Indicate by check mark whether the registrant
files or will file annual reports under cover of Form 20-F or Form 40-F:
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
¨
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
¨
Indicate by check mark whether the registrant
by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
If “Yes” is marked, indicate
below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended
June 30, 2018
Semiconductor
Manufacturing International Corporation (the “Company” or “SMIC”) was established as an exempted company
incorporated under the laws of the Cayman Islands on April 3, 2000. The address of the principal place of business is 18 Zhangjiang
Road, Pudong New Area, Shanghai, China, 201203. The registered address is at P.O. Box 2681, Cricket Square, Hutchins Drive, Grand
Cayman KY1-1111, Cayman Islands. SMIC is an investment holding company. SMIC and its subsidiaries (hereinafter collectively referred
to as the “Group”) are mainly engaged in the computer-aided design, manufacturing, testing, packaging, trading of
integrated circuits and other semiconductor services, as well as designing and manufacturing semiconductor masks.
The
unaudited condensed consolidated financial statements of the Group have been prepared in accordance with International Accounting
Standard 34 “Interim Financial Reporting” issued by the International Accounting Standards Board (the “IASB“)
as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited. The interim condensed consolidated financial statements should be read in conjunction with
the Group’s annual financial statements for the year ended December 31, 2017, which have been prepared in accordance with
IFRSs.
|
|
3.
|
PRINCIPAL ACCOUNTING POLICIES
|
The
condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments
which are measured at fair values.
Except
for the adoption of IFRS 9 and IFRS 15 on January 1, 2018, the accounting policies and methods of computation used in the condensed
consolidated financial statements as of and for the six months ended June 30, 2018 are the same as those followed in the preparation
of the Group’s annual financial statements as of and for the year ended December 31, 2017.
New
and revised standards, amendments and interpretations to existing standards have been issued and relevant to the Group but are
not effective for the financial year beginning on January 1, 2018:
|
New
or revised IFRS
|
|
Effective
date
|
|
IFRS 16 — Lease
|
|
On or after January 1, 2019
|
|
IFRS 17 — Insurance Contracts
|
|
On or after January 1, 2021
|
|
Amendments
to IFRS 10 and IAS 28 — Sale or contribution of assets between an investor and its association or joint venture
|
|
Not yet determined
|
|
IFRIC 23 — Uncertainty over Income Tax Treatments
|
|
On or after January 1, 2019
|
The
Group is yet to assess the impact of the above new and revised standards, amendments and interpretations to existing standards
on the Group’s condensed consolidated financial statements.
The
preparation of condensed consolidated financial statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results
may differ from these estimates.
In
preparing this condensed consolidated interim financial information, the significant judgements made by management in applying
the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that were applied to
the consolidated financial statements for the year ended December 31, 2017.
|
|
5.
|
FINANCIAL RISK MANAGEMENT
|
The
Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
The
condensed consolidated financial statements do not include all financial risk management information and disclosures required
in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at
December 31, 2017.
There
have been no changes in the risk management department since December 31, 2017 or in any risk management policies since December
31, 2017.
The
Group is engaged principally in the computer-aided design, manufacturing and trading of integrated circuits. The Group’s
chief operating decision makers have been identified as the Co-Chief Executive Officers, who review consolidated results when
making decisions about resources allocation and assessing performance of the Group. The Group operates in one segment. The measurement
of segment profits is based on profit from operation as presented in the statements of profit or loss and other comprehensive
income.
The
Group operates in three principal geographical areas — United States, Europe, and Asia Pacific. The Group’s operating
revenue from customers, based on the location of their headquarters, is detailed below.
|
|
|
Revenue
from external
customers
|
|
|
|
|
Six
months ended
|
|
|
|
|
|
06/30/18
|
|
|
|
06/30/17
|
|
|
|
|
|
USD’000
|
|
|
|
USD’000
|
|
|
United States
(1)
|
|
|
531,566
|
|
|
|
618,058
|
|
|
Mainland China and Hong Kong
|
|
|
1,039,923
|
|
|
|
710,040
|
|
|
Eurasia
(2)
|
|
|
150,268
|
|
|
|
216,180
|
|
|
|
|
|
1,721,757
|
|
|
|
1,544,278
|
|
|
|
6.
|
SEGMENT INFORMATION
(CONTINUED)
|
|
|
(1)
|
Presenting
the revenue to those companies whose headquarters are in the United States, but ultimately
selling products to their global customers.
|
|
|
(2)
|
Not
including Mainland China and Hong Kong
|
The
Group’s operating revenue by product and service type is detailed below:
|
|
|
Revenue
from external
customers
|
|
|
|
|
Six
months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Sales of wafers
|
|
|
1,495,078
|
|
|
|
1,496,585
|
|
|
Mask making, testing and others
(1)
|
|
|
226,679
|
|
|
|
47,693
|
|
|
|
|
|
1,721,757
|
|
|
|
1,544,278
|
|
|
|
(1)
|
Including
the recognized technology licensing revenue of US$160.4 million for six months ended
June 30, 2018. The technology licensing internally developed and not capitalized was
authorized to Semiconductor Manufacturing Electronics (Shaoxing) Corporation (“SMEC”,
an associate of the Group) with no related cost of sales recognized by the Group.
|
The
Group’s business is characterized by high fixed costs relating to advanced technology equipment purchases, which result
in correspondingly high levels of depreciation expenses. The Group will continue to incur capital expenditures and depreciation
expenses as it equips and ramps-up additional fabs and expands its capacity at the existing fabs. The following table summarizes
property, plant and equipment of the Group by geographical location.
|
|
|
Property,
plant and equipment
|
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
United States
|
|
30
|
|
|
45
|
|
|
Europe
(1)
|
|
|
131,999
|
|
|
|
137,778
|
|
|
Asia
(2)
|
|
|
91
|
|
|
|
117
|
|
|
Hong Kong
|
|
|
2,508
|
|
|
|
2,618
|
|
|
Mainland China
(1)
|
|
|
6,733,112
|
|
|
|
6,382,845
|
|
|
|
|
|
6,867,740
|
|
|
|
6,523,403
|
|
|
|
(1)
|
Fabrication
facilities are owned and operated only in Mainland China and Italy.
|
|
|
(2)
|
Not
including Mainland China and Hong Kong.
|
|
|
7.
|
OTHER OPERATING INCOME (EXPENSE),
NET
|
|
|
|
Six
months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Gain
on disposal of property, plant and equipment and assets classified as held-for-sale
(2)
|
|
|
1,994
|
|
|
|
2,286
|
|
|
Government funding
|
|
|
5,498
|
|
|
|
14,153
|
|
|
Impairment loss recognized in property, plant and
equipment
|
|
|
(443
|
)
|
|
|
—
|
|
|
Gain on deconsolidation of subsidiaries
(1)
|
|
|
3,466
|
|
|
|
—
|
|
|
Others
|
|
|
5
|
|
|
|
—
|
|
|
|
|
|
10,520
|
|
|
|
16,439
|
|
|
|
(1)
|
On April
13, 2018, the Company lost control of Ningbo Semiconductor International Corporation(“NSI”).
The gain at the date of deconsolidation of NSI was US$3.5 million. The deconsolidation
has no material impact on the consolidated financial statements.
|
|
|
(2)
|
The gain
on disposal of property, plant and equipment and assets classified as held-for-sale for
the six months ended June 30, 2018 was primarily due to the gain arising from the sales
of the staff living quarters in Beijing to employees.
|
|
|
|
|
|
|
|
The
gain on disposal of property, plant and equipment and assets classified as held-for-sale for the six months ended June 30, 2017
was primarily arising from a sales and leaseback transaction of property, plant and equipment with Sino IC Leasing (Tianjin) Co.,
Ltd.
|
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Interest on:
|
|
|
|
|
|
|
|
|
|
Bank and other borrowings
|
|
|
23,372
|
|
|
|
9,154
|
|
|
Finance leases
|
|
|
103
|
|
|
|
117
|
|
|
Convertible bonds
|
|
|
7,490
|
|
|
|
8,244
|
|
|
Corporate bonds
|
|
|
11,233
|
|
|
|
11,193
|
|
|
Short-term notes
|
|
|
—
|
|
|
|
1,164
|
|
|
Medium-term notes
|
|
|
4,307
|
|
|
|
4,012
|
|
|
|
|
|
46,505
|
|
|
|
33,884
|
|
|
Less: amounts capitalized
|
|
|
(22,335
|
)
|
|
|
(12,377
|
)
|
|
Total interest expense in profit or loss
|
|
|
24,170
|
|
|
|
21,507
|
|
The
weighted average interest rate on funds borrowed generally is 2.74% per annum (six months ended June 30, 2017: 2.36% per annum).
|
|
9.
|
OTHER GAINS OR LOSSES, NET
|
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Net gain (loss) arising on financial instruments at FVPL
|
|
|
|
|
|
|
|
|
|
Financial products sold by banks
|
|
|
1,842
|
|
|
|
403
|
|
|
Equity securities
|
|
|
(558
|
)
|
|
|
—
|
|
|
Cross currency swap contracts
|
|
|
706
|
|
|
|
179
|
|
|
Foreign currency forward contracts
|
|
|
(2,889
|
)
|
|
|
1,951
|
|
|
Other derivative financial instrument
|
|
|
—
|
|
|
|
1,544
|
|
|
|
|
|
(899
|
)
|
|
|
4,077
|
|
|
Others
(1)
|
|
|
7,598
|
|
|
|
25,210
|
|
|
|
|
|
6,699
|
|
|
|
29,287
|
|
|
|
(1)
|
For the
six months ended June 30, 2017, others included a gain of US$18.5 million arising from
the disposal agreement and the subscription agreement entered by Siltech Semiconductor
(Shanghai) Corporation Limited and Jiangsu Changjiang Electronics Technology Co., Ltd
(“JCET”) on April 27, 2016.
|
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Profit before tax has been arrived at after taking into account:
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
505,358
|
|
|
|
443,400
|
|
|
Amortization of land use rights
|
|
|
1,099
|
|
|
|
1,124
|
|
|
Amortization of acquired intangible assets
|
|
|
29,587
|
|
|
|
31,921
|
|
|
Impairment loss recognized on inventory
|
|
|
29,065
|
|
|
|
31,137
|
|
|
Impairment loss recognized in respect of trade and other receivables
|
|
|
829
|
|
|
|
2,535
|
|
|
Foreign exchange gains or losses
|
|
|
6,269
|
|
|
|
10,201
|
|
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Current tax — Enterprise Income Tax
|
|
|
20,285
|
|
|
|
1,117
|
|
|
Current tax — Land Appreciation Tax
|
|
|
64
|
|
|
|
127
|
|
|
Deferred tax
|
|
|
(1,965
|
)
|
|
|
2,414
|
|
|
|
|
|
18,384
|
|
|
|
3,658
|
|
The
Company is incorporated in the Cayman Islands, where it is not currently subject to taxation. According to the law of Italy on
enterprise income tax, LFoundry S.r.l.’s (“LFoundry”, the Company’s majority-owned subsidiary in Avezzano,
Italy) income tax rate is 24%.
The detailed
tax status of SMIC’s principal PRC entities with tax holidays is elaborated as follows:
|
|
1)
|
Semiconductor Manufacturing International (Shanghai) Corporation “SMIS” or “SMIC Shanghai”)
Pursuant to the relevant tax regulations, SMIS is qualified as an integrated circuit enterprise and enjoyed a 10-year tax holiday (five year full exemption followed by five year half reduction) beginning from 2004 after utilizing all prior years’ tax losses. The income tax rate for SMIS is 15% in 2018 (2017: 15%).
|
|
|
2)
|
Semiconductor Manufacturing International
(Tianjin) Corporation (“SMIT” or “SMIC Tianjin”)
|
In
accordance with Caishui Circular [2013] No. 43 (“Circular No. 43”) and Caishui Circular [2008] No. 1 (“Circular
No. 1”), SMIT is qualified as an integrated circuit enterprise and enjoying a 10-year tax holiday (five year full exemption
followed by five year half reduction) beginning from 2013 after utilizing all prior years’ tax losses. The income tax rate
for SMIT was 0% from 2013 to 2017 and 12.5% from 2018 to 2022.
|
|
3)
|
Semiconductor Manufacturing International
(Beijing) Corporation (“SMIB” or “SMIC Beijing”)
|
In
accordance with Circular No. 43 and Circular No. 1, SMIB is qualified as an integrated circuit enterprise and enjoying a 10-year
tax holiday (five year full exemption followed by five year half reduction) beginning from 2015 after utilizing all prior years’
tax losses. The income tax rate for SMIB was 0% from 2015 to 2019 and 12.5% from 2020 to 2024. After that, the income tax rate
will be 15%.
|
|
4)
|
Semiconductor Manufacturing International
(Shenzhen) Corporation (“SMIC Shenzhen”), Semiconductor Manufacturing North
China (Beijing) Corporation (“SMNC”) and SJ Semiconductor (Jiangyin) Corporation
(“SJ Jiangyin”)
|
In
accordance with Circular No. 43, Circular No. 1 and Caishui Circular [2012] No. 27 (“Circular No. 27”), SMIC Shenzhen,
SMNC and SJ Jiangyin are entitled to the preferential tax rate of 15% and 10-year tax holiday (five year full exemption followed
by five year half reduction) subsequent to its first profit-making year after utilizing all prior tax losses on or before December
31, 2017. SMIC Shenzhen, SMNC and SJ Jiangyin were in accumulative loss positions as of June 30, 2018 and the tax holiday has
not begun to take effect.
All
the other PRC entities of SMIC are subject to income tax rate of 25%.
The
Board did not recommend the payment of any dividend for the six months ended June 30, 2018 (six months ended June 30, 2017: Nil).
The
calculation of basic and diluted earnings per share attributable to the owners of the Company is based on following data.
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
Basic earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
Diluted earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
Earnings attributable to owners of the company
|
|
|
80,976
|
|
|
|
106,062
|
|
|
Distribution to perpetual subordinated convertible securities holders
|
|
|
(650
|
)
|
|
|
—
|
|
|
Earnings used in the calculation of basic earnings per share
|
|
|
80,326
|
|
|
|
106,062
|
|
|
Interest expense from convertible bonds
|
|
|
—
|
|
|
|
8,244
|
|
|
Earnings used in the calculation of diluted earnings per share
|
|
|
80,326
|
|
|
|
114,306
|
|
|
Weighted average numbers of shares
|
|
|
|
|
|
|
|
|
|
Weighted
average number of ordinary shares used in the calculation of basic earnings per share
|
|
|
4,925,308,885
|
|
|
|
4,566,648,399
|
|
|
Employee option and restricted share units
|
|
|
43,034,663
|
|
|
|
43,424,095
|
|
|
Convertible bonds
|
|
|
—
|
|
|
|
455,004,655
|
|
|
Weighted average number of ordinary shares used in the calculation of diluted earnings per share
|
|
|
4,968,343,548
|
|
|
|
5,065,077,149
|
|
For
the six months ended June 30, 2018, the Group had 3,911,445 (six months ended June 30, 2017: 4,325,059) weighted average outstanding
employee stock options excluded from the computation of diluted earnings per share due to the exercise price higher than the average
market price of the ordinary shares, 371,589,975 (six months ended June 30, 2017: nil) potential shares upon the conversion of
convertible bonds and 39,688,654 (six months ended June 30, 2017: nil) potential shares upon the conversion of perpetual subordinated
convertible securities excluded from the computation of diluted earnings per share due to anti- dilutive effect.
|
|
14.
|
PROPERTY, PLANT AND EQUIPMENT
|
Construction
in progress
The
construction in progress balance of approximately US$1,972.5 million as of June 30, 2018, primarily consisted of US$608.1 million
used for purchasing the manufacturing equipment acquired for further expanding the production capacity at two 300mm fabs in Beijing,
US$266.3 million used for purchasing the manufacturing equipment acquired for further expanding the production capacity at the
300mm fab in Shanghai and the investment of a new Shanghai project, US$580.1 million used for our new 300mm fab in Shenzhen, US$294.1
million used for expanding the production capacity at the 200mm fab in Tianjin and the investment of a new Tianjin project, and
US$166.9 million used for purchasing machinery and equipment acquired for more research and development activities. In addition,
US$57.0 million was related to various ongoing capital expenditures projects of other SMIC subsidiaries, which are expected to
be completed by the end of 2018.
