It’s no surprise as many steel enterprises reported sharp decreases in profits due to the surging prices of steel related raw materials, iron ores and coals.
Mainboard listed Novo Group Ltd. a global steel trading, distribution and manufacturing company, reported its results for the 3 months ended 31 July 2011.
The demand of global steel industry has been under great pressure in 2011 due to the euro zone crisis, the debt crisis of the United States and the fluctuating prices in the global market. The prices of steel related raw materials, iron ores and coals, surged due to weather-related supply tightness in Australia and Brazil and thus, many large steel enterprises reported sharp decrease in profit. During the period under review, the Group has taken conservative approach to slow down business activities while waiting for market recovery. The Group reported that revenue decreased by 43.5% to US$66.2 million. Gross profit amounted to US$3.4 million in 1QFY2012 representing a gross profit margin of approximately 5.2% while in 1QFY2011 gross profit was at US$6.7 million
representing a gross profit margin of 5.7%.
The Group has maintained a healthy financial position. Cash balance increased from US$35.8 million in 30 April 2011 to US$46.1 million in 1QFY2012 which represents 73.5% of the Group’s Net Asset value as at 31 July 2011. The Group improved working capital management by implementing more stringent cost control measures including reviewing the inventories policy and strengthen credit control policy. The inventories held as at 31 July 2011 decreased from approximately US$19.3 million to US$15.2 million. Receivables decreased from approximately US$35.6 million as at 30 April 2011 to approximately US$27.6 million as at 31 July 2011.
Commenting on the Group results, Chairman and Executive Director of the Group Mr. Dicky Yu, said, “The steel industry has been a challenging year in 2011. The global economic environment is fragile, hence we need to be cautious and at the same time prepared to deal with opportunities in the near future. In addition to dealing with current business, we have worked hard on the development and implementation of new projects.”
During the year, the Group took several strategic moves to strengthen its business model and has new projects in the pipeline which is expected to come on stream in the months ahead.
With the GDP of the mainland China surging, rising spending power and the desires for higher living standards in China, demand for tinplates for food cans, beverage cans, and other containers has been growing sharply. To tap on the potential opportunities of the market, the Group has invested to set up an electrolytic tinplate manufacturing plant in Jiangsu province, China.
Mr. Yu said, “Most of the tinplate manufacturers in Mainland China are mainly targeted at domestic buyers as the industry is mostly focused on producing materials for industrial use. The new plant will mainly develop and produce high quality food grade tin plate for food packaging which give good chances for the Group to expand its market share. We anticipate there is significant potential for the tinplate demand in the market for food and beverage.”
The Group is highly positive towards the prospect of the new venture as it is supported by an experienced technical team, leading-edge equipment, production machineries and the huge market potential in China. The production lines will be built and managed by expert engineers, technicians, and expertise from top tier manufacturers of the world’s tinplate industry. The core groups of expert engineers and technicians are experienced in starting up, designing manufacturing processes, operating the production facilities, developing product solutions and optimizing production capacity.
The project will be constructed in two phases with annual production capacity of 300,000 tonnes upon completion. The investment for the first phase will be approximately US$52 million, with annual production capacity of 150,000 tonnes is expected to be ready for production by second half of 2012 while the second phase is expected to commence production in second half of 2013. The Group is confident that, the project will contribute significant growth in revenue and profitability
Iron ore and coal warehousing and processing
In an effort to further strengthen the Group’s business, the Group entered into a cooperation agreement with Qingdao Port Investment and Construction Group Co., Ltd. to set up iron ore and coal warehousing and processing project in Qingdao, China. The Group will aim to tap into the growing demand for iron ore and coal by end-users in the PRC. The planned project is intended to be positioned as one of the major integrated logistics and processing centres for iron ore and coal in the PRC.
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