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 Yantai Dahua Holdings - Letter
to Shareholders |
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Mr. TANG Yuxiang, age 55, is Chairman & Chief Executive
Officer. He has been working in the paper industry since 1984, when he was appointed as
Party Secretary and then Plant Manager of Yantai Longda. Since the inception of Yantai
Paper in 1994, he has been General Manager and Chairman of the Board of the joint venture.
His previous experience includes 18 years experience in an agricultural machinery plant in
Yantai Longda, where he was promoted to Deputy Plant Manager, a position he held from 1979
to 1982. He is a graduate of Shandong Agricultural Machinery Institute and is a Chinese
government endorsed Senior Economist. |
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Last Updated:
September 29, 2003
Dear Shareholders,
The management team at Yantai Dahua Holdings Co. Ltd. (YDHCF) would like to update
our shareholders on the company’s current operations and events. The past 9 months
have been a very exciting time for the management team here at Yantai Dahua, and we would
like to take this opportunity to update our shareholders on some of the major events of
our China paper business of the past 9 months.
In February 2003, we brought the company public through an exchange of shares,
whereby the public shell company legally acquired the equity interests of the China paper
business, the original controlling shareholders of the China paper business became the new
controlling shareholders of the public shell company, and the name of the public shell
company was changed to Yantai Dahua Holdings Company Limited. The Company is now currently
traded on the Nasdaq Over the Counter Bulletin Board under the symbol YDHCF. Yantai Dahua
Holdings, through Australia China Investments Limited, an intermediate holding company,
currently owns an 85% stake in Yantai Dahua Paper Industry Company Limited
("YPIL"), which is involved in the manufacturing and sale of paper principally
for printing and writing in the People Republic of China (PRC). For the first six months
of 2003, YPIL has recorded, on an un-audited basis, a net profit of approximately
US$200,000, versus a net loss of approximately US$69,000 for the corresponding period of
2002.
OPERATIONS
Yantai Dahua Holdings’ subsidiary, Yantai Dahua Paper Industry Co. Ltd. is a
paper production plant headquartered in the city of Yantai, which is located in the
Shangdong Province of China.
Our paper plant in Yantai continues to operate at full
production, and we have actually shown an increase in production results compared to 2002
levels. From the months of January to August of 2003 YPIL produced 14,288 metric tons of
paper, which brings us well in range for our year end production targets. Looking forward,
we expect our business volume to pick up handsomely in the second half as our sales of
paper is very seasonal with orders concentrated in the summer and autumn months and that
demand from our customers has been increasing steadily.
COST REDUCTIONS
The Company continues to focus on cutting operation costs and increasing net
profits for our shareholders. The Company has recently enacted some cost cutting
procedures, such as its agreement with Hebei Zhongjie Paper Packaging, and the
installation of a 6,000 KW electrical generator.
The new energy plant, when completed, will give the Company an extra 6,000 KW
electricity generating capacity, which is expected to substantially reduce the cost of
electricity required for its production process, and thus work to increase our bottom-line
numbers. The construction of the superstructure of the plant has been completed and all
equipment installed. According to our plan, we shall commence our trial run sometime in
October.
In another effort to cut operation costs, the Company entered into an agreement
with Hebei Zhongjie Paper Packaging Co. Ltd. ("Zhongjie") to cooperate on the
supply of straw pulp to YPIL. Straw pulp is currently a major raw material employed in
paper production at YPIL, and this agreement will enable us to further comply with PRC
anti-pollution standards, and also reduce our overall costs on waste treatment for the
pulp producing process. Eventually, this could lead to a doubling in our output because of
the steady supply of pulp from Zhongjie.
This is a strategic move for us to relocate our pulp making facilities to Zhongjie
as this would remedy our anti-pollution problem for good. Our cost of production would
also come down considerably since there is no longer any need for us to deploy resources
for waste treatment for pulp making. The supply of pulp is guaranteed by Zhongjie, which
will allow us to concentrate our main focus on paper production. As Zhongjie expands its
capacity output in the future, so will we, and this will mean an increase to our top line
numbers going-forward.
FINANCING
The Company continues to evaluate a number of financing options for the purpose of
financing our external acquisition roll out and our internal investment in the expansion
of our production capacity. The main goal of YDHCF is to obtain financing for our business
plan, at terms acceptable to the Company and which would preserve the interests of our
existing shareholders.
SARS
Last winters situation with Server Acute Respetory Syndrome (SARS) was a great
concern for a number of investors looking to the PRC as an investment option. The Company
is pleased to announce that SARS, as of now, seems to have been brought under control as
the PRC government has established quick and speedy procedures to handle the crisis. As
for the effect to YDHCF and our operations, the Company would like to state that SARS does
not have any direct effect on our company or operations, as SARS seems to focus on more
consumer driven products and services. Now, with that said, SARS still offers a risk to
the overall economy of China, which could slow demand for paper products. But as of now we
have not seen any ‘direct’ effect to our Company, demand for our products, or
operations. But we feel very confident that the Chinese government currently has
procedures in place to handle any new outbreak, and any possible effects to the Chinese
economy.
CURRENCY
Recent debates on the Yuan’s peg to the US dollar has caused concern on what
effect a possible appreciation of the Yuan may have on YDHCF, and our paper operations.
The possibility of an appreciation of the Yuan with respect to the dollar could have a
possible downside effect on the overall Chinese economy, and may affect our company
indirectly in the form of keener price competition from cheaper paper finished products
imported to the PRC. There would be no direct impact, however, in the form of reduced
sales proceeds in Yuan terms, as Yantai Dahua Holdings sells 100% of our finished paper
products within China and we do not export out of country. Direct impact would also be
limited on the cost side. Most of our equipment and raw materials are obtained from within
the PRC, so any appreciation of the Yuan would not have any dramatic effect on our
procurement and production costs. In any case, by adjusting our raw materials mix and its
sourcing, we shall be able to adapt to and take advantage of any changes of relative
exchange rates. Finally, so far as financial reporting is concerned, the appreciation
should have the effect of increasing the top and bottom line for the company in US$ terms.
CLOSING STATEMENT
In conclusion, the Company’s paper operations continue at full production, and
for the first eight months of 2003 we are actually producing above 2002 production figures
for the same period. The Company continues to look for ways to cut our overhead and
production costs through key investments, and joint ventures. Overall, Yantai Dahua is
very pleased with our ongoing operations, and we hope this can translate into better
results for our shareholders. We would also like to take this opportunity to thank our
shareholders for the their support and continued interest in our company Yantai Dahua
Holdings Co. Ltd.
Mr. Yuxiang Tang
Chairman
Yantai Dahua Holdings Co. Ltd.
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