Flat Glass Group Co., Ltd. - Annual Report 2015

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福萊特玻璃集團股份有限公司 Flat Glass Group Co., Ltd.

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 6865)

FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2015

FINANCIAL HIGHLIGHTS	FINANCIAL HIGHLIGHTS
For the year ended	31 December	2015		2014	Change
		RMB’000	RMB’000
Revenue		2,914,049	2,833,306		2.85%
Profit and total comprehensive
income for the year		433,790	392,667		10.47%
		RMB cent	RMB cent
Earnings per share (basic and
diluted)		31.11		29.09	7.46%
Proposed final dividend per ordinary
share (before tax)		7.2		—

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LATEST BUSINESS DEVELOPMENT

As at 31 December 2015, the Group has completed the upgrading of the existing Low-E glass processing facilities, which improved the processing efficiency of Low-E glass from an average of 52 seconds per glass to up to 35 seconds per glass. This Low-E processing facilities have recommenced operation and increased our processing capabilities of Low-E glass as at 31 December 2015.
As at 31 December 2015, the Group has commenced the establishment of the new Low-E glass and Low-E composite glass facilities in Jiaxing, Zhejiang Province, the PRC, which is expected to contribute to an additional annual processing capacity of approximately 5.8 million square meters and 1.0 million square meters, respectively. It is expected that this completion in the establishment for the new Low-E glass and Low-E composite glass facilities will be on schedule, and will commence operations by the end of 2016.
In terms of the establishment of overseas PV glass production and processing facilities in Vietnam, the Group has completed the due diligence on investment and construction site as at 31 December 2015. The Group is currently in discussion with the relevant government authorities to finalize matters relating to the investment. It is expected there to be a slight delay in entering into the investment agreement and land acquisition agreement with the Vietnamese local government authorities, and for the commencement of the construction design. Based on the information currently available and to the best information, knowledge and belief of the Directors, the overall completion time of this project will not be materially and adversely affected.
As at 31 December 2015, the Group installed a total of 8.1 megawatts of distributed PV systems, bringing the total power generation capacity from distributed PV systems to 18.4 megawatts. With the Group’s experience in the installation and operation of distributed PV systems, the Group continues to explore opportunities to expand the Group’s distributed PV systems operations.

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FINAL RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015

The board (the “ Board ”) of directors (“ Directors ”) of Flat Glass Group Co., Ltd. (the “ Company ”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “ Group ”) for the year ended 31 December 2015, together with the comparative figures for the year ended 31 December 2014 as follows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2015

NOTE Revenue 4 Cost of sales Gross profit Other income and expenses 5 Other gains and losses 5 Selling and marketing expenses Administration expenses Research and development expenditure Finance costs 6 Profit before tax Income tax expense 7 Profit and total comprehensive income for the year 8 EARNING PER SHARE - Basic and diluted (RMB cents) 9	2015 RMB’000 2,914,049 (2,060,315) 853,734 27,222 25,568 (104,029) (102,021) (102,520) (61,549) 536,405 (102,615) 433,790 31.11	2014 RMB’000 2,833,306 (1,904,972) 928,334 20,479 (38,522) (108,845) (105,458) (129,333) (80,251) 486,404 (93,737) 392,667 29.09

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2015

NOTE Non-current assets Property, plant and equipment Prepaid lease payments Prepayment and intangible assets Available-for-sale investment, at cost Deferred tax assets Prepayment for acquisition of property, plant and equipment Deposit for acquisition of land use right Current assets Prepaid lease payments Inventories Trade and other receivables 11 Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables Dividends payable Tax liabilities Borrowings 12 Deferred revenue Long-term payables for the acquisition of mining right due within one year Net Current Assets (Liabilities) Total Assets Less Current Liabilities	2015 RMB’000 1,740,453 184,628 203,595 4,000 43,338 8,513 24,000 2,208,527 4,396 209,660 1,290,985 51,992 921,975 2,479,008 875,835 — 69,706 748,839 14,991 91,083 1,800,454 678,554 2,887,081	2014 RMB’000 1,760,574 178,947 227,787 4,000 39,512 37,400 24,000 2,272,220 4,209 308,592 1,342,470 35,489 141,220 1,831,980 1,189,050 54,388 67,385 764,103 14,536 — 2,089,462 (257,482) 2,014,738

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NOTE Non-current liabilities Borrowings Deferred revenue Long-term payables for the acquisition of mining rights Net Assets Capital and reserves Share capital Reserves Total Equity	2015 RMB’000 183,000 74,656 56,650 314,306 2,572,775 450,000 2,122,775 2,572,775	2014 RMB’000 136,000 79,554 141,650
		357,204
		1,657,534
		337,500 1,320,034
		1,657,534

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(Expressed in RMB unless otherwise indicated)

Notes:

