China XLX Fertiliser Ltd

FINANCIAL ANALYSISFINANCIAL RESULTSThe net profit attributable to shareholdersincreased approximately RMB29.2 million or9.2% from RMB317.2 million in FY2007 ascompared to RMB346.4 million in FY2008.This was mainly due to the increase in revenueled by higher average selling prices of urea,methanol and compound fertiliser, increasedsales volume of urea and compound fertiliserand the urea service income.However, overall gross profit margin reducedfrom 27.0% in FY2007 to 23.4% in FY2008due to reduced gross profit margins in ureaand methanol sales. Gross profit margin forurea reduced 9.9% from 31.5% in FY2007to 21.6% in FY2008. Although averageselling prices for urea increased 9.1% fromRMB1,565/ton in FY2007 to RMB1,707/tonin FY2008, the average cost of sales per unitincreased 24.9% due to higher coal prices.Coal prices in our cost of sales increased about48.7% in FY2008 as compared to FY2007due to the commodity boom in the first 9months of FY2008 and coal supply shortageduring the Olympics period in August andSeptember 2009 when most small mines shutdown. This increased the Group’s productioncoal purchase price from RMB800/ton in Jan2008 to its peak of RMB1,350/ton in Augustand September 2008. But coal prices hassince declined to about RMB1,000/ton inDecember 2008. Whilst coal prices increased,the Group had been able to increase the costefficiencies especially for the new plant thatbegan operations in September 2006. Theamount of coal/electricity used in the oldand new plants had reduced by about 2%and 4% respectively in FY2008 as comparedto FY2007.Financial PositionNet assets increased from RMB1.1 billionas of 31 December 2007 to RMB1.4 billionas of 31 December 2008. Fixed assets andprepayments increased by about RMB865million largely due to the construction of thethird plant and upgrade of existing plants.Hedging reserve amounted to RMB20 millionas at 31 December 2008. This pertained to acash flow hedge we entered into to hedgea 3-year USD45 million LIBOR floating rateloan obtained in 3Q2008.Cash flowCash and cash equivalents decreased byRMB307 million in FY2008. The decreasewas mainly due to purchase of property,plant and equipment and land use rights ofapproximately RMB901 million. This comprisesabout RMB650 million paid for the newurea plant currently still under construction,RMB205 million for upgrade in both existingplants, RMB23 million for compound fertiliserand RMB21 million for land use rights. Inaddition, dividend payment amounted toRMB72 million and the repayment of loansamounted to RMB352 million. The decreasein cash and cash equivalents was partiallyoffset by cash generated from operations ofapproximately RMB369.6 million and proceedsfrom bank borrowings and related party loansof RMB642.6 million.FINANCIAL ANALYSIS10