The consolidated operating revenue of the company in 2016 was US$ 8,529 million, a decrease of 8.2% from US$9,287 million in 2015. The consolidated profit before taxes was US$1,668 million, an increase of 23.4% from US$1,352 million in the previous year.
In 2016, the growth of global trade and the capital market slowed down. International economic institutions continuously decreased the global economic outlook. Even the better U.S.’s economic growth was not as strong as expected. Mainland China has actively carried out the structural reform of its supply side but was slow to reduce excess capacity and the economic growth continued to slow down, thus imposing a significant impact on not only Asia’s economy but also the world’s economy.
Facing such a harsh external economic environment, our company has been striving to expand both domestic and foreign markets, increase sales volume and capacity utilization, commit to whole production and be sold out, develop differentiated and high-value products and improve the percentage of those products, all of which have significantly contributed to a growth in profits in plastic processing products and electronic materials. Despite the effective market expansion of petrochemicals, falling oil prices and the decreased intention to buy in the first three quarters of 2016 resulted in profit reduction compared to the same periods in 2015. Nevertheless, increased investment return from Formosa Petrochemical Corporation and the disposal of Inotera Memories, Inc. shares ultimately allowed our company to gain 23.4% more profit before taxes than last year.
Our company mainly manufactures four kinds of products: plastic processing products, petrochemicals, electronic materials, and polyester.
With regard to plastic processing
Most three-stage plastic processing companies in Taiwan have moved their manufacturing plants to mainland China and Southeast Asia and purchase cheaper raw materials from local suppliers, which has significantly decreased the demand for domestic two-stage plastic processing products. In addition to shifting part of our traditional product lines to subsidiary companies overseas to supply our clients with required materials, our parent company in Taiwan has continued to actively implement overall industrial transformation, such as accelerating the development of featured products with “new functions, new materials, and eco-friendliness”, expanding new niche markets, and increasing the sales proportions of differentiated and high-value products. By adjusting the production and marketing combination in Taiwan, mainland China, and the U.S. in accordance with overall market characteristics, we aim to bring the advantages of transnational business into full play and accelerate e-commerce and network marketing, as well as expand the emerging markets with demand potential. Thanks to a variety of efforts, we gained a more profit growth than in the previous year.
Regarding petrochemical products
In response to the vertical integration of the sixth naphtha cracker plant in Mailiao District, our petrochemical products, including EG, BPA, 1,4BG, DEHP, PA, 2EH, and EPOXY, were manufactured to support development in such downstream industries as the polyester, electronics, and plastic processing industries. By vertically integrating upstream and downstream products, we formed a complete supply chain. In the first three quarters of 2016, due to low global oil prices, the prices of petrochemical products also remained low. Due to the decreased demand, high prices of ethylene, and partially reduced production, EG generated decreasing profits. However, in the fourth quarter, EG showed increasing profits due to the rising utilization rate of the polyester industry and the increasing demand for antifreeze, but the overall annual profits still declined. BPA and DEHP were met with operational difficulties, such as excessive supply in mainland China and high prices of raw materials. However, sales performance has begun improving since the company started promoting market expansion. Although petrochemical products are intrinsically vulnerable to increasing prices of raw materials, our company continues to be devoted to making improvements through optimizing processes, fully grasping market conditions, effectively adjusting production, sales and inventory, expanding markets in regions besides mainland China, and diversifying market risks to strive for the best operating performance.
With regard to polyester products
Both sales of international brands being not as expected and adjustments in inventory have contributed to fierce competition in polyester market this year. Fortunately, stable sales of differentiated and high-value products made from polyester staple fiber and filament have contributed to getting profits this year. Our PET chips and industrial film production experienced overcapacity and decreasing prices, which resulted in great challenges on our business operations. Facing such negative external factors, our company has been proactively developing differentiated, functional, and eco-friendly products and segmenting the market and expanding the sales fields through extensive applications of polyester filament and film. In addition, by cooperating with other brand names, we aim to create more business opportunities and increase sales to maintain the stable profit.
Regarding electronic materials
Due to changes in end use, the demand for traditional personal computers and laptops has declined significantly, while the sales volume of mobile communication devices like smartphones and tablets has also slowed down. Cloud servers and automotive electronics are the only products that have shown stable growth this year. However, as new energy policies, like electric cars, have been promoted in mainland China, Europe, and the U.S., a significant demand has been placed on upstream lithium battery copper foil and related materials, leading to the supply and demand tensions in the copper foil industry in the second half of the year and further increasing the demand and prices of the overall industry. Our company has adjusted our production and sales strategies over time through vertical integration and transformation, adapted to respond to market trends to promote high density Interconnection CCL(HDI), high layer count CCL(HLC), automotive electronics CCL, ultrathin glass fiber cloth, high frequency copper foil, and thick copper foil to increase the sales proportion of high-value and highly functional niche products. We strive to bring overall production capacity into full play and adjust production and sales operations in manufacturing plants on both sides of the strait, we have committed to improving our operating revenue and profits in the future.
