Costlier raw materials drag ChemrezTech's earnings

MANILA, Philippines - Weak global trade and volatile commodity prices reduced earnings of listed chemical firm Chemrez Technologies Inc. last year. Net income declined to P372 million in 2008, 22.5 percent lower than the previous year, even as sales reached a record high, ChemrezTech told the Philippine Stock Exchange (PSE). Sales reached P4.66 billion last year, 22.9 percent higher than the previous year. “The fall in net profit margins was felt most in the oleochemicals segment [the bulk of which is biodiesel], falling from 22.0 percent to 10.3 percent," the company said. Meanwhile, the company’s total turnover increased during the year, the first full year of the implementation of the Biofuels Act that required a one percent biodiesel blend for all diesel sold in the Philippines. Sales also rose in almost all the company’s traditional product lines, thanks to the strong economy and high commodity prices in the first half of 2008, the company said. However, the trend started to reverse in the middle of the third quarter. Growth in exports, particularly in the oleochemicals business, continued to be encouraging. Biodiesel and oleochemical sales surged 65.9 percent in 2008 compared to 2007, which also contributed 51.9 percent of consolidated sales. Resins and specialty products sales fell three percent and accounted for 43.2 percent of total sales. Powder coating sales fell 11.4 percent and accounted for 4.9 percent of sales. The fall in revenues in the resins and powder coating segments reflect the business slowdown in the construction, appliance, and packaging industries, which are some of its target markets. The worldwide trend of rising raw material costs peaked in the third quarter, and these costs started to fall dramatically thereafter. The volatility in raw material prices resulted in profit margins being squeezed, as inventory costs remained high while selling prices fell. As a result, cost of goods sold increased by 31.1 percent to P4.14 billion in 2008, as compared to P3.16 billion in 2007. Gross profits fell from P638 million in 2007 to P528 million in 2008. Net profit margins shrank from 12.7 percent in 2007 to eight percent in 2008. - GMANews.TV