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 interim results for the six months ended 30 June 2016 (the 'review period'). The Group's overall sales volume maintained stable growth despite the challenging operating environment during the review period.
During the review period, the two factors which brought considerable negative impacts to the Group's business last year have subsided, namely, the stabilisation of international crude oil prices at low levels and the less severe depreciation of the RMB. Plus, the implementation of a series of effective control measures has substantially mitigated the impact of the RMB exchange rate on the Group's results. Nonetheless, during the period, the Group still had to confront a tough operating environment as the depressed global economy curbed exports from China, while continued excess capacity in China and the sluggish financial market further worsen the situations. During the review period, the Group implemented its strategies in an orderly manner and had achieved all of its business objectives. Overall sales volume grew by 14% year-on-year during the period. However, as the selling prices of various products declined along with the drop in raw material prices, turnover fell to approximately HK$3,811,663,000, down by 11% over the same period last year. Net profit attributable to owners was down 32% from the same period last year to approximately HK$56,389,000 (same period in 2015: HK$82,795,000), which still exceeded the amount of HK$47,847,000 achieved for whole of last year. The Board has resolved to declare an interim dividend of HK5 cents per share (same period in 2015: HK$10 cents per share).
Mr. Tony Ip, Chairman of Yip's Chemical, said, 'Although we had to tackle various challenges in the first half of the year, we witnessed improvement in operating efficiency and business results matched our expectation under the leadership of the Group's top management after the reorganisation carried out last year. I am also cautiously optimistic about the Group's ability to achieve the annual targets set. However, for the foreseeable future, we still must face an extremely challenging and uncertain operating environment, as uncertainties brought about by excess capacity and sluggish demand in China, international geopolitical instability and Brexit is likely to affect the global economy. We will, as always, manage the situation calmly and respond quickly. I am confident that the Group can make the necessary adjustments and enhance our core competitiveness as well as seize the opportunities arising from China's ongoing economic growth in order to create returns of value to our shareholders.'
Business Review and Prospects
Solvents
During the review period, sales volume of the Group's solvent business grew by 18% to more than 420,000 metric tons. Among which, export sales volume increased by threefold to approximately 39,000 metric tons, bolstering sales performance and thus contributed to a notable improvement in operating profits to HK$104,524,000, representing an increase of 22% year-on-year.
In the second half of this year, the focus of the solvents business will be on optimising operational efficiency by further tapping economies of scale on the basis of a huge sales turnover and high operating expenses. Also, as land is still available at the Taixing factory in Jiangsu of Eastern China, more acetate products will be developed to enrich the existing product mix.
Coatings
Coatings recorded mild growth in sales volume during the review period when compared with the same period in 2015. Driven by the Group's mission to provide environmentally-friendly solutions for households and also taking advantage of various government initiatives, the business continuously shifted its architectural coatings products from solvent-based to water-based paints with relatively lower unit selling prices. As a result, turnover dropped by 18% to HK$814,296,000 though gross margin was healthily improved by 1.7 percentage points to 32.9%. Through further streamlining of the business and an organisational restructuring due to the implementation of a business segment focus strategy, considerable one-off expenses and provisions were incurred. All of these factors resulted in a much lower operating profit of HK$15,046,000 compared with the same period last year.
Inks
The Group's dedicated efforts in executing segmented profitability management and productivity improvements have harvested early success in the inks segment, hence operating profit attained a new high of HK$48,235,000 in the first six months of the year, an increase of 1.6 times compared with same period last year. Though turnover dropped by 9% to HK$659,910,000 with essentially the same sales volume, gross margin improved remarkably in all segments as a result of a margin improvement initiative in food packaging inks and a streamlining of product offerings, thereby lowering supply chain costs for offset printing inks products.
The second half of the year should see early wins in introducing water-based inks to selected food packaging inks customers. The success in the installation of a fully automated line in Zhejiang plant should also enhance productivity and lower unit cost of production in the business. Overall, the inks business has reached a platform of sustainable growth notwithstanding the challenges ahead.
Lubricants
Emerging from the highly challenging operating environment in the second half of 2015, the new leadership team installed at the end of last year has adopted decisive measures to ensure the sustainable growth in the lubricants business. Although turnover has declined by 11% year-on-year to HK$161,224,000, a marginal operating loss of HK$1,325,000 was recorded, which has increased slightly compared with the first half of 2015. If various one-off expenses such as employee compensation and asset write-offs were not included, the operating results would have been positive instead.
After a period of painful consolidation, the lubricants team has started to focus on growing more profitable segments such as upmarket automotive engine oils and on cultivating key industrial accounts. In the meantime, costs have been continuously driven down. For example, by contracting out logistics requirements to professional services companies, logistics costs have been significantly lowered. The Group is confident that the lubricants business will be able to get back to profitability this year.
Mr. Stephen Yip and Mr. Nat Wong, Co-Chief Executive Officers of the Group, concluded, 'All business segments recorded stable performance despite the difficult operating environment in the first half of 2016. For the second half of the year, the Group will continue to aim at achieving growth with quality and will bring profitability back on track in the short term by implementing strategies such as a focus on market segments, optimisation of operations and product innovations. We will also further bolster the professionalism of our staff and build up our core competitiveness to provide a solid foundation on which the corporate vision of 'A Century of Revered Leadership' will be based.'
