Preliminary Results

27 May 2015

GTS Chemical Holdings plc

("GTS" or the "Company" or the "Group")

Preliminary Results

Group Revenue up 45.9%; Maiden Dividend proposed

GTS Chemical Holdings plc (AIM:GTS), the specialty chemicals producer and China's largest producer of ammonium sulfite, is pleased to report on its preliminary results for the year ended 31 December 2014, reflecting on another period of very robust growth.

Highlights

· Performance across all divisions exceeded market expectations

· Revenue 45.9% higher


· Profit before tax up 33.8%


· Stable gross margin of 21.1% (2013: 21.2%)

· Significant strategic and corporate progress with AIM listing and acquisition of neighbouring land

· Maiden dividend of 1.8 pence per share proposed

Andrew Harding, Non-Executive Chairman, commented: "The Group has delivered a strong performance in 2014; we have exceeded market expectations in all respects and the declaration of our maiden dividend is fully supported by our results.

"We are currently investing in the future to meet expected demand for our two main products and despite our rapid growth we have remained focused on maintaining margins to increase bottom line profitability. We remain committed to generating returns and delivering shareholder value. "  

Enquiries:

About GTS Chemical Holdings plc

GTS manufactures specialty chemicals for the paper and chemicals industry. The Group is the largest Chinese producer of ammonium sulfite, a chemical used to manufacture paper from straw. GTS has also a rapidly growing lubricant oil division which services the automotive and industrial markets. Trading in recarburizer is its third division, which accounts for less than 10% of Group revenue.

The Group is located in Shandong Province, one of the largest provinces in China, ranked by GDP, and an area rich in downstream industries. GTS' location also means it is close to several chemical plants and paper factories, which gives it a distinct advantage over its competitors.

The Company is exposed to structural growth in the paper industry and chemicals sector, and market research estimates that from 2014 to 2020, China's demand for ammonium sulfite, led by the paper industry, is set to grow at an annual compound growth rate of 12%. GTS stands to gain from the Chinese Government's support of the non-wood paper industry and its drive to restructure the lubricant oil market through increased regulation and higher standards which favour the more modern producer.

The Group has a history of strong profit growth and consistently high operating margins.

Chairman's Statement


Andrew Harding 
reports on a strong performance in 2014.

Performance

I am pleased to report an excellent performance in 2014 with both of our main business segments performing better than expected whilst demand for our products continues to grow; turnover was up by an impressive 45.9% over the previous year. Our growth continues into 2015 with turnover for the first quarter being 40.0% higher than the first quarter of 2014.

We have concentrated on implementing our strategy set out at the time of our IPO in 2014 which was to increase production capacity of our Specialty Chemicals division to meet contracted demand and to prepare for the expansion of our Lubricant Oils division as demand grew. I am pleased to say that following the acquisition of the land adjacent to our existing facilities we have commenced the implementation of our next phase of growth and expect that our production capacities will grow significantly in 2015.

Our two main divisions continue to benefit from the government backed environmental changes that are currently taking place in China. Our biggest product, ammonium sulfite, is in increasing demand as the production of paper from straw continues to grow. We believe that the increase in production of paper from straw will continue to exceed the overall increase in demand for paper in China as smaller, less environmentally friendly, producers leave the market. Our modern lubricating oils production plant is able to meet the increasingly stringent demands of regulation and the consumer at the expense of smaller less efficient and less environmentally friendly producers.

In the knowledge that we live in a changing world, we continue to seek more efficient methods of production and our in-house development team continues to refine our production processes and this year we have gained two more patents and have launched new products within our Lubricant Oils division.

Dividend

Our performance in 2014 and our confidence in the future justifies our stated intention to recommend a dividend equal to approximately 5% of the IPO issue price. Accordingly, we are recommending a dividend of 1.8p per share which will be put to shareholders for approval at the Company's AGM.

Our CEO and major Shareholder has decided to reinvest his portion of the dividend (amounting to RMB12.7m net of tax) back into the Chinese operating subsidiary by way of a 10 year loan at 3% per annum with interest being payable at the end of the term. Mr Liu's decision is welcomed by the board as it will enable us to invest and expand our operations at a faster rate than otherwise. Moreover, it underlines his commitment to the business and its success for all shareholders.

Andrew Harding

Non-Executive Chairman

27 May 2015

Group Chief Executive's Review

Cheng Liu
reports that GTS has continued to grow throughout the period.

2014 performance overview

GTS has delivered growth in turnover in excess of expectations of 45.9%.

Speciality Chemicals delivered growth of 24.4% compared with the previous year. This was driven largely by the demand from the paper industry as production of paper from straw continued to grow, supported by government initiatives.

