On 29 April, 2016, Sichuan Fuhua Tongda Agro-Chemical Technology Co., Ltd. (Sichuan Fuhua) released an announcement and a prospectus about the public issuance of bonds in 2016. Approved by China Securities Regulatory Commission, Sichuan Fuhua will issue no more than USD170.37 million (RMB1.10 billion) of bonds to qualified investors in public.

And the company plans to use USD123.91 million (RMB800 million) to make up for the debt and use USD46.46 million (RMB300 million) to supplement the working capital.

According to the prospectus, the company's asset-liability ratio in 2012, 2013, 2014 and Jan-Sept. 2015 was 70.52%, 71.51%, 65.73% and 68.12% respectively, which remained at high level. If the asset-liability ratio keeps increasing, Sichuan Fuhua's performance might be affected.

At present, glyphosate is the major product of Sichuan Fuhua, from which the revenue accounts for about 80% of the total revenue. In 2012, 2013, 2014 and Jan.-Sept. 2015, Sichuan Fuhua's total profit and gross profit margin is fluctuated by the changing market price of glyphosate. To be more specific:

• Total profit: USD42.35 million (RMB273.43 million), USD98.82 million (RMB638.06 million), USD45.56 million (RMB294.16 million), USD35.35 million (RMB228.22 million)

• Gross profit margin: 24.11%, 27.91%, 17.72%, 13.63%

Sichuan Fuhua predicted that it would achieve total revenue of USD519.94 million (RMB3.36 billion) and net profit of USD18.43 million (RMB119 million) in 2015, down by 9.76% and 52.96% YoY respectively. It can be seen that the company's net profit in 2014 and 2015 both recorded YoY fall of over 50% (53.79% in 2014).

As a result, Sichuan Fuhua is badly in need of funds to ease the pressure from the high asset-liability ratio in the short run. Certainly, the funds it raised this time really do help a lot. 

Sichuan Fuhua's revenue by main businesses, 2012, 2013, 2014 and Jan.-Sept. 2015, million USD

Source: Sichuan Fuhua Tongda Agro-Chemical Technology Co., Ltd.

Sichuan Fuhua's gross profit margin by main businesses, 2012, 2013, 2014 and Jan.-Sept. 2015

Source: Sichuan Fuhua Tongda Agro-Chemical Technology Co., Ltd.

Now, Sichuan Fuhua is facing the risks of single product structure and high dependence on overseas demand.

Glyphosate is the main product for Sichuan Fuhua. As of Sept. 2015, the company's production capacity of glyphosate reached 120,000 t/a. In 2014, the sales from glyphosate business amounted to USD504.76 million (RMB3.26 billion), 87.62% of the total. Of this, the sales from foreign trade of glyphosate accounted for 69.53% of the total sales, which marks that Sichuan Fuhua highly depends on the overseas market.

As Sichuan Fuhua's income is mainly from the glyphosate business, affected by the excess capacity and slow growth of downstream demand in the glyphosate market, the market price of glyphosate fluctuated strongly in recent years, influencing the profitability of Sichuan Fuhua.

Financial performance of Sichuan Fuhua in 2012, 2013, 2014 and Jan.-Sept. 2015:

• Total revenue: USD334.39 million (RMB2.16 billion), USD545.35 million (RMB3.52 billion), USD576.13 million (RMB3.72 billion), and USD474.15 million (RMB3.06 billion)

• Revenue from the export of glyphosate: USD107.76 million (RMB695.73 million), USD330.39 million (RMB2.13 billion), USD351 million (RMB2.27 billion), and USD322.08 million (RMB2.08 billion), 32.22%, 60.58%, 60.92% and 67.93% of the total revenue respectively

At present, the profit margin of the glyphosate market has been significantly squeezed. In 2015, the overall pesticide industry was depressed with some product prices hitting record lows in three years before influenced by the weak market demand both at home and abroad, the prohibition on high toxic pesticides, the reduction in pesticide consumption, etc.

Because of the falling product prices, pesticide industry enters the slack season in advance with profit margin being squeezed. Currently, the pesticide market is undergoing the "small profit" period when guaranteeing the cost is the priority for enterprises. As a result, the transaction prices of some large-tonnage herbicide technical including glyphosate, 2,4-D, paraquat, acetochlor and atrazine have been relatively low.

This article comes from Glyphosate China Monthly Report 160, CCM

About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.

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Tag: glyphosate

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