HUAXIN CEMENT CO., LTD.
1. IMPORTANT
1.1 The Board of Directors of the Company and its members, Supervisory Committee of the Company and its members and members of Senior Management confirm that there is no false or misleading statement or material omission in this report and shall be severally and jointly liable for the truthfulness, accuracy and completeness of its contents.
This Annual Report Abstract is extracted from the Annual Report. The Annual Report is disclosed at If investors want to know the detailed information, please refer to the full text of the Annual Report.
1.2 Director Mr. Roland Kohler did not attend the Meeting due to the fact that he had other commitments and authorized Director Mr. Ian Thackwray to attend and exercise voting rights on his behalf.
1.3 PricewaterhouseCoopers Zhong Tian CPAs Limited Company issued standard audit reports with unmodified opinion for the Company.
1.4 Chairman of the Company Mr. Chen Musen, CEO Mr. Li Yeqing, CFO Ms. Kong Lingling, and Chief of Financial Department Mr. Wu Xin declare and confirm that the Financial Statements contained in the Annual Report are true and complete.
2. General information
2.1. General
Share abbreviation / Huaxin CementShare code / 600801
Place of listing / Shanghai Stock Exchange
Share abbreviation / Huaxin B share
Share code / 900933
Place of listing / Shanghai Stock Exchange
2.2. Contact
Secretary to the Board / Securities affairs representativeName / Mr. Wang Ximing / Ms. Wang Lu
Contact address / 5# Building, International Enterprise Centre, Special No.1 Guanggu Avenue, Wuhan City, Hubei Province
Tel / (027) 87773896 / (027) 87773898
Fax / (027)87773962 / (027)87773962
E-mail / /
3. Financial Highlights and indicators
3.1 Financial highlights
Unit: Yuan
Item / 2011 / 2010 / Change over last year (%) / 2009After change / Before change / After change / Before change
Income from operations / 12,638,039,183 / 8,469,426,137 / 49.22 / 6,906,329,407
Operating profit / 1,430,656,577 / 691,185,800 / 106.99 / 625,671,079
Total profit / 1,609,721,806 / 831,219,326 / 93.66 / 716,595,151
Net profit attributable to the shareholders / 1,075,268,489 / 572,579,103 / 87.79 / 500,507,612
Net profit attributable to the shareholders after extraordinary items / 1,022,756,664 / 471,999,817 / 116.69 / 449,706,556
Net cash flow from operating activities / 1,886,330,982 / 1,539,997,172 / 22.49 / 1,494,400,484
2011 End / 2010 End / Change over last year (%) / 2009 End
After change / Before change / After change / Before change
Total assets / 21,729,678,063 / 17,812,222,066 / 21.99 / 14,584,162,700
Total liability / 13,146,265,563 / 12,164,073,920 / 8.07 / 9,196,157,574
Equity attributable to the shareholders of the Company / 7,759,976,865 / 5,024,651,015 / 54.44 / 4,554,940,674
Total equity / 935,299,928 / 403,600,000 / 131.74 / 403,600,000
3.2. Major financial indicators
Unit: Yuan
Item / 2011 / 2010 / Change over last year (%) / 2009After change / Before change / After change / Before change
Basic earnings per share (Yuan/share) / 1.31 / 0.71 / 1.42 / 85.17 / 0.62 / 1.24
Diluted earnings per share (Yuan/share) / 1.31 / 0.71 / 1.42 / 85.17 / 0.62 / 1.24
Earnings per share based on the latest equity (Yuan/share) / N/A / N/A / N/A / N/A / N/A / N/A
Basic earning per share after extraordinary items (Yuan/share) / 1.25 / 0.58 / 1.17 / 115.52 / 0.56 / 1.11
Return on net assets, weighted average (%) / 19.00 / 11.99 / Increased by 7.01 percentage points / 11.62
Return on net assets after extraordinary items, weighted average (%) / 18.07 / 9.89 / Increased by 8.18 percentage points / 10.44
Net cash flow per share from operating activities (Yuan/share) / 2.02 / 3.82 / -47.20 / 3.70
2011 End / 2010 End / Change over last year (%) / 2009 End
After change / Before change / After change / Before change
Net assets per share attributable to the shareholders (Yuan/share) / 8.30 / 12.45 / -33.36 / 11.29
Assets debt ratio（%） / 60.50 / 68.29 / Reduced by 11.41 percentage points / 63.06
Note: During the reporting period, the Company implemented the Profit Distribution and Stock Split Plan 2010. The total share capital of the Company increased from 403,600,000 to 807,200,000. Earnings per share, diluted earnings per share and basic earnings per share after extraordinary items for 2010 and 2009 were listed according to the latest total share capital -- 807,200,000.