The absolute increase in Lubricant Oils sales was 194.9%, although this is in part because 2013 did not represent a full year, as sales began only in July 2013. Comparing H2 2014 with H2 2013, a better indication of underlying growth, shows an increase of 61.3%, underlining the true strength of this division. Growth has continued into the first quarter of 2015 as we achieved a 67% increase compared to the same period last year. Given the continued growth we are expecting to invest further in this division towards the end of 2015 in order to double our capacity.

Reported growth in Recarburizer sales was 101.6%. Similarly to Lubricant Oils, sales of Recarburizer began only in July 2013. Comparing H2 2014 with H2 2013 indicates a 2% drop in sales over the period. This is consistent with our strategy that the Recarburizer division is and will remain a relatively small part of our business. Despite its relative size, the division remains profitable achieving a gross margin similar to that of our other two businesses.

Segmental sales analysis

*Commenced in July 2013

Sales of Chemicals by end customer

Speciality Chemicals

Specialty Chemicals remains our largest division representing 71.6% of total turnover. In 2014, nearly half of our sales in this division were made to the chemical industry. This has declined both in magnitude (-0.9%) and as a percentage of total division sales compared with 2013. Despite the large increase in sales to the paper industry this channel has remained at just below 30% of total divisional sales as sales to the food industry and to general distributors have also grown significantly which has compensated for the drop in sales to the chemical industry.

Sales to our largest customer, Tralin Paper grew by 50%, meeting expectations as Tralin itself progressed its own expansion. In 2014, Tralin accounted for 21.8% of total Chemicals divisional sales (2013: 18.1%). Sales to all paper companies increased by 30.7% and sales to non-paper companies increased by 21.9%. Accordingly, although Tralin remains our largest customer, growth in this segment is not entirely dependent upon them. Moreover it should be noted that at present we are the only producer of ammonium sulfite able to supply sufficient quantities of consistent quality in order to meet their needs.

Lubricant Oils

Sales in the Lubricant Oil division, which began trading in
July 2013, reached RMB 138.6 million in 2014; sales for the six months to 31 December 2013 were RMB 47 million. The division now represents 19.7% of Group revenue. The increase in sales has been driven by investing in our marketing of the Lubricant Oils division's products through an increase in the size of our marketing team, opening a sales office in Jinan, the capital of Shandong Province, and through direct advertising. As a result we have enlarged our distributor network and increased national coverage, from 18 distributors across
9 provinces at the beginning of the year to 48 covering
18 provinces by the end of 2014.

In 2014, 91.3% of the Lubricant Oils division's sales consisted of automotive oils and 8.7% of industrial oils. Approximately 80% of the sales of automotive oils are to repair workshops and the remainder to petrol stations through our distributors. As part of the process of increasing our market presence in the automotive sector we have commenced production of allied products such as anti-freeze and brake fluid, in order to be able to offer a more complete product range. Similarly, we have begun production of cutting fluid to expand our range of products to our industrial customers.

During the year, in response to customer feedback and to widen our product reach, we repositioned our Qiaoke brand, which is now targeted at the medium to low end of the market. Our Ogistar and Changyun brands continue to target the medium to high end of the market. Ogistar is our biggest seller by volume and sales of the other two main brands are broadly equal. Industrial sales and other products amounted to
676 tonnes.

In 2014, the average sales price for our premium brand, Changyun, was RMB 16,500 per tonne, for Ogistar, our mid- range brand, RMB 16,000, and for Qiaoke, which is aimed at the lower to mid end of the market RMB 14,300 per tonne. Despite the fall in the world oil price, the cost of base oil in China has remained pretty constant. Accordingly in 2014 we have not seen any significant reduction in turnover nor erosion in margins.

Recarburiser

The Recarburizer division, which also began trading in July 2013, has performed consistently, generating revenue of
RMB 61.7 million; sales for the six months to 31 December 2013 were RMB 31 million. The distributor network has also been expanded, from 11 distributors across 6 provinces at the beginning of the year to 17 distributors in 7 provinces by the end of 2014. Sales in the second half of 2014 were roughly equal to the sales in the second half of 2013. This is consistent with our strategy to keep the Recarburizer Division as a relatively modest part of the Group's activities although we have seen modest growth in the first quarter of 2015.

Gross profit and margins

Gross profit for the year increased by 45.2% to RMB 148.7 million from RMB 102.4 million in 2013.

Whilst overall gross margin has decreased slightly year on year to 21.1% from 21.2%, it has increased slightly in the Specialty Chemicals division and decreased in the Lubricant Oils and Recarburizer divisions.

The gross margin that we are achieving in the Lubricant Oil division has stabilised now that the business has begun to mature and we expect that the margin will remain fairly constant in the short term. In particular during 2014 repositioning of our Qiaoke brand had an impact upon gross margin.

