We are a global manufacturer of UHP graphite electrodes with a worldwide customer base in over 25 countries comprising major global EAF steel manufacturers in Americas, EMEA, APAC and the PRC that sell their products to the automotive, infrastructure, construction, appliance, machinery, equipment and transportation industries.
The dual carbon goals, namely carbon peaking before 2030 and carbon neutrality before 2050 have brought global momentum towards the transformation of our downstream industry of steel manufacturing by shifting from blast furnace steelmaking to EAF steel manufacturing. Currently, blast furnace steelmaking predominates the steel production with 70% in worldwide and even 90% in the PRC. Using EAF is more environmental friendly in terms of pollutants emissions and energy consumptions and regarded as a core pillar of decarbonisation to complete ‘‘super-low-emission’’ renovations within the steel industry. With our commitments to offer high quality UHP graphite electrode which serves as a key industrial material to EAF steel manufacturers and our continuous efforts to strive for a cleaner production process to reduce emissions and wastes as well as energy consumption, we believe, together with our downstream customers, we would be able to contribute to a green and sustainable economy in the long run.
According to the F&S Report, we ranked seventh among the global UHP graphite electrode manufacturers in 2021 with a market share of approximately 1.4%, and ranked fourth in the UHP graphite electrode manufacturers in the PRC in 2021 with a market share of approximately 7.1%, in terms of production volume.
We have our production facilities in Italy and the PRC with annual effective production capacities of 16,500MT and 14,000MT, respectively, which enable us to flexibly meet the demand for graphite electrodes from our customers located in different parts of the world and provide them with support and technical services. We source finished graphite electrodes and needle coke from various suppliers.
We have regional sales teams focusing on the markets of Americas, EMEA, APAC and the PRC to serve and support our customers in all different geographies. Our global reach through our strong sales and distribution network ensures that our products are readily available to our customers.
During the Track Record Period, the global graphite electrodes industry was at the peak in terms of the average selling price in 2018 and experienced market correction during 2019 and the impact of COVID-19 since early 2020. Driven by the recovery of the demand from its downstream steel industry, namely the global EAF steel industry, the global demand for graphite electrodes surged starting from second half of 2017 and in turn caused an upsurge in the price of UHP graphite electrodes globally (excluding the PRC) within a short period in 2018, reaching approximately USD16,054 per tonne in global excluding the PRC and RMB115,686.7 per tonne in the PRC, respectively. Followed by over investment, production and purchase, which resulted in an over-stocking in the market, there was a plunge in the average selling price of graphite electrodes in 2019 to approximately USD8,824 per tonne globally (excluding the PRC) and approximately RMB50,647.1 per tonne in the PRC. In 2020, the global outbreak of COVID-19 further affected the demand for UHP graphite electrodes and led to a slight decrease in the consumption volume globally.
Despite the market correction during 2019 and impact of COVID-19 since early 2020, our Group had been able to maintain growth in its sales volume from approximately 10,994MT in FY2018 to 19,656MT in FY2019, to 25,647MT in FY2020, and to 27,669MT in FY2021. We managed to achieve a gross profit margin of approximately 62.5%, 22.7%, 15.2% and 21.0% during the corresponding periods, respectively, which aligned with the overall industry trend and had outperformed some of its industry peers in terms of operating or gross profit margin despite the market correction and impact of COVID- 19 in FY2020.
However, in FY2019, our Group underperformed our industry peers in terms of operating or gross profit margin, which was mainly attributable to (i) a significant decrease in the average selling price by approximately 49.9% in FY2019 from historical high in FY2018; and (ii) the provision for inventory of approximately US$16.2 million in FY2019. In FY2020, while our Group managed to maintain a positive operating profit margin and gross profit margin, some of the industry players, namely Showa Denko, Tokai Carbon, Graphite India and Yicheng New Energy recorded a negative operating profit margin or gross profit margin. For details on the comparison of the financial performance of major industry peers, please refer to the section headed ‘‘Industry Overview — Recent development of global and China Steel and graphite electrode market amid the COVID-19 — comparison of major participants’ financial performance’’ in this prospectus.