3.3 Non-routine items
Applicable Not Applicable
Unit: Yuan
Non-routine items / 2011Amount / Remarks / 2010
Amount / 2009
Amount
Gains from disposal of non-current assets / -6,295,016 / Mainly are the gains from disposal of fixed assets / -3,732,325 / -2,135,244
Government subsidies, excluding regular fixed amount government subsidies / 101,389,960 / Mainly are the financial subsidies from local governments / 67,839,359 / 69,801,703
Reversal of provisions for assets impairment of accounts / 1,027,499 / 2,192,898 / 557,497
Income from custody operation / 10,000,000
Other operating expenses / -16,063,832
Other non-operating income and expenditures / -4,303,294 / -1,499,714 / -2,003,312
Investment income from disposal of a subsidiary / 53,744,954
Damages received from M&A projects / 19,275,934
Impacts from income tax / -14,165,779 / -31,990,889 / -15,194,394
Impacts from minority shareholders’ interests (after tax) / -9,077,713 / -5,250,931 / -10,225,194
Total / 52,511,825 / 100,579,286 / 50,801,056
4. Changes in Share Capital and Shareholders
4.1 Number of Shareholders and Share Holding
Unit: Share
Total numbers of shareholders at the end of reporting period / 54,832Total numbers of shareholders at the end of the month of the issuance day of the Annual Report / 53,628
Top ten shareholders and listed-share holders
Names of Shareholders / Shareholder type / % / Total Shares hold / Change during the reporting period / Shares subject to conditional sales / Mortgage or frozen
Holchin B.V. / Foreign corporation / 39.88 / 373,010,636 / 212,049,336 / 51,088,036
State-owned Shares (held by Huaxin Group Co., Ltd.) / State / 13.74 / 128,501,296 / 49,250,648 / 47,000,000
mortgaged
GAOLING FUND, L.P. / Unknown / 5.50 / 51,412,622 / 31,192,275 /
Ningbo Qingchun Investment Co., Ltd. / Unknown / 3.06 / 28,593,718 / 28,593,718 / 28,593,718
Huaxin Group Co., Ltd. / State Corporation / 1.87 / 17,452,464 / 9,870,232 /
UBS AG / Unknown / 1.76 / 16,441,336 / 16,441,336 /
SPD – Guangfa Stable Growth Securities Investment Fund / Unknown / 1.28 / 12,004,951 / 12,004,951 /
Jiangsu Winfast Investment Holding Group Co., Ltd. / Unknown / 1.15 / 10,713,775 / 10,713,775 / 10,713,775 / 8,700,000
mortgaged
Taikang Asset Management Co., Ltd. / Unknown / 1.11 / 10,345,610 / 10,345,610 / 10,345,610
ABERDEEN GLOBAL-CHINESE EQUITY FUND / Unknown / 1.09 / 10,172,874 / 5,563,077 /
Top ten holders of shares not subject to conditional sales
Names of Shareholders / Numberof Shares / Typeof Share
Holchin B.V. / 150,400,000 / RMB ordinary shares
171,522,600 / Domestic listed foreign investment shares
State-owned Shares (held by Huaxin Group Co., Ltd.) / 128,501,296 / RMB ordinary shares
GAOLING FUND,L.P. / 51,412,622 / Domestic listed foreign investment shares
Huaxin Group Co., Ltd. / 17,452,464 / RMB ordinary shares
UBS AG / 16,441,336 / Domestic listed foreign investment shares
SPD – Guangfa Growth Stock Investment Fund / 12,004,951 / RMB ordinary shares
ABERDEEN GLOBAL -- CHINESE EQUITY FUND / 10,172,874 / Domestic listed foreign investment shares
Agricultural Bank of China -- Franklin Templeton Sealand Elastic Market Value Stock Investment Fund / 7,581,647 / RMB ordinary shares
International Finance -- HSBC -- JPMORGAN CHASE BANK, NATIONAL ASSOCIATION / 6,623,854 / RMB ordinary shares
ICBC – Guangfa Stable Growth Securities Investment Fund / 5,617,589 / RMB ordinary shares
Remarks on relationship or concerted actions of the above shareholders / 1. Holpac Limited entrusted UBS AG to acquire16,261,336 B shares of theCompany. Holpac Limited is the party act in concert with Holchin B.V.
