Nine Dragons cutting capital expenditure

PUBLISHED : Saturday, 11 October, 2008, 12:00am
UPDATED : Saturday, 11 October, 2008, 12:00am

Nine Dragons Paper (Holdings), the mainland's largest maker of containerboards, will lower its capital expenditure by 800 million yuan (HK$908.16 million) this financial year and repay debt in the face of the worsening global economy.

The Dongguan, Guangdong-based company yesterday said its net profit decreased 6.3 per cent to 1.88 billion yuan for the year to June from the previous year because of rising raw material and electricity costs.

Sales rose 43.5 per cent to 14.1 billion yuan. Gross margins fell from 25.7 per cent to 20.35 per cent.

'We are now experiencing the challenges of a downturn in the global economy,' said Nine Dragons chairman Cheung Yan. 'We will defer our plan to add four paper machines to 2010. If the global economy continues to decline, the plan will be further postponed.'

Ms Cheung said the price of pulp had recently decreased to 4,800 yuan per tonne from 5,600 yuan and the 'declining trend in raw material prices can help us maintain gross margins'.

By the end of August, the company added six paper machines to boost its total production capacity to 7.75 million tonnes per annum from 5.35 million tonnes a year earlier. It had planned to add six more machines this financial year, but only two will be commissioned. The expansion plan in Vietnam would be cancelled, the company said.

To ensure ample cash flow, capital expenditure will be reduced from 3 billion yuan to 2.2 billion yuan this financial year. The figure will be 2.54 billion yuan and 2.3 billion yuan in 2010 and 2011, respectively.

On Wednesday, the company announced its chief financial officer Waltery Law Wang-chak had resigned because of health and family reasons. Armstrong Zhang Yuanfu will take up the post.

Shares in Nine Dragons yesterday slumped 19.55 per cent to HK$1.77. The share price has slumped 91.02 per cent this year.