1. GENERAL INFORMATION

The Company was established in the People’s Republic of China (the “ PRC ”) on 24 June 1998 as a limited liability company under the Company Law of the PRC. On 29 December 2005, the Company was converted into a joint stock limited liability company and changed its name to Zhejiang Flat Glass & Mirror Co., Ltd. (浙江福萊特玻璃鏡業股份有限公司). On 23 March 2011, the Company was renamed as Flat Solar Glass Group Co., Ltd. (福萊特光伏玻璃集團股份有限公司) and subsequently renamed as Flat Glass Group Co., Ltd. (福萊特玻璃集團股份有限公司) on 10 October 2014. The Company issued a prospectus (the “ Prospectus ”) dated 16 November 2015 in relation to its global offering of the Company’s shares (the “ Global Offering ”). The Company’s H shares were listed on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) on 26 November 2015 (the “ Listing ”). Its ultimate controlling shareholders are Mr. Ruan Hongliang and Ms. Jiang Jinghua, who are also directors of the Company.

2. BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”) and by the Hong Kong Companies Ordinance (“ CO ”).

The provisions of the new Hong Kong Companies Ordinance (Cap 622) regarding preparation of accounts and directors’ reports and audits became effective for the Company for the financial year ended 31 December 2015. Further, the disclosure requirements set out in the Listing Rules regarding annual accounts have been amended with reference to the new CO and to streamline with IFRSs. Accordingly the presentation and disclosure of information in the consolidated financial statements for the financial year ended 31 December 2015 have been changed to comply with these new requirements. Comparative information in respect of the financial year ended 31 December 2014 are presented or disclosed in the consolidated financial statements based on the new requirements. Information previously required to be disclosed under the predecessor CO or Listing Rules but not under the new CO or amended Listing Rules are not disclosed in these consolidated financial statements.

The consolidated financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS(S)”)

New and revised IFRSs adopted during the year

The Group has applied for the first time in the current year the following amendments to IFRSs:

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions Amendments to IFRSs Annual Improvements to IFRSs 2010 - 2012 Cycle Amendments to IFRSs Annual Improvements to IFRSs 2011 - 2013 Cycle

The application of the amendments to IFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosure set out in these consolidated financial statements.

4. REVENUE AND SEGMENT REPORTING

The Group identifies operating segments on the basis of internal reports about different products of the Group that are regularly reviewed by the executive directors of the Company, the chief operating decision maker in order to allocate resources to segments and to assess their performance.

Such internal reports include five product types based on sales contract terms, namely photovoltaic glass, household glass, architectural glass, float glass and mining products. These products form the basis on which the Group reports its segment information.

(1) Segment information

Segment revenue Sales of photovoltaic glass Sales of household glass Sales of architectural glass Sales of float glass Sales of mining products Total Revenue	2015 RMB’000 2,161,194 243,399 186,434 288,980 34,042 2,914,049	2014 RMB’000 2,078,373 250,875 139,197 353,846 11,015
		2,833,306

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Segment results Sales of photovoltaic glass Sales of household glass Sales of architectural glass Sales of float glass Sales of mining products Total segment results Other income, expenses, gains and losses Selling and marketing expenses Administration expenses Research and development expenditure Finance cost Profit before tax Income tax expense Profit and total comprehensive income for the year	2015 RMB’000 738,382 55,785 34,424 14,253 10,890 853,734 52,790 (104,029) (102,021) (102,520) (61,549) 536,405 (102,615) 433,790	2014 RMB’000 768,601 62,531 33,762 69,475 (6,035)
		928,334
		(18,043) (108,845) (105,458) (129,333) (80,251)
		486,404 (93,737)
		392,667

(2) Geographical information

The Group’s operations and non-current assets are substantially located in the PRC, the place of domicile of the relevant group entities.

The analysis of the Group’s revenue from external customers attributed to the country of domicile of the relevant group entities, which is the PRC, and to other foreign countries based on the location of customers is as follows:

Place of domicile of group entities: PRC Other foreign countries: Japan Other countries in Asia (excluding PRC and Japan) Europe North America Others	2015 RMB’000 1,587,374 405,567 630,413 171,350 92,406 26,939 2,914,049	2014 RMB’000 1,533,670 453,109 503,880 250,650 60,555 31,442
		2,833,306

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5. OTHER INCOME AND EXPENSES, GAINS AND LOSSES

	2015	2014
	RMB’000	RMB’000
Other income and expenses:
Government grants
- assets related government grants	14,706	12,936
- others (Note)	16,197	5,513
	30,903	18,449
Donation	(4,850)	—
Interest income from bank deposits	1,169	2,030
	27,222	20,479
Other gains and losses:
(Losses) gains on disposal of property, plant and equipment	(7)	900
Impairment of property, plant and equipment	—	(11,600)
Net foreign exchange gain (loss)	39,249	(12,620)
Allowance for doubtful debts, net	(17,574)	(18,352)
Gains on disposal of scrap materials	4,807	3,137
Others	(907)	13
	25,568	(38,522)

Note: The amounts represent incentives received from various PRC governments authorities, which had no conditions imposed by the respective PRC government authorities.