Impairment
losses recognized in the period
For
the six months ended June 30, 2018, the Group recorded US$0.4 million (six months ended June 30, 2017: nil) impairment loss of
equipment. The whole amount of impairment loss for the six months ended June 30, 2018 was recognized as other operating expense
in profit or loss.
Assets
pledged as security
As
of June 30, 2018, property, plant and equipment with carrying amount of approximately US$212.9 million (December 31, 2017: approximately
US$362.3 million) have been pledged to secure borrowings of the Group under a mortgage. The Group is not allowed to pledge these
assets as security for other borrowings or to sell them to other entities.
Capital
commitments
As
of June 30, 2018, the Group had commitments for the facility construction amounted to US$307.4 million (December 31, 2017: US$484.5
million) and commitments for the acquisition of machinery and equipment amounted to US$705.1 million (December 31, 2017: US$476.1
million).
|
|
15.
|
INVESTMENT IN ASSOCIATES
|
Details
of the Group’s associates, which are all unlisted companies except for JCET listed on the Shanghai Stock Exchange, at the
end of the reporting period are as follows:
|
Name of company
|
|
Place of
establishment
and operation
|
|
Class of
share held
|
|
Percentage of ownership
interest and voting power
held by the Group
|
|
|
|
|
|
|
|
|
|
06/30/18
|
|
|
|
12/31/17
|
|
|
Toppan SMIC Electronic (Shanghai) Co., Ltd (“Toppan”)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
30.0
|
%
|
|
|
30.0
|
%
|
|
Zhongxin Xiecheng Investment (Beijing) Co., Ltd
(“Zhongxin Xiecheng”)
|
|
Beijing, PRC
|
|
Ordinary
|
|
|
49.0
|
%
|
|
|
49.0
|
%
|
|
Brite Semiconductor (Shanghai) Corporation (“Brite Shanghai”)
(3)
|
|
Cayman Island
|
|
Ordinary
|
|
|
46.6
|
%
|
|
|
46.6
|
%
|
|
Jiangsu Changjiang Electronics Technology Co., Ltd (“JECT”)
|
|
Jiangsu, PRC
|
|
Ordinary
|
|
|
14.3
|
%
|
|
|
14.3
|
%
|
|
Sino IC Leasing Co., Ltd.(“Sino IC Leasing”)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
7.4
|
%
(1)
|
|
|
8.1
|
%
(1)
|
|
China Fortune-Tech Capital Co., Ltd (“China Fortune-Tech”)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
30.0
|
%
|
|
|
30.0
|
%
|
|
Beijing Wu Jin Venture Investment Center (Limited Partnership)
(“WuJin”)
(2)
|
|
Beijing, PRC
|
|
Ordinary
|
|
|
32.6
|
%
|
|
|
32.6
|
%
|
|
Shanghai Fortune-Tech Qitai Invest Center (Limited Partnership)
(“Fortune-Tech
Qitai”)
(2)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
33.0
|
%
|
|
|
33.0
|
%
|
|
Shanghai Fortune-Tech Zaixing Invest Center
(Limited
Partnership) (“Fortune-Tech Zaixing”)
(2)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
66.2
|
%
(1)
|
|
|
66.2
|
%
(1)
|
|
Suzhou Fortune-Tech Oriental Invest Fund Center
(Limited
Partnership) (“Fortune-Tech Oriental”)
(2)
|
|
Jiangsu, PRC
|
|
Ordinary
|
|
|
44.8
|
%
|
|
|
44.8
|
%
|
|
Juyuan Juxin Integrated Circuit Fund
(“Juyuan
Juxin”)
(2)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
31.6
|
%
|
|
|
31.6
|
%
|
|
Ningbo Semiconductor International Corporation (“NSI”)
(4)
|
|
Ningbo, PRC
|
|
Ordinary
|
|
|
38.6
|
%
|
|
|
NA
|
|
|
Semiconductor Manufacturing Electronics (Shaoxing) Corporation
(“SMEC”)
|
|
Shaoxing, PRC
|
|
Ordinary
|
|
|
23.5
|
%
|
|
|
NA
|
|
|
Semiconductor Global Solutions (“SGS”)
|
|
Ningbo, PRC
|
|
Ordinary
|
|
|
60.0
|
%
(1)
|
|
|
NA
|
|
|
Shanghai IC Manufacturing Innovation Center Co., Ltd (“Shanghai Innovation Center”)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
50.0
|
%
(1)
|
|
|
NA
|
|
|
|
(1)
|
In accordance
with investment agreements, the Group has significant influence over Sino IC Leasing,
Fortune-Tech Zaixing, SGS and Shanghai Innovation Center.
|
|
|
(2)
|
The
Group invested in these associates indirectly though China IC Capital Co., Ltd (the “China
IC Capital”), a wholly-owned investment fund company of SMIC. China IC Capital
is intended to invest primarily in integrated circuits related fund products and investment
projects.
|
|
|
(3)
|
Since
September 30, 2017, the Group invested Brite Shanghai directly with no more investment
in Brite Semiconductor Corporation, the holding company of Brite Shanghai.
|
|
|
(4)
|
On April
13, 2018, the Group lost control of NSI, but still has significant influence over it.
The Group recorded its ownership interest of NSI as investment in associate.
|
Above associates
are accounted for using the equity method in these condensed consolidated financial statements.
|
|
16.
|
INVESTMENTS IN JOINT VENTURES
|
Details of
the Group’s joint ventures, unlisted companies invested directly through China IC Capital, at the end of the reporting periods
are as follows:
|
Name of company
|
|
Place of
establishment
and operation
|
|
Class of
share held
|
|
Percentage of ownership
interest and voting power
held by the Group
|
|
|
|
|
|
|
|
|
|
06/30/18
|
|
|
|
12/31/17
|
|
|
Shanghai Xinxin Investment Centre (Limited Partnership) (“Shanghai Xinxin”)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
49.0
|
%
|
|
|
49.0
|
%
|
|
Shanghai Chengxin Investment Center (Limited Partnership) (“Shanghai Chengxin”)
|
|
Shanghai, PRC
|
|
Ordinary
|
|
|
31.5
|
%
|
|
|
31.5
|
%
|
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Non-current
(1)
|
|
|
8,528
|
|
|
|
13,438
|
|
|
Current
(2)
|
|
|
349,974
|
|
|
|
336,043
|
|
|
|
|
|
358,502
|
|
|
|
349,481
|
|
|
|
(1)
|
As of
June 30, 2018, the non-current restricted cash consisted of US$8.5 million (EUR7.3 million),
of bank time deposits (December 31, 2017: US$13.4 million) pledged against long-term
borrowings from MPS Capital Services S.p.A. of US$0.8 million (EUR0.7 million) and from
Cassa Depositie Prestiti of US$7.7 million (EUR6.6 million).
|
|
|
(2)
|
As of
June 30, 2018, the current restricted cash consisted of US$149.9 million of bank time
deposits (December 31, 2017: US$14.9 million), within which US$145.3 million was pledged
against letters of credit and short-term borrowings, US$4.6 million (EUR4.0 million)
was pledged against long-term borrowing current portions from MPS Capital Services S.p.A.
of US$0.5 million (EUR0.4 million) and from Cassa Depositie Prestiti of US$4.2 million
(EUR3.6 million).
|
As of June
30, 2018, the current restricted cash consisted of US$200.1 million (December 31, 2017: US$235.3 million) of government funding
received, within which US$196.4 million was mainly for the reimbursement of research and development expenses to be incurred.
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Raw materials
|
|
|
166,994
|
|
|
|
149,574
|
|
|
Work in progress
|
|
|
405,502
|
|
|
|
321,695
|
|
|
Finished goods
|
|
|
124,525
|
|
|
|
151,410
|
|
|
|
|
|
697,021
|
|
|
|
622,679
|
|
|
|
19.
|
TRADE AND OTHER RECEIVABLES
|
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Trade receivables
|
|
|
489,417
|
|
|
|
407,975
|
|
|
Allowance on doubtful trade receivables
|
|
|
(2,164
|
)
|
|
|
(1,335
|
)
|
|
|
|
|
487,253
|
|
|
|
406,640
|
|
|
Other receivables and refundable deposits
(1)
|
|
|
432,237
|
|
|
|
209,668
|
|
|
|
|
|
919,490
|
|
|
|
616,308
|
|
|
|
(1)
|
Including the receivables
of $151.7 million from technology licensing revenue authorized to SMEC in 2018 as of June 30, 2018.
|
The
Group determines credit terms ranging generally from 30 to 60 days for each customer on a case-by-case basis, based on its assessment
of such customer’s financial standing and business potential with the Group.
The
following is an aged analysis of trade receivables presented based on the invoice date at the end of the reporting period.
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Within 30 days
|
|
|
212,757
|
|
|
|
148,131
|
|
|
Between 31–60 days
|
|
|
199,532
|
|
|
|
187,623
|
|
|
Over 60 days
|
|
|
77,128
|
|
|
|
72,221
|
|
|
Total trade receivables
|
|
|
489,417
|
|
|
|
407,975
|
|
The
following is an aged analysis of trade receivables (net of allowance for doubtful debt) presented based on due date at the end
of the reporting period.
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Neither past due nor impaired
|
|
|
396,331
|
|
|
|
331,469
|
|
|
Past due but not impaired
|
|
|
|
|
|
|
|
|
|
Within 30 days
|
|
|
73,481
|
|
|
|
62,267
|
|
|
Between 31–60 days
|
|
|
10,831
|
|
|
|
9,583
|
|
|
Over 60 days
|
|
|
6,610
|
|
|
|
3,321
|
|
|
Total carrying amounts
|
|
|
487,253
|
|
|
|
406,640
|
|
Due
to the short-term nature of the current receivables, their carrying amounts are considered to be the same as their fair value.
|
|
20.
|
ASSETS CLASSIFIED AS HELD-FOR-SALE
|
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Assets related to employee’s living quarters
|
|
|
18,546
|
|
|
|
37,471
|
|
Non-current
assets are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather
than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset
is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to
qualify for recognition as a completed sale within one year from the date of classification.
|
|
21.
|
SHARES AND ISSUED CAPITAL
|
Ordinary
shares of US$0.004 each issued and fully paid
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
Number of
shares
|
|
|
Share capital
|
|
|
Number of
shares
|
|
|
Share capital
|
|
|
|
|
|
|
|
USD’000
|
|
|
|
|
|
USD’000
|
|
|
Balance at January 1
|
|
4,916,106,889
|
|
|
19,664
|
|
|
4,252,922,259
|
|
|
17,012
|
|
|
Issuance
of shares under the Company’s employee Stock incentive plans
|
|
|
16,140,786
|
|
|
|
65
|
|
|
|
15,207,492
|
|
|
|
60
|
|
|
Ordinary shares issued at June 29, 2018
|
|
|
61,526,473
|
|
|
|
246
|
|
|
|
—
|
|
|
|
—
|
|
|
Conversion of convertible bonds during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
382,744,250
|
|
|
|
1,531
|
|
|
Balance at June 30
|
|
|
4,993,774,148
|
|
|
|
19,975
|
|
|
|
4,650,874,001
|
|
|
|
18,603
|
|
Fully
paid ordinary shares, which have a par value of US$0.004, carry one vote per share and carry a right to dividends.
Stock
incentive plans
The
Company’s stock incentive plans allow the Company to offer a variety of incentive awards to employees, consultants or external
service advisors of the Group.
The
expense recognized for employee services received during the period is shown in the following table:
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Expense arising from equity-settled share-based payment transactions
|
|
|
6,581
|
|
|
|
11,065
|
|
Movements
during the period
|
|
(i)
|
The following table illustrates
the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the period, excluding
restricted share units (“RSUs”) and share option plan for subsidiary (“Subsidiary Plan”):
|
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
Number
|
|
|
WAEP
|
|
|
Number
|
|
|
WAEP
|
|
|
Outstanding at January 1
|
|
|
52,881,278
|
|
|
US$
|
0.83
|
|
|
|
72,482,764
|
|
|
US$
|
0.82
|
|
|
Granted during the period
|
|
|
18,831,334
|
|
|
US$
|
1.34
|
|
|
|
4,196,477
|
|
|
US$
|
1.20
|
|
|
Forfeited and expired during the period
|
|
|
(1,149,404
|
)
|
|
US$
|
1.02
|
|
|
|
(3,348,691
|
)
|
|
US$
|
1.38
|
|
|
Exercised during the period
|
|
|
(4,167,513
|
)
|
|
US$
|
0.80
|
|
|
|
(4,728,150
|
)
|
|
US$
|
0.77
|
|
|
Outstanding at June 30
|
|
|
66,395,695
|
|
|
US$
|
0.97
|
|
|
|
68,602,400
|
|
|
US$
|
0.81
|
|
In the current
interim period, share options were granted on May 23, 2018. The fair values of the options determined at the dates of grant using
the Black-Scholes Option Pricing model was US$0.50.
The weighted
average closing price of the Company’s shares immediately before the dates on which the share options were exercised was
US$1.42.
|
|
22.
|
SHARE-BASED PAYMENT
(CONTINUED)
|
Movements
during the period
(CONTINUED)
The
following table lists the inputs to the Black-Scholes Option Pricing model used for the options granted during the six months
ended June 30, 2018 and 2017:
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
Dividend yield (%)
|
|
|
—
|
|
|
|
—
|
|
|
Expected volatility
|
|
|
39.82
|
%
|
|
|
43.38
|
%
|
|
Risk-free interest rate
|
|
|
2.83
|
%
|
|
|
1.91
|
%
|
|
Expected life of share options
|
|
|
5 years
|
|
|
|
6 years
|
|
The
risk-free rate for periods within the contractual life of the options is based on the yield of the US Treasury Bond. The expected
term of options granted represents the period of time that options granted are expected to be outstanding. Expected volatilities
are based on the average volatility of the Company’s stock prices with the time period commensurate with the expected term
of the options. The dividend yield is based on the Group’s intended future dividend plan.
The
valuation of the options is based on the best estimates from the Group by taking into account a number of assumptions and is subject
to limitation of the valuation model. Changes in variables and assumptions may affect the fair value of these options.
|
|
(ii)
|
The following table illustrates
the number and weighted average fair value (“WAFV”) of, and movements in,
RSUs during the period, excluding share option plan and Subsidiary Plan:
|
|
|
|
Six months ended
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
Number
|
|
|
WAFV
|
|
|
Number
|
|
|
WAFV
|
|
|
Outstanding at January 1
|
|
|
28,701,097
|
|
|
US$
|
1.05
|
|
|
|
26,489,152
|
|
|
US$
|
0.98
|
|
|
Granted during the period
|
|
|
7,295,466
|
|
|
US$
|
1.30
|
|
|
|
11,696,477
|
|
|
US$
|
1.13
|
|
|
Forfeited during the period
|
|
|
(1,855,854
|
)
|
|
US$
|
1.05
|
|
|
|
(344,786
|
)
|
|
US$
|
1.08
|
|
|
Exercised during the period
|
|
|
(11,973,273
|
)
|
|
US$
|
1.02
|
|
|
|
(10,479,342
|
)
|
|
US$
|
0.96
|
|
|
Outstanding at June 30
|
|
|
22,167,436
|
|
|
US$
|
1.12
|
|
|
|
27,361,501
|
|
|
US$
|
1.05
|
|
In
the current interim period, RSUs were granted on May 23, 2018. The fair value of the RSUs determined at the date of grant using
the Black-Scholes Option Pricing model was US$1.30.
