Yip's Chemical Holdings Limited (SEHK: 00408) ('Yip's Chemical' or the 'Group'), the world's largest manufacturer of acetate solvents and one of China's largest manufacturers of petrochemical products, has announced its annual results for the year ended 31 December 2015 (the 'review period').
During the review period, a number of harsher-than-expected changes in internal and external business environment turned up. In particular, the accelerated depreciation of the Renminbi ('RMB'), sustained sharp fall in oil prices in the second half of the year, and the successive shock waves reverberating through Mainland China's financial market further exacerbated the economic situation which was already lethargic. However, as the Group has steadfastly adhered to the principles of steady development, the overall product sales tonnage still recorded a year-on-year growth of 4%, exceeding 1 million metric tons for the first time. Turnover decreased by 16% year-on-year to HK$8,584,225,000 due to the decline in product selling prices. Net profit attributable to owners dropped 79% year-on-year to HK$47,847,000. The decline was mainly due to the fall in operating profit of the solvents business and a much greater loss of the lubricants business, as well as an exchange loss of HK$51,208,000 as a result of sharp fluctuations in the RMB exchange rate. Benefitting from its prudent business development strategy and the introduction of measures to control accounts receivable risks and capital investments, the Group has managed to lower the gearing ratio from 58% in the corresponding period in 2014 to 54%. After careful assessment, the Board of Directors resolved not to distribute a final dividend but recommended the payment of a special dividend of HK4.5 cents per share to reward shareholders on the Group's 45th anniversary of founding.
To mitigate the exchange difference caused by fluctuation of RMB with higher volatility, the management has adjusted the Group's treasury strategies by reducing surplus funds in RMB and arranging bank borrowings in RMB to meet necessary operational needs.
Mr. Tony Ip, Chairman of Yip's Chemical, said, 'Amidst the highly challenging and uncertain business environment, the Group hopes to complete its own adjustments as soon as possible, in order to focus on enhancing the competitiveness of its core businesses and striking a better balance between breaking through sales bottleneck, optimizing business quality and strictly controlling credit. Although the Chinese economy will continue to face downward pressure in the short and medium term, China is still the most economically vibrant country in the world. After a complete review and assessment, the Group is determined to continue focusing on the China market and the outstanding opportunities in the chemical field, to seize opportunities and embrace changes, in order to accomplish the medium to long term vision of 'Towards a Century of Revered Leadership'.'
Business Review and Prospects
Solvents
During the review period, the solvents business ran smoothly and recorded growth in both sales volume and market share. However, product selling prices were suppressed as the raw material prices lingered around historical lows after a continued cyclical fall, dragging down turnover and gross profit substantially. Besides, as transportation expenses rose with increasing sales volume, operating profit dropped markedly. Consequently, turnover and operating profit declined by 19% and 43% to HK$5,006,792,000 and HK$135,596,000 respectively.
With a new production line in the Taixing plant in Jiangsu coming on stream successfully in the fourth quarter of last year, the Group's total solvents production capacity has exceeded one million metric tons. The Group is aggressively expanding into markets to the north and will expand overseas sales capitalizing on the Taixing plant's direct export advantage. In addition, as the costs of various raw materials have already rebounded from low levels, the management is confident that the operation of the solvents business will gradually improve and the business should see normal operating profit again.
Coatings
Despite unfavorable business environment, the sales volume of the coatings business still maintained at the same level as in 2014. However, due to the fall in raw material prices and product selling prices, turnover decreased by 12% year-on-year to HK$1,890,989,000. Since the establishment of Bauhinia Coatings Group last year, the household coatings, industrial coatings and resins businesses have been effectively consolidated. As a result, the operational efficiency has notably improved and operating expenses have been under control, thereby boosting gross profit margin of the coatings business to increase by 2.7 percentage points and operating profit to surge 29% to HK$60,922,000.
Facing the sustained sluggish market environment, the coatings group will strengthen its segmented targeting strategy for quality growth, particularly in the B2B industrial and architectural coatings segments. For household coatings, further optimization of exclusive shops and distribution channels will be carried out while price management will be tightened. For industrial coatings, by ensuring high and stable quality of products, and strengthening ties with major clients in the industry, the Group will lay a foundation for sustainable development. At the same time, the Group will strictly control costs across the supply chain and lift unit productivity per head to structurally enhance overall cost-competitive advantages of the coatings business.
Inks
During the review period, performance of the inks business was similar to that of the coatings business, also dragged by declining raw material and product selling prices, its turnover declined by 10% to HK$1,492,634,000. Despite this, operating profit increased by 23% to HK$68,857,000, as gross profit margin rose 2.8 percentage points.