6. FINANCE COSTS

	2015	2014
	RMB’000	RMB’000
Interest on:
Bank loans wholly repayable within five years	55,466	72,775
Long-term payables for the acquisition of mining rights not
wholly repayable within five years	6,083	7,476
Total finance costs	61,549	80,251
INCOME TAX EXPENSE
	2015	2014
	RMB’000	RMB’000
Current PRC tax:
- PRC enterprise income tax	108,891	104,249
- Over-provision in prior years	(2,450)	(7)
	106,441	104,242
Deferred tax credit	(3,826)	(10,505)
	102,615	93,737

7. INCOME TAX EXPENSE

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8. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging:

	2015	2014
	RMB’000	RMB’000
Depreciation for property, plant and equipment	208,022	200,322
Amortisation of intangible assets	24,192	10,708
Release of prepaid lease payments	4,320	4,240
	236,534	215,270
Allowance for doubtful debts, net	17,574	18,352
Employee benefits expenses (including Directors’ emoluments):
- Salaries and other benefits	186,945	180,808
- Retirement benefit scheme contributions	12,880	10,742
	199,825	191,550
Auditors’ remuneration	1,725	416
Operating lease payments in respect of a rented premise	164	—

9. EARNINGS PER SHARE

The calculation of the basic earnings per share attributable to the owners of the Company is based on the following data:

Profit for the year attributable to owners of the Company (RMB’000) Weighted average number of ordinary shares for the purpose of the basic earnings per share (’000) Basic earnings per share (RMB cents)	2015 433,790 1,394,384 31.11	2014 392,667 1,350,000 29.09

There were no dilutive potential ordinary shares in issue during the years ended 31 December 2014 and 2015, the amount of diluted earnings per share is the same as basic earnings per share for the years ended 31 December 2015 and 31 December 2014.

For both years ended 31 December 2015 and 31 December 2014, the calculation of weighted average number of ordinary shares in issue has taken into account of the share split with a nominal value of RMB1.00 each into 4 shares of RMB0.25 each on 18 May 2015 retrospectively.

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10. DIVIDEND

							Year	ended
							31 December
							2015	2014
							RMB’000	RMB’000
Dividend	recognised	as	distribution	during	the	year:	250,000	54,388

During the year ended 31 December 2015, a dividend amounting RMB 250,000,000 (2014: RMB 54,388,000) was declared to its then shareholders by the Company pursuant to shareholders’ resolution dated 30 September 2015.

A final dividend of RMB7.2 cents per share for the year ended 31 December 2015 has been proposed by the Directors of the Company on 21 March 2016 and its subject to approval by the shareholders in the forthcoming annual general meeting.

11. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Bills receivable Trade and bills receivables, net Advances to suppliers Other taxes recoverable Other receivables Total trade and other receivables	As at 31 December 2015 2014 RMB’000 RMB’000 589,149 520,872 (46,448) (29,102) 542,701 491,770 665,545 796,007 1,208,246 1,287,777 51,906 25,553 14,864 16,786 15,969 12,354 1,290,985 1,342,470	As at 31 December 2015 2014 RMB’000 RMB’000 589,149 520,872 (46,448) (29,102) 542,701 491,770 665,545 796,007 1,208,246 1,287,777 51,906 25,553 14,864 16,786 15,969 12,354 1,290,985 1,342,470
		491,770 796,007
		1,287,777 25,553 16,786 12,354
		1,342,470

Included in bills receivables of the Group are commercial bills from certain customers, amounted to 165,119,000 as at 31 December 2015 (31 December 2014: RMB 100,070,000). The maturity of the bills receivables is within 6 months from the end of each reporting period.

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The Group allows a normal credit period ranged from 30 - 90 days to its trade customers. The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the date of delivery of goods to customers which approximated the respective dates on which revenue was recognised:

	As at 31	December
	2015	2014
	RMB’000	RMB’000
Within 3 months	479,918	401,012
Over 3 months but within 1 year	53,029	83,481
Over 1 year but within 2 years	7,177	6,264
Over 2 years but within 3 years	2,577	1,013
	542,701	491,770

In determining the recoverability of the trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The credit quality of the trade receivables that are neither past due nor impaired had not been changed during this year.

12. BORROWINGS

	As at 31	December
	2015	2014
	RMB’000	RMB’000
Secured bank and other loans (Note)	931,839	852,413
Unsecured bank loans	—	47,690
	931,839	900,103
Fixed-rate borrowings	378,761	207,190
Variable-rate borrowings	553,078	692,913
	931,839	900,103

Note: As at 31 December 2015, the above Group’s bank and other borrowings are secured by (i) the Group’s land use right with aggregate carrying values of approximately RMB 136,658,000 (31 December 2014: RMB 115,762,000), and (ii) the Group’s buildings, plant and machineries with aggregate carrying values of RMB 1,150,593,000 (31 December 2014: RMB1,304,849,000).

