JINJIANG, China, Aug. 18, 2014/PRNewswire/ -- China Ceramics Co., Ltd. (NASDAQ Global Market: CCCL) ("China Ceramics" or the "Company"), a leading Chinese manufacturer of ceramic tiles used for exterior siding and for interior flooring and design in residential and commercial buildings, today announced financial results for the second quarter ended June 30, 2014.

Second Quarter 2014 Highlights

  • Revenue was RMB 268.6 million(US$ 43.3 million), up 20.6% from the second quarter of 2013
  • Gross profit was RMB 24.2 million(US$ 3.9 million), up 9.0% from the second quarter of 2013
  • Plant utilization was 60% as compared to 39% in the second quarter of 2013
  • General and administrative expenses during the period included RMB 0.8 million(US$0.1 million) in legal fees related to our maintenance of our Nasdaq listing.  These expenses are not expected to recur.
  • Net profit was RMB 0.7 million(US$ 0.1 million) as compared to a net profit of RMB 9.6 millionin the second quarter of 2013.
  • Net profit would have been RMB 3.7 million(US$ 0.6 million) if the foreign currency transactions had not been in place during the quarter
  • Unrestricted cash at June 30, 2014was RMB 128.1 million(US$ 20.7 million), or RMB 6.27(US$1.01)per share

"We are pleased to report improved revenue and gross profit performance for the second quarter as compared to the same period a year ago consistent with an improving operating environment. The second quarter saw an 11% increase in sales volume and 9% rise in average selling price as compared to the second quarter of 2013," said Mr. Jiadong Huang, CEO of China Ceramics.

"However, higher advertising costs to promote newly developed ceramic tiles and losses attributable to foreign currency agreements  impeded our profitability in the quarter. As stated previously, I, the Company's largest shareholder, and an affiliate of mine, agreed to assume these agreements. As a result, the Company will not be required to fund any losses related to these agreements and it will neither suffer any future liabilities nor realize any benefits arising under these agreements.

"In the second quarter, we utilized plant production facilities capable of producing 43 million square meters of ceramic tiles per year out of our total annual production capacity of 72 million square meters of ceramic tiles. This was a 54% increase over what was utilized during this period last year. We hope to bring additional capacity online going forward as our business improves.

"We believe that our ability to understand our customers and provide them with an array of product offerings to meet their building needs has sustained demand for our business. While our business sector continues to be highly competitive, our brand name recognition and reputation for quality and service has enabled us to raise our average selling price over the past year. As market conditions further improve, we will look to improve our product mix towards better performing, higher margin ceramic tiles. Importantly, recent government proposals promoting urbanization as vital to continued domestic economic growth should improve the macroeconomic conditions under which we operate and enable us to expand our footprint into new geographical urban areas," concluded Mr. Jiadong Huang.

Second Quarter 2014 Results

Revenue for the second quarter ended June 30, 2014was RMB 268.6 million(US$ 43.3 million), an increase of 20.6% from RMB 222.7 millionfor the second quarter ended June 30, 2013. The year-over-year increase in revenue was primarily driven by a 10.8% increase in sales volume to 9.2 million square meters of ceramic tiles in the second quarter of 2014 from 8.3 million square meters in the second quarter of 2013 and a 9.0% increase in the average selling price to RMB 29.1(US$ 4.69)per square meter in the second quarter of 2014 from RMB 26.7per square meter in the second quarter of 2013. We attribute our increased revenue in the second quarter of 2014 as compared to the same period last year to improving market conditions.