The
weighted average closing price of the Company’s shares immediately before the date on which the RSUs were exercised was
US$1.34 per share.
|
|
22.
|
SHARE-BASED PAYMENT
(CONTINUED)
|
Movements
during the period
(CONTINUED)
The
following table lists the inputs to the Black-Scholes Option Pricing model used for the RSUs granted during the six months ended
June 30, 2018 and 2017:
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
Dividend yield (%)
|
|
|
—
|
|
|
|
—
|
|
|
Expected volatility
|
|
|
39.26
|
%
|
|
|
39.72
|
%
|
|
Risk-free interest rate
|
|
|
2.52
|
%
|
|
|
1.22
|
%
|
|
Expected life of RSUs
|
|
|
2 years
|
|
|
|
2 years
|
|
The
risk-free rate for periods within the contractual life of the RSUs is based on the yield of the US Treasury Bond. The expected
term of RSUs granted represents the period of time that RSUs granted are expected to be outstanding. Expected volatilities are
based on the average volatility of the Company’s stock prices with the time period commensurate with the expected term of
the RSUs. The dividend yield is based on the Group’s intended future dividend plan.
The
valuation of the RSUs is based on the best estimates from the Group by taking into account a number of assumptions and is subject
to limitation of the valuation model. Changes in variables and assumptions may affect the fair value of these RSUs.
|
|
(iii)
|
The following table illustrates
the number and weighted average exercise prices (“WAEP”) of, and movements
in, share options of the Subsidiary Plan during the period, excluding share option plan
and RSUs:
|
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
Number
|
|
|
WAEP
|
|
|
Number
|
|
|
WAEP
|
|
|
Outstanding at January 1
|
|
|
14,918,802
|
|
|
US$
|
0.20
|
|
|
|
14,598,750
|
|
|
US$
|
0.19
|
|
|
Granted during the period
|
|
|
7,349,500
|
|
|
US$
|
0.36
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited and expired during the period
|
|
|
(601,876
|
)
|
|
US$
|
0.29
|
|
|
|
(315,000
|
)
|
|
US$
|
0.31
|
|
|
Outstanding at June 30
|
|
|
21,666,426
|
|
|
US$
|
0.25
|
|
|
|
14,283,750
|
|
|
US$
|
0.19
|
|
In
the current interim period, share option of the Subsidiary Plan was granted on March 13, 2018. The fair value of the share option
of the Subsidiary Plan determined at the date of grant using the Black- Scholes Option Pricing model was US$0.36.
The
range of exercise prices for share options of the Subsidiary Plan outstanding at the end of the period was from US$0.05 to US$0.36
(six months ended June 30, 2017: US$0.05 to US$0.31).
To
protect against volatility of future cash flows caused by the changes in exchange rates associated with outstanding debt denominated
in a currency other than the US dollar, the Group entered into several cross currency swap contracts, which were designated as
hedging instruments since October 2016. Any gains or losses arising from changes in fair value of these hedging instruments are
taken directly to the statement of profit or loss, except for the effective portion of cash flow hedges, which is recognized in
other comprehensive income (loss) and later reclassified to profit or loss when the hedged item affects profit or loss.
The
hedging reserve is used to record gains or losses on derivatives designated and qualified as cash flow hedges that are recognized
in other comprehensive income (loss). Amounts will be reclassified to profit or loss when the associated hedged transaction affects
profit or loss.
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Other comprehensive income (loss) on cash flow hedges recognized during the period:
|
|
|
|
|
|
|
|
|
|
Total fair value gain included in other comprehensive income (loss)
|
|
|
4,436
|
|
|
|
56,810
|
|
|
Reclassified from other comprehensive income (loss) to offset foreign exchange gains (losses)
|
|
|
30,276
|
|
|
|
(26,692
|
)
|
|
|
|
|
34,712
|
|
|
|
30,118
|
|
|
Balance of cash flow hedges reserve at beginning of the period
|
|
|
516
|
|
|
|
(34,627
|
)
|
|
Balance of cash flow hedges reserve at end of the period
|
|
|
35,228
|
|
|
|
(4,509
|
)
|
Please
refer to Note 31 for the outstanding balances of these hedging instruments.
|
|
24.
|
PERPETUAL SUBORDINATED CONVERTIBLE
SECURITIES
|
On
December 14, 2017, the Company issued the perpetual subordinated convertible securities (the “PSCS”) at a par value
of US$250,000 each in the principal amount of US$65.0 million and the net book value of PSCS amounted to US$64.1 million after
the deduction of issue expenses of US$0.9 million.
On
June 29, 2018, the Company issued the PSCS at a par value of US$250,000 each in the principal amount of US$200.0 million.
The
PSCS are included in equity in the Group’s consolidated financial statements as the Group does not have a contractual obligation
to deliver cash or other financial assets arising from the issue of the PSCS. The PSCS will remain as equity reserve until the
PSCS are converted, in which case, the balance recognized in equity will be transferred to ordinary shares and share premium.
As
of June 30, 2018, the net book value of PSCS amounted to US$264.1 million.
For
the six months ended June 30, 2018, no PSCS have been converted into ordinary shares of the Company and the Company paid the distribution
amounted to US$0.7 million.
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
At amortized cost
|
|
|
|
|
|
|
|
|
|
Short-term commercial bank loans
|
|
|
328,238
|
|
|
|
308,311
|
|
|
Short-term borrowings
|
|
|
328,238
|
|
|
|
308,311
|
|
|
2013 USD loan (SMIC Shanghai)
|
|
|
852
|
|
|
|
10,760
|
|
|
2015 CDB RMB loan I (SMIC Shanghai)
|
|
|
151,135
|
|
|
|
153,041
|
|
|
2015 CDB RMB loan II (SMIC Shanghai)
|
|
|
71,789
|
|
|
|
72,694
|
|
|
2015 CDB RMB loan (SMIC Beijing)
|
|
|
28,111
|
|
|
|
29,231
|
|
|
2016 CDB RMB loan (SMIC Beijing)
|
|
|
215,367
|
|
|
|
223,440
|
|
|
2017 CDB RMB loan (SMIC Shenzhen)
|
|
|
334,160
|
|
|
|
185,792
|
|
|
2015 EXIM RMB loan (SMIC Shanghai)
|
|
|
75,568
|
|
|
|
76,520
|
|
|
2017 EXIM RMB loan (SMIC Shanghai)
|
|
|
151,135
|
|
|
|
153,041
|
|
|
2016 EXIM RMB loan I (SMIC Beijing)
|
|
|
36,272
|
|
|
|
36,730
|
|
|
2016 EXIM RMB loan II (SMIC Beijing)
|
|
|
60,454
|
|
|
|
61,216
|
|
|
2017 EXIM RMB loan (SMIC Beijing)
|
|
|
75,568
|
|
|
|
76,520
|
|
|
2018 EXIM RMB Loan (SMIC Beijing)
|
|
|
30,227
|
|
|
|
—
|
|
|
2016 EXIM RMB loan (SMIC)
|
|
|
75,568
|
|
|
|
76,520
|
|
|
2017 EXIM RMB loan (SMIC Tianjin)
|
|
|
75,568
|
|
|
|
76,520
|
|
|
2017 EXIM USD loan (SMIC Tianjin)
|
|
|
—
|
|
|
|
25,000
|
|
|
2017 EXIM RMB loan (SMIC Shenzhen)
|
|
|
73,300
|
|
|
|
76,520
|
|
|
2014 Cassa Depositie Prestiti loan (LFoundry)
|
|
|
23,261
|
|
|
|
25,871
|
|
|
2014 MPS Capital Service loan (LFoundry)
|
|
|
4,948
|
|
|
|
5,132
|
|
|
2014 Citizen Finetech Miyota loan (LFoundry)
|
|
|
3,626
|
|
|
|
3,502
|
|
|
2017 Banca del Mezzogiorno loan (LFoundry)
|
|
|
1,486
|
|
|
|
1,529
|
|
|
2018 Unicredit S.p.A. loan (LFoundry)
|
|
|
2,332
|
|
|
|
—
|
|
|
Finance lease payables
|
|
|
5,329
|
|
|
|
6,252
|
|
|
Loans from non-controlling interests shareholders
|
|
|
12,378
|
|
|
|
12,750
|
|
|
Others
|
|
|
477,201
|
|
|
|
487,655
|
|
|
Long-term borrowings
|
|
|
1,985,635
|
|
|
|
1,876,236
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
328,238
|
|
|
|
308,311
|
|
|
Current maturities of long-term borrowings
|
|
|
452,896
|
|
|
|
132,297
|
|
|
|
|
|
781,134
|
|
|
|
440,608
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Non-current maturities of long-term borrowings
|
|
|
1,532,739
|
|
|
|
1,743,939
|
|
|
|
|
|
2,313,873
|
|
|
|
2,184,547
|
|
|
Borrowing by repayment schedule:
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
781,134
|
|
|
|
440,608
|
|
|
Within 1–2 years
|
|
|
196,642
|
|
|
|
399,301
|
|
|
Within 2–5 years
|
|
|
824,073
|
|
|
|
877,315
|
|
|
Over 5 years
|
|
|
512,024
|
|
|
|
467,323
|
|
|
|
|
|
2,313,873
|
|
|
|
2,184,547
|
|
|
|
25.
|
BORROWINGS
(CONTINUED)
|
As
of June 30, 2018, property, plant and equipment with carrying amount of approximately US$212.9 million (December 31, 2017: US$362.3
million) have been pledged to secure borrowings of the Group (Note 14).
As
at June 30, 2018, other borrowings represented US$477.2 million (December 31, 2017: US$487.7 million) of borrowings under three
arrangements entered into by the Group with third-party financing companies in 2016 in the form of a sale and leaseback transaction
with a repurchase option. A batch of production equipment of the Group was sold and leased back under the financing arrangement.
As the repurchase prices are set at below US$1.00, which are minimal compared to the expected fair value and the Group is certain
that it will exercise the repurchase options, the above arrangements were accounted for as collateralized borrowings of the Group.
Issue
of US$450.0 million zero coupon convertible bonds due 2022
On
July 7, 2016, the Company issued zero coupon convertible bonds at a par value of US$250,000 each with an aggregate principal amount
of US$450.0 million (the “2016 Convertible Bonds”). The issue price was 100% of the aggregate principal amount of
the 2016 Convertible Bonds. The 2016 Convertible Bonds issued is a compound instrument included a liability component and an equity
component. There are embedded derivatives in respect of the early redemption features of the 2016 Convertible Bonds, which are
deemed to be clearly and closely related to the host contract and therefore, do not need to be separately accounted for. The fair
value of the liability component of the 2016 Convertible Bonds was approximately US$387.9 million and the equity component was
approximately US$52.9 million, determined by deducting the amount of the liability component from the fair value of the compound
instrument as a whole.
|
|
|
USD’000
|
|
|
Principal amount
|
|
|
450,000
|
|
|
Transaction cost
|
|
|
(9,194
|
)
|
|
Liability component as at the date of issue
|
|
|
(387,871
|
)
|
|
Equity component as at the date of issue
|
|
|
52,935
|
|
Subsequent
to the initial recognition, the liability component of the 2016 Convertible Bonds was carried at amortized cost using the effective
interest method. The effective interest rate of the liability component of the 2016 Convertible Bonds was 3.78% per annum. The
movement of the liability component and the equity component of the 2016 Convertible Bonds for the six months ended June 30, 2018
is set out below:
|
|
|
Liability
Component
|
|
|
Equity
Component
|
|
|
Total
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
As at December 31, 2016
|
|
|
395,210
|
|
|
|
52,935
|
|
|
|
448,145
|
|
|
Interest charged
|
|
|
7,339
|
|
|
|
—
|
|
|
|
7,339
|
|
|
As at June 30, 2017
|
|
|
402,549
|
|
|
|
52,935
|
|
|
|
455,484
|
|
|
As at December 31, 2017
|
|
|
403,329
|
|
|
|
52,053
|
|
|
|
455,382
|
|
|
Interest charged
|
|
|
7,490
|
|
|
|
—
|
|
|
|
7,490
|
|
|
As at June 30, 2018
|
|
|
410,819
|
|
|
|
52,053
|
|
|
|
462,872
|
|
The
equity component will remain in convertible bond equity reserve until the embedded conversion option is exercised or the 2016
Convertible Bonds mature.
On
October 7, 2014, the Company issued 5-year unsecured corporate bonds for a total amount of US$500.0 million. The corporate bonds
carry a coupon interest rate of 4.125% with bond interest payable semi-annually on March 31 and September 30. As at the issue
date, the net book value of the liabilities amounted to US$491.2 million after the deduction of (1) a discount of US$5.2 million
and (2) issue expenses of US$3.6 million.
|
|
|
USD’000
|
|
|
Principal amount
|
|
|
500,000
|
|
|
Discount of bonds payable
|
|
|
(5,185
|
)
|
|
Transaction cost
|
|
|
(3,634
|
)
|
|
Bonds payable as at the date of issue
|
|
|
491,181
|
|
The movement
of the corporate bonds for the period ended June 30, 2018 is set out below:
|
|
|
USD’000
|
|
|
As at December 31, 2016
|
|
|
494,909
|
|
|
Interest charged
|
|
|
11,193
|
|
|
Interest payable recognized
|
|
|
(10,313
|
)
|
|
As at June 30, 2017
|
|
|
495,789
|
|
|
As at December 31, 2017
|
|
|
496,689
|
|
|
Interest charged
|
|
|
11,233
|
|
|
Interest payable recognized
|
|
|
(10,313
|
)
|
|
As at June 30, 2018
|
|
|
497,609
|
|
On
June 8, 2016, the Company issued the three-year medium-term notes of RMB1,500.0 million (approximately US$226.2 million) through
National Association of Financial Market Institutional Investors (“NAFMII”). The medium-term notes carry a coupon
interest rate of 3.35% per annum with note interest payable annually on June 8, 2017, June 8, 2018 and June 8, 2019. As at the
date of issue, the net book value of the liabilities of medium-term notes amounted to RMB1,485.2 million (approximately US$223.9
million).
|
|
|
USD’000
|
|
|
Principal amount
|
|
|
226,162
|
|
|
Transaction cost
|
|
|
(2,226
|
)
|
|
Notes payable as at the date of issue
|
|
|
223,936
|
|
The
movement of the medium-term notes for the six months ended June 30, 2018 is set out below:
|
|
|
USD’000
|
|
|
As at December 31, 2016
|
|
|
214,502
|
|
|
Interest charged
|
|
|
4,012
|
|
|
Interest payable recognized
|
|
|
(3,662
|
)
|
|
Foreign exchange loss
|
|
|
4,518
|
|
|
As at June 30, 2017
|
|
|
219,370
|
|
|
As at December 31, 2017
|
|
|
228,483
|
|
|
Interest charged
|
|
|
4,307
|
|
|
Interest payable recognized
|
|
|
(3,936
|
)
|
|
Foreign exchange gain
|
|
|
(2,858
|
)
|
|
As at June 30, 2018
|
|
|
225,996
|
|
|
|
29.
|
TRADE AND OTHER PAYABLES
|
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Trade payables
|
|
|
802,271
|
|
|
|
837,843
|
|
|
Advance receipts
|
|
|
29,380
|
|
|
|
22,008
|
|
|
Deposit received
|
|
|
48,376
|
|
|
|
54,895
|
|
|
Other payable
|
|
|
69,413
|
|
|
|
92,678
|
|
|
|
|
|
949,440
|
|
|
|
1,007,424
|
|
Trade payables
are non-interest bearing and are normally settled on 30-day to 60-day terms.