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As at 31 December 2014, certain bank borrowings of approximately RMB 644,737,000 were guaranteed by Mr. Ruan Hongliang and Ms. Jiang Jinhua, who are both directors of the Company. Such guarantee has been released as at 3 August 2015.

	As at
	31 December
	2015	2014
	RMB’000	RMB’000
Carrying amount repayable:
Within one year	748,839	764,103
More than one year, but not exceeding two years	156,000	136,000
Over two years but not more than 5 years	22,500	—
More than five years	4,500	—
Less: Amounts shown under current liabilities	748,839	764,103
Amounts shown under non-current liabilities	183,000	136,000

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MANAGEMENT DISCUSSION AND ANALYSIS

Business Overview

The Group principally engages in the manufacture and sale of various glass products, namely, photovoltaic (“ PV ”) glass products, float glass products, architectural glass products, household glass products. The production facilities of the Group are strategically located in Jiaxing, Zhejiang Province, the PRC. The Group primarily sells glass products to customers in the PRC, Japan, Singapore, Korea, Taiwan, Germany and the United States. For the year ended 31 December 2015, there was a stable demand for PV installation in China and around the world. Based on (i) the report of the National Energy Administration (國家能源局) (“ NEA ”) of PRC published on 5 February 2016 regarding PV installation for the year ended 31 December 2015 and other public information; (ii) the total sales volume of the Group for the year ended 31 December 2015; and (iii) the Group’s inernal studies, the Group maintained its leading position in the PV glass industry for the year ended 31 December 2015 in terms of PV glass sales volume.

Also, as part of the strategies of the Group in optimizing the product mix in order to readily adapt to the changing market conditions and reduce any adverse impact on its operations, while increasing profitability by allocating more production volume to products with higher gross profit margins and leveraging on the opportunities from the development of energy efficient safety glass products in the PRC, the Group has completed the upgrades for one of its existing low-emissivity (“ Low-E ”) glass processing facilities and has commenced the establishment of new Low-E glass and Low-E composite glass facilities. The newly upgraded Low-E glass processing facilities have improved its processing efficiency of Low-E glass from an average of 52 seconds per glass to up to 35 seconds per glass. As for the new Low-E glass and Low-E composite glass facilities in Jiaxing, Zhejiang Province, the PRC, upon completion by the end of 2016, it is expected to contribute to an additional annual processing capacity of approximately 5.8 million square meters and 1.0 million square meters, respectively.

Furthermore, with the Group’s continuing effort to reduce production costs, the Group installed a total of 8.1 megawatts of distributed PV systems at the Group’s Jiaxing production facilities, bringing the total power generation capacity from distributed PV systems to 18.4 megawatts as at 31 December 2015. With the Group’s experience in the installation and operation of distributed PV systems, the Group continues to explore opportunities to expand the Group’s distributed PV systems operations.

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Continuous Growth of PV Market

In 2015, with continuous decline of PV module prices, PV power generation became more competitive, which in turn promoted growth in the installation of PV systems as compared to installation of other power generation systems. According to the data from NEA, as at 31 December 2015, the cumulative PV installation in the PRC was 43.18 million kilowatts, making the PRC the leading country in terms of global PV power generation capacity. In 2015, the PRC installed new PV systems with a total capacity of 15.13 million kilowatts, which achieved the goal of 15 million kilowatts for the year 2015. The installation of PV systems in the PRC accounted for more than one-fourth of the world’s newly installed capacity, and one-third of annual PV modules output in the PRC for 2015 alone. These provided strong market support for the Chinese PV manufacturing industry, and driving a steady growth in market size of the PV glass industry.

PV Glass Capacity Expansions

In view of the PRC government’s initiatives to encourage domestic PV glass manufacturers to expand production to overseas, in 2015, the Group carried out a detailed feasibility study for suitable locations and decided to set up factories in Vietnam to meet the anticipated growing demand for PV glass from the Group’s overseas customers. See “Business — Our Production Facilities and Processes — Our Overseas Expansion Plan for PV Glass Production” in the Prospectus for details.

Based on the expansion plan, the Group plans to design and construct PV raw glass production facilities with an expected daily maximum production of 800 tons and an expected designed annual processing capacity of PV glass of approximately 27.0 million square meters. With the new overseas facilities, it is expected that it will increase the Group’s overseas PV glass sales and will enable the Group to provide better localized services to its overseas PV glass customers, including those located in Southeast Asia, India, Europe, Korea and Japan.

The Group had completed the due diligence on investment and construction site as at 31 December 2015. The Group is currently in discussion with the relevant government authorities to finalize matters relating to the investment.