Leveraging on the stable income from food packaging inks, the management will work on improving the profitability of the offset printing inks segment. At the same time, consolidation of production capacities and an appropriate investment in automation will be carried out to enhance productivity. Moreover, after years of research and development, the Group will systematically introduce more environmentally-friendly products, some of which are currently under trial use by customers. Progress has been encouraging so far.
Lubricants
Turnover of the lubricants business dropped 19% year-on-year to HK$348,388,000. There was an inventory loss recorded due to a sharp drop in oil prices. Consequently, operating loss increased significantly to HK$25,519,000 as compared to the loss of HK$2,934,000 in 2014. The business has undergone a major reorganization at the end of last year. The streamlined new leadership team is determined to turn around the business by critically reducing back office costs and focusing on corresponding market segments and customers according to the strengths and resources base of the business. The management is further exploring new customer base and strengthening sales process, price management and cost controls. Through these measures, the management is confident that the lubricants business can be put back on track.
With effect from 1 January 2016, Mr. Wong Yuk, originally Deputy Chief Executive Officer of the Group, has been appointed as an Executive Director. He together with Mr. Stephen Yip, Deputy Chairman and Executive Director of the Group, have been jointly appointed as the Co-Chief Executive Officers of the Group. Mr. Yip will focus on solvents and overall business development, strategic investment and external relations, in order to explore potential business opportunities available to the Group in Mainland China. Mr. Wong will be responsible for management of the coatings, inks and lubricants businesses, as well as all supporting functions of the Group.
Mr. Stephen Yip and Mr. Wong Yuk, Co-Chief Executive Officers of the Group, concluded, 'As market environment gets increasingly grimmer, the newly-formed Senior Leadership Team has proactively responded by embracing changes and formulating appropriate strategies. While aiming to achieve high turnover, the team will also focus more on targeted market segments and will develop new businesses and provide services to existing customers at optimal costs. Business lines with sub-optimal profitability will be disposed, so that the short-term target of quality growth can be achieved. In the medium to long term, the development of new products and timely transformation, merger and acquisition will be the strategic development directions of the Group. We believe that implementation of the above strategies not only will result in performance improvements, but will also allow Yip's Chemical to put a solid step forward in becoming a hundred-year enterprise.'
Yip's Chemical Holdings Limited (SEHK: 00408) ('Yip's Chemical' or the 'Group'), the world's largest manufacturer of acetate solvents and one of China's largest manufacturers of petrochemical products, has announced its annual results for the year ended 31 December 2015 (the 'review period').
During the review period, a number of harsher-than-expected changes in internal and external business environment turned up. In particular, the accelerated depreciation of the Renminbi ('RMB'), sustained sharp fall in oil prices in the second half of the year, and the successive shock waves reverberating through Mainland China's financial market further exacerbated the economic situation which was already lethargic. However, as the Group has steadfastly adhered to the principles of steady development, the overall product sales tonnage still recorded a year-on-year growth of 4%, exceeding 1 million metric tons for the first time. Turnover decreased by 16% year-on-year to HK$8,584,225,000 due to the decline in product selling prices. Net profit attributable to owners dropped 79% year-on-year to HK$47,847,000. The decline was mainly due to the fall in operating profit of the solvents business and a much greater loss of the lubricants business, as well as an exchange loss of HK$51,208,000 as a result of sharp fluctuations in the RMB exchange rate. Benefitting from its prudent business development strategy and the introduction of measures to control accounts receivable risks and capital investments, the Group has managed to lower the gearing ratio from 58% in the corresponding period in 2014 to 54%. After careful assessment, the Board of Directors resolved not to distribute a final dividend but recommended the payment of a special dividend of HK4.5 cents per share to reward shareholders on the Group's 45th anniversary of founding.
To mitigate the exchange difference caused by fluctuation of RMB with higher volatility, the management has adjusted the Group's treasury strategies by reducing surplus funds in RMB and arranging bank borrowings in RMB to meet necessary operational needs.
Mr. Tony Ip, Chairman of Yip's Chemical, said, 'Amidst the highly challenging and uncertain business environment, the Group hopes to complete its own adjustments as soon as possible, in order to focus on enhancing the competitiveness of its core businesses and striking a better balance between breaking through sales bottleneck, optimizing business quality and strictly controlling credit. Although the Chinese economy will continue to face downward pressure in the short and medium term, China is still the most economically vibrant country in the world. After a complete review and assessment, the Group is determined to continue focusing on the China market and the outstanding opportunities in the chemical field, to seize opportunities and embrace changes, in order to accomplish the medium to long term vision of 'Towards a Century of Revered Leadership'.'