2. Huaxin Group Co., Ltd. held state shares on behalf of the State.
3. It is unknown to the Company whether there is any relationship among the shareholders or any concerted persons referred in the “Administrative Measures of Disclosing Changes in Shareholding for Listed Companies”.
4.2 Ownership and controlling relationship between the Company and the largest shareholder
Holcim Ltd. Switzerland100% / 100%
Holderfin B.V.
the Netherlands / Holpac Limited
100%
Holchin B.V.
the Netherlands / 1.76%
39.88%
Huaxin Cement Co., Ltd.
5. Directors' report
5.1 Discussion and Analysis of the Management
1. Review of the Company’s Operations during the Reporting period
(1)Overall Operations during the Reporting period
In 2011, the Chinese economy maintained a steady, rapid development by seeking a balance between price control, steady growth and structural readjustment. At the same time, the economic growth gradually landed. According to the preliminary analysis by the National Bureau of Statistics, the GDP of 2011 realized a 9.2% year-on-year growth and the FAI realized a 23.6% year-on-year growth.
In 2011, China’s cement industry maintained a rapid development, becoming one of the few domestic industries that were less impacted by the domestic macroeconomic regulatory policies. In 2011, cement production came to 2.09 billion tons, representing a 10.8% year-on-year increase (Source of statistics: National Bureau of Statistics). Profit of big players in cement industry came to a historical high of RMB 102 billion. Fixed investment in the cement industry came to RMB 143.9 billion on the national level. Newly increased or designed capacity of cement clinker was 202 million tons. In 2011, the economic situation of China’s cement industry was better than expectations for the following two reasons: 1) the growth of FAI still maintained at a high level, pushing the increase in cement demand; 2) the increasing integration within the cement industry and the gradual rationalization of industry competition helped maintain the cement price at a high level (Take the price of P.O 42.5 bulk cement for example, in 2011, the price across 31 provincial capital cities was higher than that of 2010 (by RMB 33/ton). (Source of statistics: China Cement Association -- Digital Cement)
In 2011, the Company’s operation hit another historical high due to capacity expansion and the rise in average price. The Company’s overall strength and competitiveness further grew. In 2011, the Company realized 42.28 million tons (according to internal statistics) in total sales of cement and clinker, representing a 21.63% year-on-year growth; and sales proceeds came to RMB 12.638 billion, representing a 49.22% year-on-year increase. Total profit came to RMB 1.609 billion, and net profit attributable to shareholders of the Parent Company came to RMB 1.075 billion, representing a year-on-year increase of 93.66% and 87.79% respectively.
In 2011, the Company pressed ahead with management reforms and upgraded management behaviour. In order to be adapted to the new situation and development trend, the Company readjusted its strategic thinking at a proper time. In the aspect of organizational management, a corporate management system headed by the special departments of the Headquarters was instituted to realize role division and complementation of departmental roles. In the aspect of operation management, four Business Units (BU), e.g. Cement, Environmental Protection, RMX & AGG and Equipment & Engineering, were defined. Also, a Business Unit (regional) routine operation management system was established. Each Business Unit was pillared by the BU general manager and complemented by technical managers of different disciplines at different levels. In the aspect of management behaviour improvement, the Company instituted a three-hierarchy superintendence system (Company-Business Unit (Regional)-Plant) to induce the management to “assume responsibilities accordingly” and develop a sense of “external orientation”, thereby improving management efficiency and reinforcing executive ability.
