During the year under review, the Chinese economy continued to face downward pressure, while for the European Union, the Brexit referendum in June triggered economic upheavals in the region and globally. These plus the persistently low oil price have affected the price of raw materials for plastic products as well as the products themselves and market demand weakened. As a result, the Group’s business development was challenged. To cope with the challenging environment, the Group continued to develop and sell products with higher profit margin, carefully select quality customers and prudently manage inventory.
However, with the external economic environment remaining weak and labour and transportation costs increasing in Mainland China, the Group’s operating costs increased during the year. Furthermore, affected by fluctuation in the exchange rate of RMB, the Group recorded losses on forward foreign exchange contracts during the year.
Regarding the colorants, pigments and compounded plastic resin business segment, with customer demand for high value-added products remaining strong, the Group upheld the strategy of focusing on developing products that bring higher profit margin and also expanded into sectors with higher entry barriers such as smart electronic healthcare products and medical application related packaging. Furthermore, increasing popularity in handset use gives development potential to related technologies in areas including virtual reality and augmented reality, the Group also expanded its clientele to cover handset accessory related customers. As these new products have higher technological and quality requirements, customers are generally willing to pay higher prices for them. In addition, with the close cooperative relationship that the Group has with the International Colour Alliance, the team dedicated to serving Eastern China continued to provide customers in that region with a series of high quality automobile-related products and services to help the Group grasp market opportunities in the locale. The products with higher gross profit margin also gave overall gross profit margin growth a boost.Given the Chinese government put football and other related sports into its national sport development plans, presenting tremendous opportunities to sports related consumptions in China, the Group continued to develop sporting gear and equipment related products and the business made satisfactory performance. Moreover, boasting excellent technological advantage, the Group continued to grow its high quality sanitary accessories clientele in China and its Xiamen office continued to contribute profit to the Group.
Impacted more markedly by the change in export sentiment in the US and Europe, the turnover of engineering plastics business decreased slightly, when compared with the corresponding period last year. However, with efforts of the Group to transform its sales model starting to bear fruit, profit before taxation rose year-on-year. During the year, the segment was able to constantly meet customer needs and find more high potential export customers through broadening its product mix, including providing engineering plastics for food-related equipment and tools to internationally-renowned food manufacturers, thereby brought profit contribution to the Group. And, through adopting automated equipment, the segment was able to enhance production efficiency and reduce labour costs, which growth of its overall gross profit margin. Also, matching the needs of domestic customers who undergo business transformation, the Group continued to produce and sell metal substitutes for kitchenware and automobiles during the year and recorded profit from the business. The Southern China market performed rather well with the Dongguan office reporting satisfactory performance. Armed with leading-edge product technology, the Group has an outstanding competitive advantage, hence it believes it will continue to be a preferred partner of famous domestic and overseas brands and be able to expand its customer base.
The plastics trading business was impacted by weak market demand as a result the Chinese economy facing downward pressure. Turnover of the business decreased and gross profit margin was flat when compared to the previous corresponding period. The sluggish market sentiment commanded the Group to be more cautious in selecting customers and to implement stringent credit control. Also, the Group has been expanding its customer base in heavy indusrtries such as automobile manufacturers. However, the catastrophic explosion in the new Binhai area, Tianjin has slowed down the securing of heavy industry customers in the Northern China region by the Group to an extent. And, still in development stage, the Chongqing sales office targeting the Western China market is expected to contribute revenue to the Group in the near future. The Group believes at its consistent efforts to expand product mix and with technological advantages and guided by the development strategy of focusing on high profit margin products, it will be able to seize business opportunities in different regions in China.
HUI Sai Chung