I hereby report to the shareholders that Guangnan (Holdings) Limited (the "Company") and its subsidiaries (the "Group") recorded a consolidated profit attributable to equity shareholders of the Company of HK$108,484,000 in 2016, representing an increase of 63.7% compared with HK$66,285,000 in 2015. The basic earnings per share was HK12.0 cents, representing an increase of 64.4% from HK7.3 cents in 2015.
The Board of Directors of the Company (the "Board") recommends the payment of a final dividend of HK3.0 cents per share for the year 2016. The abovementioned final dividend for 2016, subject to the approval by the shareholders of the Company at the annual general meeting, is expected to be paid on 27 June 2017.
In 2016, the Group recorded a decrease in revenue and an increase in segment loss in the tinplating business. The fresh and live foodstuffs business, on the other hand, saw an increase in both revenue and segment profit. Consolidated revenue was HK$2,246,114,000, representing a decrease of 9.4% from HK$2,478,661,000 in 2015. Profit from operations was HK$84,302,000, representing a decrease of 3.3% from HK$87,203,000 in 2015.
In the past year, the global economy continued to see sluggish growth and the domestic economy experienced a restructuring which stressed reducing overcapacity, destocking, deleveraging, lowering operating costs and improving weak links in the light of the drop in demand during economic downswing. The operating environment of the tinplating business also faced difficulties such as excess capacity and changing competition pattern. Nonetheless, by implementing various measures to secure market share, avoid losses and control risks, the tinplating business has stabilised and resumed growth in production and sales, and has effectively managed its exchange risks. Exchange losses have been significantly reduced and operating cash flow has attained a sufficient and healthy level, thereby laying a solid groundwork for the transformation and upgrading of the Group.
As to the fresh and live foodstuffs business, benefited from the high price of live pigs, the segment profit recorded a growth for the second consecutive year and set a new performance record by actively organising and reasonably allocating stocks to satisfy market needs, increasing the proportion of own sales business to enhance operations and reinforcing controls over associates.
In respect of the property leasing business, the rental income and segment profit, excluding the effect of exchange rates, remained stable compared with 2015. During the year, the value of the properties held by the Group saw a slight growth and net valuation gains on investment properties of HK$3,738,000 (2015: HK$4,200,000) were recorded.
For the associates, despite the rise in sales volume of corn starch, a major product, Yellow Dragon Food Industry Co., Ltd. recorded a loss from operation due to the drop in sales prices and revenue, while recording a net profit of HK$22,626,000, mainly due to the government grants income. On the other hand, despite the pullback in the price of live pigs since August 2016, the two associates engaging in the pig farming and sales of pigs recorded a satisfactory net profit as the price of live pigs was still maintained at a relatively high level.
As the footing of national policies for the new year, the Chinese government has reiterated the general approach of seeking growth with stability and will continue with the structural supply-side reform. This year, the tinplating sector will be characterised by high costs, high prices, low demand, struggle for profitability and strict environmental regulations, and the severity and complexity of competition will persist for some time. Among these unfavourable aspects, high costs will inevitably cause immense pressure on the operations and require us to improve our profitability management model and enhance exposure management, to implement new strategies to develop new income streams and tighten cost control, to strengthen the control of various risks (particularly those in relation to, amongst other matters, foreign exchange, trade receivables, inventories), and to broaden the "team marketing" control model, to step up marketing efforts targeting at specific markets, products and profit margins, and to carry out structural adjustment to increase the proportion of direct sales. As such, the objectives of the tinplating business for this year are maintaining market share, adjusting business structure, eliminating losses and controlling risks.
The drop in price of live pigs since the second half of the last year as well as the fluctuations and uncertainties demonstrated by the "live pig cycle" will have an impact on the performance of the distribution operation under the fresh and live foodstuffs business and also the profitability of the associates. We need to further improve the operating and service capabilities of the distribution business and develop new ideas to pursue a breakthrough in the sales volume of the distribution operation under foodstuff trading. In view of the above, the goals of the fresh and live foodstuffs business are to sustain effectiveness, improve capabilities and achieve breakthrough.
Hong Kong, 28 March 2017