Brief description of the battery price continues to decline, Guoxuan High-Tech counterparts

On June 8, Guoxuan Hi-Tech responded to the Shenzhen Stock Exchange's inquiry letter about the 2017 annual report.

The following is an excerpt of the essence. Please refer to the full announcement for the full text.

Shenzhen Stock Exchange: your company achieved operating income of 4.838 billion yuan in 2017 a year-on-year increase of 1.68%. The net profit attributable to shareholders of listed companies was 838 million yuan, down 18.71% year-on-year. Net attributable to shareholders of listed companies was deducted from non-recurring gains and losses. The profit was 529 million yuan, a year-on-year decrease of 44.52%. The net cash flow from operating activities was -9,968,500 yuan, a year-on-year decrease of 107.82%. Please analyze the specific reasons and rationality.

Guoxuan Hi-Tech: In 2017, the company accelerated the construction of power lithium battery capacity. As of December 31, 2017, the company has built 9 production bases in Hefei, Nanjing, Lancang, Qingdao, Tangshan and Suzhou. In 2017, the sales volume of the power lithium battery segment reached 750 million ampere hours, an increase of 21.19% year-on-year. At the same time, due to the adjustment of the national new energy vehicle subsidy policy in 2017, the subsidy intensity has dropped drastically, and the vehicle manufacturers have transferred some of the cost pressure to the upstream enterprises of new energy vehicles. In 2017, the average sales price of the company's power lithium batteries was 5.41 yuan / ampere-hour, The decline was 17.78%.

In 2017, the net profit of the company's power lithium battery segment was 518 million yuan, down 46.4% year-on-year. Mainly affected by the sales unit price decreased by 17.78% the business gross profit decreased by 18.54%. The decline in sales unit price was mainly due to the rapid improvement of power battery capacity and the adjustment of new energy vehicle subsidy policy in recent years. In order to ensure the continuous increase of market share, the company adopted a flexible pricing strategy to actively respond, and the unit price of sales decreased accordingly.

The increase in non-recurring gains and losses was mainly due to the fact that the government subsidies for the current period of profit and loss of the power lithium battery segment amounted to RMB 365 million, representing an increase of 415.48% over the same period last year.

The net cash flow from the operation of the company's power lithium battery segment in 2017 was approximately -120 million yuan, a decrease of 1.115 billion yuan from the previous year, down -112.00% year-on-year mainly due to the tight supply of raw materials and the end of the year. The increase in volume and the sales repayments are affected by the adjustment of the downstream subsidy policy, resulting in a delay in sales repayment relative to purchase payments. In 2017, the cash paid for the purchase of goods and labor services was 3.608 billion yuan, an increase of about 1.33 billion yuan, an increase of 58.35%, while the cash received for the sale of goods and services increased by only 485 million yuan, a year-on-year increase of only 12.68%.

Shenzhen Stock Exchange: Please supplement the disclosure of the specific composition of “other business” and the specific situation of substantial growth.

Guoxuan Hi-Tech: The company's other business income in 2017 is mainly ternary precursor material sales, maintenance income, waste processing sales and asset management plan service fees. The above four items total approximately 182 million yuan accounting for 94.55% of other business income. Significant is growth year-on-year. Benefiting from the rapid growth of the new energy passenger vehicle market, the corresponding ternary battery market size and share showed a large increase. According to market statistics, in 2017, domestic ternary batteries achieved shipments of 15Gwh, up 138% year-on-year. Driven by the growth of downstream demand, the price of ternary cathode materials continued to rise in 2017. During the reporting period, the company sold some ternary precursor materials, which resulted in sales income of 66.187 million yuan.

Shenzhen Stock Exchange: Please disclose the company's share placement to raise 3.535 billion yuan for the new generation of high-power lithium battery industrialization project.

Guoxuan Hi-Tech: According to the “Approval of Approving Guoxuan High-Tech Co., Ltd. Allotment” issued by China Securities Regulatory Commission (Zheng Jian Li [2017] No. 1820), the company completed the rights issue subscription on November 23, 2017, adding new shares in 2017 listed on December 5th. As verified by Huapu Tianjian Certified Public Accountants (special general partnership), the total amount of funds raised from this allotment was approximately 3.563 billion yuan, and the actual net proceeds raised was RMB 3.535 billion.

