Company Overview - Chiho Environmental Group is one of the largest metal recyclers globally, with major operations across Asia, Europe, and North America[10]. - The company operates 80 yards in Germany, employing over 1,400 staff and utilizing advanced post-shredder material recovery technology[14]. - In the USA, Chiho operates 5 yards and has a robust supplier base in selected areas, with a total of 240 employees[17]. - The company has a strong market share in the Czech Republic's ferrous market, operating 61 yards with over 370 employees[20]. - In Romania, Chiho operates 38 yards, benefiting from a strong supply of industrial and old scrap, with over 600 employees[23]. - Chiho is the largest privately owned e-waste recycling center in Hong Kong, with a closed-loop recycling system[11]. - The company has a diversified business model, including brokerage and yard operations in the USA[17]. - Chiho's operations in Austria include 16 yards, making it a market leader in ferrous scrap trading[19]. - The company has established joint ventures in Thailand and with Heng Hup Group for dismantling scrap motors and mixed scrap metal, expected to commence operations in 2020[32][30]. - The company has a strong presence in northern Mexico, supported by a robust industrial supplier base[28]. - The Group's organizational structure was adjusted to support the development of Southeast Asia operations and domestic scrap metal collection in China[57]. - As of December 31, 2019, the Group had a workforce of 3,115 employees[200]. - Approximately 350 separation and selection workers were engaged through local recognized contractors[200]. - The Group has not experienced any strikes, work stoppages, or significant labor disputes affecting operations in the past[200]. - There have been no significant difficulties in recruiting and retaining qualified staff[200]. - The Group continues to maintain good relationships with its employees[200]. Financial Performance - Revenue for the year ended December 31, 2019, was HK$15,363.4 million, a decrease of 26.5% from HK$20,912.8 million in 2018[36]. - Gross profit for 2019 was HK$877.9 million, down 47.9% from HK$1,684.1 million in 2018[36]. - The company reported a loss for the year of HK$133.8 million, compared to a profit of HK$399.0 million in 2018, representing a decrease of 133.5%[36]. - The gross profit margin decreased to 5.7% in 2019 from 8.1% in 2018, a decline of 2.4 percentage points[39]. - The net profit margin was (0.8%) in 2019, down from 1.9% in 2018, a decrease of 2.7 percentage points[39]. - The loss attributable to shareholders for the year ended December 31, 2019, was HK$128.7 million, a year-on-year decrease of approximately 132.1% compared to a profit of HK$401.2 million in 2018[62]. - Revenue from Europe decreased by 19.8% year-on-year to HK$12,166.8 million in 2019, with a segment profit of HK$379.7 million, representing a year-on-year decrease of 14.4%[63]. - Revenue from North America decreased by 40.9% to HK$1,410.9 million in 2019, resulting in a segment loss of HK$48.4 million compared to a profit of HK$8.4 million in 2018[64]. - Revenue from the Asia region decreased by 46.3% to HK$2,015.4 million in 2019, with a segment loss of HK$172.3 million compared to a profit of HK$275.2 million in 2018[65]. - The overall decline in revenue and profit was attributed to sluggish industrial activities in Europe and North America, impacting global metal demand[51]. - The Group's China operations were significantly impacted by the import restrictions on scrap motors, affecting sales and production[83]. - The decline in revenue was largely driven by a slowdown in global industrial activities and soft demand for metal scraps[82]. - The Group's treasury policies aim to mitigate foreign currency exchange rate fluctuations through the use of forward foreign exchange contracts[135]. - The Group achieved a recovery rate of approximately 97% for end-of-life vehicles (ELV), ranking as a world leader in post-shredding technologies[166]. Operational Challenges - The US-China trade dispute has negatively impacted the global economy, affecting demand in traditional industries and leading to a slowdown in the European economy[42][43]. - The Group's Taizhou plant faced significant challenges in 2019, relocating its primary business abroad and dismissing most long-time employees due to changes in national policies[56]. - The Group's operations in Europe and North America were streamlined to optimize the cost structure in response to market changes[60]. - The impact of the COVID-19 pandemic on the Group's businesses is currently difficult to assess, with significant disruptions to global supply chains noted[72]. - Scrap prices in Europe dropped on average by 9% in 2019, impacting overall profitability[168]. Future Plans and Investments - The Group plans to increase output in South and Southeast Asia processing yards, anticipating a rise in demand for copper due to the shift towards electric vehicles[75]. - The Group's R&D will focus on improving the processing of materials from the future automotive industry, including scrap, motors, and batteries[76]. - The new Measures for the Management of End-of-Life Vehicle Recycling in China will allow the Group to explore opportunities in the ELV business through joint ventures or its own resources[77]. - The Group is expanding into new markets in South/Southeast Asia to mitigate risks associated with reliance on a single market[164]. - The Group plans to expand its operations in South and Southeast Asia, aiming to replace China as a recycling base[79]. - The Group invested in a new plastic recycling line in Europe, set to commence operations in early 2020, to process waste plastic and produce high-value LDPE and HDPE pellets[71]. - A new plastic recycling line is set to launch in 2020 to address Europe's plastic waste issues[174]. Capital and Assets Management - Total assets decreased by 10.5% to HK$10,190.0 million in 2019 from HK$11,387.5 million in 2018[36]. - Shareholders' funds decreased by 4.5% to HK$4,941.3 million, with shareholders' funds per share down 4.3% from HK$3.22 to HK$3.08[113]. - Total external borrowings were approximately HK$3,556.5 million, down from HK$3,787.6 million in the previous year[116]. - The gearing ratio increased to 34.9% from 33.3% in the previous year, calculated based on total borrowings divided by total assets[117]. - Inventories decreased to HK$1,495.9 million from HK$2,105.7 million, with inventory turnover days increasing slightly to 45 days due to soft sales[124]. - Net trade and bills receivables decreased from HK$1,367.5 million as of December 31, 2018, to HK$957.3 million as of December 31, 2019, with debtor turnover days increasing from 23 days to 28 days[128]. - Trade and bills payables decreased from HK$1,042.9 million in 2018 to HK$639.3 million in 2019, with creditor turnover days remaining flat at 21 days[132]. - Capital expenditure for the year ended December 31, 2019, was HK$733.2 million, an increase from HK$602.1 million in 2018, with HK$337.5 million financed from internal resources and HK$395.7 million through lease arrangements[137]. - As of December 31, 2019, the Group had pledged assets with a carrying value of approximately HK$3,807.4 million to secure borrowings, down from HK$4,308.3 million in 2018, representing a decrease of about 11.6%[190]. - The Group's capital commitments for property, plant, and equipment amounted to HK$128.9 million as of December 31, 2019, an increase from HK$116.6 million in 2018, reflecting a rise of approximately 10.5%[190]. - As of December 31, 2019, the Group reported no contingent liabilities, a decrease from HK$27.4 million in 2018, indicating a reduction of 100%[190]. - The Group is involved in ongoing legal proceedings with Delco Participation B.V. regarding a claim of HK$57.8 million related to alleged non-payment of loans, which is still in progress[190]. Risk Management - The Group has adopted a commodity price risk hedging policy as of March 7, 2018, to mitigate market risks associated with commodity prices[198]. - The Board closely monitors foreign currency borrowings to manage risks related to volatile exchange rates, particularly for Euro and Renminbi[198]. - The Group follows best practices for cash collection on sales of recycled products to minimize credit risk and potential impairment losses[198]. - The Group maintains a balance between funding continuity and flexibility through the use of bank borrowings to manage liquidity risk[198].
齐合环保(00976) - 2019 - 年度财报