Cold Consumption Last Year, China'S Clothing Inventory 85 Billion 400 Million, High-End Wool Spinning Leading New Zealand Shares Earn Only 140 Million

Zhejiang new Australia textile Limited by Share Ltd (hereinafter referred to as "new Australia shares") released the annual report in 2019 on the evening of April 8th. During the reporting period, the company achieved operating income of 2 billion 710 million yuan, an increase of 5.6% over the same period, and the net profit attributable to shareholders of listed companies was 143 million yuan, down 28.16% from the same period last year. Basic earnings per share of 0.28 yuan.

New Australia shares explained that the main reason for the decline in net profit during the reporting period was:

(1) during the reporting period, the demand for apparel retail terminals was weak due to the slow growth of the macro-economy and the change of consumption structure, especially the consumer confidence and purchasing power of high-end consumer goods. According to the National Bureau of statistics, the consumer price index of clothing in 2019 continued to decline, and dropped linearly after the three quarter. The consumption of textile and clothing shows that the "peak season is light and the off-season is more light". Most clothing enterprises are facing difficulties in production and marketing, high inventory and insufficient funds. According to statistics, China's clothing inventory reached 85 billion 400 million yuan in 2019. The cold demand of terminal demand directly depressed the weaving and spinning enterprises in the upper reaches of the industry. Affected by this, the company inevitably faced the impact of decreasing orders and decreasing gross margins.

(2) from the perspective of woolen subdivision industry, the operational pressure of the wool spinning industry has increased further during the reporting period and the overall profitability has declined. According to the National Bureau of statistics, in the first three quarters of 2019, the operating income of the above scale wool textile enterprises showed a decline of 3.26% compared with the same period last year, which was lower than that of the textile industry 0.9%. The gross profit of the wool textile enterprises decreased by about 1 billion 200 million yuan, or 42%, and the average profit rate of the industry was 1.6%, down 1.2 percentage points compared with that of last year, and the average profit margin level of the wool textile industry was also far lower. In the textile industry 3.85% of the average profit margin level.

(3) since 2014, the new Australian stock has passed the IPO2 million spindles, the fixed increase project 30 thousand ingots and the self built project 60 thousand spindles in the first phase (28 thousand spindles). The high-end wool worsted production capacity has been increased by nearly 80 thousand ingots, and the capacity scale has doubled. This is of strategic importance for grabbing the global market share, consolidating the industry position and realizing the curve surpassing the European competitors. With the increase of automation equipment, the depreciation cost of fixed assets will increase correspondingly, and the labor cost will also increase with the salary level and the number of workers.

In the current complex and changeable situation, and the judgement of raw material prices in a downward path, new Australia shares consider the output and the amount of yarn to be adjusted, on demand, and control the reasonable inventory level. At the end of the reporting period, sales of worsted yarn and wool top products were slightly higher than that of last year, and the total inventory of the two stocks decreased by 1056.14 tons. The yarn output decreased by 13.88% compared with last year due to digestion and inventory reduction, and the output of wool top was 3.40% lower than that of last year. The insufficient utilization of capacity makes it difficult to give full play to the scale advantage, resulting in an increase in the unit manufacturing cost. The cost of worsted yarn wages increased by about 1812 yuan / ton compared with last year, up 25.66%, and depreciation cost increased by 1493 yuan / ton, up 38.08% last year.

(4) the price of raw materials has dropped sharply, and the Australian dollar has depreciated greatly. The price of wool is easily affected by many factors, such as climate, local industrial policies, wool reserves, exchange rate movements and so on. Australian wool prices have been rising for nearly four years since 2015.

At the beginning of the reporting period, the Australian wool price index rose rapidly from the 1862 Australian cents / kg at the end of 2018 to the annual high point (February 22nd) 2027 Australian cents / kg, or 8.85%. Then the cliff fell sharply to 32.17% to a minimum of 1375 Australian cents per kilogram, and at the end of 2019, the Australian dollar exchange rate fell to a 10 year low, amplifying the volatility. The price fluctuation of raw materials and the continuous adjustment of product structure make the profit margin of wool textile industry drop sharply.

The main business of wholly owned subsidiary is the production and sale of wool tops, and the provision of modified processing business. Among them, because the wool strip business belongs to the initial processing, the processing is short and the gross profit margin is low, the gross profit of the unit is greatly influenced by the price fluctuation of raw materials. In 2019, although its gross business increased by 3%, it was affected by the sharp rise and fall of the wool. The profit margin of the product was narrowed or even slightly reduced. Gross profit margin decreased by 7.27 percentage points, only 2.6%. Net profit decreased by 43 million 550 thousand compared with last year, which directly lowered the overall profit level of the company.

In terms of income structure, the proportion of gross spinning income increased from 54% in 2011 to 73% in 2019, and the gross income of wool tops decreased from 41% to 27%. The gross profit rate of wool worsted yarn is higher than the gross profit margin of the company. Therefore, in the long run, if the spinning capacity of wool spinning is gradually released, its revenue share will further increase, and the gross profit margin of the company is expected to remain stable.

(5) due to the low consumer market situation at home and abroad, downstream customers constantly reduce procurement costs to control risks. In terms of product structure, some pure wool yarns are replaced by Wool Yarns Blended with other lower grade fibers. The added value of products is reduced, which affects the gross margin level. Under the influence of wait-and-see sentiment, some customers are more cautious. The order demand of small quantity, multi variety and short delivery period becomes normal, and the company's manufacturing cost is increased objectively. It is difficult to use cost and management. At the same time, there is a phenomenon of low price competition in the industry, which has lowered the overall profitability of the industry. The price of some products is reduced due to competitive pressure, and profits fail to grow synchronously with sales revenue. The gross profit margin of the company has declined and net profit has declined year by year.

Public information shows that the main business of new Australia stock is the development, production and sale of worsted yarn. The company's yarn products mainly locate in the global high-end market, establish good cooperation relationship with the world's top apparel brands, and have stable and high-quality customer groups. The company has about more than 4000 customers around the world. There are about more than 500 garment brand partners in the domestic and foreign markets, and has become one of the designated yarn suppliers of many famous clothing brands, which has a large market influence.

The new Australian stock is recognized by the Ministry of industry and information technology and the China Federation of industrial economy as the 2019-2021 single champion demonstration enterprise of the manufacturing industry, and is awarded the single title of the combed wool yarn of the manufacturing industry. The product quality of the company is certified by authoritative certification. It is the wool wool logo franchising enterprise of the international wool Bureau. It has the Australian Merino wool logo certificate, obtained OEKO-TEXSTANDARD100 (ecological textiles international certification), and EUECO-LABEL (EU eco label) certification. The corresponding products passed the certification system of "Zhejiang manufacturing" (DB33T/944) quality certification, GOTS (Global Organic Textile Standard) and RWS (responsible wool standard).