As stated in the interim report of the Yonica (BVI) Group (a holding company with 80 per cent interest in Jiangsu Union Cement Co, Ltd), dated 23 August 2006, the sales volume of cement and clinker of the Group for the first half of year 2006 amounted to 1.92Mt, representing an increase of 21.99 per cent over the same period of last year.
Although the situation of supply exceeding demand still remained, the overall cement business environment has improved when compared with last year. Export business, which has continued to prosper, becomes an important strategic initiative for companies striving to enhance their level of profitability. During the first half of year 2006, a total of 1,2Mt of cement and clinker were exported, accounting for 65.8 per cent of the total sales volume. In view of the above, the Directors anticipate that the demand of cement products of the Group will remain strong in the foreseeable future.
For the first half of year 2006, the Group produced a total of 1.6Mt of cement and 1.03Mt of clinker. The Group has annual cement and clinker production capacity of 3.5Mt and 2.2Mt respectively. On an annualised basis, the utilisation rates of cement and clinker production capacity of the Group have reached 91.4 per cent and 93.6 per cent respectively. As such, the Acquisition is a step for the Group to increase its production capacity for expansion into the cement business in the PRC in the future and to achieve economies of scale.
Union Cement has an annual cement and clinker production capacity of 600,000t and 1Mt respectively. Upon completion of the Acquisition, the annual cement production capacity and clinker production capacity of the Group will increase by 17.1 and 45.5 per cent respectively.
In addition, Union Cement is located near the Yangtze River. The Yangtze River has enabled Union Cement to use river transportation to distribute its products. This has also enabled Union Cement to enjoy significant cost savings in transportation.