In FY2021, the market price of graphite electrodes resumed gradual trajectory after its stabilisation since August 2020 and the steel market and other downstream industries started to recover from the COVID-19 downturn. Against such market condition, our Group proactively adopted measures to increase sales volume and expand our customer base and as a result, our financial performance improved substantially. For details, please refer to the section headed ‘‘Financial Information — Gross profit and gross profit margin — The market price of graphite electrodes resumed gradual trajectory in 2021’’. As compared 1H2022 to 1H2021, our sales volume increased from approximately 11,402MT to approximately 12,456MT and our gross profit margin improved significantly from approximately 17.3% to approximately 26.1%.
During the Track Record Period (save for FY2020), our average selling price was generally lower than that of the industry average selling prices (only related to UHP graphite electrodes) mainly due to the fact that we sold some HP and RP graphite electrodes to fulfil customers’ orders, which represented approximately 27.8%, 24.6%, 13.6%, 22.0% and 15.5% of our revenue in FY2018, FY2019, FY2021 and 1H2022, respectively. Since the average selling price of HP and RP graphite electrodes was lower than that of UHP graphite electrodes, our average selling price, which included the average selling price of UHP, HP and RP graphite electrodes was generally lower than that of the industry average selling price of UHP graphite electrodes in the global market (excluding the PRC) and in the PRC market.
During the Track Record Period, our average selling price of UHP graphite electrodes was approximately US$19,051/MT, US$8,523/MT, US$4,640/MT, US$4,253/MT, US$3,893/MT and US$5,128/MT in FY2018, FY2019, FY2020, FY2021, 1H2021 and 1H2022 respectively.
During the Track Record Period (save for FY2018 during which we have not entered the PRC market and FY2020 during which the delivery of an order for 2,268MT of UHP graphite electrodes to Xinxiang Longhui was delayed from mid-2019 to June 2020), our average selling price of UHP graphite electrodes was generally lower than that of the industry average selling prices mainly due to the fact that the industry average selling price of the UHP graphite electrodes in the PRC has been generally lower than that of the UHP graphite electrodes sold in the global market (excluding the PRC). As such, our average selling price of UHP was dragged down by our sales of UHP graphite electrodes in the PRC.
For FY2020, since there was a postponement of delivery of a purchase order with a relatively high average selling price amounted to approximately US$6,063/MT from the original scheduled time in FY2019 to FY2020 upon the request of one of our major customers, Xinxiang Longhui. Such postponement of delivery from FY2019 to FY2020 led to our relatively higher average selling price compared with than of UHP graphite electrode in the global market (excluding the PRC) and in the PRC market in FY2020.
While our average selling price per MT decreased by approximately 7.2% or approximately US$304 from approximately US$4,232 in FY2020 to approximately US$3,928 in FY2021, the market price of graphite electrodes and our average selling price have bottomed out in August 2020 and resumed gradual trajectory in 2021. Our average selling price per MT of each quarter of 2020 and 2021 was approximately US$4,786, US$4,626, US$3,595, US$3,679, US$3,690, US$3,645, US$3,970 and US$4,230, respectively. For details, please refer to the section headed ‘‘Financial Information — Gross profit and gross profit margin — The market price of graphite electrodes resumed gradual trajectory in 2021’’.
The decrease in our gross profit margin during FY2018, FY2019 and FY2020 was largely caused by the downward adjustment of the average selling price of graphite electrodes sold and the market price volatility of graphite electrodes. In particular, our gross margin for FY2020 was adversely affected by the COVID-19 pandemic which had resulted in a drastic drop of global economic activities and lower graphite electrode prices.
Due to the downward adjustment of the graphite electrode market during 2019, the delivery of an order for 3,402MT of graphite electrodes to Xinxiang Longhui, which Xinxiang Longhui intended to onsell to the Downstream Customer, was delayed from the middle of 2019 to June 2020 with the delivery quantity reduced by one-third to 2,268MT. Despite such delay and reduction in quantity, the unit price of the graphite electrodes remained to be the original unit price agreed between the parties when the purchase agreement was entered into and the 2,268MT of graphite electrodes became fully secured by actual prepayment. For details of the relevant transaction between Xinxiang Longhui and the Downstream Customer, please refer to the section headed ‘‘Business — The sales agreement between our Group and Xinxiang Longhui’’ in this prospectus.
Source: Sanergy Group (02459) Prospectus (IPO Date : 30/12/2022) |