Cement Business:
In 2011, the Company’s cement business exhibited an overall trend which first climbed and then dropped. In the first half of the year, the average price of cement was maintained at high levels and profitability also climbed substantially on a year-on-year basis. After the Central Government deepened economic structure readjustment and proceeded with the tight monetary policy in the second half of the year, the cement price gradually fell month by month and demand also dropped even in the peak season.
During the reporting period, the Company continued to develop differentiation competitiveness by focusing on customer values and operation innovation. The Company invested great efforts in encouraging rational competition and mutual-development among cement manufacturers. The Company actively promoted the coordination of cement and concrete. In the major/core market (Hubei) and regional markets including Hunan and Tibet, the cement price was maintained at relatively rational levels. Meanwhile, the Company implemented the concept of external orientation to “assist the clients to succeed”. While focusing on the “customer value management” program, the Company implemented more than 10 supporting programs (e.g. informatization of customer relations management and standardization of logistics & delivery). Therefore, a strategic cooperative partnership between the Company and major clients were formed to lay an important “client” foundation for the Company’s sustainable and steady development in the future.
In 2011, the Company’s cement business realized further development. During the reporting period, the Company put the Jinghong 2000 t/d cement and clinker production line into commissioning; a series of WHPG projects (e.g. Wanyuan 7MW, Enshi 3.6MW and Yunxian 9MW) were connected to the state power grid and commenced power generation. The Company also completed the acquisition of two cement plants (Hubei Jinlong Cement Co., Ltd. and Hunan Sangzhi Project). Besides, the Tajikistan project, implemented in 2011, became the Company’s first overseas project as part of its overseas development strategy as well as an important project that marked the march of the Chinese cement enterprises on the international markets.
Environmental Protection Business:
The year 2011 marked the first year of implementing the significant corporate strategy of “beautiful transformation” by investing more efforts in technological innovation and expediting business about environmental protection based on cement kiln co-processing technology.
During the reporting period, the Company readjusted the organizational structure of the Environmental Protection Business Unit in order to establish a functionally perfect and highly responsive new mechanism which featured clear division of responsibility. In the aspect of strategic programs, the Company formulated a strategic plan & business model which focused on giant Chinese metropolises, cities on the periphery of cement industrial estates, and municipal waste & sewage sludge pre-treatment projects. Strategic goals and steps of implementation were set to serve as a guideline for the rapid and sustainable development of the environmental protection business.
In the aspect of program development, Huaxin set a nationwide “hazard-free, resources-exploitable and localized” example in the field of municipal waste & sewage sludge pre-treatment technology through such projects as Wuxue municipal waste pre-treatment project and Huangshi sewage pre-treatment project. Meanwhile, the Company began to develop its waste disposal markets (urban municipal waste, sewage sludge and contaminated soil) in Beijing, Shanghai and other Chinese megacities. Besides, by developing and expanding the municipal waste & sewage sludge pre-treatment projects in Wuhan “1+8” urban economic circle, Yichang, Xiangyang, Shiyan, Changsha – Zhuzhou - Xiangtan (Hunan), Chenzhou (Hunan) and Fuling (Chongqing), the Company also laid a sound foundation for rapidly seizing the renewable resources of cities on the periphery of cement industrial estates.