As
of June 30, 2018, trade payables were US$802.3 million (December 31, 2017: US$837.8 million), within which the payables for property,
plant and equipment were US$447.7 million (December 31, 2017: US$506.7 million).
The
following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period.
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Within 30 days
|
|
|
542,319
|
|
|
|
658,804
|
|
|
Between 31–60 days
|
|
|
68,159
|
|
|
|
68,358
|
|
|
Over 60 days
|
|
|
191,793
|
|
|
|
110,681
|
|
|
|
|
|
802,271
|
|
|
|
837,843
|
|
An
aged analysis of the accounts payable presented based on the due date at the end of the reporting period is as follows:
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Current
|
|
|
579,425
|
|
|
|
705,835
|
|
|
Overdue:
|
|
|
|
|
|
|
|
|
|
Within 30 days
|
|
|
84,134
|
|
|
|
46,318
|
|
|
Between 31 to 60 days
|
|
|
20,365
|
|
|
|
22,052
|
|
|
Over 60 days
|
|
|
118,347
|
|
|
|
63,638
|
|
|
|
|
|
802,271
|
|
|
|
837,843
|
|
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Defined benefit obligation
(1)
|
|
|
26,698
|
|
|
|
28,162
|
|
|
Contingent consideration
(3)
|
|
|
—
|
|
|
|
12,549
|
|
|
Long-term payables
(2)
|
|
|
53,682
|
|
|
|
57,593
|
|
|
Others
(4)
|
|
|
45,959
|
|
|
|
1,513
|
|
|
|
|
|
126,339
|
|
|
|
99,817
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Long-term payables
(2)
|
|
|
45,101
|
|
|
|
40,627
|
|
|
|
|
|
171,440
|
|
|
|
140,444
|
|
|
|
(1)
|
Trattamento di Fine Rapporto (“TFR”, termination payments) relates to the amounts that
employees in Italy are entitled to receive when they leave the Group and is calculated based on the period of employment and the
taxable earnings of each employee. Under certain conditions, the entitlement may be partially advanced to an employee during the
employee’s working life.
|
The Group operates
defined benefit pension plans in Italy under broadly similar regulatory frameworks, which is an unfunded plan where the Group meets
the benefit payment obligation as it falls due. This plan is final salary pension plan, which provides benefits to members in the
form of a guaranteed level of pension payable for life. The level of benefits provided depends on members’ length of service
and their salary in the final years leading up to retirement. The TFR in payment are generally updated in line with the retail
price index.
|
|
(2)
|
Long-term payables for the purchased tangible and intangible assets were classified into the non-current
and current liabilities respectively amounted to US$53.7 million and US$45.1 million as of June 30, 2018.
|
|
|
(3)
|
The group had contingent consideration in respect of a potential cash compensation accrued at about
US$12.5 million in 2017 that may be incurred depending on the profit of Changjiang Xinke during the three years of 2017, 2018 and
2019. Contingent consideration was reclassified from other liabilities to other financial liabilities as of January 1, 2018, compliment
with IFRS 9 (Note 33).
|
|
|
(4)
|
Others included the unrealized gain on the transaction of technology licensing revenue with SMEC,
amounted to US$44.5 million from SMEC as of June 30, 2018.
|
|
|
31.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The Group considers
that the carrying amounts of financial assets and financial liabilities recognized in the condensed consolidated financial statements
approximate their fair values.
Valuation techniques
and assumptions applied for the purposes of measuring fair value
The fair value of
financial instruments based on quoted market prices in active markets, valuation techniques that use observable market-based inputs
or unobservable inputs that are corroborated by market data. Pricing information the Group obtains from third parties is internally
validated for reasonableness prior to use in the condensed consolidated financial statements. When observable market prices are
not readily available, the Group generally estimates the fair value using valuation techniques that rely on alternate market data
or inputs that are generally less readily observable from objective sources and are estimated based on pertinent information available
at the time of the applicable reporting periods. In certain cases, fair values are not subject to precise quantification or verification
and may fluctuate as economic and market factors vary and the Group’s evaluation of those factors changes.
|
|
31.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
|
Fair value measurements
recognized in the consolidated statement of financial position
The following tables
provide an analysis of financial instruments that are measured at fair value on a recurring basis subsequent to initial recognition,
grouped into Levels 1 to 3 based on the degree to which the fair value is observable. There is no transfer within different levels
of the fair value hierarchy in the period ended June 30, 2018.
|
|
•
|
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market
for identical assets or liabilities;
|
|
|
•
|
Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices);
|
|
|
•
|
Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
|
|
|
|
|
06/30/18
|
|
|
|
Valuation techniques
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss
|
|
Listed equity securities
|
|
Using quoted market prices
|
|
|
1,961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,961
|
|
|
Unlisted equity securities
|
|
Using discounted cash flow analysis
|
|
|
—
|
|
|
|
—
|
|
|
|
34,827
|
|
|
|
34,827
|
|
|
Financial products sold by banks
|
|
Using observable prices
|
|
|
—
|
|
|
|
60,412
|
|
|
|
—
|
|
|
|
60,412
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap contracts
— cash flow hedges
|
|
Using the present value of the estimated future cash flows based on observable yield curves
|
|
|
—
|
|
|
|
23,542
|
|
|
|
—
|
|
|
|
23,542
|
|
|
|
|
|
|
|
1,961
|
|
|
|
83,954
|
|
|
|
34,827
|
|
|
|
120,742
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Using forward exchange rates at the balance sheet date
|
|
|
—
|
|
|
|
780
|
|
|
|
—
|
|
|
|
780
|
|
Cross currency swap contracts
— cash flow hedges
|
|
Using the present value of the estimated future cash flows based on observable yield curves
|
|
|
—
|
|
|
|
4,594
|
|
|
|
—
|
|
|
|
4,594
|
|
|
Other financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
Using discounted cash flow analysis
|
|
|
—
|
|
|
|
—
|
|
|
|
12,393
|
|
|
|
12,393
|
|
|
|
|
|
|
|
—
|
|
|
|
5,374
|
|
|
|
12,393
|
|
|
|
17,767
|
|
|
|
31.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
|
Fair value measurements recognized
in the consolidated statement of financial position
(CONTINUED)
|
|
|
|
|
12/31/17
|
|
|
|
|
Valuation techniques
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
Financial assets measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investment carried at fair value through profit or loss
|
|
Using observable prices
|
|
|
—
|
|
|
|
117,928
|
|
|
|
—
|
|
|
|
117,928
|
|
|
Available-for-sale investment
|
|
Using quoted market prices
|
|
|
2,531
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,531
|
|
|
Available-for-sale investment
|
|
Using discounted cash flow analysis
|
|
|
—
|
|
|
|
—
|
|
|
|
20,134
|
|
|
|
20,134
|
|
Cross currency swap contracts classified as other financial assets in the statement of financial position
— cash flow hedges
|
|
Using the present value of the estimated future cash flows based on observable yield curves
|
|
|
—
|
|
|
|
22,337
|
|
|
|
—
|
|
|
|
22,337
|
|
|
Foreign currency forward contracts classified as other financial assets in the statement of financial position
|
|
Using forward exchange rates at the balance sheet date
|
|
|
—
|
|
|
|
2,111
|
|
|
|
—
|
|
|
|
2,111
|
|
|
|
|
|
|
|
2,531
|
|
|
|
142,376
|
|
|
|
20,134
|
|
|
|
165,041
|
|
|
Financial liabilities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap contracts classified as other financial liabilities in the statement of financial position — cash flow hedges
|
|
Using the present value of the estimated future cash flows based on observable yield curves
|
|
|
—
|
|
|
|
2,661
|
|
|
|
—
|
|
|
|
2,661
|
|
|
Foreign currency forward contracts classified as other financial liabilities in the statement of financial position
|
|
Using forward exchange rates at the balance sheet date
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
Contingent consideration
|
|
Using discounted cash flow analysis
|
|
|
—
|
|
|
|
—
|
|
|
|
12,549
|
|
|
|
12,549
|
|
|
|
|
|
|
|
—
|
|
|
|
2,663
|
|
|
|
12,549
|
|
|
|
15,212
|
|
|
|
32.
|
RELATED PARTY TRANSACTIONS
|
The names of the related parties which
had transactions with the Group for the period ended June 30, 2018 and the relationships with the Group are disclosed below.
|
Related party name
|
|
Relationship with the Group
|
|
Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang Holdings”)
|
|
A substantial shareholder of the Company
|
|
Datang Microelectronics Technology Co., Ltd.
|
|
A member of Datang Group
|
|
Datang Semiconductor Co., Ltd.
|
|
A member of Datang Group
|
|
Leadcore Technology Co.,
Ltd. and Leadcore Technology (Hong Kong) Co., Ltd. (“Leadcore”)
|
|
A member of Datang Group
|
|
Toppan
|
|
An associate of the Group
|
|
Brite Semiconductor (Shanghai)
Corporation and its subsidiaries (“Brite”)
|
|
An associate of the Group
|
|
China Fortune-Tech
|
|
An associate of the Group
|
|
Jiangsu Changjiang Electronics
Technology Co., Ltd (“JECT”) and its subsidiaries
|
|
An associate of the Group
|
|
Sino IC Leasing Co., Ltd (“Sino IC Leasing”)
|
|
An associate of the Group
|
|
Semiconductor Manufacturing
Electronics (Shaoxing) Corp. (“SMEC”)
|
|
An associate of the Group
|
|
Ningbo Semiconductor International Corporation (”NSI”)
|
|
An associate of the Group
|
Trading transactions
During the period, group entities entered
into the following trading transactions with related parties that are not members of the Group:
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
06/30/18
|
|
|
06/30/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
|
|
Sale of goods
|
|
|
Sale of services
|
|
|
Datang Microelectronics Technology Co., Ltd.
|
|
|
5,386
|
|
|
|
10,105
|
|
|
|
—
|
|
|
|
—
|
|
|
Datang Semiconductor Co., Ltd.
|
|
|
117
|
|
|
|
119
|
|
|
|
—
|
|
|
|
—
|
|
|
Leadcore
|
|
|
1,012
|
|
|
|
2,953
|
|
|
|
—
|
|
|
|
—
|
|
|
Toppan
|
|
|
—
|
|
|
|
—
|
|
|
|
799
|
|
|
|
2,197
|
|
|
Brite
|
|
|
16,564
|
|
|
|
24,688
|
|
|
|
—
|
|
|
|
—
|
|
|
China Fortune-Tech
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
JCET and its subsidiaries
|
|
|
25
|
|
|
|
17
|
|
|
|
32
|
|
|
|
16
|
|
|
NSI
|
|
|
—
|
|
|
|
—
|
|
|
|
1,530
|
|
|
|
—
|
|
|
|
|
|
Purchase of goods
|
|
|
|
Purchase of services
|
|
|
Datang Microelectronics Technology Co., Ltd.
|
|
|
—
|
|
|
|
—
|
|
|
|
65
|
|
|
|
—
|
|
|
Toppan
|
|
|
3,424
|
|
|
|
5,570
|
|
|
|
19
|
|
|
|
24
|
|
|
Brite
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
857
|
|
|
China Fortune-Tech
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
|
|
461
|
|
|
JCET and its subsidiaries
|
|
|
5,988
|
|
|
|
—
|
|
|
|
338
|
|
|
|
869
|
|
|
Sino IC Leasing
|
|
|
—
|
|
|
|
—
|
|
|
|
33,311
|
|
|
|
16,696
|
|
|
|
|
|
Sale of equipment
|
|
|
|
Grant of licensing
|
|
|
Sino IC Leasing
(2)
|
|
|
—
|
|
|
|
250,625
|
|
|
|
—
|
|
|
|
—
|
|
|
SMEC
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
160,423
|
|
|
|
—
|
|
|
|
32.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
Trading transactions
(CONTINUED)
The following balances were outstanding
at the end of the reporting period:
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
06/30/18
|
|
|
12/31/17
|
|
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
USD’000
|
|
|
|
|
Amounts due from
|
|
|
Amounts due to
|
|
|
Datang Microelectronics Technology Co., Ltd
|
|
|
2,854
|
|
|
|
4,279
|
|
|
|
—
|
|
|
|
—
|
|
|
Datang Semiconductor Co., Ltd
|
|
|
234
|
|
|
|
302
|
|
|
|
—
|
|
|
|
—
|
|
|
Leadcore
|
|
|
599
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Toppan
|
|
|
424
|
|
|
|
670
|
|
|
|
765
|
|
|
|
888
|
|
|
Brite
|
|
|
9,582
|
|
|
|
12,951
|
|
|
|
3
|
|
|
|
—
|
|
|
JCET and its subsidiaries
|
|
|
51
|
|
|
|
21
|
|
|
|
657
|
|
|
|
3
|
|
|
SMEC
(1)
|
|
|
151,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
NSI
|
|
|
1,323
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1)
|
In 2018, the technology licensing internally developed and not capitalized was authorized to SMEC
with the revenue of $160.4 million and no related cost of sales recognized by the Group. The corresponding receivables from SMEC
were $151.7 million as of June 30, 2018.
|
|
|
(2)
|
In February 2017, there were three arrangements in consideration of US$250.6 million entered into
by the Group with Sino IC Leasing (Tianjin) Co., Ltd. (a wholly-owned subsidiary of Sino IC Leasing) in the form of a sale and
leaseback transaction with a repurchase option. A batch of production equipment of the Group was sold and leased back under the
arrangements. As the repurchase prices were set at the expected fair value and the Group is not reasonably certain that it will
exercise the repurchase options, the above transactions were accounted for a disposal of property, plant and equipment followed
with an operating lease.
|
As of June 30, 2018, the Group had total
future minimum lease payments to Sino IC Leasing under non-cancellable operating lease commitments amounted to US$249.0 million
(December 31, 2017: US$294.9 million).
Capital contribution
On May 2, 2018,
IPV Global Technology Management Limited as the general partner and China Integrated Circuit Industry Investment Fund Co., Ltd
(“China IC Fund”), China IC Capital and other investor as the limited partners entered into the partnership agreement
in relation to the establishment and management of IPV Capital Global Technology Fund (“the IPV Fund”). The IPV Fund
will be established in the PRC as a limited partnership for the purpose of equity investments, investment management and other
activities, in order to maximize the profit of all partners. Pursuant to the partnership agreement, the total capital commitment
to the IPV Fund is RMB1,616.2 million (approximately US$244.3 million) of which RMB800.0 million (approximately US$120.9 million)
is to be contributed by China IC Fund and RMB165.0 million (approximately US$24.9 million) is to be contributed by China IC Capital.
As of the date of this announcement, China IC Capital has contributed to RMB49.5 million (approximately US$7.5 million).
Loans from non-controlling interests
shareholders
In 2016, LFoundry
entered into a seven-year loan facility in relation to the construction of the new co- generation from non-controlling interests
shareholders of LFoundry. The outstanding balance of EUR10.6 million (approximately US$12.3 million) is repayable from March 2019
to December 2023.
|
|
32.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
Arrangements/contracts for sale
of self-developed living quarter unit
In January 2018, the Group sold self-developed
living quarter unit to one director of the Company, amounted to US$1.2 million.
