Yuntianhua Develops Three Main Business

Yunnan Yuntianhua Co., Ltd. (Yuntianhua) reported a sales revenue of RMB2.676 billion for the fiscal year of 2005, increased by 43.97% as compared with 2004; a net profit of RMB670 million that represented an increase of 39.98% over that in 2004. Earnings Per Share is RMB1.27, all of the three indexes made the best in the company’s history. In the company’s point of view, these accomplishments mainly benefited from the company’s development strategy of "taking chemical fertilizer business as the main that goes hand in hand with organic chemical business and glass fiber business".

1. Fertilizer business increases production with high efficiency

Fertilizer business is Yuntianhua’s traditional backbone. In 2005, both of the company’s 500 000 t/a synthetic ammonia unit and 760 000 t/a urea unit continuously ran for 350 days safely and efficiently. This achievement broke the world's record of both synthetic ammonia and urea units running for 345 days continuously and synchronously.   Typically long running cycle of production units is the favorable way for large fertilizer manufacturers to maximize production capacity and efficiency. In Yuntianhua, the production units of synthetic ammonia and urea can create a value of more than RMB4 million on each running day when they are running normally. Yuantianhua has long been taking improving operating rate and pursuing long consecutive running cycle of the production units as the core targets for promoting high quality and efficiency of production, and has been paying close attention to this continuously. In fact, in order to have the giant production system constituted by more than 1 800 pieces of facilities, run for 350 days safely and without one second of interruption, you can imagine how difficult it is.   The production units of synthetic ammonia and urea in the company have been operating for 30 consecutive years. Through a series of technical innovations, their operating efficiency and performance not only have no declination, but also become better and better. During the three times important technical renovations, especially the third large scale renovation in 2002, it enabled the capacities of synthetic ammonia and urea to increase from 300 000 t/a and 480 000 t/a to 500 000 t/a and 760 000 t/a respectively. In fact the output of synthetic ammonia and urea that the company completed in 2005 has reached 506 100 tons and 788 700 tons respectively, both exceeded the design capacities of the units.

2. Fiberglass fiber products

The second business is fiberglass manufacturing. Chongqing Polycomp International Corp., controlled by Yunnan Yuntianhua, reported sales revenue of RMB866 million in 2005, increased by 32.83% as compared with 2004, which was the second largest revenue source only next to chemical fertilizer business. The subsidiary was formally put into production in 1994. It mainly manufactures "E" fiberglass, it also manufactures some reinforced FRP fiberglass sizing agent. 70% of the fiberglass products manufactured by the subsidiary are targeted to sell abroad.

3. Organic chemical products

Organic chemicals business including manufacturing polyoxymethylene (POM) resin is the third branch business that Yunnan Yuntianhua mainly focuses on. The POM unit was solely imported from BIPROZAT Company of Poland. With annual production capacity of 10 000 tons, the unit can manufacture many types of POM and various modified products that are widely used in automobile industry, electronic and electrical industry, industrial parts and components, and pipe fittings. Along with the development of China’s electronic & electrical appliances and automobile industries, and global increased demand on coatings industry, demands for organic chemical products such as POM and pentaerythritol will also further increase.    The company will gradually increase the input to new businesses such as fiberglass and POM in order to promote them in becoming a new backbone business. There are already two big spotlights in 2006. One is the 35 000 t/a electronic grade fiberglass fine yarn project that located in Chongqing Chemical Industry Park ignited and put into trial production on February 11th, 2006. Addition to this new production line, the total fiberglass production capacity approaches 150 000 t/a for the company. The second is that the 20 000 t/a POM production unit has been constructed smoothly and will put into production in June 2006. The two projects will become the company’s new profit growing points in 2006.     Since February 2006, local urea price has been climbing up. Presently the ex-factory prices ranged from RMB1 650 to RMB1 720 per ton, with an increase around RMB140 per ton. Urea in some regions is traded at around RMB1 800 per ton including freight. That will hardly affect the sale of chemical fertilizer made by Yuntianhua. The price rise of fertilizer was mainly pushed by the increased cost. The National Development and Reform Commission allowed the price to fluctuate around RMB1 650/ton within a 15% ratio. Judged on present status, the increased price has little influence on the sale, the company continues to enjoy a hot sale in fertilizer business.     However, the increased price of natural gas has actually influenced the company’s performance. The company’s profit has a reduction of RMB60 million due to this reason in 2005. In order to minimize the negative influence, besides the two new economic growth points, the company is also planning technical innovation on its chemical fertilizer production units, mainly focusing on cost reduction. This move is predicted to be able to save around RMB10 million to RMB15 million.