In the aspect of technological innovation, the Company established six co-processing technology platforms for treatment of municipal waste, sewage sludge, waterborne waste, industrial waste, hazardous waste and polluted soil respectively. The Company also filed for patents for 40 national-level inventions and new utilitarian technologies, 21 of which were already granted patents. Among these patented technologies, the technology of waterborne waste co-processing in cement kilns was listed by the Ministry of Science and Technology as one of the Exemplary Key Projects in the 11th Five-Year Plan Period, and won the 1st Prize for Corporate Technological Development awarded by China Building Materials Federation. Also, municipal waste pre-treatment & co-processing in cement kilns and waterborne waste co-processing in cement kilns were assessed by the Hubei Provincial Dept. of Science and Technology as a Provincial-level Key Technological Application.
RMX & AGG Business:
During the reporting period, the Company redefined and repositioned its operation and development strategy for Concrete. As for the vertical integration strategy of the Company, the RMX & AGG Business Unit realized the synergy effect with the Cement Business Unit. The great competitiveness of the concrete business at the end-user market not only effectively helped to protect the cement sales channel but also create opportunities for corporate development.
By the end of 2011, the Company realized a capacity growth of 4.2 million cubic meters in concrete production, thereby totalling a concrete capacity of over 10 million cubic meters. The aggregate business focused on production bases in Yangxin and Wuxue and expanded into places of aggregate supply around big riverside cities as supplemental sources. By the end of 2011, the Company had a total capacity of 3.75 million tons of aggregate.
As for operation, the Company intensified investment in R&D, thereby inventing a series of world-leading concrete products, such as water-permeable concrete, self-compacting concrete and high-strength concrete. These inventions contributed to the Company’s competitiveness and market adaptability in the field of concrete operation.
Equipment & Engineering Business:
In 2011, the newly instituted Equipment & Engineering Business Unit set two strategic goals: “providing technological & equipment support for the sustainable development of the Company’s cement and environment protection businesses” and “developing the external market as a new profit growth pole of the Company”. The Company’s operations expansion strategy took an encouraging new step.
As for equipment & engineering, the Company completed 19 design projects for equipment of new specifications, 3 technological improvement projects, and 6 technical support & service projects in 2011 as regards the following cement technologies: rotary kiln, vertical mill, ball mill, cooler, bucket elevator and environmental equipment. In the field of expansion into foreign project markets, the Company successfully signed the Meide (Vietnam) 4000t/d project turnkey contract & cooperation agreement. In the field of foreign equipment market expansion, the Company also made breakthroughs, represented by 26 project contracts signed with Qiqihar Mengxi New Energy-Saving Construction Materials Co., Ltd., Yichang Dongyangguang Thermal Power Generation Co., Ltd., etc. These equipment-related contracts totalled a deal of over RMB 700 million.
(2) Key Products and Market Share
In 2011, the Company sold 17,390 k tons of cement in Hubei, achieving a market share of 20.8%; 1,160 k tons in Jiangsu (a market share of 0.9%); 790 k tons in Tibet (a market share of 27.1%); 4,320 k tons in Hunan (a market share of 4.8%); 2,520 k tons in Yunnan (a market share of 4.2%); 2,920 k tons in Chongqing (a market share of 6.0%); 1,360 k tons in Henan (a market share of 1.1%); 2,090 k tons in Sichuan (a market share of 1.6%); 890 k tons in Shanghai (a market share of 3.7%) -- according to internal statistics.
(3) Key suppliers and clients
Total procurement value from the top 5 suppliers was 1,255,057,106 Yuan, representing 14.4% of the total procurement value in 2011; total sales income from the top 5 clients was 730,668,732 Yuan, representing 5.8% of the Company’s total sales income in 2010.
(4) Changes of Assets Structure during the Reporting period
Unit: Yuan
Item / End of the reporting period / Beginning of the reporting period / Change / Main reasonsCash at bank and in hand / 2,825,437,202 / 1,803,483,438 / 57% / Increase in cash was due to the good sale performance this year and the additional fund raising in November.
Notes receivable / 1,152,454,185 / 300,576,976 / 283% / Increase in notes receivable was due to the good sales performance this year. Besides, more settlement with notes receivable and flexible collection policy was adopted in order to stimulate the sales.
Accounts receivable / 611,160,181 / 369,517,986 / 65% / Increase in accounts receivable was consistent with the trend in sales.
