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Zhongshan Zhongyue Tinplate Industrial Co., Ltd. ("Zhongyue Tinplate") is a wholly-owned subsidiary of the Company. The Company holds a 66% interest in Zhongyue Posco (Qinhuangdao) Tinplate Industrial Co., Ltd. ("Zhongyue Posco") while the remaining 34% is held by POSCO Co., Ltd. ("POSCO"), an internationally-renowned iron and steel enterprise. Currently, the annual production capacity of tinplate products and blackplates of the Group are 470,000 tonnes and 150,000 tonnes respectively, of which 220,000 tonnes of tinplate products and 150,000 tonnes of blackplates are from Zhongshan・s capacity, whereas 250,000 tonnes of tinplate products are from Qinhuangdao・s capacity.
In 2009, the Group produced 268,487 tonnes of tinplate products, represented a decrease of 11.7% as compared to that in 2008. Among which, Zhongyue Tinplate and Zhongyue Posco produced 174,331 tonnes and 94,156 tonnes respectively. Besides, the blackplate manufacturing plant of Zhongyue Tinplate produced 105,643 tonnes of blackplates, an increase of 5.7% as compared to that in 2008, providing a steady supply of raw materials (i.e. blackplates) for its tinplating plant. The Group・s tinplating plants in the northern and southern China sold 285,187 tonnes of tinplate products, a decrease of 2.5% as compared to that in 2008, of which, Zhongyue Tinplate and Zhongyue Posco sold 181,709 tonnes and 103,478 tonnes of tinplate products respectively. Turnover was HK$2,145,267,000, a decrease of 22.0% as compared to that in 2008 and profit from operations was HK$153,699,000, an increase of HK$85,937,000 or 126.8% as compared to that in 2008. The tinplating business contributed the largest share to the earnings of the Group and accounted for 91.2% and 69.4% of the Group・s turnover and profit from operations respectively.
As a result of the financial tsunami in 2008, the purchase prices of the Group・s raw materials and sales volume and selling prices of the Group・s tinplate products in the first quarter of 2009 dropped substantially following the overall decrease in the market demand. It was only until the second quarter that the prices of iron and steel resumed to a stable level and iron and steel producers began to increase their selling prices. Accordingly, the amount of write-down of inventory in 2009 was significantly reduced as compared to HK$50,041,000 in 2008. It is expected that the prices of iron and steel will remain volatile for a certain period in future. As downstream customers successively replenished their stocks, the sales volume of the Group・s tinplate products also resumed to a normal level. During the year, the Group・s tinplating business entered into a phase of consolidation. In order to respond to the crisis, the Group implemented principal strategies of "cost reduction", "quality enhancement", "market price alignment", "aggressively getting sales orders" and "assuring collection of trade debts". In respect of the sales and marketing development, the Group adopted a price setting mechanism that aligned more closely to the market price. Product quality was enhanced with an expansion of product categories. These facilitated in maintaining our sales volume. In addition, the Group insisted on executing the policy of obtaining deposits from customers, so as to assure the collection of trade debts. In terms of cost savings, the Group continued to improve its tendering system and widen its purchasing channels, which proactively reduced purchase costs. Through the comprehensive introduction of Six Sigma methodology in its management, the workflow was optimised. This resulted in minimising unnecessary production costs to the maximum extent and achieving higher efficiency.
Guangnan Hong Company Limited ("Guangnan Hong") is a wholly-owned subsidiary of the Company. Guangnan Hong holds a 51% interest in Guangnan Live Pigs Trading Limited.
In 2009, the turnover of the fresh and live foodstuffs business amounted to HK$180,029,000, representing a decrease of 11.6% as compared to that in 2008. Profit from operations was HK$62,440,000, representing a decrease of HK$14,368,000 or 18.7% as compared to that in 2008. With the substantial fall in the market price of live pigs as compared to that in 2008, and the impact on the live poultry agency business resulting from the announcement by the Hong Kong government of the arrangements to accept the return of licences by live poultry retailers in July 2008, both turnover and profit from operations of the fresh and live foodstuffs business fell as compared to that in 2008. Through continuous improvement in the equipment of infrastructure and optimisation of business workflow, the Group proactively strengthened its communication with suppliers, industry participants and customers, enhanced its service standard and widened its sales channels. The overall market share in the live pigs import market remained at above 40%. This contributed to relatively steady earnings of the Group. Currently, the Group is actively negotiating with suppliers and customers for further cooperation in order to build up a solid business chain and enhance its competitiveness.
The Group・s leasing properties mainly include the plant and staff dormitories of Zhongyue Tinplate and Zhongyue Posco, and the office units in Hong Kong. During the year, Zhongyue Tinplate completed the merger with Zhongshan Shanhai Industrial Co., Ltd. and streamlined the Group・s business in Zhongshan.
In 2009, turnover from the property leasing business of the Group was HK$26,807,000, an increase of 5.8% as compared to that in 2008. Profit from operations of leasing properties amounted to HK$17,641,000, an increase of 21.6% as compared to that in 2008. In addition, after the general fall in the price of office units in Hong Kong during the fourth quarter of 2008, the price increased with the rebound of asset prices around the world in 2009. Valuation gains on investment properties of HK$16,118,000 (2008: valuation losses of HK$19,429,000) were included in the consolidated income statement of the Group.
In 2009, Yellow Dragon Food Industry Co., Limited ("Yellow Dragon"), an associate of the Group, recorded a sales volume of 430,656 tonnes in its major product, corn starch, representing an increase of 7.0% as compared to that in 2008. With the substantial fall in the price of the products in 2008, turnover amounted to HK$1,481,193,000, representing a decrease of 2.1% as compared to that in 2008 and its profit attributable to shareholders amounted to HK$32,248,000, representing a decrease of 22.8% as compared to that in 2008.