In May 2018, the
Group entered into arrangement/contracts with one key management for sale of self- developed living quarter unit and the amount
of the consideration was approximately US$1.2 million. The transaction was not completed as of the date of this announcement.
|
|
33.
|
CHANGES IN ACCOUNTING POLICIES
|
|
|
(1)
|
Impact on the financial statements
|
The following table
shows the adjustments as the impact of the adoption of IFRS 15 and IFRS 9 on the Group’s financial statements and also discloses
the new accounting policies that have been applied from January 1, 2018, where they are different to those applied in prior periods.
The Group has adopted IFRS 15 retrospectively with restating comparatives for the 2017 financial year and adopted IFRS 9 without
restating comparative information as at December 31, 2017.
(In USD’000)
|
|
|
12/31/17
|
|
|
Impact on
IFRS 15
|
|
|
12/31/17
|
|
|
Impact on IFRS 9
|
|
|
01/01/18
|
|
|
Consolidated statement of financial position (extract)
|
|
As
originally
presented
|
|
|
Contract
liabilities
|
|
|
Restated
|
|
|
Cross
currency
swap
contracts
|
|
|
Foreign
currency
forward
contracts
|
|
|
Financial
products
sold by
banks
|
|
|
Over
3 months
bank
deposits
|
|
|
Equity
securities
|
|
|
Contingent
consideration
|
|
|
Restated
|
|
|
|
|
|
|
|
(3b)
|
|
|
|
|
|
|
|
|
|
|
|
(2c)
|
|
|
(2c)
|
|
|
(2c)
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
42,810
|
|
|
|
—
|
|
|
|
42,810
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,844
|
)
|
|
|
—
|
|
|
|
17,966
|
|
|
Financial assets at fair value through profit or loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,844
|
|
|
|
—
|
|
|
|
24,844
|
|
|
Derivative financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,598
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,598
|
|
|
Other financial assets
|
|
|
17,598
|
|
|
|
—
|
|
|
|
17,598
|
|
|
|
(17,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
117,928
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
117,928
|
|
|
Derivative financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,739
|
|
|
|
2,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,850
|
|
|
Financial assets at amortized cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
559,034
|
|
|
|
—
|
|
|
|
—
|
|
|
|
559,034
|
|
|
Other financial assets
|
|
|
683,812
|
|
|
|
—
|
|
|
|
683,812
|
|
|
|
(4,739
|
)
|
|
|
(2,111
|
)
|
|
|
(117,928
|
)
|
|
|
(559,034
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
744,220
|
|
|
|
—
|
|
|
|
744,220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
744,220
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,919
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,919
|
|
|
Other financial liabilities
|
|
|
1,919
|
|
|
|
—
|
|
|
|
1,919
|
|
|
|
(1,919
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,393
|
|
|
|
12,393
|
|
|
Other Liabilities
|
|
|
99,817
|
|
|
|
—
|
|
|
|
99,817
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,393
|
)
|
|
|
87,424
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
1,050,460
|
|
|
|
(43,036
|
)
|
|
|
1,007,424
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,007,424
|
|
|
Contract liabilities
|
|
|
—
|
|
|
|
43,036
|
|
|
|
43,036
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,036
|
|
|
Derivative financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
742
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
744
|
|
|
Other financial liabilities
|
|
|
744
|
|
|
|
—
|
|
|
|
744
|
|
|
|
(742
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
1,152,940
|
|
|
|
—
|
|
|
|
1,152,940
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,152,940
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
|
|
|
134,669
|
|
|
|
—
|
|
|
|
134,669
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,535
|
)
|
|
|
—
|
|
|
|
118,134
|
|
|
Retained earnings
|
|
|
187,008
|
|
|
|
—
|
|
|
|
187,008
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,535
|
|
|
|
—
|
|
|
|
203,543
|
|
|
|
|
|
321,677
|
|
|
|
—
|
|
|
|
321,677
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
321,677
|
|
|
|
33.
|
CHANGES IN ACCOUNTING POLICIES
(CONTINUED)
|
|
|
(2)
|
IFRS 9 Financial Instruments — Accounting policies applied from January 1, 2018
|
IFRS 9 replaces
the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting.
|
|
(a)
|
Investments and other financial assets
|
Classification
From January 1, 2018 the Group classifies
its financial assets in the following measurement categories:
|
|
•
|
those to be measured subsequently at fair value (through profit or loss), and
|
|
|
•
|
those to be measured at amortized cost.
|
The classification
depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For
assets measured at fair value, gains and losses will be recorded in profit or loss.
Measurement
At initial recognition,
the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit
or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of
financial assets carried at FVPL are expensed in profit or loss.
Financial assets with embedded derivatives
are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Debt instruments
Subsequent measurement
of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the
asset. There are two measurement categories into which the Group classifies its debt instruments:
|
|
•
|
Amortized cost: Assets that are held for collection of contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial
assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized
directly in profit or loss and presented in other gains or losses, together with foreign exchange gains and losses. Impairment
losses are presented as separate line item in the statement of profit or loss.
|
|
|
•
|
FVPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVPL. A
gain or loss on a debt investment that is subsequently measured at FVPL is recognized in profit or loss and presented net within
other gains or losses in the period in which it arises.
|
|
|
33.
|
CHANGES IN ACCOUNTING POLICIES
(CONTINUED)
|
|
|
(2)
|
IFRS 9 Financial Instruments — Accounting policies applied from January 1, 2018
(CONTINUED)
|
|
|
(a)
|
Investments and other financial assets
(CONTINUED)
|
Equity instruments
The Group subsequently
measures all equity investments at fair value. Changes in the fair value of financial assets at FVPL are recognized in other gains
or losses in the statement of profit or loss as applicable.
Impairment
From January 1,
2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at
amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables,
the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial
recognition of the receivables.
|
|
(b)
|
Derivatives and hedging
|
The Group has made
the accounting policy choice to continue applying hedge accounting under IAS 39.
The adoption of
IFRS 9 Financial Instruments from January 1, 2018 resulted in changes in accounting policies and adjustments to the amounts recognized
in the financial statements. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.
On January 1, 2018
(the date of initial application of IFRS 9), the Group’s management has assessed which business models apply to the financial
assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories.
|
|
(i)
|
Reclassification from available-for-sale to FVPL
|
Certain equity
investments were reclassified from available-for-sale to financial assets at FVPL (US$24.8 million as at January 1, 2018). They
do not meet the IFRS 9 criteria for classification at amortized cost, because their cash flows do not represent solely payments
of principal and interest.
Related fair value
gains of US$16.5 million were transferred from the available-for-sale financial assets reserve to retained earnings on January
1, 2018. In the six months to June 30, 2018, net fair value losses of US$0.6 million relating to these investments were recognized
in profit or loss.
|
|
33.
|
CHANGES IN ACCOUNTING POLICIES
(CONTINUED)
|
|
|
(2)
|
IFRS 9 Financial Instruments — Accounting policies applied from January 1, 2018
(CONTINUED)
|
|
|
(c)
|
Impact of adoption
(CONTINUED)
|
|
|
(ii)
|
Reclassification from other financial assets to FVPL
|
Certain investments
in financial products sold by banks were reclassified from other financial assets to financial assets at FVPL (US$117.9 million
as at January 1, 2018). They do not meet the IFRS 9 criteria for classification at amortized cost, because their cash flows do
not represent solely payments of principal and interest.
|
|
(iii)
|
Reclassification from other financial assets to amortized cost
|
Certain investments
in over 3 months bank deposits were reclassified from other financial assets to amortized cost (US$559.0 million as at January
1, 2018). At the date of initial application the Group’s business model is to hold these investments for collection of contractual
cash flows, and the cash flows represent solely payments of principal and interest on the principal amount. There was no impact
on retained earnings at January 1, 2018.
|
|
(3)
|
IFRS 15 Revenue from Contracts with Customers
|
The new IFRS 15
standard establishes a single revenue recognition framework. The core principle of the framework is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods and services. IFRS 15 supersedes existing revenue recognition guidance
including IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
IFRS 15 requires
the application of a 5 steps approach to revenue recognition:
|
|
•
|
Step 1: Identify the contract(s) with a customer
|
|
|
•
|
Step 2: Identify the performance obligations in the contract
|
|
|
•
|
Step 3: Determine the transaction price
|
|
|
•
|
Step 4: Allocate the transaction price to each performance obligation
|
|
|
•
|
Step 5: Recognize revenue when each performance obligation is satisfied
|
IFRS 15 includes
specific guidance on particular revenue related topics that may change the current approach taken under IFRS. The standard also
significantly enhances the qualitative and quantitative disclosures related to revenue.
The standard permits
either a full retrospective method to each prior reporting period presented or a modified retrospective approach with the cumulative
effect of initially applying the guidance recognized at the date of initial application. The Group has performed a detailed assessment
on the impact of the adoption of IFRS 15 and decided to adopt a full retrospective approach. The expected changes in accounting
policies will not have any significant impact on the Group’s financial statements.
|
|
33.
|
CHANGES IN ACCOUNTING POLICIES
(CONTINUED)
|
|
|
(3)
|
IFRS 15 Revenue from Contracts with Customers
(CONTINUED)
|
The Group manufactures
semiconductor wafers for its customers based on the customers’ designs and specifications pursuant to manufacturing agreements
and/or purchase orders. The Group also sells certain semiconductor standard products to customers.
Revenue from the
sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are
satisfied:
|
|
•
|
the Group has transferred to the buyer the control of the goods;
|
|
|
•
|
the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control
over the goods sold;
|
|
|
•
|
the amount of revenue can be measured reliably;
|
|
|
•
|
it is probable that the economic benefits associated with the transaction will flow to the Group; and
|
|
|
•
|
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
|
Customers have the
right of return within one year pursuant to warranty provisions. The Group typically performs tests of its products prior to shipment
to identify yield rate per wafer. Occasionally, product tests performed after shipment identify yields below the level agreed with
the customer. In those circumstances, the customer arrangement may provide for a reduction to the price paid by the customer or
for the costs to return products and to ship replacement products to the customer. The Group estimates the amount of sales returns
and the cost of replacement products based on the historical trend of returns and warranty replacements relative to sales as well
as a consideration of any current information regarding specific known product defects at customers that may exceed historical
trends.
The Group has adopted
IFRS 15 Revenue from Contracts with Customers from January 1, 2018 which resulted in changes in accounting policies and adjustments
to the amounts recognized in the financial statements. In accordance with the transition provisions in IFRS 15, the Group has adopted
the new rules retrospectively and has restated comparatives for the 2017 financial year. Contract liabilities has been presented
in the balance sheet to reflect the terminology of IFRS 15, in relation to advance payment received from customers were previously
included in trade and other payables (US$43.0 million as at January 1, 2018).
|
|
(i)
|
Sale and leaseback agreements with Sino IC Leasing
|
In July 2018, there
were four arrangements in consideration of US$306.8 million entered into by the Group with Xinhe Leasing (Tianjin) Co., Ltd. (a
majority-owned subsidiary of Sino IC Leasing) in the form of a sale and leaseback transaction with a repurchase option. A batch
of production equipment of the Group was sold and leased back under the arrangements. As the repurchase prices were set at the
expected fair value and the Group is not reasonably certain that it will exercise the repurchase options, the above transactions
were accounted for a disposal of property, plant and equipment followed with an operating lease.
|
|
(ii)
|
Subscription of the oriented debt financing instrument
|
On May 18, 2018,
SMIC Beijing (as trustor), Shanghai Guotai Junan Securities Asset Management Co., Ltd. (as manager of entrusted assets, “subscriber”)
and China Merchants Bank Co., Ltd. (Shanghai Branch) (as custodian trustee) entered into the asset management agreement, pursuant
to which the subscriber shall provide SMIC Beijing with asset management and investment services, including investment in oriented
debt financing instrument.
On July 6, 2018
and August 10, 2018, using funds from entrusted assets, the subscriber has respectively subscribed for, an amount of RMB200.0 million
(approximately US$30.2 million) and RMB100.0 million (approximately US$14.6 million) out of the total issue of an aggregate principal
amount of RMB500.0 million of the oriented debt financing instrument issued by Sino IC Leasing.
|
|
(iii)
|
Deemed disposal of equity interest in SGS
|
On August 10, 2018,
SMIC Holdings Corporation (“SMIC Holdings”), Sino IC Leasing and other investors had agreed to amend the joint venture
agreement dated March 1, 2018 through the Amended JV Agreements, pursuant to which: (i) SMIC Holdings will not make additional
capital contribution, but Sino IC Leasing and other investors will make additional capital contributions in the registered capital
of SGS in US$5.0 million and US$5.0 million, respectively (ii) the Company’s equity interest in SGS, through SMIC Holdings,
will decrease from 60.00% to 30.00%; and (iii) SGS will be owned by China IC Fund, through Sino IC Leasing, as to approximately
8.08%.
|
|
(iv)
|
Issue of equity securities
|
On April 23, 2018,
the Company entered into the China IC Fund Pre-emptive Share Subscription Agreement with China IC Fund and Xinxin (Hongkong) Capital
Co., Ltd (“Xinxin HK”, wholly-owned by China IC Fund), pursuant to which, on and subject to the terms of the China
IC Fund Pre-emptive Share Subscription Agreement, the Company conditionally agreed to issue, and China IC Fund, through Xinxin
HK, conditionally agreed to subscribe for, the 57,054,901 Ordinary Shares at the price of HK$10.65 per Ordinary Share. On August
29, 2018, the Company completed the issue of the China IC Fund pre-emptive shares in the principal amount of HK$607.6 million (approximately
US$77.4 million).
On April 23, 2018,
the Company entered into the China IC Fund PSCS Subscription Agreement with China IC Fund and Xinxin HK, pursuant to which, on
and subject to the terms of the China IC Fund PSCS Subscription Agreement, the Company conditionally agreed to issue, and China
IC Fund, through Xinxin HK, conditionally agreed to subscribe for, the China IC Fund PSCS which are convertible into 183,178,403
Ordinary Shares (assuming full conversion of the China IC Fund PSCS at the initial Conversion Price of HK$12.78 per Ordinary Share).
On August 29, 2018, the Company completed the issue of the China IC Fund PSCS in the principal amount of US$300.0 million.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Board of Directors (the “Board”)
of Semiconductor Manufacturing International Corporation (the “Company” or “SMIC”) would like to announce
the unaudited interim results of operations of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”)
for the six months ended June 30, 2018, and would like to express its gratitude to the shareholders and its staff for their support
for the Group.
SALES
Sales increased by 11.5% from US$1,544.3 million
for the six months ended June 30, 2017 to US$1,721.8 million for the six months ended June 30, 2018. Excluding the recognition
of technology licensing revenue, sale increased from US$1,544.3 million for the six months ended June 30, 2017 to US$1,561.3 million
for the six months ended June 30, 2018, primarily due to an increase in wafer shipments during this period. The number of wafer
shipments increased by 11.0% from 2,109,919 8-inch wafer equivalents for the six months ended June 30, 2017 to 2,341,966 8-inch
wafer equivalents for the six months ended June 30, 2018. The technology licensing revenue of US$160.4 million for the six months
ended June 30, 2018 internally developed and not capitalized was authorized to Semiconductor Manufacturing Electronics (Shaoxing)
Corporation (an associate of the Group) with no related cost of sales recognized by the Group.
COST OF SALES AND GROSS PROFIT
Cost of sales increased by 13.7% from US$1,129.3
million for the six months ended June 30, 2017 to US$1,283.7 million for the six months ended June 30, 2018, primarily due to an
increase in wafer shipment and product-mix change during this period.