Advances to suppliers / 77,815,141 / 54,083,509 / 44% / Increase in advances to suppliers was due to the more purchase for raw materials in current year.
Other receivables / 148,938,461 / 322,047,206 / -54% / Decrease in other receivables was due to the receipt of the remaining consideration from the disposal of a subsidiary.
Inventories / 1,080,981,439 / 863,890,087 / 25% / Increase in inventory was due to the expansion of the Group and the growing costs of raw materials.
Other current assets / 157,309,135 / 240,181,911 / -35% / Decrease in other current assets was due to the decrease in deductible input VAT, as some subsidiaries began the normal operation in 2011.
Long-term receivables / 10,645,951 / 15,288,338 / -30% / Decrease in long-term receivables was due to the transfer from long-term receivables to current assets.
Fixed assets / 12,431,758,878 / 10,901,849,595 / 14% / Increase in fixed assets was mainly due to the completion of construction and cogeneration projects.
Intangible assets / 1,676,653,352 / 1,463,040,137 / 15% / Increase in intangible assets was mainly due to the increase in land use rights and computer software.
Goodwill / 111,154,844 / 9,469,146 / 1074% / Increase in goodwill was mainly from the acquisitions of subsidiaries this year.
Deferred income tax assets / 108,547,828 / 82,225,029 / 32% / Increase in deferred tax assets was due to the recognition of deductible loss and temporary expenses difference.
Short-term borrowings / 997,950,000 / 613,000,000 / 63% / Increase in short-term borrowings was mainly due to the expansion of Group and growing demand for operating capitals.
Notes payable / 32,503,263 / 328,981,280 / -90% / Decrease in notes payable was mainly due to the requirement by suppliers to settle the purchase in cash.
Accounts payable / 2,428,714,288 / 1,980,472,613 / 23% / Increase in accounts payable was mainly due to the increase in purchase of raw materials and the growing costs of raw materials.
Advances from customer / 404,466,765 / 203,316,760 / 99% / Increase in advances from customer was mainly due to the expansion of the Group and increase in sales.
Employee benefits payable / 143,977,781 / 101,706,960 / 42% / Increase in employee benefits payable was mainly due to the good performance in 2011 and the increase in bonus and salary incentives thereof.
Current portion of non-current liabilities / 2,693,349,474 / 1,247,155,712 / 116% / Increase in current portion of non-current liabilities was mainly due to the increase in current portion of long-term borrowings.
Long-term borrowings / 4,222,803,436 / 5,633,179,423 / -25% / Decrease in long-term borrowings was mainly due to the repayment and transfer of long-term borrowings to current portion of non-current liabilities.
Long-term payables / 142,986,042 / 32,499,339 / 340% / Increase in long-term payables was mainly due to the business of finance leasing in 2011.
Payables for specific projects / 10,700,000 / -100% / Decrease in payables for specific projects was mainly due to the transfer out for the completion of the energy-saving technology reforming projects.
Differed income tax liabilities / 52,451,338 / 12,955,394 / 305% / Increase in differed income tax liabilities was mainly due to the recognition of appreciation in long term assets from the business combination not under common control.
Other non-current liabilities / 107,852,021 / 51,940,575 / 108% / Increase in other non-current liabilities was mainly due to the government grant received for energy-saving & emission-cutting projects.
Share capital / 935,299,928 / 403,600,000 / 132% / Increase in share capital was mainly due to additional fund raising and the transfer from capital surplus in the current year.
Capital surplus / 3,520,784,820 / 2,310,740,640 / 52% / Increase in capital surplus was mainly due to the share premium from additional fund raising in the current year.
Retained earnings / 2,983,725,288 / 2,046,075,164 / 46% / Increase in retained earnings was mainly due to the increase of profits this year.
Minority interests / 823,435,635 / 623,497,131 / 32% / Increase in minority interests was mainly due to the increase in profits attributable to the minority shareholders.
(5) Changes of Profit Structure of the Company during the ReportingPeriod