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 interim results for the six months ended 30 June 2016 (the 'review period'). The Group's overall sales volume maintained stable growth despite the challenging operating environment during the review period.
During the review period, the two factors which brought considerable negative impacts to the Group's business last year have subsided, namely, the stabilisation of international crude oil prices at low levels and the less severe depreciation of the RMB. Plus, the implementation of a series of effective control measures has substantially mitigated the impact of the RMB exchange rate on the Group's results. Nonetheless, during the period, the Group still had to confront a tough operating environment as the depressed global economy curbed exports from China, while continued excess capacity in China and the sluggish financial market further worsen the situations. During the review period, the Group implemented its strategies in an orderly manner and had achieved all of its business objectives. Overall sales volume grew by 14% year-on-year during the period. However, as the selling prices of various products declined along with the drop in raw material prices, turnover fell to approximately HK$3,811,663,000, down by 11% over the same period last year. Net profit attributable to owners was down 32% from the same period last year to approximately HK$56,389,000 (same period in 2015: HK$82,795,000), which still exceeded the amount of HK$47,847,000 achieved for whole of last year. The Board has resolved to declare an interim dividend of HK5 cents per share (same period in 2015: HK$10 cents per share).
Mr. Tony Ip, Chairman of Yip's Chemical, said, 'Although we had to tackle various challenges in the first half of the year, we witnessed improvement in operating efficiency and business results matched our expectation under the leadership of the Group's top management after the reorganisation carried out last year. I am also cautiously optimistic about the Group's ability to achieve the annual targets set. However, for the foreseeable future, we still must face an extremely challenging and uncertain operating environment, as uncertainties brought about by excess capacity and sluggish demand in China, international geopolitical instability and Brexit is likely to affect the global economy. We will, as always, manage the situation calmly and respond quickly. I am confident that the Group can make the necessary adjustments and enhance our core competitiveness as well as seize the opportunities arising from China's ongoing economic growth in order to create returns of value to our shareholders.'
Business Review and Prospects
Solvents
During the review period, sales volume of the Group's solvent business grew by 18% to more than 420,000 metric tons. Among which, export sales volume increased by threefold to approximately 39,000 metric tons, bolstering sales performance and thus contributed to a notable improvement in operating profits to HK$104,524,000, representing an increase of 22% year-on-year.
In the second half of this year, the focus of the solvents business will be on optimising operational efficiency by further tapping economies of scale on the basis of a huge sales turnover and high operating expenses. Also, as land is still available at the Taixing factory in Jiangsu of Eastern China, more acetate products will be developed to enrich the existing product mix.
Coatings
Coatings recorded mild growth in sales volume during the review period when compared with the same period in 2015. Driven by the Group's mission to provide environmentally-friendly solutions for households and also taking advantage of various government initiatives, the business continuously shifted its architectural coatings products from solvent-based to water-based paints with relatively lower unit selling prices. As a result, turnover dropped by 18% to HK$814,296,000 though gross margin was healthily improved by 1.7 percentage points to 32.9%. Through further streamlining of the business and an organisational restructuring due to the implementation of a business segment focus strategy, considerable one-off expenses and provisions were incurred. All of these factors resulted in a much lower operating profit of HK$15,046,000 compared with the same period last year.
Inks
The Group's dedicated efforts in executing segmented profitability management and productivity improvements have harvested early success in the inks segment, hence operating profit attained a new high of HK$48,235,000 in the first six months of the year, an increase of 1.6 times compared with same period last year. Though turnover dropped by 9% to HK$659,910,000 with essentially the same sales volume, gross margin improved remarkably in all segments as a result of a margin improvement initiative in food packaging inks and a streamlining of product offerings, thereby lowering supply chain costs for offset printing inks products.
The second half of the year should see early wins in introducing water-based inks to selected food packaging inks customers. The success in the installation of a fully automated line in Zhejiang plant should also enhance productivity and lower unit cost of production in the business. Overall, the inks business has reached a platform of sustainable growth notwithstanding the challenges ahead.
Lubricants
Emerging from the highly challenging operating environment in the second half of 2015, the new leadership team installed at the end of last year has adopted decisive measures to ensure the sustainable growth in the lubricants business. Although turnover has declined by 11% year-on-year to HK$161,224,000, a marginal operating loss of HK$1,325,000 was recorded, which has increased slightly compared with the first half of 2015. If various one-off expenses such as employee compensation and asset write-offs were not included, the operating results would have been positive instead.
After a period of painful consolidation, the lubricants team has started to focus on growing more profitable segments such as upmarket automotive engine oils and on cultivating key industrial accounts. In the meantime, costs have been continuously driven down. For example, by contracting out logistics requirements to professional services companies, logistics costs have been significantly lowered. The Group is confident that the lubricants business will be able to get back to profitability this year.
Mr. Stephen Yip and Mr. Nat Wong, Co-Chief Executive Officers of the Group, concluded, 'All business segments recorded stable performance despite the difficult operating environment in the first half of 2016. For the second half of the year, the Group will continue to aim at achieving growth with quality and will bring profitability back on track in the short term by implementing strategies such as a focus on market segments, optimisation of operations and product innovations. We will also further bolster the professionalism of our staff and build up our core competitiveness to provide a solid foundation on which the corporate vision of 'A Century of Revered Leadership' will be based.'