The Group is currently in discussion with the relevant government authorities to finalize matters relating to the investment. It is expected there to be a slight delay in entering into the investment agreement and land acquisition agreement with the Vietnamese local government authorities, and for the commencement of the construction design. Based on the information currently available and to the best information, knowledge and belief of the Directors, the overall completion time of this project will not be materially and adversely affected.

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Research and Development

During the period under review, the Group continued to enhance its research and development efforts in order to (i) improve existing production and processing facilities so as to improve product performance, and production and processing efficiency, (ii) maintain and develop industry-leading technologies; and (iii) improve product quality. For example, in the past, the Group developed a coating agent in-house for its PV glass to enhance its light transmission rate. Based on laboratory testing carried out by an independent testing center, our 3.2 millimeters coated PV glass has a light transmission rate of up to 94.5% as compared to 91.8% before the application of the coating agent.

As part of our research and development efforts, in 2015, the Group successfully developed the production methods and manufactured PV glass with thickness of 2.5 millimeters and 2.8 millimeters in order to resolve the issue on the weight of PV modules that use PV glass as back panel. So far, the Group’s customers have provided positive feedbacks on these new PV glasses, which have resolved the weight issue of PV modules that use PV glass as back panel and have higher light transmission rate as compared to PV glass of more standard thickness.

Leveraging on Quartzite Ore from the Mine

In order to secure a more stable source of silica sand supply for the production of float glass, the Group owns the mining rights to the mine located at the seventh segment of a quartzite mine in the Lingshan-Mujishan mining zone, Fengyang County, Chuzhou City, Anhui Province, the PRC. The Group has commenced using the silica sand processed and refined from the quartzite ore extracted from the mine for the production of the float glass since January 2015. As a result, the Group is able to better control the production costs and increased profitability for the float glass production.

Environmental Protection

The major pollutants produced from the production of the Group include nitrogen oxides and sulphur dioxide. As part of our social responsibility, and in order to contribute to a better environment, in May 2015, the Group’s new flue-gas denitration facilities came into operation.

In recognition of the Company’s continuous efforts in environmental protection and energy saving, the China Building Materials Federation (中國建築材料聯合會), China Concrete Association (中國水泥協會), China Architectural Land Industrial Glass Association* (中國建築玻璃與工藝玻璃協會) and China Construction Health

— 16 —

Ceramics Association (中國建築衞生陶瓷協會) awarded the Company with “Advanced Exemplary Enterprise for Energy Conservation and Emission Reduction in the Concrete Glass Ceramics Industry of the PRC (全國水泥玻璃陶瓷產業節能減排先進典型企業)” on October 2015.

Looking to the future

Affected by the reduced cost of PV installation, gradual increase in efficiency of PV power generation and increasing awareness of environmental protection across the world, a number of countries have introduced favorable policies to promote the development of PV industry. For example, according to the consultation draft of “Solar Energy Development Thirteenth Five-year Plan (2016-2020)” 《太陽能發展( 十三五規劃 (2016年至2020年)》) published by the NEA in late December 2015, China will complete installed capacity of PV systems of 150 gigawatts by the end of 2020. According to news reports, Bharti Enterprises Ltd. of India, Foxconn Technology Corporation of Taiwan, and SoftBank Corporation of Japan announced the formation of a three-way joint venture which plans to generate about 20 gigawatts of electricity in India, which would translate to around US$20 billion worth of investments in PV and wind power generation. President Park Geun-hye of South Korea announced at the end of 2015 at the United Nations 21st Climate Change Conference (COP21) in Paris that South Korea will develop solar and wind power and other renewable energy sources, and by 2030, the size of renewable energy market in South Korea is expected to reach 100 trillion Korean won. In the next few years, the global PV industry will continue to maintain a rapid growth, thus ensuring continued growth in the demand for PV glass.

As one of the world’s leaders in the PV glass industry, the Group will continue to seize market opportunities, expand the Group’s production capacity of PV glass, and enhance the technical level of PV glass produced. Our plans to establish our overseas PV glass production and processing facilities in Vietnam and our PV glass processing facilities in Anhui Province, the PRC, are progressing as planned. Upon completion, these facilities will further enhance the Group’s economy of scale and market position. At the same time, we will continue to optimize our product mix so as to be able to better adapt to changes in market conditions and reduce any adverse impacts on our operations, allocate more production capacity to higher-margin products so as to improve our profitability, and bring greater returns for shareholders.

Further, the Group installed a total of 8.1 megawatts of distributed PV systems, bringing the total power generation capacity from distributed PV systems to 18.4 megawatts. With the Group’s experience in the installation and operation of distributed PV systems, the Group continues to explore opportunities to expand the Group’s distributed PV systems operations.

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The Group will continue to maintain sufficient resources for research and development, quality improvement and performance increase, so as to maintain the Group’s overall competitiveness and profitability.

