Friday, April 1, 2011

CHINA: China Shanshui Cement Announces 2010 Annual Results



China Shanshui Cement Group Limited ("Shanshui Cement" or the "Group", HKEx: 00691), the largest cement enterprise in Shandong and Liaoning Provinces in China, announced its audited annual results for the 12 months ended 31 December 2010, prepared in accordance with International Financial Reporting Standards.

In 2010, the Group's revenue grew by 35.8% year on year to RMB11,854 million. Gross profit increased by 43.2% year on year to RMB2,550 million. Profit attributable to equity holders of the Company achieved substantial year-on-year growth of 39.6% to RMB979 million. Basic earnings per share reached RMB0.35 (2009:RMB0.25). The Board recommended the payment of a final dividend of 14.5 HK cents per share for the year ended 31 December 2010.

Mr. Zhang Caikui, Chairman of Shanshui Cement, said, "We have adopted aggressive marketing strategies to seize the opportunity brought by the PRC government's policy of boosting domestic demands as well as conserving energy and reducing emission. This has translated to encouraging results in 2010 with sales, revenue and net profit all attaining record highs. We have been expanding our cement production capacity through building new production lines and reorganizing acquired enterprises. While we are enlarging our coverage of the cement market in Shandong and Liaoning provinces, our endeavour in establishing the market presence in areas such as Inner Mongolia, Shanxi and Xinjiang appeared to achieve initial success, thus enabling the Group to realise leaping growth."

In view of the ideal market presence of the Group, the phasing-out of obsolete cement capacity, and the increasing demand for cement driven by the nationwide development of infrastructure and the property industry, the Group's cement sales volume grew 33.8% year-on-year to 39.32 million tonnes in 2010. Sales revenue from cement rose by 40.4% year-on-year to RMB9,275 million, accounting for 78.2% of the Group's total revenue. Clinker sales volume increased by 16.9% year-on-year to 9.84 million tonnes with its sales revenue increased by 22.9% year-on-year to RMB1,941 million, representing 16.4% of the Group's total revenue. Due to the strong demand for high-quality cement by government infrastructure projects, sales of high-grade cement increased by 47.0% year-on-year to 21.83 million tonnes, representing 55.5% of the Group's total sales volume of cement (2009: 50.5%).

The Group's sales revenue in 2010 was principally derived from the customers in Shandong which accounted for 82.2% of the Group's total sales revenue and amounted to RMB9,744 million, with a year-on-year rise of 29.7%. 17.7% of the Group's total sales revenue came from operations in Northeastern China which amounted to RMB2,104 million, an increase of 72.9% compared with 2009. The business in Shanxi began operation in 2010 and recorded revenue of RMB6.23 million. With new projects in Shanxi put into operation continuously, the contribution of Shanxi operations to the Group's sales revenue is expected to increase. The average selling price of cement in Shandong was RMB238.0 per tonne, an increase of 7.5% over 2009, whereas that in Northeastern China and Shanxi were RMB226.2per tonne and RMB314.9 per tonne respectively.

Through integration and cooperation with cement companies, and operation of new cement projects, the Group actively expanded its presence in Inner Mongolia, Shanxi and Xinjiang during the year. The Group entered into Cooperation Framework Agreement and Equity Acquisition Framework Agreement in May 2010 and August 2010 respectively with Chifeng Yuanhang Cement Company Limited ("Chifeng Yuanhang"), pursuant to which Shandong Shanshui agreed to acquire an aggregate of not less than 80% equity interest in the Chifeng Yuanhang new company in two stages. The first stage, involving the acquisition of 50% equity interest in the new company, has been completed. In November 2010, the Group entered into a Memorandum of Understanding with Asia Cement Corporation and Asia Cement (China) Holdings Corporation indicating its intention to pursue business cooperation in the regions of Liaoning and Inner Mongolia, and from the tie-up, to generate synergies that benefit its cement business. In addition, the new clinker projects in Shanxi and Kashi of Xinjiang have been operating smoothly.

During the year, the new production capacity of cement and clinker (including the production lines under trial operation) reached 18.20 million tonnes and 5.76 million tonnes respectively. As of 31 December 2010, the Group had a total production capacity (including the production lines under trial operation) of 66.54 million tonnes of cement and 30.95 million tonnes of clinker, as well as 151 MW of installed residual heat power capacity. According to geographical locations, the Group's production capacity in Shandong reached 48.14 million tonnes of cement and 22.05 million tonnes of clinker, while its capacity in Northeastern China reached 17.40 million tonnes of cement and 8.90 million tonnes of clinker. Moreover, the capacity of its cement operation in Shanxi reached 1 million tonnes.

As for costs and expenses control, the Group has managed to reduce the purchase cost of raw materials thanks to the further standardized procurement procedure and the use of alternative raw materials through technology innovation. As a result, the proportion of raw materials to revenue was down by 2.2 percentage points to 21.7%. Although the average unit purchase price of coal in 2010 increased substantially over 2009, the Group's unit coal consumption recorded a decrease due to the notable effect of the Group's technological transformation and the use of higher grade coal. As a result, the proportion of coal costs to sales revenue showed a relatively smaller increase compared to the increase in purchase price of coal. In 2010, the output of residual heat power generation increased by 27.8% to 914 million KWH, reducing the clinker cost by RMB346.59 million. In addition, the proportions of sales and marketing expenses as well as that of financial costs to sales revenue all recorded declines.

Looking ahead, Mr. Zhang said, "2011 is the first year of the 12th Five-Year Plan and the Central Government has clearly stated its intention to build a well-off society as well as support the construction of affordable homes, water facilities, agricultural infrastructure and public facilities. This has presented valuable growth opportunities rarely seen in history for us. We, therefore, are making active efforts to perfect our market presence in Shandong and Liaoning Provinces as well as accelerate our expansion in Shanxi, Inner Mongolia and Xinjiang and their surrounding provinces, in order to achieve the goal of increasing cement production capacity to 80 million tonnes by the end of 2011. We also plan to extend our cement business chain to concrete and aggregate production, aiming to create a new growth driver for the Group."

About China Shanshui Cement Group Limited("Shanshui Cement")

Shanshui Cement is the largest producer of cement in Shandong and Liaoning Provinces and ranks among the top three cement producers in China. The Group operates production lines and cement grinding lines that adopt the most advanced suspension pre-heater dry process. The Group will continue to expand its business through acquisitions and expansion of its production lines. As of 31 December 2010, the Group's total production capacity of cement and clinker reached 66.54 million tonnes and 30.95 million tonnes respectively, and its total installed residual heat capacity was 151 MW. Shanshui Cement is one of the constituent stocks of the Hang Seng Composite Index, Hang Seng Composite Midcap Index and Hang Seng Composite Industry Index - Properties and Construction. Moreover, it has been added to MSCI Global Standard Indices-MSCI China Index since November 2010.

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