On behalf of the Board of Directors, I am pleased to present the annual report of GMG Global Ltd ("GMG") for the year ended 31 December 2015 ("FY2015").
With falling commodities prices against a weaker global macroeconomic environment, the year 2015 has been one of the most challenging for the commodities industry, including the natural rubber industry.
Demand for natural rubber was below expectation as the underlying demand for natural rubber remained lethargic while the world economy slowed down, resulting in natural rubber prices hitting its lowest since 2010.
According to a study done by the International Rubber Study Group (IRSG)1, the world demand for natural rubber was estimated to have grown by only 3.1% in 2015 to 12.34 million tonnes. It is noteworthy that demand has exceeded the production of natural rubber of 12.27 million tonnes during the year, which helped somewhat to ease the inventory overhang that the rubber market has been struggling with since 2013.
Despite these difficult conditions, we are very pleased to have achieved significant growth in gross profit of 19.7% to S$61.4 million for FY2015. Although sales tonnage and revenue were lower, our gross margin was boosted by higher sales premium, better raw material procurement and improved overall cost management.
INDUSTRY OUTLOOK 2016
Moving into 2016, although there is a slight projected acceleration in global economic growth for 2016-17, and that is expected to underpin higher demand for natural rubber, we remain conservative on the outlook for rubber. Based on an Economic Intelligence Unit report, low prices and the need to rebuild stocks are two further factors that can lead to stronger growth in natural rubber usage of 3.2% in 2016 and 3.3% in 20172.
A key growth driver in the usage of natural rubber is tyre and tyre products which are projected to grow by 2.0% in 2016 and 3.4% in 20171. This is positive news for us as we continue to supply natural rubber to the world's top 10 tyre manufacturers with whom we have established close and long-standing relationships.
In addition, we are also exploring opportunities to enlarge our customer base by reaching out to manufacturers of other niche products (such as shock absorbers; vehicle spare parts; and pharmaceutical-related products).
ONE BELT, ONE ROAD INITIATIVE
The One Belt, One Road initiative developed and proposed by the PRC government will lead to the creation of an economic land belt that covers countries on the original Silk Road through Central Asia, West Asia, the Middle East and Europe. It will include a maritime road that links China's port facilities with the African coast, through the Suez Canal and into the Mediterranean. It also encompasses the development of an unblocked road and rail network linking China and Europe that will involve more than 60 countries covering more than half the global population and representing a third of the world's total economy.
We are extremely excited by the scale of this project and the opportunities it brings. We think that the massive construction of infrastructure alone will support the demand for natural rubber in the mid and long term, and we are well positioned to capitalise on these opportunities given the entrenched market position of GMG and our parent company, Sinochem International, in the rubber industry in the PRC.
More importantly, the One Belt, One Road initiative will ultimately link Asia to Africa, which has some of the world's fast-growing economies. Sometimes termed as the "China of tomorrow" or "a new India", the Gross Domestic Product in Sub-Saharan Africa is expected to pick up to an average of 4.4% and 4.8% in 2016 and 20173 respectively. This increase will be driven by domestic demand, supported by continuing infrastructure investment and private consumption fueled by lower oil prices. We have been in Africa as early as 1995. Our investments across so many parts of Western Africa also position us well for direct opportunities in these fast-growing markets.
We take a long-term view of the rubber industry because it is a cyclical business. We have readied ourselves to move GMG to a leadership position. We aim to do this by leveraging on our sustainable business model and healthy balance sheet, as well as mobilising our most important resource - ie our people. Earlier this year, we launched our GROWTH campaign, which is an offshoot from our parent company, Sinochem International.
The GROWTH campaign embodies the shared growth of the company and our employees through the “Creation of Value and the Pursuit of Excellence” in the way we conduct ourselves and our business. G.R.O.W.T.H is : Good-to-Great (追求卓越)、Recreate (创 新)、Ownership (认真)、Willing to learn (善于学习)、Teamwork (合作) 、Honesty (诚信).
And, G.R.O.W.T.H means both a personal and corporate pursuit of excellence beyond the good to great. We will recreate ourselves, take ownership and always be willing to learn from others even as we work hard together to become the greatest team. We will conduct ourselves with honesty and integrity at all times so as to ensure that our trustworthiness is never undermined. All these we will do - with "Green" and sustainability imprinted in our minds.
This campaign has been launched in all our global offices and we will ensure that our staff embrace these corporate values and the Growth culture. We are certain we will be able to achieve sustainable growth and development that will benefit all stakeholders.
I would like to express my sincere and utmost gratitude to our Board of Directors, management team and employees for your contributions, dedication and sacrifices. To our business partners, we thank you for being with us. We will always strive to be your partner of choice. To our shareholders, we are deeply grateful for your patience and continued support in these challenging times. We commit to doing our very best to deliver for GMG!
1The World Rubber Industry Outlook, Review
and Prospects to 2024, IRSG, December 2015
2 World Commodity forecasts: industrial raw materials, The Economic Intelligence Unit, December 2015
3The World Bank, 22 October 2015