Financial Performance

The Group continues to seek ways to improve efficiency and optimizing product mix in order to increase profitability. The Group believes the results for the year ended 31 December 2015 is a statement of its achievements. The revenue of the Group for the year ended 31 December 2015 amounted to RMB2,914.0 million, representing an increase of 2.8% as compared to RMB2,833.3 million for the year ended 31 December 2014. Profit and total comprehensive income of the Group recorded an increase of 10.5% from RMB392.7 million for the year ended 31 December 2014 to RMB433.8 million for the year ended December 2015.

Revenue

The revenue of the Group increased by RMB80.7 million, or 2.8%, from RMB2,914.0 million for the year ended 31 December 2015 to RMB2,833.3 million the year ended 31 December 2014, primarily due to (i) steady increase in sales of PV glass; and (ii) growth in the sales of architectural glass, in particular, Low-E glass products.

The following table sets forth our segment revenue for the years indicated:

PV glass Float glass Household glass Architectural glass Mineral products(Note) Total	For the 2015 RMB’000 2,161,194 288,980 243,399 186,434 34,042 2,914,049	year ended 31 December 2014 % RMB’000 74.16 2,078,373 9.92 353,846 8.35 250,875 6.40 139,197 1.17 11,015 100.00 2,833,306	% 73.36 12.49 8.85 4.91 0.39
			100.00

Note: Mineral products represented quartzite ore extracted from the mine of the Group located in the seventh segment of a quartzite mine in the Lingshan-Mujishan mining zone, Fengyang County, Chuzhou City, Anhui Province, the PRC.

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The following table sets forth the revenue of the Group by geographical market, based on the location of operations of the customers of the Group for the years indicated:

Place of domicile of group entities: PRC Other foreign countries: Japan Other countries in Asia (excluding PRC and Japan) Europe North America Others	2015 RMB’000 1,587,374 405,567 630,413 171,350 92,406 26,939 2,914,049	2014 RMB’000 1,533,670 453,109 503,880 250,650 60,555 31,442
		2,833,306

Cost of Sales

The cost of sales of the Group increased by RMB155.3 million, or 8.2%, from RMB1,905.0 million for the year ended 31 December 2014 to RMB2,060.3 million for the year ended 31 December 2015. The increase of cost of sales was primarily due to the increase in the sales quantity of PV glass and architectural glass. The sales volume of PV glass rose from the 69.5 million square meters in 2014 to 76.6 million square meters in 2015; the sales volume of architectural glass rose from 2.7 million square meters in 2014 to 3.7 million square meters in 2015.

Gross Profit

Gross profit and gross profit margin of the Group for the year ended 31 December 2015 was RMB853.7 million and 29.3%, respectively, as compared to RMB928.3 million and 32.8% for the year ended 31 December 2014, respectively, primarily due to (i) the decline of gross profit of float glass; (ii) average selling price of PV glass having decreased slightly due to new PV glass capacity being released in the year; and (iii) higher energy cost of production from the increased use of natural gas as the Group charged its fuel oil suppliers for better quality fuel oil and for environmental protection reasons.

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The table below sets forth the gross profit and gross profit margin by business segments of the Group for the years indicated:

	For the	For the	year ended31 December	year ended31 December	year ended31 December
	2015				2014
	Gross profit			Gross profit
	RMB’000	Margin (%)		RMB’000	Margin (%)
PV glass	738,382		34.17	768,601	36.98
Float glass	14,253		4.93	69,475	19.63
Household glass	55,785		22.92	62,531	24.93
Architectural glass	34,424		18.46	33,762	24.25
Mineralproducts	10,890		31.99	(6,035)	(54.79)
Total	853,734		29.30	928,334	32.77

Other Income and Expenses

Other income and expenses of the Group for the year ended 31 December 2015 increased by RMB6.7 million, or 32.9%, from RMB20.5 million for the year ended 31 December 2014 to RMB27.2 million for the year ended 31 December 2015. Such increase was primarily due to an increase of government grants.

Other Gains and Losses

Other gains and losses for the year ended 31 December 2015 changed from a loss of RMB38.5 million to a gain of RMB25.6 million. The increase was primarily due to foreign exchange gains of approximately RMB39.2 million from the sales to overseas customers and proceeds from the Global Offering.

Selling and Marketing Expenses

Sales and marketing expenses of the Group for the year ended 31 December 2015 decreased slightly by RMB4.8 million, or 4.4%, from RMB108.8 million for the year ended 31 December 2014 to RMB104.0 million for the year ended 31 December 2015. Selling and marketing expenses represented 3.8% and 3.6% of the total revenue of the Group for the years ended 31 December 2014 and 2015, respectively. The decrease was primarily due to the result of more stringent cost control of the Group in transportation arrangements and expenses for domestic and overseas sales despite an increase in sales for the year ended 31 December 2015.

