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Cash flow analysis of YZC

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cash_1 July 27, 2011 (Yosua Nainggolan) Any investment recommendation made without looking at the cash flow of the company should be taken with a grain of salt, this is why we will take a deeper look at Yanzhou Coal’s (NYSE:YZC) consolidated cash flow statement. We will focus on looking at the statement as stream from 2008 to 2010 and making sense of any abnormal movements through the years.

There were proceeds on disposal of a joint venture and subsidiaries of RMB1,147,821 for 2010. This means Yanzhou Coal Mining  (NYSE:YZC) decided to sell out some of their business. These proceeds were mostly from YZC’s disposal of Minerva Mining Pty Ltd. In cash terms, this disposal of subsidiary is not material compared to YZC’s previous year’s cash investment of Felix Resources. The 2009 Felix investment took a very heavy toll on the company, which Yanzhou Coal Mining  (NYSE:YZC) paid out using the RMB20,840,505 it borrowed.

Even though income increased significantly in 2010, cash was actually down 25% from 2009. 2010’s net income was impacted down buy YZC’s high capital spending in the same year, accompanied by almost non-existent financing inflow. Yanzhou Coal Mining  (NYSE:YZC) only borrowed RMB1,110,954 from the banks, which was then used mostly to repay previous borrowings.


Other reasons cash went down can also be found on the balance sheet. One striking line item is bills and accounts receivable, which more than doubled from RMB4,723,922 to RMB10,017,260 in 2010. This, with the addition of doubling inventory levels, can be a sign that Yanzhou Coal Mining  (NYSE:YZC) is slacking on turning over its assets and collecting its cash.

Another line item that stands out is the almost 600% increase of derivatives financial instruments balance, from RMB37,760 to RMB239,476 in 2010. YZC’s subsidiaries in Australia entered into forward foreign exchange contracts to sell or purchase specified amounts of foreign currencies in the future at stipulated exchange rates. The management explained that this was done to reduce the foreign exchange rate related volatility of revenue stream and capital expenditure.


Although cash levels went down, the company still looks to be going through a steady growth phase. Total assets still noticeably increased from 2008 and 2010. More importantly, huge expansion efforts are still being made, evident by the nearly 200% increase of deposits made on investments to RMB3,243,679 in 2010. This deposit is composed of acquisitions of the Shaanxi coal mine operating company, Inner Mongolia Haosheng Coal Mining Limited, and Yijinhuoluo Qi Nalin Tao Hai Town An Yuan Coal Mine. Under the care of Yanzhou Coal Mining  (NYSE:YZC), these mines have the potential to bring in significant revenues to the company.

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