The Group had gross profit of US$438.0 million for
the six months ended June 30, 2018 compared to gross profit of US$415.0 million for the six months ended June 30, 2017, representing
an increase of 5.6%. Gross margin decreased to 25.4% for the six months ended June 30, 2018 from 26.9% for the six months ended
June 30, 2017. Excluding the recognition of technology licensing revenue, gross margin decreased to 17.8% for the six months ended
June 30, 2018 from 26.9% for the six months ended June 30, 2017, primarily due to product-mix change and lower average selling
price during this period.
PROFIT FOR THE PERIOD FROM
OPERATIONS
Profit from operations decreased from US$99.0 million
for the six months ended June 30, 2017 to US$61.4 million for the six months ended June 30, 2018 primarily due to an increase of
research and development expenses in the first half of 2018.
Research and development expenses increased by 23.4%
from US$219.0 million for the six months ended June 30, 2017 to US$270.2 million for the six months ended June 30, 2018. The increase
was mainly due to the increase of advanced technology research and development activities.
General and administrative expenses increased by
US$6.7 million from US$93.6 million for the six months ended June 30, 2017 to US$100.3 million for the six months ended June 30,
2018.
Sales and marketing expenses decreased by US$3.2
million from US$19.8 million for the six months ended June 30, 2017 to US$16.7 million for the six months ended June 30, 2018.
Other operating incomes were US$10.5 million and
US$16.4 million for the six months ended June 30, 2018 and 2017, respectively. The decrease was mainly due to less government funding
received in the first half of 2018.
PROFIT FOR THE PERIOD
The Group had a profit of US$58.7 million for the
six months ended June 30, 2018, compared to US$97.5 million for the six months ended June 30, 2017 mainly due to the net impact
of 1) the factors described above, 2) more interest income, 3) increased foreign exchange gain, and 4) less gains on investment
and disposal of equities.
FUNDING SOURCES FOR MATERIAL CAPITAL EXPENDITURE
IN THE COMING YEAR
In 2018, the Group plans to spend approximately
US$2.3 billion in capital expenditures for foundry operations which are subject to adjustment based on market conditions. The capital
expenditures are mainly for 1) the expansion of capacity in our majority-owned Beijing 300mm fab, Tianjin 200mm fab and Shanghai
300mm fab, and 2) research and development equipment, mask shops and intellectual property acquisition.
In addition, the Group budgeted approximately US$136.7
million in 2018 as capital expenditures for non-foundry operations. This is mainly for the construction of employee’s living
quarters.
The Group’s actual expenditures may differ
from its planned expenditures for a variety of reasons, including changes in its business plan, market conditions, equipment prices,
or customer requirements. The Group will monitor the global economy, the semiconductor industry, the demands of its customers,
and its cash flow from operations and will adjust its capital expenditures plans as necessary.
The primary sources of capital resources and liquidity
include cash generated from operations, bank borrowings and debt or equity issuances and other forms of financing. Future acquisitions,
mergers, strategic investments, or other developments also may require additional financing. The amount of capital required to
meet the Group’s growth and development targets is difficult to predict in the highly cyclical and rapidly changing semiconductor
industry.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2018, the Group
incurred capital expenditures of US$880.9 million, compared to US$1,508.7 million for the six months ended June 30, 2017. The Group
financed its capital expenditures primarily from cash flows generated from operating and financing activities.
The Group had US$1,414.3 million in cash and cash
equivalent as of June 30, 2018. These cash and cash equivalent are held in the form of United States Dollars, Japanese Yen, Euro
and Chinese Renminbi.
Net cash from operating activities decreased from
US$392.1 million for the six months ended June 30, 2017 to US$205.4 million for the six months ended June 30, 2018, primarily due
to 1) decreased gross margin excluding the recognition of technology licensing revenue, 2) increased research and development activities,
and 3) less government funding received.
Net cash used in investing activities was US$1,611.6
million for the six months ended June 30, 2018, primarily attributable to 1) purchases of plant and equipment mainly for the fabs
in Shanghai, Beijing and Tianjin, 2) the net result of proceeds from selling and payments for financial assets at amortized cost
and financial assets at fair value through profit or loss, and 3) payments for acquiring long-term investment. Net cash used in
investing activities was US$1,850.3 million for the six months ended June 30, 2017, primarily attributable to 1) purchases of plant
and equipment mainly for the fabs in Shanghai, Beijing and Shenzhen, 2) the net result of proceeds from selling and payments for
acquiring financial assets, 3) payments for acquiring long-term investment, and 4) the net proceeds from disposal of property,
plant and equipment and assets classified as held for sale.
Net cash generated from financing activities was
US$968.0 million for the six months ended June 30, 2018, which was primarily 1) the net result of proceeds from new financing and
repayments of bank borrowings, 2) the proceeds from issuance of perpetual subordinated convertible securities and new shares, and
3) the proceeds from the capital contribution of non-controlling interests. Net cash generated from financing activities was US$206.9
million for the six months ended June 30, 2017, which was primarily 1) the net result of proceeds from new financing and repayments
of bank borrowings, and 2) the repayment of short-term notes.
As of June 30, 2018, the Group’s outstanding
long-term liabilities primarily consisted of US$539.3 million in secured bank loans, US$1,446.3 million in unsecured bank loans,
US$410.8 million in convertible bonds and US$497.6 million in USD bonds of which, US$452.9 million was classified as the current
portion of long-term loans.
2013 USD loan (SMIC Shanghai)
In August 2013, Semiconductor Manufacturing International
(Shanghai) Corporation (“SMIS” or “SMIC Shanghai”) entered into a loan facility in the aggregate principal
amount of US$470.0 million which is unsecured with a syndicate of financial institutions based in the PRC. This seven-year bank
facility was used to finance the planned expansion for SMIS’ 300mm fab. As of June 30, 2018, SMIS had drawn down US$260.0
million and repaid US$259.1 million on this loan facility. The outstanding balance of US$0.9 million is repayable in advance on
August 2018. The interest rate on this loan facility ranged from 5.96% to 6.61% in 2018.
2015 CDB RMB loan I (SMIC Shanghai)
In December 2015, SMIS entered into a loan facility
in the aggregate principal amount of RMB1,000.0 million with China Development Bank, which is guaranteed by SMIC. This fifteen-year
bank facility was used for new SMIS’ 300mm fab. As of June 30, 2018, SMIS had drawn down RMB1,000.0 million (approximately
US$151.1 million) on this loan facility. The outstanding balance is repayable from November 2021 to November 2030. The interest
rate on this loan facility was 1.20% in 2018.
2015 CDB RMB loan II (SMIC Shanghai)
In December 2015, SMIS entered into a loan facility
in the aggregate principal amount of RMB475.0 million with China Development Bank, which is guaranteed by SMIC. This ten-year bank
facility was used to expand the capacity of SMIS’ 300mm fab. As of June 30, 2018, SMIS had drawn down RMB475.0 million (approximately
US$71.8 million) on this loan facility. The outstanding balance is repayable from December 2018 to December 2025. The interest
rate on this loan facility was 1.20% in 2018.
2015 EXIM RMB loan (SMIC Shanghai)
In December 2015, SMIS entered into a loan facility
in the aggregate principal amount of RMB500.0 million with The Export-Import Bank of China, which is unsecured. This three-year
bank facility was used for working capital purposes. As of June 30, 2018, SMIS had drawn down RMB500.0 million (approximately US$75.6
million) on this loan facility. The outstanding balance is repayable in December 2018. The interest rate on this loan facility
was 2.65% in 2018.
2017 EXIM RMB loan (SMIC Shanghai)
In March 2017, SMIS entered into a loan facility
in the aggregate principal amount of RMB1,000.0 million with The Export-Import Bank of China, which is unsecured. This two-year
bank facility was used for working capital purposes. As of June 30, 2018, SMIS had drawn down RMB1,000.0 million (approximately
US$151.1 million) on this loan facility. The outstanding balance is repayable in March and April 2019. The interest rate on this
loan facility is 2.65% per annum in 2018.
2015 CDB RMB loan (SMIC Beijing)
In December 2015, Semiconductor Manufacturing International
(Beijing) Corporation (“SMIB” or “SMIC Beijing”) entered into an RMB loan, a fifteen-year working capital
loan facility in the principal amount of RMB195.0 million with China Development Bank, which is unsecured. As of June 30, 2018,
SMIB had drawn down RMB195.0 million and repaid RMB9.0 million on this loan facility. The outstanding balance of RMB186.0 million
(approximately US$28.1 million) is repayable from December 2018 to December 2030. The interest rate on this loan facility was 1.20%
in 2018.
2016 CDB RMB loan (SMIC Beijing)
In May 2016, SMIB entered into the RMB loan, a fifteen-year
working capital loan facility in the principal amount of RMB1,460.0 million with China Development Bank, which is guaranteed by
SMIC. As of June 30, 2018, SMIB had drawn down RMB1,460.0 million and repaid RMB35.0 million on this loan facility. The outstanding
balance of RMB1,425.0 million (approximately US$215.4 million) is repayable from November 2018 to May 2031. The interest rate on
this loan facility was 1.20% in 2018.
2016 EXIM RMB loan I (SMIC Beijing)
In December 2016, SMIB entered into the RMB loan,
a two-year working capital loan facility in the principal amount of RMB240.0 million with The Export-Import Bank of China, which
is unsecured. This two-year bank facility was used for working capital purposes. As of June 30, 2018, SMIB had drawn down RMB240.0
million (approximately US$36.3 million) on this loan facility. The outstanding balance is repayable in December 2018. The interest
rate on this loan facility was 2.65% in 2018.
2016 EXIM RMB loan II (SMIC Beijing)
In January 2016, SMIB entered into the RMB loan,
a three-year working capital loan facility in the principal amount of RMB400.0 million with The Export-Import Bank of China, which
is unsecured. This three-year bank facility was used for working capital purposes. As of June 30, 2018, SMIB had drawn down RMB400.0
million (approximately US$60.5 million) on this loan facility. The outstanding balance is repayable in January 2019. The interest
rate on this loan facility was 2.65% in 2018.
2017 EXIM RMB loan (SMIC Beijing)
In September 2017, SMIB entered into a loan facility
in the aggregate principal amount of RMB500.0 million with The Export-Import Bank of China, which is unsecured. This five-year
bank facility was used for SMIB’s 300mm fab. As of June 30, 2018, SMIB had drawn down RMB500.0 million (approximately US$75.6
million) on this loan facility. The outstanding balance is repayable from September 2018 to September 2022. The interest rate on
this loan facility is 2.92% per annum in 2018.
2018 EXIM RMB loan (SMIC Beijing)
In June 2018, SMIB entered into a loan facility
in the aggregate principal amount of RMB200.0 million with The Export-Import Bank of China, which is secured by bank time deposits.
This two-year bank facility was used for SMIB’s 300mm fab. As of June 30, 2018, SMIB had drawn down RMB200.0 million (approximately
US$30.2 million) on this loan facility. The outstanding balance is repayable in June 2020. The interest rate on this loan facility
is 2.92% per annum in 2018.
2016 EXIM RMB loan (SMIC)
In May 2016, SMIC entered into a loan facility in
the aggregate principal amount of RMB500.0 million with The Export-Import Bank of China, which is unsecured. This three-year bank
facility was used for working capital purposes. As of June 30, 2018, SMIC had drawn down RMB500.0 million (approximately US$75.6
million) on this loan facility. The outstanding balance is repayable in May 2019. The interest rate on this loan facility is 3.05%
in 2018.
2017 EXIM RMB loan (SMIC Tianjin)
In February 2017, Semiconductor Manufacturing International
(Tianjin) Corporation (“SMIT” or “SMIC Tianjin”) entered into a RMB loan, a three-year working capital
loan facility in the principal amount of RMB500.0 million with The Export-Import Bank of China, which is unsecured. This three-year
bank facility was used for working capital purposes. As of June 30, 2018, SMIT had drawn down RMB500.0 million (approximately US$75.6
million) on this loan facility. The outstanding balance is repayable in February 2020. The interest rate on this loan facility
is 4.04% per annum in 2018.
2017 CDB RMB loan (SMIC Shenzhen)
In December 2017, Semiconductor Manufacturing International
(Shenzhen) Corporation (“SMIZ” or “SMIC Shenzhen”) entered into a loan facility in the aggregate principal
amount of RMB5,400.0 million with China Development Bank, which is unsecured. This seven-year bank facility was used to finance
the planned expansion for SMIZ’s 300mm fab. As of June 30, 2018, SMIZ had drawn down RMB2,211.0 million (approximately US$334.2
million) on this loan facility. The outstanding balance is repayable from December 2019 to December 2024. The interest rate on
this loan facility is 4.46% per annum in 2018.
2017 EXIM RMB loan (SMIC Shenzhen)
In December 2017, SMIZ entered into a loan facility
in the aggregate principal amount of RMB500.0 million with The Export-Import Bank of China, which is unsecured. This five-year
bank facility was used to finance the planned expansion for SMIZ’s 300mm fab. As of June 30, 2018, SMIZ had drawn down RMB500.0
million and repaid RMB15.0 million on this loan facility. The outstanding balance of RMB485.0 million (approximately US$73.3 million)
is repayable from September 2018 to September 2022. The interest rate on this loan facility is 3.40% per annum in 2018.
2014 Cassa Depositie Prestiti loan (LFoundry)
In January 2014, LFoundry S.r.l. (“LFoundry”)
entered into a loan facility in the aggregate principal amount of EUR35.8 million with Cassa Depositie Prestiti. This ten-year
bank facility was in relation to the admission of LFoundry to the benefits of the technology innovation fund. The facility is secured
by bank deposits of EUR10.2 and the manufacturing equipment located in LFoundry’s 200mm fab. As of June 30, 2018, LFoundry
had drawn down EUR35.8 million and repaid EUR13.6 million on this loan facility. The outstanding balance of EUR22.7 million (its
present value is EUR20.0 million, approximately US$23.3 million) including principal amount of EUR22.2 million and interest cash
flow of EUR0.5 million is repayable from December 2018 to December 2023. The interest rate on this loan facility was 0.5% in 2018.
2014 MPS Capital Service loan (LFoundry)
In January 2014, LFoundry entered into a loan facility
in the aggregate principal amount of EUR4.0 million with MPS Capital Service. This ten-year bank facility was in relation to the
admission of LFoundry to the benefits of the technology innovation fund. The facility is secured by bank deposits of EUR1.1 million
and the manufacturing equipment located in LFoundry’s 200mm fab. As of June 30, 2018, LFoundry had drawn down EUR4.0 million
on this loan facility. The outstanding balance of EUR5.0 million (its present value is EUR4.3 million, approximately US$5.0 million)
including principal amount of EUR4.0 million and interest cash flow of EUR1.0 million is repayable from June 2020 to December 2023.
The interest rate on this loan facility was approximately 6% in 2018.
2014 Citizen Finetech Miyota loan (LFoundry)
In June 2014, LFoundry entered into a loan facility
in the aggregate principal amount of JPY480.0 million with Citizen Finetech Miyota Co. Ltd. This five-year facility was used to
finance the expansion of LFoundry’s 200mm fab. The facility is secured by the manufacturing equipment located in LFoundry’s
200mm fab. As of June 30, 2018, LFoundry had drawn down JPY480.0 million on this loan facility and repaid JPY58.0 million. The
outstanding balance of JPY439.0 million (its present value is JPY411.0 million, approximately US$3.6 million) including principal
amount of JPY422.0 million and interest cash flow of JPY17.0 million is repayable from July 2018 to December 2019. The interest
rate on this loan facility is 4.04% per annum in 2018.
