SMIC Reports 2017 Fourth Quarter Results

China

+86 400-620-8038

(Pass code: SMIC)

Hong Kong

+852 3018-6771

(Pass code: SMIC)

Taiwan

+886 2-2650-7825

(Pass code: SMIC)

United States, New York

+1 845-675-0437

(Pass code: SMIC)

4Q17

3Q17

QoQ

4Q16

YoY

Revenue

787,174

769,723

2.3%

814,802

-3.4%

Cost of sales

(638,678)

(592,426)

7.8%

(568,790)

12.3%

Gross profit

148,496

177,297

-16.2%

246,012

-39.6%

Operating expenses

(145,323)

(154,592)

-6.0%

(196,994)

-26.2%

Profit from operations

3,173

22,705

-86.0%

49,018

-93.5%

Other income (expense), net

(6,086)

7,290

-

473

-

(Loss) profit before tax

(2,913)

29,995

-

49,491

-

Income tax benefit

1,217

595

104.5%

8,547

-85.8%

(Loss) profit for the period

(1,696)

30,590

-

58,038

-

Other comprehensive income (loss):

Exchange differences on translating foreign operations

8,458

5,686

48.8%

(11,250)

-

Change in value of available-for-sale financial assets

(67)

(455)

-85.3%

617

-

Cash flow hedges

(595)

5,620

-

(34,912)

-98.3%

Actuarial gains and losses on defined benefit plans

(556)

32

-

1,438

-

Share of other comprehensive income of joint ventures accounted for using equity method⁽⁴⁾

11,755

5,891

99.5%

-

-

Total comprehensive income for the period

17,299

47,364

-63.5%

13,931

24.2%

Profit (loss) for the period attributable to:

SMIC

47,718

25,899

84.2%

104,008

-54.1%

Non-controlling interests

(49,414)

4,691

-

(45,970)

7.5%

(Loss) profit for the period

(1,696)

30,590

-

58,038

-

Gross margin

18.9%

23.0%

30.2%

Earnings per ordinary share⁽¹⁾ Basic

$0.01

$0.01

$0.02

Diluted

$0.01

$0.01

$0.02

Earnings per ADS⁽²⁾

Basic

$0.05

$0.03

$0.12

Diluted

$0.05

$0.03

$0.11

Wafers shipped (in 8" equivalent wafers)

1,124,821

1,076,039

1,096,011

Capacity utilization⁽³⁾

85.8%

83.9%

96.5%

Note:

(1) Based on weighted average ordinary shares of 4,729million (basic) and 5,159 million (diluted) in 4Q17, 4,651million (basic) and 4,690 million (diluted) in 3Q17, and 4,239 million (basic) and 5,055 million (diluted) in 4Q16. The basic and diluted earnings per share for 4Q16 have been adjusted to reflect the impact of the share consolidation, on the basis that every ten ordinary shares of par value of $0.0004 each consolidated into one consolidated share of par value of $0.004 each, which was accounted for as a reverse stock split effective on December 7, 2016 ("Share Consolidation")

(2) Each ADS represents 5 ordinary shares.

(3) Based on total equivalent wafers out divided by estimated total quarterly capacity. 

(4) The comparative figure of 3Q17 has been revised to conform the current period's presentation. Such revision reflected the increase of US$5.9 million in the "share of other comprehensive income of joint ventures accounted for using equity method" in the 3Q17 Condensed Consolidated Statements of Profit or Loss and Other Comprehensive Income, and both the "reserves" and "investment in joint ventures" in the Condensed Consolidated Statements of Financial Position as of September 30, 2017.