Gross profit for the second quarter ended June 30, 2014was RMB 24.2 million(US$ 3.9 million), an increase of 9.0% from RMB 22.2 millionfor the second quarter ended June 30, 2013. Gross profit margin was 9.0% for the second quarter ended June 30, 2014compared to 10.0% for the second quarter ended June 30, 2013. The year-over-year change in gross profit margin was primarily driven by an increase in material and labor costs. During 2014, our Hengda facility was required by a local governmental regulatory agency to use natural gas to operate the facility instead of coal. This mandated change in fuel sourcing is part of a province-wide (and country-wide) effort to reduce pollution. This change resulted in the increase in cost of goods produced at that facility because natural gas is a more expensive energy source than coal. For Hengda, the unit cost of natural gas for the second quarter ended June 30, 2014was RMB 3.96(US$ 0.64), an increase of 10.3% compared to RMB 3.59for the unit cost of coal in the same period in 2013.

Selling and distribution expenses for the second quarter ended June 30, 2014were RMB 5.7 million(US$ 0.9 million), up 159.1% from RMB 2.2 millionin the second quarter of 2013. The year-over-year increase in selling and distribution expenses was primarily due to a rise in advertisement expenses of RMB 3.2 million(US$ 0.5 million) for ceramic tile products in 2014. We actively promote newly developed ceramic tiles to distributors and believe that these new products could significantly contribute to Company revenue in the future.

Realized and unrealized fair value loss on derivative financial instruments for the second quarter ended June 30, 2014were RMB 3.0 million(US$ 0.5 million), as compared to RMB 0.8 millionin the second quarter of 2013. During the second quarter of 2013 and the first quarter of 2014, we entered into certain foreign currency transaction agreements with Taishin International Bank for investment purposes. The agreements meet the definition of a derivative: no initial net investment; value changes in response to the change of exchange rate (US$ versus RMB); and agreements are settled at a future date. The notional principal amount of the outstanding foreign exchange forward contracts as of June 30, 2014was RMB 124.1 million(US$ 20 million). These foreign exchange forward contracts are expected to mature at various dates within 12 months. When the RMB depreciated against the US$, we incurred losses on these forward contracts. As of June 30, 2014, we recognized the fair value of the derivative of RMB 57.6 million(US$ 9.3 million) based upon the MTM (mark-to-market) report provided by Taishin International Bank, as a liability on the condensed consolidated statement of financial position for us to unwind (sell) the product. The realized loss on derivative financial instruments was RMB 15.5 million(US$ 2.5 million) and the unrealized fair value gain on derivative financial instruments was RMB 12.5 million(US$ 2.0 million) in the second quarter of 2014. In July 2014, our Chief Executive Officer, the Company's largest shareholder, and an affiliate of our Chief Executive Officer agreed to assume these agreements. As a result, we will not be required to fund any losses related to these agreements, and will neither suffer any future liabilities arising under those agreements nor realize any benefits arising under those agreements.

Other expenses for the second quarter ended June 30, 2014was RMB 3.8 million(US$ 0.6 million), as compared to RMB 0.3 millionin the second quarter of 2013. The year-over-year increase in other expenses was mainly caused by the loss on disposal of equipment of RMB 3.5 million(US$ 0.6 million) for the second quarter ended June 30, 2014.

Profit from operations before taxation for the second quarter ended June 30, 2014was RMB 3.2 million(US$ 0.5 million), as compared to RMB 9.9 millionof profit from operations before taxation in the second quarter of 2013. The year-over-year decrease in profit from operations was primarily the result of (i) the increase in selling and distribution expenses of RMB 3.5 million(US$ 0.6 million) due to a rise in advertising expenses; (ii) the increase in other expenses of RMB 3.5 million(US$ 0.6 million) caused by the loss on disposal of equipment and (iii) the increase in realized and unrealized fair value loss on derivative financial instrument of RMB 2.2 million(US$ 0.4 million) in the second quarter of 2014, offset by an increase in gross profit of RMB 2.1 million(US$ 0.3 million).

Net profit for the second quarter ended June 30, 2014was RMB 0.7 million(US$ 0.1 million), as compared to a net profit of RMB 9.6 millionin the comparable period of 2013.

Earnings per fully diluted share were RMB 0.03(US$ 0.01)for the second quarter ended June 30, 2014as compared to RMB 0.47for the second quarter of 2013. Per share calculations for the second quarters of 2014 and 2013 were computed using 20.4 million shares.