Hefei Guoxuan Gaoke Power Energy Co., Ltd. has an annual production capacity of 600 million Ah high-power lithium battery industrialization project, raising 900 million yuan, and has used 198 million yuan. Qingdao Guoxuan Battery Co., Ltd. has an annual production capacity of 300 million Ah high-power lithium battery industrialization project, raising 500 million yuan, and has used 48.537 million yuan. Nanjing Guoxuan Battery Co., Ltd. raised an annual output of 300 million Ah high energy-powered lithium battery industrialization project to raise 500 million yuan which is currently unused, with an annual output of 10,000 tons of high-nickel ternary cathode materials and 5,000 tons of silicon-based anode materials, it has raised 500 million yuan and has used 148 million yuan. With an annual output of 210,000 sets (sets) of new energy vehicle charging facilities and key parts and components projects, it raised 300 million yuan and used 29.915 million yuan. With an annual output of 200,000 sets of electric vehicle powertrain control system construction projects, it raised 250 million yuan and is currently unused. The Engineering Research Institute project raised 585 million yuan and currently uses 55.257 million yuan.

In addition to the above projects, the company used its own funds to build the Hefei Guoxuan Third Plant Project, Qingdao Guoxuan Phase I Project and Tangshan Guoxuan Phase I Project for the long-term development and layout of power batteries. Bank project loans and self-financing, among them, the Hefei Guoxuan project loaned 280 million yuan to the CCB Laoshan branch, and Qingdao Guoxuan loaned 200 million yuan to the CCB Laixi branch. The loan period was 5 years. All of the above projects generated benefits during the reporting period and improved the company's 2017 annual operating results.

Shenzhen Stock Exchange: Your company and Jiangsu Jiankang Automobile Co., Ltd., which is controlled by Anhui Guoxuan New Energy Investment Co., Ltd. controlled by the actual controller, have a related transaction of 145 million yuan. Please specify.

Guoxuan Hi-Tech: Hefei Guoxuan, a wholly-owned subsidiary of the company, is mainly engaged in research, development, production and sales of power lithium batteries. The products are mainly used in new energy vehicles such as pure electric commercial vehicles, passenger vehicles, logistics vehicles and hybrid vehicles. Jiangsu Jiankang Automobile Co., Ltd. is a new energy automobile company integrating R&D, production and sales with new energy electric buses as the mainstay, supplemented by hybrid electric vehicles and electric logistics vehicles. The products include pure electric buses and pure electric commuter cars, 6-12 meters pure electric bus pure electric logistics vehicles, hybrid buses and other series.

In order to meet the business development needs of both parties, Hefei Guoxuan and Jiankang Automobile have purchased and sold power batteries. During the reporting period, Jiankang Automobile purchased 835 sets of Hefei Guoxuan power battery packs, with a total purchase amount of approximately 145 million yuan. The operating cost of purchased power battery packs was 89.386 million yuan, and the gross profit margin of products was 38.26%.

Shenzhen Stock Exchange: At the end of the reporting period, the ending balance of your company's accounts receivable was 3.552 billion yuan, an increase of 47.32% from the beginning of the period, and the provision for bad debts of 8.59% was made.

Guoxuan Hi-Tech: the company's power lithium battery products mainly adopt direct sales mode. The company has strategically cooperated with new energy vehicle manufacturers to jointly develop power-efficient lithium battery products for new energy vehicles that are marketable. After completing the prototype development and listing them in the list of recommended models for new energy vehicles, the company will directly sell to new products energy vehicle manufacturer. In addition, the company also obtains product orders through business negotiations or participation in customer bidding, design and production according to customer needs, and directly sells products that meet the requirements to end customers. The company's transmission and distribution products are sold in a sales model based on the project bidding system (ie, "project bidding - contract winning bid - scheduling production - product sales - payment settlement").

The company's customers are mainly large-scale state-owned enterprises, listed companies and other new energy vehicle manufacturers. Its investment in the field of new energy vehicles is large, and the sales funds are long-term, and its capital budget is greatly affected by the new energy vehicle financial subsidy policy. At the end of 2017, the ending balance of the company's accounts receivable was 3.552 billion yuan, an increase of 47.32% compared with the beginning of the period. The reason for this increase was mainly affected by the new energy subsidy policy and the slow return of funds.

In 2017, the bad debts of listed companies were Ningde era accounts receivable was 6.938 billion yuan; Jianrui Woneng, accounts receivable 8.872 billion; Chengfei integration, accounts receivable 1.209 billion yuan, billion latitude lithium energy, receivable the account amounted to 18.38 million yuan. The company's customers are mainly large-scale state-owned enterprises, listed companies and other vehicle companies, and there is no risk of bad debts.

Shenzhen Stock Exchange: Please explain the amount of government subsidies included in the current profit and loss.

Guoxuan Hi-Tech: The total amount of government subsidies included in the current profit and loss in 2017 is about 378 million yuan. The total amount of government subsidies (single or single in more than 1 million) totals nearly 360 million yuan, accounting for the current year of 2017. The government subsidy for profit and loss is 95.18%.

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