Revenue Analysis

By Application

4Q17

3Q17

4Q16

Computer

6.6%

5.8%

3.9%

Communications

42.5%

45.3%

44.3%

Consumer

37.6%

37.0%

37.4%

Auto/Industrial

8.8%

8.1%

7.0%

Others

4.5%

3.8%

7.4%

By Service Type

4Q17

3Q17

4Q16

Wafers

99.7%

98.4%

96.4%

Mask making, testing, others

0.3%

1.6%

3.6%

By Geography

4Q17

3Q17

4Q16

North America

38.1%

41.9%

33.2%

China⁽¹⁾

51.3%

45.7%

47.8%

Eurasia⁽²⁾

10.6%

12.4%

19.0%

Wafer Revenue Analysis

By Technology

4Q17

3Q17

28 nm

11.3%

8.8%

3.5%

40/45 nm

23.6%

20.6%

23.6%

55/65 nm

16.0%

20.2%

19.8%

90 nm

1.8%

1.4%

1.6%

0.11/0.13 µm

6.3%

8.1%

14.8%

0.15/0.18 µm

37.8%

37.8%

34.2%

0.25/0.35 µm

3.2%

3.1%

2.5%

Note:

(1) Including Hong Kong, but excluding Taiwan

(2) Excluding China and Hong Kong

Fab

4Q17

3Q17

Shanghai 200mm Fab

109,000

114,000

Shanghai 300mm Fab

38,250

40,500

Beijing 300mm Fab

103,500

112,500

Tianjin 200mm Fab

50,000

47,000

Shenzhen 200mm Fab

30,000

32,075

Shenzhen 300mm Fab

6,750

-

Majority-Owned Beijing 300mm Fab

65,250

61,875

Majority-Owned Avezzano 200mm Fab

40,000

40,000

Total monthly wafer fabrication capacity

442,750

447,950

Note:

* Wafers per month at the end of the period in 8" equivalent wafers, calculated on a 30-day basis for comparison purposes

• Monthly capacity decreased to 442,750 8-inch equivalent wafers in 4Q17 from 447,950 8-inch equivalent wafers in 3Q17, primarily because of a product-mix change in 4Q17.

8" equivalent wafers

4Q17

3Q17

QoQ

4Q16

YoY

Wafer shipments

1,124,821

1,076,039

4.5%

1,096,011

2.6%

Utilization rate⁽¹⁾

85.8%

83.9%

-

96.5%

-

Note:  

(1)  Based on total equivalent wafers out divided by estimated total quarterly capacity.

Amounts in US$ thousands

4Q17

3Q17

QoQ

4Q16

YoY

Cost of sales

638,678

592,426

7.8%

568,790

12.3%

Depreciation

210,385

178,302

18.0%

159,778

31.7%

Other manufacturing costs

427,262

413,089

3.4%

407,870

4.8%

Share-based compensation

1,031

1,035

-0.4%

1,142

-9.7%

Gross profit

148,496

177,297

-16.2%

246,012

-39.6%

Gross margin

18.9%

23.0%

-

30.2%

-

Amounts in US$ thousands

4Q17

3Q17

QoQ

4Q16

YoY

Operating expenses

145,323

154,592

-6.0%

196,994

-26.2%

Research and development, net

101,300

106,848

-5.2%

118,325

-14.4%

General and administrative

58,201

46,104

26.2%

60,934

-4.5%

Selling and marketing

6,393

9,587

-33.3%

9,087

-29.6%

Other operating (income) loss

(20,571)

(7,947)

158.9%

8,648

-

Amounts in US$ thousands

4Q17

3Q17

QoQ

4Q16

YoY

Other income (expense), net

(6,086)

7,290

-

473

-

Interest income

8,297

6,545

26.8%

4,674

77.5%

Finance costs

(9,420)

12,906

-

(9,253)

1.8%

Foreign exchange gains or losses

9,192

(11,685)

-

481

1811.0%

Other gains or losses, net

(11,132)

(1,657)

571.8%

5,984

-

Share of (loss) profit of investment 
  using equity method

(3,023)

1,181

-

(1,413)