Nan Ya Printed Circuit Board Corporation, in which we have invested, has continuously developed and manufactured a variety of products like high-end PCB and IC substrates. In 2016, operations were not as good as expected because the operating performance did not meet its target. Nan Ya Printed Circuit Board Corporation is actively reviewing and improving its capability for R&D and equipment manufacturing, material costs, and employee performance in order to enhance its operating constitution. To continuously meet clients’ requirements, Nan Ya Printed Circuit Board Corporation has introduced advanced SiP board production techniques and has developed various products designed for new uses like communication networks and automotive electronics. In the future, the company expects to strive for more orders for niche products, expand its new client base, and strictly control costs in order to enhance its overall business competitiveness.
Nanya Technology Corporation, another company in which we have invested, is dedicated to developing, manufacturing, and selling DRAM (dynamic random-access memory). To reduce operational risks and follow market trends, Nanya Technology Corporation has focused on manufacturing consumer and mobile niche DRAM products in mainland China and Asia-Pacific markets. In 2016, Nanya Technology Corporation continued to improve its 30 nanometer technology production effectiveness to increase output. Nanya Technology Corporation is also introducing 20 nanometer manufacturing process technologies to further reduce product costs and increase competitiveness. With a stable DRAM industrial environment, Nanya Technology Corporation can maintain certain profits, in addition to the sale of Inotera Memories, Inc. shares, to contribute to a lot of investment returns for our company.
In addition to selling Inotera Memories, Inc. shares to Micron Technology, Inc., Nanya Technology Corporation also participated in subscribing to Micron Technology, Inc. unlisted shares and became a shareholder of Micron Technology, Inc. Furthermore, Nanya Technology Corporation also obtained the option of its 10 nanometer technology and products to be licensed. With years of stable partnership, Nanya Technology Corporation will form a new strategic alliance with Micron Technology, Inc. through this transaction, resulting in a win-win situation and having a positive impact on both technology and industry communication.
Looking toward 2017, complicated and uncertain factors have impeded global economic recovery, including the significant overturn and change in political and economic policies after the election of Trump as president of the U.S. If such policies are put into practice, they will certainly have an impact on global economic growth.
Mainland China will be undergoing industrial structural transformation and upgrade for a long time as mainland China moves from an investment-oriented country to a consumption-oriented country. However, negative factors that affect the economy, such as low demands and overcapacity, continue to remain, causing the economic growth to slow down year by year. Mainland China has continuously promoted localization in its industry chains, which has resulted in severe threats and increasing export restrictions on Taiwan, which relies heavily on mainland Chinese markets. Furthermore, stagnant progresses in ECFA negotiation and the participation in regional economic integration agreements have left Taiwan out of the global value chain, causing long-term economic growth to become stagnant or decline. Both the government and industries must make extra efforts to avoid the adverse trend of the economic downturn.
Global economic changes have grown more unpredictable. An unstable global environment and uncertain risks can severely impact economic development. Faced with adversity and these challenges, our company will persist the belief that “the truth shall be sought from facts” and that “where there is a will, there is a way” in the pursuit of constant improvement and management rationalization. We aim to recycle resources and create the greatest economic benefits by promoting process optimization, increasing production performance, and developing circular economic activities through reduction and reuse. With the efforts made by the production, sales, and technology departments, we continue to reinforce R&D, expand niche product sales, and raise the sale proportions of differentiated and high-value products. By making Taiwan the center of our business operations, we have applied rich experience in diversification and vertical integration, adjusted resources from domestic and foreign companies in which we have invested in order to locate the best combination of production and sales, increase our overall competitiveness, and achieve more returns for our shareholders.
In our ongoing capital expenditure programs, in addition to increasing capacity and effectiveness by improvements in process optimization, in Taiwan, we have increased the number of production equipment for high-value pepa synthetic paper as well as started the study on an expansion plan for a new copper foil plant. In mainland China, high value-added plastic leather production equipment has been set up for volume production in Nantong. In the US, new EG plants are now under expansion. Among those newly increased factories, the new copper foil factory is aimed for product differentiation by making copper foil for use in the power and energy storage applications to make a more complete product lineup. The EG plants in Texas is designed to utilize locally available cheap resources such as natural gas as part of the largest expansion plan in recent years. The new plant is scheduled to go into production in three years, which is expected to contribute new operation momentum to our company and increase our business growth.