In the second half of 2021, the COVID-19 pandemic prevailed worldwide and the Covid variants Delta and Omicron emerged and impeded economic recovery. At the same time, international shipping had yet to return to normal because of the pandemic. That coupled with high international crude oil price caused plastic material prices to also hover high. Given the uncertain economic outlook, overall sales volume of the Group declined year-on-year.
During the period, the Group adjusted the prices of certain products and continued to optimise its product mix plus strengthened the cost control. At those efforts, overall gross profit of the Group increased.
Plastic prices started trending up in the fourth quarter of 2020 till mid-2021 and remained relatively high in the second half of 2021. In 2020, the Chinese Government provided corporate social security expense concessions amid the pandemic, and rental for leased factories was also partially waived. However, as such moves ended in the period under review, costs of the Group mounted. Facing also risen salary costs and some production lines not operating in full due to the pandemic, the Group's operating costs surged notably year-on-year in the second half of 2021.
During the period under review, there were international shipping delays every now and then, affecting stability of the global supply chain. Sales volume and turnover of the Group's plastic material trading business was also affected for the period under review. However, prompted by the pandemic outbreak, public health and hygiene awareness has increased and, as such, demand for post-pandemic products such as medical devices and air filter systems remained stable. At the same time, the Group moderately adjusted product prices and managed to transfer part of the costs, and its sales team also succeeded in expanding the Group’s clientele. Thus, in the second half of 2021, orders came in for new projects involving such as next generation new energy vehicles and high-end small personal care appliances. With operating costs relatively stable, the gross profit margin of plastic material trading business increased.
As for engineering plastic product business, driven by orders from new customers, saw turnover increased. However, with raw material prices lingering high, gross profit margin of the business dropped. Nonetheless, at the Group's stringent cost control measures, profit before tax of the business increased, which was satisfactory. With various countries implementing different pandemic prevention measures, many companies have adopted flexible work-from-home arrangements, which has greatly increased the time consumers spend at home and that in turn has stimulated demand for general household electrical appliances such as kitchenware. Spotting the trend, the Group started in the previous financial year, to tap the high-end kitchenware market the promises higher gross profit. In the second half of 2021, the Group continued to enrich its product portfolio and increased R&D investment and efforts at the Dongguan base to develop more product formulas for high-end kitchenware, so as to meet the orders of customers with more diverse demands.
On the contrary, the colorant, pigment and compounded plastic resin business was affected by cost hike in the period under review. Although its turnover increased, gross profit margin was down and profit before tax also fell. The notable increase in costs was mainly due to the five factories serving the business needed more human resources, and the absence of the corporate social security expense concession from the Mainland China Government and the rental concession for leased factories during the period. Also, as some factories had to temporarily suspend work due to COVID-19 and employees had to work overtime subsequently to catch up with production schedule, additional expenses were incurred. All of the above led to higher costs. During the period under review, the Group continued to focus on increasing production of high-end sanitary products and electronic products, and expanding the production capacity of various factories so that it might secure high-gross-profit-margin orders and maintain stable business development.
HUI Sai Chung