trade receivables. The concerned
trade debtor has been accorded a repayment plan which in
turn has been reclassified as a long term trade receivable.
The increase in the Group’s non-current assets is also
attributable to the purchase of the entire 11th storey of
Suntec Tower 1. This increase in non-current assets is
partly offset by the impairment loss on investment in an
associated company – Tianjin Lant.
As the purchases of our inventories are mainly financed
through bank borrowings, the increase in inventories
as discussed above has resulted in an increase in total
current liabilities to S$186.4 million. This is an increase of
S$72.1 million as compared with S$114.3 million as at 30
June 2008. The Company reported an increased in bills
payable from S$73.7 million as at 30 June 2008 to S$120.7
million as at 31 December 2008 due to a comparatively
slow acceptance of the delivery of the Company’s goods
thereby resulting in a higher level of inventories whose
purchases was financed mainly by bills payables. Most of
these inventories have been subsequently sold.
The Group ended the year with total current assets and
total current liabilities of S$285.8 million and S$186.4
million respectively. Therefore, the Group’s current ratio
as at 31 December 2008 as calculated by dividing its
current assets by its current liabilities was approximately