Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
ECOGREEN
HKEx Stock Code : 02341 
 
Corporate Profile
The principal activities are the research and development, production and sale of fine chemicals products from natural resources for use in aroma chemicals and pharmaceutical products and trading of fine chemicals products and natural materials.

Business Review - For the year ended December 31, 2012

In 2012, both the natural extracts business and intermediates business recorded a slight growth. The Group's turnover for the year was RMB1,057 million, a decrease of 2% from the previous year. Excluding contributions from the supplementary resource management and trading business, sales derived from our three major business segments has decreased by 10%. Profit attributable to shareholders improved to RMB128 million by 7% from the previous year. Basic earnings per share were approximately RMB26.5 cents.

Manufacturing

(i) Aroma Chemicals

For the year ended 31 December 2012, turnover of aroma chemicals decreased by 14% to RMB628 million (2011: RMB734 million), accounting for 59% of the Group's turnover (2011: 68%) and a gross profit margin of 27.7% (2011: 22.1%). The product price of Dihydromyrcenol, as an important contributor of the aroma chemicals business, was adjusted downward in this year due to the sharp decline of raw material prices. The total sales of Dihydromyrcenol was reduced by 25% from the previous year.

Aroma Chemicals continued to be the Group's core products during the year under review, and constituted a stable and major income source for the Group. During the year, the diminishing selling price was offset with the increase of sales volume of Aroma Chemicals. Due to the fall of raw material prices by nearly 40% over last year, the selling price of Aroma Chemicals shrank to a certain extent. Aroma chemicals are primarily used as functional ingredients and key components in many daily consumer goods, with a combined positive effect of its diversified applications and the development in the emerging markets, market demand continued to rise. In addition, certain new aroma and food flavour chemicals launching lately were further ecognized by the customers and well received in the market. The new series of products have already contributed RMB249 million (2011: RMB230 million) to the Group's revenue, with a profit margin amounted to approximately 31%, which is higher than the profit margin of our fragrance chemical products and represents one of the sources in the growth of Group's profitability.

(ii) Natural Extracts

In respect of the Natural Extracts products, apart from existing natural pharmaceutical raw materials, the Group has been actively engaged in the development of food additives business for the production of food ingredients, fast food, frozen food and pet nutrition food, which is produced with purification and bio-conversion technologies from natural produces. Natural extracts mainly include seafood, meat and mushroom extracts.

During the year under review, the Group's natural extract products maintained steady growth. Turnover from sales of Natural Extracts increased by 6% to RMB147 million (2011: RMB139 million), accounting for 14% (2011: 13%) of the Group's sales. Gross profit margin amounted to 26.9% (2011: 26.1%). This is due to the scarcity of resources of certain products, which have high gross profit margins.

(iii) Intermediates

Besides the chiral pharmaceuticals and intermediates, the Group also applies similar advanced technologies of synthesis to produce agrochemical intermediates, which will later be turned into the kind of eco-pesticide.

During the year under review, turnover remained steady at RMB65.6 million (2011: RMB65.5 million), accounting for 6% (2011: 6%) of the Group's sales. Gross profit margin was 46.0% (2011:46.4%).

Resource management and trading business

This business is a necessary complement to the three main business categories listed above, in particular the aroma chemicals business. The Group has been striving for the integration of upstream turpentine resources and expansion of supply chain management, with a view of systemic competitiveness and meeting customer needs more effectively. This business mainly includes the trading operation of gum rosin, gum turpentine and other special botanic essential oils and their by-products. During the year, revenue from the resources management and trading increased by 59% to RMB217 million, accounting for 21% of the Group's revenue.

Business Outlook - For the year ended December 31, 2012

Although the global economic recovery remains uncertain, demand for daily necessities such as the Group's products continue to grow steadily instead of shrinking. Moreover, the consistent growth of the emerging markets represented by China will continue to drive the development of the global fragrance and aroma chemicals industry. Overall, the Group is optimistic about the prospects in the year ahead.

In 2013, the Group will continue to undertake a number of major business restructuring plans:

Firstly, it will seek to diversify raw material sourcing globally. Turpentine remains as the Group's most important strategic resource, which in the past decades has been dependent on the rosin industry in China. However, as China's demographic dividend has been disappearing, the cost structure of the natural resources of raw materials has also changed. The Group now needs to solve various problems associated with the applicability of turpentine from different sources by adjusting its major production technologies. In the coming year, the Group will have better access to a more diversified source of raw materials internationally, thereby enhancing the reliability and stability of the Group's future supply of resources.

Secondly, it will begin developing the full industry chain of the turpentine with an emphasis on aroma chemicals to enrich the product portfolio. The products will include functional chemicals used in pharmaceuticals, special coating materials and surface active agents. The move will enable the Group to expand the customer base, develop the finely segmented target markets, and establish more strategic partnerships throughout the aroma chemical industry chain around the world. The Group will eventually gain a unique strategic competitive advantage along the value chain of the turpentine industry while enhancing its worldwide market share.

Thirdly, as part of the strategic move to extend its industry chain downstream, the Group will continue to explore the market for applications of functional products by providing high value-added key components and total-solutions for the daily necessities industries such as food, oral care, washing and cleaning agents as well as safety solvents. As the Group continues to transform its core business, expanding down the value chain has become the Group's long-term strategy.

Fourthly, the Group has achieved breakthroughs in its new product portfolio made from petroleum-based raw materials after years of efforts. The Group has recognised the starting point in terms of manufacturing technology and business model for fine chemical materials, so as to establish a more balanced raw material resources supporting system. The commencement of the Gulei Industrial Park will also provide protection for the Group to establish a more balanced capacity of raw materials system, enabling the Group to move into a new development platform for its fine chemicals business.

Fifthly, in the year ahead, as the joint venture plant in Huanggang, Hubei Province will be put into operation in the first quarter of 2013, the Group would then play a crucially pivotal influence on a key basic raw materials market - the downstream acrolein derivative product market. Moreover, the Changtai Plant is set to embrace a richer product mix, while its equipment and production capacity will see substantial improvement. Elsewhere, the Haicang Plant will continue to have improvement in energy saving and technological upgrades, while the factory's operating system is expected to achieve capacity expansion in different ways to further reduce the cost of production. At the same time, the Group will effectively reduce carbon footprint, enabling EcoGreen to achieve a greater contribution to sustainable development.

Sixthly, the Group will continue to optimise the flow of product delivery and material supplies by improving and broadening its international chemical logistic channels. The Group will try to localize its logistic services for customers in two important markets, namely Europe and the United States. This will enable the Group to fully satisfy the demand of the customers and enhance its competitive advantages, which in turn will be translated into more market opportunities for the Group's new business.

While the Group continues to make every effort to strengthen its own business development in an organic way, it also seeks synergies from mergers and acquisitions, or partnering with peer companies within the industry or along the value chain, in order to grow at a faster pace. In the past year, the Group has explored many possibilities and expects to make some substantial progress soon. Over the last decade, the industry has witnessed the steady growth of EcoGreen since its inception in the flavour and fragrance ingredient sector. In the next decade, with the collective efforts of every member of the Company, EcoGreen will enter a new era of rapid development, so I am confident we will go from strength to strength.

Source: EcoGreen Fine (02341) Annual Results Announcement
Chairman YANG Yirong Issued Capital (shares) 483M
Par Value HKD 0.1 Market Capitalisation (HKD) 715M
 
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