Yip’s Chemical Announces 2018 Annual Results Revenue and Sales Volume Both Hit Historical Highs Total Dividend of HK16 Cents per Share

(Hong Kong, 20 March 2019) ─ 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 major manufacturers of petrochemical products, has announced its annual results for the year ended 31 December 2018 (“review period”).

Driven by continued strong growth in sales of the solvents business, the Group’s overall sales revenue and sales volume again reached historical highs in the review period, up by 20.5% and 9% year-on-year to HK$12.4 billion and 1,390,000 metric tons, respectively. During the review period, profit attributable to owners amounted to HK$185 million, up 8.4% year-on-year. The Group continued to be prudent with financial management. It was able to improve use of working capital markedly and its gearing ratio in the period end was 46.0%, a significant drop from 51.1% year-on-year. The Board recommended payment of a final dividend of HK10 cents per share (same period in 2017: HK10 cents), bringing total dividend payment for the year to HK16 cents per share, in line with the Group’s prevailing dividend payout policy aiming to reward shareholders.

Mr. Tony Ip, Chairman of Yip’s Chemical, said, “2018 was a year of challenges, particularly in the second half, with the Sino-US trade conflict heating up, plus geopolitical turmoil emanating from various regions leading to a slowdown in the growth of the global economy. Despite the drastic changes in its operating environment, the Group was able to make record high sales and had never let down our guard in carrying out strict credit controls, and as a result, the overall bad debt rate was controlled at a normal level. Furthermore, the Group continued to reap benefits from its plant consolidating initiatives and fixed asset revitalising efforts, thus generating revenue outside of production businesses and enabling the Group to continuously strengthen its financial position.”

Business Review and Outlook

During the review period, sales revenue of solvents recorded a double-digit growth while there was a sustained increase in both the number of customers in the Mainland market and their usage volume. On the export front, the solvent export business was minimally affected by the Sino-US trade war, hence export sales remained its growth momentum. In response to the increasingly stringent safety and environmental regulations in Mainland China, the Group wound up the ethanol production and sped up the construction of new acetate production line at the Taixing plant in Jiangsu Province. Due to the special expenses of HK$53 million generated from the provisions made for the ethanol production line and the Southern China plant, operating profit of the solvents business dropped by 12% year-on-year to HK$345 million.

Construction of the new Taixing production line is expected to be completed and operational in the second half of this year, which will help ease demand pressure. Regarding production methods, the Group will replace coal with natural gas to create a more eco-friendly production environment. The Group will also actively explore the feasibility of expanding into upstream products to continuously add growth drivers to the solvents business.

Last year, sales revenue of coatings business increased by 11% to HK$1.83 billion, mainly driven by the sales generated by the newly acquired Camel paint business. However, due to such factors as employee compensation resulting from organisational restructuring, the segment recorded an operating loss of approximately HK$6.5 million. After a year of consolidation, the transition of Camel paint business was successful with the whole-year performance and effectiveness of the business in line with expectation.

Although the business environment in China for the coatings industry remains challenging, the Group believes the coatings market still has much growth potential. It will put strong emphasis on the architectural coatings market, through increasing investment in the marketing and sales network, and better leveraging its existing store network to expand its product portfolio and provide coatings services.

In 2018, sales revenue of the inks business rose 5% year-on-year to HK$1.47 billion. Operating profit decreased by 28% to HK$39.6 million.

The Group adjusted its strategy to pursuing good quality sales. Although this decision will lead to a drop in overall sales volume, it would help the business with sustainable growth in the long run. Moreover, with the three ink plants merging into two for better utilisation, the Group believes the overall production and operating costs will continue to drop, thus further improving the return on capital.

Sales revenue of the lubricants business for the review period amounted to HK$270 million, a year-on-year drop of 8% against 2017. Adversely affected by the provisions made for slow-moving goods and equipment, employee compensation brought by business restructuring as well as the loss during the initial investment period of the car maintenance chain operation of Damai in China, the segment recorded an operating loss of HK$38.7 million. The management has already substantially downsized the industrial lubricants business and will mainly focus on the automotive lubricants business in the future in order to turn around the loss-making position.

Last year, the Group acquired 28% equity interest in Damai at a consideration of RMB21.52 million and, early this year, injected an additional capital of RMB30 million to increase its shareholding to 39%, so as to support Damai in growing its car maintenance chain business across China. The Group is very confident of the prospects of the car maintenance business and the chain business model of Damai. The business requires investment at the initial stage and it takes time for the new stores to cultivate their clientele. Yet, the Group firmly believes that the brand will be built up and the requisite scale effect will eventually bring about considerable earnings to the Group.

As at the end of 2018, Damai had 56 shops in China, covering Shandong, Jiangsu, Guangdong and Hunan provinces. At present, the daily average number of cars served, average transaction amount per customer and turnover of shops are all rising in general. After the added capital injection, Damai will continue to extend its store network across China in full swing, including cities in the Greater Bay Area. It targets to increase the number of shops to close to 200 by the end of 2019.

During the review period, contribution from the properties segment surged to HK$139 million, mainly benefitting from the increased fair values of former factory premises at Qingpu, Shanghai and the former headquarters of the Group in Fanling, Hong Kong, as well as from the earnings derived from selling the lot formerly occupied by the resins plant in Huizhou. The Group has been consolidating its plants and office buildings in response to changes in the market and in safety and environmental regulations. It will also arrange to let or sell any vacated properties to effectively utilise its assets.

Mr. Stephen Yip, Deputy Chairman and Chief Executive Officer of the Group, concluded, “The Group remains prudent and optimistic about the prospects of its businesses, mainly because its solvents business has been growing steadily, contributing significant earnings. Raw material costs of the coatings and inks businesses have also stabilised and even decreased slightly, hence improving gross profit. Also, we believe the benefits of our pursuit of deep business reform instituted last year will gradually become more apparent. Investing in Damai is an important step in the Group’s transformation from focusing on asset-based business to service and end-user oriented operations, thereby building a new growth platform for the Group’s businesses. Continuing the strategic focus of being ‘environmentally friendly’, ‘end-user focused’ and ‘service-oriented’, we will further optimise the quality of our core principal businesses and, at the same time, look into new businesses with a bright future so as to accomplish our vision ‘A Century of Revered Leadership.’”