As at 31 December 2009, the Group・s total assets and total liabilities amounted to HK$2,542,810,000 and HK$818,301,000, representing a decrease of HK$140,036,000 and HK$314,351,000 respectively as compared with the positions at the end of 2008. Net current assets decreased from HK$479,403,000 at the end of 2008 to HK$456,595,000 and current ratio (current assets divided by current liabilities) increased from 1.68 as at the end of 2008 to 1.72.
As at 31 December 2009, the Group maintained cash and cash equivalent balances of HK$380,961,000, including pledged bank balances of HK$246,018,000. An amount of HK$270,593,000 was denominated in Renminbi and HK$45,948,000 was denominated in United States ("US") dollars while the remaining balance was denominated in Hong Kong dollars. Cash and cash equivalent balances decreased by 11.0% from the end of 2008.
As at 31 December 2009, the Group・s borrowings comprised 1) bank borrowings of HK$390,940,000 (2008: HK$589,564,000), of which HK$Nil (2008: HK$85,043,000) was unsecured, HK$160,000,000 (2008: HK$480,000,000) was secured by investment properties in Hong Kong and HK$230,940,000 (2008: HK$24,521,000) was secured by bank deposits of HK$233,035,000 (2008: HK$24,515,000); 2) a loan from immediate holding company of HK$Nil (2008: HK$10,000,000); 3) a loan from a minority shareholder of HK$Nil (2008: HK$2,940,000) and 4) loans from a related company of HK$79,560,000 (2008: HK$Nil). 34.0% (2008: 93.8%) of the Group・s borrowings was guaranteed by the Company. 66.0% (2008: 32.8%) of the Group・s borrowings is repayable within one year, and the remaining balance is repayable within two years (2008: three years). All loans were subject to annual interest rates ranging from 0.28% to 2.30% (2008: 0.90% to 11.94%). The majority of the Group・s borrowings bore interests at floating rates. The management pays attention to variations in interest rates.
As at 31 December 2009, the Group・s gearing ratio, calculated by dividing the net borrowings (being borrowings less cash and cash equivalents) of the Group by total equity attributable to equity shareholders of the Company, was 5.6% (2008: 12.1%). The decrease was primarily due to the significant net cash inflow from operations during the year. As the amount of borrowings and the borrowing rates of the Group decreased, finance costs in 2009 amounted to HK$6,784,000, representing a substantial decrease of 72.8% as compared to HK$24,905,000 in 2008.
As at 31 December 2009, the Group・s available banking facilities amounted to HK$433,000,000, of which HK$223,340,000 was utilised banking facilities and HK$209,660,000 was unutilised. In addition, 37.0% of the Group・s banking facilities was guaranteed by the Company which also pledged the investment properties situated in Hong Kong as collateral. The Group・s existing cash reserves and available banking facilities, as well as the steady cash flow from operations, are sufficient to meet the Group・s debt obligations and working capital requirements.
The Group・s capital expenditure in 2009 amounted to HK$39,440,000, representing a substantial decline as compared to HK$100,333,000 in 2008. After the tinplating plant of Zhongyue Posco commenced production in February 2008, the related capital expenditure was significantly reduced. It is expected that the capital expenditure for 2010 will be approximately HK$64,000,000, mainly for the technology improvement projects of the blackplate manufacturing plant of Zhongyue Tinplate to enhance the quality and added value of the blackplates, and for the production speed improvement projects of the tinplate production lines to enhance the tinplate production capacity.
As at 31 December 2009, certain assets of the Group with an aggregate carrying value of HK$341,903,000 (2008: HK$123,477,000) were pledged to secure loans and banking facilities of the Group.
The majority of the Group・s business operations are in mainland China and Hong Kong. During the year, the exchange rates of Hong Kong Dollars against US Dollars were relatively stable without causing any material risk of exchange rate to the Group; as to the impact of Renminbi against US Dollars, since the majority of the Group・s sales and purchases are mainly made in Renminbi and US Dollars, the Group does not have material exposure to foreign exchange.
In respect of unforeseen fluctuations of exchange rates, the Group will adopt hedging instruments to hedge the exposure as and when necessary. As at 31 December 2009, there were forward foreign exchange contracts of US$30,000,000 (equivalent to HK$234,000,000) (2008: US$3,387,000 (equivalent to HK$26,419,000)) entered into by the Group to hedge against foreign currency loans. In addition, as at 31 December 2009, there were forward foreign exchange contracts of US$23,000,000 (equivalent to HK$179,400,000) (2008: HK$114,240,000 and US$33,500,000 (equivalent to HK$375,540,000 in aggregate)) entered into by the Group to hedge against the foreign currency exposure in respect of financing the working capital of certain subsidiaries of the Group in the PRC. Except for the abovementioned, other borrowings are denominated in the functional currency of the corresponding entities.
As at 31 December 2009, the Group had a total of 1,093 full-time employees, a decrease of 79 from the end of 2008. 80 of the employees were based in Hong Kong and 1,013 were in mainland China. The staff remuneration is determined in accordance with the duties, workload, skill requirements, hardship, working conditions and individual performance with reference to the prevailing industry practices. In 2009, the Group continued to implement control on the headcount, organisation structure and total salaries of each subsidiary. The performance bonus incentive scheme for the management remained effective. Through performance assessment of each subsidiary, performance bonus for various profit rankings was paid on the basis of net cash inflow from operations and profit after taxation. In addition, bonuses will be rewarded to the management, key personnel and outstanding staff through assessment of individual performance. These incentive schemes have effectively improved the morale of our staff members. The Company has also adopted share option schemes to encourage excellent participants to continue their contribution to the Group.
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