For the year ended December 31, 2013, the Fong’s Group recorded revenue of approximately HK$3,757 million, representing an increase of 77 per cent from the approximately HK$2,126 million recorded the previous year. As the results of German Monforts Group and Monforts Fong’s have been consolidated into the group’s 2013 results, a direct comparison between the group’s revenue in 2013 and that in the previous year is not meaningful.
The group’s profit amounted to approximately HK$80 million in 2013 compared to approximately HK$152 million in the previous year (including a one-off gain of approximately HK$288 million due to the gain on remeasurement of previously held interests in joint ventures arising from the acquisition of Monforts Fong’s). Basic earnings per share was 14.6 HK cents (2012: 27.6 HK cents).
For the year ended December 31, 2013, the group’s dyeing and finishing machine business recorded revenue growth of 128 per cent with sales of HK$2,840 million (2012: HK$1,246 million), accounting for 75 per cent of its total revenue. Operating profit was approximately HK$135 million, compared to an operating loss of approximately HK$112 million in the previous year.
German Monforts Group and Monforts Fong’s reported consolidated revenue of approximately HK$1,300 million and operating profit of approximately HK$127 million. Excluding this consolidated revenue, the dyeing and finishing machine business segment generated revenue of approximately HK$1,540 million and an operating profit of approximately HK$8 million (2012: operating loss of approximately HK$112 million). The significant improvement in operating profit was mainly due to the group accelerating introduction of new products into the market and actively optimizing production techniques, both of which created favorable conditions for increasing production capacity and securing new orders.
In addition, the group adopted decisive measures throughout the year to reduce costs and increase efficiencies, with the aim of transforming the European business’ deficit into a surplus, thereby rectifying the adverse performance of the business segment, which has been impacted by substantial losses incurred in Europe over the years. At present, the dyeing and finishing machine business segment is close to achieving breakeven in Europe, and the Board is confident that the European business will be profitable going forward.
With regard to production capacity, since phase I of the well-equipped Zhongshan plant became operational in September 2012, production by Monforts Fong’s has remained on track, and overall productivity is gradually improving. The business is expected to record consistent growth.
The group has also commenced construction of phase II of the Zhongshan plant, which is expected to be completed in 2015. Upon completion, the group’s production facilities will be relocated to Zhongshan from Shenzhen. Its existing production capacity will be greatly strengthened as a result, and manufacturing techniques and process will be further enhanced. Furthermore, the group’s resources in Shenzhen and Zhongshan will be allocated more efficiently to better cater to future development needs.
The sluggish recovery of the global economy, rising labour and raw material costs, and intense competition in the industry have all adversely impacted the overall demand for dyeing and finishing machines and their prices. However, in the long run, the group believes that the outlook for the dyeing and finishing machine industry will be bright once the global economy is on a more certain footing. The group’s proven track record in offering quality products with advanced proprietary technologies will not only help customers reduce their production costs, but will also enhance the group’s positive reputation and ensure strong and sustained market demand for its products.
Looking to 2014, the management is cautiously optimistic about the performance of the group’s dyeing and finishing machine business segment and is confident that the group is well-positioned and l-prepared for opportunities that the upcoming global economic recovery may bring, as well as to handle any potential challenges.
Stainless steel trading
For the year ended December 31, 2013, the group’s sales of stainless steel fell by 12 per cent to approximately HK$408 million (2012: HK$465 million), accounting for 11 per cent of its consolidated revenue. In spite of the decrease in sales, the group achieved a rebound in gross profit due to more effective purchasing and inventory management, recording an operating profit of approximately HK$2 million compared to an operating loss of approximately HK$4 million in 2012.
The stainless steel trading business segment is also engaged in the slitting and processing of stainless steel materials, providing customers with services such as the cutting and slicing of coils and plates. This business, which is complementary to the stainless steel trading business, will help in strengthening the group’s market competitiveness and bargaining power, and will bring additional sales orders from the existing and new customers, helping to achieve greater market share.
As the current global macro-economic environment continues to be challenging and unpredictable, the outlook for the price of stainless steel remains uncertain. However, the accelerated pace of urbanization and construction of infrastructure in China, coupled with the gradual stabilization of the global economy and market environment, will have a positive impact on the consumption of stainless steel. While market uncertainty is likely to cap the upside price of stainless steel, the group expects the price of stainless steel in 2014 to be slightly better than in 2013. Therefore, the group is of the view that stainless steel trading will maintain steady growth.
Stainless steel casting
The stainless steel casting business during the year recorded revenue of approximately HK$509 million (2012: HK$415 million), representing an increase of 23 per cent and accounting for 14 per cent of the group’s revenue. Operating profit for the year rose to approximately HK$43 million from approximately HK$21 million, up by 105 per cent year-on-year.
The management believes that market demand for high-quality stainless steel castings will continue to grow. In order to further expand market share, the group needs to have a solid foundation. Therefore, it will continue to increase its production capacity and reduce the scrappage rate of its products, including further enhancing automation and reducing its reliance on manpower; use advanced computerized design system and mold manufacturing equipment to further improve its molding capabilities, and reduce development time for customers while better controlling the quality of its products; and to purchase equipment for the computerized digital-control processing center to strengthen its machining and surface treatment service capabilities, thus providing better value-added services for customers.
The management is cautiously optimistic about the revenue and profit growth for the stainless steel casting business segment in 2014. The management is also confident that, given the above measures that the group is implementing and the anticipated stabilization of the global economy and market environment, this business segment will achieve a relatively quick growth in revenue in the mid to long term, which will contribute to the overall group profit.
Commenting on the results, Ms. Shi Tinghong, Chairman and Executive Director of the Group, said: “The group will focus on harnessing the synergies and cost efficiencies arising from the acquisition of Monforts Group in order to expand its penetration along the textile industry chain and provide the market with more advanced dyeing and finishing equipment, thereby further enhancing the overall profitability of the group. In addition, the group will continue to uphold its ‘integrity-based, technology-driven and customer-oriented’ business philosophy, while being guided by a need to protect the environment and create value for customers so as to continuously develop high-quality products that meet the market needs while providing Chinese and international dyeing enterprises with the most advanced, most environmentally-friendly and best value-for-money dyeing and finishing equipment. I believe that with hard work of all of our staff, the group will further improve its core competitiveness and maintain its healthy, stable and consistent growth in the future.”