We believe that the operating results of the second quarter of 2014 represent a substantial improvement over that of the second quarter of 2013 as the Company's sales volume of 9.2 million square meters of ceramic tiles increased 10.8% and the average selling price of RMB 29.1(US$ 4.7)per square meter increased 9.0% from the second quarter of 2013. However, the net profit for the second quarter ended June 30, 2014was RMB 0.7 million(US$ 0.1 million), as compared to RMB 9.6 millionin the comparable period of 2013. The year-over-year decrease in net profit was primarily the result of higher expenses as compared to the second quarter of 2013 and the realized and unrealized fair value loss on financial derivative instruments in the second quarter of 2014.

Six Months 2014 Results

Revenue for the six months ended June 30, 2014was RMB 477.4 million(US$ 77.0 million), an increase of 28.4% as compared to RMB 371.9 millionfor the six months ended June 30, 2013. Gross profit was RMB 33.5 million(US$ 5.4 million), up 22.7% from RMB 27.3 millionin the six months ended June 30, 2013. Gross margin was 7.0% compared to 7.3% in the same period of 2013. Selling expenses were RMB 8.5 million(US$ 1.4 million), compared to RMB 4.9 millionin the same period of 2013. Administrative expenses were RMB 14.7 million(US$ 2.4 million), compared to RMB 15.7 millionfor the same period of 2013. Realized and unrealized fair value loss on derivative financial instruments were RMB 71.7 million(US$ 11.6 million), compared to RMB 0.8 millionin the same period of 2013. Other expenses were RMB 4.9 million(US$ 0.8 million), compared to RMB 0.6 millionin the same period of 2013. Net loss for the six months ended June 30, 2014was RMB 70.8 million(US$ 11.4 million), compared to a net profit of RMB 4.2 millionfor the same period of 2013. Loss per fully diluted share were RMB 3.47(US$ 0.56)for the six months ended June 30, 2014and earnings per fully diluted share were RMB 0.21in the same period of 2013. Losses/earnings per fully diluted share for the first half of 2014 and 2013 were computed using 20.4 million shares.

Second Quarter 2014 Statements of Selected Financial Position Items

  • Cash and bank balances were RMB 128.1 million(US$ 20.7 million) as of June 30, 2014, compared with RMB 28.8 millionas of December 31, 2013. The increase in cash and bank balances of RMB 99.3 millionwas primarily the result of operating cash flows before working capital changes of RMB 45.5 millionand a decrease in our trade payables of RMB 43.8 millionduring the first half year of 2014.
  • Short-term bank borrowings were RMB 84.7 million(US$ 13.7 million) as of June 30, 2013, compared with RMB 99.7 millionas of December 31, 2013. The decrease was primarily due to the net repayment of short-term bank borrowings of RMB 15.9 millionduring the first half year of 2014.
  • Inventory turnover was 129 days as of June 30, 2014compared with 124 days as of December 31, 2013.
  • Trade receivables turnover was 184 days as of June 30, 2014compared with 185 days as of December 31, 2013. We typically extend a credit period of 90 days to our customers, and had extended the credit period to 150 days to address the funding pressures among some distributors attributable to the challenging market conditions in China'sreal estate industry since the second quarter of 2012.
  • Trade payables turnover was 98 days as of June 30, 2014compared with 79 days as of December 31, 2013. The average turnover days were within the normal credit period of one to four months granted by our suppliers.

Liquidity and Capital Resources

Cash flow used in operating activities was RMB 24.2 million(US$3.9 million) for the quarter ended June 30, 2014, compared to cash generated from operating activities of RMB 73.9 millionin the same period in 2013. The year-over-year change of RMB 98.1 millionwas mainly due to the increase in sales and the extended credit period for collection of receivables compared to the same period in 2013.

Cash flow generated from investing activities in the quarter ended June 30, 2014

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