China XLX Fertiliser Ltd

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OPERATIONS REVIEWThe Group’s main product isurea, which accounts for about56% of our total revenue asurea is the most commonly usedfertiliser in the PRC. Compoundfertiliser accounts for about 34%while methanol constitutes theremaining 10% of our sales mix.Both urea and compoundfertilisers are chemical fertilisersused to enrich the nutrients inthe soil. Methanol is produced &widely used in the downstreamchemical industry such as DME &Formaldehyde production.Urea [CO(NH2)2] is the primaryfertiliser widely used by theagricultural industry in the PRC &it has the highest nitrogen content(46.3%) amongst all nitrogenousfertilisers.Nitrogenous fertilisers account for about64% of all fertilisers used in the PRC. Of this,urea constitutes over 60% of all nitrogenousfertilisers. As the PRC’s policies on the fertiliserindustry undergo a revamp, the demand anduse of urea is expected to sustain a growthof 5 - 10% in the next three to five years.Agriculture forms a cornerstone of thePRC’s economy, which consequently cementsthe strategic position of the urea industry.Furthermore, the government’s progressiveagricultural policies have brought about anenvironment conducive for the urea industryto grow. (Source: CNCIC Report) China isthe largest fertiliser consuming country,accounting for about 45% of world ureaconsumption in 2007.In 2008, the PRC produced a total of 54 milliontons of urea, consuming about 48 million tonsand exporting about 5 million tons. ChinaXLX produced about 740k tons, sold 662ktons and used 78k tons for the productionof compound fertiliser. Urea sales amountedto RMB1.1 billion, an increase of 22% ascompared to FY2007. Increase was due to anincrease in average selling prices by 9% whenurea price prices reached its price ceiling forthe first three quarters in FY2008. In addition,urea sales quantity increased about 12% dueto effective promotion efforts and about 21ktons of additional urea produced in FY2008.Compound fertiliser include all thenutrients that soil needs: Nitrogen,Phosphorus and Potassium. Thecomposition of each mineralneed to be customised to suit thedemands of different types of soiland crops so as to achieve optimalagricultural production yield.OPERATIONS REVIEW8
Compound fertilisers can be categorised intolow concentration compound fertilisers andhigh concentration compound fertilisers. OurGroup mainly produces high concentrationcompound fertilisers. According to theCNCIC report, there are about 4,000compound fertiliser producers in the PRC atthe end of 2006. The PRC’s total productionvolume of compound fertilisers increased byapproximately 25% to over 40 million tons in2006 as compared to 2005, 23.7% of whichcomprises of high concentration compoundfertilisers. The Group is ranked first in Henanbased on its current high concentrationcompound fertiliser capacity of 300k tonsannually. According to the CNCIC report, thedemand for high concentration compoundfertilisers for exceeded its supply in Henanin 2005. Henan produced 1.7 million tonsof high concentration compound fertilisersin 2005. This compared to 3.0 million tonsconsumed in Henan in 2005. In 2008, weproduced 253k tons of high concentrationcompound fertiliser products, attainedsales volume of 251k tons, realised salesof RMB708 million and tripling compoundfertiliser gross profits from FY2007, despiteno increase in capacities. This was due toCOMPOUNincreased sales quantities and average sellingprices led by strong demand as more farmersstarted using compound fertiliser whenprices of phosphate and potash fertilisersincreased drastically in FY2008. Secondly,our Group increased the sales efforts forcompound fertiliser by promoting the XLXbrand and providing value-added serviceof customizing the nutrients of compoundfertiliser based on soil requirements via ourfarmers’ service centre which is the largestfacility in Henan. This resulted in the increaseof our capacity utilization rate from anaverage of 70% to about 84%, much higherthan the 40% average industry utilizationaccording to CNCIC.Methanol is a fourth importanttype of organic industrial chemicalafter ethylene, propylene andbenzene.Over a hundred other industrial chemicalproducts are derived from methanol andare widely used in medicine, agriculturechemicals, dyeing, coating, plastics, syntheticfibres, synthetic rubbers, solvents as well asfuel for industrial and domestic use.With the development of the global chemicalindustry and booming economic growthin the PRC and the Asia-Pacific region, themethanol market has been rapidly expanding.In recent years, the PRC has been advocatingthe development of methanol products as analternative to petroleum fuel. In addition,the successful development of methanolbatteries have forged a new market andopened opportunities to further developmethanol products.The concurrent production of methanol by thenitrogenous fertiliser industry is in line withthe government’s initiative to consolidate theuse of resources. As it is investment-friendly,effective, saves energy and environmentallyfriendly, 161 out of 500 nitrogenous fertiliserenterprises also produce methanol. Theircombined production capacity comprises48.9% of total capacity of methanol in thePRC. There are about 30 methanol producingenterprises in Henan, producing 1.7 millionMethanol10%CompoundFertiliser56%Urea56%tons of methanol per year. The Group is aleading methanol producer, ranked secondin Henan.In 2008, we sold 88k tons and realised salesof about RMB215 million or 10% of totalsales. Gross profit from methanol productswas negative in FY2008 due to decline inmethanol average selling prices in the secondhalf of FY2008 due to oil price decrease,resulting in most plants solely producingmethanol to shut down at the end of theyear. However, the Group uses methanolfor the purpose of reducing the cost ofurea production cost. Hence, it will have tocontinue producing methanol as part of itsproduction process.60,00050,00040,00030,00020,00010,0000FY 2004 FY 2005 FY 2006 FY 2007 FY 2008ProductionConsumptionSource: International Fertiliser AssociationOPERATIONS REVIEW9
Page 1 and 2: China XLXFertiliser Ltd.annual repo
Page 3 and 4: ChinaXLXFertiliser Ltd.ureacompound
Page 5 and 6: will still remain a necessity with
Page 7 and 8: Agriculture forms thefoundation of
Page 9: OUR PRODUCTSFruits ofour LaborAll o
Page 13 and 14: Financial SnapshotRMB Million FY 20
Page 15 and 16: OUR DISTRIBUTION NETWORK13
Page 17 and 18: Third plant near completion with 40
Page 19 and 20: Social ResponsibilityTesting of soi
Page 21 and 22: Sewage treatment 污水处理FGD
Page 23 and 24: 2003 with a Degree in Accountancy.
Page 25: Corporate InformationBoard of Direc
Page 28 and 29: CORPORATE GOVERNANCE REPORTThe foll
Page 30 and 31: CORPORATE GOVERNANCE REPORTThe Arti
Page 32 and 33: CORPORATE GOVERNANCE REPORTThe Exec
Page 34 and 35: CORPORATE GOVERNANCE REPORTThe Audi
Page 36 and 37: CORPORATE GOVERNANCE REPORTDealing
Page 38 and 39: DIRECTORS’ REPORTBy virtue of Sec
Page 40 and 41: STATEMENT BY DIRECTORSWe, Liu Xingx
Page 42 and 43: INDEPENDENT AUDITORS’ REPORTTo th
Page 44 and 45: BALANCE SHEETSas at 31 December 200
Page 46 and 47: STATEMENTS OF CHANGES IN EQUITYfor
Page 48 and 49: CONSOLIDATED CASH FLOW STATEMENTfor
Page 50 and 51: NOTES TO THE FINANCIAL STATEMENTS31
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NOTES TO THE FINANCIAL STATEMENTS31
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STATISTICS OF SHAREHOLDINGSas at 17
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NOTICE OF ANNUAL GENERAL MEETINGNOT
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NOTICE OF ANNUAL GENERAL MEETINGExp
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Notes:1. A member shall not be enti
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