For future development, we will make continual improvement to pursue sustained operations.
In 2016, there were some surprising changes that will have a profound influence on the world over the next few years. People in the U.K. voted to leave the European Union in June and newly elected President of the United States of America in November. Although the impact of these two events on international politics and economics remains to be seen, the global financial markets were shocked at the time the events occurred and the global foreign exchange markets experienced drastic changes. The exchange rate of NTD to USD that is closely relevant to the exports of Taiwan fluctuated drastically, and the exchange rate of RMB to USD depreciated to the lowest point by the end of the year under the influence of decelerating economic growth and capital outflows in China. The acute changes in the foreign exchange markets had an impact on export-oriented corporations in the aspects of order intake, quotations and profits. In addition, many newly promulgated regulations governing industrial safety and environmental protection in Taiwan and the world increased operating costs of the petrochemical industry. Starting from Q4, the price of butadiene dramatically and unexpectedly increased within a short period. These exceptional and changing internal and external factors increased the complexity and challenge of corporate operations.
Although the overall environment in the past year was full of challenges, the Company still strove to invest in replacing aged equipment, to improve the quality of production procedures, to adjust our product portfolio, to increase investment in environmental protection and industrial safety, and to develop products with better competitiveness that meet market demands in order to increase market share and profits. In addition to improving the operating structure, the Company, on the other hand, also actively assisted joint ventures to improve operating performance. These steps enabled the Company to improve the operating and financial performance from the previous year and laid a solid foundation for future growth.
Achievements in 2016
Despite concerns about oversupply remaining in the synthetic rubber market in Asia, the overall operation of the Company was not influenced like other small players due to the fact that the Company has been cultivating the market for a long period and has a better brand reputation. With the benefit of the 50% tax reduction on automobile purchases, demand in the automobile and tire markets in China increased year-on-year. The Company strengthened integration of production and sales in its two major production bases in Taiwan and China through consolidation of the sales functions in these markets. The Company’s synthetic rubber shipments in 2016 still increased compared to the previous year. For thermoplastic elastomers, despite being under the influence of unfavorable factors where some of the products were facing price reduction headwinds from external competitors and temporary suspension of production in China due to the G20 Summit in China, shipments still significantly increased compared to 2015. In total, the overall shipments in 2016 reached 489 thousand tons, an increase of 6% compared to 460 thousand tons in the previous year. The consolidated revenues in 2016 reached NTD 26,955.09 million, an increase of 4% compared to NTD 25,981.76 million in the previous year.
Concerning the Company’s gross profit in 2016, despite encountering a substantial price increase for butadiene in Q4 and the price erosion from other companies, it still reached NTD 3,880.88 million, an increase of 15% compared to NTD 3,375.62 million in the previous year due to solid execution of business strategy and raw material purchase. The gross profit margin reached 14%, compared with 13% in 2015. With the improvement of operating performance of joint ventures, which reduced losses and asset impairments, the net income in 2016 reached NTD 988.35 million and the earnings per share was NTD1.2. Both indices increased by 88% compared to the net income of NTD529.12 million and earnings per share of NTD 0.64 in the previous year.
The Company has been actively attracting outstanding talents to join the R&D department and consistently investing in the development of new products with high added value. We expect to energize the development chemical industry in Taiwan, respond to the High Value Petrochemical Promotion Policy of the Government, develop products and solutions that meet customer demands, create differentiated value, and establish sustainable competitiveness.
The key research items and results in 2016 include:
•Develop the new generation SSBR to meet the demand of low rolling resistance, outstanding wet grip performance, and high handling properties for green tires.
•Change the solvent of BR to meet the customer and environment protection demands.
•Develop new TPE products: SEBS (HV-SEBS) and medical SEBS.
•Developed advanced shoe materials which received approval from global brands.
•Completed the reconstruction and upgrade of semi-commercial plant in order to improve commercialization of new products from laboratory, pilot plant to commercial production.
•The Company was granted 15 patents in 2016.
Business Outlook for 2017
With the rise of protectionism in some western countries, the risk to global trade has also increased in 2017. On the other hand, major economies will gradually reduce the quantitative easing monetary policy that has been implemented for many years since the financial crisis in 2008, and consumer confidence may also decrease, thus further weakening purchasing power. In addition, the Paris Agreement signed by many countries to limit global warming and commit to reduce the emission of green-house gases will enter into force, which will consistently increase the costs for industrial safety and environmental protection. The operating costs will also increase due to the price increase in butadiene starting from Q4 last year and the newly amended labor regulations in Taiwan. Despite the many challenges ahead of us in 2017, we are still optimistic that the shipments and profits of the Company can further improve in 2017 riding on the growth momentum of 2016. Specifically, the key sales growth in 2017 are: (1) expanding the sales region for synthetic rubbers and continuing to expand approval by and sales to international customers; (2) continuing to develop new high-valued thermoplastic elastomer products for specialty applications, and (3) working with global brand customers to roll out new advanced shoe materials.
The Company will drive long term growth via (1) organic growth through product innovation, regional expansion, and key account management, (2) strengthening the overall business portfolio through new market segmentation, development of new technology platforms and new material technologies, and (3) expanding profit through the optimization of production efficiency and consistent improvement of quality, to provide best return to the support and encouragement from all shareholders.