113.9%

Amounts in US$ thousands

4Q17

3Q17

QoQ

4Q16

YoY

Depreciation and amortization

251,741

243,196

3.5%

215,586

16.8%

Amounts in US$ thousands

4Q17

3Q17

Cash and cash equivalent

1,838,300

1,119,149

Restricted cash

336,043

339,596

Other financial assets – current ⁽¹⁾

683,812

607,258

Trade and other receivables

616,308

609,849

Prepayment and prepaid operating
  expenses

34,371

37,545

Inventories

622,679

625,283

Assets classified as held-for-sale

37,471

38,942

Total current assets

4,168,984

3,377,622

Current tax liabilities

270

780

Other financial liabilities

744

-

Accrued liabilities

180,912

170,735

Deferred government funding

193,158

178,293

Short-term Borrowings

440,608

437,375

Trade and other payables

1,050,460

1,019,153

Other liabilities

40,627

-

Total current liabilities

1,906,779

1,806,336

Cash Ratio⁽²⁾

1.0x

0.6x

Quick Ratio⁽³⁾

1.9x

1.5x

Current Ratio⁽⁴⁾

2.2x

1.9x

Note:

(1) Other financial assets – current mainly contains financial products sold by bank and bank deposits over 3 months.

(2) Cash and cash equivalent divided by total current liabilities.

(3) Current assets excluding inventories divided by total current liabilities

(4) Total current assets divided by total current liabilities.

Amounts in US$ thousands

4Q17

3Q17

Cash and cash equivalent

1,838,300

1,119,149

Restricted cash - current

336,043

339,596

Restricted cash - non current

13,438

13,228

Other financial assets - current ⁽¹⁾

683,812

607,258

Short-term borrowings

440,608

437,375

Long-term borrowings

1,743,939

1,573,150

Medium-term notes

228,483

224,755

Convertible bonds

403,329

406,357

Corporate bonds

496,689

496,234

Total debt

3,313,048

3,137,871

Net debt⁽²⁾

790,936

1,411,464

Equity

6,721,335

5,996,429

Total debt to equity ratio⁽³⁾

49.3%

52.3%

Net debt to equity ratio⁽⁴⁾

11.8%

23.5%

Note:

(1)  Other financial assets – current mainly contains financial products sold by bank and bank deposits over 3 months.

(2)  Net debt is total debt minus cash and cash equivalent, and other financial assets.

(3)  Total debt divided by equity.

(4)  Net debt divided by equity.

Amounts in US$ thousands

4Q17

3Q17

Net cash from operating activities

323,698

Net cash used in investing activities

(467,541)

(399,015)

Net cash from financing activities

847,250

217,493

Effect of exchange rate changes

15,744

5,013

Net change in cash and cash equivalent

719,151

• Capital expenditures were $498.7 million in 4Q17, compared to $451.1 million in 3Q17.
• The 2017 capital expenditures for foundry operations were $2,458.4 million, of which $948.0 million and $510.5 million were spent for the expansion of capacity in our majority-owned Beijing 300mm fab and in our new Shenzhen 300mm fab respectively. The 2017 capital expenditures for non-foundry operations were $29.5 million primarily for the construction of employees' living quarters.
• The planned 2018 capital expenditures for foundry operations are approximately $1.9 billion, of which approximately $0.5 billion and $0.4 billion are expected to be spent for the expansion of capacity in our majority-owned Beijing 300mm fab and in our new project in Tianjin respectively. The planned 2018 capital expenditures for non-foundry operations are approximately $47.7 million, mainly for the construction of employees' living quarters.

For the three months ended

December 31, 2017

September 30, 2017

(Unaudited)

(Unaudited)

Revenue

787,174

769,723

Cost of sales

(638,678)

(592,426)

Gross profit

148,496

177,297

Research and development expenses, net

(101,300)

(106,848)

General and administration expenses

(58,201)

(46,104)

Sales and marketing expenses

(6,393)

(9,587)

Other operating income (expense), net

20,571

7,947

Operating expenses

(145,323)

(154,592)

Profit from operations

3,173

22,705

Other income (expense), net

(6,086)

7,290

(Loss) profit before tax

(2,913)

29,995

Income tax benefit

1,217

595

(Loss) profit for the period

(1,696)