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Administration Expenses

Administration expenses of the Group decreased slightly by RMB3.5 million, or 3.3%, from RMB105.5 million for the year ended 31 December 2014 to RMB102.0 million for the year ended 31 December 2015. Administration expenses represented 3.7% and 3.5% of the total revenue for the years ended 31 December 2014 and 2015, respectively. The decrease was primarily due to the fact that environmental protection and depreciation expenses for the year ended 31 December 2015 had decreased by RMB8.78 million as compared to the year ended 31 December 2014. Environmental cost was incurred mainly due to emissions charges, and as our group invested and installed flue-gas denitration equipment, the emission was significantly reduced and emission cost was greatly reduced as a result.

Research and Development Expenditure

Research and development expenditure decreased by RMB26.8 million, or 20.7%, from RMB129.3 million for the year ended 31 December 2014 to RMB102.5 million for the year ended 31 December 2015.

Finance Costs

Finance costs decreased by RMB18.8 million, or 23.4%, from RMB80.3 million for the year ended 31 December 2014 to RMB61.5 million for the year ended 31 December 2015. The decrease was primarily due to lower interest rate of outstanding loans.

Income Tax Expense

Our income tax expense increased by RMB8.9 million, or 9.5%, from RMB93.7 million for the year ended 31 December 2014 to RMB102.6 million for the year ended 31 December 2015. The increase was primarily because our profit before tax increased by RMB50.0 million, or 10.3%, from RMB486.4 million for the year ended 31 December 2014 to RMB536.4 million for the year ended 31 December 2015. Effective tax rates of Group for the years ended 31 December 2014 and 2015 was 19.3% and 19.1%, respectively, which remained relatively stable.

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Profit and Total Comprehensive Income for the Year

As a result of the foregoing, profit and total comprehensive income for the year of the Group increased by RMB41.1 million, or 10.5%, from RMB392.7 million for the year ended 31 December 2014 to RMB433.8 million for the year ended 31 December 2015.

Assets and Equity

Total assets of the Group as at 31 December 2015 amounted to RMB4,687.5 million, representing an increase of 14.2% as compared to RMB4,104.2 million as at 31 December 2014. Total equity increased by RMB915.3 million, or 55.2%, from RMB1,657.5 million as at 31 December 2014 to RMB2,572.8 million as at 31 December 2015.

Liquidity and Capital Resources

As at 31 December 2015, the liquidity position of the Group was satisfactory. As at 31 December 2015, the Group’s principal sources of cash inflow were from cash generated from operating activities and cash generated from financing activities such as financing provided by the banks. Net proceeds from the Global Offering amounted to approximately RMB779.1 million. See “Future Plans and Use of Proceeds” of the Prospectus for details.

Capital Commitment

Capital commitment includes planned contractual amount of the acquisition of property, plant and equipment, or construction projects of the Group. As at 31 December 2015, the Group’s capital commitment amounted to RMB105.2 million, which was primarily related to PV glass project, Low-E production line, environmental protection equipment, machine substitution and technical transformation of other fixed assets.

Employee and Remuneration Policy

As at 31 December 2015, the Group employed a total of 2,671 employees and most of them were based in the PRC. For the year ended 31 December 2015, our Group’s total employee remuneration was RMB 199.8 million, representing 6.9% of the Group’s total revenue.

The Group maintains a good relationship with its employees and provides trainings to employees. New joiners must attend mandatory in-house training. Furthermore, employees may attend external trainings such as trainings for manufacturing

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management, quality control management and human resources management. Remuneration of employees is reviewed periodically by reference to the market rate. After considering performance of the Group and job performance of specific employees, the Group may pay them discretionary bonus. The Group makes contributions for our employees in relation to the mandatory social security funds including pension, work-related injury insurance, maternity insurance, medical and unemployment insurance and housing provident fund contributions in the PRC.

Credit Risk and Foreign Exchange Risk

Transactions of the Group are settled in RMB, United States dollars, Euros, Hong Kong dollars and Japanese yen whereas the Group’s operating activities are located in the PRC. Bank financing of the Group was settled in RMB and United States dollars for the year ended 31 December 2015 with annual interest rates between 2.31% and 6.50%. As certain sales and procurements, and the proceeds from the Global Offering were not in our reporting currency of RMB but in foreign currency, the Group is exposed to foreign exchange risks. For the year ended 31 December 2015, such risks did not have any material impact on the financial performance of the Group.

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

In the opinion of the Directors, the Company had complied with the code provisions in the Corporate Governance Code as set forth in Appendix 14 to the Listing Rules since the date of listing of the Company’s H shares on the Main Board of the Stock Exchange on 26 November 2015 up to and including 31 December 2015 except for code provision A.2.1.

