The 3 major fertilizer companies suffered a total loss of 3.7 billion! What is the reason? They did this last year as well

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The 3 major fertilizer companies suffered a total loss of 3.7 billion! What is the reason? This was done last year. Author/Source: China Fertilizer Network. Date: 2020-01-22. Clicks: 968. From January 18th to 20th, three established fertilizer companies—Liuhua Co., Shengjitang (formerly Chitianhua), and Hechi Chemical—released their performance forecasts for 2019; they estimated that they had incurred losses of 1.963 billion yuan, 1.7 billion yuan, and 56 million to 66 million yuan respectively over the past year. 　　Upon analysis, the main reason for the losses of these companies was their decision in 2019 to divest themselves of their fertilizer-related assets (by transferring or auctioning them), thereby exiting the fertilizer industry and incurring significant asset impairment losses as a result. 　　This is another instance in the fertilizer industry where a company incurred huge losses due to asset disposals, following Yanchi Salt Lake Co., a leading potassium fertilizer producer, which was expected to suffer losses of 43.2 billion to 47.2 billion yuan in 2019 – making it the company with the largest losses in A-share history. Since initiating bankruptcy reorganization last year, Yanchi Lake Co., Ltd. has incurred losses of 41.735 billion yuan as a result of the auction of its assets at low prices, which has severely affected its reported financial results. 　　Liuhua Co., Ltd.: Heavy losses from asset auctions; no longer engaged in the fertilizer business. According to the announcement, Liuhua Co., Ltd.’s losses were attributed to three main factors: first, the implementation of a restructuring plan that involved the disposal of underperforming assets, resulting in asset disposal losses of 1.322 billion yuan ； Second, 296 million yuan was paid as compensation for employee resettlement ； Third, the shutdowns and production halts of related manufacturing systems lasted for long periods, resulting in significant losses due to downtime; the total annual loss from such downtime was approximately 230 million yuan. 　　Over the past year, Liuhua Co., Ltd. has completed its restructuring, thoroughly addressing its inefficient assets, and has auctioned off the equipment related to fertilizer production to realize value from them. Significant asset disposal losses were incurred because the auction prices at which the assets were sold were lower than their book net values; these losses amounted to approximately 1.322 billion yuan. 　　Furthermore, starting from March 30, 2019, all of the parent company’s production facilities as well as its controlled subsidiaries located at No. 67 Beique Road in Liuzhou City ceased operations, resulting in significant losses due to downtime; the total annual loss from such downtime amounted to approximately 230 million yuan. 　　As production had already ceased, paying compensation for the resettlement of employees cost Liuhua Shares 296 million yuan, which had a significant impact on its losses. 　　At present, Liuhua Co., Ltd. has largely withdrawn from the fertilizer industry, with its operational assets being only those of its Luzhai branch, which produces hydrogen peroxide. 　　In the announcement, Liuhua Co., Ltd. warned investors that its Luzhai branch is primarily engaged in the production and sales of hydrogen peroxide, with an annual designed production capacity of 100,000 tons of hydrogen peroxide equivalent to 27.5%. The branch has limited assets and operational scale, resulting in weak risk resistance and profitability, as well as significant uncertainties regarding its ability to continue operating. Investors are advised to be aware of investment risks and to invest cautiously. 　　Chitianhua is expected to incur a loss of 1.7 billion yuan; its urea production lines have been sold off. In 2019, Chitianhua shifted entirely toward becoming a pharmaceutical company, essentially withdrawing from the fertilizer industry. Once the largest nitrogen fertilizer producer in Guizhou, the company announced, from March to December, its intention to sell two of its subsidiaries that were responsible for all urea production, in order to focus its efforts on developing its core business in the field of \"healthcare\". The renowned state-owned enterprise that had existed for over forty years along the Chishui River has completely disappeared, leaving no trace behind. 　　In 2019, as a result of the disposal of the \"coal-based\" production facilities and related assets (Tongzi Chemical), the company made an asset impairment provision of 1.649 billion yuan, which caused its net profit from the chemical business to turn negative. 　　The performance of the business transitioning into the health sector is also not optimistic. Chitianhua stated that **the aggressive implementation of policies for centralized bulk procurement of drugs, price linkage measures in various provinces and cities, as well as slower progress than expected in the company’s drug consistency assessment efforts, have led to a decline in both the volume and price of its western medicine sales** ； At the same time, affected by factors such as rising prices of traditional Chinese medicinal materials and policies regarding prescriptions for such medicines, the company’s sales volume of traditional Chinese medicines as well as its gross profit margin declined compared to the same period last year. In summary, these factors are expected to result in a year-on-year decline of 150 million yuan in the net profit of Chitianhua’s pharmaceutical business. 　　Hechi Chemical: Complete suspension of urea production; physical assets to be sold for 1 yuan. Hechi Chemical is a key fertilizer manufacturer in Guangxi and one of China’s top 500 largest chemical enterprises. In 2018, Hechi Chemical shut down its urea production facility and ceased production entirely. 　　Starting in September 2019, Hechi Chemical announced that it would sell its physical assets related to urea production at a price of 1 yuan, and at the same time acquired a pharmaceutical company in order to undertake a complete transformation. 　　In this announcement, Hechi Chemical confirmed that shutdown losses were incurred due to the long-term suspension of operations at the company’s production facilities ； The company has a high debt ratio, and the debts incur certain interest costs ； Last year, the company made substantial provisions for asset impairment on its fixed assets. The above reasons had a significant impact on the company’s operational results for the year 2019. 　　Brief comment: These three companies were once large state-owned nitrogen fertilizer manufacturers with great glory. One of the reasons for its reluctant withdrawal was the overcapacity in the nitrogen fertilizer industry it operated in, along with insufficient market demand and fierce competition. Another reason was that the company lost its core competitiveness in recent years; its main product, urea, had low added value, costs were higher than revenues, and it lacked the ability to generate profits. At the same time, it missed out on opportunities for transformation and upgrading. 　　Traditional fertilizer companies that still adhere to old practices should learn from these lessons, actively explore new business models, increase the added value of their products and improve product quality, carry out further processing of semi-processed products, deepen the industrial chain, adjust the industrial structure, and achieve industrial transformation.