30,590

Other comprehensive income (loss)

Item that may be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations

8,458

5,686

Change in value of available-for-sale financial assets

(67)

(455)

Cash flow hedges

(595)

5,620

Share of other comprehensive income of joint ventures
accounted for using the equity method⁽³⁾

11,755

5,891

Items that will not be reclassified to profit or loss

Actuarial gains and losses on defined benefit plans

(556)

32

Total comprehensive income for the period

17,299

47,364

Profit (loss) for the period attributable to:

Owners of the Company

47,718

25,899

Non-controlling interests

(49,414)

4,691

(1,696)

30,590

Total comprehensive income (loss) for the period attributable to:

Owners of the Company

66,335

41,903

Non-controlling interests

(49,036)

5,461

17,299

47,364

Earnings per share attributable to Semiconductor Manufacturing
    International Corporation ordinary shareholders

Basic

$0.01

$0.01

Diluted

$0.01

$0.01

Earnings per ADS attributable to Semiconductor Manufacturing
    International Corporation ordinary ADS holders

Basic

$0.05

$0.03

Diluted

$0.05

$0.03

Shares used in calculating basic earnings per share

4,728,773,273

4,651,304,338

Shares used in calculating diluted earnings per share

5,159,200,254

4,690,039,191

Reconciliations of Non-GAAP Financial Measures to
  Comparable GAAP Measures

Non-GAAP operating expenses⁽¹⁾

(200,561)

(189,097)

EBITDA⁽²⁾

258,248

260,285

EBITDA margin⁽²⁾

32.8%

33.8%

Note:

(1)   Non-GAAP operating expenses are defined as operating expenses adjusted to exclude the effect of employee bonus accrual, government funding, gain or loss on the disposal of machinery and equipment and gain from the disposal of living quarters. SMIC reviews non-GAAP operating expenses together with operating expenses to understand, manage and evaluate its business and make financial and operational decisions. The Group also believes it is useful supplemental information for investors and analysts to assess its operating performance. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact our net profit for the period. In addition, because non-GAAP financial measures are not calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider the non-GAAP operating expenses in isolation from or as an alternative to operating expenses prepared in accordance with IFRS.

The following table sets forth the reconciliation of the non-GAAP operating expenses to its most directly comparable financial measure presented in accordance with IFRS, for the periods indicated.

For the three months ended

December 31, 2017

September 30, 2017

December 31, 2016

(Unaudited)

(Unaudited)

(Unaudited)

Operating expenses

(145,323)

(154,592)

(196,994)

Employee bonus accrued

776

-

28,644

Government funding

(46,833)

(28,459)

(23,635)

(Gain) loss on the disposal of 
  machinery and equipment

(5,913)

(4,972)

9,936

Gain from the disposal of living 
  quarters

(3,268)

(1,074)

(1,246)

Non-GAAP operating expenses

(200,561)

(189,097)

(183,295)

(2)   EBITDA is defined as profit for the period excluding the impact of the finance cost, depreciation and amortization, and income tax benefit and expense. EBITDA margin is defined as EBITDA divided by revenue. SMIC uses EBITDA margin as a measure of operating performance; for planning purposes, including the preparation of the Group's annual operating budget; to allocate resources to enhance the financial performance of the Group's business; to evaluate the effectiveness of the Group's business strategies; and in communications with SMIC's board of directors concerning the Group's financial performance. Although EBITDA is widely used by investors to measure a company's operating performance without regard to items, such as net finance cost, income tax benefit and expense and depreciation and amortization that can vary substantially from company to company depending upon their respective financing structures and accounting policies, the book values of their assets, their capital structures and the methods by which their assets were acquired, EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of the Group's results of operations as reported under IFRS. Some of these limitations are: it does not reflect the Group's capital expenditures or future requirements for capital expenditures or other contractual commitments; it does not reflect changes in, or cash requirements for, the Group's working capital needs; it does not reflect finance cost; it does not reflect cash requirements for income taxes; that, although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and these measures do not reflect any cash requirements for these replacements; and that other companies in SMIC's industry may calculate these measures differently than SMIC does, limiting their usefulness as comparative measures.