Under code provision A.2.1 of the Corporate Governance Code, the roles of the chairman and chief executive should be separate and should not be performed by the same individual. Mr. Ruan Hongliang currently holds both positions. Throughout the Group’s business history of over 15 years, Mr. Ruan has held the key leadership position of the Group and has been deeply involved in the formulation of corporate strategies and management of business and operations of the Group. Taking into account the consistent leadership within the Group and in order to enable more effective and efficient overall strategic planning and continuation of the implementation of such plans, the Board considers that Mr. Ruan is the best candidate for both positions and the present arrangements are beneficial and in the interest of the Company and the shareholders as a whole..

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MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules as the code of conduct regarding securities transactions by the Directors and supervisors of the Company. Directors and supervisors of the Company are reminded of their obligations under the Model Code on a regular basis. Following specific enquiries by the Group, all Directors and supervisors of the Company have confirmed that they had complied with the required standard set out in the Model Code throughout the period from the date of listing of the Company’s H shares on the Main Board of the Stock Exchange on 26 November 2015 up to and including 31 December 2015.

PURCHASE, SALE OR REDEMPTION OF OUR COMPANY’S LISTED SECURITIES

Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed securities since the listing of the Company’s H shares on the Main Board of the Stock Exchange on 26 November 2015 up to and including 31 December 2015.

DIVIDEND

For the year ended 31 December 2015, the Board proposed a final dividend of RMB7.2 cents per ordinary share (before tax) (equivalent to approximately HK8.6 cents per ordinary share (before tax))(the “ 2015 Final Dividend ”), subject to approval by the shareholders of the Company at the upcoming annual general meeting of the Company to be held on 28 June 2016 (Tuesday) (the “ AGM ”). Dividends on domestic shares will be paid in RMB and dividends on H shares will be paid in Hong Kong dollars. Detailed plan of distribution will be separately announced in due course.

In order to ascertain shareholders’ entitlement to attend and vote at the AGM, the H share register of members of the Company will be closed from 29 May 2016 (Sunday) to 28 June 2016 (Tuesday) (both days inclusive), during which period no transfer of shares will be registered. In order to qualify for attending and voting at the forthcoming AGM, holders of H shares of the Company shall lodge transfer documents with the Company’s H share registrar in Hong Kong, Tricor Investor Services Limited, at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration before 4:30 p.m. on 27 May 2016 (Friday).

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In addition, subject to the approval of the 2015 Final Dividend by the shareholders at the AGM, the H share register of members of the Company will be closed from 8 July 2016 (Friday) to 12 July 2016 (Tuesday) (both days inclusive) for the purpose of determining shareholders’ entitlement to the 2015 Final Dividend. The record date for entitlement to the 2015 Final Dividend is 12 July 2016 (Tuesday). In order to qualify for receiving the 2015 Final Dividend, holders of H shares of the Company shall lodge transfer documents with the Company’s H share registrar in Hong Kong, Tricor Investor Services Limited, at the abovementioned address for registration before 4:30 p.m. on 7 July 2016 (Thursday). Subject to approval by the shareholders of the Company at the AGM, the 2015 Final Dividend will be paid on or around 22 August 2016 (Monday).

AGM

The AGM will be held on 28 June 2016 (Tuesday). A notice convening the AGM will be published on the websites of the Stock Exchange and the Company and despatched to the shareholders in due course.

AUDIT COMMITTEE

The audit committee of the Company had reviewed together with the Board and external auditors the accounting standards and practices adopted by the Group and the audited consolidated financial statements for the year ended 31 December 2015.

SCOPE OF WORK OF MESSRS. DELOITTE TOUCHE TOHMATSU

The figures in respect of the Group’s consolidated statement of financial position, consolidated statement of profit or loss and other comprehensive income and the related notes thereto for the year ended 31 December 2015 as set out in this preliminary announcement have been agreed by the Group’s auditors, Messrs. Deloitte Touche Tohmatsu, to the amounts set out in the Group’s audited consolidated financial statements for the year. The work performed by Messrs. Deloitte Touche Tohmatsu in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by Messrs. Deloitte Touche Tohmatsu on the preliminary announcement.

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PUBLICATION OF ANNUAL RESULTS AND ANNUAL REPORT

This annual results announcement is published on the websites of the Stock Exchange (www.hkex.com.hk) and the Company (www.flatgroup.com.cn). The annual report for the year ended 31 December 2015 containing all the information required by the Listing Rules will be despatched to the shareholders of the Company and available on the same websites in due course.

By order of the Board Flat Glass Group Co., Ltd. Ruan Hongliang Chairman

Hong Kong, 21 March 2016

As at the date of this announcement, the executive directors of the Company are Mr. Ruan Hongliang, Ms. Jiang Jinhua, Mr. Wei Yezhong, Mr. Shen Qifu and the independent non-executive directors of the Company are Ms. Pan Yushuang, Mr. Li Shilong and Mr. Ng Ki Hung.

For identification purposes only

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