2017 Banca del Mezzogiorno loan (LFoundry)
In June 2017, LFoundry entered into a soft loan
facility in the aggregate principal amount of EUR1.2 million with Banca del Mezzogiorno, which is unsecured. This nine-year facility
was in relation to the admission of LFoundry to the benefits of the European Project called Horizon. As of June 30, 2018, LFoundry
had drawn down EUR1.2 million (approximately US$1.5 million) on this loan facility. The principal amount is repayable from December
2018 to June 2026. The interest rate on this loan facility is 0.8% per annum in 2018
2018 Unicredit S.p.A. loan (LFoundry)
In June 2018, LFoundry entered into a loan facility
in the aggregate principal amount of EUR2.0 million with Unicredit S.p.A. Bank, which is unsecured. This two-year facility was
in order to perform an advanced payment to secure the raw wafers purchase commitment. As of June 30, 2018, LFoundry had drawn down
EUR2.0 million (approximately US$2.3 million) on this loan facility. The principal amount is repayable from July 2018 to July 2020.
The annual interest rate on this loan facility is 3 months Euribor rate, plus 0.9% per annum in 2018.
Finance lease payables
In 2016, a leasing contract entered into by the
Group with one of its suppliers for the construction and installation of gas generation equipment. This transaction was accounted
for a finance leasing with remaining lease term of five years. As at June 30, 2018, the total net finance lease payables were US$5.3
million.
Loans from non-controlling interests shareholders
In 2016, LFoundry entered into a loan facility in
the aggregate principal amount of EUR15.0 million with non- controlling interests shareholders of LFoundry. This seven-year facility
was in relation to the construction of the new co-generation. LFoundry had drawn down EUR10.6 million on this loan facility. The
outstanding balance of EUR10.6 million (approximately US$12.3 million) is repayable from March 2019 to December 2023. The interest
rate on this loan facility was 3.5% in 2018.
Sales and leaseback borrowings
As of June 30, 2018, the three arrangements of sales
and leaseback borrowings amounted to US$477.2 million (December 31, 2017: US$487.7 million) which were entered into by the Group
and third-party financing companies in 2016 in the form of a sale and leaseback transaction with a repurchase option. A batch of
production equipment of the Group was sold and leased back under the arrangements. As the repurchase prices are set at below US$1.00,
which are minimal compared to the expected fair value and the Group is certain that it will exercise the repurchase options, the
above arrangements were accounted for as collateralized borrowings of the Group.
Short-term credit agreements
As of June 30, 2018, the Group had 31 short-term
credit agreements that provided total credit facilities of up to US$2,267.6 million on a revolving basis. As of June 30, 2018,
the Group had drawn down US$328.2 million under these credit agreements. The outstanding borrowings under these credit agreements
are unsecured. The interest rate ranges from 1.93% to 3.13% per annum in 2018.
ISSUE OF EQUITY
SECURITIES
|
|
1.
|
Issue of new shares to Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang”)
|
On June 29, 2018,
pursuant to the share subscription agreement between the Company, Datang and Datang Holdings (Hongkong) Investment Company Limited
(“Datang HK”), the Company allotted and issued 61,526,473 ordinary shares, representing an aggregate nominal value
of approximately US$246,106, at the price of HK$10.65 per share. The net price per share under the issue is HK$10.65. The market
price of the shares on the date of the share subscription agreement was HK$10.34.
The issue of shares
to Datang will strengthen the relationship between Datang and the Company and provide an additional source of funding for the Company’s
needs beyond the capital raised through the placing of shares and issue of perpetual subordinated convertible securities as disclosed
in the announcement of the Company dated November 29, 2017.
The total funds
raised from the issue and details of the use of proceeds are as follows:
Total proceeds
raised from
the issue
|
|
Intended use
of the proceeds
as previously disclosed
|
|
Utilized proceeds
during the six
months ended June
30, 2018
|
|
Unutilized proceeds as of
June 30,
2018
|
|
Expected
timeline for the
use of unutilized
proceeds
|
|
US$83.5 million
|
|
The
Company’s capital expenditure for capacity expansion and general corporate purposes
|
|
US$0
|
|
US$83.5 million will be utilized in accordance with the intended use as previously disclosed
|
|
Expected
to be fully utilized by the end of June 30, 2019
|
|
|
2.
|
Issue of perpetual subordinated convertible securities (the “PSCS”) to Datang
|
On June 29, 2018,
pursuant to the PSCS subscription agreement between the Company, Datang and Datang HK, the Company completed the issue of the PSCS
in the principal amount of US$200.0 million. Assuming full conversion of the PSCS at the initial conversion price of HK$12.78,
the PSCS will be convertible into 122,118,935 ordinary shares, representing an aggregate nominal value of approximately US$488,476.
The net price per conversion share under the issue is HK$12.77. The market price of the shares on the date of the PSCS subscription
agreement was HK$10.34.
The issue of PSCS
to Datang will strengthen the relationship between Datang and the Company and provide an additional source of funding for the Company’s
needs beyond the capital raised through the placing of shares and issue of PSCS as disclosed in the announcement of the Company
dated November 29, 2017.
The total funds raised from the issue
and details of the use of proceeds are as follows:
Total proceeds
raised from
the issue
|
|
Intended use
of the proceeds
as previously disclosed
|
|
Utilized proceeds
during the six
months ended June
30, 2018
|
|
Unutilized proceeds as of
June 30,
2018
|
|
Expected
timeline for the
use of unutilized
proceeds
|
|
US$200.0 million
|
|
The
Company’s capital expenditure for capacity expansion and general corporate purposes
|
|
US$0
|
|
US$200.0 million will be utilized in accordance with the intended use as previously disclosed
|
|
Expected
to be fully utilized by the end of June 30, 2019
|
|
|
3.
|
Issue of equity securities by the Company in the past financial years with proceeds brought forward
The details of funds raised from previous issue(s) and details of the use of proceeds during the six months ended June 30, 2018 for such issue(s) are as follows:
|
|
|
a)
|
Placing of shares to the placees as disclosed in the announcement of the Company dated November 29, 2017
|
Total proceeds
raised from
the issue
|
|
Proceeds from the issue
brought forward as on
January 1, 2018
|
|
Intended use of
the proceeds as
previously disclosed
|
|
Utilized proceeds during
the
six months ended
June 30, 2018
|
|
Unutilized proceeds as of
June 30, 2018
|
|
US$329.1 million
|
|
US$329.1 million
|
|
The
Company’s capital expenditure for capacity expansion and general corporate purposes
|
|
US$329.1 million utilized in accordance with the intended use as previously disclosed
|
|
US$0
|
|
|
b)
|
Issue of PSCS to the subscribers as disclosed in the announcement of the Company dated November 29, 2017
|
Total proceeds
raised from
the issue
|
|
Proceeds from the issue
brought forward as on
January 1, 2018
|
|
Intended use of
the proceeds as
previously disclosed
|
|
Utilized proceeds during
the
six months ended
June 30, 2018
|
|
Unutilized proceeds as of
June 30, 2018
|
|
US$65.0 million
|
|
US$65.0 million
|
|
The
Company’s capital expenditure for capacity expansion and general corporate purposes
|
|
US$65.0 million utilised in accordance with the intended use as previously disclosed
|
|
US$0
|
MATERIAL INVESTMENTS, ACQUISITIONS AND DISPOSALS
Capital contribution in Semiconductor Manufacturing
South China Corporation (“SMSC”)
On January 30, 2018, SMIC Holdings Corporation (“SMIC
Holdings”), SMIC Shanghai, China Integrated Circuit Industry Investment Fund Co., Ltd (“China IC Fund”) and Shanghai
Integrated Circuit Industry Investment Fund Co., Ltd (“Shanghai IC Fund”) entered into the joint venture agreement
and the capital contribution agreement pursuant to which SMIC Holdings, China IC Fund and Shanghai IC Fund agreed to make cash
contribution to the registered capital of SMSC in the amount of US$1.5435 billion, US$946.5 million and US$800.0 million, respectively.
As a result of the capital contribution: (i) the registered capital of SMSC will increase from US$210.0 million to US$3.5 billion;
(ii) the Company’s equity interest in SMSC, through SMIC Holdings and SMIC Shanghai, will decrease from 100% to 50.1%; and
(iii) SMSC will be owned as to 27.04% and 22.86% by China IC Fund and Shanghai IC Fund, respectively.
The principal business
of SMSC includes wafer manufacturing, wafer probing and bumping, technology development, design service, mask manufacturing,
assembly and final testing of integrated circuits and sales of self- manufactured products. SMSC is expected to establish and
build up large-scale manufacturing capacity focusing on 14 nanometer and below process and manufacturing technologies and
aims to reach a manufacturing capacity of 35,000 wafers per month. The Group believes that the investment in SMSC is
attractive and able to generate sustainable and attractive returns in the near future.
Equity transfer and capital contribution in
Ningbo Semiconductor International Corporation (“NSI”)
On March 22, 2018, NSI, SMIC Holdings and China
IC Fund entered into the equity transfer agreement, pursuant to which SMIC Holdings has agreed to sell the equity Interest to China
IC Fund. Upon the completion of the equity transfer, the shareholding of SMIC Holdings in NSI will decrease from approximately
66.76% to 38.59%, and NSI will cease to be a subsidiary of the Company and its financial results will cease to be consolidated
with the Group’s results. There is no gain or loss expected to accrue to the Company as a result of the equity transfer.
The equity transfer has been completed in April, 2018 and the Group recorded its ownership interest of NSI as investment in associate.
On March 23, 2018, NSI, SMIC Holdings, China IC
Fund, Ningbo Senson Electronics Technology Co., Ltd, Beijing Integrated Circuit Design and Testing Fund, Ningbo Integrated Circuit
Industry Fund and Infotech National Emerging Fund entered into the capital increase agreement, pursuant to which (i) SMIC Holdings
has agreed to make further cash contribution of RMB565.0 million (approximately US$89.4 million) into the registered capital of
NSI. Its shareholding in NSI will decrease from approximately 38.59% to approximately 38.57%; (ii) China IC Fund has agreed to
make further cash contribution of RMB500.0 million (approximately US$79.2 million) into the registered capital of NSI. Its shareholding
in NSI will increase from approximately 28.17% to approximately 32.97%. The all above parties’ performance of the Capital
Contribution obligations will lead to an increase in the registered capital from RMB355 million to RMB1.82 billion (approximately
US$56.2 million to US$288.1 million).
COMMITMENTS
As of June 30, 2018, the Group had commitments of
US$307.4 million for facilities construction obligations in connection with the Company’s Shanghai, Beijing, Tianjin, Shenzhen
and Jiangyin facilities, US$705.1 million to purchase machinery and equipment mainly for the Shanghai, Beijing, Shenzhen and Jiangyin
fabs and US$3.7 million to purchase intellectual property.
As of June 30, 2018, the Group had total future
minimum lease payments under non-cancellable operating leases amounted to US$249.0 million.
CAPITAL MANAGEMENT
The Group manages its capital to ensure that entities
in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of
the capital structure. The capital structure of the Group consists of net debt and equity of the Group.
Where the entity manages its capital through issuing/repurchasing
shares and raising/repayment of debts. The Group reviews the capital structure on a semi-annual basis. As part of this review,
the Group considers the cost of capital and the risks associates with each class of capital. The Group will balance its overall
capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the
redemption of existing debt.
DEBT TO EQUITY RATIO
As of June 30, 2018, the Group’s debt to equity
ratio was approximately 45.3%, which was calculated by dividing the sum of the short-term and long-term borrowings, medium-term
notes, convertible bonds and corporate bonds by total shareholders’ equity. The net debt to equity ratio was approximately
9.7%, which was calculated by dividing the total debt minus cash and cash equivalents, current financial assets at fair value through
profit or loss and financial assets at amortised cost by total shareholders’ equity.
FOREIGN EXCHANGE RATE FLUCTUATION
RISK
The Group’s revenue, expense, and capital
expenditures are primarily transacted in U.S. dollars. The Group also enters into transactions in other currencies. The Group is
primarily exposed to changes in exchange rates for the Euro, Japanese Yen and RMB.
To minimize these risks, the Group purchases foreign-currency
forward exchange contracts with contract terms normally lasting less than twelve months to protect against the adverse effect that
exchange rate fluctuation may have on foreign-currency denominated activities. These forward exchange contracts are principally
denominated in RMB, Japanese Yen or Euros and do not qualify for hedge accounting in accordance with IFRS.
Outstanding foreign exchange contracts
As of June 30, 2018, the Group had outstanding foreign
currency forward exchange contract with notional amounts of US$29.8 million, which will mature in 2018. As of June 30, 2018, the
fair value of foreign currency forward exchange contracts was approximately US$(0.8) million, which was recorded in derivative
financial instruments in current liabilities.
As of December 31, 2017, the Group had outstanding
foreign currency forward exchange contract with notional amounts of US$98.4 million, which matured in 2018. The Group does not
enter into foreign currency exchange contracts for speculative purposes.
|
|
|
As of June 30, 2018
|
|
|
As of December 31, 2017
|
|
|
|
|
(in US$ thousands)
|
|
|
(in US$ thousands)
|
|
|
|
|
Notional
value
|
|
|
Net fair
value assets
(liabilities)
|
|
|
Notional
value
|
|
|
Net fair
value assets
(liabilities)
|
|
|
Forward Exchange Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Receive EUR/Pay US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
|
|
|
29,750
|
|
|
|
(780
|
)
|
|
|
2,500
|
|
|
|
(2
|
)
|
|
(Receive RMB/Pay US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
|
|
|
—
|
|
|
|
—
|
|
|
|
95,881
|
|
|
|
2,111
|
|
|
|
|
|
29,750
|
|
|
|
(780
|
)
|
|
|
98,381
|
|
|
|
2,109
|
|
CROSS CURRENCY SWAP FLUCTUATION
RISK
The Group entered into several RMB denominated loan
facility agreements and issued RMB notes (hereinafter collectively referred to as the “RMB Debts”). As a result, the
Group was primarily exposed to changes in the exchange rate for the RMB. To minimize the currency risk, the Group entered into
cross currency swap contracts with a contract term fully matching the repayment schedule of the whole part of these RMB Debts to
protect against the adverse effect of exchange rate fluctuations arising from the RMB Debts.
Outstanding cross currency swap contracts
As of June 30, 2018, the Group had outstanding cross
currency swap contracts with notional amounts of RMB8,937.0 million (approximately US$1,350.7 million). Notional amounts are stated
in the U.S. dollar equivalents at spot exchange rates as of the respective dates. As of June 30, 2018, the fair value of cross
currency swap contracts was approximately US$18.9 million, of which approximately US$23.5 million was recorded in derivative financial
instruments in assets and approximately US$(4.6) million was recorded in derivative financial instruments in liabilities. The cross
currency swap contracts will mature during the period 2018 to 2023.
As of December 31, 2017, the Group had outstanding
cross currency swap contracts with notional amounts of RMB6,398.0 million (approximately US$979.2 million). Notional amounts are
stated in the U.S. dollar equivalents at spot exchange rates as of the respective dates. As of December 31, 2017, the fair value
of cross currency swap contracts was approximately US$19.7 million, of which approximately US$(2.7) million was recorded in other
financial liabilities and approximately US$22.3 million was recorded in other financial assets. The cross currency swap contracts
will mature during the period 2018 to 2022.
|
|
|
As of June 30, 2018
|
|
|
As of December 31, 2017
|
|
|
|
|
(in US$ thousands)
|
|
|
(in US$ thousands)
|
|
|
|
|
Notional
value
|
|
|
Net fair
value assets
(liabilities)
|
|
|
Notional value
|
|
|
Net fair
value assets
(liabilities)
|
|
|
Cross Currency Swap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Receive RMB/Pay US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
|
|
|
1,350,694
|
|
|
|
18,948
|
|
|
|
979,156
|
|
|
|
19,676
|
|
|
|
|
|
1,350,694
|
|
|
|
18,948
|
|
|
|
979,156
|
|
|
|
19,676
|
|
EMPLOYEES EQUITY INCENTIVE
PLAN
Save as disclosed in this announcement, there is
no material change to the information disclosed in the 2017 annual report of the Group in relation to the number and remuneration
of employees, remuneration policies, bonus and share option schemes of employees.