The following table sets forth the reconciliation of EBITDA and EBITDA margin to their most directly comparable financial measures presented in accordance with IFRS, for the periods indicated.

For the three months ended

December 31, 2017

September 30, 2017

December 31, 2016

(Unaudited)

(Unaudited)

(Unaudited)

(Loss) profit for the period

(1,696)

30,590

58,038

Finance costs

9,420

(12,906)

9,253

Depreciation and amortization

251,741

243,196

215,586

Income tax benefit

(1,217)

(595)

(8,547)

EBITDA

258,248

260,285

274,330

Profit margin

-0.2%

4.0%

7.1%

EBITDA margin

32.8%

33.8%

33.7%

(3)   The comparative figure of 3Q17 has been revised to conform the current period's presentation. For further details, please refer to Note (4) on Page 5 and the analysis on Page 6.

As of

December 31, 2017

September 30, 2017

(Unaudited)

(Unaudited)

ASSETS

Non-current assets

Property, plant and equipment                   

6,523,403

6,289,743

Land use right

97,477

98,040

Intangible assets

219,944

228,072

Investments in associates

758,241

740,931

Investments in joint ventures⁽²⁾

31,681

20,907

Deferred tax assets

44,875

42,027

Other financial assets

17,598

10,448

Restricted cash

13,438

13,228

Other assets

42,810

33,359

Total non-current assets

7,749,467

7,476,755

Current assets

Inventories

622,679

625,283

Prepayment and prepaid operating expenses

34,371

37,545

Trade and other receivables

616,308

609,849

Other financial assets

683,812

607,258

Restricted cash

336,043

339,596

Cash and cash equivalent

1,838,300

1,119,149

4,131,513

3,338,680

Assets classified as held-for-sale

37,471

38,942

Total current assets

4,168,984

3,377,622

TOTAL ASSETS

11,918,451

10,854,377

EQUITY AND LIABILITIES

Capital and reserves

Ordinary shares, $0.004 par value, 10,000,000,000 shares authorized, 4,916,106,889 and 4,651,624,748 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively⁽¹⁾

19,664

18,606

Share premium⁽¹⁾

4,827,619

4,475,807

Reserves⁽²⁾

134,669

119,791

Retained earnings

187,008

131,961

Equity attributable to owners of the Company

5,168,960

4,746,165

Perpetual subordinated convertible securities⁽³⁾

64,073

-

Non-controlling interests

1,488,302

1,250,264

Total equity

6,721,335

5,996,429

Non-current liabilities

Borrowings

1,743,939

1,573,150

Convertible bonds

403,329

406,357

Bonds payable

496,689

496,234

Medium-term notes

228,483

224,755

Deferred tax liabilities

16,412

13,280

Deferred government funding

299,749

291,894

Other financial liabilities

1,919

15,633

Other liabilities⁽⁴⁾

99,817

30,309

Total non-current liabilities

3,290,337

3,051,612

Current liabilities

Trade and other payables

1,050,460

1,019,153

Borrowings

440,608

437,375

Deferred government funding

193,158

178,293

Accrued liabilities

180,912

170,735

Other financial liabilities

744

-

Current tax liabilities

270

780

Other liabilities⁽⁴⁾

40,627

-

Total current liabilities

1,906,779

1,806,336

Total liabilities

5,197,116

4,857,948

TOTAL EQUITY AND LIABILITIES

11,918,451

10,854,377

Note:

(1)   On December 6, 2017, pursuant to the terms and conditions of the placing agreement entered by the Company and joint placing agents, the Company allotted and issued 241,418,625 placing shares, representing approximately 4.92% of the issued share capital of the Company as enlarged by the issue of the placing shares, to not less than six independent placees at the price of HK$10.65 per placing share. The gross proceeds of the placing are approximately HK$2.57 billion (approximately US$329.1 million) and the net proceeds of the placing (after deduction of fees, commissions and expenses) are approximately HK$2.55 billion (approximately US$326.4 million).