The gross margin for the Recarburizer division has also stabilised since its introduction in 2013. We foresee slight further fall in the margins may happen for this division, however small fluctuations are immaterial to the overall results of the group.

Costs

Expenses increased at a slightly faster rate than revenue mainly due to labour cost increases, largely resulting from the enlarged Lubricant Oils sales team. Additional expenses related to the company's listed status such as fees to non-executive directors and professional advisers.

Seasonality

In general, none of our businesses are subject to seasonal demand other than the impact of Chinese New Year, which is common to most businesses. Chinese New Year has an impact upon sales in the run up to New Year, but has most impact upon the results for Q1 each year. The chart below shows sales by quarter since Q1 2014.

Cash Flow

Net cash generated from operations

Net cash generated from operations fell by RMB 22.5 million from RMB 48.2 million to RMB 25.7 million in 2013 largely as a result of an increase in trade receivables and a decrease in trade and other payables. Trade receivables actually increased by 11.6% compared with our growth in turnover of 45.8% which highlights the efforts that we have undertaken to ensure that our debtors are closely monitored.

Trade payables and notes payable should be considered together as they both represent payment for goods and services. The overall amount has decreased by RMB 28 million as a result of a decision to support our suppliers through earlier payment and from an increasing reluctance of our suppliers to accept notes payable. This reduction in the creditor base has had a one off impact in 2014 and we do not expect any further reduction in the terms upon which we pay our suppliers.

Cash flow for other taxes payable included payment of personal income tax withheld of RMB 21.8m related to the dividend payment (RMB 109m) which was one off transaction relating to the restructuring and was not related to the purchase of goods and services.

Interest

The increase in interest paid reflects an increase in the average level of borrowing in the period, although we remain a lightly geared company.

Financing

Net cash from financing was RMB 11.8 million. This is best analysed in three parts: net funds raised during the IPO process, the net dividend paid in order to effect the restructuring required in order to prepare for the IPO and an increase in bank debt.

Investment

Our total investment activities in 2014 amounted to
RMB 33 million. This consisted of the purchase of the land use right for RMB 20 million (classified as an intangible asset), the construction of one new Specialty Chemicals production line and upgrade of two production lines, plus building up
one wasted sulfur warehouse.

In April 2014, the Group invested RMB 4.9 million in an additional liquid ammonium sulfite and liquid ammonium bisulfite production line, increasing capacity by 25% from 240,000 tonnes per year to 300,000 tonnes per year, based on an eight hour shift. Additional ancillary facilities, including a sulphur warehouse, were also constructed. Furthermore two of the existing liquid ammonium sulfite and liquid ammonium sulfite production lines were upgraded between December 2013 and February 2014, enabling GTS to produce higher quality chemicals on these lines.

In December 2014, the group acquired 51,333 square meters (c.5.1 hectares or c.77 mu) of land which is directly opposite the existing site. The land is designated for industrial usage, and the land use right granted for a period of 50 years. The increased production area will enable the company to expand significantly its production of specialty chemicals and lubricating oils.

Dividend

The Group is committed to its dividend policy of a yield of approximately 5% per annum, as stated in the Company's AIM admission document.

The Board intends to recommend to shareholders, for approval at the AGM that a dividend of 1.8 pence (GBP) per share be paid for the full year. The proposed dividend represents a 5% annual yield on the listing price of the Company's shares of £0.36 and is in line with the indication made in the AIM admission document.

Outlook

The outlook for our core business segments is strong. Growth in Specialty Chemicals continues to be underpinned by our contract with Tralin Paper, which is continuing with its own expansion plans, and by the expansion of other customer networks. With the continuous improvement of product quality and brand awareness, sales of specialty chemicals to other sectors continued to grow, in particular to the food and pharmaceutical industries.

We also expect the growth in Lubricant Oils sales to continue to rise as we increase our distributor network and brand recognition. With the building up of more experienced staff and geographic coverage, the Lubricant Oils division will contribute more to both of revenue and profit.

We intend to continue to expand our production facilities, during 2015 we intend to commence construction of a lubricating oil production line on the newly acquired land, as well as expanding our specialty chemicals facilities on the existing site.

I would like to thank our Board of Directors, our employees and our shareholders for their support throughout the year. All involved with the company can reflect with pride on 2014, we have achieved a successful AIM listing and delivered the commitments made to investors. We look forward to updating our shareholders on progress during 2015.

Cheng Liu

Group Chief Executive

Consolidated and Company Statement of Comprehensive Income

For the period ended 31 December 2014

Consolidated and Company Statement of Financial Position

As at 31 December 2014

Consolidated and Company Statement of Changes in Equity

For the period ended 31 December 2014

Consolidated and Company Statement of Cash Flows

For the period ended 31 December 2014