PROSPECTS AND FUTURE PLANS
In the first half of 2018, the Group made encouraging
progress in advancing technology, building up technology platforms, and forging partnerships. At the same time, annual revenue
is targeted to grow in the high-single digit percentage in 2018 when compared to 2017, which is in line with the foundry industry
growth rate. The Group also targets a positive annual net profitability attributable to shareholders. In addition, SMIC targets
a “high teens” percentage gross margin, when excluding the technology license revenue.
SMIC achieved significant progress on 14nm FinFET
development. The R&D for SMIC’s first version of FinFET technology is ready for business engagement. SMIC is currently
in the process of customer assessment, IP alignment, and reliability verification. SMIC’s FinFET technology is on target
to start risk production in the first half of next year. In addition to 28nm PolySiON and HKC, HKC+ technology development is also
completed. 28nm HKC continues to ramp up, as its yield meets industry benchmark. As 28nm HKC+ R&D was completed, the Group
targets pilot production by the end of this year. Moreover, the Group will continue to expand and enhance both mature and advanced
technology platforms to provide comprehensive and competitive services.
SHARE CAPITAL
During the six months ended June 30, 2018, the Company
issued 2,980,581 Ordinary Shares as a result of the exercise of equity awards granted pursuant to the Company’s 2004 stock
option plan (the “2004 Stock Option Plan”). During this period, there were 1,186,932 and 11,973,273 Ordinary Shares
issued as a result of the exercise of equity awards granted pursuant to the Company’s 2014 stock option plan (the “2014
Stock Option Plan”) and the Company’s 2014 equity incentive plan (the “2014 Equity Incentive Plan”) which
have replaced the 2004 Stock Option Plan and the 2004 Equity Incentive Plan, respectively, upon their termination.
|
|
|
Number of Shares Outstanding
|
|
|
Outstanding Share Capital as of June 30, 2018: Ordinary Shares
|
|
|
4,993,774,148
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|
Under the terms of the Company’s 2014 Equity
Incentive Plan, the Compensation Committee may grant restricted share units (“RSU(s)”) to eligible participants. Each
RSU represents the right to receive one Ordinary Share. RSUs granted to new employees and existing employees generally vest at
a rate of 25% upon the first, second, third and fourth anniversaries of the vesting commencement date. Upon vesting of the RSUs
and subject to the terms of the Insider Trading Policy and the payment by the participants of applicable taxes, the Company will
issue the relevant participants the number of Ordinary Shares underlying the awards of RSUs.
REPURCHASE, SALE OR REDEMPTION
OF THE COMPANY’S LISTED SECURITIES
Neither the Company nor any of its subsidiaries
has repurchased, sold or redeemed any of the Ordinary Shares during the six months ended 30 June 2018.
CORPORATE GOVERNANCE PRACTICES
The Corporate Governance Code (the “CG Code”)
as set out in Appendix 14 to the Hong Kong Stock Exchange Listing Rules contains code provisions (the “Code Provisions”)
which an issuer, such as the Company, is expected to comply with or advise as to reasons for deviations from and recommends best
practices which an issuer is encouraged to implement (the “Recommended Practices”). The Company has adopted a set of
Corporate Governance Policy (the “CG Policy”) since January 25, 2005 as its own code of corporate governance, which
is amended from time to time to comply with the CG Code. The CG Policy, a copy of which can be obtained on the Company’s
website at www.smics.com under “Investor Relations > Corporate Governance > Policy and Procedures”, substantially
incorporates Code Provisions and the Recommended Practices of the CG Code. The Company will seek to comply with the Code Provisions
of the CG Code whenever practicable. In addition, the Company has adopted or put in place various policies, procedures, and practices
in compliance with the provisions of the CG Policy.
Code Provision A.4.2 of the CG Code requires that
all directors appointed to fill a casual vacancy should be subject to election by shareholders at the first general meeting after
appointment. According to Article 126 of the Articles of Association of the Company, any Director appointed by the Board to fill
a casual vacancy or as an addition to the existing Directors shall hold office only until the next following annual general meeting
of the Company after appointment and shall then be eligible for re-election at that meeting.
Save as the aforesaid and in the opinion of the
Directors, the Company had complied with all Code Provisions set out in the CG Code during the six months ended June 30, 2018.
MODEL CODE FOR SECURITIES
TRANSACTIONS BY DIRECTORS OF LIST ISSUERS
The Company has adopted an Insider Trading Compliance
Program (the “Insider Trading Policy”) which encompasses the requirements of the Model Code for Securities Transactions
by Directors of Listed Issuers as set out in Appendix 10 to the Hong Kong Stock Exchange Listing Rules (the “Model Code”).
The Company, having made specific enquiry of all Directors, confirms that all Directors have complied with the Insider Trading
Policy and the Model Code throughout the six months ended June 30, 2018. The senior management of the Company as well as all officers,
directors, and employees of the Company and its subsidiaries are also required to comply with the provisions of the Insider Trading
Policy.
THE BOARD
The Board has a duty to the Company’s shareholders
to direct and oversee the affairs of the Company in order to maximize shareholder value. The Board, acting by itself and through
its various committees, actively participates in and is responsible for the determination of the overall strategy of the Company,
the establishment and monitoring of the achievement of corporate goals and objectives, the oversight of the Company’s financial
performance and the preparation of the accounts, the establishment of corporate governance practices and policies, and the review
of the Company’s system of internal controls. The management of the Company is responsible for the implementation of the
overall strategy of the Company and its daily operations and administration. The Board has access to the senior management of the
Company to discuss enquiries on management information.
The Board consists of fourteen Directors as at the
date of this announcement. Directors may be elected to hold office until the expiration of their respective term upon a resolution
passed at a duly convened shareholders’ meeting by holders of a majority of the Company’s issued shares being entitled
to vote in person or by proxy at such meeting. The Board is divided into three classes with one class of Directors eligible for
re-election at each annual general meeting of the Company. Each class of Directors (including all non-executive Directors) serves
a term of three years.
The following table sets forth the names, classes
and categories of the Directors as at the date of this announcement:
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Name of Director
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Category of Director
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Class of
Director
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Year of
Re-election
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Zhou Zixue
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Chairman, Executive Director
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Class I
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|
2020
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Gao Yonggang
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|
Chief Financial Officer and Executive Director
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Class I
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2020
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William Tudor Brown
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Independent Non-executive Director
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Class I
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2020
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Tong Guohua
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Non-executive Director
|
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Class I
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2020
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Zhao Haijun
|
|
Executive Director
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|
Class II
|
|
2021
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|
Chen Shanzhi
|
|
Non-executive Director
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Class II
|
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2021
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|
Lu Jun
|
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Non-executive Director
|
|
Class II
|
|
2021
|
|
Lau Lawrence Juen-Yee
(1)
|
|
Independent Non-executive Director
|
|
Class II
|
|
2019 & 2021
|
|
Fan Ren Da Anthony
(2)
|
|
Independent Non-executive Director
|
|
Class II
|
|
2019 & 2021
|
|
Liang Mong Song
|
|
Executive Director
|
|
Class III
|
|
2019
|
|
Zhou Jie
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|
Non-executive Director
|
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Class III
|
|
2019
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|
Ren Kai
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Non-executive Director
|
|
Class III
|
|
2019
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Chiang Shang-yi
|
|
Independent Non-executive Director
|
|
Class III
|
|
2019
|
|
Cong Jingsheng Jason
|
|
Independent Non-executive Director
|
|
Class III
|
|
2019
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|
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(1)
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Professor Lawrence Juen-Yee Lau, whose initial appointment as Director took effect from June 22,
2018, shall retire from office at the 2019 AGM pursuant to Article 126 of the Company’s Articles of Association. Professor
Lau will, being eligible, offer himself for re-election as a Class II Director at the 2019 AGM to hold office until the 2021 AGM.
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|
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(2)
|
Mr. Fan Ren Da Anthony, whose initial appointment as Director took effect from June 22, 2018, shall
retire from office at the 2019 AGM pursuant to Article 126 of the Company’s Articles of Association. Mr. Fan will, being
eligible, offer himself for re-election as a Class II Director at the 2019 AGM to hold office until the 2021 AGM.
|
As of the date of this announcement, the roles of
Chairman and Co-Chief Executive Officers are segregated. The role of Chairman is performed by Dr. Zhou Zixue and the roles of Co-Chief
Executive Officers are performed by Dr. Zhao Haijun and Dr. Liang Mong Song.
On an annual basis, each independent non-executive
Director confirms his independence to the Company, and the Company considers these Directors to be independent as such term is
defined in the Hong Kong Stock Exchange Listing Rules. There are no relationships among members of the Board, including between
the Chairman of the Board and the Co-Chief Executive Officer.
The Board meets at least four times a year at approximately
quarterly intervals and on such other occasions as may be required to discuss and vote upon significant issues affecting the Company.
The schedule of Board meetings for a given year is planned in the preceding year. The joint company secretaries of the Company
(the “Joint Company Secretaries”) assist the Chairman in preparing the agenda for the Board meetings and also assist
the Board in complying with applicable laws, rules and regulations. The relevant papers for the Board meetings are dispatched to
Board members in accordance with the CG Code. Directors may include matters for discussion in the agenda if the need arises. Upon
the conclusion of the Board meeting, minutes are circulated to all Directors for their review and comments prior to their approval
of the minutes at the following or subsequent Board meeting. Transactions in which any Directors are considered to have a conflict
of interest which the Board has determined to be material are dealt with by physical Board meetings rather than written resolutions
and the interested Directors are not counted in the quorum of such Board meetings and abstain from voting on the relevant matters.
All Directors have access to the Joint Company Secretaries,
who are responsible for assisting the Board in complying with applicable procedures regarding compliance matters. Every Board member
is entitled to have access to documents tabled at the Board meeting or filed into the Company’s minutes book. Furthermore,
the Board has established the procedures pursuant to which a Director, upon reasonable request, may seek independent professional
advice at the Company’s expense in order for such Director to discharge his duties. The Joint Company Secretaries continuously
update all Directors on the latest development of the Hong Kong Stock Exchange Listing Rules and other applicable regulatory requirements
to ensure the Company’s compliance with and maintenance of good corporate governance practices. Each new Director is provided
with training with respect to his responsibilities under the Hong Kong Stock Exchange Listing Rules and other regulatory requirements
and the Company’s corporate governance policies and practices.
UPDATES TO INFORMATION RELATING
TO DIRECTORS AND CHIEF EXECUTIVE
Changes in, and updates to, previously disclosed
information relating to the Directors and Chief Executive
As required under Rules 13.51B of the Hong Kong Stock Exchange Listing
Rules, certain changes in, and updates to, the information previously disclosed regarding the Directors and chief executive during
their respective terms of office are set out below:
|
|
•
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With effect from June 22, 2018:
|
|
|
o
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Mr. Lip-Bu Tan did not offer himself for re-election to the Board of Directors of the Company and
his term with the Board expired on June 22, 2018;
|
|
|
o
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Ms. Carmen I-Hua Chang did not offer herself for re-election to the Board of Directors of the Company
and her term with the Board expired on June 22, 2018;
|
|
|
o
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Professor Lawrence Juen-Yee Lau has been appointed as a Class II Independent Non-executive Director
of the Company, as well as a member of the Compensation Committee, Nomination Committee and Strategic Advisory Committee; and
|
|
|
o
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Mr. Fan Ren Da Anthony has been appointed as a Class II Independent Non-executive Director of the
Company, as well as Chairman of the Audit Committee and a member of the Nomination Committee.
|
|
|
•
|
Dr. Tzu-Yin Chiu resigned as a Class I Non-executive Director and Vice Chairman of the Board and a member of the Strategic
Advisory Committee of the Company with effect from June 30, 2018.
|
|
|
•
|
Dr. Tong Guohua was appointed as Chairman and Secretary of the Party Committee of China Information and Communication Technology
Group Co., Ltd on June 26, 2018.
|
|
|
•
|
Dr. Chen Shanzhi was appointed as a member of the Standing Committee of the Party Committee of China Information and Communication
Technology Group Co., Ltd on June 26, 2018.
|
WAIVER FROM COMPLIANCE WITH THE HONG KONG STOCK
EXCHANGE LISTING RULES
Save as disclosed in the prospectus
of the Company dated March 8, 2004 and our announcement dated July 3, 2017 regarding waiver from strict compliance with Rules 3.28
and 8.17 of the Listing Rules, the Company has not received any waivers from compliance with the Hong Kong Stock Exchange Listing
Rules which are still in effect.
REVIEW BY AUDIT COMMITTEE
The Audit Committee has reviewed
with the management of the Company the accounting principles and practices accepted by the Company and the interim financial statements
of the Company for the six months ended June 30, 2018.
INTERIM REPORT
The Company’s Interim
report for the six months ended June 30, 2018 containing financial statements and notes to the accounts will be published on the
website of the SEHK (http://www.hkex.com.hk) as well as the website of the Company (http://www.smics.com) in due course.
CAUTIONARY STATEMENT FOR
PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This result announcement may
contain, in addition to historical information, “forward-looking statements” within the meaning of the “safe
harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 and Section 27A of the U.S. Securities Act
of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. These forward- looking statements are based on SMIC’s
current assumptions, expectations and projections about future events. SMIC uses words like “believe”, “anticipate”,
“intend”, “estimate”, “expect”, “project” and similar expressions to identify forward
looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily
estimates reflecting judgment of SMIC’s senior management and involve significant risks, both known and unknown, uncertainties
and other factors that may cause SMIC’s actual performance, financial condition or results of operations to be materially
different from those suggested by the forward-looking statements including, among others, risks associated with cyclicality and
market conditions in the semiconductor industry, intense competition, timely wafer acceptance by SMIC’s customers, bad debt
risk, timely introduction of new technologies, SMIC’s ability to ramp new products into volume, supply and demand for semiconductor
foundry services, industry overcapacity, shortages in equipment, components and raw materials, availability of manufacturing capacity
and financial stability in end markets.
Except as required by law,
SMIC undertakes no obligation and does not intend to update any forward-looking statement, whether as a result of new information,
future events or otherwise.
|
|
By order of the Board
|
|
|
Semiconductor Manufacturing International Corporation
|
|
|
Gao Yonggang
|
|
|
Executive Director, Chief Financial Officer and Joint Company Secretary
|
Shanghai, China, August 30,
2018
As at the date of this announcement, the directors
of the Company are:
Executive Directors
ZHOU Zixue
(Chairman)
ZHAO Haijun
(Co-Chief Executive Officer)
LIANG
Mong Song
(Co-Chief Executive Officer)
GAO Yonggang
(Chief Financial Officer)
Non-executive Directors
CHEN Shanzhi
ZHOU Jie
REN Kai
LU Jun
TONG Guohua
Independent Non-executive Directors
William Tudor BROWN
CHIANG Shang-yi
CONG Jingsheng
Jason
LAU Lawrence Juen-Yee
FAN Ren Da Anthony
* For
identification purposes only