(2)   Both reserves and investments in joint ventures included an accumulated amount of $17.6 million in 4Q17 (3Q17: $5.9 million). The amount was recognized as the Group's share of the change in value of available-for-sale financial assets of the joint ventures, which are all unlisted companies invested indirectly through China IC Capital Co., Ltd (a wholly-owned investment fund company of the Company).

(3)   On December 14, 2017, the Company fulfilled all conditions set out in the placed perpetual subordinated convertible securities (the "PSCS") subscription agreement and completed the issue of the PSCS in the principal amount of US$65.0 million. The net proceeds (after deduction of fees, commissions and expenses) are approximately US$64.1 million. Assuming full conversion of the PSCS at the initial conversion price of HK$12.78, the PSCS will be convertible into 39,688,654 paced conversion shares.

(4)   Other liabilities including the non-current and current portion of long-term payables for the new purchased tangible and intangible assets were classified into the non-current and current liabilities respectively in 4Q17. Additionally, other liabilities included a potential cash compensation accrued in 4Q17 that may be incurred depending on the profit of Suzhou Changjiang Electric Xinke Investment Co., Ltd during the three years of 2017, 2018 and 2019. The potential cash compensation was deemed as the terms of the supplemental agreement entered by SilTech Semiconductor (Shanghai) Corporation Limited (an indirectly wholly-owned subsidiary of the Company) and Jiangsu Changjiang Electronics Technology Co., Ltd on December 9, 2016.

For the three months ended

December 31, 2017

September 30, 2017

(Unaudited)

(Unaudited)

Cash flow from operating activities

(Loss) profit for the period

(1,696)

30,590

Depreciation and amortization

251,741

243,196

Share of loss (gain) of investment using equity method

3,023

(1,181)

Changes in working capital and others

70,630

146,935

Net cash from operating activities

323,698

419,540

Cash flow from investing activities:

Payments for property, plant and equipment

(410,945)

(691,170)

Payments for intangible assets

(7,410)

(7,217)

Net proceeds after netting off land appreciation tax from disposal of
property, plant and equipment  and assets classified as held for sale⁽¹⁾

10,182

418,956

Changes in restricted cash relating to investing activities

26,732

-

Payments to acquire financial assets

(86,233)

(99,668)

Proceeds on sale of financial assets

14,200

9,871

Payment to acquire long-term investment

(15,095)

(30,042)

Proceeds from disposal of equity investment

1,028

-

Distributions received from associates

-

255

Net cash used in investing activities

(467,541)

(399,015)

Cash flow from financing activities:

Proceeds from borrowings

389,547

275,554

Repayment of borrowings

(240,076)

(58,417)

Proceeds from exercise of employee stock options

13,078

356

Proceeds from issuance of perpetual subordinated convertible securities

64,350

-

Proceeds from non-controlling interest – capital contribution

294,000

-

Proceeds from issuance of shares

326,351

-

Net cash from financing activities

847,250

217,493

Effects of exchange rate changes on the balance of cash held in foreign

currencies

15,744

5,013

Net increase in cash and cash equivalent

719,151

243,031

Cash and cash equivalent, beginning of period

1,119,149

876,118

Cash and cash equivalent, end of period

1,838,300

1,119,149

Note:

(1)   In 3Q17, there were seven financing arrangements in total consideration of US$410.8 million entered into by the Group with Xincheng Leasing (Tianjin) Co., Ltd, Xindian Leasing (Tianjin) Co., Ltd and Xinlu Leasing (Tianjin) Co., Ltd. (the three leasing companies are wholly-owned subsidiaries of Sino IC Leasing Co., Ltd., an associate of the Group) respectively, 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 these financing arrangements. As the repurchase prices are set at the expected fair value and the Group is not reasonably certain that it will exercise the repurchase options, the above transactions have been accounted for a disposal of property, plant and equipment followed with an operating lease.