Cleantech Solutions International Inc. has released its financial results for the three and six months ended 30 June 2016.
"In the second quarter of 2016, challenging economic conditions in China persisted, marked by a continuous decline in oil prices and limited availability of credit in China. Our forged rolled rings and related components segment suffered another quarter of sharp revenue declines and operating losses, we did not generate any revenues from our petroleum and chemical equipment segment and we currently have no orders for this segment. We continue to evaluate the long-term viability of these two segments on an ongoing basis. The dyeing equipment segment, which accounted for 96% of total revenue in the quarter, was also impacted by the challenging economic conditions, resulting in fewer orders during the quarter. In addition, our business was also affected by government actions requiring textile manufacturers in Zhejiang province to temporarily cease operations in order to improve air quality ahead of the G20 Summit which is scheduled for Hangzhou this September, which further suppressed demand," said Mr. Jianhua Wu, Chairman and CEO of Cleantech Solutions. "Although we expect our core dyeing machine business to face challenging conditions in the near term, we are working hard to strengthen our product offering and position this business for long-term success."
Revenue from the dyeing and finishing equipment segment decreased by 54.5% to US$3.9 million. Also, the Company experienced a slowdown in shipments of its low-emission airflow dyeing machines as many companies in the dyeing industry had already upgraded to new models and did not require additional equipment, and orders for new low-emission airflow dyeing machines slowed down in 2016.
Revenue from the sale of forged rolled rings and related products to the wind power and other industries fell by 95.2% to US$0.1 million. The significant decrease was mainly due to reduced demand for construction of wind power facilities, which was the Company's principal customer base during the quarter, due to the effects of lower oil and gas prices.
We has no revenue from sales of equipment to customers in the petroleum and chemical industries. Revenue in this segment is highly dependent upon sales to a very small number of Chinese petrochemical companies, whose purchasing policies affect both revenue and gross margin for this segment.
Gross profit for 2Q16 was US$0.2 million. Gross margin was 5.1% during the 2Q16 compared to 17.7% for the same period a year ago. The decline in gross margin was primarily attributable to the reduced scale of operations resulting from lower revenues, including the allocation of fixed costs mainly consisting of depreciation, to cost of revenues in the forged rolled rings and related products segment, as a result of which cost of revenues from this segment was greater than revenues, resulting in a negative gross profit from the segment, and a decline in gross margin from the dyeing and finishing equipment segment due to reduced scale of operations, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues, as well as lower selling prices in order to compete with other airflow dyeing machinery providers and a slight increase in raw material costs.
Edited from press release by Angharad Lock
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