Business Review and Prospects
Solvents
During the review period, the solvents business ran smoothly and recorded growth in both sales volume and market share. However, product selling prices were suppressed as the raw material prices lingered around historical lows after a continued cyclical fall, dragging down turnover and gross profit substantially. Besides, as transportation expenses rose with increasing sales volume, operating profit dropped markedly. Consequently, turnover and operating profit declined by 19% and 43% to HK$5,006,792,000 and HK$135,596,000 respectively.
With a new production line in the Taixing plant in Jiangsu coming on stream successfully in the fourth quarter of last year, the Group's total solvents production capacity has exceeded one million metric tons. The Group is aggressively expanding into markets to the north and will expand overseas sales capitalizing on the Taixing plant's direct export advantage. In addition, as the costs of various raw materials have already rebounded from low levels, the management is confident that the operation of the solvents business will gradually improve and the business should see normal operating profit again.
Coatings
Despite unfavorable business environment, the sales volume of the coatings business still maintained at the same level as in 2014. However, due to the fall in raw material prices and product selling prices, turnover decreased by 12% year-on-year to HK$1,890,989,000. Since the establishment of Bauhinia Coatings Group last year, the household coatings, industrial coatings and resins businesses have been effectively consolidated. As a result, the operational efficiency has notably improved and operating expenses have been under control, thereby boosting gross profit margin of the coatings business to increase by 2.7 percentage points and operating profit to surge 29% to HK$60,922,000.
Facing the sustained sluggish market environment, the coatings group will strengthen its segmented targeting strategy for quality growth, particularly in the B2B industrial and architectural coatings segments. For household coatings, further optimization of exclusive shops and distribution channels will be carried out while price management will be tightened. For industrial coatings, by ensuring high and stable quality of products, and strengthening ties with major clients in the industry, the Group will lay a foundation for sustainable development. At the same time, the Group will strictly control costs across the supply chain and lift unit productivity per head to structurally enhance overall cost-competitive advantages of the coatings business.
Inks
During the review period, performance of the inks business was similar to that of the coatings business, also dragged by declining raw material and product selling prices, its turnover declined by 10% to HK$1,492,634,000. Despite this, operating profit increased by 23% to HK$68,857,000, as gross profit margin rose 2.8 percentage points.
Leveraging on the stable income from food packaging inks, the management will work on improving the profitability of the offset printing inks segment. At the same time, consolidation of production capacities and an appropriate investment in automation will be carried out to enhance productivity. Moreover, after years of research and development, the Group will systematically introduce more environmentally-friendly products, some of which are currently under trial use by customers. Progress has been encouraging so far.
Lubricants
Turnover of the lubricants business dropped 19% year-on-year to HK$348,388,000. There was an inventory loss recorded due to a sharp drop in oil prices. Consequently, operating loss increased significantly to HK$25,519,000 as compared to the loss of HK$2,934,000 in 2014. The business has undergone a major reorganization at the end of last year. The streamlined new leadership team is determined to turn around the business by critically reducing back office costs and focusing on corresponding market segments and customers according to the strengths and resources base of the business. The management is further exploring new customer base and strengthening sales process, price management and cost controls. Through these measures, the management is confident that the lubricants business can be put back on track.
With effect from 1 January 2016, Mr. Wong Yuk, originally Deputy Chief Executive Officer of the Group, has been appointed as an Executive Director. He together with Mr. Stephen Yip, Deputy Chairman and Executive Director of the Group, have been jointly appointed as the Co-Chief Executive Officers of the Group. Mr. Yip will focus on solvents and overall business development, strategic investment and external relations, in order to explore potential business opportunities available to the Group in Mainland China. Mr. Wong will be responsible for management of the coatings, inks and lubricants businesses, as well as all supporting functions of the Group.
Mr. Stephen Yip and Mr. Wong Yuk, Co-Chief Executive Officers of the Group, concluded, 'As market environment gets increasingly grimmer, the newly-formed Senior Leadership Team has proactively responded by embracing changes and formulating appropriate strategies. While aiming to achieve high turnover, the team will also focus more on targeted market segments and will develop new businesses and provide services to existing customers at optimal costs. Business lines with sub-optimal profitability will be disposed, so that the short-term target of quality growth can be achieved. In the medium to long term, the development of new products and timely transformation, merger and acquisition will be the strategic development directions of the Group. We believe that implementation of the above strategies not only will result in performance improvements, but will also allow Yip's Chemical to put a solid step forward in becoming a hundred-year enterprise.'